ATO Interpretative Decision

ATO ID 2004/363 (Withdrawn)

Income Tax

• This ATO ID is withdrawn from the database because it contains a view in respect of a provision of the Income Tax Assessment Act 1997 that doesn't apply after the 2006-07 income year. From that income year, the simplified tax system has been replaced with the small business entity regime. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2006-07 income year.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does section 40-370 of the Income Tax Assessment Act 1997 (ITAA 1997) apply when an STS taxpayer sells a car for which car expense deductions have been calculated under Division 28 of the ITAA 1997 using the one-third of actual expenses method and the 12% of original value method for different income years?

Decision

No. As the taxpayer is an STS taxpayer for the year in which the balancing adjustment event for the car occurred, section 40-370 of the ITAA 1997 does not apply.

Facts

In the 1999-2000 income year a taxpayer purchased a car to use for a taxable purpose. The taxpayer used the cents per kilometre method to calculate the car expense deductions in that year. For the 2000-01 income year the taxpayer used the one-third of actual expenses method. In the 2001-02 income year the taxpayer elected to enter the STS. For that income year the taxpayer used the 12% of original value method to calculate the car expense deduction. The car was sold in December 2001.

Reasons for Decision

Division 28 of the ITAA 1997 provides four methods for working out deductions for car expenses for cars owned or leased by individuals or certain partnerships. Taxpayers can choose only one method each income year but are able to use different methods each year (section 28-20 of the ITAA 1997).

If the cents per kilometres method is used, section 28-30 of the ITAA 1997 provides that you need to consider the capital allowance rules in Division 40 of the ITAA 1997 if a balancing adjustment event occurs for the car. Section 28-55 of the ITAA 1997 provides the same rule where the 12% of original value method is used.

Section 40-55 of the ITAA 1997 prevents a deduction for the decline in value of a car for an income year in which a taxpayer uses the cents per kilometre method or the 12% of original value method. This means that if a taxpayer has only used the cents per kilometre method or the 12% of original value method, no balancing adjustment amount arises because the decline in value is not worked out under Subdivision 40-B of the ITAA 1997 (subsection 40-285(1) of the ITAA 1997).

However, if the taxpayer switches between these methods and the one-third of actual expenses or log book methods section 40-370 of the ITAA 1997 explains how to work out the balancing adjustment amount.

STS taxpayers generally work out their deductions for depreciating assets and some amounts of assessable income under Subdivision 328-D of the ITAA 1997 instead of under Division 40 of the ITAA 1997 (note 2 to subsections 40-25(1) and 328-175(1) of the ITAA 1997).

As the taxpayer is an STS taxpayer in the income year in which the balancing adjustment event occurred for the car and they had started to use the car for a taxable purpose before that income year, the STS rules in Subdivision 328-D of the ITAA 1997 apply. The balancing adjustment provisions in section 40-370 of the ITAA 1997 do not apply.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997 (ITAA 1997)
   Division 28
   section 28-20
   section 28-30
   section 28-55
   Division 40
   section 40-25
   section 40-55
   subsection 40-285(1)
   section 40-370
   Subdivision 328-D
   subsection 328-175(1)

Keywords
Balancing adjustment calculation for cars
Balancing adjustment event
Capital Allowances CoE
Capital allowances for STS taxpayers

Business Line:  Effective Life and Capital Allowances Centre of Expertise

Date of publication:  30 April 2004

ISSN: 1445-2782