GST and entitlement to input tax credits
Q: Can you claim the goods and services tax (GST) included in the purchase price of a motor vehicle used in your enterprise as input tax credits (ITC)?
A: Yes. As long as you are purchasing a motor vehicle to use in connection with your enterprise, you are entitled to claim the GST included in the purchase price and running costs of the vehicle as ITCs. However, you must reduce the ITC amount by the proportion the motor vehicle is used for private purposes, and is not used for the purposes of carrying on your enterprise.
You are allowed a partial ITC for the GST included in the price of the goods and services you use partly in the course of or furtherance of your enterprise.
Section 11-25 of the GST Act states the amount of the ITC for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount of the ITC for a creditable acquisition is reduced if the acquisition is only partly creditable.
The amount of the ITC you can claim on an acquisition that is made for a partly creditable purpose is provided in subsection 11-30(3) of the GST Act:
[Full input tax credit x Extent of creditable purpose x Extent of consideration]
extent of consideration is the extent to which you provide, or are liable to provide, the consideration for the acquisition, expressed as a percentage of the total consideration for the acquisition.
extent of creditable purpose is the extent to which the *creditable acquisition is for a *creditable purpose, expressed as a percentage of the total purpose of the acquisition.
full input tax credit is what would have been the amount of the input tax credit for the acquisition if it had been made solely for a creditable purpose and you had provided, or had been liable to provide, all of the consideration.
New Company and Franking Deficit Tax (FDT)
Q: Will a private company operating in its first income year be liable for Franking Deficit Tax if it declares fully franked dividends and its franking account balance is in deficit at the end of the income year?
A: Generally, a company operating in its first income year is not required to pay any income tax until the following income year. Therefore, when it declares a fully franked dividend in its first year of operation, the franking account balance will be in deficit at the end of the income year. It is therefore subject to FDT however, a special provision applies to ensure that the company is not penalised with a reduction in its FDT tax offset. To do so the company is required to lodge a franking account tax return and pay the FDT by 31 July, but can then claim the full FDT tax offset in its income tax return.
Cost of Managing Tax Affairs
Q: Can a taxpayer claim the cost of managing the tax affairs of another entity?
A: The taxpayer can claim a deduction on expenditure incurred in relation to the tax affairs of another entity to the extent that they are related to compliance with an obligation imposed by a Commonwealth law. Common examples include an employer’s costs relating to PAYG Withholding, an entity’s or individuals tax matters (including preparation of their tax return) and director penalty notices.