House of Representatives

Taxation Laws Amendment Bill 1993

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)

Amendments to the Depreciation Cost Price Limit Rules

Summary of proposed amendments

Purpose of amendment:

to change the current basis of annually indexing limits in relation to years of income to a financial year basis; and.
to exempt motor cars specially fitted out for the carriage of disabled persons seated in wheel chairs from the limit.

Date of effect: Both measures apply to motor cars acquired after 16 December 1992.

Background to the legislation

Section 57AF imposes a limit on the depreciable cost of motor cars and station wagons, including 4 wheel drive versions, unless they are an excluded unit of property [broadly, motor cars acquired before 22 August 1979].

If the cost of a motor car exceeds the limit for the year of income in which the car is first used for any purpose, its depreciable cost for that and subsequent years is equal to that limit and depreciation deductions are not available in respect of the excess.

The limit is indexed annually in line with the Consumer Price Index for motor vehicles. The initial limit was $18000, applicable to the 1979/80 year of income. The indexed limit for the 1992/93 year of income is $47280.

Annual Limits to Apply in Respect of Financial Years

Under the existing rules, an indexed cost price limit applies in respect of a year of income [subsections 57AF(2), (3) etc.]. That is, at the time a taxpayer first uses a motor car of the taxpayer for any purpose, the taxpayer needs to have regard to the cost price limit applicable for the year of income in which that first use occurs.

For most taxpayers, a year of income corresponds with a financial year [subsection 6(1) definition]; that is, the period commencing 1 July and ending the following 30 June.

However, taxpayers with approved substituted accounting periods adopt those periods as their years of income instead of a financial year [subsection 6(1) definition and subsection 6(2)]. For instance, a taxpayer may be allowed to balance on 31 May each year instead of the following 30 June meaning that the period 1 June 1992 to 31 May 1993 would be the 1992/93 year of income for that taxpayer. Similarly, a taxpayer may be allowed to balance on the 30 September instead of the preceding 30 June and the period 1 October 1992 to 30 September 1993 would be the taxpayer's 1992/93 year of income.

This means that taxpayers whose taxation accounting periods commence earlier than others can adopt an indexed cost price limit for a particular year of income before those other taxpayers.

For example, if one taxpayer's 1992/93 year of income commenced 1 July 1992 but another's commenced 1 August 1992, 1 July 1992 would occur in the first taxpayer's 1992/93 year of income whereas it would occur in the second's 1991/92 year of income. If each acquired and first used a motor vehicle on 1 July 1992 costing $50,000, the first taxpayer would be able to adopt the limit for the 1992/93 year of income [$47280] but the other taxpayer would have to adopt the previous year's limit [$45462].

It is inappropriate that taxpayers who balance earlier than others obtain earlier access to an indexed cost price limit. If the taxpayers in the example in the previous paragraph were in the business of leasing motor vehicles, the additional depreciation deductions allowable to the first taxpayer would give that taxpayer an advantage over the other taxpayer; for instance, the first taxpayer could pass the benefit of the additional tax deductions on to its customers by way of cheaper finance and so attract customers from the other.

Explanation of the amendment

Accordingly, annually indexed cost price limits are to apply in relation to financial years rather than years of income. So, if the cost of a motor car of a taxpayer exceeded the limit for the financial year in which the taxpayer first used the vehicle for any purpose, the depreciable cost of the car to the taxpayer, in relation to any year of income, is to be deemed to be an amount equal to that limit. [New subsection 57AF(2)]

The limit for the 1992/93 financial year, the current financial year, will correspond with the limit of $47280 for the 1992/93 year of income. Annual indexation of the limit for each subsequent financial will continue on the same basis as before as will the annual publication of relevant indexation factors and limits. [New subsections 57AF(3) to (9)]


This change from a "year of income" basis to a "financial year" basis will apply to relevant motor cars acquired under a contract entered into after 16 December 1992 or, if constructed by the taxpayer, where construction commenced after that date. [Clause 43(1)]

The existing rules will continue to apply to vehicles acquired under contracts entered into, or that taxpayers commenced to construct, on or before that date and their depreciable cost will be ascertained by reference to the limit applicable for the year of income in which they are first used for any purpose.

For instance, taxpayers' whose 1993/94 year of income commenced on or before 16 December 1992 will be eligible to adopt the 1993/94 limit for vehicles acquired etc. on or before that date that are first used after that date and before 1 July 1993, even though vehicles they acquire after that date and first used before 1 July 1993 would be subject to the 1992/93 financial year limit.

Although indexed limits for the 1993/94 and later years of income will not be published - [Clause 43(2)] - the limits for those years of income will be the same as those that will be published by the Commissioner of Taxation [as required by new subsection 57AF(8)] for the corresponding financial years [Clause 43(3)].

Exemption of Certain Motor Cars from the Limit

Under sales tax law, motor cars or station wagons with a wholesale cost of more than 67.1% of the section 57AF cost price limit, are taxed at 30% of their wholesale value instead of 15% or 20% [subitem 1(1) of Schedule 5 of the Sales Tax (Exemption and Classifications) Act 1992 ].

This sales tax cost price limit does not apply to vehicles specially fitted out for transporting disabled persons seated in wheel chairs unless, broadly speaking, a vehicle for the personal transportation of certain disabled persons [subitem 1(2) of Schedule 5 of the Sales Tax (Exemption and Classifications) Act 1992 ]. Rather, such vehicles are taxed at either 15% or 20%, depending of the type of vehicle, irrespective of their cost.

Explanation of the amendment

An exclusion similar to that for sales tax purposes is to apply for depreciation purposes; that is, the section 57AF limit will not apply to a motor vehicle, whether new or second-hand, of a taxpayer that, immediately it is used by the taxpayer for any purpose, was specially fitted out for transporting disabled persons seated in wheel chairs. [New paragraph 57AF(15)(d) inserted in definition of "excluded property"]

However, the exclusion will not apply if the motor vehicle is for use in the circumstances mentioned in subitem(1) of exemption Item 96 or 97 of Schedule 5 of the Sales Tax (Exemption and Classifications) Act 1992 . Broadly, those exemption items apply to motor vehicles for the personal transportation of disabled veterans and certain other disabled persons.

So, this concession is directed to motor cars used for the carriage of persons other than the driver; for instance, specially modified cars used as taxis for hire or by private hospitals. The concession does not need extend to buses and the like as such motor vehicles are not motor cars and so the limit has never applied to them.

Application date

The amendment will apply to vehicles acquired by taxpayers under a contract entered in to after 16 December 1992, or, if constructed by taxpayers, where construction commenced after that date. [Clause 45(5)]

Taxpayers are to be prevented from obtaining exemption from the limit for motor cars they acquired or ordered before 16 December 1992by arranging sale-leasebacks or transfers to associates of the taxpayer. The limit will also apply to motor cars acquired by taxpayers after that date if the taxpayer or an associate of the taxpayer was leasing the car on or before that date. [Clauses 45(1) to (4)]

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