Edited version of your written advice

Authorisation Number: 1012878315867

Ruling

Subject: LCT and car modification

Question 1

Where you purchase vehicles for the purpose of modification and resale (and for no other purpose), are you entitled to quote your Australian Business Number (ABN) pursuant to section 9-5 of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act) and defer payment of the LCT until the vehicles are sold?

Answer

Yes

Question 2

Is LCT applicable on your final supply of the modified vehicles to end customers at the retail level?

Answer

No

This ruling applies for the following periods:

Relevant facts and circumstances

• You are registered for GST and have a LCT role.

• You operate a motor vehicle enterprise.

• You intend to purchase vehicles for the initial purpose of modifying them and the subsequent purpose of selling the modified vehicles.

• Subsequent to modifications being made to the vehicle, you will hold those motor vehicles as trading stock for sale to retail customers and for no other purpose (i.e. lease, hire, private or domestic use).

• You will retain ownership and title of the vehicle until the modified vehicles are sold to retail customers.

• The modified vehicles will be advertised and sold as 'dual purpose vehicles' designed to carry both passengers and goods.

• The modified vehicle passenger carrying capacity will be less than 50% of the difference between its GVM and tare mass.

Relevant legislative provisions

A New Tax System (Luxury Car Tax) Act 1999 paragraph 5-10(2)(a);

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

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

Question 1

Reasons for decision

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)(a) 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 Act 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.

As applied to the business of a manufacturer of goods, accountants and commercial men by their use of the expression 'trading stock' denote not only the goods which he has manufactured and holds for sale but his stock of raw materials, components and partly manufactured goods...

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

However, subsection 9-5(2) of the LCT Act provides that you are not entitled to quote your ABN unless you are registered for GST.

As you are registered for GST, you are entitled to quote your ABN under section 9-5 of the LCT Act, in relation to the acquisition of a luxury car when the car is to be modified and sold to a customer.

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 that car.

Question 2

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 5 passenger seats. Its GVM is 3,800 kg and its tare mass is 2,620 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.