ATO Interpretative Decision

ATO ID 2001/727

Goods and Services Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a business operator, entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it acquires an asset under an asset loan agreement?

Decision

Yes, the entity is entitled to an input tax credit under section 11-20 of the GST Act when it acquires an asset under an asset loan agreement.

Facts

The entity is a business operator. The entity purchased an asset that is to be used solely for business purposes. The asset does not relate to the making of input taxed supplies. The purchase of the asset was fully financed by a finance company under an asset loan agreement. The supply of the asset is a taxable supply under section 9-5 of the GST Act.

An asset loan agreement is similar to a chattel mortgage where the borrower assumes ownership of the goods but transfers to the lender an equitable interest in the goods, enabling the lender to seize and sell the goods in the event of default. By providing a mortgage over the goods as security the borrower is able to obtain funds from the lender. These funds are used by the borrower as full or part payment for the purchase of the goods.

The entity is registered for goods and services tax (GST).

Reasons for Decision

Under section 11-20 of the GST Act an entity is entitled to an input tax credit for any creditable acquisition that it makes.

Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if:

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the entity acquires anything solely or partly for a creditable purpose;

•

the supply of the thing to the entity is a taxable supply;

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the entity provides, or is liable to provide consideration for the supply; and

•

the entity is registered or required to be registered for GST.

Under subsection 11-15(1) of the GST Act an entity acquires a thing for a creditable purpose to the extent that the entity makes the acquisition in carrying on its enterprise. However, under subsection 11-15(2) a thing is not acquired for a creditable purpose to the extent that it is of a private or domestic nature or relates to making input taxed supplies.

In this case, the asset acquired by the entity is to be used solely for business purposes and does not relate to making input taxed supplies. Therefore, the entity has acquired the asset for a creditable purpose.

The supply of the asset was a taxable supply and the entity is registered for GST.

The last requirement to be satisfied for an entity to make a creditable acquisition is that the entity must provide, or be liable to provide consideration for the supply.

In this case, there are two separate supplies for GST purposes. The supply of the asset to the entity from the supplier and the provision of finance to the entity by the finance company.

The entity obtains the funds from the finance company under the asset loan agreement. The entity then uses these funds to purchase the asset from the supplier. As such, it is the entity that is providing the consideration for the supply of the asset (not the finance company).

Therefore, as all of the requirements for a creditable acquisition have been satisfied the entity is entitled to claim an input tax credit under section 11-20 of the GST Act when it acquires an asset under an asset loan agreement.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 11-5
   subsection 11-15(1)
   subsection 11-15(2)
   section 11-20

Keywords
Goods & services tax
GST supplies and acquisitions
Creditable acquisition
GST consideration
Input taxed supplies

Siebel/TDMS Reference Number:  CW231347

Business Line:  Indirect Tax

Date of publication:  30 November 2001

ISSN: 1445-2782