Issue
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 the acquisition of a second-hand car from an eligible disabled person who is not registered for goods and services tax (GST) where the subsequent supply of that car by the entity is a taxable supply?
Decision
Yes, the entity is entitled to an input tax credit under section 11-20 of the GST Act for the acquisition of a second-hand car from an eligible disabled person who is not registered for GST where the subsequent supply of that car by the entity is a taxable supply.
Facts
The entity is a car dealer.
The entity acquired a second-hand car from an eligible disabled person. The eligible disabled person originally purchased the car through a GST-free supply under Subdivision 38-P of the GST Act. The eligible disabled person is not registered or required to be registered for GST.
The entity held the car as trading stock in the course of carrying on its enterprise and sold the car to a customer.
The supply of the car to the customer was a taxable supply under section 9-5 of the GST Act.
Subdivision 66-B of the GST Act does not apply to the entity's acquisition of the car.
The entity is registered for GST.
Reasons for Decision
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 for GST.
The entity acquired the car for a creditable purpose, provided consideration for the supply and is registered for GST.
However, section 9-5 of the GST Act provides that, as the entity acquired the second-hand car from a person who is not registered or required to be registered, the supply to the entity was not a taxable supply.
Under subsection 66-5(1) of the GST Act, if an entity acquires second-hand goods for the purposes of sale or exchange (but not for manufacture) 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.
As the entity acquired the second-hand car for the purposes of sale or exchange (but not for manufacture) in the ordinary course of its business, the requirements in subsection 66-5(1) of the GST Act are satisfied.
However, subsection 66-5(2) of the GST Act provides that section 66-5 of the GST Act does not apply, and is taken never to have applied to the acquisition, if: • the supply of the goods to the entity was a taxable supply or a GST-free supply • the entity imported the goods • the supply of the goods to the entity was a supply by way of hire • Subdivision 66-B of the GST Act applies to the acquisition, or • the entity makes a supply of the goods that is not a taxable supply.
The supply of the car to the entity, by the eligible disabled person who is not registered or required to be registered for GST, is neither a taxable supply nor a GST-free supply. The entity did not import the car, the supply of the car to the entity was not a supply by way of hire, Subdivision 66-B of the GST Act does not apply to the entity's acquisition of the car, and the entity's subsequent supply of the car is a taxable supply. Accordingly, subsection 66-5(2) of the GST Act does not exclude section 66-5 of the GST Act from applying. The fact that the supply of the car to the entity was not a taxable supply does not stop the entity's acquisition being a creditable acquisition.
Therefore, the entity is entitled to an input tax credit under section 11-20 of the GST Act, for the acquisition of a second-hand car from an eligible disabled person who is not registered for GST and where the entity's subsequent supply of the car is a taxable supply. Note: The fact that the car was originally supplied to the eligible disabled person as a GST-free supply will not effect the entity's entitlement to an input tax credit.