• Balancing adjustment rules for cars

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    If a balancing adjustment event occurs for your car, you need to work out any balancing adjustment amount. Special rules apply to the calculation of balancing adjustment amounts for cars.

    If a balancing adjustment event occurs for a car you used for other than a taxable purpose, you disregard any capital gain or capital loss.

    If you use the one-third of actual expenses method or the logbook method of claiming car expenses, your balancing adjustment amount needs to be reduced by the amount that is attributable to the use of the car for other than a taxable purpose.

    Example: If you use the one-third of actual expenses method - ignoring any GST impact

    Louise acquired a car on 1 July 2005. During both the 2005-06 and 2006-07 income years, Louise used the one-third of actual expenses method to work out her deductions for car expenses. She sold her car for $24,500 on 30 June 2007. At that time, the adjustable value of the car was $18,200.

    Louise's balancing adjustment amount is reduced by the amount attributable to her use of the car for other than a taxable purpose. As she used the one-third of actual expenses method to work out her deductions for car expenses, her balancing adjustment amount is reduced by two-thirds. Louise's balancing adjustment would be $2,100 - that is, one-third of the difference between the termination value and the adjustable value of the car ($6,300). Louise must include the amount of $2,100 in her assessable income.

    Example: If you use the logbook method - ignoring any GST impact

    If Louise used the logbook method to work out her deductions for car expenses and her logbook showed that the level of her business use was 40%, her balancing adjustment amount would be $2,520. This is 40% of the difference between the termination value and the adjustable value of the car. Louise must include the amount of $2,520 in her assessable income.

    If you have only used the cents per kilometre method or the 12% of original value method of claiming car expenses, no balancing adjustment amount arises because the decline in value of the car is not worked out separately under those methods. The decline in value is taken into account as part of the calculation of the car expenses. However, if you switch between these methods and the one-third of actual expenses method or the logbook method of claiming car expenses, you may have to work out a balancing adjustment amount. This is only expected to occur in a limited number of cases. If you are affected and you are unsure of how to work out your balancing adjustment amount, contact the Tax Office or your recognised tax adviser.

    For a car subject to the car limit - see Car limit - you need to reduce the termination value. You multiply the termination value by the following fraction:

    Car limit + amounts included in the car's second element of cost
    total cost of the car

    where the total cost of the car is the sum of the first and second elements of cost ignoring the car limit and after any adjustments for input tax credits - see GST input tax credits. You use the reduced termination value to work out your balancing adjustment amount for the car.

    If a car was acquired at a discount and the cost of the car was increased by a discount portion, the termination value of the car must also be increased by that discount portion - see Car acquired at a discount .

    If a lessee under a luxury car lease or a hirer under a hire purchase agreement does not actually acquire the car when the lease or agreement terminates or ends, they are treated as if they sold the asset to the lessor or financier, respectively. The lessee or hirer will need to work out any assessable or deductible balancing adjustment amount.

    Last modified: 27 Aug 2007QC 27892