ATO Interpretative Decision

ATO ID 2005/205 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as it is no longer necessary. From the 2015-16 year of income, taxpayers are unable to claim a deduction for car expenses using the one-third of actual expenses method. As such the ATO ID should only apply to years up to and including the 2014-15 year of income.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a goods and services tax (GST) registered taxpayer required to take an amount of input tax credit into account when calculating their deduction for car expenses claimed under section 28-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. A GST registered taxpayer is required to take an amount of input tax credit into account when calculating their deduction for car expenses claimed under section 28-70 of the ITAA 1997.

Facts

The taxpayer is in business.

The taxpayer uses their motor vehicle in part in carrying on their business.

The taxpayer chooses under Division 28 of the ITAA 1997 to claim a deduction for their car expenses using the 'one-third of actual expenses' method.

Their car expenses for the year were $3,300 including $300 of GST.

The taxpayer is registered for GST and is entitled to claim an amount of input tax credit.

Reasons for Decision

Section 28-12 of the ITAA 1997 provides that a deduction for car expenses can be made by using one of four methods. The 'one-third of actual expenses' method is contained in Subdivision 28-E of the ITAA 1997.

In discussing how to calculate a deduction for car expenses using the 'one-third of actual expenses' method, subsection 28-70(2) of the ITAA 1997 states:

The expense must qualify as a deduction under some provision of this Act outside this Division (or would qualify if, throughout the income year, you had used the car only in producing your assessable income). If only part of the expense would qualify, you deduct one-third of that part.

As such, the taxpayer will be entitled to a deduction of one-third of that part of their car expenses that qualifies as a deduction under some provision of the ITAA 1997 other than Division 28 of the ITAA 1997 or would qualify if, throughout the income year, the taxpayer had used the car only in producing their assessable income.

The car expenses of $3,300 would qualify as a deduction under section 8-1 of the ITAA 1997 (subject to the effect of section 27-5 of the ITAA 1997) if, throughout the income year, the taxpayer had used the car only in producing their assessable income.

Section 27-5 of the ITAA 1997 provides that a deduction cannot be claimed for a loss or outgoing to the extent that the loss or outgoing includes an amount relating to an input tax credit to which the taxpayer is entitled.

Therefore under the present circumstances the part of the car expenses that would qualify as a deduction under section 8-1 of the ITAA 1997, if the taxpayer had used the car only for producing assessable income, would be $3,000, being the total car expenses of $3,300 less the full input tax credit of $300.

As such, the deduction allowable under subsection 28-70(2) of the ITAA 1997 would be $1,000 being one-third of that part of the car expenses that qualifies as a deduction under section 8-1 of the ITAA 1997 after taking the amount of input tax credit into account.

Year of income:  Year ended 30 June 2005

Legislative References:
Income Tax Assessment Act 1997
   section 8-1
   section 27-5
   section 28-12
   section 28-70
   subsection 28-70(2)

Related ATO Interpretative Decisions
ATO ID 2005/204

ATO Interpretative Decisions overturned by this decision
ATO ID 2001/428

Keywords
Deductions & expenses
Goods and services tax
Input tax credits

Business Line:  Small Business/Individual Taxpayers

Date of publication:  15 July 2005

ISSN: 1445-2782