NO.034

The cost of motor vehicles to GST registered businesses should fall by around

9 per cent as a result of the Governments decision to allow full input tax

credits for motor vehicles acquired on or after 23 May 2001. To give effect to

this measure the Government will introduce, as soon as possible, an amendment to

the Taxation Laws Amendment Bill (No.3) currently before the Parliament.

Under the New Tax System, the availability of input tax credits for the GST

on new motor vehicles was subject to a phasing in arrangement. Input tax credits

were denied in full for the first year of the GST, a 50 per cent denial was to

be applied for the year commencing 1 July 2001, with full input tax credits

available from 1 July 2002. The phasing in of input tax credits was designed to

minimise the disruption to the market that could have occurred if businesses

were to defer their purchases of motor vehicles in the months preceding the GST.

The Governments decision to allow full input tax credits ahead of the

scheduled implementation date of 1 July 2002provides a major boost to businesses

and the motor vehicle industry.

Purchasers of new motor vehicles and the motor vehicle industry are big

winners from tax reform. The replacement of the wholesale sales tax with GST

resulted in the cost of new motor vehicles falling by around 7 per cent from 1

July 2000. The availability of full input tax credits will result in further

cost reductions of about 9 per cent for registered businesses.

The cost of the measure is around $670 million, largely in 2001-02.

CANBERRA

22 May 2001