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Many people have asked us how GST affects a motor vehicle purchases. Please use this guide below to help you understand the implications of GST on a motor vehicle finance arrangement.

When does GST liability and input tax credit entitlement arise for a motor vehicle purchase? The introduction of GST effective 1st July 2000 brought with it transitional rules in an endeavour to stagger the input tax credit allowed. However, with the announcement of the Federal Budget 22nd May 2001, 22nd May 2001, a 100% input tax credit entitlement is available to GST registered buyers for motor vehicles acquired wholly for business purposes. The input credit reduces to the extent that the vehicle is used for private purposes.

The credit is restricted to $5,193 representing 1/11th of the car depreciation limit currently set at $57,123. The inability to claim luxury car tax paid for a new motor vehicle whose purchase price exceeds the above limit still applies.

Normally the date of supply will be the delivery date. The date of registration or invoicing is not seen as the determinant of 'date of supply' because they are merely steps in preparing a vehicle for delivery.

The impact of the change to the transitional provisions on finance products results in the following

Commercial Hire Purchase

Liability for the GST will arise at the commencement of the agreement and is included in the car dealers invoice. The amount of GST is therefore financed in the agreement. The hirer can claim an input tax credit if they are registered for GST when they complete their next return, provided GST is accounted for on the accruals basis

Lease

Liability for the GST will rest initially with the financier. The Invoice will reflect the purchase price with no GST payable by the lessee as the financier will claim an input tax credit for the relative amount. GST will be payable by the lessee on the monthly car lease rentals and residual value. The lessee will claim an input tax credit on the GST portion of the above rentals if they are registered for GST and to the extent that the vehicle is used for business purposes.

Novated Leases

As above for lease but the input tax credit for GST on the novated lease payments is claimed by the employer not the lessee/employee. GST on the residual is borne by the employee.

Consumer Loans (Car Loans)

There is no GST payable on the repayments or the interest charges on the car loan contract. GST is payable on the purchase of the chattel, if the supplier is registered for GST. The underwriter may finance the GST component. If you are purchasing a vehicle from a private owner GST will not be payable if the supply is wholly of a private or domestic nature.

General

The information regarding input tax credits and the timing of the claim is also determined by what method is used by the business in accounting for GST i.e. accrual or cash method. As such we strongly recommend that you seek advice from your tax adviser in determining which product or option best fits your circumstances.

Note: The information on this web site is a guide only, you should obtain professional financial advice before applying for any loan or purchasing any vehicle.

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