• Examples – working out the GST

    MVIP made before the sale

    The following example shows how the GST is calculated when the MVIP is paid in a reporting period before the vehicle is sold.

    Example 1

    In February 2015, under the floor plan arrangements (bailment) with their finance company, Capability Motors took delivery of ‘Jaki model' motor vehicles to their showroom, for $27,500 per vehicle.

    In June 2015, Waymar Manufacturer issued a sales bulletin offering to pay its dealers a run-out model incentive of $2,200 (including GST) for each Jaki. Waymar Manufacturer paid the incentive payment for the Jaki in June 2015 to Capability Motors and issued a third party adjustment note.

    In July 2015, Rachel bought a Jaki from Capability Motors for $33,000 (including GST) and took delivery of the vehicle in August. She received a tax invoice for the purchase in July and is eligible to claim GST credits for the purchase.

    At the time of sale Capability Motors made a full payment of $27,500 to its finance company under the bailment and the title was transferred to Capability Motors and then to Rachel.

    The total price for the sale of the motor vehicle by Capability Motors to Rachel is $35,200 (the sum of $33,000 paid by Rachel plus $2,200 paid by Waymar Manufacturer).

    Manufacturer

    Waymar Manufacturer includes a decreasing adjustment of $200 in its monthly activity statement, which is worked out as follows:

    GST on sale to finance company – (GST on (sale to finance company – incentive payment))

    (1/11 x $27,500) – (1/11 x ($27,500 – $2,200))

    $2,500 – (1/11 x $25,300)

    $2,500 – $2,300

    = $200

    Dealer

    Capability Motors reports GST of $3,200 for the sale to Rachel, which is worked out as follows:

    Full GST payable  = $35,200 x 1/11 = $3,200

    Capability Motors reports the sale in their July monthly activity statement as this was when it invoiced Rachel for the sale and knew the total consideration for the sale of the motor vehicle. This is even though Capability Motors received a third party MVIP as part consideration in June.

    Customer

    As Rachel is registered for GST and she made a creditable purchase of the motor vehicle, Rachel is entitled to a GST credit of $3,000, being the GST in relation to the amount she paid Capability Motors for the motor vehicle. She claims the GST credit in the tax period when she receives a tax invoice for the vehicle (July).

    End of example

    MVIP made after the sale

    The following example shows how the GST is calculated when the MVIP is paid in a reporting period after the vehicle is sold.

    Example 2

    In January 2015, under the floor plan arrangements (bailment) with their finance company, Brown Motors took delivery of 10 ‘Winks model' motor vehicles for $27,500 per motor vehicle.

    In July 2015, Brown Motors sold the 10 Winks motor vehicles to Leah Trading, which paid $30,000 (including GST) per vehicle. Leah Trading is registered for GST and is eligible to claim GST credits for the 10 motor vehicles.

    Brown Motors made full payment of $27,500 per vehicle to its finance company under the bailment. Title was transferred to Brown Motors, and then to Leah Trading.

    In October, Waymar Manufacturer paid a fleet rebate of $3,000 (including GST) per Winks to Brown Motors. Brown Motors was not aware of the incentive payment until it was received in October.

    The total price for the sale of each Winks to Leah Trading is $33,000 (the sum of $30,000 Leah Trading paid plus $3,000 paid by Waymar Manufacturer).

    Manufacturer

    Waymar Manufacturer includes a decreasing adjustment of $2,727.30 in their monthly activity statement, which is worked out as follows:

    GST on sale to finance company – (GST payable on (sale to finance company – incentive payment))

    (1/11 x $27,500) – (1/11 x ($27,500 – $3,000))

    $2,500 – (1/11 x $24,500)

    $2,500 – $2,227.27

    = $272.73 per vehicle

    = $272.73 x 10 vehicle

    = $2,727

    Dealer

    In its July 2015 monthly activity statement, Brown Motors reported GST of $27,272.70, which was worked out as follows:

    GST payable per vehicle = $30,000 x 1/11 = $2,727.27

    GST payable for 10 vehicle = $2,727.27 x 10 = $27,273

    This is the GST they collected from Leah Trading.

    In October 2015, Brown Motors made an increasing adjustment to report the additional GST of $2,727, which was worked out as follows:

    One eleventh of incentive payment = $3,000 x 1/11 = $272.73 per vehicle

    GST payable for 10 vehicle = $272.73 x 10 = $2,727

    Customer

    Although a total of $30,000 GST was paid for the 10 Winks cars, Leah Trading can only claim GST credits for $27,272, which is the GST it paid for the vehicles.

    End of example

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      Last modified: 06 Jun 2016QC 49280