1 October 2014, the Commissioner released the Goods and Services Tax Ruling GSTR 2014/1 – Goods and services tax: motor vehicle incentive payments that provides guidance on the GST treatment of incentive payments made by motor vehicle manufacturers, importers and distributors (manufacturers) to motor vehicle dealers (dealers) under floor plan (bailment) arrangements.
This Ruling is the finalised version of draft GSTR 2014/D1 which was issued in April this year following the Full Federal Court decision in AP Group Limited v Federal Commissioner of Taxation in September 2013.
We believe this is a positive step forward and provides much needed clarity to the motor vehicle industry around the GST treatment of common types of incentive payments paid and received by manufacturers and dealers, respectively.
Where a motor vehicle incentive payment is made by a manufacturer to a dealer, the dealer’s conduct may give rise to the dealer having made:
- a supply to the manufacturer for consideration
- a supply to the customer for consideration
- no supply for consideration
A supply to the manufacturer for consideration
A dealer’s conduct will give rise to a supply, by the dealer to the manufacturer for consideration in the form of a motor vehicle incentive payment, where the dealer does something specific for the manufacturer for that payment. For example, where a manufacturer pays a dealer to fit a towbar to each of its vehicles, the dealer will be making a supply of fitting services to the manufacturer for that payment.
The entry by a dealer into a specific obligation will also give rise to a supply for consideration where the relevant incentive payment is made for entering into that obligation. For example, where a manufacturer offers a dealer an incentive payment if they promise to abide by certain standards regarding the presentation of their showroom.
A supply to the customer for consideration (third party consideration)
Where the supply of a particular motor vehicle(s) to a customer is the reason for the incentive payment and there is nothing specific the dealer does for the manufacturer for the payment, the supply for consideration is that of the motor vehicle by the dealer to the customer. Where the manufacturer’s payment is third party consideration for a supply made by a dealer to its customer, the dealer is liable for GST on the total consideration it receives for that supply, including the incentive payment from the manufacturer. Common payments in this category include:
- fleet rebates
- run-out model support payments
- payment for the dealer selling a vehicle to a customer with ‘free accessories’ included
For example, where a manufacturer makes an incentive payment to a dealer for a vehicle when it is sold at a discounted price to a customer, the incentive payment is a third party consideration for the supply and the dealer will need to account for the GST on the total consideration it receives for the supply.
This will also impact the dealer’s luxury car tax calculations for luxury motor vehicles sold. Specifically, the GST inclusive market value of the motor vehicle will need to include the value of such payments for the purposes of determining whether luxury car tax applies.
No supply for consideration
Where the dealer does not make any supply for consideration, the dealer is not liable for GST and the manufacturer is not entitled to an input tax credit. In these circumstances, an incentive payment may give rise to other GST consequences, for example, the parties may have adjustments under Division 19 or Division 134 of the GST Act. For example, where the manufacturer runs a competition awarding the sales assistant (employed by one of its dealers) who makes the most sales the dealer has not made a supply to the manufacturer for consideration as there is no conduct which can be identified as a supply – the dealer does not do anything, or agree to do anything, for that payment.
The Ruling also discusses at length the application of Division 134 to incentive payments and outlines a number of worked examples that illustrate when there is an increasing adjustment (GST liability) for dealers or a decreasing adjustment (GST credit) for the manufacturers.
The Ruling applies to tax periods starting on or after 1 May 2014.