Edited version of private advice

Authorisation Number: 1052240190810

Date of advice: 11 April 2024

Ruling

Subject: GST - general rules and concepts

Question

Are you making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you return the motor vehicle you purchased from a motor vehicle dealer, and subsequently obtained a full refund?

Answer

Yes, you will be making a taxable supply under section 9-5 of the GST Act when you return the motor vehicle as you will satisfy all the requirements under the section.

This ruling applies for the following periods:

DDMMYYYY to DDMMYYYY

The scheme commenced on:

DDMMYYYY

Relevant facts and circumstances

You are registered for GST effective from DD MM YYYY

You report for GST on an annual basis.

You purchased a motor vehicle (the Vehicle) from a motor vehicle dealer (the Dealer) on DD MM YYYY

The purchase price for the Vehicle was $xxxx.

A GST amount of $xxxx was included in the purchase price.

A LCT amount of $xxxx was also included in the purchase price.

Following your purchase of the Vehicle, you identified both mechanical and cosmetic issues with the Vehicle.

On DD MM YYYY, the Vehicle was sent in to the Dealer for repair of paint defects and electrical faults.

On DD MM YYYY, you picked up the Vehicle after it had been repaired.

You notified the Dealer on DD MM YYYY of additional electrical faults and stalling of the Vehicle and the Vehicle was dropped off to the Dealer for an assessment.

On DD MM YYYY, you notified the Dealer of the same persistent issues.

The Dealer agreed to purchase the Vehicle back from you. In an email dated DD MM YYYY, a representative of the Dealer requested you complete two forms - a Purchase Agreementand a request for the refund of monies and requested you return the completed forms together with a 'tax invoice on your letter head'.

You replied on the same day attaching the completed forms and stated you will 'get an invoice sorted shortly ...'.

The completed Purchase Agreement contained the following statement:

'As the registered owner(s) of the subject vehicle I/We hereby agree to Sell of the subject vehicle to the Dealer for the allowance of $xxxx'.

The Purchase Agreement also provides a statement commencing 'My sale of the vehicle through you is...' and provides three options to complete the statement with instruction to strike out options as applicable. None of the options were struck out as instructed. The options available included the following:

'Made in the course of the furtherance of my business enterprise and I/We hereby quote its ABN, which is... and is registered for GST and I/We have provided a Tax invoice for the purchase...'

You accepted the refund and proceeded to finalise the transaction, forgiving any further claims made against the Dealer.

To date, you have not claimed any expenses related to the Vehicle.

You have also not claimed input tax credits for the purchase of the Vehicle from the Dealer as you report your Business Activity Statements (BAS) annually.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

Reasons for decision

Section 9-40 provides that you are liable to pay GST on any taxable supply that you make.

Section 9-5 provides that you make a taxable supply if:

(a)  you make the supply for consideration;

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

(c)  the supply is connected with the indirect tax zone (Australia); 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.

The issue in this case is the classification of the transaction whereby the Dealer has agreed to take back possession and ownership of the Vehicle and pay you an amount of $xxxx.

That is, in the act of the Dealer taking possession and ownership of the Vehicle, are you making a supply/taxable supply to the Dealer. Alternatively, is the act considered to be the cancellation of the original supply made by the Dealer to you.

Supply

Prior to determining whether you have made a 'taxable supply', it is first necessary to determine whether you have made a 'supply'. The meaning of the word 'supply' is contained in section 9-10 as 'any form of supply whatsoever'. The meaning of 'supply' is further discussed in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9).

Paragraph 22 and 23 of GSTR 2006/9 outlines the sixteen propositions which may be relevant to characterising and analysing supplies. The relevant propositions on these facts include:

•        Proposition 5: An entity will make a supply if it provides something to another entity;

•        Proposition 6: 'Supply' usually, but not necessarily, requires something to be passed from one entity to another; and

•        Proposition 11: The agreement is the logical starting point when working out the entity making the supply and the recipient of that supply.

Paragraph 71 of GSTR 2006/9 discusses that an entity will make a supply whenever that entity (the supplier) provides something of value to another entity (the recipient) (Proposition 5). This is consistent with the ordinary meaning of 'supply', being to furnish or provide.

Proposition 6 is discussed at paragraphs 92 - 94 of GSTR 2006/9 whereby a supply usually, but not necessarily, requires something to be passed from one entity to another. This proposition is largely self-evident in a transaction based tax such as the GST.

Proposition 11 (at paragraphs 119 - 122 of GSTR 2006/9) considers that the agreement is the logical starting point when working out the entity making the supply and the recipient of that supply.

In this case, with reference to the above propositions, you are providing something of value (the Vehicle) to the Dealer. Title to the vehicle is passed to the Dealer via the relevant State vehicle transfer process and the Purchase Agreementyou provided to the Dealer acknowledges that you agreed to sell the Vehicle to the Dealer and that the Dealer would provide you with an allowance of $xxxx.

Furthermore, your correspondence with the Dealer discusses that you provide a tax invoice to the Dealer as provided for in the Purchase Agreement. Paragraph 29-70(1)(a) provides that a tax invoice is a document that is issued by the supplier of the supply to which the document relates to.

As such, it is our view that you have made a supply (as defined for GST purposes in section 9-10) of the Vehicle to the Dealer. This is separate and distinct to the initial supply made by the Dealer to you when you purchased the Vehicle.

Will your supply of the vehicle to the Dealer be a taxable supply?

As a supply has been identified above, it is now of relevance to determine whether the supply of the Vehicle made by you to the Dealer constitutes a taxable supply.

You have expressed the view that the supply of the Vehicle back to the Dealer is a return of goods and not a second sale. That is, the act of you supplying the Vehicle back to the Dealer was a cancellation of the original supply from the Dealer to you. However, the content of the Purchase Agreement provided does not support your contention that there was a cancellation of the original supply.

You received an amount of $xxxx as consideration from the Dealer and the supply of the Vehicle is connected to the indirect tax zone (Australia), therefore satisfying paragraphs 9-5(a) and 9-5(c).

We also consider that your supply of the Vehicle to the Dealer was made in the course or furtherance of the enterprise that you carry on and you are registered for GST, therefore satisfying paragraphs 9-5(b) and 9-5(d)

As such, paragraphs 9-5(a) to (d) are satisfied. The supply of the Vehicle does not fall within the scope of being GST-free or input taxed. Therefore you will be making a taxable supply when you supply the Vehicle to the Dealer.

Conclusion

You satisfy all the elements of section 9-5 in relation to your supply of the Vehicle to the Dealer. Therefore, the supply of the Vehicle will be a taxable supply and GST is payable under section 9-40.