Private ruling: GST and purchase of motor vehicle
Date of advice: 16 November 2021
Published: February 2022

Ruling: Q1: Are you entitled to an input tax credit equal to the GST component of the purchase price of the motor vehicle? | A1: Yes.

Relevant facts and circumstances: You are registered for GST. You carry on a business. Your director, X, who is also your employee, entered into a contract to purchase a motor vehicle from a motor vehicle dealer. The contract shows X's name as the customer. You paid the purchase price of the motor vehicle to the motor vehicle dealer. The motor vehicle was purchased partly for X to use in your business (Y%) and partly for X's private use (Z%). X is the manager, sale representative and buyer for your business. Registration of the motor vehicle was transferred into X's name. You recorded the purchase of the motor vehicle in your accounting records and you recorded the motor vehicle as an asset in your balance sheet. You pay for the running expenses etc of the motor vehicle. If the motor vehicle were to be resold, the proceeds of the resale would go into your bank account. The Australian Taxation Office asked you to provide evidence or information that may have supported the conclusion that X purchased the motor vehicle as agent on your behalf (if any), but you were unable to provide such information. The motor vehicle dealer is registered for GST. The motor vehicle was supplied by the motor vehicle dealer wholly within Australia. Sometime after the motor vehicle was purchased from the motor vehicle dealer, you requested the motor vehicle dealer to issue you with a tax invoice showing your name and the motor vehicle dealer then gave you an invoice showing your name. The invoice contains the following information: • The words 'Tax invoice' • The invoice issue date: • Motor vehicle dealer's name: • Motor vehicle dealer's ABN: • The words 'Invoice to you' • The words 'deliver to (address in Australia)' • Description of motor vehicle: • Vehicle registration number: • Sale price (inc GST): • GST amount:

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 Division 111 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1 | Income Tax Assessment Act 1997 section 995-1 | Fringe Benefits Tax Assessment Act 1986 section 20 | Fringe Benefits Tax Assessment Act 1986 section 136

Reasons for decision: Summary: In accordance with Division 111 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are treated as having made a creditable acquisition from X and the payment you made to the motor vehicle dealer is treated as being consideration for that acquisition. Therefore, you are entitled to an input tax credit of 1/11 th of the purchase price of the motor vehicle. | Detailed Reasoning - Detailed reasoning: An entity is entitled to input tax credits (ITCs) on its creditable acquisitions. You make a creditable acquisition if all the requirements of section 11-5 of theGST Act are met. Section 11-5 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. Paragraph 52 of Goods and Services tax Ruling GSTR 2001/3 discusses acquisitions made by an employer to provide fringe benefits to employees. It states: 52. An acquisition or importation you make to provide a fringe benefit in respect of employment in your enterprise is made in carrying on the enterprise and is not of a private or domestic nature for the purposes of section 11-15 and section 15-10. It is your purpose at the time of making the acquisition or importation that is relevant to whether the acquisition or importation is for a creditable purpose. For example, an acquisition made to provide a car for the private use of your employee is made for a creditable purpose. Special rule where employer reimburses an employee Under subsection 111-5(1) of the GST Act, an employer is treated as making an acquisition from an employee where the employer reimburses an expense incurred by an employee that is related directly to the employee's activities as the employer's employee or the reimbursement is an *expense payment benefit. The reimbursement is treated as consideration for an acquisition the employer makes from the employee. In accordance with section 111-25 of the GST Act, if an employer makes: • a payment on behalf of their employee for an expense that the employee incurs that is related directly to the employee's activities as the employer's employee; or • a payment on behalf of an employee for an expense that the employee incurs and that payment constitutes an expense payment benefit; Division 111 of the GST Act applies as if the employer reimbursed the employee for the expense. Section 195-1 of the GST Act defines expense payment benefit as a *fringe benefit that is a benefit of a kind referred to in section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBT Act). For the purposes of the GST Act, fringe benefit has the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) but includes a benefit within the meaning of subsection 136(1) of the FBT Act that is an exempt benefit for the purposes of that Act. Section 995-1 of the ITAA 1997 states: fringe benefit " means: (a) a fringe benefit as defined by subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ; and (b) a benefit that would be a fringe benefit (as defined by subsection 136(1) of that Act) if paragraphs (d) and (e) of the definition of employer in that subsection of that Act were omitted. In accordance with section 136 of the FBT Act, fringe benefits include benefits provided by employers to employees in respect of the employees' employment, with some exceptions. Section 20 of the FBT Act states: Where a person (in this section referred to as the provider): (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or (b) reimburses another person (in this section also referred to as the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient; the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient. In accordance with subsection 111-5(2) of the GST Act, the fact that the supply made by the employee to the employer is not a taxable supply does not stop the acquisition being a creditable acquisition. Subsection 111-5(3) of the GST Act sets out certain exclusions. It provides that the deemed acquisition the employer makes from the employee is not a creditable acquisition: (a) to the extent (if any) that: (i) the employee is entitled to an input tax credit for acquiring the thing acquired in incurring the expense; or (ii) the acquisition would not, because of Division 69 of the GST Act, be a creditable acquisition if the employer made it; or (b) unless the supply of the thing acquired, by the employee, in incurring the expense was a taxable supply; or (c) if the employer would, because of Divisions 71 of the GST Act, not have been entitled to an input tax credit if it had made the acquisition that the employee made. Application of section 11-5 and section 111-5 of the GST Act to your circumstances We consider that X acquired the motor vehicle, for GST purposes, because X entered into the contract to purchase the motor vehicle from the dealer; X is showing as the customer in the purchase contract and you have not provided any information to support the conclusion that X purchased the motor vehicle in the capacity of agent on your behalf. You made a payment to the motor vehicle dealer. To some extent (Y%), this payment was made by you on behalf of your employee for an expense that the employee incurred that related directly to the employee's activities as your employee, as the employee acquired the motor vehicle to that extent for use by that employee in your business. To some extent (Z%), which is the extent of your employee's planned private use of the motor vehicle, the payment you made to the motor vehicle dealer on behalf of your employee for an expense the employee incurred is an expense payment benefit, as to that extent the payment is a fringe benefit, for the purposes of the GST Act, that is a benefit of a kind referred to in section 20 of the FBT Act. Therefore, the payment you made to the motor vehicle dealer is treated as consideration for an acquisition you made from the employee. In accordance with subsection 111-5(2) of the GST Act, the fact that the supply to you was not a taxable supply does not stop the acquisition you made from your employee being a creditable acquisition. Section 111-10 of the GST Act sets out how an amount of ITC is worked out for a creditable acquisition if the consideration for the acquisition is a reimbursement to which section 111-5 of the GST Act applies: • subsection 111-10(1) provides that the amount of the ITC is 1/11 of the reimbursement, • subsection 111-10(2) provides for a reduction of that amount of the ITC in certain situations which are not applicable in this case, and • subsection 111-10(3) provides that section 111-10 has effect despite section 11-25 of the GST Act. ATO ID 2013/13 provides that an entity is not entitled to a credit equal to 1/11th of the reimbursement if the reimbursement is consideration for a partly creditable acquisition. The Commissioner's reasoning is that, while section 111-10 sets out the amount of the credit for the reimbursement and expressly overrides section 11-25 (which is about the amount of input tax credits for creditable acquisitions), section 111-10 does not override section 11-30 (which deals with acquisitions that are partly creditable). Therefore, to the extent that the acquisition for the reimbursement relates to making input taxed supplies, the acquisition is not creditable. In this case, the acquisition you made from the employee is a creditable acquisition under Division 111 of the GST Act. Under section 111-10 of the GST Act you are entitled to an input tax credit equal to 1/11 of the amount of the purchase price of the motor vehicle. as: • you made an acquisition from the employee in carrying on your enterprise; and • the supply of the motor vehicle by the motor vehicle dealer to your employee was a taxable supply, because: o the supply of the motor vehicle was made for consideration; and o the supply was made in the course or furtherance of an enterprise that the supplier carries on; and o the supply was connected with Australia; and o the supplier is registered for GST; and o the supply was not GST-free or input taxed; and • your employee is not entitled to any ITC for the acquisition of the motor vehicle; and • the exclusion in subparagraph 111-5(3)(a)(ii) does not apply; and • the exclusion in paragraph 111-5(3)(c) does not apply; and • you are registered for GST • the acquisition you made from the employee does not solely or partly relate to you making input taxed supplies; and • the acquisition you made from the employee is not of a private or domestic nature from your perspective In accordance with section 111-15, for the purpose of claiming an input tax credit, an employer who reimburses an employee (or is treated as having reimbursed an employee) is taken to hold a tax invoice for the creditable acquisition the employer makes from the employee under Division 111 if the employer holds the tax invoice for the taxable supply made by the third party supplier to the employee. You hold an invoice for the purchase your employee made from the motor vehicle dealer. The invoice you received contains all the information required for a tax invoice except the name of the purchaser - your employee. In accordance with subsection 29-70(1A) of the GST Act, although the invoice does not show the employee's name, as the employee's name is showing as the customer on another document issued by the motor vehicle dealer - the sale contract document, you can treat the invoice as being a valid tax invoice.