Australia: Overhead costs apportioned to GST-free supplies entitled to input tax credits (Full Federal Court decision)

A Full Federal Court decision concerning whether overhead costs apportioned to GST-free supplies was entitled to input tax credits.

Overhead costs apportioned to GST-free supplies entitled to input tax credits

The Full Federal Court confirmed an earlier decision of the court holding that the taxpayer was entitled to input tax credits under the goods and services tax (GST) Act for overhead costs apportioned to certain GST-free supplies. Read TaxNewsFlash

The taxpayer’s business activities consisted of making supplies and “acquisition-supplies” associated with life insurance, life reinsurance, and retrocession. 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 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.

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