Edited version of your written advice

Authorisation Number: 1012797589330

Ruling

Subject: Deferred LCT on modified vehicles

Question 1

Are you entitled to quote your Australian business number (ABN) under section 9-5 of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act), in relation to the purchase of a luxury car, and defer luxury car tax, when you purchase the car for the purpose of modifying it and on-selling?

Answer

Yes. You are entitled to quote your ABN under section 9-5 of the LCT Act, in relation to the purchase of a luxury car and defer luxury car tax, when you purchase that car for the purpose of modifying it and on-selling.

Question 2

Will the final supply of the modified vehicle be subject to luxury car tax?

Answer

No. The final supply of the modified vehicle will not be subject to luxury car tax.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You are carrying on a business of producing and selling dual purpose vehicles that are designed to carry both passengers and goods.

You hold a second stage manufacturers' licence.

You purchase vehicles from a new vehicle dealership that meets the definition of luxury cars.

The base price of the vehicle is above the luxury car tax threshold.

These vehicles are then modified in accordance to engineers' plans by cutting off the rear section of the vehicles and installing a tray designed to carry goods/cargo, and then remodeling the body in terms of the engineers' plans.

The modified vehicle has a tare mass of xxxx kg and gross vehicle mass (GVM) of yyyy kg. It still has seats for zz passengers.

The base price of the modified vehicle is above the luxury car tax threshold.

The modified vehicle is to be marketed as a dual purpose vehicle for carrying goods.

To date, vehicles have only been purchased and modified against specific orders for the finished product. However in the future, the intention is to have a number of modified vehicles on hand as a finished product held for sale.

Relevant legislative provisions

A New Tax System (Luxury Car Tax) Act 1999, section 5-10

A New Tax System (Luxury Car Tax) Act 1999, section 9-5

A New Tax System (Luxury Car Tax) Act 1999, section 25-1

Reasons for decision

Question 1

Summary

You are entitled to quote your ABN under section 9-5 of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act), in relation to the purchase of a luxury car and defer luxury car tax, when you purchase that car for the purpose of modifying it and on-selling.

Detailed reasoning

Generally, luxury car tax is payable when there is a taxable supply or taxable importation of a luxury car. Under certain circumstances, a recipient or importer may quote their ABN for the supply or importation to avoid the luxury car tax that is otherwise payable.

Under paragraph 5-10(2) of the LCT Act, a supply is taken not to be a taxable supply of a luxury car when the recipient quotes for the supply. Quoting delays the LCT payable on the supply of the car until such time that the car is supplied or imported at the retail level where the recipient or importer is not entitled to quote an ABN.

Section 9-5 of the LCT details the circumstances under which you are entitled to quote your ABN in relation to the supply of a luxury car.

Paragraph 9-5(1)(a) of the LCT Act states that you are entitled to quote if you have the intention of holding the car as trading stock and for no other purpose at the time you make the quote. Therefore, it needs to be determined whether you will be holding the vehicle as trading stock.

The term 'trading stock' is not defined in the LCT Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The ordinary meaning of 'trading stock' includes not only goods held for the purpose of sale or exchange in the ordinary course of trade but also things such as materials which a manufacturer holds for use in manufacture.

Raw materials and work in progress of a manufacturer are also considered to be 'trading stock' as stated by Mason J in Federal Commissioner of Taxation v. St Hubert's Island Pty Ltd (in liq) (1978) 138 CLR 210; 78 ATC 4104; (1978) 8 ATR 452

Vehicles that are acquired for the purpose of modification, restoration and resale will be the 'trading stock' of a dealer in the same way that raw materials, work in progress and finished goods are the 'trading stock' of a manufacturer of goods.

You have informed us that you are purchasing the vehicle for the purpose of modifying it and on-selling it as dual purpose vehicle. Therefore you are purchasing the vehicle with the intention of holding them as trading stock and you meet the requirements in paragraph 9-5(1)(a) of the LCT Act.

Where you purchase a motor vehicle for the purpose of modification and sale, and for no other purpose (that is, hire, loan or private and domestic purposes), you are entitled to quote your ABN in relation to the supply of those cars.

Question 2

Summary

The final supply of the modified vehicle will not be subject to luxury car tax.

Detailed reasoning

Luxury car tax is payable on any taxable supply of a luxury car.

Subsection 5-10(1) of the LCT Act states:

You make a taxable supply of a luxury car if:

(a) you supply a *luxury car; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

(*denotes a term defined in section 27-1 of the LCT Act).

According to subsection 5-10(2) of the LCT Act, a supply is not a taxable supply of a luxury car if:

(a) the recipient quotes for the supply of the car; or

(b) the car is more than 2 years old; or

(c) the car is exported in circumstances where the export is GST-free under Subdivision 38-E of the GST Act.

Subsection 25-1(1) of the LCT Act defines a luxury car as a car whose luxury car tax value exceeds the luxury car threshold. However, according to paragraph 25-1(2)(c) of the LCT Act, a commercial vehicle that is not designed for the principal purpose of carrying passengers is not a luxury car.

The term 'commercial vehicle' is not defined by the LCT Act; therefore, its ordinary meaning will apply.

The Macquarie Dictionary (Australia) gives the following meaning to the term 'commercial vehicle':

• a vehicle able to carry goods or passengers, and designated for use by businesses, as a panel van, utility, etc'.

A commercial vehicle that qualifies as a car for LCT purposes and has an LCT value exceeding the LCT threshold is not a luxury car under paragraph 25-1(2)(c) of the LCT Act if it is not designed for the principal purpose of carrying passengers.

The Vehicle Standard (Australian Design Rule) - Definitions and Vehicle Categories defines a Goods Vehicle as follows:

A vehicle constructed for both the carriage of persons and the carriage of goods shall be considered to be primarily for the carriage of goods if the number of seating positions times 68kg is less than 50% of the difference between the Gross Vehicle Mass and the Unladen Mass.

The modified vehicle has zz passenger seats. Its GVM is yyyy kg and its tare mass is xxxx kg. By calculation, its passenger carrying capacity is less than 50% of the difference between its GVM and tare mass. As such, the modified vehicle is primarily for the carriage of goods.

You advised that the modified vehicle will be marketed as a dual purpose vehicle for carrying goods.

Therefore, we consider that the modified vehicle is a commercial vehicle for the purpose of the LCT Act. The modified vehicle is not a luxury car for the purpose of the LCT Act. Therefore, there is no LCT payable on the sale of the modified vehicle.