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A NEW TAX SYSTEM (GOODS AND SERVICES TAX) ACT 1999 - SECT 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:

                   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:

                   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.



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