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D01-18

A reduced rate of penalty tax is available to licensed motor car traders who voluntarily disclose that they have obtained an exemption from duty on applications for registration or transfer of registration of motor vehicles intended for use as and/or actually used as ‘service demonstrator vehicles’, ‘service loan vehicles’ (or similar industry description).

The deadline for voluntary disclosure has been extended to Monday 31 December 2018.

Motor vehicle retailing industry

Motor car traders are regulated by the Motor Car Traders Act 1986. Under that Act, any person who buys, sells or exchanges, or offers to buy, sell or exchange, four or more motor cars in any period of 12 months, other than from, to or with a licensed motor car trader (LMCT), is deemed to be a motor car trader carrying on a business of trading in motor cars and must hold a motor car trader’s licence. Motor car traders are also regulated by the Road Safety (Vehicles) Regulations 2009.

In the normal course of their business, LMCTs acquire motor cars for the purpose of sale. They may, however, also acquire motor cars for a range of other business or private purposes including, but not limited to, demonstration, customer loans, service, workshop and deliveries, promotion and use by directors, employees and their family members.

Duties Act 2000

Under the Duties Act 2000 (the Act), subject to some exemptions, duty is payable by a person who applies for registration or transfer of registration of a motor vehicle at the time the application is lodged.

Section 231(2) of the Act provides an exemption from duty as follows:

(2) No duty is chargeable under this Chapter on an application by a licensed motor car trader who carries on a business of dealing, for the purpose of sale by retail, in motor vehicles for registration or transfer of registration of a motor vehicle—

(a) in the course of, and for the purpose of carrying on that business and solely or primarily for the purpose of either or both of the following—

(i)  the sale of the motor vehicle;
(ii) the use of the motor vehicle as a demonstrator vehicle; or

(b) solely or primarily for the purpose of the provision of the motor vehicle to a secondary educational institution for use for driver education purposes.

‘Demonstrator vehicle’ is defined in s3 of the Act as follows:

demonstrator vehicle means a motor vehicle that is used exclusively for the purpose of sale of another vehicle of the same class.

The Act does not contain a definition of ‘service demonstrator vehicle’ or ‘service loan vehicle’ (or similar industry description).

Revenue Ruling DA-034 addresses the ‘trading stock/demonstrator vehicle’ exemptions in s231(2) of the Act. It relevantly states that:

Purposes or Uses outside sections 231(7) and 231(2)(a)

As at the time of initial registration or transfer of a motor vehicle in the name of an LMCT, the following
non-exhaustive list of uses will be considered ineligible for the exemptions provided under sections 231(1) and 231(2)(a): ...     

  • Loan vehicle — where the motor vehicle is provided by the LMCT to a customer while his or her vehicle is being serviced or repaired…

‘Loan vehicles’, ‘service demonstrator vehicles’ and ‘service loan vehicles’ are not exempt from duty

Some LMCTs register motor vehicles for use as ‘service demonstrator vehicles’ or ‘service loan vehicles’ (or similar industry description). This category includes vehicles that are acquired as part of formal prestige service demonstrator programs and motor vehicles that are made available to select customers under encore, privilege or reward programs.

In Mercedes-Benz Australia/Pacific Pty Ltd v Commissioner of State Revenue [2016] VSCA 194 (Mercedes-Benz Australia/Pacific Pty Ltd), the Court of Appeal confirmed that ‘service demonstrator vehicles’ provided by the taxpayer to its service customers and used by those customers as courtesy cars were subject to motor vehicle duty and were not exempt from duty under s231 of the Act. The taxpayer did not seek special leave to appeal to the High Court.

The Commissioner of State Revenue (Commissioner) considers that the decision in Mercedes-Benz Australia/Pacific Pty Ltd may be applicable by analogy to similar fact scenarios involving vehicles described, or used, as ‘loan cars’, ‘service demonstrator vehicles’ or ‘service loan vehicles’ (or some other similar industry description).

Voluntary disclosure

The Commissioner is currently considering whether to commence investigations into LMCTs’ compliance with the Act.

The Commissioner is aware that some LMCTs have registered and/or used motor vehicles as ‘service demonstrator vehicles’ or ‘service loan vehicles’ (or similar industry description) and may have incorrectly obtained an exemption from duty for them.

LMCTs in this position now have the opportunity to make a voluntary disclosure of those motor vehicles and, on reassessment, receive a reduced penalty tax rate of 5 per cent plus interest at the applicable market rate on any outstanding duty to the date of reassessment.

On or before Monday 31 December 2018, LMCTs are invited to make a voluntary disclosure of all ‘service demonstrator vehicles’ and ‘service loan vehicles’ (or similar industry description) in the last five years (see Revenue Ruling GEN-014 – Assessments – Period of Retrospectivity).

In making a voluntary disclosure, and in order to qualify for the reduced rate of penalty tax and interest, LMCTs must provide to the Commissioner a detailed list of:

  • the identity of each motor vehicle, including its make, model and year of manufacture, and its registration number as at the date of its registration or transfer of registration by/to the LMCT,
  • the acquisition price of each motor vehicle (inclusive of GST) and a copy of the corresponding tax invoice, and
  • any other material relevant to the voluntary disclosure.

If an LMCT makes a voluntary disclosure with this information on or before Monday 31 December 2018, the Commissioner will issue reassessments for the amount of tax unpaid, penalty tax at the reduced rate of 5 per cent, and interest at the market rate only from the date of the tax default to the date of reassessment. Interest will accrue at the market and premium rates on any unpaid amount from the due date for payment under the reassessment.

The voluntary disclosure, including this information, should be marked ‘Private and Confidential’ and sent to:

Service Demonstrator Voluntary Disclosure Program
State Revenue Office
Investigations Branch
GPO Box 1641
MELBOURNE VIC 3001

If an LMCT is uncertain if they have a liability, they can write to the Commissioner at this address to confirm whether any particular motor vehicles are subject to duty.

State Revenue Office investigations after the voluntary disclosure period

If an LMCT does not make a voluntary disclosure with the requested information on or before Monday 31 December 2018, and the Commissioner later finds that there has been non-compliance with the Act as a result of an investigation, on reassessment, penalty tax will apply and can be imposed at a rate as high as 90 per cent of the amount of duty unpaid on applications for registration or transfer of registration of motor vehicles.

More information

If you have any specific questions relating to this voluntary disclosure program, please contact the State Revenue Office.