GST and supply of a car to a disabled veteran

Is the entity, a motor vehicle dealer, making a GST-free supply under section 38-505 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells a car to a disabled veteran who satisfies the requirements of section 38-505 of the GST Act?

Yes, the entity is making a GST-free supply of a car to a disabled veteran who satisfies the requirements of section 38-505 of the GST Act.

The entity is a motor vehicle dealer. The entity is registered for GST.

The entity sells a car to an individual, a disabled veteran.

The individual has served in the Defence Force and, as a result of that service, is a veteran to whom section 24 of the Veterans' Entitlements Act 1986 applies and receives a pension under Part II of that Act.

At the time of the purchase, the disabled veteran intends to use the car for their personal transportation for a period of two years or until the car has travelled 40,000 kilometres.

The goods and services tax (GST) inclusive market value of the car does not exceed the car limit.

Under Subdivision 38-P of the GST Act, a supply of a car to a disabled person may be GST-free. Section 38-505 of the GST Act deals with the supply of cars to disabled veterans.

Subsection 38-505(1) of the GST Act provides that a supply is GST-free if it is a supply of a car to an individual who: (a) has served in the Defence Force or in any other armed force of Her Majesty; and (b) as a result of that service: (i) has lost a leg or both arms; (ii) has had a leg, or both arms, rendered permanently and completely useless; or (iii) is a veteran to whom section 24 of the Veterans Entitlements Act 1986 applies and receives a pension under Part II of that Act; and (c) intends to use the car in his or her personal transportation during all of the Subdivision 38-P period.

However, under subsection 38-505(2) of the GST Act, the supply of the car is not GST-free to the extent that the GST inclusive market value of the car exceeds the car limit.

In this case, the entity is supplying a car to an individual who has served in the Defence Force. As a result of that service, the individual is a veteran to whom section 24 of the Veterans Entitlements Act applies and receives a pension under Part II of that Act.

Accordingly, paragraphs (a) and (b) of subsection 38-505(1) of the GST Act are satisfied. As the GST inclusive market value of the car does not exceed the car limit, subsection 38-505(2) of the GST Act is not applicable.

Therefore, the issue is whether the individual purchasing the car intends to use the car in their personal transportation during all of the Subdivision 38-P period, as per the requirement of paragraph 38-505(1)(c) of the GST Act.

The term 'Subdivision 38-P period' in relation to the supply of a car to an individual, is defined in section 195-1 of the GST Act as the period starting when he or she acquires it and ending at the earliest of the following times: (a) the end of 2 years after the acquisition; (b) the time when the car is no longer reasonably capable of being used for the purpose for which cars of that kind are ordinarily used; (c) a time that the Commissioner considers to be appropriate in special circumstances.

For the purposes of paragraph (c) of the above definition, the Commissioner considers that an appropriate circumstance is where the vehicle has travelled 40,000 kilometres.

As the individual purchasing the car intends to use the car for their personal transportation for a period of two years or until the car has travelled 40,000 kilometres, the requirements of subsection 38-505(1) of the GST Act are satisfied.

Therefore, the entity is making a GST-free supply of a car under subsection 38-505(1) of the GST Act. [Note: It does not matter if the individual purchasing the car subsequently sells the car prior to the end of the Subdivision 38-P period. It is the intention of the purchaser at the time of the supply that determines the GST status of the supply].