ATO Interpretative Decision

ATO ID 2004/166 (Withdrawn)

Goods and Services Tax

• This ATO ID is withdrawn as it is superseded by NAT 4325 - GST and cars purchased by eligible disabled people.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a car dealer, entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), for the acquisition of a second-hand car from an unregistered person, that the entity on sells, as a GST-free supply, to an eligible disabled person?

Decision

No, the entity is not entitled to an input tax credit under section 11-20 of the GST Act, for the acquisition of a second-hand car from an unregistered person, that the entity on sells, as a GST-free supply, to an eligible disabled person.

Facts

The entity is a car dealer. The entity acquired a second-hand car from a person not registered or required to be registered for goods and services tax (GST). The entity purchased the car as trading stock in the course of carrying on its enterprise.

The entity subsequently sold the car, as a GST-free supply under Subdivision 38-P of the GST Act, to an eligible disabled person.

The entity is registered for GST.

Reasons for Decision

Section 11-20 of the GST Act provides that 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:

•

the entity acquires anything solely or partly for a creditable purpose

•

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

•

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

•

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

As the entity acquired the second-hand car from a person not registered or required to be registered for GST, the supply to the entity was not a taxable supply (paragraph 9-5(d) of the GST Act). Accordingly, the second requirement in section 11-5 of the GST Act is not satisfied.

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

However, paragraph 66-5(2)(e) of the GST Act states that section 66-5 of the GST Act does not apply to the acquisition if the entity makes a subsequent supply of the goods that is not a taxable supply.

The entity purchased a second-hand car from an unregistered person and has subsequently made a GST-free supply of that car, under Subdivision 38-P of the GST Act, to an eligible disabled person. Therefore, due to the operation of paragraph 66-5(2)(e) of the GST Act, section 66-5 of the GST Act does not apply.

Therefore, the entity is not entitled to an input tax credit under section 11-20 of the GST Act, for the acquisition of a second-hand car from an unregistered person, that the entity on sells, as a GST-free supply to an eligible disabled person.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   paragraph 9-5(d)
   section 11-5
   section 11-20
   Subdivision 38-P
   section 66-5
   subsection 66-5(1)
   paragraph 66-5(2)(e)

Keywords
Goods and services tax
Cars for disabled veterans
Cars for other disabled people
GST input tax credits & creditable acquisitions
GST special rules
GST second hand goods
GST supplies & acquisitions

Business Line:  GST

Date of publication:  20 February 2004

ISSN: 1445-2782