ATO Interpretative Decision

ATO ID 2002/8

Goods and Services Tax

GST and amount of input tax credits for creditable acquisitions of second-hand goods
FOI status: may be released

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Can the entity, a second-hand goods dealer, use the acquisition cost of second-hand goods to determine the amount of its input tax credit under section 66-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it subsequently sells the second-hand goods for an amount less than the amount it paid to acquire them?

Decision

No, the entity cannot use the acquisition cost of second-hand goods to determine the amount of its input tax credit under section 66-10 of the GST Act when it subsequently sells the second-hand goods for an amount less than the amount paid to acquire them. The amount of the entity's input tax credit is the amount of goods and services tax (GST) payable on the entity's subsequent sale of the second-hand goods.

Facts

The entity is a second-hand goods dealer that is registered for GST. The entity makes a creditable acquisition of second-hand goods under section 66-5 of the GST Act. The consideration for this acquisition is $880.

The entity then sells the second-hand goods for $660. The entity does not divide the second hand goods before resupplying them. This subsequent supply is a taxable supply under section 9-5 of the GST Act.

Reasons for Decision

Section 66-10 of the GST Act sets out the amount of the input tax credit allowed for a creditable acquisition of second-hand goods that are not divided for resupply.

Where the consideration for the acquisition of second-hand goods is more than $300, subsection 66-10(1) of the GST Act applies and the amount of the input tax credit is the lesser of:

•: an amount equal to 1/11th of the consideration that the entity provides, or is liable to provide, for the acquisition; or
•: the amount of the GST payable on the subsequent taxable supply of the second-hand goods.

In this case, the consideration provided by the entity for the acquisition of second-hand goods was more than $300. One eleventh of the consideration provided by the entity to acquire the goods is $80 ($880 x 1/11). The amount of the GST payable on the subsequent taxable supply of the second-hand goods is 10% of the value of the supply where the value of the supply is calculated, in accordance with Subdivision 9-C of the GST Act, as:

Price x 10/11

The amount of the GST payable on the subsequent taxable supply is $60 (($660 x 10/11) x 10%).

Therefore, the amount of the GST payable on the taxable supply of the goods ($60) is less than 1/11th of the consideration provided to acquire the goods ($80). As such, the amount of the entity's input tax credit is $60.

Accordingly, the entity cannot use the acquisition amount of second-hand goods to determine the amount of its input tax credit under section 66-10 of the GST Act when it sells second-hand goods for an amount less than the amount it paid to acquire them.

[Note: Where the consideration for an acquisition of a second-hand good is $300 or less, subsection 66-10(2) of the GST Act applies and the amount of the input tax credit is an amount equal to 1/11th of the consideration the entity provides, or is liable to provide, for the acquisition.]

Date of decision: 10 September 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 66-10
   subsection 66-10(1)
   subsection 66-10(2)

Keywords
Goods & services tax
GST second hand goods
GST supplies & acquisitions
GST consideration
Creditable acquisition
Taxable supply

Business Line: GST

Date of publication: 9 January 2002

ISSN: 1445-2782

history

	Date:	Version:
You are here	10 September 2001	Original statement
	1 June 2007	Archived

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