Australia: Guidance on reduced input tax credit claims
ATO guidance setting out how it will review complex information technology outsourcing arrangements in financial services sector
April 12, 2024
The Australian Taxation Office (ATO) published guidance setting out how it will review complex information technology (IT) outsourcing arrangements in the financial services sector and how it expects taxpayers to support their claims for reduced input tax credits (RITCs).
The guidance indicates that the ATO will consider during a review:
- The nature of the acquisitions of “IT processing services” for which RITCs are being claimed, and whether they are acquisitions of processing OR acquisitions of IT capacity (no RITC).
- Whether all parts of the acquisition of processing services qualify for RITCs, or whether some parts of the acquisition should be excluded from RITC recovery.
- Applications or services that perform operational functions, but do not directly involve processing (e.g., services or applications that provide tools (such as Word or Outlook) or certain applications used for marketing that reference customer data and are used to inform a marketing or sales strategy) generally will not be eligible for a RITC but apportionment will be relevant.
- Services acquired to support operational functions or relate to the general IT environment that do not serve an operational function themselves, will not be eligible for a RITC but apportionment will be relevant.
- How any apportionment between RITC eligible and ineligible acquisitions is performed and whether this is reasonable, and whether there are documented processes to regularly review the methodology.
- Whether general apportionment is applied to outsourced IT service agreements and how this is determined.