Understanding Notional Input Tax Credits: A Guide for Australian Dealers

08 Jul 2024 Helpful Tips

tax guide 

Understanding Australian Taxation laws can be daunting for all Automotive Dealers, especially when it comes to industry specific tax laws like Notional Input Tax Credits. Understanding Notional Input Tax Credits is crucial for all dealers to understand to trade compliantly and to maximise potential tax benefits.

EasyCars has put together a complete guide to help you understand what notional input tax credits are, how notional input tax credits work, and how to use notional input tax credits at your car dealership.

Let’s get into it!

What Are Notional Input Tax Credits?

Notional input tax credits are a unique aspect of the Australian Goods and Services Tax (GST) setup. Notional Input Tax Credits allow businesses like your car dealership to claim a GST credit for different types of acquisitions whether it be cars or expenses, even when a tax invoice is not available.

Notional Input Tax credits are important for dealers who specialise in selling second hand cars for sale, where the supplier might not be registered for GST and or cannot provide a tax invoice.

The Legal Framework

In the Australian GST Act, Division 66, highlights the provisions for claiming notional input tax credits. It is important for all car dealers and car dealer accountants to understand these provisions as it will have a significant impact on your dealership at tax time. The Australian GST legislation says, a notional input tax credit can be claimed if:

  1. The goods were purchased as part of your dealerships business activities.
  2. The goods are purchased for the purpose of resale for example used car sales.
  3. The supplier of the goods for example a used car is not registered for GST, and therefore, did not charge GST on the sale.

What Dealers are eligible for Notional Input Tax Credits

To claim notional input tax credits at your car dealership, there are certain eligibility criteria’s that you need to meet:

  1. GST Registration: Your dealership must be registered for GST.
  2. Second-Hand Goods: The goods (cars for sale) in question must be second-hand. Notional Input Tax credits are specifically catered for Used Car Dealerships in Australia.
  3. Acquisition for Resale: The goods must be purchased with the intention of resale in the business of purchase.
  4. Supplier's GST Status: The supplier must not be registered for GST, which means they did not charge GST on the transaction. B2B Car Sales will not fall under notional input tax credits.

Calculating Notional Input Tax Credits for Car Dealerships

To calculate Notional Input Tax Credits at your dealership, there are a few steps that you need to take:

  1. Determine the Purchase Price: Set the purchase price of the second-hand car.
  2. Apply the GST Rate: Apply the current GST rate (10%) to the purchase price of the used car to determine the notional GST amount.
  3. Claim the Credit: The notional GST amount can then be claimed as a credit in your dealerships Business Activity Statement (BAS).

For example, if your dealership buys a second-hand car for $11,000 from an unregistered supplier, the notional input tax credit would be calculated as follows:

  • Purchase price: $11,000
  • Notional GST amount: $11,000 / 11 = $1,000
  • Claimable credit: $1,000

Notional Input Tax Credits Record-Keeping Requirements

To compliantly receive notional input tax credits at your used car dealership, it is vital that you keep proper documentation and record-keeping. Although a tax invoice is not mandatory when claiming notional input tax credits in Australia, dealers must maintain adequate records to prove their claims. These records should include:

  1. Details of the Acquisition: Your dealership will need to provide information about the purchased goods like your used car acquisitions, including descriptions, quantities, and purchase prices.
  2. Supplier Information: Your dealership must also provide details of the supplier, even if they are not registered for GST.
  3. Resale Information: Lastly but the most important factor is your dealership must give evidence that the goods were acquired for resale.

Practical Examples

Example 1: Car Dealership

A car dealership buys a second-hand car for $15,000 from a private seller who is not registered for GST. The dealerships plan is to refurbish and resell the car. In this case, the dealership can claim a notional input tax credit of $15,000 / 11 = $1,363.64 in their BAS.

Benefits of Notional Input Tax Credits for Car Dealerships

  1. Cash Flow Management: Claiming Notional Input Tax credits in Australia can improve cash flow by reducing the GST payable on sales at your used car dealership.
  2. Increased Profit Margins: Dealers can increase total profit margins by recovering GST on second-hand car sales.
  3. Simplified Compliance: Notional Input Tax Credits for Car Dealers simplify the compliance process for transactions with private sellers, making it easier to manage tax requirements in Australia.

Common Notional Input Tax Credit Errors and How to Avoid Them

  1. Inadequate Record-Keeping: Many dealerships make the mistake of not maintain proper records. Not having the correct records often leads to disallowed claims.
  2. Misidentifying Eligible Goods: Only second-hand cars for sale qualify for NITCs.
  3. Incorrect Calculations: Your calculations need to be accurate. A slight mistake will lead to a disallowed claim.

Seeking Professional Advice

While understanding and claiming notional input tax credits is an important part of operating a used car dealership, it is always advisable to implement the right systems that automate the process like EasyCars and seek professional advise through the use of an automotive accountant.

Final Word,

Notional input tax credits are a valuable tool for Australian used dealers, offering the potential to enhance cash flow and profitability. The guide above is a common explanation of what notional input tax credits are, how notional input tax credits work, and how to use notional input tax credits at your car dealership.

DISCLAIMER – The content within this blog does not constitute professional advice and is intended to be general in nature. Please consult with all relevant parties prior to making any decision.

We hope you enjoyed reading this article. To read more articles like this, please visit the EasyCars latest news page here.

About EasyCars,

EasyCars by Jeal is an Australian, web-based, dealer management system that automates the buying and selling of motor vehicles. Using the latest technologies, EasyCars removes frustrations experienced at the dealership and opens your doors for greater growth.

EasyCars features include Simple Stock Management, Automated Advertising, Integrated Accounting, Government Compliance, Business Reporting, Facebook Automotive Inventory Ads, Reviews Management, Dealership Websites and more.

To learn more about EasyCars Dealer Management System or to arrange a no-obligation free demo, contact us today on 1300 473 744 or submit the form below.

Learn more about our dealer management system

Contact Us