A Trap for Businesses on the Sale of Motor Vehicles

Section 8 of the Motor Vehicle Sales Act 2003 (the Act) provides (among other things) that a person is to be treated as carrying on the business of motor vehicle trading for the purposes of that Act  (and requiring registration under the Act) if:

  1. The person holds out that it is carrying on the business of motor vehicle trading; or
  2. In any specified period (defined as any period of 12 consecutive months) the person sells more than six motor vehicles, unless that person proves that those vehicles were not sold for the primary purpose of gain.  The burden of proving that that section in the Act does not apply is on the vehicle seller.

There are some exceptions to s 8, set out in s 9 of the Act.  These include Section 9(1)(h) and (i) which provide that a person is not to be treated as carrying on the business of motor vehicle trading only because;

1.  that person is (among other things) carrying on any other business besides carrying on the business of motor vehicle trading and who in the course of that other business:

(a)   buys any motor vehicle for use in that business with or without the intention of reselling it after such use;

(b)   resells the vehicle after using it in connection with that business, or

2.  the sale is as an incidental part of the persons ordinary business;

but only if in either of these cases the person sells the motor vehicle(s) through a motor vehicle trader registered under the Act.

The Registrar of Motor Vehicle Traders takes the view that “gain” used in Section 8 (1) (b) of the Act is not limited to financial profit from the sale of the vehicles, but “can encompass any kind of commercial benefit such as minimising losses, avoiding costs and divesting encumbering assets”, taking this wording from the decision of Chief District Court Judge Doogue in Motor Vehicle Dealers Institute v Ball.(2014 DCR 294).

This wide interpretation of what constitutes a gain may have been appropriate on the facts in  the above decision  but does not appear appropriate generally given the Interpretation Act 1999 which requires that meaning to be determined from the words used and the purpose of the Act.  That purpose is essentially to prevent people running a business of selling motor vehicles with the intention of making a gain.  The six sales in any consecutive 12 month period is intended to create a presumption that there is such a business being carried on by the person, and without the protection that is provided under the Act if the sale is by  a motor vehicle trader. 

It is hard to see (for example) that the updating by a business of its vehicle fleet, or part of it, at a greater cost than the benefit claimed to arise from the sale of vehicles (each at a loss) can, on a common sense basis, amount to a “gain” that would then engage s 8 and the need to register under the Act or face prosecution.  A sale at a loss should be a prima facie indicator that there is no motor vehicle dealer business being operated.  The focus should then shift to see if there is anything else which evidences the business of motor vehicle trading, despite that prima facie position.  Put differently, the mere replacement of a car at a financial loss should not be a gain within the meaning of the Act, without something more in the factual matrix for a gain to have been made.

The Registrar’s view is that:

  1. Selling vehicles at a discounted price to employees or because of their continued depreciation, or because they are obsolete or beyond their useful economic life, each confers a general commercial benefit on the owner of those vehicles and which is a sufficient gain for section 8 of the Act to apply (unless an exception applies).
  2. A general pattern of selling vehicles to staff or to other subsidiary companies in the same corporate group may be the holding out by that business to its employees or subsidiaries as a motor vehicle trader.

To avoid the penalties that are able to be imposed by this Act on unregistered motor vehicle traders, if your business is in the position of regularly selling vehicles from your business fleet then unless you are prepared to litigate this issue with the Registrar of Motor Vehicle Sales you will need to register under this Act or to sell the vehicles through a registered motor vehicle (to engage the exception to Section 8 noted above, and set out in Section 9 of the Act.)

Please contact us for further advice if you are unsure if the Act will apply to you on the sale of vehicles by your business.  As noted above the Registrar is likely to take action if there are more than six vehicle sales within a period of 12 consecutive months unless you can prove that the sale was not for gain (noting the very wide definition of that term adopted by the Registrar) or unless one of the exceptions in s 9 applies.  However the Registrar may initiate a prosecution against a person selling vehicles used in its business even if that threshold is not met, if it considers that the person has for some other reason held itself out as a trader or otherwise shown that it is a motor vehicle trader.


For further information please contact

plm

Paul Middlemiss

Email: paul.middlemiss@harkness.co.nz

Direct Dial: +64 7 834 6676

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