GST and entitlement to an input tax credit for a payment of compulsory third party motor vehicle insurance made prior to 1 July 2003

Is the entity, a motor vehicle dealer, 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 pays compulsory third party motor vehicle insurance prior to 1 July 2003 and paragraph 23(1)(a) of the A New Tax System (Goods and Services Tax Transition) Act 1999 (Transition Act) applies?

No, the entity is not entitled to an input tax credit under section 11-20 of the GST Act when it pays compulsory third party motor vehicle insurance prior to 1 July 2003 and paragraph 23(1)(a) of the Transition Act applies.

The entity is a motor vehicle dealer. The entity acquires compulsory third party motor vehicle insurance solely for a creditable purpose. The supply of compulsory third party motor vehicle insurance to the entity is a taxable supply under section 9-5 of the GST Act.

The entity pays for the compulsory third party motor vehicle insurance prior to 1 July 2003, together with the registration fee for the vehicle. The compulsory third party motor vehicle insurance scheme is a statutory compensation scheme that is specified in the A New Tax System (Goods and Services Tax Transition) Regulations 2000 (Transition Regulations).

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

Section 11-20 of the GST Act provides that an entity is entitled to an input tax credit for any creditable acquisition that it makes.

Under section 11-5 of the GST Act, an entity makes a creditable acquisition if: • the entity acquires anything solely or partly for a creditable purpose; • the supply of the thing to the entity is a taxable supply; • the entity provides or is liable to provide consideration for the supply; and • the entity is registered or required to be registered.

In this case, the payment of the compulsory third party motor vehicle insurance satisfies the requirements under section 11-5 of the GST Act. As such, the entity would normally be entitled to an input tax credit, under section 11-20 of the GST Act, for the payment of compulsory third party motor vehicle insurance.

However, under paragraph 23(1)(a) of the Transition Act, no input tax credit can be claimed for a premium, contribution, or similar payment made under, or a levy paid in connection with a compulsory third party scheme before 1 July 2003.

Paragraph 23(2)(a) of the Transition Act defines a compulsory third party scheme to include a statutory compensation scheme that is specified or is of a kind specified in the Transition Regulations.

In this case, payment of the compulsory third party motor vehicle insurance was made in connection with a compulsory third party scheme that is a statutory compensation scheme specified in the Transition Regulations.

Therefore, paragraph 23(1)(a) of the Transition Act applies and the entity is not entitled to an input tax credit under section 11-20 of the GST Act when it pays compulsory third party motor vehicle insurance prior to 1 July 2003.