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:

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)    

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 .