ATO ID 2004/725: GST and supply of a motor vehicle where payment for the supply is provided to an entity other than the supplier
Date of decision: 12 February 2003
Business line: Indirect Tax

Issue
Is the entity, a business operator, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it:

Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it sells a motor vehicle that was financed under a hire purchase agreement and directs the purchaser to pay the purchase price directly to the financier.

Facts
The entity is a business operator. The entity is selling a motor vehicle that was financed under a hire purchase agreement. At the time of entering into the agreement to sell the motor vehicle, the entity still owed money to the financier that financed the hire purchase agreement. The entity directs the purchaser to pay the purchase price directly to the financier rather than to the entity. Upon payment, the financier transfers title in the motor vehicle to the entity. Under the terms of the agreement between the entity and the purchaser, the entity then immediately supplies the motor vehicle to the purchaser. Registration of the motor vehicle is then transferred from the entity to the purchaser. The entity is registered for goods and services tax (GST). The entity's sale of the motor vehicle is made in the course of conducting its enterprise in Australia.

Reasons for decision
Summary: Under section 9-5 of the GST Act, an entity makes a taxable supply if: However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. To satisfy the first requirement in section 9-5 of the GST Act, an entity must make a 'supply' for 'consideration'. Paragraph 9-10(2)(a) of the GST Act provides that for GST purposes, the term 'supply' includes a supply of goods. The entity is selling a motor vehicle and is therefore making a supply of goods. The entity has directed the purchaser to pay the purchase price to the financier. Upon receipt by the financier of the purchase price, the financier transfers title in the motor vehicle to the entity and the entity then sells the motor vehicle to the purchaser. Subsection 9-15(1) of the GST Act provides that for GST purposes, the term 'consideration' includes any payment, act or forbearance, in connection with, in response to or for the inducement of a supply of anything. At the time of entering into the agreement to sell the motor vehicle, the entity still owes money to the financier that financed the hire purchase agreement. As such, the entity directs the purchaser to pay the purchase price directly to the financier. The purchaser therefore makes the payment to the financier in connection with and for the inducement of the supply of the motor vehicle to it by the entity. The payment is consideration as defined in subsection 9-15(1) of the GST Act. Accordingly, the entity is making a supply for consideration as per the first requirement of section 9-5 of the GST Act. The entity is registered for GST, the supply is made in the course of the entity's enterprise and is connected with Australia. In addition, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells a motor vehicle that was financed under a hire purchase agreement and directs the purchaser to pay the purchase price directly to the financier

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 paragraph 9-10(2)(a) subsection 9-15(1) section 9-40 Division 38 Division 40
Subject references: Goods and services tax GST consideration GST supplies & acquisitions Taxable supply