Edited version of your written advice

Authorisation Number: 1012821494779

Date of advice: 17 June 2015

Ruling

Subject: GST and the entitlement to claim GST credit on purchase of a vehicle

Question

You purchased a second hand car for $X including goods and services tax (GST) and wish to know the following:

(a) What is the amount of GST payable on the sale price of $X?

(b) What is the amount of input tax credits that you are entitled to claim on the purchase of the car?

Answer

(a) The amount of GST payable on the total price is 1/11^th of the sale price which is $X.

(b) You are entitled to claim of input tax credits of $X which is 1/11^th of the car limit for the financial year 2014-15.

Please refer to the reasons for decision.

Relevant facts and circumstances

• You are registered for goods and services tax (GST) and purchased a second hand car from a supplier.

• The supplier has issued a tax invoice dated dd/mm/yyyy stating the total sale price as $X inclusive of GST.

• The supplier had advised you the following:

- that they did not claim the full GST amount on the original purchased price due to the Luxury Car Tax.

- that the GST amount included in the sale price would be the proportion of the GST amount they were entitled to claim and not 1/11^th of the sale price.

- that you are only entitled to claim GST around $X and not the 1/11^th of the sale price of $X.

• You wish to know the amount of GST included in the sale price and the amount of GST you are entitled to claim.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-40.

A New Tax System (Goods and Services Tax) Act 1999 section 9-70.

A New Tax System (Goods and Services Tax) Act 1999 section 9-75.

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

A New Tax System (Goods and Services Tax) Act 1999 section 29-70.

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that you must pay goods and services tax (GST) payable on any taxable supplies that you make.

Under section 9-70 of the GST Act, the amount of GST payable on a taxable supply is 10 percent of the value of the taxable supply.

According to section 9-75 of the GST Act the value of a taxable supply is:

Price x 10/11

To calculate the GST, you must know the value of the taxable supply. GST is calculated as 10% of that value.

The value of the supply is 10/11^th of the price. This means in effect that the GST is calculated as 1/11^th of that price.

The supplier must account for that amount to the ATO irrespective of whether the supplier actually included any GST component in the price.

Tax Invoice

Section 29-70 of the GST Act provides that a tax invoice for a taxable supply must be issued by the supplier, unless it is a recipient created tax invoice (in which case it must be issued by the recipient); and must be set out the ABN of the entity that issues it; and must set out the price for the supply; and must contain such other information as the regulations specify; and must be in the approved form.

Paragraph 13 of the Goods and Services Tax Ruling GSTR 2013/1 explains that paragraph 29-70(1)(c) of the GST Act requires that the particular information in subparagraphs (i) to (viii) is able to be clearly ascertained from the information in the document. This means that the information does not have to be specifically stated or in a particular format. What is required is that the information can be found in the document or determined from information within the document. It further means that to be clearly ascertained, enough information must be present and it must be clear what the information represents.

Based on the information provided on the tax invoice, the supplier is making a taxable supply and therefore the supplier is liable to remit GST of 1/11^th of the total price. The supply of the vehicle described in the tax invoice is not GST-free or input taxed supply. Therefore, the amount of GST included in the sale price would be 1/11^th of the sale price of $X which is $X.

Input tax credit

Section 11-20 of the GST Act provides that you are entitled to input tax credit (ITC) for any creditable acquisition that you make.

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.

You do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

If you have acquired the vehicle for a creditable purpose, you are entitled to claim ITC for the acquisition. However, there are limits to the ITC you can claim in regard to a motor vehicle you have acquired. GST Bulletin GSTB: 2006/1: How to claim input tax credits for car expenses states the amount of ITC is limited where the GST inclusive market value of the car exceeds the car depreciation limit for the financial year in which you first used the car for any purpose and you are not entitled to quote an Australian Business Number in relation to the supply. Where these conditions apply the ITC is limited to 1/11 of the car depreciation limit of that year. (Paragraph 68 of the GSTB 2006/1)

The car depreciation limit for the financial year 2014-15 is $57,466. Therefore, the ITC you are entitled to the purchase of the vehicle is 1/11^th of $57,466 which is $5,224.

Please note that where you do not use the vehicle solely for the purposes of your enterprise, you are required to apportion the amount of the ITC.