Edited version of your private ruling

Authorisation Number: 1012503135219

Ruling

Subject: GST and compulsory third party insurance (CTP)

Question

Are you or the bank entitled to claim an input tax credit of 1/11^th on the compulsory third party insurance premiums paid to the insurance company?

Answer

You are the entity entitled to claim an input tax credit of 1/11^th on the compulsory third party insurance premiums paid to the insurance company.

Relevant facts and circumstances

· You lease a car under a lease agreement entered into with the bank pursuant to the terms of a master agreement.

· The lease agreement provides that once you are satisfied with the terms and conditions of your Lease Agreement you should:

· arrange for execution of the Lease Agreement by the relevant parties where indicated;

· complete and sign the enclosed Direct Debit Request form and return it to the bank;

· provide the bank with a copy of a comprehensive insurance policy for loss or damage for the full insurable value of the Goods, noting the bank as the owner;

· provide satisfactory original tax invoices that indicate full description of equipment, including year of manufacture whether new or used and any serial registration/VIN / engine numbers (as applicable).

· You declared under the agreement that the goods to be leased by you from the lessor are to be used wholly or predominantly for business purposes and that you will hold the goods to be leased in the course or furtherance of carrying on an enterprise.

· The seller of the car issued a tax invoice for the supply of the car. The supply of the car is invoiced to the bank. It is evident from the tax invoice that the car was to be delivered to you. The tax invoice also contains a statement at the bottom informing that the CTP insurance amount of $xxx includes a GST amount of $xx.

· The compulsory third party insurance certificate (CTPI certificate) was issued in your name by the insurance company. This insurance certificate shows the premium paid as $xxx and a GST amount of $xx.

· You informed that the bank has stated that the GST component on the CTPI certificate for the amount of $xx cannot be claimed by them and that it is entirely up to you to claim the input tax credits in your activity statement.

· You believe that as the bank owns the good for the first 12 months the bank should be able to claim the input tax credits; as the bank is paying the full balance on the invoice to the dealer.

· You also informed that all other banks you deal with are claiming the input tax credits on the CTPI premium paid.

Relevant legislative provisions

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

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

Reasons for decision

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that you are entitled to input tax credits for any creditable acquisition that you make.

Specifically, section 11-5 of the GST Act provides 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.

In order to make a creditable acquisition you must satisfy all the above criteria.

Subsection 11-5(a) of the GST Act provides that, "you acquire anything solely or partly for a creditable purpose". Subsection 11-5(a) of the GST Act revolves around two issues; "acquiring" and "the acquisition being for a creditable purpose".

In order to determine who acquires the supply of compulsory third party insurance, we turn to the information provided and look at what took place between the concerned parties.

The information made available to us mentions that you have to provide the bank with a copy of a comprehensive insurance policy for loss or damage for the full insurable value of the Goods, noting the bank as the owner.

However, the CTPI certificate was issued in your name by the insurance company. This insurance certificate shows the premium paid as $xxx and a GST amount of $xx. This certificate also shows the Agency Name as the seller of the car.

Furthermore, the bank has advised you that the GST component on the CTPI certificate for the amount of $xx cannot be claimed by them and that it is entirely up to you to claim the input tax credits in you activity statement.

You also declared under the agreement that the goods to be leased by you from the lessor are to be used wholly or predominantly for business purposes and that you will hold the goods to be leased in the course or furtherance of carrying on an enterprise. Therefore, we agree that you acquired the goods in question for a creditable purpose.

In this case we are of the view that the insurance company made a supply of insurance services to you, not to the bank. The supply in question is one of the running costs specified under the agreement between you and the bank, that is, the cost of the compulsory third party insurance.

As the bank has not acquired the compulsory third party insurance, section 11-5 of the GST Act cannot be satisfied. It follows that the bank has not made a creditable acquisition under section 11-5 of the GST Act. Therefore, the bank is not entitled to claim an input tax credit on the compulsory third party insurance premium.

Therefore, according to the facts provided, we are satisfied that you, not the bank, acquired the insurance services in the course or furtherance of your enterprise.

You are the entity entitled to claim the input tax credits for your creditable acquisition under section 11-20 of the GST Act.

Please note that each case revolves around its own specific facts. As, we are not privy to the agreements between you and other banks, we cannot provide an answer as to why other banks you deal with claim the input tax credits.