Tax implications
Enquiry:
I am a milliner and specialises in racing day hats. I am registered for GST. I gave my sister, Evie (a cobbler, who is also registered for GST), a new sewing machine. I did not charge Evie for the sewing machine, and as such, did not provide my sister with a tax invoice. The market value of the sewing machine was $3300 (GST-inclusive).
Assume that my sister uses the sewing machine 60 per cent for business purposes.
What is the effect of the transactions for both my sister and me?
Explanation:
You have made a supply for no consideration, but the supply is to an associate and therefore its value is deemed to be the market value under s. 72-10 of the GST Act if the associate is not registered for GST or does not use the goods or services wholly for a creditable purpose.
However, in this case, your sister Evie is registered for GST but only uses the machine 60 per cent for a creditable purpose, and therefore s. 72-10 of the GST Act deems the supply to have a market value of $3300 and GST of $300 (1/11 of $3300). Hence, you are required to remit GST of $300 to the ATO in your next BAS.
Your sister has made a partly creditable acquisition because there is a taxable supply, but has no tax invoice has been received, the input tax credit cannot be claimed until a tax invoice is provided, which is not possible as there was no consideration paid.