Private ruling: GST and input tax credits on a luxury car
Date of advice: 10 March 2017
Published: March 2018

Ruling: Q1: Are you entitled to claim the full input tax credits on a luxury car you purchased which is used for R&D, marketing and demonstration purposes? | A1: No, you are not entitled to claim the full input tax credits on a luxury car you purchased which is used for R&D, marketing and demonstration purposes. The input tax credit available to you is limited to 1/11 of the car limit for that year.

Relevant facts and circumstances: You purchased a luxury car to be used for R&D and demonstration purposes. The vehicle will also be used for marketing purposes. The vehicle is expected to be sold in Australia in the next twelve months more likely for a profit. You do not have an agreement in place to conduct research and development for the manufacturer of the car.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 69-10 and | A New Tax System (Luxury Car Tax) Act 1999 section 9-5.

Reasons for decision: Summary: According to section 69-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) the amount of input tax credit is limited where the GST inclusive market value of a car exceeds the car limit for the financial year in which you first used the car for any purpose. Furthermore, for the purposes of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act), if you are not entitled to quote an Australian Business Number (ABN) in relation to the supply the input tax credit available to you is limited to 1/11 of the car limit for that year. A luxury car is a car that has a GST-inclusive value that exceeds the Luxury Car Threshold (LCT) threshold (currently $ 63,184). Where the market value of the car is over the LCT threshold they will be considered to be luxury cars. Consequently the input tax credits available will be limited to 1/11 of the car limit. Section 9-5 of the LCT Act provides (among other things) that you are entitled to quote an ABN in relation to a supply of a luxury car if you have the intention of using the car for one of the following purposes, and for no other purpose : (a) holding the car as trading stock, other than holding it for hire or lease; or (b) research and development for the manufacturer of the car; or (c) exporting the car in circumstances where the export is GST-free. You do not have an agreement in place, with the manufacturer, to engage into R&D for the manufacturer of the car. The car will also not be exported. Therefore, (b) & (c) above will not apply to your circumstances and you are not entitled to quote under (b) & (c) for the purposes of the LCT Act. Therefore, it needs to be determined whether you are holding the car as trading stock, and for no other purpose . The expression “and for no other purpose” is not described in the LCT Act. However, it should not be read in isolation from its context. In our view, on the face of the plain words, “ and for no other purpose ” means just that. The words do not suggest ‘a purpose incompatible with’ one of the quotable purposes. Rather, the plain words suggest a strict approach in determining whether an entity is entitled to quote i.e. if an entity uses (or intends to use) the car for two or more purposes, then it is using (or intends to use) the car for a purpose other than a quotable purpose (even if one of the uses is trading stock). Therefore, an entity must establish, in respect of each car, that after acquisition it used the car for a quotable purpose and no other purpose. That is to say, it used the car solely for the purpose of holding it as trading stock or for research and development for the manufacturer of the car or for export in circumstances where the export is GST-free. The Explanatory Memorandum to the LCT Act states the following at 3.32: 3.32 For example, the above car dealer quoted when purchasing 10 luxury cars to be held as trading stock. No luxury car tax was paid on the supply. The car dealer later used one of the cars as a demonstration vehicle. Since the car is being used for a purpose other than a quotable purpose, the car dealer will have an increasing luxury car tax adjustment. We may accept that a car being used as a demonstrator can still be trading stock. This could be true of a number of other instances where the car is put to another use, because it is always intended to sell the car in the not too distant future. However, the real test under section 9-5 of the LCT Act is whether the vehicles are intended to be used for any other purpose, other than being held as trading stock. To use a vehicle ‘exclusively’ for a particular purpose must be regarded as very similar to a requirement that it be used for a particular purpose ‘and for no other purpose.’ Therefore, it may be appropriate to allow for a de minimis exception when considering the quotable purpose requirements of the LCT Act such that an occasional, insignificant use of the car for a different purpose might be disregarded. However, the sorts of uses that would be acceptable as minor or insignificant would be confined in much the same way as suggested above. Vehicles that will: ● also be used as a demonstration vehicle for customers to see a before/after physical install; and that will also be shown on private track days by appointment; and ● during race be used for promotion and that will be put on race stands and stickers are placed on them for advertisement; are seen as contravening the requirement that the car be held as trading stock and ‘ for no other purpose ’. Therefore, as your intention is to use the vehicle for a purpose other than a quotable purpose you would not be entitled to quote your ABN under section 9-5 of the LCT Act and the input tax credits available to you is limited to 1/11 of the of the car limit for that year (section 69-10 GST Act).