Written by Ravneet Sandhu
The Victorian Supreme Court decision in Yildrim v Car Accident Rental Solutions Pty Ltd [2023] VSC 703 questioned the entitlement of a claimant, who was registered for GST, to claim the GST component of the market value of their vehicle.
Facts
The relevant facts were as follows:
- Car Accident Rental Solutions Pty Ltd (‘CARS’) commenced proceedings against Eray Yildrim, for negligently damaging their vehicle in a motor vehicle collision.
- Mr Yildrim admitted negligence. The matter proceeded as a quantum dispute.
- CARS’ vehicle was a write-off following the collision. However, the vehicle was subsequently repaired, and a new vehicle was not purchased.
- Both parties agreed on the salvage value and the other expenses incurred by CARS.
- The issue in dispute was whether the damages claimed by CARS should be reduced given CARS was registered for GST and would obtain an input tax credit equal to the GST component of the market value of the vehicle. As a result, the claimant could, in theory, recover more than their actual loss.
Magistrate Court Judgment
The Magistrate awarded CARS their full claim inclusive of the GST component. It was concluded their damages should not be reduced as there was no evidence that CARS had bought a replacement vehicle that would allow them to claim an input tax credit. Further, the Magistrate found that it could not be assumed that CARS would be entitled to claim the input tax credit.
Victorian Supreme Court Judgment
The decision was appealed by Mr Yildrim.
The main ground for appeal was whether the Magistrate had made an error in allowing CARS the GST component of the pre-accident market value.
Justice Gorton found the following:
- If CARS had sold their vehicle prior to the collision for $18,490, after remitting the GST of $1,680.91 to the Commonwealth, the net profit from the sale would be $16,809.09; and
- If CARS bought an identical replacement vehicle for $18,490, they would receive an input tax credit. Hence, they would only be $16,809.09 out of pocket for the purchase.
Accordingly, the assessment of damages was to be determined by the cost of the replacement vehicle to the claimant or the amount that would be recovered by selling the vehicle prior to the collision. This method of calculating the damages stays the same regardless of the claimant’s intention to purchase a replacement vehicle. This method limits the claimant from recovering a cost that is greater than the cost to them of buying a replacement vehicle.
As a result, His Honour concluded the compensatory principles in relation to the GST legislation had been misapplied by the Magistrate in the first instance and the appeal was successful.
Implications
As Justice Gorton stated, the “same conduct can result in different levels of loss to different people”. The relevant test for determining the claimant’s net loss entitlement is what the claimant would have recovered by selling their vehicle. This will require an assessment of whether the claimant is registered for GST, and if they are, deducting the GST component from their claimed pre-accident market value.
It is quite common for net loss claims to include the GST inclusive market value and fail to consider the claimant’s entitlement to obtain an input tax credit. This results in the claimant being over compensated.
We encourage insurers to check whether the claimant, who may be an individual or company, is registered for GST purposes. If the claimant is registered for GST, then you should consider removing the GST component from their claimed quantum if it appears the vehicle may have been used in a business context. We note this will apply even if they have not yet, or never intend to, purchase a replacement vehicle.
Should you wish to discuss any of the above, please contact Brooke Caulfield on 03 9947 4511 or any member of the Ligeti Partners team on 03 9947 4500.
