GST and trade-in of motor vehicle partly used for business

Is the entity, a sole trader, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act ), when it trades in a motor vehicle that it has used partly for business purposes?

Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it trades in a motor vehicle that it has used partly for business purposes.

The entity is a sole trader carrying on an enterprise. The entity is trading in its vehicle for another vehicle.

The entity used the vehicle partly for private and partly for business purposes. The replacement vehicle will be used in the same way.

The entity is registered for the goods and services tax (GST) and the supply is made in Australia.

Section 9-5 of the GST Act sets out the requirements that must be met for an entity to make a taxable supply.

Under section 9-5 of the GST Act, an entity makes a taxable supply if: • the supply is for consideration; • the supply is made in the course or furtherance of an enterprise that the entity carries on; • the supply is connected with Australia; and • the entity is registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case, the consideration received for the supply of the vehicle is the difference between the price of the replacement vehicle and the amount of other consideration (for example cash) provided for the replacement vehicle.

The supply is made in Australia and the entity is registered for GST.

The question in this case is whether the trade-in is a supply made in the course or furtherance of the entity's enterprise. From the facts it is evident that the supply is made in connection with the enterprise, and/ or for the purpose or object of achieving the enterprises goals. Therefore, the trade in of the vehicle is a supply made in the course or furtherance of the entity's enterprise.

As such, the trade in of the motor vehicle satisfies all of the positive limbs of section 9-5 of the GST Act.

The supply of the vehicle is not GST-free under Division 38 of the GST Act, nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act, when it trades in a motor vehicle used partly for business purposes.

The GST payable is 1/11th of the consideration received for the trade-in. [NOTE: Where a motor vehicle that has been used solely or partly for a private or domestic purpose is supplied by way of sale, the entity may be entitled to a decreasing adjustment under section 132-5 of the GST Act.]