25 August 2011
A recent decision by the Administrative Appeals Tribunal held certain activities performed by a taxpayer did not constitute carrying on an enterprise and the expenses incurred were not those incurred in commencing the business.
The activities carried on by the taxpayer were merely preparatory in nature before actual commencement of the enterprise and therefore input tax credits were not available in relation to these activities.
Prior to operating its business of running educational courses, the taxpayer acquired interests in land in order to convert them into an educational facility and accommodation centre. In making these acquisitions, the taxpayer claimed input tax credits in relation to these activities. Upon auditing the affairs of the taxpayer, the Commissioner disallowed the input tax credits on the basis that the client was not yet carrying on an enterprise.
The Commissioner’s decision was upheld by the Tribunal on the basis that the taxpayer’s activities merely amounted to preparing for commencement of business activities and not actual commencement activities. The Tribunal held that despite there being an intention to carry on business activities, at the time of claiming the input tax credits, there was a lack of commercial character.
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