ATO Interpretative Decision

ATO ID 2002/261 (Withdrawn)

Goods and Services Tax

• This ATO ID is a straight application of the law and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a business operator that is registered for goods and services tax (GST), entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it acquires second-hand goods through a GST-free supply?

Decision

No, the entity is not entitled to input tax credits under section 11-20 of the GST Act when it acquires second-hand goods through a GST-free supply.

Facts

The entity is a business operator registered for GST. The entity acquires second-hand goods through a GST-free supply.

The acquisition was made solely for a creditable purpose.

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. Under section 11-5 of the GST Act, an entity makes a creditable acquisition if:

(a)

it acquires anything solely or partly for a creditable purpose;

(b)

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

(c)

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

(d)

it is registered, or required to be registered for GST.

As the acquisition was made solely for a creditable purpose, the acquisition satisfies paragraph 11-5(a) of the GST Act.

Paragraph 11-5(b) of the GST Act requires that the supply of the thing to the entity is a taxable supply. The supply to the entity was not a taxable supply. It was a GST-free supply. Therefore, the entity is not making a creditable acquisition under section 11-5 of the GST Act.

Nevertheless, under subsection 66-5(1) of the GST Act, if an entity acquires second-hand goods for the purposes of sale or exchange in the ordinary course of business, the fact that the supply of the goods to it is not a taxable supply does not stop the acquisition being a creditable acquisition.

However, paragraph 66-5(2)(a) of the GST Act provides that section 66-5 of the GST Act does not apply, and is taken never to have applied to the acquisition, if the supply of the goods to the entity was a taxable or GST-free supply.

The supply of second-hand goods to the entity was a GST-free supply.

Accordingly, the entity is not making a creditable acquisition of second-hand goods under section 66-5 of the GST Act.

The entity is not making a creditable acquisition under either section 66-5 of the GST Act or section 11-5 of the GST Act. Therefore, the entity is not entitled to input tax credits under section 11-20 of the GST Act when it acquires second-hand goods through a GST-free supply.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 11-5
   paragraph 11-5(a)
   paragraph 11-5(b)
   section 11-20
   section 66-5
   subsection 66-5(1)
   paragraph 66-5(2)(a)

Keywords
Goods & services tax
GST free
GST supplies & acquisitions
Creditable acquisition

Business Line:  GST

Date of publication:  22 March 2002

ISSN: 1445-2782