Cost implications from purported changes to the Duties Act 2000 from July 2017

Increased cost of duty for new and near new motor vehicles

The State Taxation Amendment Bill 2017 (Bill) will amend the Duties Act 2000 (Act) to increase the rate of motor vehicle duty for new and near new passenger vehicles on 1 July 2017.  This was announced in the recent Victorian Budget.

What does this mean for you?

Duty is assessed and payable at the time the application for registration or transfer of registration for a motor vehicle is lodged.  The Bill does not include transitional arrangements for the introduction of the increase where a customer has purchased a motor vehicle pre 1 July 2017, but the transfer or registration will occur after 1 July 2017.

This means you may be directly impacted in circumstances where you sell a motor vehicle to a customer for a certain price (based on the relevant duty rate at that time) pre 1 July 2017 but the transfer or registration will occur after 1 July 2017 (when the duty rate will increase).  You may be ‘out of pocket’ for the difference between the applicable rate charged to your customer and the increased rate you will incur at the time of registration for that motor vehicle.

What can you do to prepare?

It is difficult at this time to determine the actual financial impact you may experience.  We highlight that the change in rates will need to be approved by Parliament before it comes into effect.  The change stated in the Bill is to apply the same rate as for used vehicles (being $8.40 per $200 or part thereof).  Much will also depend on how many motor vehicles may be sold in the above circumstances. However, we strongly recommend that you take time now to consider your position from a legal and commercial perspective.  In particular:

  1. What does your contract of sale allow you to do in these circumstances? For example, some contracts include express terms which allow you to increase the price charged to the customer in certain circumstances (which may or may not include where you have incurred an increase in duty).
  2. Will enforcing this term, allow the customer to enforce other terms in the contract? For example, is the customer entitled to pull out of the purchase altogether?
  3. Are these terms compliant with relevant laws? For example, the unfair terms provisions of the Australian Consumer Law were recently expanded to include certain small business contracts.  Does the term constitute an unfair term?  This will depend on the applicable facts and circumstances.
  4. If you can legally pass the cost on to your customer:
    • Will you? There may be detrimental consequences where you increase costs to customers retrospectively (e.g. increased complaints/disputes, reputational damage or damage to ongoing customer relationships); and
    • How will you communicate/implement the increase to customers? The way you communicate (i.e. being clear, transparent and up front) may reduce the potential negative consequences set out above.

There may also be an option to make an application for ex gratia relief to the Victorian Treasurer (in circumstances where there is an anomaly in state tax legislation that results in the legislation being applied in an unintentional way).  You tax adviser should be able to assist you with this option.

Next steps

Macpherson Kelley has extensive experience with motor vehicle dealers.  We are happy to help with any queries you may have in respect to the changes to tax laws and implications for you.  For further information, please contact Stefanie Orlando or Suzie Carroll.