Car acquired at a discount



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If a car is acquired at a discount, the first element of its cost may be increased by the amount of the discount.

This will happen to the extent that any portion of the discount (the discount portion) is referable to the disposal for less than market value of another asset (for example, a trade-in) for which any entity has deducted or can deduct an amount at any time.

This rule does not apply to some cars fitted out for transporting disabled people.

The adjustment is only made if the cost of the car (after GST credits or adjustments) plus the discount portion exceeds the car limit. A car's cost is not otherwise affected by an acquisition discount for other reasons.

When in time a balancing adjustment event occurs for the car, the termination value must be increased by the same discount portion-see Balancing adjustment rules for cars.


Car acquired at a discount (ignoring any GST impact)

Kristine arranges to buy a $60 000 sedan for business use from Greg, a car dealer. She offers the station wagon she is using for this purpose, worth $20 000, as a trade-in. Greg agrees to reduce the price of the sedan to below the car limit if Kristine accepts less than market value for the trade-in. Kristine agrees to accept $15 000 for the trade-in and the price of the sedan is reduced to $55 000.

The pre-discount price of the sedan is more than the car limit so the first element of the car's cost is increased by the amount of the discount to $60 000. As the first element of cost then exceeds the car limit, it must be reduced to the car limit for the income year.

The termination value of the wagon would be taken to be the market value of $20 000.

Last modified: 01 Jun 2005QC 27399