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Capital raising costs – the wrong side of the mirror?


Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) grants registered businesses relief for the input tax cost of their business purchases. Relief is, however, not available for the costs of purchases which are related to making input taxed supplies, including “financial supplies”. The provision of an interest in or under a security is a financial supply. A security is defined to include a share in a company.

The Commissioner of Taxation has taken the view that, when a company raises capital by issuing shares in itself for subscription, the issuing of shares is a financial supply. This means that costs of acquisitions related to the share issue, such as share registry costs and the costs of underwriting the issue, do not qualify for input tax relief. In this paper, the author examines capital raising and the concept of input relief for associated costs, to discern whether the Commissioner has misunderstood some fundamentals of the operation of a valueadded tax and the modern approach to interpretation of the GST law that is required by the High Court.

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Author Photo - Michael Evans CTA
Michael Evans CTA
Michael is a Senior Fellow of the University of Melbourne where he conducts GST principles subject in the university’s Masters level tax courses. Michael works as a sole practitioner providing tax design and legislation advice to Governments both inside and outside of Australia. Michael served more than 20 years as a Partner of KPMG specialising in both direct and indirect taxes, retiring from the partnership in December 2009. Prior to his KPMG career he worked with the ATO for 17 years during which time he was part of the legislative design team for the NZ and Australian GST and the Australian imputation reforms of company tax. Current at 10 February 2016 Click here to expand/collapse more articles by Michael B EVANS.
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