Edited version of your written advice

Authorisation Number: 1051180442627

Date of advice: 12 January 2017

Ruling

Subject: GST and creditable acquisition

Question

Are you entitled to the input tax credits on the purchase of a new motor vehicle?

Answer

No, you are not entitled to the input tax credits on the purchase of the new motor vehicle (the vehicle).

This ruling applies for the following periods:

1 July 2015 to 30 June 2017

Relevant facts and circumstances

● The vehicle was purchased from a car dealer and was financed via a loan from the car dealer's finance company.

● A family member is stipulated as the borrower in the loan contract with the finance company.

● The car dealer made the tax invoice in respect of the purchase to your family member (that is, in your family member's name).

● No contract of purchase exists. The relevant document detailing the supply of the vehicle is the tax invoice.

● As advised, the tax invoice and car finance was made under your family member's name as you were trading in a car that was in your family member's name and it was thus easier for the car dealer to set up the finance and sale in the same name. Also, as advised, the car was purchased for you to use in your business and you use the car to an extent for business use.

● You have been making repayments on the loan to the finance company.

● There are no formal arrangements entered into between you and your family member.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 11-5 and

A New Tax System (Goods and Services Tax) Act 1999 section 11-20.

Reasons for decision

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (all further references are to this act unless stated otherwise) provides that:

You are entitled to the input tax credit for any creditable acquisition that you make.

The requirements for a creditable acquisition are set out in section 11-5 of the GST Act and provide that 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.

While the requirements to paragraphs 11-5(b) and (d) appear to be satisfied in this case, the requirements to paragraphs (a) and (c) are not and are discussed in further detail below.

The requirement that an entity acquires anything solely or partly for a creditable purpose together with the requirement set out in section 11-20 means that the entity must be the acquirer who has made the acquisition.

Paragraph 15 of Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) provides that:

15. You make an acquisition if you are the recipient of a supply. That is, the supply is made to you. In most transactions concerning GST the recipient of a supply is the entity that is also provided with that supply. … An entity must have made an acquisition of a thing to satisfy the requirements of section 11-10. It is not sufficient that an entity has merely been provided with the supply. Also, an entity does not make an acquisition merely by paying for a supply.

When discussing the proposition that for every supply there is a recipient and an acquisition, paragraph 54 of GSTR 2006/9 provides:

Proposition 2: generally, for every supply there is a recipient and an acquisition

54. To make an acquisition you have to be the 'recipient' of the supply of the thing you are acquiring. Although the term 'recipient' does not appear in Division 11, it is defined in section 195-1 to mean the entity to which the supply was made. This definition suggests that there is a supplier, a recipient and that something is passed from the supplier to the recipient.¹⁹

The Australian Taxation Office's (ATO's) view is that examination of the agreement or other reciprocal legal relationships is the starting point in analysing an arrangement to determine who is making a supply to whom (paragraph 119 of GSTR 2006/9).

In this case, the parties to the contractual documents support the view that the supply of the vehicle was made by the car dealer to your family member. This is regardless of the repayments that you have been making.

Furthermore, the essence of the purchase transaction financed through a loan arrangement is that the borrower (your family member) applies the borrowed funds as payment/consideration to the car dealer for the supply of the car. A separate supply of a loan (which would normally involve the supply of an interest in a credit arrangement and which is not the subject of this ruling request) would be made by the finance company to your family member. As such, consideration for the supply of the car by the car dealer is provided by your family member. This is regardless of the repayments that you have made to the finance company which would be in relation to the supply of the loan.

Having regard to the circumstances of this case, the requirements for a creditable acquisition are not fully satisfied and therefore, you are not entitled to the input tax credits on the purchase of the vehicle.

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