GST and input tax credits for car dealers acquiring cars from a charitable institution, a trustee of a charitable fund, a gift deductible entity or a government school

Is the entity, a car 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), for its acquisition of a used car from a charitable institution, a trustee of a charitable fund, a gift deductible entity or a government school ('a charity etc') where the supply to the entity is a GST-free supply under section 38-250 of the GST Act?

No. The entity is not entitled to an input tax credit under section 11-20 of the GST Act for its acquisition of a used car from a charity etc, where the supply to the entity is a GST-free supply under section 38-250 of the GST Act.

The entity is a car dealer. The entity acquires a used car from a charity etc.

The supply to the entity is a GST-free supply under section 38-250 of the GST Act.

The entity intends to on sell the car through its dealership.

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.

Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if: • it acquires anything solely 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 for GST.

The supply of the used car by the charity etc to the entity is GST-free under section 38-250 of the GST Act. Therefore, the supply to the entity is not a taxable supply and the second requirement of section 11-5 of the GST Act is not satisfied.

A special rule in Division 66 of the GST Act provides that if an entity acquires second-hand goods for the purpose of sale or exchange in the ordinary course of business, the fact that the supply of the goods to the entity is not a taxable supply does not stop the acquisition being a creditable acquisition. However, paragraph 66-5(2)(a) of the GST Act provides that Division 66 of the GST Act does not apply if the supply of the goods to the entity is taxable or GST-free.

Although the entity has acquired the used car for the purpose of on selling it through its business, the supply of the used car to the entity is GST-free. Therefore, the special rule in Division 66 of the GST Act does not apply.

Accordingly, the entity is not making a creditable acquisition and is not entitled to an input tax credit under section 11-20 of the GST Act for its acquisition of a used car from a charity etc where the supply to the entity is a GST-free supply under section 38-250 of the GST Act. [Note 1: section 38-250 of the GST Act provides that supplies made by a charitable institution, a trustee of a charitable fund, a gift deductible entity or a government school, for nominal consideration are GST-free. Note 2: if the supply of the used car by a charity etc to the entity is a taxable supply and the remaining requirements in section 11-5 of the GST Act are satisfied, the entity would be entitled to an input tax credit under section 11-20 of the GST Act.]