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Is the entity, a business operator, entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it purchases a replacement trailer, before 23 May 2001, using funds from an insurance payout?

No, the entity is not entitled to an input tax credit under section 11-20 of the GST Act when it purchases a replacement trailer, before 23 May 2001, using funds from an insurance payout.

The entity is a business operator. The entity was involved in an accident that resulted in the detachable trailer for its prime mover being written off. The entity received a cash payout as settlement for its insurance claim. Using the money from the insurance payout, the entity purchased a new trailer for its prime mover. The entity's purchase occurred before 23 May 2001.

The trailer is designed to be towed by a prime mover and is not designed to be towed by a car. The entity did not purchase it for use as trading stock nor it is not held for hire. The trailer is not second-hand. The acquisition of the trailer would have been subject to sales tax if sales tax had not been ended by the A New Tax System (End of Sales Tax) Act 1999.

The entity is registered for goods and services tax (GST).

Under section 11-20 of the GST Act, an entity is entitled to an input tax credit for any creditable acquisition that it makes. However, section 20 of the A New Tax System (Goods and Services Tax Transition) Act 1999 (Transition Act) provides for the phasing in of input tax credits for motor vehicles, detachable trailers and motor vehicle bodies.

Paragraph 20(1)(b) of the GST Act provides that the phasing in provisions apply to the acquisition by way of purchase (including hire purchase) or importation of a detachable trailer designed to be towed by a prime mover of a kind prescribed in the A New Tax System (Goods and Services Tax Transition) Regulations 2000 (Transition Regulations).

Regulation 6 of the Transition Regulations provides that any kind of detachable trailer designed to be towed by a prime mover (except a kind of detachable trailer designed to be towed by a car and commonly used for private or domestic purposes) is a detachable trailer for the purposes of paragraph 20(1)(b) of the Transition Act.

Under subsection 20(2) of the GST Act, an entity is not entitled to an input tax credit on the acquisition or importation if it was made before 23 May 2001.

The entity has acquired a detachable trailer that is designed to be towed using a prime mover, not a car, before 23 May 2001.

However, under subsection 20(4) of the Transition Act, the phasing in of input tax credits does not apply if the detachable trailer: • is acquired to hold as trading stock (unless it is held for hire); • is second-hand; • would have been sales tax exempt, if sales tax had still applied; or • is acquired by an insurer to replace another trailer under an insurance policy.

The entity did not purchase the trailer for use as trading stock, it is not held for hire, nor is the trailer second-hand. In addition, the trailer would have been subject to sales tax if sales tax still applied.

The final exclusion in subsection 20(4) of the Transition Act is where an insurer acquires a trailer, to replace an insured trailer. In this case, it is the entity, and not the insurer, that acquired the trailer. The insurer settled the entity's insurance claim via a payment of money. The entity then used that money to acquire the trailer.

Accordingly, the acquisition by the entity is not excluded from section 20 of the Transition Act and the phasing in provisions apply to the acquisition of the trailer.

Therefore, the entity is not entitled to an input tax credit under section 11-20 of the GST Act when it purchases a replacement trailer, before 23 May 2001, using funds from an insurance payout.