Automotive Update - Manufacturer Incentives - GST and LCT - ATO guidance
14 April 2014
The Australian Taxation Office (ATO) has developed further guidance on the GST and LCT implications of incentive payments. The upcoming changes relate to the customer and manufacturer payments for the supply of motor vehicles and contracts entered into on or after 1 May 2014. Please view the GST and LCT – ATO guidance guidance.
As expected, the guidance provides little assistance in relation to key practical issues for dealers. These issues include:
- Specific manufacturer incentives will be considered part of the “price” for GST purposes and therefore required to be added to the consideration paid by the customer in order to calculate the GST and LCT amounts. It is expected to apply to run-out bonuses, demonstrator bonuses, and fleet rebates, however there are many other manufacturer incentives that will need to be considered.
- Dealers will need to manage this change from a practical perspective when communicating and negotiating with customers. Dealers who do not change the mechanics of calculating the sale price for customers but correctly calculate the GST and LCT in their accounting systems will find it to the detriment of gross profit. Alternatively, dealers who neither change their approach to calculating the sale price for customers or their accounting, will give themselves a competitive advantage however they will be non-compliant by remitting insufficient GST and LCT to the ATO.
- Dealer management systems will need to correctly calculate the GST and LCT for accounting purposes, including disclosure for tax invoices.
The guidance presents another practical complexity regarding the requirement to effectively disclose the total GST (relevant to the manufacturer incentive plus the customer’s consideration), whereas the customer is limited to an input credit (GST claim) of one eleventh of their consideration (subject to the extent the acquisition is for a creditable purpose). Refer to Example 1 of the ATO’s guidance for more detail.
A potential solution to these issues would be to change the flow of the incentive payment to between the manufacturer/distributor and the finance company, rather than directly between manufacturer/distributor and the dealer. This change would require significant consultation between manufacturer/distributor and the finance companies and presumably change their respective software systems. Some consultation in this area is already in progress.
Together with the AADA, BDO will continue to liaise closely with the ATO regarding the practical implications, however you should be aware it is increasingly likely there will be no further deferral of the implementation date of 1 May 2014.
If you have any queries please do not hesitate to contact your BDO Automotive or Indirect Tax specialists.