Private ruling: Goods and services tax (GST) and the purchase of a car
Date of advice: 14 August 2017
Published: November 2017

Ruling: Q1: Are you entitled to an input tax credit on your director’s purchase of the car which your director uses to carry two laptops and a large suitcase with files containing your client’s information? | A1: No.

Relevant facts and circumstances: You are registered for GST. You operate a professional business. Your director and public officer purchased a car in their name on (date) for (price) including GST. You existed and were registered for GST at that time. You did not reimburse the director for the purchase price of that car. Your director drives the car from home to work (your office) and back home (day of week) to (day of week). Your director takes two laptops and a large suitcase home with them in the car after the end of each working day. The laptops have client information on them. The suitcase contains client files. There is public transport, but your director stated that they can’t use public transport to carry these items home because they are too heavy. Your director carries the items with them at all times because they are concerned about keeping your clients’ private information secure and protecting your business’s goodwill and it is essential to do so to keep your business running without interruption. Even on (day of week), when your director goes to park or shop, they put the laptops in the car. The doors of your office have digital locks. There are lockable filing cabinets at your office which you can store client case files in. However, your director considers that your office is not secure enough to store the laptops and client files and they can’t be left at the office overnight because: ● your office is in a suburb main street, at night time there are not many residents living on that street and there is no-one to safeguard the office after trading hours; and ● a shop opposite your office closed in (year) after many years operating a (type of business) on that street. On several occasions your director considered the possibility of moving to the business premises to safeguard the documents/records, but it is a commercial building and people cannot legally live in the building and there is no kitchen. Your director mainly works from your office. From time to time, your director travels for work related purposes, that is, meeting potential new clients, marketing and visiting clients. Your director’s home is not a place to meet any clients. Your director’s home has a digital lock. Your director’s use of the car for purely shopping and park is a small percentage.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-15 | A New Tax System (Goods and Services Tax) Act 1999 Division 60 | A New Tax System (Goods and Services Tax) Act 1999 Division 111

Reasons for decision: Summary: You did not purchase the car in question. Your director purchased the car in their name. Therefore, you do not meet the requirement of paragraph 11-5(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Hence, you are not entitled to an input tax credit under section 11-5 of the GST Act. The acquisition of the car is not a 'pre-establishment acquisition’ under section 60-15 of the GST Act. Therefore, you are not entitled to an input tax credit under section 60-5 of the GST Act. You have not reimbursed the director for the cost of purchasing the car or paid the car dealer the price of the car. Therefore, you are not entitled to an input tax credit, under Division 111 of the GST Act, in connection with the purchase of the car. | Detailed Reasoning - Detailed reasoning: You are entitled to input tax credits on your creditable acquisitions. You make a creditable acquisition where you satisfy the requirements of section 11-5 of the GST Act, which states: You make a creditable acquisition if: (a) you acquire anything solely or partly for a *creditable purpose; and (b) the supply of the thing to you is a *taxable supply; and (c) you provide, or are liable to provide, *consideration for the supply; and (d) you are *registered, or *required to be registered. (*Denotes a term defined in the GST Act) Subsection 11-15(1) of the GST Act states: You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise. Subsection 11-15(2) of the GST Act states: However, you do not acquire the thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be *input taxed; or (b) the acquisition is of a private or domestic nature. You did not purchase the car in question. Your director purchased the car in their name. Therefore, you do not meet the requirement of paragraph 11-5(a) of the GST Act. Hence, you are not entitled to an input tax credit under section 11-5 of the GST Act. Section 60-5 of the GST Act allows a company to claim an input tax credit on a pre-establishment acquisition made by a person who later becomes a member, officer or employee of the company, subject to certain requirements. Section 60-5 of the GST Act states: If you make a *creditable acquisition that is a *pre-establishment acquisition, or a *creditable importation that is a *pre-establishment importation, relating to a *company before it is in existence: (a) you are not entitled to the input tax credit on the acquisition or importation’ and (b) once the company is in existence, it is entitled to the input tax credit on the acquisition or importation. Subsection 60-15(1) of the GST Act states: An acquisition that you make is a pre-establishment acquisition , and an importation that you make is a pre-establishment importation , if: (a) you do not *apply the thing acquired or imported for any purpose other than for a *creditable purpose relating to a *company not yet in existence; and (b) the company comes into existence, and becomes *registered, within 6 months after the acquisition or importation; and (c) you become a member, officer or employee of the company; and (d) in the case of an acquisition – you have been fully reimbursed by the company for the *consideration you provided for the acquisition; and (e) in the case of an importation – you have been fully reimbursed by the company: (i) for the *assessed GST paid on the importation; and (ii) for the cost of acquiring or producing the thing imported. Subsection 60-15(2) of the GST Act states: However, the acquisition or importation is not a pre-establishment acquisition or a pre-establishment importation if: (a) you are entitled to an input tax credit for the acquisition or importation; or (b) the company acquires the thing acquired or imported, and that acquisition by the company is a *creditable acquisition. You were in existence and were registered for GST when your director purchased the car and you did not reimburse the director for the purchase of the car. Therefore, you are not entitled to an input tax credit pursuant to section 60-5 of the GST Act for the GST component of the price of the car. Division 111 of the GST Act provides that a company may be entitled to an input tax credit relating to a reimbursement of an employee’s or officer’s expense. The provision also allows for an input tax credit where the company pays a third party supplier in relation to an expense incurred by a staff member, if certain requirements are met. You do not have an entitlement to an input tax credit under this Division in connection with the cost of purchasing the car as you did not reimburse the director or pay the car dealer the purchase price. Additional information - running costs To determine whether you are entitled to input tax credits for running costs we need to consider section 11-5 of the GST Act and Division 111 of the GST Act. | Detailed Reasoning - Your purchase of things relating to the running of the car: Where you acquire something relating to the running of the car (for example, petrol), such an acquisition is made in carrying on your enterprise to the extent that it relates to business travel or providing a fringe benefit to an employee. In accordance with paragraph 52 of Goods and Services Tax Ruling GSTR 2001/3, an acquisition made by an employer for the purpose of providing a fringe benefit to an employee is an acquisition made in carrying on an enterprise and is not of a private or domestic nature for the purposes of section 11-15 of the GST Act. The following trips are considered business travel: ● trips from your office to an alternative workplace (for example, your client’s premises) and back to your office, and ● trips from your director’s home to an alternative workplace and then to your office or directly to their home. We consider that trips between your office and your director’s home are private trips because: ● home to work travel and work to home travel is generally private; and ● there are lockable facilities in your office to secure the equipment you refer to; and ● we do not consider that two laptops and a suitcase with client files in it in combination is bulky equipment (The two laptops could be carried in a rucksack, which could be carried over one shoulder; the suitcase could be carried in one hand). The transport of the specified work equipment in the car between your office and your director’s home is not sufficient to change the character of these trips from private to business. A car running cost you incur relates to providing a fringe benefit to an employee to the extent that it relates to private trips made by your director, provided that your director has the status of employee and you are providing the associated benefit (of paying the running cost) to the director in respect of their employment. Under such circumstances, you would be acquiring the thing related to the car running cost (for example, petrol) in carrying on your enterprise. The acquisition would not be of a private or domestic nature for the purposes of section 11-15 of the GST Act and would not relate to making supplies that are input taxed. Hence, you would acquire the thing for a creditable purpose. Therefore, the requirement of paragraph 11-15(a) of the GST Act would be met. Taxation Ruling TR 2005/16 provides guidance on determining whether a worker is an employee. Where the thing supplied to you is subject to GST, you would meet the requirement of paragraph 11-5(b) of the GST Act. Where you purchase something, you would meet the requirement of paragraph 11-5(c) of the GST Act. You are registered for GST. Therefore, you meet the requirement of paragraph 11-5(d) of the GST Act. Hence, you would be entitled to an input tax credit for the GST component of your purchase of something relating to the running of the car if your director is your employee and the purchase corresponds to the following only: ● providing a fringe benefit; and/or ● use of the car for business travel. In accordance with paragraph 70 of Goods and Services Tax Ruling GSTR 2008/1, one factor that would suggest that an acquisition is made in carrying on an enterprise is that the acquisition does not meet the personal needs of individuals such as partners or directors. If your director is not your employee, your purchase of something relating to the running of the car would only be an acquisition made in carrying on your enterprise to the extent that it relates to business travel (see information about what is business travel above). Under such circumstances, you would meet the requirements of section 11-5 of the GST Act, and therefore, be entitled to an input tax credit provided that the thing acquired was subject to GST. If the extent of creditable purpose under such circumstances is partial, the input tax credit would be a percentage of the GST component equal to the extent to which the car is used for business trips. Goods and Services Tax Bulletin GSTB 2006/1 provides guidance on determining the extent of creditable purpose of an acquisition relating to a car running expense. | Detailed Reasoning - Reimbursements of running costs: Where your director incurs a car running expense and you reimburse this director for this expense or pay the third party supplier on the director’s behalf, you may be entitled to an input tax credit, under Division 111 of the GST Act, on your deemed acquisition from the director of the thing the director acquired (for example, petrol). You could only potentially be entitled to such an input tax credit if in making the relevant payment you are thereby providing a 'fringe benefit’ to an employee, that is an 'expense payment benefit’ or the director’s expense relates to business travel. The following trips are considered business travel: ● trips from your office to an alternative workplace (for example, your client’s premises) and back to your office, and ● trips from your director’s home to an alternative workplace and then to your office or directly to their home. As explained above, the trips between your office and your director’s home are private trips even when the equipment is carried in the car on these trips.