Sales Tax Bulletin - No. 23

STB 23

The motor vehicle spare parts industry

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Date of Issue: 1 March 1997

Valid from 1 March 1997

About this bulletin

This bulletin explains how the sales tax laws apply to people in the motor vehicle spare parts industry. It is a public ruling for the purposes of section 77 of the Sales Tax Assessment Act 1992 and may be relied upon by any person to whom it applies. It replaces any previous private or public rulings, if they are inconsistent with the bulletin, and is current as at 1 March 1997.

If, after reading this bulletin you need more information on how the sales tax laws affect you, contact your local Tax Office on 13 28 66 for the cost of a local call.

Who can register for sales tax?

You can register for sales tax if you are in business and you:

• • manufacture motor vehicle spare parts or accessories;

• • sell motor vehicle spare parts or accessories by wholesale (see 'What are wholesale sales?' on page 2);

• • sell motor vehicle spare parts or accessories (not of your own manufacture) by indirect marketing, such as through commission agents;

• • sell motor vehicle spare parts or accessories to people who will use them as raw materials in the manufacture of goods, e.g., the sale of spare parts to motor body builders.

Registration for sales tax is optional. People in the motor vehicle spare parts industry who are eligible to register may choose not to do so. However, if you choose not to register you will still be liable for sales tax on any goods you deal with where an exemption doesn't apply (see 'When is sales tax payable?' on page 2).

Is there any small business exemption?

The small business exemption allows you to pay sales tax on your inputs, but not pay tax on any goods you sell or apply to your own use.

The exemption is available where you satisfy all of the following conditions:

• • you were liable for $10,000 or less sales tax during the last 12 months;

• • you expect to be liable for $10,000 or less sales tax during the next 12 months; and

• • you've paid sales tax on all business inputs and trading stock.

When you calculate the $10,000 figure, make sure that you:

• • don't deduct any credits for sales tax paid on inputs; and

• • don't include sales to people who quote sales tax numbers or exemption declarations.

If you qualify for the exemption and choose to take it, you don't have to register for sales tax, just pay sales tax on all goods you buy. If you are currently registered and want to use the small business exemption, contact your local Tax Office in writing.

For more information on the small business exemption, ask your local Tax Office for a copy of Bulletin No. 18 titled Sales Tax - Small Business Exemption.

When is sales tax payable?

Unless you are able to use the small business exemption, you will be liable to pay sales tax:

• • if you manufacture motor vehicle spare parts and accessories

  • - when you sell the goods by wholesale or retail; or

  • - when you apply the goods to your own use.

• • if you resell motor vehicle spare parts and accessories:

  • - when you sell spare parts or accessories by wholesale;

  • - when you sell spare parts or accessories by indirect marketing, including sales through commission agents; or

  • - when you sell, or apply to your own use, spare parts or accessories that you've bought free of sales tax.

What are wholesale sales?

A wholesale sale is a sale to a person who buys goods to resell them. This includes sales to:

• • other motor vehicle spare parts or accessories dealers (wholesalers or retailers);

• • motor vehicle dealers who will resell the goods;

• • service stations who will resell the goods;

• • other stockists who resell those parts or accessories in the same condition they bought them;

• • a person who will resell the goods under a supply and fit contract (see 'What if I sell goods for use in 'supply and fit' contracts?' on page 5); and

• • accessory installers or motor vehicle dealers who fit accessories to customers' vehicles, including vehicles under bailment arrangements (see 'What if I sell accessories to people who fit them to customers' vehicles?' on page 6)

What are retail sales?

Retail sales are generally sales made to end users or final consumers. This includes sales to:

• • customers who fit parts or accessories to their own vehicles;

• • customers under a supply and fit contract, where you fit the articles to the vehicle owner's car, such as tyres and batteries;

• • customers by accessory installers or motor vehicle dealers where those people fit accessories to vehicles under bailment arrangements to the order of individual customers;

• • panel beaters and motor mechanics where the parts or accessories are used in the repair of vehicles;

• • vehicle manufacturers and body builders where the parts or accessories are for use as raw materials in the manufacture of vehicles or vehicle components;

• • new and used car dealers by accessory installers where the accessories are fitted to vehicles owned by the dealers (e.g., as demonstrators, or for new vehicles on display on the showroom floor);

• • people who will use the goods during a work and labour contract (see 'What if I sell goods for use in 'supply and fit' contracts?' on page 5); and

• • other retailers as accommodation sales.

What are accommodation sales?

Accommodation sales are irregular sales by one retailer to another because of a temporary shortage of stock.

Example

John Smith, a service station owner who normally holds a full range of batteries, requires a particular model for sale to a customer. He finds that the model is out of stock and the distributor cannot supply it within the time required. John buys the battery from Ross Brown, the owner of another service station nearby. This is an accommodation sale by Ross Brown.

Accommodation sales do not include:

• • sales you make to a person who does not ordinarily keep those goods in stock; and

• • sales to a person where you are the normal source of supply to that person for those goods.

Accommodation sales are retail sales.

Why do I need to know the difference between wholesale and retail sales?

It is important to establish whether you sell goods by wholesale or retail as this affects:

• • whether you can buy your goods free of sales tax (see page 6); and

• • the value on which you must pay tax (see page 8).

What if I sell spare parts to a person who sells some and uses some in repair work?

As a general guide you sell:

• • by wholesale when you sell to someone who will resell the goods; and

• • by retail when you sell to end users, including sales to people who use the goods in repair work.

How do I treat a sale of goods when the purchaser sells some of those goods and uses some in repair work?

Described below are two common situations with details of how you should treat each sale.

1. Sales to people who keep separate stocks of spare parts for sale and for use in repairing customers' vehicles

When you sell spare parts to a purchaser who places them into separate stock for sale, you are making a wholesale sale. For example, you are selling by wholesale when you sell to a service station owner who buys goods to be sold in the retail sale area.

When you sell spare parts to a purchaser who places them into separate stock for use in the repair of their customers' vehicles, you are making a retail sale. For example, you are selling by retail when you sell to a service station owner who buys goods for placement into workshop stock for use in repairing customers' vehicles.

2. Sales to people who keep a common stock of parts either for use in repair work or for retail sales

Other than the sale of goods such as tyres, batteries and accessories (which are usually wholesale sales) you may treat all sales of spare parts to these people as retail sales provided they use more than 80% of the spare parts they buy annually in repairing customers' vehicles. This is known as the 80/20 rule.

If you're selling to people who keep common stocks of spare parts, you should get a written advice from them to verify that they use more than 80% of parts in repair work. A suggested format for the written advice is shown on page 13. Where you have this advice you can treat all sales of spare parts to the purchaser as retail sales.

You only need to obtain one written advice from each person to whom you sell spare parts. Although the advice is addressed to the Commissioner of Taxation, it should be kept in your records as support for your treatment of the sales as retail sales.

What if I don't get the written advice?

If the service station or other repairer:

• • hasn't given you the requested advice of how they will use the goods purchased; or

• • has told you they will sell more than 20% of the spare parts purchased (i.e., use less than 80% in repair work);

then all sales to that person should be treated as wholesale sales, unless they specifically order goods for use in repair work.

Can I determine what type of sale it is every time I sell goods?

If you prefer, you can work out at the time of each sale whether it is a wholesale or retail sale. To do this, you will need to ask the purchaser whether they will resell the spares or use them in repair work. You'll have to ask them this each time you sell them spare parts and obtain written confirmation so that you have some evidence to demonstrate what type of sale it is. A suggested form of confirmation is on page 17.

Does the 80/20 rule only apply to spare parts and materials normally used in repairs?

Yes. The 80/20 rule only applies to spare parts and materials that are normally used in repairs such as bulk oil, spark plugs, leads, oil/air filters, distributor caps etc. It does not extend to accessories, car care products or other products that are normally sold through the retail sale area of a service station. Sales of these other products such as oil packaged in 5 litre containers, fuel and oil additives, batteries etc., to service stations would normally be wholesale sales. It is also important to note in relation to the 80/20 rule that:

• • it does not apply to service stations that don't have a repair outlet or service bay. Sales to these service stations are wholesale sales;

• • the written advice is applicable until withdrawn. The onus will be on people who have given you an 80/20 written advice to regularly review their operations to ensure that it is still current. Where you accept the form of 80/20 written advice in good faith, you will not be held liable for any further amount of sales tax that is subsequently found to be payable; and

• • spare parts distributors still have to charge sales tax if more than 80% of their sales are to repairers. The 80/20 rule only applies to sales to individual repairers.

What if I sell goods for use in 'supply and fit' contracts?

In the motor trade, you may sell goods to people who will on-sell them to customers as goods fitted to the customer's vehicle (e.g., tyres) or as parts supplied incidentally in the course of repairs (e.g., new brake pads). Whether you are making a wholesale or a retail sale in these circumstances will depend upon what your customer does with the goods.

Generally, where the fitting of the goods is secondary to their sale (a 'supply and fit' contract), the contract between the fitter and the customer is essentially one for the sale of goods. The sale to the fitter is a wholesale sale.

Where the goods supplied are secondary to the skilled service provided, the contract is essentially a 'work and labour' contract and the sale to the person undertaking the 'work and labour' is a retail sale.

Whether a transaction is a 'supply and fit' contract or a 'work and labour' contract is dependent on the facts. Below are some more detailed examples and guidelines to help you work out what type of transaction it is.

Examples of wholesale sales (supply and fit)

Tyres, batteries and accessories etc.

When you sell tyres to people who fit them to customers' vehicles, you are selling by wholesale. The reason is that the fitter is selling the tyre to the customer, and the fitting is incidental to the supply of the goods.

The situation with batteries is similar to that of tyres. The fitting is insignificant and many service stations keep stocks of batteries for sale direct to users. As a result, sales of tyres and batteries to service stations and other installers are wholesale sales.

Sales of accessories and goods such as car alarms and bullbars to a person who fits them to customers' vehicles are also wholesale sales. For further information on the sale of accessories to fitters see 'What if I sell accessories to people who fit them to customers' vehicles?' on page 6.

Examples of retail sales (work and labour)

Mufflers, windscreens, brakes, clutches etc.

When you sell mufflers, windscreens, brakes, clutches and other goods such as differentials, radiators, and gearboxes to repairers who fit them to customers' vehicles, you are selling by retail. The reason is that the fitting of these goods by the repairer requires a significant labour component and the contract between the repairer and the customer is not regarded as a contract for the sale of goods.

As a result, when you sell these kinds of goods to repairers and other people who fit the goods you are selling by retail.

What if I sell accessories to people who fit them to customers' vehicles?

If you sell accessories to people who will fit them to customers' vehicles, the nature of the accessories and who you sell them to will determine whether the sale is one by wholesale or by retail.

In most cases the sale of accessories to people (e.g., specialist installers or motor vehicle dealers who fit them to customers' vehicles) will be a wholesale sale. This is because with most accessories the essential nature of the dealing between the fitter and the customer is for the supply of goods (a sale of the accessory) and any fitting is incidental to that supply.

The exception to this is where the accessory requires a high level of skill to fit. In this case the nature of the dealing between the fitter and the customer can be said not to be a contract for the sale of goods.

It is not possible to list all types of accessories and state whether the sale to a fitter is a wholesale or a retail sale. As examples, however, the sale of accessories such as weathershields, car radios, CD players, pin striping, mud flaps, car alarms, bullbars, roof racks, etc., to specialist installers or to motor vehicle dealers who fit them to their customers' vehicles, are wholesale sales.

What about air conditioners?

Sales of goods to installers, such as some car air conditioners which require significant labour to fit, are retail sales. These are generally the 'factory fitted' type air conditioners which are fully integrated with the vehicle. The sale of under dash type air conditioners which require less fitting are treated similarly to car radios. The sale of these goods to a fitter are wholesale sales.

What about sales of accessories to panel beaters?

The sale of accessories to panel beaters for use during the course of repairing damage to customers' vehicles are retail sales. This is because there isn't usually a contract of sale of goods between the panel beaters and the customers, and panel beaters apply the accessories to their own use in the course of carrying out the repairs. The sale to the panel beater is a retail sale.

The situation would be different if the panel beater also installed accessories that were not installed in the course of carrying out repairs. In this case they would be in the same situation with those goods as with any other fitter.

If you're selling goods which have not been covered by the preceding examples and you'd like more information about whether those sales are wholesale sales or retail sales, contact your local Tax Office on 13 28 66 for the cost of a local call.

What goods can I buy free of tax?

If you are registered and you are mainly a wholesaler (i.e., more than 50% by value of your sales are by wholesale and/or indirect marketing) you can buy free of sales tax:

• • all trading stock; and

• • goods you will use yourself to satisfy an exemption Item (for example, Item 194 allows you to buy parts free of sales tax where you use those parts to repair a vehicle owned by an exempt body which has either quoted to you or has evidenced the contract by some other means e.g., supplied an official order form to you).

If you are registered and you are mainly a retailer (i.e., you sell more than 50% by retail) you can buy free of sales tax:

• • goods you'll sell by wholesale or indirect marketing;

• • goods you'll sell to a registered person who has quoted you their sales tax number;

• • goods you'll sell to an unregistered person who has already provided you with an exemption declaration specifically relating to those goods;

• • goods which you or your customer will export (the Tax Office can give you details of the procedures to be followed);

• • goods you'll use yourself to satisfy an exemption Item (for example, Item 194 allows you to buy parts free of sales tax where you use those parts to repair a vehicle owned by an exempt body which has either quoted to you or has evidenced the contract by some other means e.g., supplied an official order form to you); and

• • goods for which you've received Tax Office approval to quote.

If you are not registered, you can buy the following goods free of sales tax:

• • goods you'll use yourself to satisfy an exemption Item (for example, Item 194 allows you to buy parts free of sales tax where you use those parts to repair a vehicle owned by an exempt body which has either quoted to you or has evidenced the contract by some other means e.g., supplied an official order form to you);

• • goods you'll sell to a particular registered or unregistered person who has already provided you with a quotation (either registration number or exemption declaration) specifically relating to those goods;

• • goods you'll export under a contract of sale; and

• • goods for which you've received Tax Office approval to quote.

How do I buy goods free of sales tax?

If you are registered, you can buy goods (where you are entitled to do so) free of sales tax, by quoting your sales tax number to your supplier in the following form:

If you are not registered you should quote an exemption declaration to your supplier, for goods you are entitled to buy free of sales tax. Copies of exemption declarations are shown on pages 14 and 15.

Do I have to quote each time I buy goods?

No, you can now give your suppliers a single quotation to cover all your tax free purchases in a period, where that period does not exceed one year.

A periodic quotation of sales tax number should be in the following form:

A periodic quotation of exemption declaration should be in the form shown on page 16.

For more information on buying goods free of sales tax, ask your local Tax Office for a copy of Bulletin No. 13 Sales Tax - Buying goods free of sales tax.

What if I sell goods by wholesale and have already paid tax to my supplier?

When you sell goods by wholesale you must charge tax even if you paid tax when you bought the goods (provided the small business exemption doesn't apply to the transaction). When this happens, you have to charge sales tax on the price for which you sell the goods, and claim a credit of the tax you've already paid. In most cases it's easier to claim the credit on your sales tax return.

On what value is sales tax payable?

Sales tax is payable on the 'taxable value' of the goods. The usual taxable values are:

Wholesale sales

The taxable value is the price for which the goods were sold. This will include charges for freight, postage or insurance where goods are sold under a contract that provides that the sale price includes delivery. Where delivery is the subject of a separate contract, delivery charges will not form part of the sale price unless the sales tax general anti-avoidance provisions apply or the charges are not at arm's length prices.

The sales tax general anti-avoidance provisions will not be applied to separate sale and delivery contracts, provided that the purchaser does not have to pay all or part of the delivery charge in order to get good title to the goods.

Example

You sell spare parts to a retailer for $200 before tax. This is a wholesale sale, as the retailer will resell the goods. The taxable value of the goods will be $200, as this is the price for which the goods were sold.

Retail sales

Where you manufacture goods or you've bought goods free of sales tax, the taxable value where you sell them by retail is the 'notional wholesale selling price'. This is the price (excluding sales tax) for which you could reasonably have been expected to sell the goods by wholesale under an arm's length transaction.

Where you sell goods by retail, and you sell the same or similar goods by wholesale at arm's length in significant quantities in comparable circumstances, that wholesale price will be accepted as the 'notional wholesale selling price' of your retail sales.

Example

You sell spare parts by retail for $290 (excluding tax). If you also sell similar goods to arm's length retailers for $200 before tax in comparable circumstances, the taxable value of the goods you sell by retail will be $200 (i.e., the wholesale price), as this is the price for which you could reasonably have been expected to sell the goods by wholesale.

If you have a range of arm's length prices for the sale of similar taxable goods by wholesale, as an alternative, the Tax Office will accept the weighted average of the prices of those taxable goods as the 'notional wholesale selling price' of retail sales.

As an example of the calculation of the weighted average, assume a wholesaler of batteries sells by retail to end users and also sells the same batteries by wholesale at different prices to distributors and service stations. If seventy percent of the wholesale sales are made at $50 per unit (say, to distributors) and the remaining thirty percent are made at $60 per unit (to service stations) the weighted average price of all wholesale sales would be:

70% * $50 = $35
plus
30% * $60 = $18


In this example, the 'notional wholesale selling price' for batteries sold by retail would be $53 per unit.

Where you don't sell the same or similar goods by wholesale at arm's length in significant quantities in comparable circumstances to your retail sales, you'll have to work out the 'notional wholesale selling price' of the goods. As an alternative, the Tax Office will accept a 'notional wholesale selling price' calculated on the basis of:

• • into store cost* OR

• • manufacturing cost** (if you are a manufacturer)

• • 1/3 of the difference between that amount and the retail selling price (excluding tax)

* Into store cost means the purchase price of the goods plus duties, inwards transport costs to the non-manufacturer's premises (or as it directs) and any other directly attributable costs of acquisition.

** Manufacturing cost means the sum of:'

• • the cost of materials used to manufacture the particular goods;

• • the cost of labour used directly in the manufacturing operations; and

• • production, manufacturing or factory overheads.

Example

You buy an oil filter tax free for $5, and sell it by retail for $8 (excluding tax) but do not sell significant quantities of similar goods by wholesale in comparable circumstances. The taxable value is $6, calculated as follows:

$5 + ⅓ of ($8 - $5) = $5 + $1 = $6


Alternatively, non-manufacturers (other than Direct Sellers and Indirect Marketers) of spare parts who sell goods by retail but do not sell significant quantities of similar goods by wholesale in comparable circumstances, may calculate the 'notional wholesale selling price' of the goods sold by retail as:

• • their into store cost of the goods, plus 10%, provided that, in the case of goods imported, this is adjusted to a figure not less than 120% of (customs value + customs duty).

Goods obtained free of sales tax under quotation and applied to your own use

The taxable value is the purchase price of the goods.

Imported goods

If you import goods for which you are not entitled to quote your sales tax number or exemption declaration, sales tax is payable to Customs at the time of importation.

If you quote your sales tax number or an exemption declaration to Customs for goods which you are entitled to quote, and then apply the imported goods to your own use where an exemption doesn't apply, sales tax is payable to the Tax Office.

In both cases sales tax is payable on a value of 120% of (Customs value + customs duty).

What are the rates of sales tax?

Most motor vehicle spare parts and accessories are taxable at the Schedule 4 rate, currently 22%.

Goods such as radios, cassette players, compact disc players and aerials are taxable at the Schedule 5 rate, currently 32%.

When don't I charge sales tax?

You don't have to charge sales tax when:

• • the purchaser quotes a sales tax registration number (see page 7);

• • the purchaser gives you an exemption declaration in a form and manner approved by the Commissioner of Taxation (see pages 14 to 16);

• • the small business exemption applies to you (see page 1);

• • the goods are always exempt goods;

• • the goods are second hand; or

• • the goods are sold by retail and you have already paid tax when you bought the goods.

What exemptions are available?

Motor vehicle spare parts may be exempt from sales tax depending on how they are used or who uses them. Some examples of people and organisations who can claim exemption are shown below:

An exemption declaration will be used by the above people/organisations. The exemption declaration will usually be in the form shown on pages 14 and 16.

People who give you an exemption declaration will be liable for any sales tax which may subsequently become payable on the goods. However, you should not accept an exemption declaration (or quotation of sales tax registration number) if you have reasonable grounds for believing that the person is not entitled to claim exemption. If you do, you will be liable for any subsequent sales tax that becomes due on the goods.

As an example, primary producers are not entitled to exemption on parts for the family sedan or other two wheel drive sedans or utilities (unless they are used exclusively within premises controlled by the primary producer or in going between adjacent premises). If you are aware that the parts are for this type of vehicle, you should not accept a quotation.

With the exception of specific 4WD vehicles and motor cycles for use by agriculturalists, there are limited circumstances in which miners, primary producers and manufacturers are entitled to exemption from sales tax on general purpose motor vehicles (and parts for those vehicles).

This is generally where the vehicles are used exclusively within premises controlled by the miner, primary producer or manufacturer and are used mainly in carrying out, for example, mining operations, primary production activities, or manufacture related activities. When exemption is available, you can only sell goods to these people when they quote a sales tax registration number in the form shown on page 7.

Are credits available?

You can claim a credit of sales tax you've paid on motor vehicle spare parts and accessories where you have sold them free of tax to purchasers who have quoted a registration number or an exemption declaration.

In all cases, you should try to find out the actual amount of tax included in the sale of the spare parts or accessories to you. Where you are unable to get this information, the following formula may be used:

½ the rate of tax applicable to the goods * repairer's purchase price


For example, where the goods are taxed at the Schedule 4 rate, currently 22% and the repairer's purchase price was $100, the repairer can claim a credit from the Tax Office of $11, i.e. 1/2 of 22% X $100.

What about motor vehicle dealers and warranty work?

Some spare parts are used by motor vehicle dealers for replacing defective parts in new motor vehicles. The parts are usually replaced free of charge in accordance with the motor vehicle manufacturer's warranty.

Where the defective parts were part of a new vehicle which was sold in accordance with the 'uniform taxable value agreement' and the vehicle was invoiced by the manufacturer/distributor before 1 January 1996, credits of tax for those parts are generally not available. An exception to this rule is where the defective parts were imported as part of an imported vehicle. In the latter case and in the case of vehicles invoiced after 1 January 1996, dealers can get a tax credit where they replace defective parts under new vehicle warranty.

A credit may be claimed by the dealer in his or her sales tax return in respect of the sales tax paid on the replacement part. It should be noted that in these cases, the replacement was under a warranty, the value of which was included in the taxable value of the defective goods.

In regard to goods replaced under warranty by dealers selling second hand vehicles, no credit entitlement exists where a faulty part is replaced under the warranty given by the dealer.

If you replace goods under warranty for customers and you are uncertain about the sales tax position, you should contact your local Tax Office for advice.

Do you need more information?

If you have any questions or need more information about how the sales tax law affects you, please contact your local Tax Office:

• • by phone on our national sales tax enquiry number 13 28 66. You can ring this number from anywhere in Australia for the cost of a local call; or

• • in person by visiting the enquiry counter at your nearest Tax Office. Tax Office addresses are listed in TaxPack, as well as in your White Pages telephone directory.

ATO references:
NO NAT 2022.03.95