When to account for GST on disposal
Disposal includes selling the motor vehicle, trading in the motor vehicle or transferring ownership of the motor vehicle to an individual, including a company director or to another enterprise.
You generally have to account for GST when you dispose of a motor vehicle if the disposal is a taxable sale. This applies even if the vehicle was purchased before 1 July 2000 or the vehicle is sold to an individual who is not in business (a private sale). You will generally be liable to pay GST of one-eleventh of the sale price of the vehicle.
GST is not payable on the disposal of privately owned assets. For example, a sole trader selling a motor vehicle which has not been used for business purposes and on which no GST credit has previously been claimed should not include GST in the sale price.
Reporting motor vehicle disposals
If you are registered for GST and you receive any payment (monetary or non-monetary) when you dispose of a motor vehicle that you have used solely or partly for business, you must report the value of the payment at label G1 on your activity statement for the relevant tax period.
If you disposed of a motor vehicle but did not record this at label G1 and label 1A on your activity statement, under certain conditions you can correct the omission in your next activity statement.
Motor vehicle used to make financial supplies or for private purposes
You may be entitled to a decreasing adjustment when you dispose of a motor vehicle that you purchased or used either:
- solely or partly for making financial supplies
- partly for business and partly for private purposes.
The decreasing adjustment does not reduce the amount of GST payable on the sale of the motor vehicle but reduces the amount of GST you are liable to pay for the tax period.
The decreasing adjustment does not apply to either of the following:
- motor vehicles purchased before 1 July 2000 (the introduction of GST)
- motor vehicles purchased from 1 July 2000 to 23 May 2001 on which you could not claim GST credits (due to the GST Transitional Act).
Find out more about decreasing adjustments and when to charge GST.
Motor vehicle trade-ins
If you are registered for GST and you trade in a vehicle used solely or partly for business, you must account for GST because this is a taxable sale.
The trade-in figure should be included on your activity statement at label G1 and the amount of GST placed at label 1A. If requested, you will also need to provide a tax invoice to the motor vehicle dealer showing the value of the trade-in and the GST payable. The trade-in amount must be reported on your activity statement, even if the vehicle you are trading in was originally purchased before the introduction of GST.
Disposing of a motor vehicle to an associate
If you sell or transfer ownership of a motor vehicle to an associate for less than the market value, you must calculate GST as though the vehicle had been sold for its market value.
Example: GST on car sold below market value
Sample Pty Ltd sells computers and is registered for GST. The company sells a second-hand motor vehicle with a market value of $22,000 to one of the directors for $2,200. Even though the director only paid $2,200, GST must be calculated as though the director paid $22,000.
GST payable by Sample Pty Ltd:
= $22,000 × 1/11
= $2,000.
Disposal of a motor vehicle by a charity
If you are a charitable institution, a trustee of a charitable fund, a gift-deductible entity or a government school and you dispose of a motor vehicle, the disposal will be GST-free if the payment you receive is either of the following:
- less than 50% of the GST-inclusive market value of the motor vehicle
- less than 75% of the amount you paid to purchase the vehicle being sold (this is generally the original cost of the vehicle).
Find out more about GST and motor vehicle trade-ins for charities.
Disposing of a luxury car
If you are registered for GST, you may have to pay luxury car tax when you sell a luxury car. A luxury car is a car that has a GST-inclusive value that is higher than the luxury car tax threshold. The amount of luxury car tax payable on the sale that you make is reduced by the amount of any luxury car tax previously payable.
Work out what to do if you cancel your registration but hold on to your motor vehicle.