Bailment on Notional stock items

As a Bailment entry is deemed a GST Sale, the GST Input Credit on a notional stock item will be calculated and crystallised at the time o Bailment, regardless of the eventual sale price.  Remembering that the Input  Tax Credit on Notional stock items is 1/11th of the lesser of:

Purchase Price

Trade Allowance

Sale Price

the ITC might be calculated on the bailment amount, and if the stock item is a Trade as is often the case with Notional stock items, the amount of ITC can be significantly undermined by bailing the vehicle.

See the following scenarios:

Trade Allowance                14,000

Purchase Price                        12,000        (OverAllowance of 2,000)

Bailment                        11,000

If the stock item was eventually retailed at 14,000 or more, an ITC of 1,272.73 would be available.

If the stock item was bailed before sale for 11,000(bailment amount is less than the Trade Allowance), the ITC is limited to 1,000.00 causing a net loss to the dealer of just less than 300.00.

Caution must be exercised when applying bailment to notional stock items.