Edited version of private ruling

Authorisation Number: 1011839521693

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Ruling

Subject: GST and input tax credits

Question 1

Are you entitled to claim an input tax credit on the purchase and maintenance of the motor vehicles?

Answer

Yes, you are entitled to claim an input tax credit on the purchase and maintenance of the motor vehicles.

Question 2

Is GST payable on the sale of the motor vehicles?

Answer

Yes, GST is payable on the sale of the motor vehicles.

Facts

You currently lease your motor vehicles through a fleet operation.

You are registered for GST and currently claim input tax credits on the leased vehicles in your activity statements.

The vehicles within your motor vehicle fleet are exempt from Fringe Benefit Tax as the vehicles are utilised 100% for work purposes.

From 1 July 2011, all your motor vehicles will be purchased, maintained and disposed of by an employee on your behalf.

The initial outlay for these motor vehicles and all fuel and maintenance costs will be paid for by the employee using a corporate credit card issued to them.

At the time of purchasing the vehicle the employee will assert to the salesperson that the vehicle is being purchased for personal/private use only.

The employee is required to provide to you all tax invoices issued in their name in order to claim reimbursement.

All motor vehicles cost less than the car limit.

You maintain a record of all your motor vehicles and will continue to manage the vehicle fleet under the current fleet policy and procedures.

On disposal of the motor vehicle, the employee will be required to account for and remit all disposal proceeds back to you. You will account for the proceeds in your activity statement.

Reasons for decision

Question 1

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

(d) you are *registered, or *required to be registered for GST.

(* denotes a term defined in section 195-1 of the GST Act.)

To satisfy the first element of section 11-5 of the GST Act, you must acquire the goods or services.

In this case, the employee acquires the motor vehicle including related fuel and maintenance costs. The consideration for the acquisitions is provided by the employee using a corporate credit card issued in their name. You then reimburse the employee for the expenses incurred.

Creditable acquisitions that relate to reimbursements of employee expenses are set out in section 111-5 of the GST Act.

Subsection 111-5(1) of the GST Act provides that, in certain circumstances, where an entity reimburses an employee, an associate of an employee, an agent, partner or company officer for expenses incurred in relation to the performance of their duties, the entity can claim an input tax credit as if the entity itself had incurred the expense.

On the information provided, the employee incurs the expense of purchasing and maintaining the vehicle. However, the employee does not incur those expenses on their own behalf, rather on your behalf.

Agency

Goods and Services Tax Ruling GSTR 2000/37 discusses the general law in relation to agency relationships.

Under general law, agency is a relationship where one party ('the principal'), expressly or impliedly, consents that another party ('the agent') should act on the principal's behalf.

If an entity is an agent at general law, the entity is an agent for GST purposes. Therefore, under the GST Act, the principal is liable for any GST payable on the supplies made through an agent and is entitled to any input tax credits for acquisitions made through an agent.

Whether an agency relationship exists does not depend on the terminology adopted by the parties, but on the true nature of the relationship. The relationship between the parties is determined by an examination of the particular facts surrounding relevant transactions.

Paragraph 28 of GSTR 2000/37 outlines factors that indicate whether an agency relationship exists. It provides that in most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship.

Paragraph 29 of GSTR 2000/37 provides that in situations where it is difficult to establish the above factors, documents used by the parties and the conduct of the parties may still indicate the existence of an agency relationship. However, as stated earlier, the parties cannot alter the true substance of the relationship by simply giving it a different label.

Paragraphs 27 and 122 to 130 of GSTR 2000/37 covers reimbursement of agents. In particular, paragraphs 124 and 125 of GSTR 2000/37 state:

124. If the principal acquires something supplied to it through an agent acting on its behalf in making the acquisition, then the general principles of agency apply and it is the principal who is considered to have made the acquisition. The consideration paid through the agent for that acquisition is covered by the basic rules about creditable acquisitions and not by Division 111.

125. For example, if the agent acquires something supplied to the principal within the authority of the agency agreement, the acquisition is effectively made by the principal, and therefore, could be a creditable acquisition to the principal. However, if the agent on its own behalf incurs, for example, petrol expenses in making that acquisition, for which the principal reimburses the agent, the principal has not made a creditable acquisition of the petrol. The principal, therefore, would not be entitled to an input tax credit under Division 11 for the agent's acquisition of the petrol. However, Division 111 may entitle the principal to input tax credits in relation to the reimbursement.

Under the arrangement you have with the employee, they are authorised to purchase and maintain the motor vehicle.

When they do this the employee is using their authority to act for you. An agency relationship exists between you and the employee for the acquisition and maintenance of the motor vehicle.

As the employee is using their authority to act for you the principal, then any act they do on your behalf is considered your act.

As such, we need to consider if the requirements of section 11-5 of the GST Act are satisfied.

On the information provided, you satisfy the requirements of paragraphs 11-5(a) to 11-5(d) of the GST Act because:

(a) you acquire the motor vehicle and the maintenance expenses, through your agent, the employee, for use in your enterprise

(b) the supply of the motor vehicle and the maintenance expenses is a taxable supply

(c) you are liable to provide consideration for the supply and

(d) you are registered for GST.

Therefore, you are entitled to claim an input tax credit on the purchase and maintenance of motor vehicles.

Additional information

Paragraph 130 of GSTR 2000/37 outlines the tax invoice requirements for a reimbursement to agents and it states:

130. Generally, the principal must hold a tax invoice for a creditable acquisition to be able to account for the input tax credit in a GST return for the tax period. The tax invoice must be for the taxable supply to the agent. Therefore, the agent will have to obtain a tax invoice for any acquisition with a value exceeding $75 for which the principal reimburses the agent.

Question 2

GST is payable on the sale of the motor vehicle if you are making a taxable supply.

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered for GST.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

As outlined in question 1 above, the acquisition of the motor vehicle is made by the employee on your behalf. Similarly, the disposal of the motor vehicle is made by the employee on your behalf. As the employee is using their authority to act for you, the disposal is an act done by you as the principal.

On the information provided, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

(a) the supply of the motor vehicle, through your agent the employee, is for consideration

(b) the supply of the motor vehicle is in the course or furtherance of your enterprise

(c) the supply is connected with Australia, and

(d) you are registered for GST.

Furthermore, the sale of the motor vehicle is neither GST-free not input taxed. Therefore, you are making a taxable supply and GST is payable on the sale of the motor vehicle.

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