Edited version of private ruling

Authorisation Number: 1011608935605

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Ruling

Subject: GST and acquisition of goods sold on consignment from an unregistered supplier

Question

Can you claim the GST amount shown on the invoices issued to you in the scenario set out below?

Answer

No, you cannot claim the GST amount shown on the invoices issue to you in the scenario set out below.

Relevant facts and circumstances

The fact sheet has more information about relying on your private ruling.

You are registered for GST.

You buy artwork from various galleries in the course of your enterprise and lease this to other entities.

You advised that you do not acquire any associated services from the gallery when you purchase these artworks.

The gallery at times holds artwork for sale, from artists that are not registered for GST, and sells them on a consignment basis.

The gallery charges the artist a GST inclusive commission for selling their goods, as the gallery is registered for GST.

The gallery provides you with an invoice which shows:

· the agreed price for the artwork,

· an additional amount equal to the GST charged to the artist on the gallery's commission.

You provided an indicative scenario of the above:

Price of artwork $1,000

GST on commission $ 40 (commission charged was $400)

Invoice total $1,040

You wish to know whether, in this scenario, you are entitled to claim the $40.

Detailed reasoning

Can you claim the GST amount shown on the invoices issue to you in the scenario advised?

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 provides that you make a creditable acquisition if:

· you acquire anything solely or partly for a creditable purpose;

· the supply of the thing to you is a taxable supply;

· you provide, or are liable to provide, consideration for the supply; and

· you are registered, or required to be registered.

On the facts provided:

· you have acquired the artwork solely or partly for a creditable purpose;

· you have provided, or are liable to provide, consideration for the artwork; and

· you are registered for GST.

Therefore, if the supply to you is a taxable supply, you will be entitled to input tax credits on the acquisition.

An entity will make a taxable supply if it meets the requirements set out in section 9-5 of the GST Act which provides that an entity makes a taxable supply if:

(a) it makes the supply for consideration

(b) the supply is made in the course or furtherance of an enterprise that it carries on

(c) the supply is connected with Australia; and

(d) the entity is registered, or required to be registered.

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

In your case, the art gallery is merely an agent for the artist and is not making any supplies to you. The art gallery sells the artwork on behalf of the artist and receives a commission from the artist for the service it provides to the artist. The ownership of the artwork is transferred once, directly from the artist to you, the purchaser.

Therefore, you are acquiring the artwork from the artist. As the artist is not registered for GST, the supply of the artwork to you will not be a taxable supply.

As the supply to you is not a taxable supply to any extent, your acquisition of the artwork is not a creditable acquisition. Therefore you are not entitled to a GST credit on your acquisition of the artwork.