Edited version of your written advice

Authorisation Number: 1012891661086

Date of advice: 12 October 2015

Ruling

Subject: GST and ITC

Question 1

Are you entitled to input tax credits (ITC) on your acquisition of the vehicle?

Answer

Yes.

Question 2

Are you entitled to ITC in relation to vehicle related expenses, repairs and maintenance and protective clothing?

Answer

You are entitled to ITC in relation to vehicle related expenses, repairs and maintenance and protective clothing provided they relate to acquisitions made entirely in the carrying on of your enterprise. You will need to apportion ITC in relation to acquisitions that are partly creditable.

Relevant facts and circumstances

You are registered for GST.

You carry on an enterprise as a sole trader.

Your home is set up according to the regulations in place in your industry.

You purchased a vehicle to be used solely for the purpose of carrying on your enterprise and you keep a log book.

The dealer reissued the tax invoice in your name. The trade in was also registered in your name.

The vehicle is insured with an insurance company under your name.

The Department of Transport and Main Roads, in your state, has transferred the vehicle to your name and the vehicle is registered in your name.

There is an agreement currently in place that you will repay the financed amount including interest.

You confirmed that the vehicle was tested during a holiday period for the purpose of testing fitness of purpose for your enterprise.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 sections 11-5, 11-15, 11-20

Reasons for decision

Question 1

Summary

Yes. You are entitled to input tax credits on your acquisition of the vehicle.

Detailed reasoning

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that entities that are registered for GST are entitled to claim input tax credits for creditable acquisitions that they make.

Section 11-5 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.

The asterisked terms are defined at section 195-1 of the GST Act.

An entity makes a creditable acquisition if it makes an acquisition solely or partly for a creditable purpose and the other requirements of section 11-5 of the GST Act are met.

You are registered for GST; the acquisition of the vehicle was a taxable supply to you.

The remaining issues are whether or not you provided consideration for the acquisition and whether the thing that you acquired was purchased solely or partly for a creditable purpose.

The dealer reissued the tax invoice in your name; the vehicle is insured with an insurance company under your name and the Department of Transport and Main Roads of your state has transferred the vehicle to your name and the vehicle is registered in your name.

In this case, there is an agreement currently in place between you and another entity that you will repay the financed amount including interest.

Therefore, in this instance, according to the agreement in place we consider that you are liable to provide consideration for the acquisition of the vehicle.

Section 11-15 of the GST Act defines the meaning of 'creditable purpose' as follows:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2) 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.

Goods and Services Tax Ruling GSTR 2006/4 explains the Commissioner's view on the meaning of 'creditable purpose' and 'extent of creditable purpose' in Divisions 11, 15 and 129 of the GST Act.

Paragraphs 49-50 of GSTR 2006/4 have been reproduced below:

Meaning of 'extent of creditable purpose'

49. The phrase 'extent of creditable purpose' is defined to mean the extent to which the creditable acquisition or importation is for a creditable purpose, expressed as a percentage of the total purpose of the acquisition or importation.

50. The phrase, 'to the extent that' appears in sections 11-15 and 15-10 which explain the meaning of 'creditable purpose'. The same phrase is to be found in section 8-1 of the ITAA 1997 and subsection 51(1) of the ITAA 1936. Under income tax law, the phrase 'to the extent that' has been found to require an apportionment to be made to determine what part of a loss or outgoing is deductible. The Commissioner views the phrase 'to the extent that' in the GST Act as incorporating the same apportionment concepts as under income tax law.

Paragraph 45 of GSTR 2006/4 provides that at the time of acquisition or importation, it is your planned use of the thing for a creditable purpose that is relevant in working out your input tax credit.

Paragraph 52 of GSTR 2006/4 provides that if you plan to use the acquisition solely (100%) for a creditable purpose then it is fully creditable and there is no need to apportion.

Paragraph 53 GSTR 2006/4 explains that a creditable acquisition or creditable importation is partly creditable where the extent of creditable purpose is greater than 0% but less than 100%.This will be the case where your acquisitions or importations are partly made in carrying on your enterprise.

Paragraph 55 GSTR 2006/4 mentions that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. The acquisition needs to be made in the course of the activities that constitute your enterprise. An acquisition is made 'in carrying on your enterprise' if it is made for the purposes of that enterprise, but not if it is made for some other purpose.

Paragraph 11-15(2)(b) of the GST Act provides that you do not acquire the thing for a creditable purpose to the extent that the acquisition is of a private or domestic nature.

You confirmed that the vehicle was tested during a holiday period for the purpose of testing fitness of purpose with children.

You also confirmed that you purchased the vehicle to be used solely in carrying on your enterprise and does not relate to making input taxed supplies. Therefore, your acquisition is not of a private or domestic nature. You are entitled to the full input tax credits on your acquisition of the vehicle; i.e. up to 1/11 of the car limit. The car limit is currently $57,466.

Question 2

Summary

You are entitled to ITC in relation to vehicle related expenses, repairs and maintenance and protective clothing provided they relate to acquisitions made entirely in the carrying on of your enterprise. You will need to apportion ITC in relation to acquisitions that are partly creditable.

Detailed reasoning

As stated above you are entitled to ITC to the extent your acquisitions relate to things acquired to be used solely in your enterprise. Where the acquisitions are partly used in your enterprise you need to apportion.

Please be aware that as a sole trader working from home you will need to apportion all expenses partly associated to your enterprise. For example you cannot claim full ITC in relation to electricity, water, gas and other things relating to private or domestic usage. You will need to apportion in relation to acquisitions not directly relating to your enterprise.

The Commissioner will accept an apportionment method that achieves a fair and reasonable calculation of the extent of creditable purpose.