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Ruling

Subject: goods and services tax (GST) and purchase of excavator

Question

Are you entitled to an input tax credit on your purchase of the excavator?

Answer

Yes. However, you are only entitled to a partial input tax credit.

This ruling applies for the following periods:

The scheme commences on:

Relevant facts and circumstances

You are registered for GST.

Related parties to you own a property.

There is a residence on the property. Behind the residence is a workshop.

You carry on a business of manufacturing and selling certain products.

You carry on product manufacturing activities in the workshop. You also use the workshop for storage of products. You also use the workshop as a display room.

There is a gravel driveway on the property. The driveway has a steep slope. The gravel driveway works when the weather is dry and the driveway is firm, but after rain it is difficult for vehicles to drive up it.

You regularly receive deliveries to the workshop on large trucks to supply your business and it reached the point where truck drivers refused to deliver unless the access to the property improved.

You decided to dig a trench from the gate to the workshop to enable easier vehicular access to the workshop. The ground is mainly shale rock so it was virtually impossible to excavate manually. Therefore, you purchased an excavator to dig the trench.

You would not have dug the trench if you did not have vehicles driving to the workshop.

Part of the trench will branch out to go to the residence.

The sale of the excavator to you was subject to GST.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(2)

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-25

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-30(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-30(2)

Reasons for decision

Summary

You are entitled to an input tax credit on your purchase of the excavator, as you have satisfied the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST) Act. However, you are not entitled to a full input tax credit, as your acquisition of the excavator is partly of a private or domestic nature.

Detailed reasoning

You are entitled to input tax credits on your creditable acquisitions.

You make a creditable acquisition where you satisfy the requirements of section 11-5 of the GST Act, which states:

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.

(*Denotes a term defined in section 195-1 of the GST Act)

Creditable purpose

Subsection 11-15(1) of the 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.

(*Denotes a term defined in section 195-1 of the GST Act)

Creditable purpose

Subsection 11-15(1) of the GST Act states:

You acquire a thing for a creditable purpose to the extent that you acquire it

in carrying on your *enterprise.

Subsection 11-15(2) of the GST Act states:

However, you do not acquire the thing for a creditable purpose to the extent

that:

(a) the acquisition relates to making supplies that would be *input taxed;

or

(b) the acquisition is of a private or domestic nature.

You acquired the excavator in carrying on your enterprise, as you acquired it to dig a trench on the property; your reason for digging the trench was to create better access for vehicles driving to your workshop and you use the workshop to carry on your business activities.

Your acquisition of the excavator was not an acquisition related to making supplies that would be input taxed.

Although you would not have dug the trench if you did not have vehicles driving to the workshop and you use the workshop to carry on your business activities, your acquisition of the excavator was partly of a private or domestic nature, as the trench will branch out to go to the residence. Your acquisition of the excavator was not solely of a private or domestic nature as the trench will also go from the gate to your workshop, which you use to carry on your business activities.

Hence, you acquired the excavator partly for a creditable purpose, and therefore you satisfied the requirement of paragraph 11-5(a) of the GST Act.

The supply of the excavator to you was a taxable supply. Therefore, the requirement of paragraph 11-5(b) of the GST Act was satisfied.

You provided consideration for the supply of the excavator. Therefore, the requirement of paragraph 11-5(c) of the GST Act was satisfied.

You are registered for GST. Therefore, the requirement of paragraph 11-5(d) of the GST Act was satisfied.

As you satisfied all of the requirements of section 11-5 of the GST Act, you are entitled to an input tax credit on your purchase of the excavator.

Section 11-25 of the GST Act states:

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. However, the amount of the input tax credit is reduced if the acquisition is only partly creditable.

Subsection 11-30(1) of the GST Act provides that an acquisition is partly creditable if it is a creditable acquisition but the acquisition is only partly for a creditable purpose.

Subsection 11-30(3) of the GST Act sets out the formula for calculating an input tax credit where an acquisition is a creditable acquisition but the acquisition is only partly for a creditable purpose. The input tax credit is the full input tax credit amount multiplied by the extent of creditable purpose.

You made a creditable acquisition of the excavator but it was a partly creditable acquisition as you acquired the excavator only partly for a creditable purpose. Therefore, your input tax credit entitlement is equal to the result of multiplying the GST paid by your extent of creditable purpose.

You can determine the extent of creditable purpose of your acquisition of the excavator as follows:

A + B

C

Where:

A is the length of the segment of trench that is used only by vehicles driving to the workshop.

B is 50% of the length of the segment of trench that is used by vehicles driving to the workshop as well as vehicles driving to the residence.

C is the sum of the following:

· the length of the segment of trench that is used by vehicles driving to the workshop as well as vehicles driving to the residence

· the length of the segment of trench that is used by vehicles driving to the workshop only

· the length of the segment of trench that is used by vehicles driving to the residence only.