Private ruling: Input tax credit entitlement and apportionment
Date of advice: 21 July 2017
Published: December 2017
Ruling period: 201B and following
Date scheme commenced: 201B

Ruling: Q1: Can I claim an input tax credit for the purchase of a new car I purchased several months prior to commencing my enterprise? | A1: No. You can only claim input tax credits for your acquisitions that are referable to your enterprise. If your enterprise has not commenced, you cannot claim for an acquisition you make as it is not made in the course of your enterprise. | Q2: Do I apportion input tax credits between enterprise related expenses and personal expenses? | A2: Yes. Motor vehicle expenses and working out extent of creditable purpose is set out in GSTB 2006/1.

Relevant facts and circumstances: ● You registered for GST effective early 201B and you account for GST on a quarterly basis. ● Via a loan, you bought a new car in mid 201A from a dealer for $X including GST of $Y. The vehicle was delivered to you within a few days. ● You stated you made an application to drive with a ride sourcing company in mid 201A. ● You told them you had bought the car the day before and you were keen to drive with them. ● The ride sourcing company replied the same day advising amongst other things that you could not drive for them without holding a full licence in Australia for 12 months. ● You had a series of communications with the ride sourcing company in early 201A about your application to drive. ● You intended to commence driving with the ride sourcing company from mid 201A, however, they ultimately rejected your application on the grounds that you had not held an Australian full licence in State A for at least 12 months. ● You stated that the ride sourcing company had failed to advise you about the licence requirements at the time you bought the car. ● You advised in your private ruling application that the ride sourcing company held up your ride sourcing account in mid 201A and only activated your account in mid 201B. ● You also stated that you commenced business use of the vehicle in early 201B at a rate of business to private use of 85% to 15% respectively based at that point on two weeks’ use. ● You stated your pattern of driving has not changed since early 201B. ● You stated that to be specific, there was no business use of the car in the 11 months prior to starting with the ride sourcing company in 201B. ● You stated that during those 11 months you used the car mostly for travelling between states where your immediate family live. Most of the kilometres travelled came in this period as you travelled fortnightly between a three month period in 201A. ● You stated that you drive with the ride sourcing company approximately 6 to 10 times per month. Your log book shows you drove for them X times in March, X times in April, Xtimes in May and X in June. ● You stated that you have other cars to drive and those cars are used for personal use because you share them with others. Sometimes you take personal trips in the car also. ● You commenced keeping a log book in early 201B and concluded it in early June 201B. ● You also provided a copy of your servicing costs which indicated in June you had a 20,000km service conducted when the car had done less than 20,000 km. ● For the period from mid 201A to late 201A, you were casually employed. ● You were not registered with any other business or doing business in that 11 month period, except that you started trading casually on the internet selling goods in early 201B. You continue to do that under the same ABN on a Website. You started designing banners and selling them on the internet. You’re paying income tax and GST from these sales. This activity commenced 1 month before you commenced driving for the ride sourcing company. ● You stated that statements from the ride sourcing company are not good reference material because they do “not record the distance to and from home to first and last job respectively”. You also stated the distance between jobs can be substantial. ● You stated in the context of applying a business percentage to all tax deductible items “All I need is to apply the business percentage to the shared vehicle use and purchases at the end of the 12 week logbook cycle”.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 sections 9-20; 11-15; 11-20; 25-5; 195-1.

Reasons for decision: Summary: Can I claim an input tax credit for the purchase of a new car I purchased several months prior to commencing my enterprise? An 'input tax credit’ also known as a 'GST credit’, relates to the GST included in the price you pay for an acquisition. An entitlement to an input tax credit arises where you make a creditable acquisition under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). A 'creditable acquisition’ is an acquisition you use in your enterprise. You are entitled to an input tax credit for these acquisitions. Under section 11-15 of the GST Act, 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. You apply a thing for a 'creditable purpose’ to the extent that you apply it in carrying on your enterprise. However, you do not apply a thing for a creditable purpose to the extent that: (a) the application relates to making supplies that are input taxed; or (b) the application is of a private or domestic nature. To be entitled to an input tax credit, you must meet the requirements of these provisions of the GST Act. You bought the car fully intending to apply it in your enterprise of driving for a ride sourcing company. However, when you bought it you were not conducting the enterprise as they would not accept you for nearly 11 months as you needed a full licence to drive for them. If you were not conducting the activities for the ride sourcing company, you did not make a creditable acquisition. Looking at the first requirement of a creditable acquisition, we need to consider whether you had a creditable purpose. You did not buy the car in order to make input taxed supplies but you bought the car when you were not engaged in an enterprise. As a result, the only purpose the car had for the 11 months until you joined the ride sourcing company, was private and domestic. During this period, you drove the car between states to visit family and for a time to drive to full time employment. In this way you did not acquire the car for a creditable purpose and did not met the first requirement of a creditable acquisition. You did meet the second requirement of a creditable acquisition as the car was a taxable supply to you and you provided evidence that you bought the vehicle from a dealer for $X including GST of $Y. You took delivery in early 201A. You met the third requirement of creditable acquisition as you provided the consideration for the vehicle which you bought via a loan from the dealership. You did not meet the fourth requirement of creditable acquisition as you were not registered or required to be registered when you bought the vehicle. 'Registered’ is a defined term in section 195-1 of the GST Act. It means in relation to an entity (in this case you) registered under part 2-5 of the GST Act. Subdivision 25-A in part 2-5 of the GST Act is about how you can be registered. Section 25-5 is about when the Commissioner must register you: (1) The Commissioner must register you if: (a) you have applied for registration in an approved form; and (b) the Commissioner is satisfied that you are carrying on an enterprise, or you intend to carry on an enterprise from a particular date specified in your application. This means that in your case, the Commissioner will only register you if he is satisfied that you are carrying on an enterprise. The Commissioner takes the view that if you are a driver with the ride sourcing company you are conducting an enterprise. However, when you bought the car, you were not conducting an enterprise of ride-sourcing and did not do so until almost 11 months later. In that 11 month period, you stated that you only worked as an employee. 'Enterprise’ is also a defined term in section 9-20 of the GST Act. The significant subsections of the definition of enterprise in the GST Act that are relevant in your case deal with the exclusions from the enterprise definition: (2) However, enterprise does not include an activity, or series of activities, done: (a) by a person as an employee or in connection with earning *withholding payments covered by subsection (4) (unless the activity or series is done in supplying services as the holder of an office that the person has accepted in the course of or in connection with an activity or series of activities of a kind mentioned in subsection (1)); or (b) as a private recreational pursuit or hobby; or (b) by an individual (other than a trustee of a charitable fund, or of a fund covered by item 2 of the table in section 30-15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN), or a *partnership (all or most of the members of which are individuals), without a reasonable expectation of profit or gain; or The Commissioner does not accept that you were conducting an enterprise in the 11 months prior because you were an employee. Also, in relation to online trading, it is not of itself an enterprise. Further, even if it was, there is no evidence that the vehicle was used for that enterprise. To make a creditable acquisition you need to meet all of the requirements but you only met two of those. If you did not make a creditable acquisition to any extent, you are not entitled to an input tax credit to any extent. Am I entitled to input tax credits for my acquisitions since commencing my enterprise? Yes, you are entitled to input tax credits for creditable acquisitions you made since you commenced your enterprise of driving for the ride sourcing company. However, you may not be entitled to 100 per cent of those input tax credits as they may not be for a fully creditable purpose. Even though you are not entitled to an input tax credit for the purchase of the vehicle, you are still entitled to input tax credits on all acquisitions that relate to the running costs of the car since you commenced the enterprise. This does not include loan repayments on the vehicle as they are an input taxed supply. This means there is no GST charged on them to you. As stated above, to be a creditable acquisition the supply to you must be a taxable supply. If the supply to you is input taxed there is no GST charged to you and there is no claim for GST paid on the acquisition you made. GSTB 2006/1 Goods and services tax: how to claim input tax credits for car expenses (GSTB 2006/1) sets out the ATO view on how to claim input tax credits for running costs of vehicles. This view supplements other ATO views that relate to determining your extent of creditable purpose such as GSTR 2006/4 Goods and Services Tax Ruling Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose . These documents, read together, make it clear that there are a number of methods for working out extent of creditable purpose for expenses and the principal requirement is that the method used must be fair and reasonable. Some input tax credits for acquisitions, particularly where the acquisition may be partly creditable and partly private or domestic, such as the purchase of fuel, need to be apportioned. This means finding a fair and reasonable basis for setting what percentages of the acquisition relate to a creditable acquisition and the non-creditable acquisition. In your log book you set out clearly that trips to the supermarket are private and driving for ride sourcing company is part of your enterprise. GSTB 2006/1 explains that the use of a log book is a method of working out your extent of creditable purpose and this is the method that you have chosen. The log book is a fair and reasonable means of assessing your running costs of the vehicle and their creditable purpose. However, it may not be appropriate for expenses such as servicing of the vehicle due to the high number of kilometres that relate to 11 months of private use of the vehicle. You provided evidence of the 20,000km service of the car. When you commenced driving for the ride sourcing company you had already driven the car for 11 months for more than 10,000km. As at mid 201B, the vehicle travelled less than 20,000km which included XYZ private kilometres. The log book is not representative of the period to which the service of the vehicle relates. In this instance, it would be appropriate to apportion the costs of the service on a total business kilometres travelled basis over the life of the car. If we assume that between the 2 nd of June 201B and 29 June when the vehicle had the service, the additional 352km not logged were business kilometres, the apportionment would be fair and reasonable if a percentage of business kilometres was applied to the servicing cost. Less than 20,000km minus XYZkm of private use in the log book period minus more than 10,000 of private use prior to the log book commencing equals X,XXXkm. X,XXXkm divided by less than 20,000km multiplied by 100 gives the percentage of business use relating to the servicing of the vehicle of approximately XX per cent. For insurance of the vehicle it may be appropriate to calculate your extent of creditable purpose on either a time basis or a distance basis as with the servicing costs. When you replace the tyres for the first time, again you will need to take into account all of the private use, not just that in the log book. For expenses such as fuel you have concluded via your log book that you drive the vehicle for 86 per cent of the kilometres travelled since you began with the ride sourcing company. On this basis when you fill it up with fuel you may claim 86 percent of the fuel bill. Please note that if your driving patterns change and you cease driving similar distances to those you currently drive with the ride sourcing company, you will need to ensure that you reassess your extent of creditable purpose to take that into account. Other costs, such as the steam cleaning you needed on successive days could reasonably be fully attributable to your business use as the need for it arose out of your business use. Mints and bottled water would also be fully creditable acquisitions where they directly relate to your enterprise. It is important for you to be aware that as you have not been able to claim an input tax credit for the vehicle there is no need for you to make an increasing adjustment to your activity statement should you sell or trade in the vehicle within five years of purchase. However, if you buy a new vehicle and claim an input tax credit, based on your current business usage percentage of 86 percent and subsequently sell that vehicle, you would be required make an adjustment in favour of the Commonwealth (usually termed an 'increasing adjustment’) because you would not be using it in your enterprise anymore.