Prescribed Payments System

PPS Bulletin 6

How it affects the motor vehicle repair industry

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Date of Issue: 9 January 1997

Valid from 9 January 1997

If you are carrying on a business in an industry covered by the Prescribed Payments System and you pay another person for work in that same industry, then you may be obliged to deduct tax from any payments you make to that person.

This bulletin explains what Prescribed Payments are and how they affect the motor vehicle repair industry. The other 8 industries covered by PPS are:

Similar bulletins are also available for each of these other industries.

What is a prescribed payment?

A prescribed payment must satisfy all of the following conditions:

• • It must be a payment made under a contract which involves the performance of work.

• • The work performed must consist of an activity within an industry covered by PPS.

• • The activity must be carried out for a prescribed person. (See the section titled Who must the work be carried out for?)

Note also that PPS doesn't only apply to payments to individuals. It can also apply to payments to companies, partnerships, trusts, trustees of trust estates, body corporates, etc.

Once you have determined that a payment is prescribed, please refer to the relevant booklet titled "PPS Payers", "PPS Payees", or "PPS Tax exempt organisations & businesses in non-prescribed industries". These publications explain what you must do when making or receiving a prescribed payment and are available from your local Tax Office.

Which payments are not covered by PPS ?

The following payments are not covered by PPS:

• • a payment made under contract only for the sale of goods or materials

• • a payment of salary or wages made to a common law employee.

Motor vehicle definition

'Motor vehicle', for PPS purposes, has a wide definition. It includes four-wheel drive vehicles, motor cycles, agricultural, earthmoving or industrial vehicles, or a trailer used with these or any other motor vehicle.

Which payments in the motor vehicle repair industry are prescribed?

Payments for the following types of activities in the motor vehicle repair industry are prescribed, when they are made between two businesses operating in that industry (e.g. between a panel beater and an auto electrician):

• • reconditioning, servicing, repair or maintenance of a motor vehicle including any component, accessory or part of that vehicle;

• • painting of a motor vehicle including any component, accessory or part of that vehicle in connection with the reconditioning, servicing, repair or maintenance of that vehicle; and

• • removal of fittings or replacement of any component, accessory, or part of a motor vehicle.

For whom must the work be carried out?

To be a prescribed payment the work must be carried out for any person who is carrying on a business that consists:

• • wholly or principally of carrying out any of the above motor vehicle repair activities; or

• • in whole or in part of furnishing or arranging the services of another person to carry out any of the above motor vehicle repair activities; (i.e. people who are not directly involved in performing any of the activities described above but are carrying on a business [agency] that provides the services of others to perform these activities).

• • in part of carrying out any of the activities listed above

  • - for other people; or

  • - in connection with a motor vehicle that is to be sold by that person, i.e. motor vehicle dealers.

A person who satisfies any of these conditions will be a prescribed person for the motor vehicle repair industry.

Is there anything else I need to know?

When does a motor vehicle dealer become a prescribed person?

It would be rare for a vehicle dealer not to be a prescribed person, as he will become prescribed once he carries out any of the following activities as part of his dealership:

• • reconditioning, servicing, repair or maintenance of customers' vehicles whether under warranty arrangements or otherwise

• • arranging for any of the activities listed above to be carried out for the dealer by another business

• • reconditioning, servicing, repair or maintenance of his own stock of vehicles. (NB In this respect, 'maintenance' includes activities such as vehicle detailing.)

Additions to vehicles

The fitting of an additional accessory or component to a vehicle is not a repair and thus not subject to PPS. For example, if a person is having a new sun roof installed the activity would not be prescribed. However, if an existing sun roof is repaired or replaced the activity would be prescribed since it involves the repair of a component, accessory or part of a motor vehicle.

Parts

A component, accessory or part of a motor vehicle ceases to be a part of a motor vehicle once it is removed from and not intended to be returned to that motor vehicle. The repair of used parts intended to be held as stock is not a prescribed activity. This is because specialist component repairers whose business is the purchase, reconditioning and subsequent sale of reconditioned parts are not considered to be motor vehicle repairers for PPS purposes.

If the person performing the motor vehicle repair, removed a part, exchanged it for an equivalent part, and then installed that part in the motor vehicle, the activity would be prescribed. The payment to a repairer under a contract to remove and replace the faulty part by a prescribed person is a prescribed payment and PPS deductions should be made from that payment.

Once part of a payment is prescribed; all of the payment is prescribed.

Car detailing

Car detailing includes minor repairs, cleaning, minor retouching of paintwork, restoration of components and application of protective coatings such as wax compounds to paintwork. Detailing is a prescribed activity as it involves the repair and/or maintenance of motor vehicles.

Which motor vehicle warranty repairs will be prescribed?

A warranty is an undertaking to make good any item or component of that item which is or becomes defective in a nominated period or distance travelled, and are commonly offered in the motor vehicle industry as discussed below:

Manufacturer's warranty

Where the manufacturer provides a warranty to the end user, repairs carried out under this warranty are the responsibility of the manufacturer. A manufacturer of vehicles will not usually be involved in those activities which comprise the motor vehicle repair industry (as detailed earlier) and thus will not be a prescribed person. If this is the case, any payment made by the manufacturer for warranty repairs done by a repairer cannot be a prescribed payment.

Dealer's warranty

Warranty repairs provided by vehicle dealers are part of the business of selling cars. A dealer responsible for carrying out a repair under his own warranty will either complete the repair himself or arrange for a third party to repair the owner's vehicle. Either action results in the dealer becoming a prescribed person. Thus, a payment made by a vehicle dealer to a repairer in relation to a warranty given by that dealer will become a prescribed payment.

Other warranties

Other warranties such as purchased warranties may be offered by persons other than dealers or manufacturers. Whether or not such a warranty is captured by PPS will depend on the facts of each particular case. Where a warranty falls into this category you should contact your local Tax Office for advice.

Motor vehicle repair industry decision chart

The diagram set out below is designed to help you determine if a payment is prescribed for the motor vehicle repair industry.

Examples

• • Ms McIntosh has a car accident. She contracts a panel beater to repair the car after the collision. The payment from Ms McIntosh cannot be prescribed, as Ms McIntosh is not a prescribed person.

• • Mr Brown has a car accident. The insurer contacts the smash repairer and approves the necessary repairs. The payment is for the performance of work and the activity falls under the motor vehicle repair industry, however, the insurance company is not a prescribed person. Insurers are not generally in the business of motor vehicle repair, nor do they provide or arrange motor vehicle repair services for others as part of their business. Payments from insurers to smash repairers generally fall within the Reportable Payments System (RPS). (See the booklet titled "Reportable Payments System for Smash Repairers").

Do you need more information?

If you have any questions or need more information about how PPS applies to you, please contact your local Tax Office:

by phone on 13 28 66 from anywhere in Australia for the cost of a local call; or

in person by visiting the enquiries counter at your local Tax Office. Addresses are listed in TaxPack and in the White Pages telephone directory.

This bulletin is a guide to the law only. It has been produced to help you understand the Prescribed Payments System. It is current as at 09/01/97.

ATO references:
NO NAT 2398 01.97

Related Rulings/Determinations:
PPS Bulletin 6 - Notice of Withdrawal