• GST and motor vehicle trade-ins for charities

    Attention

    Terms we use

    When we say you, we mean you as an endorsed charitable institution, an endorsed trustee of a charitable fund, a gift deductible entity or a government school (or a non-profit sub-entity of any of these organisations), where you are registered or required to be registered for GST.

    End of attention

    (Refer GST definitions: GST credit, payment, purchases, sales).

    How do you account for GST on vehicles you trade in?

    If you purchase a motor vehicle and use your current vehicle as a trade-in, you are conducting two transactions:

    1. purchasing a motor vehicle
    2. selling a motor vehicle by way of trade-in.

    For GST purposes, this means that the trade-in price of the vehicle you are selling must not be offset against the price of the vehicle purchased.

    When you trade in your vehicle, the trade-in price is the amount you receive for the sale. You must show the trade-in price on your activity statement at G1, even if you purchased the vehicle before the GST was introduced. You must also show the price of the vehicle that you have purchased on your activity statement at G10.

    If you are registered for GST and you have used the vehicle solely or partly in your enterprise, the trade-in may be GST-free under the non-commercial rules.

    Attention

    Where the non-commercial rules apply, you must treat the trade-in as GST-free. You cannot choose to treat the trade-in as a taxable sale and issue a tax invoice to the dealer. The dealer is not entitled to a GST credit on a GST-free trade-in.

    End of attention

    How do the non-commercial rules affect your motor vehicle trade-ins?

    If you trade in a motor vehicle, the trade-in will be GST-free if the payment you receive is either:

    • less than 50% of the GST-inclusive market value of the vehicle
    • less than 75% of the amount you paid to purchase the vehicle.

    Generally, if you trade in a motor vehicle, the trade-in price will be the full market value of the vehicle. Therefore, the trade-in will not be GST-free under the first of the non-commercial rules above.

    However, if you trade in a motor vehicle and the trade-in price is less than 75% of the amount you paid to purchase the motor vehicle (including GST), the trade-in will be GST-free under the second of the non-commercial rules.

    How do you work out the purchase price of a motor vehicle?

    For GST purposes, the following amounts are included in the purchase price of a motor vehicle:

    • the original cost of the vehicle (including GST and any luxury car tax [LCT]) - this amount is not reduced by the price of a trade-in
    • the cost of optional extras (including GST)
    • the cost of any other modifications made at the time of purchase or at a subsequent time (including GST)
    • the cost of delivery (including GST).

    The following amounts are not included in the purchase price of a motor vehicle:

    • stamp duty
    • motor vehicle registration fees
    • compulsory third-party insurance.
    Attention

    You include GST in the total purchase price of the motor vehicle even if you claim a GST credit for the GST you paid when you purchased it.

    End of attention

    Example

    Caring People, a GST-registered endorsed charity, purchased a bus for transporting clients in 2003. Caring People paid $55,810 for the bus.
    Costs relating to the vehicle purchase (including GST)

    Bus

    $43,000

    Delivery fee

    $2,000

    Air conditioning

    $7,000

    Total

    $52,000

     

    Costs relating to other transactions

    Registration fee

    $700

    Compulsory third-party insurance premium

    $1,110

    Stamp duty

    $2,000

    Total

    $3,810

    In 2005, Caring People decided to trade in the old bus and purchase a new bus from XYZ Autos (a vehicle dealership).
    In order to work out if the trade-in of the old bus is GST-free, Caring People must work out the amount it paid for the old bus. If the trade-in price offered by XYZ Autos is less than 75% of the amount paid to purchase the old bus, the trade-in is GST-free.
    Caring People calculates the amount paid to purchase the old bus as follows:

    Bus

    $43,000

    Delivery

    $2,000

    Air conditioning

    $7,000

    Total amount paid

    $52,000

    The registration fee, insurance premium and stamp duty are not included.
    If XYZ Autos and Caring People agree to a trade-in price of less than $39,000 (75% of the purchase price) for the old bus, the trade-in is GST-free.

    If XYZ Autos and Caring People agree to a trade-in price of $39,000 or more, the trade-in is subject to GST. This means that Caring People must pay GST of one-eleventh of the trade-in price and XYZ Autos will be entitled to claim a GST credit for the GST included in the trade-in price of the old bus.

    End of example

    What if you lease the vehicle before you purchase it?

    If you lease a motor vehicle before purchasing it, your lease payments are not included in the total purchase price of the vehicle.

    The total purchase price of the vehicle is the residual value under the lease plus any purchase-related costs, not including any previously paid lease payments.

    What if you purchase the vehicle under a hire purchase agreement?

    If you purchase a vehicle under a hire purchase agreement, the total purchase price is either the:

    • total of the hire purchase payments you made under the agreement (if the interest charge was not separately identified and disclosed to you on the hire purchase agreement)
    • price of the vehicle (if the interest charge was separately identified and disclosed to you).

    When do you issue a tax invoice for a motor vehicle you trade in?

    GST-free trade-ins

    If you and the dealer agree on a trade-in price that is less than 75% of the price you originally paid for the vehicle, you do not have to issue a tax invoice for the trade-in and the dealer is not entitled to claim a GST credit.

    For record keeping purposes, you may issue an invoice that clearly shows the trade-in does not include GST.

    Trade-ins subject to GST

    If the trade-in price is 75% or more than the price you originally paid to purchase the vehicle, the trade-in will be subject to GST. The dealer may ask you to issue a tax invoice showing the price of the trade-in (as agreed by you and the dealer). If so, you must issue the tax invoice within 28 days from the day the dealer asks for it.

    Sometimes a dealer may ask you if they can issue a recipient created tax invoice (RCTI). An RCTI is an invoice that the dealer issues to you for the vehicle you have traded in. A dealer can issue an RCTI only if both parties are registered for GST, the trade-in is subject to GST and you have agreed in writing for them to issue an RCTI to you. The agreement must be either in a separate written agreement specifying the supplies to which each agreement relates or embedded in the tax invoices they issue.

    If the dealer issues you with an RCTI, you must:

    • not issue a tax invoice to the dealer for the trade-in
    • pay to us the GST shown on the RCTI.
    Attention

    If you do not quote your Australian business number (ABN) when you trade-in a motor vehicle, the dealer must withhold 46.5% of the value of the trade-in, unless you can prove to the dealer that you are exempt from income tax.

    End of attention

    What if you sell the vehicle at auction?

    If you sell a motor vehicle at auction and the successful bid is less than 75% of the amount you paid to purchase the vehicle, the sale will be GST-free.

    You should inform the auctioneer before the auction that the sale may be GST-free under the non-commercial rules, otherwise the successful bidder may expect you to provide a valid tax invoice clearly showing the GST included in the price of the vehicle. There may also be misunderstandings about GST credit entitlements once the auction is concluded.

    If the successful bid is 75% or more of the amount you paid to purchase the vehicle, the sale will be subject to GST. You must issue the successful bidder with a valid tax invoice or instruct the auctioneer to issue a tax invoice on your behalf.

    What if you discover an error before lodging your activity statement?

    If you treated a GST-free trade-in as a taxable trade-in and you discover your error before including the trade-in price at G1 on your activity statement, you can correct the error by:

    • advising the dealer that the sale was not subject to GST
    • cancelling the tax invoice you issued to the dealer.

    The dealer may ask you to refund the GST included in the trade-in price of the vehicle.

    Even though you are not required to issue a tax invoice for a GST-free trade-in, you may issue a new invoice (not a tax invoice) or receipt to the dealer that clearly shows the trade-in was GST-free. This will allow the dealer to make the necessary adjustments without facing penalties.

    What if you discover an error after lodging your activity statement?

    If you treated a GST-free trade-in as a taxable trade-in and you have already lodged your activity statement and paid the GST to us, you and the dealer may choose not to reverse the transaction. This will be possible only if:

    • you are both registered for GST
    • the dealer has claimed a GST credit for the trade-in
    • you have paid the GST to us
    • you both ensure that any future motor vehicle trade-ins are treated correctly for GST purposes.

    You cannot seek a refund of the GST you have paid to us in these circumstances.

    Alternatively, if you want to fix the error and seek a refund of the GST incorrectly paid, you should seek advice from us as refunds of overpaid GST will generally not be made where non-taxable sales have been incorrectly treated as taxable and the transaction is between registered parties.

    Find out more

    MT 2010/1External Link Miscellaneous tax: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953.

    End of find out more

    Will you be penalised if you make an error?

    You may incur penalties for making false or misleading statements or incorrectly keeping records. This includes knowingly issuing tax invoices to dealers showing a GST amount where the trade-in is GST-free.

    Find out more

    Penalties for not keeping proper records.

    End of find out more

    Checklist for trading in your motor vehicle

    Before you go to the dealer:

    • Work out the amount paid to purchase your existing vehicle.
    • Ensure you have the paperwork to show the amount paid (for example, a purchase invoice).
    • Calculate 75% of the amount paid to purchase the vehicle.

    At the dealership:

    Have you and the dealer agreed to a trade-in price that is less than 75% of the amount you paid to purchase the vehicle?

    • Yes – explain to the dealer that as the trade-in will be a GST-free sale, you are not required to supply a tax invoice and the dealer is not entitled to claim a GST credit.
    • No – the trade-in will be subject to GST and the dealer may request that you issue a tax invoice within 28 days. The dealer will be entitled to claim a GST credit. Under some circumstances, the dealer may issue you with a RCTI (for more information – see GST and motor vehicles).

    More information

    Find out more

    • GSTD 2001/2External Link Goods and services tax: is the sale of goods by a lessor on expiry of a lease agreement a separate supply to the lease of the goods?

    How we can help

    End of find out more
      Last modified: 11 Mar 2014QC 17773