Edited version of private ruling

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Ruling

Subject: GST and matrimonial property distribution

Questions

1. Are you entitled to claim input tax credits on the lease of the motor vehicle that is supplied to the spouse as a result of the matrimonial property distribution (MPD) under the Family Law Act 1975 (FLA)?

2. Will you be entitled to claim input tax credit on the payment of residual monies for the motor vehicle that is supplied to the spouse as a result of the MPD under the FLA?

Answers

1. No, you are not entitled to claim input tax credits on the lease of the motor vehicle that is supplied to the spouse as a result of the MPD under the FLA.

2. No, you will not be entitled to claim input tax credits on the payment of residual monies for the motor vehicle that is supplied to the spouse as a result of the MPD under the FLA

Relevant facts and circumstances

You are registered for goods and services tax (GST).

Your shareholders and directors are husband and wife.

In 2011, the dissolution of marriage and property divorce settlement between the husband and wife was granted in a Family Law Court (the Court).

The Court ordered, amongst other things, that effective a specified date:

· one of the spouses (the spouse) resign as your director

· you continue to make lease payments for a motor vehicle currently leased by you but in the possession of the spouse; and

· upon the expiration of the lease, you pay the residual monies owed by you pursuant to the lease and transfer ownership of the motor vehicle to the spouse.

You did not transfer or assign the lease to the spouse.

Reasons for decision

1. Creditable acquisitions give rise to entitlement to input tax credits.

Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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.

In this case, the supply of the motor vehicle to you, by way of lease, is a taxable supply. You are liable to provide consideration for the supply; and you are registered for GST. As such, the requirements in paragraphs 11-5(b), 11-5(c) and 11-5(d) of the GST Act are satisfied. What remains to be determined is whether you acquire the motor vehicle for a creditable purpose.

According to subsection 11-15(1) of the GST Act, you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, subsection 11-15(2) of the GST Act provides that you do not acquire the thing for a creditable purpose if:

· the acquisition relates to making input taxed supplies; or

· the acquisition is of a private or domestic nature.

Therefore, it is necessary to determine whether the leasing of the motor vehicle that is supplied to the spouse is in the course of carrying on your enterprise and not for a private or domestic purpose.

Goods and Services Tax Ruling GSTR 2003/6 explains the GST consequences of a transfer of an enterprise asset to a spouse as a result of an MPD under the FLA.

Our view, as contained in paragraph 41 of GSTR 2003/6, is that there is no discernible relationship between the supply of an asset under an MPD and the enterprise. This view is based on factors such as the private nature of a marriage breakdown, the binding nature of an FLA order or agreement, and the lack of commercial flavour in the absence of consideration.

Paragraph 42 of GSTR 2003/6 further explains that where the essential character of the supply is that of something being disposed of due to the personal circumstances of the spouse, upon marriage breakdown or otherwise under the FLA, rather than business circumstances, the supply is not made in the course or furtherance of the enterprise.

In this case, you supply the motor vehicle to the spouse as a result of the MPD. As such, you do not lease the motor vehicle in the course of carrying on your enterprise. Rather, you lease the motor vehicle for a private purpose, which is to supply it to the spouse as a result of the MPD. You do not acquire the motor vehicle for a creditable purpose. Therefore, you do not make a creditable acquisition when you lease the motor vehicle.

Accordingly, you are not entitled to input tax credits on the lease of the motor vehicle.

2. Pursuant to the orders of the Court, you will pay the residual monies at the end of the lease and transfer ownership of the motor vehicle to the spouse.

The payment of residual monies at the end of a lease is to take ownership of the goods which is the subject of the lease. The purchase of the goods at the end of a lease is a separate acquisition by the lessee.

In the case, you will be purchasing the motor vehicle in order to supply it to the spouse as a result of the MPD. As such, your acquisition of the motor vehicle will not be for a creditable purpose for reasons explained above. Accordingly, you will not be entitled to input tax credits on the payment of residual monies for the motor vehicle.

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