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Edited version of private advice
Authorisation Number: 1051526309163
Date of advice: 5 June 2019
Ruling
Subject: GST and second-hand goods
Question 1
As the new owner of the business, are you entitled to input taxed credits for the second goods that you purchased as part of a GST-free sale of a going concern, if the vendor had not attributed any input tax credits against the resale of the second-hand goods?
Answer
No.
Relevant facts and circumstances
You are registered for GST.
You purchased a business from a specified entity (the vendor), for a specified price. The contract was settled on a specified date.
The vendor was registered for GST. The sale of the business to you was treated as a GST-free supply of a going concern under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The sale meets all the requirements of section 38-325 GST Act.
The first page of the Contract for the sale of the business shows that purchase price of $X was broken down as follows:
· Goodwill: $Y
· Stock: $Z
The nature of the business is such that a large proportion of the inventory is purchased from private vendors as second-hand goods. Sometimes whole items are purchased and are then broken down for individual sale, other times spare parts are purchased for immediate resale.
A large proportion of current purchases are purchased from private vendors and placed within the same inventory list as those previously purchased from the vendor.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 11-5
A New Tax System (Goods and Services Tax) Act 1999 section 11-20
A New Tax System (Goods and Services Tax) Act 1999 section 66-5
Reasons for decision
Summary
You are not entitled to an input tax credit for the second-hand goods that were supplied to you as part of a GST-free supply of a going concern.
Detailed reasoning
Under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are entitled to input tax credits for any creditable acquisitions that you make.
Section 11-5 of the GST Act states 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.
(* denotes a defined term in section 195-1 of the GST Act)
Paragraph 11-5(b) of the GST Act requires that the supply of the thing to you is a 'taxable supply' within the meaning of section 9-5 of the GST Act. However, Division 66 of the GST Act qualifies the operation of Division 11 of the GST Act by allowing an input tax credit for the acquisition of second-hand goods even though the supply of the goods to you is not a taxable supply.
Subsection 66-5(1) of the GST Act provides that if you acquire second-hand goods for the purposes of sale or exchange (but not for manufacture) in the ordinary course of business, the fact that the supply of the goods to you is not a taxable supply does not stop the acquisition being a creditable acquisition.
However, subsection 66-5(2) of the GST Act provides that section 66-5 of the GST Act does not apply and is taken never to have applied to the acquisition if:
(a) the supply of the goods to you ... was *GST-free; or
...
(d) Subdivision 66-B applies to the acquisition; or
Subdivision 66-B of the GST Act sets out special rules for second-hand goods that are divided prior to re-supply. Subsection 66-40(1) of the GST Act provides that Subdivision 66-B of the GST Act applies to an acquisition of second-hand goods if:
(a) you acquire the goods for the purposes of sale or exchange (but not for manufacture) in the ordinary course of *business ; and
(b) either the *consideration for the acquisition was more than $300 or you choose to have this section apply to the acquisition; and
(c) the goods are of such a kind, or they are supplied to you in such a way, that it would be reasonable to expect you to divide them before supplying them in 2 or more separate supplies; and
(d) you do not subsequently make a single supply of the entirety of the goods acquired.
However, subsection 66-40(2) of the GST Act provides that Subdivision 66-B of the GST Act does not apply and is taken never to have applied to the acquisition if:
...
(b) the supply of the goods to you ... was *GST-free ; or
...
In this case the vendor was registered for GST. The supply of the second-hand goods by the vendor to you was GST-free as it was made as part of a GST-free supply of a going concern under section 38-325 of the GST Act. Therefore, input tax credits are not available to you on the purchase of the second-hand goods from the vendor due to the exclusion in paragraphs 66-5(2)(a) and 66-40(2)(b) of the GST Act.