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  • Issue 1 – Bailment

    1.a. What supplies occur under a bailment arrangement?

    Non-interpretative - other references (see GSTR 2002/2 - Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions).

    Under bailment arrangements for new vehicles there are typically two supplies, the first being the bailment of the car by the financier to the dealer and the second the sale of the car by the financier to the dealer.

    1.b. How is GST calculated?

    Non-interpretative - straight application of the law.

    Bailment fees charged by the finance company in relation to the supply of the bailment are consideration for a taxable supply, and are accordingly subject to GST. The subsequent sale of the vehicle to the dealer is also a taxable supply and is subject to GST.

    1.c. Are motor vehicles held by a finance company under a bailment arrangement trading stock for the purposes of luxury car tax?

    Non-interpretative - straight application of the law.

    Motor vehicles held under a bailment arrangement by a finance company are not regarded as being held for hire and therefore are trading stock of the finance company for GST and luxury car tax purposes.

    1.d. What input tax credits are available in relation to bailment arrangements?

    Non-interpretative - straight application of the law.

    Provided the acquisitions are for creditable purposes, input tax credits will be available for the GST payable on bailment charges and GST payable on the purchase of the vehicle from the finance company as trading stock.

    1.e. How are input tax credits calculated on used vehicles traded in from unregistered entities and sold to a finance company for purposes of bailment to the dealer?

    Non-interpretative - other references (see GSTR 2002/2 - Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions).

    Provided the dealer acquired the vehicle for purposes of sale or exchange, a dealer will be entitled to an input tax credit when the vehicle is sold to the finance company for purposes of bailment. The input tax credit that the dealer can claim is the lesser of:

    • 1/11th of the consideration provided for the acquisition, that is, the trade-in value, or
    • the GST payable on the subsequent taxable supply to the finance company.

    1.f. What is the amount of input tax credit that a finance company can claim where they acquire a car from a dealer for the purposes of bailment and withhold part of the consideration as a security deposit?

    Non-interpretative - straight application of the law.

    The finance company is entitled to claim an input tax credit equal to 1/11th of the consideration paid provided they hold a tax invoice. The amount of consideration is the amount advanced plus the security deposit.

    Example

    A dealer sells a car to a financier for $22,000 including $2,000 GST. The finance company advances $18,000 and holds $4,000 as a security deposit. The consideration paid by the finance company is $22,000 (that is, $18,000 plus $4,000). The amount of input tax credit that the finance company can claim is $2,000 (that is, 1/11th of $22,000).
      Last modified: 07 Jun 2012QC 16411