House of Representatives

Explanatory Memorandum

Circulated by the authority of the Treasurer, the Hon Wayne Swan MP

Chapter 1 Minor luxury car tax amendments

Outline of chapter

1.1 This chapter outlines minor and technical amendments to the A New Tax System (Luxury Car Tax) Act 1999 , the Taxation Administration Act 1953 , and the Tax Laws Amendment (Luxury Car Tax) Act 2008 made by Schedule 1 to this Bill. The amendments relate to luxury car tax refunds and contracts to purchase a vehicle that were entered into before 7.30 pm on 13 May 2008.

Context of amendments

1.2 Division 18 of the A New Tax System (Luxury Car Tax) Act 1999 provides refunds of eight-thirty-thirds of the luxury car tax paid on certain four-wheel and all-wheel drive vehicles purchased by primary producers and eligible tourism operators. Sections 18-5 and 18-10 require that an eligible claimant 'bear' the luxury car tax in order to be eligible for a refund.

1.3 The entity bearing the tax will depend on the arrangement used to finance the vehicle, such as through chattel mortgage (car loan), hire purchase or lease. For example, in lease arrangements the finance company (lessor) will typically be the purchaser and retain legal ownership of the vehicle. Accordingly, where a vehicle is leased, the lessor will legally 'bear' the tax. However, a primary producer or eligible tourism operator that leases their vehicles could actually 'bear' the cost of the tax but would not be able to claim the refund.

1.4 The application provision at item 13 of Schedule 1 to the Tax Laws Amendment (Luxury Car Tax) Act 2008 provides that the luxury car tax rate of 25 per cent applies to taxable supplies of vehicles where the contract to make the supply was made before 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 2008.

1.5 The financing contract for a vehicle may be made after the initial contract to purchase the vehicle. Where the financing contract is made after 7.30 pm on 13 May 2008, the financing contract is the relevant contract for the purpose of applying the 33 per cent rate of luxury car tax for taxable supplies or taxable importations made after 1 July 2008. Therefore, even though an initial contract was entered into before 7.30 pm on 13 May 2008, if the finance contract was signed after this time then the 33 per cent luxury car tax rate would apply to a vehicle subsequently supplied after 1 July 2008.

1.6 Under section 18-20 of the A New Tax System (Luxury Car Tax) Act 1999 , if you are entitled to a refund and have claimed it, the Commissioner of Taxation must, on behalf of the Commonwealth, pay the amount of the refund to you. In the context of the tax law more broadly, it may be unclear in what manner this payment should be made.

Summary of new law

1.7 Schedule 1 to this Bill implements minor and technical amendments to the luxury car tax and related legislation. These amendments are intended to clarify the operation of the law by:

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ensuring luxury car tax refunds are payable to eligible businesses where they actually bear the cost of the luxury car tax regardless of the arrangement used to finance the vehicle;

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ensuring that contracts entered into before 7.30 pm on 13 May 2008 are the relevant contracts for determining luxury car tax rate of 25 per cent, when subsequent financing arrangements are made; and

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putting beyond doubt that luxury car tax refunds are paid directly to claimants.

Detailed explanation of new law

Refunds of luxury car tax

1.8 The refund provisions of the A New Tax System (Luxury Car Tax) Act 1999 are amended to ensure that the refund of the increase in the luxury car tax can be claimed even where the vehicle is purchased through a financing arrangement. Claims for the refund must still be made by the primary production or eligible tourist operator business. In order for the eligible business to make a claim, finance companies will need to provide evidence to the claimant that luxury car tax was paid and the amount of luxury car tax that was paid. [ Schedule 1, items 1 to 4 ]

1.9 Section 18-20 of the A New Tax System (Luxury Car Tax) Act 1999 relates to the payment of the refunds to the claimant. An amendment is made to the Taxation Administration Act 1953 in order to put beyond doubt that the luxury car tax refunds are to be paid directly to the claimant and are not to form part of the running balance account with the Australian Taxation Office. [ Schedule 1, item 6 ]

Contracts entered into before 7.30 pm on 13 May 2008

1.10 The application provision in the Tax Laws Amendment (Luxury Car Tax) Act 2008 is amended so that contracts for the taxable supply or taxable importation of a vehicle that are entered into before 7.30 pm on 13 May 2008 are the relevant contract for determining the 25 per cent luxury car tax rate where the financing contract relating to that initial contract was subsequently entered into. [ Schedule 1, item 8 ]

Application and transitional provisions

1.11 Items 1 to 4 and 6 take effect from 1 July 2008. This is the commencement date of the provisions being amended and ensures that there is no confusion as to the intended operation of the law.

1.12 Item 8 commences immediately after the commencement of the Tax Laws Amendment (Luxury Car Tax) Act 2008 on 3 October 2008 to ensure the law operates as intended.