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A New Tax System (Goods and Services Tax) Act 1999

Chapter 4 - The special rules  

Part 4-2 - Special rules mainly about supplies and acquisitions  

Note:

The special rules in this Part mainly modify the operation of Part 2-2, but they may affect other Parts of Chapter 2 in minor ways.

Division 70 - Financial supplies (reduced credit acquisitions)  

70-20  Extent of creditable purpose  

(1)  

If:


(a) a *reduced credit acquisition is a *creditable acquisition; and


(b) it is not wholly for a *creditable purpose because of this Division;

it is *partly creditable.

(2)  

The extent to which the acquisition is acquired or applied for a *creditable purpose is worked out using the following formula:

Formula


where:

extent of creditable purpose is the extent to which the purpose for which you applied or acquired the acquisition was a *creditable purpose otherwise than because of this Division, expressed as a percentage.

extent of Division 70 creditable purpose is the extent to which the purpose for which you applied or acquired the acquisition was a *creditable purpose because of this Division, expressed as a percentage.

percentage credit reduction is the reduced input tax credit percentage prescribed for the purposes of subsection 70-5(2) for an acquisition of that kind.

Note:

This section affects sections 11-30 and 129-40. It is used even if the reduced credit acquisition is used wholly in carrying on your enterprise (unless the acquisition was wholly for a creditable purpose because of this Division, then section 70-15 applies).

Example 1:

You make a reduced credit acquisition of $110,000, wholly for the purposes of carrying on your enterprise, partly for the purpose of making financial supplies (40%) and partly for the purpose of making taxable supplies (60%). Assume the percentage credit reduction to be 50%. The extent to which you make the acquisition for a creditable purpose is:

60% + [40% × 50%] = 80%

Applying section 11-30, your input tax credit is $8,000 (assuming you were liable for all the consideration).

Example 2:

You subsequently apply the acquisition partly in making financial supplies (40%), partly in making taxable supplies (40%) and partly for private use (20%). The extent to which you made the acquisition for a creditable purpose is:

40% + [40% × 50%] = 60%

Applying Division 129, your input tax credit is reduced to $6,000, giving you an increasing adjustment of $2,000.

(3)  

 View history reference
The Commissioner may determine, in writing, one or more ways in which to work out, for the purpose of subsection (2), the extent to which an acquisition is for a *creditable purpose.


 



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