When are GST credits restricted for Motor Vehicles?

The GST law contains some interesting rules regarding claiming GST credits for motor vehicles.

General Rules

If an entity makes a creditable acquisition it is able to claim a GST credit. An entity makes a ‘creditable acquisition’ where the following conditions are met:

• the entity makes the acquisition solely or partly for a ‘creditable purpose’;
• the supply of the thing to the entity is a taxable supply;
• the entity provides or is liable to provide consideration for the supply; and
• the entity is registered or required to be registered.

An entity acquires a thing for a ‘creditable purpose’ to the extent that it acquires the thing in carrying on an enterprise, but not to the extent that the acquisition relates to making input taxed supplies or is private or domestic in nature.

If a motor vehicle is supplied by a dealer in Australia, the supply of the motor vehicle will be a taxable supply and subject to GST, and the GST amount will be stated on the invoice – generally 1/11^th of the invoice price (excluding the registration fee and statutory charges).

Therefore, if a GST-registered entity acquires a motor vehicle in Australia in the course of carrying on its enterprise (but not for an input taxed or private purpose) then it would generally be entitled to claim a GST credit. Assuming the creditable purpose is 100%, then absent any special rules the GST credit is the amount stated on the invoice – i.e., 1/11th of the invoice price.

However, there are of course some special rules to consider.

You will note that above we have referred to ‘motor vehicles’ which encompasses cars, motorbikes, trucks, vans, utes, etc.

Special Rules

The GST law at s. 69-10 contains a special rule which limits the amount of GST credit that can be claimed where:

• the motor vehicle is a ‘car’;
• the car is not being acquired/imported as trading stock (or for R&D, or to be exported GST-free); and
• the GST-inclusive value of the car exceeds the ‘car limit’.

Where this special rule applies, the GST credit is limited to 1/11^th of the car limit.

However, pursuant to s. 69-10(4) this special rule does not apply in relation to the acquisition of a car that is not a luxury car because of s. 25-1(2) (of the Luxury Car Tax law), essentially:

1. an emergency vehicle;
2. specially fitted vehicles for disabled people;
3. ‘a commercial vehicle that is not designed for the purpose of carrying passengers’; or
4. a motor home or campervan.

In this article we explore when the s. 25-1(2)( c) exclusion applies and what is a ‘a commercial vehicle that is not designed for the purpose of carrying passengers’.

Vehicles that clearly qualify as being commercial – such as a semi-trailer, or a rigid flat-bed truck – would not be subject to the car limit and a full GST credit would be available.

But what about dual cab utes?

[Editor’s Note: As at the time of writing this article the three top-selling vehicles in Australia were: 1. Ford Ranger, 2, Toyota HiLux and 3. Isuzu D-Max.]

A ‘car’ for GST purposes is as defined under s.995-1 of the ITAA 1997, being ‘a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers’.

The ‘car limit’ for GST purposes is as defined under s.40-230 of the ITAA 1997. The ‘car limit’ amount is indexed annually and for the financial year ending 30 June 2024 it is $68,108.

On face value, a new dual cab ute purchased in FY2024 and costing more than $68,108 is subject to the s. 69-10 GST credit restriction, unless s. 25-1(2)( c) applies.

In terms of s. 25-1(2)(c), exactly what is ‘a commercial vehicle that is not designed for the purpose of carrying passengers’ should be considered in light of LCTD 2023/1 (an ATO Luxury Car Tax ruling that sets out how to determine the principal purpose of a vehicle). LCTD 2023/1 supports the view that a vehicle such as a dual cab ute where the passenger component is less than half of the carrying capacity would satisfy the requirement that it is a commercial vehicle not designed for the purpose of carrying passengers.

LCTD 2023/1 sets out a list of factors to be considered in determining the principal purpose of all vehicles, including the appearance and presentation, vehicle specifications, promotional literature, marketing emphasis, the Australian Design Rules (ADR) applicable, load carrying capacity and passenger carrying capacity. Each factor is to be considered objectively, with no specific weighting applied to any individual factor, and each factor must be considered in light of all factors together. (Refer to paragraphs 13 and 14 of the ruling).

In the Appendix to LCTD 2023/1 the ATO also provides a ‘simplified method’ in relation to utility vehicles (i.e., ‘utes’), to determine a ute’s principal purpose. Given its importance to this analysis we have included it below:

“54. The Commissioner further accepts that a commercial vehicle may have a utility vehicle body type. However, whether they are luxury cars requires an assessment of whether the vehicle is designed for the principal purpose of carrying passengers.

1. 55. The Commissioner will not apply compliance resources to review the supply of a utility vehicle (including single cab, dual cab, and extra cab utility vehicles) where the passenger carrying capacity is less than 50% of the load carrying capacity. For the purposes of this simplified method:

• • The ‘passenger carrying capacity’ is the number of seating positions multiplied by 68 kg.
  • The number of seating positions includes the driver’s seat.
  • The ‘load carrying capacity’ is the difference between the GVM and the unladen mass, which is different to and does not include the towing capacity.
  • GVM is the maximum laden mass of a motor vehicle as specified by the manufacturer.
  • The manufacturer is the person who holds an approval under subsections 10A(1), (2) or (3) of the Motor Vehicle Standards Act 1989, to place an ‘Identification Plate’ on the vehicle, or holds a road vehicle type approval or a road vehicle component type approval, granted under the Road Vehicle Standards Act 2018, which covers the vehicle or component (as applicable).
  • The ‘unladen mass’ is the mass of the vehicle in running order unoccupied and unladen with all fluid reservoirs filled to nominal capacity including fuel, and with all options fitted and standard equipment.”

The ATO sets out its principles in MT 2024 (which looks specifically at dual cab utes), and while this ruling is looking at it from the FBT viewpoint, the definition of car for FBT purposes points back to the s. 995-1 definition in ITAA1997, and so remains relevant for income tax purposes. Paragraph 15 and 16 in MT 2024 also refers to the simplified method when comparing the load carrying capacity and also uses the ‘68kgs per passenger’ for the passenger carrying capacity.

For example, consider a RAM dual cab ute with a carrying capacity of 830kgs and seating for five. Such a vehicle would seem to fall within the definition of a car. However, applying the ‘68kg per passenger’ rule five passengers at 68kgs is 320kgs, and as 320kgs is less than half of the 830kg carrying capacity, the ATO takes the approach that the principal purpose will be deemed not to be for the carrying of passengers. Based on this line of reasoning a dual cab ute where the passenger component is less than half of the carrying capacity is not subject to the car limit, and it would not be a car designed ‘mainly for carrying passengers’.

See also private ruling 1051829675857 where the ATO reaches this conclusion.

Conclusion

Given the above, a dual cab ute where the passenger component is less than half of the carrying capacity would neither be a ‘car’ nor would it be considered a luxury car, and therefore would not be subject to the ‘car limit’. The general GST rules would then apply to determine the extent of GST credit claimable.

[Note: In this article we have explored the GST rules, but note that there are also FBT (and income tax) implications to consider.]

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