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  • Issue 7 – Input tax credits - motor vehicle issues

    Refer to ‘view history’ link in index.

    7.4 Trade-ins

    7.4.a. How are input tax credits calculated on used vehicles traded in from registered entities?

    Non-interpretative - straight application of the law.

    If the entity trading in the vehicle is a registered entity, the supply will be a taxable supply by the entity trading in the vehicle. The input tax credit for the dealer is the GST payable on the supply of the vehicle traded in.

    7.4.b. How are input tax credits calculated on used vehicles traded in from unregistered entities (or entities not required to be registered for GST) that have been acquired for purposes of sale or exchange?

    Non-interpretative - straight application of the law.

    If a dealer acquires a second-hand vehicle from an unregistered entity (or an entity not required to be registered for GST) for purposes of sale or exchange, the dealer may be entitled to an input tax credit pursuant to section 66-10 of the GST Act. If the consideration for the acquisition is more than $300, the dealer can only claim an input tax credit at the time the vehicle is subsequently sold, provided the sale is a taxable supply. The input tax credit is the lesser of:

    • 1/11th of the amount the dealer paid for the car, or
    • the amount of the GST payable when the vehicle is subsequently sold.

    7.4.c. Is a dealer entitled to an input tax credit on a second-hand vehicle acquired from an unregistered entity that is sold GST-free to an eligible person with a disability?

    Non-interpretative - straight application of the law.

    A dealer is not entitled to an input tax credit in these circumstances. The GST Act precludes an input tax credit if the dealer makes a supply that is not a taxable supply. The supply to an eligible person with a disability is a GST-free supply therefore the dealer is not entitled to an input tax credit.

    7.4.d. Is a dealer entitled to an input tax credit on a second-hand vehicle acquired from an unregistered entity when the subsequent supply by the dealer is a GST-free export?

    Non-interpretative - straight application of the law.

    A dealer is not entitled to an input tax credit in these circumstances. The GST Act precludes an input tax credit if the dealer acquires a second-hand vehicle from an unregistered entity and makes a supply that is not a taxable supply. Where the supply of the vehicle is a GST-free export the dealer is not entitled to an input tax credit on the acquisition.

    7.4.e. In what circumstances is a dealer entitled to claim an input tax credit for motor vehicles acquired/traded in from charities, gift deductible entities or government schools?

    Non-interpretative - straight application of the law.

    Generally, these entities will probably be GST registered entities (or required to be registered). If they make a supply of a motor vehicle to a dealer it will be a taxable supply or a GST-free supply if section 38-250 of the GST Act applies (see Note below). A dealer's entitlement to an input tax credit is outlined below:

    1. If the taxable supply is a creditable acquisition by a dealer, the dealer is entitled to claim an input tax credit, provided they obtain a tax invoice from the entity supplying the vehicle.
    2. If the supply is a GST-free non-commercial supply the dealer is not entitled to an input tax credit as the consideration for the vehicle would not include an amount for GST.
    3. For acquisitions of motor vehicles from unregistered entities see questions 7.4.b.

    Note: The GST law provides that the commercial activities of registered charities, gift-deductible entities or government schools will be taxable supplies (or input taxed). However, under section 38-250 of the GST Act, the non-commercial supplies of these entities will be GST-free. A non-commercial supply by these entities is where the consideration received is less than 50% of the GST-inclusive market value of the thing or less than 75% of the consideration the supplier provided when acquiring the thing.

    7.4.f. What are the GST implications with respect to over allowances on trade-in vehicles?

    Non-interpretative - straight application of the law.

    Where the purchase of a trade-in by a dealer from a registered entity is a creditable acquisition, the input tax credit that can be claimed by the dealer will be equal to the GST charged by the supplier.

    Where the person trading in the vehicle is not registered for GST and the dealer acquires the vehicle for purposes of sale or exchange the input tax credit will be the lesser of:

    • 1/11th of the consideration provided (the amount allowed for the trade-in), or
    • the amount of the GST payable when the vehicle is sold by the dealer

    provided the subsequent supply of the vehicle by the dealer is a taxable supply.

    7.5 Input tax credits

    7.5.a. What input tax credits are available where the value of a vehicle exceeds the car limit?

    Non-interpretative - straight application of the law.

    If:

    • you are entitled to an input tax credit for a creditable acquisition/importation of a car
    • you are not entitled to quote an Australian business number (ABN) for the purposes of the Luxury Car Tax Act in relation to the supply to which the creditable acquisition/importation relates
    • the GST-inclusive market value of the car exceeds the car limit ($57,466 for the 2011-12 financial year) for the financial year in which you first used the car for any purpose.

    the maximum amount of the input tax credit on the acquisition or importation is an amount equal to 1/11th of that limit. The input tax credit is reduced if you do not use the vehicle solely for a creditable purpose and the phasing in rules will still apply.

    However, the limit on the input tax credits does not apply to:

    • emergency vehicles
    • commercial vehicles that are not designed for the principal purpose of carrying passengers
    • motor homes or campervans, or
    • vehicles specifically fitted out for transporting people with a disability seated in wheelchairs (unless the supply of the car was GST-free).

    7.5.b. Where a business acquires a car by lease, is the amount of input tax credits on the lease payments limited to 1/11th of the car limit?

    Non-interpretative - straight application of the law.

    Where a business acquires a car by lease, the amount of input tax credits that the business can claim is not limited to 1/11th of the car limit. The business may be entitled to claim input tax credits for the amount for GST included in each lease payment if it uses the vehicle wholly for a creditable purpose.

    Paragraph 69-10(4)(b) of the GST Act states that section 69-10 of the GST Act, which limits the input tax credit on cars over the car limits, does not apply to cars acquired by way of lease.

      Last modified: 07 Jun 2012QC 16411