Edited version of private advice

Authorisation Number: 1052203102532

Date of advice: 14 December 2023

Ruling

Subject: Luxury car tax

Question

Can luxury car tax be claimed where it was paid to a dealership for the acquisition of a passenger vehicle, but was permanently and irreversibly modified by a separate party to a Dual Cab utility vehicle before first registration, delivery, and use?

Answer

No.

This ruling applies for the following period:

1 July 2022 to 30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

The customer's Company is registered for goods and services tax (GST) and is not in the business of trading in luxury cars.

The customer purchased a passenger carrying vehicle through a dealership and had it modified into a dual cab utility vehicle, categorised as NB1 medium goods vehicle under the Road Vehicle Standards Act 2018. The process was:

•         Dealership to deliver the passenger vehicle to a second stage manufacturer (modifier)

•         Once modifications are completed by the modifier, the 'modified vehicle' is to be returned back to dealership

•         Dealership to then register and deliver the modified vehicle to the customer.

The dealership required payment to be made prior to the modification was made to the vehicle.

There were separate warranties provided by the dealership and the modifier. The warranty provided by the dealership did not extend to the modifications.

The following documentation were provided:

•         Tax invoice issued by dealership for passenger vehicle purchase which included a luxury car tax amount.

•         Tax invoice from the modifier for the modification services.

•         Registration certificate to show it is registered as a Dual Cab, 5 seats, including GVM of and tare of the vehicle.

•         Insurance certificate.

•         Vehicle Purchase Contract (with the dealership) which includes the terms and conditions.

Relevant legislative provisions

A New Tax System (Luxury Car Tax) Act 1999 Division 5

A New Tax System (Luxury Car Tax) Act 1999 Section 5-5

A New Tax System (Luxury Car Tax) Act 1999 Division 7

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

A New Tax System (Luxury Car Tax) Act 1999 subsection 27-1

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-10

Reasons for decision

Generally, luxury car tax (LCT) is payable when there is a taxable supply or taxable importation of a luxury car (Division 5 and Division 7 of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act)).

Section 5-5 of the LCT Act states that you must pay the luxury car tax payable on any *taxable supply of a luxury car that you make.

Section 25-1 of the LCT Act provides the definition of a luxury car and states:

25-1 Meaning of luxury car

1) A luxury car is a *car whose *luxury car tax value exceeds the *luxury car tax threshold.

2) However, a *car is not a *luxury car if it is:

a) a vehicle that is specified in the regulations to be an emergency vehicle, or that is in a class of vehicles that are specified in the regulations to be emergency vehicles; or

b) specially fitted out for transporting *disabled people seated in wheelchairs (unless the supply of the car is *GST-free under Subdivision 38-P of the *GST Act); or

c) a commercial vehicle that is not designed for the principal purpose of carrying passengers; or

d) a motor home or campervan.

Items marked with an * are defined in the dictionary at section 27-1 of the LCT Act.

Section 27-1 of the LCT Act defines taxable supply is as follows:

Taxable supply has the meaning given by section 195-1 of the *GST Act

GST Act means the A New Tax System (Goods and Services Tax) Act 1999

Section 27-1 of the LCT Act defines a car is as follows:

car means a *motor vehicle (except a motor cycle or similar vehicle) that is:

(a) designed to carry a load of less than 2 tonnes and fewer than 9 passengers; or

(b) a limousine (regardless of the number of passengers it is designed to carry)

motor vehicle means a motor-powered road vehicle (including a 4 wheel drive vehicle).

The vehicle (prior to modification):

The passenger carrying vehicle is a motor-powered road vehicle with seating capacity for 7 passengers including the driver and has a load carrying capacity of less than 2 tonnes, and therefore falls under the definition of a car for the purposes of the LCT Act.

The vehicle falls under the definition of a luxury car in the first instance because the vehicle has an LCT value above the LCT threshold (the threshold for 2022-23 financial year was $71,849 or $84,916 for fuel efficient vehicles).

The modified vehicle:

Under paragraph 25-1(2)(c) of the LCT Act, a car is not a luxury car if:

•         it is a commercial vehicle

•         that is not designed for the principal purpose of carrying passengers.

For LCT purposes, the Commissioner considers a commercial vehicle is designed for the principal purpose of carrying goods used for business or trade.

Commercial vehicles not designed for the principal purpose of carrying passengers typically include:

•         trucks

•         hearses

•         some vans, for example, cargo or delivery vans

Vehicles designed principally for carrying passengers (including paying passengers) or for sport or recreation purposes are not commercial vehicles and may have luxury car tax payable for them. These vehicles include:

•         station wagons

•         passenger sedans

•         people movers

•         sport utility vehicles (SUVs)

Applying the principal purpose test in Luxury car tax determination 2023/1 (LCTD 2023/1) Luxury car tax: how to determine the principal purpose of a vehicle, we consider the modified dual cab utility vehicle a commercial vehicle with a principal purpose of carrying goods for LCT purposes.

In summary, the original vehicle is a luxury car on which LCT is payable, but once modified, it is a commercial vehicle with a principal purpose of carrying goods on which LCT would not be payable.

However, as LCT is payable when there is a taxable supply of a luxury car, the key issue to be determined is whether the supply of the vehicle by the dealership to the customer occurred prior to or after the undertaking of the modifications.

The supply:

Sections 5-5 and 5-10 of the LCT Act refer to the 'taxable supply' of a luxury vehicle.

The LCT Act relies upon the meaning of supply contained in the GST Act. The LCT Act does not provide any guidance as to when a supply of a luxury car is considered to have occurred nor does it place any significance on the time of physical delivery or registration of a vehicle. Accordingly, there is no basis upon which to conclude that a supply of a luxury car is contingent upon physical delivery or registration of the vehicle.

Sections 9-5 and 9-10 of the GST Act provide the following meaning to taxable supply and supply:

9-5 Taxable supplies

You make a taxable supply if:

(a) you make the supply for *consideration; 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 the indirect tax zone; and

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

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

9-10 Meaning of supply

(1) A supply is any form of supply whatsoever.

(2) Without limiting subsection (1), supply includes any of these:

(a) a supply of goods;

(b) a supply of services;

(c) a provision of advice or information;

(d) a grant, assignment or surrender of *real property;

(e) a creation, grant, transfer, assignment or surrender of any

right;

(f) a *financial supply;

(g) an entry into, or release from, an obligation:

(i) to do anything; or

(ii) to refrain from an act; or

(iii) to tolerate an act or situation;

(h) any combination of any 2 or more of the matters referred to

in paragraphs (a) to (g).

The meaning of 'supply' is considered further in detail in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies. Paragraph 119 of GSTR 2006/9 states:

119. Examining the agreement or other reciprocal legal relationships is the starting point in analysing an arrangement to determine who is making a supply to whom.

Based on the facts provided, we consider that there is one arrangement under which two separate taxable supplies to you are made:

1.    The supply of the (unmodified) vehicle to the customer by the dealership; and

2.    The supply of modification services to the customer by the modifier.

We formed this view on the basis that:

•         There were separate agreements with the dealership (for the purchase of the unmodified vehicle) and the modifier (for the modifications to take place).

•         The sale of the vehicle and the modifications to the vehicle were separately invoiced by the dealer and modifier respectively.

•         The dealership did not provide any warranty in respect of the modifications. The warranty for the modifications was provided by the modifier.

•         Payment was made for each supply separately to the relevant suppliers (dealership for supplying the vehicle and modifier for supplying the modification services).

The Terms and Conditions of the Vehicle Purchase Contract with the dealership were also considered.

In this instance, notwithstanding the fact the modifications were undertaken prior to registration and physical delivery of the vehicle, the vehicle is no longer trading stock of the dealership because it had already been dealt with on the customer's behalf as evidenced by the undertaking of modifications to the vehicle in accordance with their specifications under a separate contract between the parties.

Accordingly, the 'supply' of the vehicle from the dealership to the customer occurred when the vehicle was delivered to the modifier to allow the modifications to be undertaken.

The warranty provided by the dealership did not extend to the modifications, and the dealership's invoice was for the passenger carrying vehicle only and did not include any conditions relating to the modifications to be undertaken as part of the supply. The modifications subsequently occurred under a separate contract, invoice and warranty between the parties.

Therefore, a luxury car was supplied and LCT was payable at that time. There has been no overpayment of LCT and there is no entitlement to recoup the luxury car tax that the customer has borne on payment to the dealership for acquisition of the luxury car.