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  • 1.18 If a recipient accounts for GST on a cash basis, how does the recipient calculate entitlement to input tax credits where the hire purchase agreement is for the acquisition of a car that is subject to the car input tax credit limit under section 69-10 of the GST Act?

    Please note that we are currently updating this issue in this document to reflect recent amendments to the financial supply provisions of the goods and services tax law from 1 July 2012.

    This issue is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953.

    A recipient that accounts for GST on a cash basis will be entitled to input tax credits to the extent of any payments made for the acquisition during a tax period. This means that the recipient will be entitled to an input tax credit equal to GST payable on each repayment of principal made during a tax period.

    However, input tax credits can only be claimed in respect of the acquisition of the car until the car input tax credit limit imposed by section 69-10 of the GST Act is reached ($5,182 in 2002–03). No further input tax credits can be claimed once the limit is reached, notwithstanding that further repayments of principal are made under the hire purchase agreement.

    To determine the principal component of a hire purchase repayment, refer to Question 1.15. When the car is subject to luxury car tax (LCT), this amount should be excluded from the calculation of available input tax credits. The recipient will, therefore, claim input tax credits equal to 1/11th of the LCT exclusive principal component of each repayment, until the car input tax credit limit is reached.

      Last modified: 31 Oct 2017QC 16359