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DA-034v2

Ruling history

Ruling no. DA-034v2
Status Current
Issue date 13 December 2019
Replaces DA-034
Date of effect 1 July 2019

This ruling should be read in conjunction with the motor vehicle duty relief measure introduced by the Commissioner of State Revenue on 22 May 2020 to assist licensed motor car traders who have been impacted by the coronavirus pandemic. The length of ownership associated with exemptions from motor vehicle duty available for licensed motor car traders has been extended from 12 to 18 months for all vehicles registered as a demonstrator or service demonstrator vehicle between 1 March 2019 (1 July 2019 for service demonstrator vehicles) and 30 September 2020.

This ruling replaces DA-034 to take into account the exemption from motor vehicle duty (MVD) on the registration or transfer of a service demonstrator vehicle on or after 1 July 2019. This exemption was announced in the Victorian Government’s 2019-20 Budget.

Preamble

Chapter 9 of the Duties Act 2000 (the Act) charges MVD on an application for the registration or transfer of a motor vehicle unless an exemption applies. MVD is calculated on the dutiable value of the motor vehicle.

Section 231(1) of the Act provides an exemption on the registration or transfer of a motor vehicle by a Licensed Motor Car Trader (LMCT) who carries on a business of wholesale dealings in motor vehicles if the motor vehicles are trading stock.

Section 231(2)(a) of the Act provides an exemption on the registration or transfer of a motor vehicle by an LMCT who carries on a business of retail dealings in motor vehicles if the motor vehicles are trading stock, used as demonstrator vehicles or used as service demonstrator vehicles. The exemption for service demonstrator vehicles applies from 1 July 2019.

Revenue Ruling DA-034v2 clarifies the position of the State Revenue Office (SRO) on the application of these exemptions and should be read in conjunction with DA-035v2, which provides guidance in determining whether a change in the predominant use of a motor vehicle has occurred, thereby attracting duty under section 238 of the Act.

Ruling

Section 231(1) - Trading stock exemption (Wholesale)

An LMCT who carries on a business of wholesale dealing in motor vehicles is exempt from paying MVD on the registration or transfer of a motor vehicle where the motor vehicle will be used solely as trading stock.

The SRO considers that the word solely requires the motor vehicle to be used exclusively as trading stock and for no other purposes. This requires that the motor vehicle is used in the carrying on of the business of the LMCT and solely for the purpose of the sale of that motor vehicle. If the motor vehicle is not used solely as trading stock, the exemption provided under section 231(1) will not apply.

Where an LMCT has already obtained an exemption under section 231(1) and the motor vehicle is no longer used solely as trading stock, this is considered a change of use for the purposes of section 238 of the Act and the motor vehicle will be subject to MVD.

Section 231(2)(a)(i) - Trading Stock Exemption (Retail)

An LMCT who carries on a business of retail dealing in motor vehicles is exempt from paying MVD on the registration or transfer of a motor vehicle, where the motor vehicle is used solely or primarily as trading stock.

The SRO considers that a motor vehicle is used solely or primarily as trading stock if the motor vehicle is present and available for sale during the LMCT’s normal trading hours at their business premises.

In limited circumstances, the SRO may accept a motor vehicle that is not located at an LMCT’s business premises during normal trading hours as being trading stock, for example, where the vehicle is being used as part of a shopping centre promotion. In these circumstances, the onus is on the LMCT to show that the vehicle was available for sale at all relevant times. To this end, the LMCT must be able to show that it has the requisite approvals to operate as a business from the location, that the vehicle was at the location at all relevant times and that the vehicle was driven only for the purpose of moving the vehicle to and from the off-site location from the LMCT’s normal business premises.

The SRO will also accept certain secondary uses of the motor vehicles as being within the meaning of solely and primarily as trading stock under section 231(2)(a)(i). These are:

  • the vehicle is used incidentally in a pool of vehicles available for driving after hours by the staff of the LMCT and the vehicle is shown in the LMCT’s Fringe Benefits Tax returns, and
  • the vehicle is used for the purpose of charging its battery, transport to and from a workshop or some other use incidental to its presentation for sale.

If the motor vehicle is not used solely or primarily as trading stock, the exemption provided under section 231(2)(a)(i) will not apply.

Where an LMCT has already obtained an exemption under section 231(2)(a)(i) and the motor vehicle is no longer being used solely or primarily as trading stock, this is considered a change of use for the purposes of section 238 of the Act and the motor vehicle will be subject to MVD.

Section 231(2)(a)(ii) - Demonstrator Vehicle Exemption

An LMCT who carries on a business of retail dealing in new vehicles is exempt from MVD on the registration or transfer of a vehicle where the vehicle is used solely or primarily as a demonstrator vehicle.

A demonstrator vehicle is defined in section 3 of the Act. It is a motor vehicle that is used exclusively for the purpose of sale of another vehicle of the same class.

A motor vehicle is considered to be used solely or primarily as a demonstrator vehicle where it is:

  • available and used for demonstration to prospective purchasers for sale of vehicles of the same class, and
  • available for such use during the LMCT’s normal trading hours at their business premises.

A motor vehicle is not considered as being used solely or primarily as a demonstrator vehicle where it:

  • has travelled a distance of more than 7,500km since its acquisition and initial registration in the name of the LMCT, or
  • has been held for longer than 12 months after it has been initially registered in the name of the LMCT as a demonstrator vehicle.

To qualify for the demonstrator vehicle exemption, the applicant for registration must be an LMCT dealing in new motor vehicles and generally, the motor vehicle in question would be a new vehicle of the make and model sold by the LMCT.

If the motor vehicle is not used solely or primarily as a demonstrator vehicle, the exemption provided under section 231(2)(a)(ii) does not apply.

Where an LMCT has already obtained an exemption under section 231(2)(a)(ii) and the vehicle is no longer used solely or primarily as a demonstrator vehicle, this is considered a change of use for the purposes of section 238 of the Act and MVD will be payable as if there was an application for the transfer of registration of the motor vehicle to the LMCT.

Section 231(2)(a)(iii) – Service Demonstrator Vehicle Exemption

An LMCT who carries on a business of retail dealing in new motor vehicles is exempt from MVD on the registration or transfer of a motor vehicle, where the motor vehicle is used solely or primarily as a service demonstrator vehicle.

A service demonstrator vehicle is defined in section 3 of the Act. It is a motor vehicle that is:

  • used exclusively for the purposes of the sale of another vehicle of the same class, and
  • made available without charge by an LMCT to a customer for use while the customer’s motor vehicle is being serviced.

Meaning of service demonstrator

A service demonstrator vehicle must be provided to a customer of an LMCT as a vehicle that they may want to purchase. Whilst this is generally an upgrade, if an LMCT can demonstrate that a customer is in the market for a second car or a ‘downsized’ vehicle, this can also be a legitimate service demonstrator vehicle depending upon the particular customer and vehicle.

An LMCT will need to keep documentary evidence of the process by which a service demonstrator vehicle was selected for a particular customer. Typically, the process will involve a salesperson and service department adviser considering the type of vehicle that the customer should be given from a fleet (or pool) of service demonstrator vehicles with the aim to sell the customer a new vehicle of the same model. 

Where an LMCT has a fleet of available vehicles as service demonstrator vehicles, the fleet should consist of a variety of makes and models, rather than just base models. Where the service demonstrator vehicle fleet consists of only base model vehicles such that the purchase of a like vehicle is not a credible option for many service customers who are given a vehicle from the fleet, the fleet will be considered courtesy vehicles (i.e. outside the service demonstrator vehicle exemption).

Similarly, where the service demonstrator vehicle fleet consists of more than one model or type of vehicle but the majority of the vehicles in the fleet are a lesser make or model than the majority of vehicles being serviced for the service customers, the fleet will not be considered to represent credible purchase options for many of the service customers. Accordingly, in such circumstances, the fleet will be considered courtesy vehicles.

Meaning of service

The vehicle must be provided by the LMCT for use by a customer while the customer’s vehicle is being serviced. Service includes logbook service, warranty work, recall work or out of warranty repair.

Meaning of ‘without charge’

A 'charge' is an amount or price asked for the provision of a service demonstrator vehicle. Any fee that passes from the customer to an LMCT for the use of the service demonstrator vehicle, including an excess reduction fee for insurance cover, is therefore a charge.

The SRO will, however, accept that a requirement to refuel the vehicle upon its return is not a 'charge' provided there is no additional fee imposed in respect of the refuelling requirement by the LMCT, such as a handling fee or penalty.

Costs incurred as a result of the actions of the person driving the vehicle, such as speeding, parking or toll fees and infringements are not charges by the LMCT for the use of the vehicle. Therefore, where the LMCT passes on or seeks to recover these costs, this will not constitute a 'charge' for the purpose of the service demonstrator vehicle exemption.

Duration of use as a demonstrator

A motor vehicle will not be considered as being used solely or primarily as a service demonstrator vehicle where it:

  • has travelled a distance of more than 7,500km since its acquisition and initial registration in the name of the LMCT, or
  • has been held for longer than 12 months after it has been initially registered in the name of the LMCT as a service demonstrator vehicle.

Meaning of ‘primarily’ in section 231(2)

The term ‘primarily’ in section 231(2) requires that the predominant use of the motor vehicle must be for trading stock, as a demonstrator vehicle or as a service demonstrator vehicle.  

Purposes or uses outside sections 231(1) 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).

  • Courtesy vehicle - where the motor vehicle is used by the LMCT or its staff to pick up and drop off customers while the customer’s car is being serviced or repaired or a vehicle given to the customer for use, but not for the purpose of selling a vehicle of that class.      
  • Parts delivery vehicle - where the motor vehicle is used by the LMCT or its staff as a parts delivery vehicle.
  • Promotional vehicle - where the motor vehicle is provided for promotional purposes or sponsorship deals, evaluation by motoring organisations and media representatives.
  • Loan vehicle - where the motor vehicle is provided by the LMCT to a customer where the customer has traded-in their vehicle and is waiting for the delivery of their new vehicle.
  • Private use vehicle - where the motor vehicle is provided by the LMCT to its directors, staff, employees, their family members or any other person for personal use.
  • Other business use vehicle - where the motor vehicle is used by the LMCT in the course of conducting the business other than as trading stock, a demonstrator vehicle or a service demonstrator vehicle.

Further consideration for exemption

Where an LMCT believes that a particular motor vehicle should be exempted as trading stock, a demonstrator vehicle or a service demonstrator vehicle but is incompatible with the conditions set out in this ruling, the onus is on the LMCT to demonstrate to the SRO that the use of the motor vehicle complies with section 231(1) or 231(2)(a) of the Act.

Commissioner of State Revenue

Note: Rulings do not have the force of law. Each decision made by the State Revenue Office is made on the merits of each individual case having regard to any relevant ruling. All rulings must be read subject to Revenue Ruling GEN-001.

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