The changing landscape GST & LCT

Jon Graham, Partner

Doug Tredinnick, Account Director

Sydney, 10 July 2014

2 The changing landscape GST & LCT © 2014 Deloitte Tax Services Pty Ltd

A Christmas Carol

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A Christmas Carol

•Ghost of Christmas past

–Life before the KAP and AP Group decision

•Ghost of Christmas present

–Life post the KAP and AP Group decision

•Ghost of Christmas yet to come

– Is this the beginning of certainty?

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Ghost of Christmas past

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Ghost of Christmas past

•From day one, the GST treatment of motor vehicle incentive payments was uncertain

•They remained “under review” by the ATO for many years

•Anecdotal evidence is that the ATO was not in any rush to resolve this because – if one looked at the overall outcome –the GST take to the Revenue was correct

•The problem is GST doesn’t work this way

•Taxpayers need certainty on every transaction

•This position simply had to change...

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Ghost of Christmas past• In 2008 the KAP Motors ‘holdback’ decision started the journey

towards resolving these grey areas

•Didn’t in itself touch on the GST liability of holdback but the momentum had begun

•And the ATO was willing to refund overpaid GST to dealers

• In compiling holdback claims the question was being asked about all these other incentive payments…

Bah… humbug

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Ghost of Christmas past

•There began a long journey called ‘Son of Holdback’

•Many years of negotiation but agreement couldn’t be reached

•The ATO agreed that test case litigation was the only solution

•AP Group kindly volunteered to take forward this landmark action for the benefit of the whole industry

• In 2012 the Son of Holdback decision was handed down by the Tribunal followed by confirmation from the Full Federal Court

•First time in 12 years the GST liability of incentive payments were tested

•Why was this test case so important for Australia’s motor industry?

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Ghost of Christmas present

9 The changing landscape GST & LCT © 2014 Deloitte Tax Services Pty Ltd

Ghost of Christmas present

•We now have certainty on five categories of incentive payments

1. Fleet rebates

2. Run-out bonuses

3. Transit / interest protection

4. Retail sales target bonuses

5. Purchase target bonuses

•ATO paying out refunds for above plus other incentives where the principles apply…

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Ghost of Christmas present

•3rd party consideration – what is this?

DIST

Finance

Co

Dealer

Car

Car

Incentive

Payment (A)

Payment (B)

Luxury Car

Price for GST & LCT = A + B

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Ghost of Christmas present

•ATO has published GSTR 2014/D1 to state their views on the wider application of the principles to all incentives

•Still in draft – submissions received

• Is the ATO view correct..

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Ghost of Christmas yet to come

13 The changing landscape GST & LCT © 2014 Deloitte Tax Services Pty Ltd

Ghost of Christmas yet to comeGST

• It looks likely that there will be ongoing disagreements with the ATO on aspects of the Public Ruling

•Hopefully capable now of being resolved without the need to go to court

•Close to getting certainty on most incentives

•The motor vehicle industry globally tends to collide with VAT and GST systems so more issues, and opportunities, is inevitable

•GST systems in all industries provide a steady stream of disputes – the UK courts have just had to decide whether something was a biscuit or a cake, 40 years after VAT was introduced

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Ghost of Christmas yet to come

LCT

•Bad tax

• In current Budget environment unfortunately likely to be around for a few years

•Generates its share of issues:

–Quoting for service loan cars

–Trade-ins

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Ghost of Christmas yet to come

3rd party consideration

•Tax invoice problem resolved – no change

•LCT has the potential to create price point competitive disadvantage – taxes should never do this

• Incentive programs have a long history of evolving and re-inventing themselves and it is likely that distributors will follow the AP Group decision to change how new incentive programs run

•This will ensure LCT does not create an unlevel playing field

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The end…for now

•ATO and taxpayers maybe not this happy

•But we do have much more certainty, and in GST certainty for taxpayers is vital

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