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Edited version of your written advice
Authorisation Number: 1051442572871
Date of advice: 17 October 2018
Ruling
Subject: Goods and services tax and luxury car tax
Question 1
Are the motor vehicle incentive payments received by the dealership from the motor vehicle manufacturer considered an adjustment to the motor vehicle purchase price for goods and services tax (GST) and luxury car tax (LCT) purposes, where the dealership purchases the motor vehicle directly from the motor vehicle manufacturer?
Answer
Yes
Question 2
Are the motor vehicle incentive payments received by the dealership from the motor vehicle manufacturer consideration for the sale of the motor vehicle by the dealership to its customer for GST and LCT purposes, where the dealership purchases the motor vehicle directly from the motor vehicle manufacturer?
Answer
No
Question 3
Do the anti-avoidance provisions of Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to the dealership’s proposal to purchase the vehicle directly from the motor vehicle manufacturer in accordance with the arrangement described in the private ruling request, and the additional information submitted?
Answer
No
This ruling applies for the following periods:
20xx-xx income year
20xx-xx income year
20xx-xx income year
20xx-xx income year
The scheme commences on:
1 October 20xx
Relevant facts and circumstances
The dealership (you) are a motor vehicle dealership and is registered for GST and LCT.
You receive a number of motor vehicle incentive payments from various motor vehicle manufacturers (manufacturers).
You have arrangements with these manufacturers whereby, upon satisfaction of agreed conditions, the manufacturers would make incentive payments to you. However, these arrangements do not form part of the dealership agreement between you and the manufacturers.
You utilise the recipient ‘quoting’ system under Division 9 of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act) to defer the LCT payable when purchasing motor vehicles as trading stock from the manufacturers.
You currently finance your trading stock using floor plan (bailment) arrangements. Under this arrangement, you treat the incentive payments received from the manufacturers as third party consideration. These incentive payments are included in the LCT value of the motor vehicles that are sold to your customers.
Your proposed arrangement involves purchasing vehicles directly from the manufacturers.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Division 19
A New Tax System (Goods and Services Tax) Act 1999 Division 134
A New Tax System (Luxury Car Tax) Act 1999 Division 5
A New Tax System (Luxury Car Tax) Act 1999 Division 15
Reasons for decision
Goods and Services Tax
The proposed arrangement is one under which the dealership (you) acquires a vehicle for a particular price and, when the vehicle is supplied to an end consumer, you are paid an amount from the manufacturer from whom you purchased the vehicle.
The issue, then, is to consider whether the payment from the manufacturer is additional consideration for the supply to the end consumer or an adjustment to the purchase price of the vehicle from the manufacturer.
It is relevant to the situation to consider both Division 19 and Division 134 of the GST Act.
Division 19 provides that an adjustment event arises where an event has the effect of changing the consideration for an acquisition. Paragraph 19-10(2) provides an example: a change to the previously agreed consideration for an acquisition whether due to offer of discount or otherwise. However, subsection 9-15(2) provides that, in determining the amount of the consideration, it does not matter whether the payment was voluntary or whether by the recipient of the supply.
In the normal situation, the transactions regarding vehicles involve an intermediary (a finance company) who acquires the vehicle from the manufacturer and supplies it to a dealer with GST being paid and input tax credits (ITCs) being claimed as appropriate throughout the supply chain. However, this current situation is different in that there is no intermediary and therefore Division 134 assists in respect of characterising the payment from the manufacturer to the dealer.
Paragraph 134-10(1)(d) states that an increasing adjustment arises if “the payment is made in connection with, in response to or for the inducement of your acquisition of the thing”.
In the proposed arrangement, the dealer acquires a vehicle directly from the manufacturer and receives a payment from the manufacturer upon sale. In this case, the characterisation in Division 134 that the payment is in connection with the acquisition made by an entity outside the supply chain should not alter that same connection where the payment is made through the supply chain (i.e. paid and on-paid by the parties in the supply chain) or by a supplier to a recipient.
Paragraph 19-10(1)(b) refers to an adjustment event as including one which changes the consideration for an acquisition. Both paragraph 19-10(1)(b) and paragraph 134-10(1)(d) relate the payment to being in connection with the acquisition where it comes from a party within the supply chain.
As such, a payment that comes from a party within the supply chain (whether directly from the supplier or from a supplier earlier in the supply chain) will result in an adjustment event under Division 19, or an increasing/decreasing adjustment under Division 134.
Luxury Car Tax
Division 15 of the LCT Act provides for luxury car tax adjustment events including any event that has the effect of changing the consideration for the supply.
Accordingly, as the incentive payments received by you are not additional consideration but rather an adjustment event for the reasons described above, this will affect LCT payable on the purchase of the motor vehicle from the manufacturer. However, this is not a concern for you because the liability to pay LCT falls on the seller of the motor vehicle and since you quote for your motor vehicle purchases, the LCT (including the amount affected by the adjustment) is deferred until the motor vehicle is sold at retail or when used for purpose contrary to the quotable purpose.
Further, the incentive payments are not third party payment and will not form part of the motor vehicle sale price from you to your customers, thus the incentive payment will not be included in the LCT value.
Anti-avoidance provisions in Division 165 of the GST Act do not apply to your proposed arrangement.