Edited version of private ruling

Authorisation Number: 1011762232698

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Ruling

Subject: LCT and research and development.

Question 1

Are you liable to pay luxury car tax (LCT) on the purchase of luxury cars which are used for the purpose of research and development of aftermarket products?

Answer

Yes, you are liable to pay LCT on the purchase of luxury cars which are then used for the purpose of research and development of aftermarket products.

Relevant facts and circumstances

You are an organisation that designs and manufactures automotive aftermarket products for export.

You are registered for the Goods and Services Tax (GST) and have an Australian Business Number (ABN).

You purchase new vehicles, which are luxury cars, in Australia in order to design products for them.

The vehicles are not registered or drivable for the first 9-12 months of ownership while the products are being designed.

Currently you have purchased a certain new model luxury car with which to design aftermarket products, but you intend to move to other luxury cars as well.

You wish to use the "Quote" facility when you purchase a new vehicle.

You design and manufacture products such as brake upgrade kits and exhaust systems, which are tightly integrated to each vehicle/model.

The products you design are not available from the dealers.

You do not have advance orders for these products but you do the Design & Build before going through a prototyping/testing phase and you do market research to ensure there is a market for the products before proceeding.

You are not authorised by the vehicle manufacturers to carry out research and development for the purpose of designing products for their vehicles.

You do not require any licensing from the manufacturer because the products are considered to be aftermarket.

You are not a registered research and development organisation.

You are seeking relief from the LCT during the development phase as the vehicle is not being used as a method of transport - it is dismantled for much of the time.

You will register and sell the vehicle/s once development is concluded and LCT will then be paid.

Your contentions:

You believe that you are complying with the intent of LCT but, even though you state that you understand why "Research and Development" is only considered legitimate if it is for the manufacturer of the vehicle, you view this as 'somewhat restrictive to small business'.

You also believe that the intent of LCT is that it is applied to vehicles used for transport, i.e. payable on registration. You also believe that it is not an import duty or such that is payable when the vehicle enters Australia.

Reasons for decision

In certain circumstances you can quote for a supply or importation of a luxury car and not pay the LCT. This is designed to avoid the LCT becoming payable unless the car is sold or imported at the retail level.

Subsection 9-5(1) of the A New Tax System (Luxury Car Tax) Act 1999, (LCT Act), states:

(2) You are entitled to *quote your *ABN in relation to a supply of a *luxury car or an importation of a luxury car if, at the time of quoting, you have the intention of using the car for one of the following purposes, and for no other purpose:

(a) holding the car as trading stock, other than holding it for hire or lease; or

(b) *research and development for the manufacturer of the car; or

(c) exporting the car in …

* asterisked terms are explained in the Dictionary in section 27-1 of the LCT Act.

The term "research and development" is defined in the Dictionary, at section 27-1 of the LCT Act, to mean:

research and development means systematic, investigative and experimental activities that involve innovation or high levels of technical risk and are carried on for the purpose of:

(a) acquiring new knowledge (whether or not that knowledge will have a specific practical application); or

(b) creating new or improved materials, products, devices or processes.

The policy intention is to apply equal treatment to those manufacturers who contract out their research and development activities and those manufacturers who choose to conduct these activities themselves.

In this case you appear to be conducting research and development activities. However, you are not conducting this research and development, under contract, for the manufacturer of the car. Therefore you do not comply with the requirement of paragraph 9-5(1)(b) of the LCT Act.

Consequently you are not entitled to quote your ABN when you purchase a luxury car for the purpose of designing and manufacturing 'aftermarket products' for those specific luxury cars. You will therefore be liable to pay LCT, if applicable, on the purchase of any luxury vehicle which is supplied to you.

Additional information

You have advised that during the development cycle the vehicle is not registered or in a drivable state. But, after you have finished with it, and it is registered for the first time, 'LCT would be payable as per the published calculation method.'

If a GST registered entity finds that it has to pay, or can receive a refund of LCT, it must complete an Add a Business Account (NAT 2954) form.

Summary

You are liable to pay LCT on the purchase of any luxury car which is supplied to you and then used for the purpose of research and development of aftermarket products for those particular luxury cars.