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Edited version of your private ruling
Authorisation Number: 1012559398468
Ruling
Subject: luxury car tax
Question 1
Is luxury car tax (LCT) payable on a demonstration vehicle written off in a car accident before the vehicle has been retailed?
Answer
No.
Relevant facts and circumstances
· You are a vehicle dealership.
· You are registered for GST and for LCT.
· You hold a number of demonstration vehicles. These are registered as demonstration vehicles, and are used by prospective customers to test-drive a vehicle they may wish to buy.
· One of these vehicles was involved in an accident and was written off by the insurance company. For the purposes of this ruling, we assume that the car, as a write off, is no longer capable of being driven as a motor powered road vehicle.
· You are now in discussion with the insurance company and working out the settlement amount for this vehicle and whether LCT is applicable
· The vehicle cost is under $xxxxxx including GST.
· The LCT payable would be approximately $2757.
· The vehicle is now valued at less than the LCT threshold.
You submit that if the insurer were to settle the claim by paying cash to the dealership, the settlement of the claim under Division 78 would not be a taxable supply. It would therefore not constitute a taxable supply for LCT purposes, and LCT should not apply to the transaction.
Relevant legislative provisions
A New Tax System (Luxury Car Tax) Act 1999
Section 5-5
Section 25-1
Section 27-1
Reasons for decision
Section 5-5 of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act) provides that you must pay the luxury car tax payable on any taxable supply of a luxury car that you make.
Subsection 25-1 of the LCT Act defines a luxury car as follows:
(1) A luxury car is a *car whose *luxury car tax value exceeds the *luxury car tax threshold.
(Items marked with an *asterisk are defined in the Dictionary at division 27 of the LCT Act).
A 'car' is defined in the Dictionary at section 27-1 of the LCT Act as:
car means a *motor vehicle (except a motor cycle or similar vehicle) that is
(a) designed to carry a load of less than 2 tonnes and fewer than nine passengers, or
(b) a limousine (regardless of the number of passengers it is designed to carry).
The term 'motor vehicle' is also defined in the Dictionary at section 27-1 of the LCT Act to mean 'a motor-powered road vehicle (including a 4 wheel drive vehicle).
The ATO has previously considered the meaning of a 'motor-powered road vehicle' within a fringe benefits tax context. ATO Interpretative Decision ATO ID 2011/28 Fringe Benefits Tax Car fringe benefits: car destroyed in natural disaster (ATO ID 2011/28) states:
Where a car has been destroyed as a result of a natural disaster, then it ceases to be a motor-powered road vehicle from the date of the natural disaster. The vehicle is simply no longer capable of operating as a road vehicle and is therefore no longer a 'car' as defined for the purposes of the FBTAA . . .
Although ATO ID 2011/28 is written in a fringe benefits tax context, we consider that the same principal applies to LCT. The vehicle has been written off and is no longer capable of operating as a motor-powered road vehicle. It is therefore no longer a 'car' as defined for the purposes of the LCT Act.
As the vehicle is no longer is a motor-powered road vehicle, it is not a motor vehicle for the purposes of the LCT Act. It is therefore not a 'car' for the purposes of section 27-1 of the LCT Act, and therefore luxury car tax does not apply to the transaction.
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