Edited version of private advice

Authorisation Number: 1052283435650

Date of advice: 5 August 2024

Ruling

Subject: GST on imported cars and cars parts for modification for people with disability

Question 1

Is the entity an importer of cars and parts that are used in the process of converting cars to be used by people with disability, making a non-taxable importation under paragraph 13-10(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it imports cars that are not specifically designed for people with disability, but are an integral part of the conversion?

Answer

No.

Question 2

Is the entity an importer of cars and parts that are used in the process of converting cars to be used by people with disabilities, making a non-taxable importation under paragraph 13-10(b) of the GST Act when it imports car parts that are not specifically designed for people with disability, but are an integral part of the conversion?

Answer

No.

Question 3

Is the entity an importer of parts used in cars being converted for use by people with disability, making a non-taxable importation under paragraph 13-10(b) of the GST Act when it imports car parts that are specifically designed for people with disability?

Answer

The importation of spare parts that are specifically designed for people with disability will be GST-free provided the supply of spare parts used in cars being converted for people with disability satisfies all the requirements of subsection 38-45(2) of the GST Act.

Relevant facts and circumstances

The entity is an Australian company carrying on an enterprise of supplying modified cars for the use by people with disability.

The entity is registered for goods and services tax (GST).

The entity imports cars, general car parts and parts specifically made for people with disability.

As part of the modification process, the entity adds ramps and special car seats among other things.

The entity modifies cars on behalf of Entity A and was advised by Entity A that these modifications meet the conditions of Section 38-45 of the GST Act.

The entity has entered a contract with Entity A.

The entity supplies some of the modified vehicles directly to the client and some are made to Entity A.

Some of the car parts that the company imports are marketed to be for modifications of cars for people with disability but can also be used as general car modifications.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 13-10

A New Tax System (Goods and Services Tax) Act 1999 section 38-45

A New Tax System (Goods and Services Tax) Act 1999 section 38-505

A New Tax System (Goods and Services Tax) Act 1999 section 38-510

Does Division 165 apply to this private ruling?

Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 is a general 'anti-avoidance' rule that can apply in certain circumstances if you or another entity obtains a GST benefit from a scheme that you entered into or carried out for the main purpose of obtaining a GST benefit, or allowing another to obtain one.

It may also apply in some cases where the GST benefit arises as a principal effect of a particular scheme. An entity can get a 'GST benefit' under the GST, Luxury Car Tax or Wine Equalisation Tax laws.

If Division 165 applies, the benefit can be cancelled. For example, we might increase the net amount for a particular tax period.

Unless your private ruling specifically discusses Division 165, we have not considered the application of the anti-avoidance provisions to your case.

If you want us to rule on whether Division 165 applies in your circumstances, contact your contact officer to find out what details we will need to make the private ruling.

Reasons for decision

In this reasoning, unless otherwise stated,

•         all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•         all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

•         where the term 'Australia' is used, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.

Question 1

Summary

The importation of cars that are not specifically designed for people with disability will not be a non-taxable importation under paragraph 13-10(b). The importation of a car by the entity would not satisfy the requirements of GST-free provisions. For GST purposes a car is not considered as an integral part of a supply of a modified vehicle for disabled people.

Detailed reasoning

Paragraph 13-10(b) provides that an importation is a non-taxable importation if it would have been a supply that was GST-free or input taxed if it had been a supply.

The importation of a car that is not specifically designed for people with disability by the entity should be considered whether the supply to the entity would satisfy any GST-free provisions under the GST Act. If the supply of a car is GST-free supply to the entity, then the importation of the car would be considered as non-taxable importation under paragraph 13-10(b).

Supplies of cars to disabled veterans and other disabled people are GST-free in certain circumstances.

For the purposes of the exemption, a car is a 'motor vehicle' - i.e. a motor-powered road vehicle - designed to carry a load of less than one tonne and fewer than nine passengers.

Disabled veterans (Section 38-505)

Section 38-505 explains that a supply to an individual who is a disabled veteran is GST-free if the veteran intends to use the car for personal transportation during the whole of a specified period. This period is normally the first two years after acquisition of the car.

The disabled veteran must be a person who has served in the Defence Force or in any other armed force of the Crown, and who as a result has lost a leg or both arms or had a leg or both arms made permanently and completely useless. Veterans receiving a total disability pension (known as the totally and permanently incapacitated (TPI) pension) also qualify.

The exemption also applies to veterans who receive, or are eligible to receive, a Special Rate Disability Pension under the Military Rehabilitation and Compensation Act 2004.

Other disabled people (section 38-510)

The supply of a car to any other disabled person is GST-free if the person has a current disability certificate to the effect that he or she cannot use public transport because of the loss of the use of one or more limbs.

This means that if a modified car is imported on behalf of a disabled veteran or an eligible disabled person who is able to satisfy the circumstances described in sections 38-505 or 38-510 then the importation will not attract GST.

However, the importation of a car by a business does not qualify as a GST-free importation if the business imports a car on their own behalf for subsequent sale to an individual. Under such circumstances the business would have to pay GST on importation and would be entitled to input tax credits if the car was acquired in the carrying on their enterprise.

Accordingly, the importation of car that is not designed specifically for people with disability by the entity would not be GST-free or non-taxable importation under paragraph 13-10(b). However, the subsequent sale of a modified car to an eligible veteran or other disabled people with a current disability certificate would then be GST-free.

Item 58 in the table in Schedule 3

Subsection 38-45 (1) states:

A supply is GST-free if:

(a) it is covered by Schedule 3 (medical aids and appliances), or specified in the regulations; and

(b) the thing supplied is specifically designed for people with an illness or disability and is not widely used by people without an illness or disability.

Item 58 in the table in Schedule 3 refers to modifications made to a motor vehicle where:

•         the modification forms an integral part of the overall conversion

•         the conversion is specifically designed for people with disabilities, and

•         the converted vehicle is not widely used by people without an illness or disability.

Under item 58 in the table in Schedule 3, a supply of modified car to a person with disability would be GST-free provided the supply satisfies all the three requirements listed above.

Goods and Services Tax Ruling 2008/1: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2008/1) discusses among other things, the characteristics of a supply that appears to have more than one part but is essentially a supply of one thing. This type of supply is referred to as a 'composite supply'.

The term 'composite supply' is used to describe a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. You treat a composite supply as a supply of a single thing.

Paragraphs 19A to 21 of GSTR 2008/1 state:

19A. An identification of the essential character of what is supplied may inform whether (and to which extent) a particular transaction falls within the terms of a specific statutory provision. You must consider all of the circumstances of the transaction to ascertain its essential character.

19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

20. The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. In deciding whether a supply consists of more than one part we take the view that you adopt a common sense approach.

21. You may choose to treat something (or things taken together) as integral, ancillary or incidental if the consideration that would be apportioned to it (if it were a separately identifiable part of a mixed supply) does not exceed the lesser of:

•         $3.00; or

•         20% of the consideration for the total supply.

The importation of a car by the entity for the modification of a car to a person with disability is not considered as an integral part of the supply of modified car to the disabled person. Because when the modified car is supplied to a disabled person, the car imported by the entity would be considered as the dominant part of the supply and not as an integral, ancillary or incidental part of the supply.

Question 2

Summary

The importation of spare parts that are not specifically designed for people with disability will not be a non-taxable importation under paragraph 13-10(b).

Detailed reasoning

As explained in question 1, the importation of spare parts that are not specifically designed for people with disability and will be used to modify cars for people with disability by the entity will not be GST-free supply to the entity. Therefore, the importation will not satisfy the requirements of paragraph 13-10(b). It will be taxable importation and the entity is entitled to claim GST credits on the purchase of the spare parts provided the entity has acquired the spare parts in carrying on their enterprise.

When the spare parts are used in the modification of a car for an eligible disabled person, these spare parts may form as an integral part of the dominant supply made to the disabled person by the entity.

Paragraphs 54A to 54C of GSTR 2008/1 state:

54A. Further, separately identifiable parts of a supply may not be individually recognised because of the effect of a specific provision of the GST Act. For example, a supply to an eligible disabled person of a car part and labour services in fitting that part may be considered to have separately identifiable parts due to their relative significance in the supply. However, in subsections 38-505(4) and 38-510(4), the expression a 'supply of car parts' includes the labour services in fitting the car parts to the car of an eligible disabled person. There is a single GST-free 'supply of car parts'.

54B. The inclusion of labour services gives effect to the legislative purpose, as identified by reference to Subdivision 38-P and section 38-45, that a functioning car for suitable transportation is to be supplied to an eligible disabled person GST-free.

54C. A supply is GST-free under subsections 38-505(4) and 38-510(4) only if the supply is a 'supply of car parts'. Car parts supplied as an integral, ancillary or incidental component of a car service are not a supply of car parts under either of those subsections. For example, spark plugs supplied in the course of a routine service of a car are not a supply of car parts. Those car parts are only an incidental part of a supply that is properly regarded as a supply of services, not a supply of car parts.

The importation or purchase of spare parts that are not specifically designed for people with disability will not be GST-free just because the spare parts may form as an integral part of the dominant supply, which will be the modified car to eligible people with disability.

Question 3

Summary

The importation of spare parts that are specifically designed for people with disability will be GST-free provided the supply of spare parts used in cars being converted for people with disability satisfies all the requirements of subsection 38-45(2).

Detailed reasoning

Subsection 38-45(2) provides that a spare part is GST-free where it is supplied as, and specifically designed as, a spare part for a product that would be GST-free under subsection 38-45(1). A spare part is a part which has been specifically designed to replace a faulty, worn or broken part of a medical aid or appliance. A spare part can also have characteristics that enhance or improve the faulty, worn or broken part.

One of the requirements under subsection 38-45(1) is that the thing supplied is specifically designed for people with an illness or disability and is not widely used by people without an illness or disability. Therefore, the importation of spare parts should satisfy both elements of "specifically designed" and "not widely used".

Goods and Services Tax Determination 2021/2: adjustable beds, pressure management mattresses and pressure management overlays (GSTD 2021/2) explain among other things, about the two elements of "specifically designed" and "not widely used".

Paragraphs 7 to 9 of GSTD 2021/2 state:

Specifically designed

7. The following factors are a non-exhaustive list of matters you should take into account when considering whether a particular product is specifically designed for people with an illness or disability:

•         An objective view of the design features and characteristics of the product indicate whether its essential character is that it is specifically designed for people with an illness or disability.

•         The designer's or manufacturer's intention of how the particular product is to be used. Indicators of the designer's or manufacturer's intention include an objective consideration of how the product is marketed and the type of outlets at which the product can be purchased.

Not widely used

8. The phrase 'not widely used' is not defined in the GST Act. It therefore takes its ordinary meaning, having regard to the context in which it appears. It is a question of degree whether a product is not widely used by people without an illness or disability. The Commissioner considers that it is reasonable to conclude that the test is not satisfied if the product is widely purchased by or on behalf of people without an illness or disability, without the need to examine how this class of people in fact use the product.

9. In the context of paragraph 38-45(1)(b), the Commissioner considers 'not widely used' to mean not used by many people who do not have an illness or disability.

The spare parts imported by the entity should satisfy both elements of specifically designed as a spare for the supply of modified cars to the eligible disabled people, and the spare parts are not widely used by people who do not have an illness or disability.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).