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Edited version of your written advice
Authorisation Number: 1013069874567
Date of advice: 15 August 2016
Ruling
Subject: Acquisitions and entitlement to input tax credits
Question 1
Do you make a creditable acquisition under the Chattel Sale Agreement, entered into between you and the vendor, for which you will be entitled to an input tax credit?
Answer
Yes, providing the supply of chattels to you by the vendor is a taxable supply, you are making a creditable acquisition under the Chattel Sale Agreement for which you are entitled to input tax credits. See reasons for decision for a detailed explanation.
Question 2
If the answer to Question 1 is yes, then what is the amount of the input tax credits that you would be entitled to under the Chattel Sale Agreement?
Answer
Providing the supply of chattels to you by the vendor is a taxable supply, you will be entitled to an input tax credit of 1/11 of the consideration you provide for the chattels under the Chattel Sale Agreement. The input tax credit is attributable to the first tax period for which you hold a tax invoice in relation to the transaction.
Relevant facts and circumstances
You are registered for GST. You conduct an enterprise and account for goods and services tax (GST) on a cash basis.
The vendor is registered for GST. The vendor conducts an enterprise.
Under a Chattel Sales Agreement (agreement), you purchased from the vendor, chattels detailed in the agreement for a particular amount. The agreement specified that a part payment was to be paid on Completion Date and the remaining amount on or before two years after Completion Date. Title to the chattels passed to you on Completion Date.
The agreement made no reference to the supply of the chattels being a supply of a going concern. There was no other written agreement between you and the vendor that the sale of the chattels was the supply of a going concern.
Completion Date is defined in the agreement to be the settlement date of a separate land contract. The agreement provided that the sale of the chattels was subject to the contemporaneous settlement of the land contract.
The chattels had been used by the vendor in the vendor's enterprise. The vendor was not operating its business actively at the time of the sale of the chattels and was in the process of selling the chattels as part of the termination of its enterprise.
The vendor has not provided you with a tax invoice for your purchase of the chattels.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
• Section 9-5
• Section 9-40
• Section 11-5
• Section 11-25
• Section 29-70
• Section 38-325
• Section 40-65
• Section 195-1
Reasons for decision
Question 1
You are entitled to input tax credits for any creditable acquisition you make. Section 11-5 of the A New Tax System Goods and Services Act 1999 (GST Act) provides that you make a creditable acquisition if:
• you acquire anything solely or partly for a creditable purpose; and
• the supply of the thing to you is a taxable supply; and
• you provide, or are liable to provide, consideration for the supply; and
• you are registered, or required to be registered.
You acquire a thing for a creditable purpose if you acquired it in carrying on your enterprise and you did not acquire the thing in relation to making input taxed supplies or acquisitions of a private or domestic nature (Section 11-15 of the GST Act).
On the facts provided, you:
• are registered for GST
• have provided consideration for the supply
• acquired the chattels solely for a creditable purpose in that you acquired the chattels in carrying on your enterprise and the acquisitions do not relate to making supplies that are input taxed or of a private nature.
The relevant question in your circumstances in respect of section 11-5 of the GST Act is whether the supply of the chattels to you was a taxable supply.
Under section 9-5 of the GST Act a supply is a taxable supply if:
• the supply is made for consideration,
• the supply is made in the course or furtherance of an enterprise,
• the supply is connected with the indirect tax zone, and
• the supplier is registered for GST or required to be registered.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
The supply of the chattels was for consideration as specified in the agreement, is connected with the indirect tax zone and the vendor is registered for GST.
Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) states in paragraph 140:
140. Carrying on an enterprise includes doing anything in the course of the termination of the enterprise. An enterprise terminates when the activities related to that enterprise cease. Ordinarily, that occurs when all assets are disposed of or converted to another purpose or use and all obligations are satisfied. Disposal of assets may include the sale, scrapping, or other disposal of the assets.
You have advised that the supply of chattels to you was made by the vendor in the course of termination of its enterprise. As such, in accordance with MT 2006/1, the supply of the chattels by the vendor to you is made in the course of furtherance of the vendor's enterprise.
What remains to be determined is if the supply of the chattels to you is GST-free or input taxed.
The supply of a going concern may be GST-free under section 38-325 of the GST Act. Subsection 38-325(1) provides:
The *supply of a going concern is GST-free if:
(a) the supply is for *consideration; and
(b) the *recipient is *registered or *required to be registered; and
(c) the supplier and the recipient have agreed in writing that the supply is of a going concern.
Goods and Services Tax Ruling GSTR 2002/5 (GSTR 2002/5) Goods and services tax: when is a 'supply of a going concern' GST-free? in paragraphs 181-182 states:
181. The term 'agreed in writing' means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply, being the supply under an arrangement of everything necessary for the continued operation of an enterprise, is a 'supply of a going concern'.
182. The supplier and the recipient must agree that the supply is a 'supply of a going concern' on or before the day of the supply.
The agreement (for the sale of the chattels) makes no reference to the supply of the chattels to you being a supply of a going concern. Further, you have advised that you and the vendor did not enter into any other agreement in writing, on or before the day of the supply of the chattels, that the supply of the chattels to you was the supply of a going concern. As such, based on the facts provided by you, the supply of the chattels to you do not satisfy the requirements of paragraph 38-325(1)(c) of the GST Act and therefore is not a GST-free supply of a going concern.
Under section 40-65 of the GST Act, a sale of real property is input taxed but only to the extent that the property is residential premises and is not commercial residential premises or new residential premises. The houses included as chattels under the agreement do not meet the definition of real property in section 195-1 of the GST Act as there is no interest or right over or in relation to land and thus are not input taxed under section 40-65 of the GST Act.
Therefore, the supply of the chattels to you is not GST-free or input taxed under any other provision of the GST Act and thus, based on the facts provided by you, the supply of the chattels to you under the agreement is a taxable supply as it satisfies all the requirements of section 9-5 of the GST Act.
Given the above, all the requirements of section 11-5 of the GST Act are also met and therefore your acquisition of the chattels is a creditable acquisition for which you are entitled to the input tax credits.
Question 2
Section 11-25 of the GST Act provides that the amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. Under sections 9-70 and 9-75 of the GST Act, the amount of GST payable on a taxable supply is 1/11th of the price.
Therefore in an instance where the price of a creditable acquisition is a particular amount, the amount of the input tax credit that can be claimed would be 1/11th of the particular amount.
Further, section 29-10 of the GST Act deals with the attribution of input tax credits for creditable acquisitions. Subsection 29-10(3) of the GST Act provides that the input tax credit is attributable only to the tax period for which you give the Commissioner a GST return at a time when you hold a tax invoice.
As such generally, you can only claim an input tax credit in the first tax period for which you hold a tax invoice in relation to the transaction.
Other relevant comments
You can request for a tax invoice from the supplier of a taxable supply to you. Subsection 29-70(2) of the GST Act provides that the supplier of a taxable supply must, within 28 days after the recipient of the supply requests it, give to the recipient a tax invoice for the supply.
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