ATO Interpretative Decision

ATO ID 2004/725

Goods and Services Tax

GST and supply of a motor vehicle where payment for the supply is provided to an entity other than the supplier
FOI status: may be released

With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a business operator, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it:

•: sells a motor vehicle that was financed under a hire purchase agreement, and
•: directs the purchaser to pay the purchase price directly to the financier?

Decision

Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it sells a motor vehicle that was financed under a hire purchase agreement and directs the purchaser to pay the purchase price directly to the financier.

Facts

The entity is a business operator. The entity is selling a motor vehicle that was financed under a hire purchase agreement. At the time of entering into the agreement to sell the motor vehicle, the entity still owed money to the financier that financed the hire purchase agreement.

The entity directs the purchaser to pay the purchase price directly to the financier rather than to the entity. Upon payment, the financier transfers title in the motor vehicle to the entity. Under the terms of the agreement between the entity and the purchaser, the entity then immediately supplies the motor vehicle to the purchaser. Registration of the motor vehicle is then transferred from the entity to the purchaser.

The entity is registered for goods and services tax (GST). The entity's sale of the motor vehicle is made in the course of conducting its enterprise in Australia.

Reasons for Decision:

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

•: it makes the supply for consideration
•: the supply is made in the course or furtherance of an enterprise that it carries on
•: the supply is connected with Australia, and
•: the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

To satisfy the first requirement in section 9-5 of the GST Act, an entity must make a 'supply' for 'consideration'. Paragraph 9-10(2)(a) of the GST Act provides that for GST purposes, the term 'supply' includes a supply of goods. The entity is selling a motor vehicle and is therefore making a supply of goods.

The entity has directed the purchaser to pay the purchase price to the financier. Upon receipt by the financier of the purchase price, the financier transfers title in the motor vehicle to the entity and the entity then sells the motor vehicle to the purchaser.

Subsection 9-15(1) of the GST Act provides that for GST purposes, the term 'consideration' includes any payment, act or forbearance, in connection with, in response to or for the inducement of a supply of anything.

At the time of entering into the agreement to sell the motor vehicle, the entity still owes money to the financier that financed the hire purchase agreement. As such, the entity directs the purchaser to pay the purchase price directly to the financier. The purchaser therefore makes the payment to the financier in connection with and for the inducement of the supply of the motor vehicle to it by the entity. The payment is consideration as defined in subsection 9-15(1) of the GST Act.

Accordingly, the entity is making a supply for consideration as per the first requirement of section 9-5 of the GST Act.

The entity is registered for GST, the supply is made in the course of the entity's enterprise and is connected with Australia. In addition, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells a motor vehicle that was financed under a hire purchase agreement and directs the purchaser to pay the purchase price directly to the financier

Note: Section 9-40 of the GST Act provides that an entity must pay GST on any taxable supplies that it makes. As the entity is making a taxable supply under section 9-5 of the GST Act, the entity is required to remit GST equal to 1/11th of the payment made by the purchaser to the financier.

Date of decision: 12 February 2003

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   paragraph 9-10(2)(a)
   subsection 9-15(1)
   section 9-40
   Division 38
   Division 40

Keywords
Goods and services tax
GST consideration
GST supplies & acquisitions
Taxable supply

Siebel/TDMS Reference Number: 3457756

Business Line: Indirect Tax

Date of publication: 3 September 2004

ISSN: 1445-2782

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