ATO ID 2002/877: GST and amount for a vehicle modification permit included in price charged to customer for vehicle modifications
Date of decision: 3 December 2001
Business line: Indirect Tax

Issue
Is the entire fee charged by the entity, a supplier of motor vehicle modifications, consideration for its supply, under section 9-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), where the fee includes an amount for a vehicle modification permit that the customer is legally required to obtain and that is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act?

Decision
No, the entire fee charged by the entity is not consideration for its supply, under section 9-15 of the GST Act, where the fee includes an amount for a vehicle modification permit that the customer is legally required to obtain and that is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act. The amount for the vehicle modification permit is not consideration for the entity's supply of the motor vehicle modification to the customer.

Facts
The entity is a supplier of motor vehicle modifications. The entity modifies a customer's motor vehicle. Under the relevant legislation, the customer is required to obtain a motor vehicle permit from the relevant authority to certify that the car modification is in accordance with safety standards. After completion of the modification, the entity takes the vehicle to be inspected by the relevant authority and pays for the permit. The permit is issued in the name of the owner of the vehicle, that is, the entity's customer. The permit is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act (Treasurer's Determination). The relevant authority does not apply goods and services tax (GST) to the amount charged for the permit. In its total fee to the client, the entity separately identifies on its invoice to the client, the fee for the vehicle modification permit, costs incurred in taking the vehicle to be inspected, parts and labour. The entity is registered for GST.

Reasons for decision
Summary: Under section 9-15 of the GST Act, consideration includes any payment, act or forbearance, in connection with, in response to or for the inducement of a supply of anything. The total fee paid by the client includes amounts for the vehicle modification permit, costs incurred in taking the vehicle to be inspected, parts and labour. The payment for the parts, labour and costs incurred to take the vehicle to be inspected are connected with the supply of vehicle modifications made by the entity and are therefore consideration. However, it needs to be determined whether the part of the fee that is for the vehicle modification permit is also consideration for the entity's supply. That is, is the customer paying the entity for its vehicle modification services or is it paying the relevant authority for the vehicle modification permit. The owner of the vehicle is legally required to obtain the vehicle modification permit which is issued by the relevant authority in the owner's name. Therefore, the supply of the permit is made by the relevant authority to the entity's customer and not to the entity. When the entity pays for the permit it is acting as a paying agent for its customer. Paragraph 49 of Goods and Services Tax Ruling GSTR 2000/37 outlines the GST consequences where one entity, a solicitor, acts as a paying agent for a client and on charges the amount paid: 'If a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor.' This example is similar to the entity's arrangement. The entity, in its capacity as paying agent for its customer, pays the relevant authority for the permit. The permit to which the payment relates is supplied by the relevant authority to the customer, not to the entity. Therefore, the amount paid by the customer to the entity for the permit is a reimbursement which forms no part of the consideration payable to the entity for the supply of the vehicle modifications. As such, the entire fee charged by the entity is not consideration for its supply under section 9-15 of the GST Act, where the fee includes an amount for a vehicle modification permit that the customer is legally required to obtain and that is listed in the Treasurer's Determination. The amount for the vehicle modification permit is not consideration for the entity's supply of the motor vehicle modification to the customer. GSTR 2000/37

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-15 section 9-70 Division 81
Related ATO interpretative decisions: ATO ID 2001/133
Subject references: Goods and services tax GST payment of taxes State & local government taxes