Edited version of private advice

Authorisation Number: 1052008949164

Date of advice: 18 July 2022

Ruling

Subject: GST groups and the car limit

Question 1

Does section 69-10(1) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to limit the amount of the input tax credit the GST Group Representative is entitled to claim on the acquisition of aftermarket products and the motor vehicle for which they are installed, where the consideration for the acquisition of aftermarket products is by the GST Group representative or GST Group member 1 and the consideration for the acquisition of the motor vehicle to which they are fitted is provided by GST Group member 2?

Answer

Section 69-10(1) does not limit the amount of input tax credit the GST Group representative is entitled to claim for the acquisition of aftermarket products by either themselves or GST Group member 1. However, section 69-10(1) of the GST Act may limit the entitlement of input tax credits by the GST Group representative for the acquisition of the motor vehicle by GST Group member 2 where the GST inclusive market value of the motor vehicle exceeds the car limit for the financial year in which they first used it for any purpose.

Question 2

Is the supply of the aftermarket products by the GST Group Representative or GST Group member 1 to GST Group member 2 treated as if it were not a taxable supply pursuant to section 48-40(2)(a) of the GST Act nor a creditable acquisition pursuant to section 48-45(3) of the GST Act, and no GST adjustment or other GST liability arises for GST Group representative in relation to this transaction?

Answer

Yes, supplies and acquisitions between GST Group members are treated as if they were not taxable supplies nor creditable acquisitions, and no GST adjustment or other GST liability arises for GST Group representative in relation to these transactions between GST Group members.

This ruling applies for the following period:

From 1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The GST Group representative (Group Rep), GST Group member 1 (Group Mem 1) and GST Group member 2 (Group Mem 2) are all members of the same GST Group.

The Group Rep or Group Mem 1 have arrangements with aftermarket product providers (third-party providers) to acquire the aftermarket products and supply them to the relevant lease financier/provider at a retail price. This includes the supply of parts to Group Mem 2 where Group Mem 2 is the lease financier/provider.

The aftermarket parts are generally fitted to the motor vehicle by the motor vehicle Dealer and prior to the vehicle being made available to the employee.

The third-party providers are separate and unrelated to the motor vehicle Dealers from which Group Mem 2 acquires the motor vehicles.

Group Rep or Group Mem 1 acquire aftermarket products at a wholesale price from a third-party supplier, who are separate and unrelated to the motor vehicle Dealers from which the 'car' is acquired by Group Mem 2. The Group Rep or Group Mem 1 then supply the aftermarket products to Group Mem 2 at a retail price. Group Mem 2 acquires a supply of a 'car' from a motor vehicle Dealer and arranges instalment of the aftermarket products with the motor vehicle Dealer they acquired from Group Rep or Group Mem 1. Group Mem 2 supplies the 'car' with the aftermarket products installed to a lessee under a novated lease arrangement.

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 Section 11-20

A New Tax System (Goods and Services Tax) Act 1999 Subsection 69-10(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 48-40(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 48-45(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 48-40(2)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 48-45(3)

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Question 1

Detailed reasoning

Under section 11-20 you are entitled to input tax credits (ITCs) for any creditable acquisitions that you make.

Section 11-5 provides that you make a creditable acquisition if:

a)    you acquire anything solely or partly for a creditable purpose

b)    the supply of the thing to you is a taxable supply

c)    you provide or are liable to provide consideration for the supply, and

d)    are registered or required to be registered for GST.

The amount of ITCs for a creditable acquisition is equal to the GST payable on the supply of thing acquired unless:

•         the acquisition is partly creditable; in which case, the ITC is worked out based on the extent of the creditable purpose; or

•         subsection 69-10(1) applies.

Subsection 69-10(1) limits the amount of ITCs for a creditable acquisition or creditable importation of a car. Where the GST inclusive market value of the car exceeds the car limit for the financial year in which you first used the car for any purpose, the amount of ITCs is 1/11th of that limit.

For the purpose of subsection 69-10(1) of the GST Act, a 'car' refers to a car as defined in the Income Tax Assessment Act 1997.

Under section 11-20, the entity making a creditable acquisition is the entity entitled to ITCs. An exception to this where the representative member of a GST Group (in this case you) has the entitlement to an ITC that is attributable to a tax period (subsection 48-45(1).

Whilst the Group Rep, Group Mem 1 and Group Mem 2 are members of the same GST group, we do not consider that Division 48 has the effect that supplies by members of a GST group are made by the GST group, or that the GST group is treated as single entity for all purposes under the GST Act.

In the circumstances provided, the Group Rep or Group Mem 1 are acquiring the aftermarket products at a wholesale price from a third-party supplier, who are separate and unrelated to the motor vehicle Dealers from which the car is acquired by Group Mem 2. The Group Rep or Group Mem 1 then supplies the aftermarket products to Group Mem 2 at a retail price. Group Mem 2 acquires a supply of a car from a motor vehicle Dealer and arranges instalment of the aftermarket products with the motor vehicle Dealer. Group Mem 2 supplies the car with the aftermarket products installed to a lessee under a novated lease arrangement.

Division 48 (which contains provisions relating to GST groups), whilst altering the basic rules relating to the entity liable for GST on taxable supplies (and entitlement to ITCs in respect to creditable acquisitions) contained in section 9-40 and section 11-20, does not alter which entity makes the supplies or acquisitions - see subsection 48-40(1) and subsection 48-45(1).

When the Group Rep or Group Mem 1 make a creditable acquisition of aftermarket products from a third-party supplier, they are the entity making the acquisition of the aftermarket products. When Group Mem 2 makes an acquisition of a car from a motor vehicle Dealer, they are the entity making the acquisition of a car.

Applying subsection 48-40(1) and subsection 48-45(1) to your circumstances, while the Group Rep has the entitlement to the ITCs in respect to these creditable acquisitions, the Group Rep is not the entity making the acquisition of the car. Therefore, subsection 69-10(1) of the GST Act would not limit ITCs able to be claimed by the Group Rep on the acquisition of third-party aftermarket products by themselves or Group Mem 1.

However, subsection 69-10(1) of the GST Act may limit the entitlement of ITCs by Group Rep for the acquisition of the car by Group Mem 2 where the GST inclusive market value of the car exceeds the car limit for the financial year in which they first used the car for any purpose. The amount of ITCs is 1/11th of the car limit.

Question 2

Detailed reasoning

Paragraph 48-40(2)(a) states that 'a supply that an entity makes to another member of the same GST group is treated as if it were not a taxable supply...'.

Paragraph 48-45(3) states 'an acquisition that an entity makes from another member of the same GST group is not a creditable acquisition...'.

Therefore, the supplies of aftermarket products by the Group Rep or Group Mem 1 to Group Mem 2 are treated as if they were not taxable supplies nor creditable acquisitions, and no GST adjustment or other GST liability arises for the GST Group representative in relation to the transactions between GST Group members.