Decision impact statement

AP Group Ltd v Commissioner of Taxation

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Court Citation(s):
[2013] FCAFC 105
2013 ATC 20-417
(2013) 214 FCR 301

Venue: Federal Court of Australia
Venue Reference No: NSD 1569 of 2012
Judge Name: Edmonds, Jagot & Bromberg JJ
Judgment date: 18 September 2013
Appeals on foot: No
Decision Outcome: Partly Favourable

Impacted Advice

Relevant Rulings/Determinations:

• GSTR 2000/19: Goods and services tax: making adjustments under Division 19 for adjustment events
• GSTR 2006/9: Goods and services tax: supplies
• GSTR 2012/2: Goods and services tax: financial assistance payments

Subject References:
Consideration
Discretion to refund overpaid GST
GST
Motor vehicle incentives
Nexus
Refunds
Supply
Third party adjustments
Third party consideration

Précis

Outlines the ATO's response to this case which concerns the GST treatment of various incentive payments made by motor vehicle manufacturers to a motor vehicle dealer.

Brief summary of facts

The taxpayer is a motor vehicle dealer that acquires motor vehicles from various motor vehicle manufacturers/distributors (manufacturers), through an interposed finance company, under a bailment arrangement. Immediately before the supply of the motor vehicle by the dealer to the customer, the finance company transfers title of the motor vehicle to the dealer, enabling the dealer to sell the motor vehicle to the customer.

The manufacturers made the following incentive payments to the taxpayer:

•

Toyota fleet rebates - paid when certain floor stock vehicles are sold at a discount price to certain classes of customers

•

Toyota run-out model support payments - paid when certain floor stock vehicles are sold and recorded in the sales system

•

Holden transit/interest protection payments - paid to cover interest fees charged by financiers to the taxpayer while the taxpayer either does not have physical possession of the vehicle or the vehicle is not yet ready for sale or display.

•

Ford retail target incentive payments - paid when certain monthly retail sales targets are reached

•

Subaru wholesale target incentive payments - paid when dealer orders a specified number of vehicles from the manufacturer.

Before the Administrative Appeals Tribunal (Tribunal), the Commissioner contended that the payments were consideration for taxable supplies made by the taxpayer to the manufacturers. Alternatively, the Commissioner argued that the fleet rebates, run-out model support and retail target incentive payments were consideration for supplies by the taxpayer to its customers.

On 2 July 2012, the Tribunal (comprising Deputy Presidents Frost and Deutsch) handed down its decision in A.P. Group Limited and Commissioner of Taxation [2012] AATA 409. The Tribunal's conclusions were summarised at [109]:

The taxpayer appealed the Tribunal's decision in relation to the fleet rebates and run-out support payments to the Full Federal Court. The Commissioner cross-appealed in respect of the retail and wholesale target incentive payments. The Commissioner did not appeal the Tribunal's findings in respect of the transit/interest protection payments.

Issues Decided by the Full Federal Court

The issues in dispute were whether the four incentive payments on appeal were consideration for taxable supplies under paragraph 9-5(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

The Court unanimously upheld the Tribunal's decision, finding that the Tribunal's 'construction of s 9-5 was orthodox and did not involve error' (at [37]).

Do the payments constitute consideration for supplies made by the dealer to the manufacturer?

The Court concluded that none of the payments constituted consideration for supplies made by the dealer to the manufacturer, as none of the acts done by the taxpayer represented supplies made to the manufacturers.

At [53], Edmonds and Jagot JJ noted that the relationship between the taxpayer and each manufacturer involves 'a whole raft of obligations from one to the other' and contemplates a 'continuing dialogue' between the parties in which 'promises are routinely exchanged'. Their Honours stated that the 'so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacturer and the dealer to the mutual benefit of both', and that 'to characterise this dialogue as involving supply after supply is unrealistic and impractical'. Their Honours further observed that there was 'no basis to infer that the taxpayer would not behave in the same way for free'.

Do the payments constitute consideration for supplies made by the dealer to the customer?

The Court found that the fleet rebates and run-out model support payments were consideration for supplies made by the dealer to its customers, while the retail and wholesale target incentive payments were not consideration for any supplies made by the dealer.

Supply 'for' consideration

Edmonds and Jagot JJ stated that substituting the definitions of 'supply' and 'consideration' into paragraph 9-5(a) did not result in the omission of the word 'for':

'… you make [any form of supply whatsoever] for [any consideration, within the meaning given by sections 9-15 and 9-17 in connection with the supply or acquisition].'^[1]

Instead, their Honours considered that the word 'for' 'functions in the statutory description to identify the character of the connection which is required' and 'ensures that not every connection between the giving of consideration and the provision satisfy the first condition of making a taxable supply'.^[2]

Consistent with this view, their Honours noted the Tribunal's comments that a 'tenuous' or 'remote' connection between the supply and consideration would be insufficient and stated that the supply must be made for the consideration, even if the consideration was not given by the recipient of the supply.^[3]

Appropriate level of generality or particularity

Edmonds and Jagot JJ noted the difficulties in resolving the competing approaches submitted by the taxpayer and the Commissioner as to the correct level of focus when determining whether a payment is 'for' and 'in connection with' a supply.

Their Honours found that 'selection of the appropriate level of generality or particularity' at which to determine whether the dealer has made a supply for consideration is fact-dependent,^[4] and that all aspects of the arrangements between the dealer, the manufacturer and the customer had to be considered'.^[5]

For the fleet rebates and run-out model support payments, Edmonds and Jagot JJ found that the correct level of focus was the supply of the particular motor vehicle by the dealer which triggers the payment. For the retail and wholesale target incentive payments, it was the overall relationship between the dealer and the manufacturer.

Fleet rebates and run-out support payments

After considering the relevant provisions of each dealership agreement as set out by the Tribunal and the Tribunal's reasoning, Edmonds and Jagot JJ considered that '[t]he appropriate level for the assessment [for the fleet rebate] is the particular supply of the motor vehicle in question by the dealer and the payment which that supply triggers' (emphasis added).^[6]

In coming to this conclusion, their Honours noted that the fleet rebate was only payable by the manufacturer for the supply of a particular (non-fleet) motor vehicle to a particular (fleet) customer, and the fact that the payment was made by the manufacturer rather than the customer did not matter. Their Honours also found that whilst relevant, the customer's lack of knowledge and the internal characterisation of the transaction as a 'rebate' are not determinative.^[7]

Edmonds and Jagot JJ concluded that a fleet rebate was consideration 'for' and 'in connection with' the supply of the motor vehicle to a customer.^[8] Under the same analysis, they held that a run-out model support payment also was consideration for the supply of the motor vehicle by a dealer to the customer. ^[9]

Retail and wholesale target incentives

Edmonds and Jagot JJ found that the retail target incentive payments and the wholesale target incentive payments were not triggered by the supply of a particular motor vehicle, and were instead 'part of wider programs in which dealers would have a strong incentive to participate but which do not depend on the supply of any particular motor vehicle in any particular way'.^[10]

As the payments act to encourage 'conduct relating to the overall management of the business enterprise comprised in the dealership, including sound ordering practices and clearance of old stock to make way for new stock, to the presumed mutual benefit of the dealer and the manufacturer', the 'required level of focus is the overall relationship between the dealer and the manufacturer'.^[11]

In a separate judgment, Bromberg J agreed with Edmonds and Jagot JJ's conclusions, although for different reasons.

ATO view of decision

1. GST consequences of motor vehicle incentive payments

The ATO view before the AP Group decision was that dealers were making taxable supplies for the motor vehicle incentive payments.

Following this decision, the Commissioner accepts that the GST consequences of a motor vehicle incentive payment will be fact and circumstance specific. 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, or

•

no supply for consideration*

•

For motor vehicle incentive payments made after 1 July 2010, the payment may give rise to adjustments under Division 134 of the GST Act.

The Commissioner has published GSTR 2014/1 Goods and services tax: motor vehicle incentive payments. This public ruling explains the Commissioner's view on the GST consequences of motor vehicle incentive payments made by manufacturers to dealers.

2. Tripartite arrangements

Edmonds and Jagot JJ expressed the view that there is 'nothing equivalent' to the circumstances in Secretary to the Department of Transport (Victoria) v Commissioner of Taxation [2009] FCA 1209, however there is no analysis of the relevant differences.^[12]

The Commissioner considers that whether a set of actions gives rise to supplies to more than one party is fact and circumstance dependent. The Commissioner notes the subsequent decision of Edmonds J in Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123 provides further analysis of when the one set of actions will give rise to two or more supplies.

The Commissioner is maintaining his existing views in GSTR 2006/9.

3. Motor vehicle holdback payments

The Commissioner is maintaining his existing view in GSTD 2005/4^[13] that wholesale and retail holdbacks are not consideration for supplies.

4. Other GST Public Rulings

The Commissioner does not consider that any significant amendments need to be made to any other GST public rulings.

Administrative Treatment

Implications for motor vehicle dealers

1. Payments that are consideration for taxable supplies to customers (3rd party consideration)

GST will continue to be payable on fleet rebates, run-out model support payments and equivalent payments from other manufacturers/distributors, as these form part of the consideration for a taxable supply from the dealer to the customer.

Equivalent payments from other manufacturers/distributors mean payments which have the same characteristics as the Toyota fleet rebates or run-out model support payments that were considered by the Courts.

Consequential implications for luxury car tax (LCT)

The Court's findings that fleet rebates and run-out model support payments are consideration for a supply to the customer also means that these (GST-inclusive) payments need to be added to the consideration provided by the customer for the purchase of the motor vehicle for the purposes of calculating the "price" for LCT purposes.

This means that supplies of motor vehicles that would not have met the LCT threshold under the Commissioner's view before the AP Group decision may now have an LCT liability where the total consideration (including the incentive payment) for the motor vehicle exceeds the LCT threshold ($60,316 for the 2013-14 financial year^[14]).

For motor vehicles that were subject to LCT before the AP Group decision, the LCT liability will increase as a result of the incentive payment being added to the consideration paid by the customer.

Transitional arrangements

The Commissioner expected taxpayers to be in a position to implement the AP Group decision for contracts of sale entered into on or after 1 May 2014.

2. Payments found not to be consideration for any supplies

Dealers operating under a bailment arrangement are not liable for GST in respect of the following payments received from manufacturers/distributors:

•

retail target incentive payments which are not triggered by the supply of an identifiable motor vehicle and are equivalent to the Ford retail target incentive payment

•

wholesale target incentive payments that are equivalent to the Subaru target incentive payment

•

transit allowance or interest protection payments that are equivalent to the Holden transit allowance or interest protection payments.

For payments made on or after 1 July 2010, the Commissioner considers that dealers will have increasing adjustments under Division 134. See GSTR 2014/1 for further information.

3. Entitlement to GST refunds

Dealers who notified the Commissioner of their entitlement to a GST refund may claim a refund in respect of the payments listed under the heading '2. Payments found not to be consideration for any supplies' above, only if the restrictions outlined below do not apply.

•

Unless a dealer's GST refund relates to a tax period which started before 1 July 2008, section 105-65^[15] will generally apply to restrict a refund where the GST has been included in the amount of the incentive payment. This means that for tax periods after 1 July 2008, the Commissioner will generally not give a refund in business to business transactions.^[16]

•

Dealers are also not entitled to a refund unless they provided a valid notification of their entitlement to the refund within the relevant time limits prescribed by section 105-55.^[17]

-

To be a valid notification, the notification must have been given to the Commissioner before the 4 year time limit for the relevant tax periods expired and must also contain sufficient information to clearly identify an entitlement to a refund of GST overpaid on the motor vehicle incentive payments.^[18]

-

A notification which only referred to 'holdback payments' is not a valid notice for claiming a GST refund for motor vehicle incentive payments. Such a notification only applies GST refunds relating to the wholesale and retail 'holdback payments'.^[19]

For payments made on or after 1 July 2010, the Commissioner considers that dealers will have increasing adjustments under Division 134. See GSTR 2014/1 for further information.

4. Income tax

Subject to the relevant time limits imposed by section 170 of the Income Tax Assessment Act 1936, a dealer should amend their relevant prior year income tax returns to ensure that where they claim a GST refund for a motor vehicle incentive payment (eg transit/interest protection payment and retail or wholesale target incentive) the entirety of that motor vehicle incentive payment is included as assessable income in each income year in which the receipts were originally derived.

Any interest paid to a dealer is assessable income in the year it is paid or in the year it is set off or applied against another tax debt.

5. How can you claim a refund?

Dealers who have lodged objections

Only the motor vehicle incentive payments considered by the Tribunal and Court, including equivalent payments made by other manufacturers, are within the scope of the objection.

Dealers who have lodged valid entitlement notices but have not objected or have claims that are outside the scope of their objection

If you meet the requirements of the Correcting GST Errors Determination 2013, you can claim a refund you are entitled to in your next business activity statement. For further information on correcting GST errors, refer to the Correcting GST errors guide on www.ato.gov.au .

When you make your claim in a current business activity statement, you should send an email to GSTMVPayments@ato.gov.au with the following details:

a.

the tax period in which you are claiming the refund, and

b.

a schedule listing:

i.

the tax periods in which you overpaid the GST

ii.

the amount of overpaid GST for each of those tax periods.

If you have any queries about progressing your refund claim, you can contact us at GSTMVPayments@ato.gov.au or call 13 28 66 and ask for Wayne Tripp on extension 33842.

6. Records and documents

If you are claiming a refund, you must have the relevant documentation and evidence to support your claims. This includes being able to identify those payments on which GST was overpaid and the tax periods in which the amounts were overpaid.

Implications for motor vehicle manufacturers and distributors

There is no entitlement to input tax credits for payments that are not consideration for any taxable supply or are consideration for a supply to a third party.^[20]

For tax periods before 1 July 2010, Federal Chamber of Automotive Industries members are protected by industry letters issued by the ATO, which were public rulings, in respect of input tax credits previously claimed.

For tax periods after 1 July 2010, Division 134 adjustments may arise. See GSTR 2014/1 Goods and services tax: motor vehicle incentive payments, which explains the Commissioner's view on the GST consequences of motor vehicle incentive payments made by manufacturers to dealers, including the application of Division 134.

Incentive payments in other industries

The Commissioner notes that bailment arrangements, which involve an interposed entity, may be an important factual distinction. For example, suppliers may pay rebates to customers who reach certain levels of purchases (such as volume rebates). These rebates are typically expressed as a percentage of the purchases made in a particular period. Where there is no interposed entity, a payment of this type is generally regarded by the Commissioner as a reduction in the consideration for the relevant purchases and so is an adjustment event.^[21]

Whether other types of incentive payments will be consideration for taxable supplies is dependent on the relevant facts and circumstances. Following the AP Group decision, the Commissioner is not seeking to disturb the GST treatment of incentives payments made in other industries.

For third party payments made on or after 1 July 2010, Division 134 may apply. In these circumstances, an entity (the payer) may have a decreasing adjustment if the payer makes a payment to an entity (the payee) that acquires something the payer had supplied to another entity. An entity receiving a payment (the payee) may have an increasing adjustment.

Further information

Taxpayers who require further advice about GST treatment of incentive payments in other industries should email GSTMVPayments@ato.gov.au .

Implications for impacted ATO precedential documents (Public Rulings & Determinations etc)

ATO ID 2008/166: GST and motor vehicle industry incentive payments: fleet sales support - margin support - discretionary payments has been withdrawn.

Minor amendments have been made to:

•

GSTR 2006/9: Goods and services tax: supplies

•

GSTR 2000/19: Goods and services tax: making adjustments under Division 19 for adjustment events.

•

GSTR 2012/2: Goods and services tax: financial assistance payments

Implications for impacted Law Administration Practice Statements

Nil.

Related Rulings/Determinations:

• GSTR 2006/9: supplies

GSTR 2006/9: supplies

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
s 9-5
s 9-10
s 9-15
s 195-1 (definition of 'consideration')
Div 134

Taxation Administration Act 1953 (CTH)
s 105-55 of Schedule 1
s 105-65 of Schedule 1

Case References:
A.P. Group Ltd and Commissioner of Taxation
[2012] AATA 409
2012 ATC 10-256
83 ATR 493

Federal Commissioner of Taxation v Qantas Airways Ltd
[2012] HCA 41
(2012) 247 CLR 286
2012 ATC 20-352
(2012) 83 ATR 1

Professional Admin Service Centres Pty Ltd v Federal Commissioner of Taxation
[2013] FCA 1123
2013 ATC 20-424

Department of Transport (Vic) v Federal Commissioner of Taxation
[2009] FCA 1209
2009 ATC 20-140
(2009) 73 ATR 690