Private ruling: Division 132 GST Adjustment
Published: April 2013

Ruling: Q1: Do you have a decreasing adjustment under Division 132 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to the taxable supply of a vessel? | A1: Yes | Q2: What Is the amount of the decreasing adjustment. | A2: An amount specified

Relevant facts and circumstances: 1. (You) as Liquidator of a company in liquidation (Client) are registered for GST 2. Your Client purchased a vessel for over $4 million in 200X. 3. GST of over $Z was charged on the sale of the vessel. A copy of the Tax Invoice has been provided. 4. Your Client was did not claim the input tax credit in relation to the purchase of the vessel as it was considered to be of a private nature. 5. Subsequent to the purchase of the vessel, your Client chartered the vessel to shareholders for personal use and also to a related company. It did not advertise the charter service nor charter the vessel to any unrelated parties. 6. Your Client charged GST and issued Tax Invoices on the vessel charter service to the shareholders and related company. The GST was reported and remitted in the relevant Business Activity Statement ('BAS'). This was done to ensure compliance with the Fringe Benefits Tax Act and Division 7A of the Income Tax Assessment Act. 7. Your Client claimed GST input tax credits on purchases made in relation to the vessel charter service only to the extent that it remitted GST on sales. This means that the vessel charter service was GST neutral. 8. The vessel charter service operated at a substantial loss; however, no deduction for these losses was ever claimed by your Client for Income Tax purposes. 9. Your Client was placed in liquidation in 20YY. 10. You sold the vessel for over $1.5 million in 20YY. 11. The Australian Taxation Office ('ATO') advised in a Private Ruling that GST, being 1/11th of the sale price, was payable on the sale of the vessel. 12. You reported GST on the sale, being the GST payable on the sale of the vessel, in the BAS for the quarter ended 31 December 20YY and remitted the payment to the ATO. 13. You intend to amend the BAS if it is confirmed that you have a decreasing adjustment. 14. You are of the opinion that your Client has a decreasing adjustment in relation to the sale of the vessel. The primary sources of reference are Division 132 of the GST Act and GST Ruling GSTR 2004/8: When does an entity have a decreasing adjustment under Division 132? 15. You are of the opinion that Division 132 allows a decreasing adjustment if input tax credits were denied because the acquisition of the thing was input taxed or of a private nature. 16. You state that input tax credits of over $Z were denied when the vessel was purchased as the purchase of the vessel was of a private nature. The subsequent sale of the vessel was deemed to be a fully taxable supply. Accordingly, you contend that your Client has a decreasing adjustment. 17. The amount of the decreasing adjustment under Division 132 is calculated by the following formula which appears in subsection 132-5(2): Decreasing adjustment = 1 x Price x (1 - Adjusted input tax credit ) 11 Full input tax credit

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Subdivision 19C | A New Tax System (Goods and Services Tax) Act 1999 Division 129 | A New Tax System (Goods and Services Tax) Act 1999 Division 131 | A New Tax System (Goods and Services Tax) Act 1999 Section 132-5 | A New Tax System (Goods and Services Tax) Act 1999 Subsection 132-5(1) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 132-5(2) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 132-5(3) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 132-5(4 | A New Tax System (Goods and Services Tax) Act 1999 Subsection 132-10 | A New Tax System (Goods and Services Tax) Act 1999 Division 133

Reasons for decision: Summary: You have a decreasing adjustment under Division 132 of the GST Act in relation to the taxable supply of a vessel because you were not entitled to a full input tax credit on the acquisition of the vessel and you have sold it as a taxable supply. | Detailed Reasoning - Detailed reasoning: You may have a decreasing adjustment under Division 132 of the GST Act if you make a taxable supply of something by way of sale that you earlier acquired for a private or domestic purpose. The legislation Subsection 132-5(1) of the GST Act states: You have a decreasing adjustment under this Division if: (a) you make a *taxable supply of a thing (or a supply of a thing that would have been a taxable supply had it not been *GST-free under Subdivision 38-J); and (b) the supply is a supply by way of sale; and (c) your acquisition, importation or subsequent *application of the thing, related solely or partly to making *financial supplies, or was solely or partly of a private or domestic nature. Subsection 132-5(2) of the GST Act provides the formula to calculate the decreasing adjustment (see Question 2 below) | Detailed Reasoning - Goods and services tax ruling: The application of Division 132 of the GST Act is explained in Goods and services tax ruling GSTR 2004/8, Goods and services tax: when does an entity have a decreasing adjustment under Division 132? (GSTR 2004/8) The ruling explains: · the circumstances in which you have a decreasing adjustment under Division 132; and · how to calculate the decreasing adjustment using the formula in subsection 132-5(2). | Detailed Reasoning - Application of the GST: You have a decreasing adjustment because you satisfy the requirements of subsection 132-5(1) of the GST Act. You made a taxable supply of the vessel by way of sale. Your acquisition, and subsequent application of the vessel, related solely or partly to a private or domestic nature. You were not able to claim input tax credits on the acquisition because of the private or domestic nature of the acquisition. Paragraph 22 of GSTR 2004/8 explains the requirement for the taxable supply to be by way of sale: In our view, the intention behind limiting a Division 132 adjustment to taxable supplies by way of sale of a thing was to exclude taxable supplies consisting of partial or temporary disposals of the thing such as the grant of a lease over the thing. The decreasing adjustment should only be available once the thing is wholly and permanently disposed of. Whether that disposal is for a money price, as opposed to some other kind of valuable consideration, should be immaterial. You satisfy the requirements of subsection 132-5(1) of the GST Act. You have a decreasing adjustment in relation to the taxable supply of a vessel because you have sold it as a taxable supply and you were not entitled to an input tax credit on the acquisition. | Summary: The amount of the decreasing adjustment has been correctly calculated based on the information you have provided. | Detailed Reasoning - Detailed reasoning: The legislation Subsection 132-5(2) of the GST Act provides the formula to calculate the decreasing adjustment as: The amount of the *decreasing adjustment is as follows: 1 x Price x (1 - Adjusted input tax credit ) 11 Full input tax credit where: adjusted input tax credit is: (a) the amount of any input tax credit that was attributable to a tax period in respect of the acquisition or importation; minus (b) the sum of: (i) any *increasing adjustments, under Subdivision 19-C or Division 129, that were previously attributable to a tax period in respect of the acquisition or importation; and (ii) any increasing adjustment under Division 131 that has been previously, is or will be attributable to a tax period in respect of the acquisition or importation; plus (c) the sum of any *decreasing adjustments, under Subdivision 19-C or Division 129 or 133, that were previously attributable to a tax period in respect of the acquisition or importation. full input tax credit is the amount of the input tax credit to which you would have been entitled for acquiring or importing the thing for the purpose of your *enterprise if: (a) the acquisition or importation had been solely for a *creditable purpose; and (b) in the case where the supply to you was a *taxable supply because of section 72-5 or 84-5 - the supply had been or is a *taxable supply under section 9-5. price is the *price of the *taxable supply. Subsection 132-5(3) of the GST Act limits the amount of the decreasing adjustment. If the decreasing adjustment calculated under the formula is greater than the difference between the full input tax credit (original acquisition) and adjusted input tax credit (sum of subsequent adjustments), subsection 132-5(3) limits the amount of the decreasing adjustment to an amount equal to that difference. Because the vessel was used by your client for private or domestic purposes, Subsection 132-5(4) of the GST Act has no application to your circumstances. Section 132-10 of the GST Act provides that the decreasing adjustment is attributable to the same tax period as the taxable supply to which it relates. | Detailed Reasoning - Adjusted input tax credit: There were no input tax credits available in any tax period in respect of the acquisition of the vessel. The vessel has been used and intended to be used for private or domestic purposes. Accordingly, there are no increasing adjustments under either Subdivision 19-C or Division 129 of the GST Act. You are not and were not previously eligible to make an annual apportionment election under Division 131 of the GST Act. The acquisition of the vessel was a taxable supply to you, accordingly there can be no additional consideration provided under GST gross-up clauses to which Division 133 would apply. Based on this information the adjusted input tax credit is zero. Therefore, the decreasing adjustment formula under subsection 132-5(2) of the GST Act is reduced to one eleventh of the price of your taxable supply. Because the adjusted input tax credit is zero, subsection 132-5(3) of the GST Act will have no application to limit the amount of the decreasing adjustment. You sold the vessel on a date. The decreasing adjustment under subsection 132-5(2) of the GST Act is $Amount. In accordance with section 132-10 of the GST Act, the decreasing adjustment is attributable to the same tax period as the taxable supply to which it relates; that period being the quarter ended 31 December 20YY.