Hattie is a milliner and specialises in racing day hats. She is registered for GST. Hattie gave her sister, Evie (a cobbler, who is also registered for GST), a new sewing machine. Hattie did not charge Evie for the sewing machine, and as such, did not provide her sister with a tax invoice. The market value of the sewing machine was $3300 (GST-inclusive).
Assume that Evie uses the sewing machine 60 per cent for business purposes. What is the effect of the transactions for both Hattie and Evie?
Hattie has 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, her sister Evie is registered for GST but only uses the goods 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, Hattie is required to remit GST of $300 to the ATO in her next BAS.
Evie 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.