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Edited version of your written advice
Authorisation Number: 1012888251516
Date of advice: 8 October 2015
Ruling
Subject: GST and disposal and purchase of new car by eligible veteran
Question
As a TPI pensioner, are you eligible to purchase a GST-free new car under subsection 38-505(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you subsequently dispose your current vehicle which you recently purchased for a new car?
Advice
Yes, you are eligible to purchase a GST-free new car under subsection 38-505(1) of the GST Act when you subsequently dispose your current vehicle for a new car.
Relevant fact
You are a TPI pensioner and recently purchased a new car GST-free. When you purchased the car you did not do a test drive.
You would like to trade the current car for a new bigger car because the current car does not suite your needs. The current car is too small and it is very uncomfortable for you to drive since the seat does not go back far enough and you feel very cramped when driving. As a result, you are in pain and stress when driving the car, hence adding more health problems to your existing injuries.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-50(1)
Reasons for decision
Subdivision 38-P of the GST Act provides that the supply of a car for use by disabled people is GST-free.
Subsection 38-505(1) of the GST Act is about supply of car to disabled veterans and states:
1) A supply is GST-free if it is a supply of a *car to an individual who:
a) has served in the Defence Force or in any other armed force of Her Majesty; and
b) as a result of that service;
i. has lost a leg or both arms; or
ii. has a leg, or both arms, rendered permanently and completely useless; or
iii. is a veteran to whom section 24 of the Veterans' Entitlements Act 1986 applies and receives a pension under Part II of that Act; or
iv. is receiving a Special Rate Disability Pension under Part 6 of Chapter 4 of the Military Rehabilitation and Compensation Act 2004, or satisfies the eligibility criteria in section 199 of that Act; and
c) intends to use the car for his or her personal transportation during all of the *Subdivision 38-P periods.
(*denotes a defined term in section 195-1 of the GST Act)
The term Subdivision 38-P period is defined in section 195-1 of the GST Act. It is the period starting when you acquire the car and ending at the earlier of:
a) the end of a 2 year after the acquisition; or
b) the time when the car is no longer reasonably capable of being used for the purpose for which cars of that kind are ordinarily used; or
c) a time that the Commissioner considers to be appropriate in special circumstances.
You advised that you cannot use the car for the purpose you originally intended at the time of purchase because your current car does not suite your needs as it is too small and it is affecting your health when driving.
The Commissioner's interpretation of section 38-505 of the GST Act allows for a subsequent purchase of a GST-free car where the first purchase was genuinely made with the intention of using the car for the two years/40,000 kilometres statutory period and the car is no longer suitable for its intended use. In your case, at the time of the purchase of your current car, your intention was to keep the car and therefore have met the subdivision 38-P requirement. If you then sell the car, there is no further GST liability.
Accordingly, when you purchase your replacement car, the purchase of the car will be treated under the provisions in Subdivision 38P of the GST Act as the purchase of the replacement car is not affected by the previous purchase of your current car.
Therefore, you are eligible to purchase a GST-free car pursuant to section 38-505 of the GST Act when you subsequently dispose of your current vehicle for a more suitable vehicle.
A car purchased GST-free under section 38-505 of the GST Act is only GST-free to the value of the car limit. The 2015-16 is $57,466. You must pay GST on any amount above that limit.
The value of the car does not include the value of any modifications made solely to adapt the car for the owner to drive or be driven in.