Private ruling: Application of Subdivisions 66-A and 66-B of the GST Act
Date of advice: 18 December 2015
Published: March 2016

Ruling: Q1: For the purposes of Subdivision 66-A of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), is T entitled to an input tax credit for the acquisition of a vessel for $XX from a vendor who is not registered for GST where T acquired the vessel for the purpose of re-selling the vessel in the course of the retail business carried on by T? | A1: Yes, for the purposes of Subdivision 66-A of the GST Act, T is entitled to an input tax credit for the acquisition of a vessel for $XX from a vendor who is not registered for GST where T acquired the vessel for the purpose of re-selling the vessel in the course of the retail business carried on by T. | Q2: If T is entitled to such an input tax credit, is that input tax credit attributable to the tax period in which the T re-sells the vessel under subsection 66-15(2) of the GST Act? | A2: Yes, that input tax credit attributable to the tax period in which T re-sells the vessel and receives part of or all the consideration under subsection 66-15(2) of the GST Act.. | Q3: Can T apply the global accounting method in Sub-division 66-B of the GST Act to the acquisition of the vessel? | A3: No, T cannot apply the global accounting method in Sub-division 66-B of the GST Act to the acquisition of the vessel.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. T carries on business selling vessels, safety equipment and other equipment and accessories. T carries on an enterprise, is registered for GST and accounts for GST on a cash basis (rather than an accruals basis) and on a quarterly basis. T purchased a vessel for $XX from a vendor who is not registered for GST. T intends to re-sell the vessel (as a single sale without dividing up the vessel) for $YY in the course of T's business.

Relevant legislative provisions: Division 66 of the A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision: Summary: T is entitled to an input tax credit under subsection 66-5(1) of the GST Act. | Detailed Reasoning - Detailed reasoning: Normally an entity cannot claim an input tax credit on an acquisition of goods if the supply of the goods to that entity was not a taxable supply. However, subsection 66-5(1) of the GST Act provides that if an entity acquires second-hand goods for the purposes of sale or exchange (but not manufacture) in the ordinary course of business, the fact that the supply of the goods to the entity was not a taxable supply does not prevent the entity from claiming a special input tax credit. Section 195-1 of the GST Act specifically excludes from 'second-hand goods' precious metal, goods to the extent they consist of gold, silver, platinum (or any other substance which, if it were of the required fineness, would be precious metal), or animals or plants. A vessel is not listed as an exclusion. We therefore consider that the vessel is second-hand goods. Subsection 66-5(2) of the GST Act denies a special input tax credit in respect of the acquisition of second-hand goods where: • the supply of the goods to the entity was a taxable supply or GST-free; or • the entity imported the goods; or • the supply of the goods to the entity was a supply by way of hire; or • 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 (e.g. the entity makes a GST-free supply of the goods, gives the goods away or disposes of the goods outside the entity's business). Based on the information provided in the ruling request, we consider that the first three exceptions do not apply. In our reasons for decision for Question 3 we explain why Subdivision 66-B of the GST Act does not apply to the acquisition of the vessel by T. As T is registered for GST and intends to re-sell the vessel in the course of T's business, the re-sale of the vessel in the course of T's business will be a taxable supply. As subsection 66-5(1) is satisfied and none of the exclusions in section 66-5(2) apply, T is entitled to an input tax credit in respect of the acquisition of the vessel. We note that as the cost of the vessel to T was more than $300, section 66-10 of the GST Act provides that the amount of the input tax credit cannot be more than the amount of GST payable by T when T sells the vessel. | Summary: As T accounts for GST on a cash basis, the input tax credit in respect of the acquisition of the vessel by T is attributable in accordance with subsection 66-15(2) of the GST Act. | Detailed Reasoning - Detailed reasoning: As T accounts for GST on a cash basis and T paid more than $300 for the vessel the special rule in subsection 66-15(2) applies for attributing the input tax credit. Subsection 66-15(2) states that if an entity ('you') account on a cash basis, then: (a) if, in a tax period, all of the consideration is received for the subsequent taxable supply - the input tax credit for the acquisition is attributable to that tax period; or (b) if, in a tax period, part of the consideration is received - the input tax credit for the acquisition is attributable to that tax period, but only to the extent that the consideration is received in that tax period; or (c) if, in a tax period, none of the consideration is received - none of the input tax credit for the acquisition is attributable to that tax period. The ruling request referred to the guide on www.ato.gov.au to completing an Activity Statement in respect of an acquisition of second-hand goods using the global accounting method. In the reasons for decision for Question 3 we explain why T cannot use the global accounting method in relation to the acquisition of the vessel. In our view the section of www.ato.gov.au dealing with 'GST and second-hand goods - completing your activity statement' entitled 'direct method' applies to the reporting by T of the input tax credit on the acquisition of the vessel: Purchases for more than $300 You must wait until you sell the item you have purchased to claim the GST credit if you paid, or are liable to pay, more than $300 for the second-hand item you purchased. … If you account on a cash basis, you can claim the GST credit for the purchase in each reporting period you receive a payment for the sale of the item. Using the same rules, you report amounts for purchases at G11 (non-capital purchases) on your activity statement | Summary: T cannot apply the global accounting method because: • paragraph 66-40(1)(c) of the GST Act is not satisfied; and • the A New Tax System (Good and Services Tax) Rules for Applying Subdivision 66-B Determination (No. 31) 2015 (SHG 2015/31) does not apply because the consideration provided by T for the acquisition of the vessel was more than $1,000. | Detailed Reasoning - Detailed reasoning: Subdivision 66-B of the GST Act allows a GST registered entity to use a global accounting method for acquisitions of specified second-hand goods. The global accounting method allows input tax credits on acquisitions of second-hand goods to be offset against all of the GST on supplies made from the pool of acquisitions. The offset is done at the end of each tax period and a net amount will be payable only if the GST in the pool is greater than the input tax credits in the pool. The global accounting method may be used in two situations. The first situation is the 'separate supply' situation covered by Subdivision 66-B (i.e. sections 66-40 to 66-70) of the GST Act, as described in subsection 66-40(1) of the GST Act: This Subdivision applies to an acquisition of second-hand goods if: (a) you acquire the goods for the purposes of sale or exchange (but not for manufacture) in the ordinary course of business; and (b) either the consideration for the acquisition was more than $300 or you choose to have this section apply to the acquisition; and (c) the goods are of such a kind, or they are supplied to you in such a way, that it would be reasonable to expect you to divide them before supplying them in 2 or more separate supplies; and (d) you do not subsequently make a single supply of the entirety of the goods acquired. Based on the statements in the ruling request that T acquired the vessel for $XX and intends to resell the vessel for $YY (i.e. a single sale without dividing up the vessel), paragraph 66-40(1)(c) of the GST Act is not satisfied and T cannot apply the global method in Subdivision 66-B to the acquisition of the vessel. The second situation in which the global method in Subdivision 66-B of the GST Act can be applied is where, pursuant to section 66-70, the Commissioner has determined that Subdivision 66-B applies to acquisitions of specified second-hand goods. The relevant determination is SHG 2015/31, clause 9 of which sets out the second-hand goods that SHG 2015/31 applies to, including (paragraph 9(d): a vessel, ship or other marine craft. However clause 8(a) of SHG 2015/31 states that SHG 2015/31 does not apply to second-hand goods of a kind specified in clause 9 where: the consideration provided by the entity for the acquisition, is more than $1,000 and Subdivision 66-A would apply to the acquisition if this determination did not apply. The consideration paid by T for the acquisition of the vessel was more than $1,000. Subdivision 66-A of the GST Act would apply to the acquisition of the vessel by T because the requirements of subsection 66-5(1) are satisfied (i.e. T acquired second-hand goods for the purpose of sale or exchange (but not manufacture) in the ordinary course of business) and none of the exclusions in subsection 66-5(2) apply. Consequently clause 8(a) of SHG 2015/31 is satisfied and it is not possible for T to rely on SHG 2015/31 to apply Subdivision 66-B to the acquisition of the vessel. Since subsection 66-40(1) is not satisfied and SHG 2015/31 does not apply, T cannot apply the global accounting method in Subdivision 66-B to the acquisition of the vessel.