Edited version of private advice

Authorisation Number: 1052250042845

Date of advice: 28 May 2024

Ruling

Subject: Luxury car tax

Question 1

Does the sale of the car by the dealership to the customer constitute a taxable supply of a modified car?

Answer

No.

Question 2

Is the modified vehicle a luxury car on which luxury car tax is payable?

Answer

Yes.

This ruling applies for the following period:

1 July 2023 to 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

You purchased a passenger carrying vehicle from a dealership and had it modified by a third party modifier with a GVM upgrade categorised as NB1 medium goods vehicle under the Road Vehicle Standards Act 2018.

The process to obtain the car was:

•         You entered into an agreement with the dealership for acquisition of the car. The sales agreement included a condition of sale which stipulated that the car would be modified by the modifier. The sales contract also detailed that the dealership would not be liable for defects associated with the modifications, or any manufacturer warranties affected by the modifications.

•         Per the sales contract, you were required to pay to the dealership an amount described in the sales agreement as a 'deposit', being equal to the total cost of the car, prior to the car being delivered to the modifier.

•         The dealership then released the car to the modifier.

•         The modifications were completed by the modifier. This included a Second Stage Manufacturer approved GVM upgrade which caused the vehicle to be recategorized as an NB1 goods vehicle. Once modifications were completed by the modifier, the 'modified vehicle' was returned back to the dealership. The modifier issued you with a separate tax invoice, and you arranged separate payment to the modifier in respect of the modifications.

•         Broadly, the parts installed and modifications completed by the modifier included: GVM upgrade; installation of towing mirrors, bull-bar, lights, CB radio, antenna, load-bearing tyres, towbar, drawer system (installed in rear of vehicle in cargo area included false floor over 3^rd row seating positions), pressure pump and bidet, drawer fridge, additional battery, air compressor, airbag, new computer display unit and GPS, ceramic coating, including all associated parts and labour. The modifier also completed blue-slip requirements and invoiced you for other sundry expenses including environmental levies, blue-slip fees and weighbridge costs.

•         The dealership issued you with a tax invoice for the car, which included the cost of LCT which was payable by the dealer. The modified vehicle was registered in your name, and the modified vehicle was then collected by you at the dealership.

You provided the following documentation:

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

•         Tax invoice from the modifier to you for the modification services.

•         Contract for the purchase of a New Vehicle which also included a luxury car tax amount between dealership and you.

•         Vehicle registration certificate: registered as a 7-seater, including GVM and tare weight. The purpose of use being general - private.

•         Special Terms and Conditions between the dealership and you detailing the special conditions to third party modifications, warranties and general conditions.

•         Photos of the modified vehicle showing 5 seats, including the driver's seat.

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 Section 5-10

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

Reasons for decision

Question 1

Does the sale of a car by the dealership to the customer constitute a taxable supply of a modified car?

Detailed Reasoning

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.

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

The Commissioner's view on the meaning of "supply" is provided in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9). GSTR 2006/9 details a series of propositions which need to be considered when determining when a supply occurs, and what the supply is comprised of.

Paragraph 223 of GSTR 2006/9 provides:

223. Australian courts have held that an arrangement between the parties will be characterised not merely by the description the parties give to the arrangement, but by looking at the transactions entered into and the circumstances in which the transactions are made.

With respect to paragraph 223 of GSTR 2006/9, we consider the transactions that actually took place were two separate taxable supplies, being the supply of the car, and the separate supply of modification. In particular we considered:

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

•         The dealership did not provide any warranty in respect of the modifications.

•         You separately paid each of the relevant suppliers (dealership for supplying the vehicle and modifier for supplying the modification service).

•         There was no tripartite agreement between you, the dealership and the modifier.

•         The dealership and the modifier each treated the dealings as two separate taxable supplies, as is evident from the two separate tax invoices provided to you in respect of each supply.

Accordingly, the 'supply' of the vehicle from the dealership to you occurred when you paid the dealership, and the vehicle was delivered to the modifier at your request to allow the modifications to be undertaken.

Luxury car tax is payable by a supplier when a luxury car is supplied to a recipient. Where a luxury car is supplied to a recipient, and that car is modified as part of a separate taxable supply, the modifications made to the car will not change the composition of the first supply. This is because LCT is assessed at the point in time at which the supply occurs, and accordingly the modifications undertaken by the modifier, are not taken into consideration in determining the principal purpose of the car at the point in time that it was supplied to the recipient, as these form part of a separate taxable supply.

Therefore, a luxury car was supplied to you by the dealership and LCT was payable on the car at that time. There has been no overpayment of LCT, and you are not entitled to recoup the LCT that you have borne on acquisition of the luxury car from the dealership.

Question 2

Is the modified vehicle a luxury car on which Luxury Car Tax is payable?

Detailed Reasoning

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 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 2023-24 financial year was $76,950 or $89,332 for fuel efficient vehicles).

The modified vehicle:

Paragraph 25-1(2)(c) of the LCT Act determines whether a modified vehicle is a luxury car on which LCT is payable.

A car is not a luxury car if:

•         it is a commercial vehicle

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

The Commissioner's views regarding which vehicles are considered commercial vehicles, and the principal purpose of a vehicle, are detailed in Luxury car tax determination 2023/1 (LCTD 2023/1) Luxury car tax: how to determine the principal purpose of a vehicle.

Paragraph 50 of LCTD 2023/1 relevantly provides that:

The Commissioner considers that in the statutory context of the LCT Act, commercial vehicles are unlikely to have the following body types:

•         station wagons

•         off-road passenger wagons

•         passenger sedans

•         people movers

•         sports utility vehicles.

Paragraph 13 to 15 provides guidance to determine the principal purpose of a vehicle. The Commissioner will have regard to each of the factors detailed at paragraph 13 of LCTD 2023/1, which provides:

13. Factors to be considered in determining the principal purpose of all vehicles include but are not limited to:

•         the appearance and presentation of the vehicle

•         any relevant promotional literature

•         the emphasis evident in marketing

•         the vehicle's specifications

•         the Australian Design Rules (ADRs) applicable to the vehicle, according to Vehicle Standard (Australian Design Rule - Definitions and Vehicle Categories) 2005 (ADR)[6] vehicle category classification

•         the load carrying capacity

•         the passenger carrying capacity.

14. Each of the factors in paragraph 13 of this Determination are to be considered objectively, with no specific weighting applied to any individual factor. None of the factors are of themselves determinative of a vehicle's principal purpose, and each factor must be considered in light of all factors together. A vehicle's classification for the purposes of the ADRs as either a 'goods vehicle' or a 'passenger vehicle', while a relevant factor, is not conclusive in determining its principal purpose for the purposes of the LCT Act.

15. Where the factors support the position that the principal purpose of a vehicle is to carry passengers, the vehicle is a luxury car for the purposes of the LCT Act, regardless of whether it is classified as a 'goods vehicle' under the ADRs.

It is further noted that many of the modifications are related to the change in applicable Australian Design Rules to the modified vehicle. The GVM upgrade in combination with new tyres, mirrors, lights, indicators etc. caused the modified vehicle to be reclassified as an NB1 goods vehicle for the purposes of the Road Vehicle Standards Act 2018 (RVSA 2018) and Australian Design Rules 2005 (ADR's). Importantly, we note that per paragraphs 14 and 29 of LCTD 2023/1 that applicable RVSA 2018 and ADR vehicle category classifications are not of themselves conclusive in determining the principal purpose of a car for the purposes of the LCT Act.

On completion of the modifications, the vehicle was registered with seating capacity for seven passengers, despite having had two seats removed. For the purposes of the ruling, we note that it is unclear if the two removed seats were permanently removed such that reinstallation of the seats would be a readily reversible modification (see paragraphs 20 and 27 of LCTD 2023/1 which contemplate the permanent removal of seats, and the ability to readily reinstall seats). As the seats anchorage points and mounting plate were not removed, we consider that the vehicle continues to have capacity for seating seven passengers, which is supported by reason of the vehicle being registered with seating capacity for seven passengers.

Further, paragraph 20 of LCTD 2023/1 relevantly states:

The removal of seats, without also removing the associated anchorage points and mounting plate is an example of a readily reversible modification. Accordingly, unless there is a permanent feature which obstructs use of the seats, anchorage points and mounting plates, the Commissioner will include seats removed in this fashion in the total passenger seat count when assessing a vehicle's principal purpose, regardless of whether the vehicle is registered for road use with a lesser number of passenger seats.

Based on the documents and photos you provided, the modified vehicle received a GVM upgrade and other modifications that are relevant to determine principal purpose. However, the modifications also included other items which is not considered relevant to determining principal purpose. Other modifications while unrelated to principal purpose, indicate the commercial capacity of the vehicle.

On review of the modified vehicle and considering each of the factors detailed at paragraph 13 of LCTD 2023/1, we consider that Example 1 of LCTD 2023/1 closely matches your circumstances, indicating that the modified vehicle is not designed for the principal purpose of carrying goods.

As detailed above, LCT is payable when there is a taxable supply of a luxury car, and the dealership made a taxable supply of a luxury car on which Luxury Car Tax is payable. The car was modified by modifier as part of a separate taxable supply. As a result, you are not entitled to a claim a credit to recoup the cost of the LCT borne on acquisition of the car.