Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 4 - Phasing in of input tax credits for motor vehicles
Overview
4.1 Given the nature of the GST and the limited business input exemption provisions in the WST system, businesses currently bearing the WST on motor vehicles may delay purchases until after the introduction of the GST in order to get the input tax credits. This delay could seriously disrupt the motor vehicle market.
4.2 To take account of this, input tax credits for sales of motor vehicles, detachable trailers for heavy prime movers, and specialised bodies for motor vehicles will be phased in over a two year period, for certain businesses.
4.3 The information contained in this chapter includes:
| Transition Bill | EM paragraph | |
|---|---|---|
| Effect on claiming of input credits | Subsections 19(2) & (3) | 4.4 |
| Which vehicles are included | Subsection 19(1) | 4.5 |
| Vehicles, and purchasers, not affected | Subsection 19(4) | 4.6 |
General rule
4.4 If you acquire goods, services or other things on or after 1 July 2000, for use in carrying on your enterprise, you would normally be entitled to input tax credits for the acquisition. However, this is varied for motor vehicles, bodies and certain trailers by applying a phasing-in approach:
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- in the first year of operation (1 July 2000 to 30 June 2001) no input tax credits will be allowed for relevant purchases; [subsection 19(2)]
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- in the second year (1 July 2001 to 30 June 2002), half the value of the full input tax credit will be allowed; [subsection 19(3)] and
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- full input tax credits will be available in the third year.
The provisions apply to both domestic acquisitions and importations, but not to purchases of second hand motor vehicles. [Subsection 19(4)]
Vehicles to which phasing-in applies
4.5 Section 19 applies to:
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- motor vehicles, which means any motor powered road vehicle (including a 4 wheel drive);
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- detachable trailers for heavy prime movers such as semi-trailers; and
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- specialised commercial truck bodies as described in the provision
which are used in the enterprise, and includes those held for hire. [Paragraph 19(4)(a)]
Examples of things that are subject to phasing-in
1. Cars used by sales staff in carrying on the business of an enterprise
2. Refrigerated trailer for a semi-trailer
3. Milk tanker
4. Prime mover for a semi-trailer
Exceptions to the rule
4.6 This provision does not apply if:
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- you acquire or import a motor vehicle, body or trailer to hold as trading stock (unless it is held for hire); [Paragraph 19(4)(a)]
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- the purchase is of second hand motor vehicles, bodies or trailers; [Paragraph 19(4)(b)]
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- you would have been entitled to exemption from WST on the purchase under the sales tax law, if it still applied. [Paragraph 19(4)(c)]
- Explanation: Enterprises entitled to exemption will have no incentive to delay purchases and so they will be able to claim full input tax credits from the date of implementation.
- Explanation : The measure is intended to impact on planned purchases, and an event resulting in the replacement of a vehicle under an insurance policy is unlikely to be planned. [Paragraph 19(4)(d)]
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- the new motor vehicle or trailer is provided by an insurance company to replace a vehicle under the terms of an insurance policy.
Examples of things that are not subject to phasing-in
1. Motor vehicles used exclusively off-road, such as on mine sites
2. Trucks used totally by a gift-deductible charity to collect and deliver donated goods
3. Tractors and other farm machinery that would have been exempt from sales tax, if it still existed
4. Trailers, caravans and horse floats used with family sedans.