Cars designed mainly for carrying passengers are subject to a car limit. If the first element of cost exceeds the car limit for the financial year in which you start to hold it, that first element of cost is reduced to the car limit.
The car limit for 2002–03 is $57,009.
Before applying the car limit you may need to:
- increase the cost of the car if you acquired the car at a discount see Car acquired at a discount
- reduce the cost of the car by input tax credits see GST input tax credits.
If a car with a cost exceeding the car limit is held by more than one person, the car limit is applied to the cost of the car and not to each holder's interest in the car. Once the car limit has been applied, the cost of the car (as reduced to the car limit) is apportioned as between each holder's interest. Each holder then works out their deduction for the decline in value of the car see Jointly held depreciating assets.
The car limit also applies under the luxury car lease rules see Leased luxury cars.
The car limit does not apply in certain circumstances to some cars fitted out for transporting disabled people.
When a balancing adjustment event occurs in relation to the car, the termination value must be adjusted under a special formula see Balancing adjustment rules for cars.