Input tax credits available on purchase of second-hand motor vehicles - LeasePlan
19 Nov 2009
The Federal Court (Middleton J) has upheld the taxpayer's appeal from the decision of the Commissioner to disallow an objection in respect of the denial of GST input tax credits (in an amount of $602,292) in respect of the purchase of second hand motor vehicles under "sale and lease back" arrangements.
The taxpayer, LeasePlan, carried on the business of motor vehicle fleet leasing and management. In the ordinary course of carrying on that business LeasePlan purchased, leased, managed and sold second-hand motor vehicles, each of these activities being integral to the business of motor-vehicle fleet leasing and management. In claiming input tax credits in respect of the acquisition of the second-hand motor vehicles, LeasePlan relied on s 66-5(1) of the GST Act, which provides as follows:
"If you acquire second-hand goods for the purposes of sale or exchange (but not for manufacture) in the ordinary course of business the fact that the supply of the goods to you is not a taxable supply does not stop the acquisition being a creditable acquisition."
The principal issue was whether the acquisitions of the vehicles by LeasePlan were acquisitions undertaken for a purpose of sale. The Commissioner argued that it was the immediate purpose or reason that attended the acquisition - leasing - that was relevant and that the ultimate purpose - sale at the end of the lease - was a mere incident to the immediate purpose of leasing. The Court disagreed, finding that Leaseplan acquired the vehicles for the purpose of sale in the ordinary course of business.
The Court noted, at para 22:
"Both parties accepted that neither a sole purpose test nor a dominant purpose test applies for the purpose of s 66-5(1) of the GST Act, but rather the test is whether the sale was ‘a purpose’ for which the vehicles are acquired. In other words, there may be another purpose of the acquisition other than sale, but the words of s 66-5(1) would still be satisfied if a purpose was sale: see eg John v Federal Commissioner of Taxation  HCA 5; (1989) 166 CLR 417 at ."
The Court held, at para 40:
"...LeasePlan in acquiring a vehicle from the employee has the purposes of leasing it and selling it to the employee or third parties. This is the very composite transaction envisaged by the documentation."
LeasePlan Australia Limited v FCT  FCA 1309 (Federal Court, Middleton J, 13 November 2009).
For a copy of the decision, go here