ATO Interpretative Decision

ATO ID 2004/711 (Withdrawn)

Goods and Services Tax

GST and entitlement to input tax credit for acquisition under a vendor finance agreement
FOI status: may be released

This ATO ID is withdrawn, as it is no longer necessary. The ATO view expressed in this ATO ID is a straight application of the law and does not contain an interpretative decision. Guidance on the view contained in this ATO ID can be found in GSTD 2004/4 Goods and services tax: can consideration for a supply be provided or received without transferring money (such as where the parties only make book entries recording their agreement that the supply is paid for)?

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

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Is the entity, a business operator, entitled to an input tax credit on the full purchase price under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it acquires a chattel that is partly paid for under a vendor finance agreement?

Decision

Yes, the entity is entitled to an input tax credit on the full purchase price under section 11-20 of the GST Act when it acquires a chattel that is partly paid for under a vendor finance agreement.

Facts

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

The entity acquires a chattel for a creditable purpose. The supply of the chattel to the entity is a taxable supply under section 9-5 of the GST Act.

On signing the contract of sale for the chattel, the entity makes a payment for part of the purchase price and enters into an agreement to pay the balance of the purchase price on or before a future date. Under the terms of this agreement, the entity receives finance from the supplier of the chattel, whereby the balance of the purchase price is provided by way of a five-year loan. Interest is calculated annually on this loan.

On the entity taking possession and full title of the chattel, a mortgage is registered over the chattel, in favour of the supplier/lender.

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:

•: 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.

The entity acquires the chattel for a creditable purpose, the supply of the chattel to the entity is a taxable supply and the entity is registered for GST. Therefore, it needs to be determined whether the entity provides, or is liable to provide consideration for the supply of the chattel.

Consideration is defined in section 195-1 of the GST Act to mean any consideration within the meaning given by sections 9-15 and 9-17 of the GST Act, in connection with the supply or acquisition. Subsection 9-15(1) of the GST Act provides that consideration includes any payment, act or forbearance in connection with a supply of anything or in response to, or for the inducement of the supply.

By entering into this agreement, the entity and the supplier of the chattel are agreeing to simply offset the supplier's obligation to advance the loan money to the entity against the entity's obligation to pay for the supply of the chattel. Accordingly, the entity's obligation to pay for the supply of the chattel is discharged and replaced with an obligation to repay the money lent (together with any interest that accrues).

As such, the entity provides consideration for the supply of the chattel and as all of the requirements of section 11-5 of the GST Act are satisfied, the entity is making a creditable acquisition.

Therefore, the entity is entitled to an input tax credit on the full purchase price under section 11-20 of the GST Act when it acquires a chattel that is partly paid for under vendor finance agreement.

Note 1: The provision of the loan involves a separate supply by the supplier/lender-being a supply of an interest in a credit arrangement, which is an input taxed financial supply. The consideration for the supply of the credit arrangement is the amount of interest payable and the obligation to repay the loan. Please refer to Goods and Services Tax Ruling 2002/2 GST treatment of financial supplies and related supplies and acquisitions.

Amendment History

Date of amendment	Part	Comment
22 April 2013	Reason for Decision	Amended by inserting section 9-17. As of 1 July 2012, section 9-17 is included within the definition of consideration as defined by section 195-1.
	Legislative References	Section 9-17 added.

Date of decision: 24 June 2004

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 9-15
   section 9-17
   section 11-5
   section 11-20

Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2002/2

Related ATO Interpretative Decisions
ATO ID 2001/727

Keywords
Goods and services tax
GST input tax credits & creditable acquisitions
GST supplies & acquisitions
Creditable acquisition
Creditable purpose
GST consideration
GST supply
Taxable supply

Siebel/TDMS Reference Number: 4070967

Business Line: Indirect Tax

Date of publication: 27 August 2004

ISSN: 1445-2782

history

	Date:	Version:
	24 June 2004	Original statement
	22 April 2013	Updated statement
You are here	5 May 2022	Archived

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