Australia: Overhead costs apportioned to GST-free supplies entitled to input tax credits (Federal Court decision)
A Federal Court decision concerning overhead costs apportioned to GST-free supplies
A Federal Court decision concerning overhead costs apportioned to GST-free supplies
The Federal Court held that acquisitions in the form of commissions paid to a third-party with respect to a distribution and administration agreement related wholly to input supplies of life insurance policies in Australia subject to goods and services tax (GST) (rather than GST-free “acquisition-supplies” of reinsurance to a foreign parent company) and thus were not entitled to input tax credits, but that overhead costs related indifferently to all enterprise activities and thus were entitled to input tax credits to the extent apportioned to GST-free supplies. The court also found that the taxpayer’s method of apportionment for that purpose was fair and reasonable.
The case is: Hannover Life Re of Australia Ltd v. Commissioner of Taxation [2023] FCA 680 (22 June 2023)
Summary
The court found that there was no “real and substantial relationship” between the third-party commissions and the GST-free acquisition-supplies of reinsurance to a foreign parent company. However, the court found that overhead acquisition-supplies by their nature did not have the same immediacy of connection to the input taxed supplies made by the taxpayer as the commission acquisitions. Therefore, the overhead costs were creditable acquisitions to the extent that they related to GST-free supplies. The court further found that the taxpayer’s proposed apportionment methodology was fair and reasonable (subject to one amendment).
For more information, contact a KPMG tax professional in Australia:
Angelina Lagana | alagana@kpmg.com.au
Anthony Versace | aversace@kpmg.com.au
Majella Crowe | mcrowe1@kpmg.com.au
Louise Giorgini | lgiorgini1@kpmg.com.au
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