1013086654496 | Legal database

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Edited version of your written advice

Authorisation Number: 1013086654496

Date of advice: 9 September 2016

Ruling

Subject: Sale and purchase of vehicles

Question 1

Can you claim input tax credits (ITC) on a vehicle purchased from an entity neither registered nor required to be registered for GST?

Answer

No. You cannot claim ITC on a vehicle purchased from an entity neither registered nor required to be registered for GST. This is because the supply of the vehicle to you was not taxable.

Question 2

Can you claim input tax credits (ITC) on a vehicle purchased to be used 100% in your enterprise, from a licensed motor trader, registered for GST.

Answer

Yes. You can claim ITC on a vehicle purchased, to be used 100% in your enterprise, from a licensed motor trader, registered for GST.

Relevant facts and circumstances

You are a sole trader registered for GST.

Some years ago you purchased a Ute from an entity not registered nor required to be registered for GST.

You have used the vehicle 100% for business and recently sold the vehicle to a registered trader.

You recently purchased a new vehicle from a licensed motor trader, registered for GST.

You also want to be advised of the GST treatment in your activity statement for:

● the sale of the vehicle for $xxx; and

● the purchase of the new vehicle for $xxx.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 sections 9-5, 11-5, 11-20.

Reasons for decision

Taxable supply

Section 9-5 of the GST Act provides that an entity makes a taxable supply if the supply is made for consideration, in the course or furtherance of the entity’s enterprise, the supply is connected with the indirect tax zone and the entity is registered or required to be registered.

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

If all the elements of section 9-5 of the GST Act are satisfied then a supply will be taxable.

Input tax credits (ITC)

Section 11-20 of the GST Act provides that an entity is entitled to ITC for any creditable acquisition that it makes.

According to section 11-5 of the GST Act an entity makes a creditable acquisition if it:

acquires anything solely or partly for a creditable purpose;

● the supply of the thing to it 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.

All of the dot points described above have to be satisfied for an entity to make a creditable acquisition.

In this case, the vendor was a private individual not registered nor required to be registered for GST. Therefore, as the vendor’s supply was not a taxable supply to you, no ITC is available on your purchase of the vehicle.

2. As explained above an entity is entitled to ITC for any creditable acquisition that it makes. The purchase of the vehicle, in 2016, from a licensed motor trader to you is considered to be taxable.

We consider that you have acquired the vehicle in 2016 for a creditable purpose as you will use the vehicle 100% to carry on your enterprise.

Therefore, you are entitled to 1/11^th of the consideration provided as ITC. You will need to hold a tax invoice before you can claim the ITC you are entitled to.

Treatment of vehicles for activity statement purposes

You want to know how to report the vehicles sold and purchased in your activity statement.

Vehicle sold for $xxx:

In this case you sold a vehicle (capital asset) used 100% in your enterprise for $xxx.

Generally, if you are registered or required to be registered for GST, the disposal of a capital asset in Australia, in the course of carrying on your business, is a taxable sale and you are required to account for GST on that sale. This applies even if the asset was purchased from a non-registered seller or the asset is sold to an individual who is not in business (a private sale). If you receive any payment (or other form of consideration) when you dispose of a capital asset, you must report an amount including GST at label G1 (total sales) and the GST amount at label 1A (GST on sales) on your activity statement for the relevant tax period

Vehicle purchased for $xxx:

In relation to the vehicle purchased for $xxx you must report an amount including GST at label G10 (capital purchase) and the GST amount at label 1B (GST on purchases)

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