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Edited version of private ruling
Authorisation Number: 1011515921960
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Ruling
Subject: General Business Tax Break
Question 1
Will the Commissioner allow the taxpayer to claim the 30% tax break for a vehicle under Division 41 of the Income Tax Assessment Act 1997 (ITAA 1997) for the year ended 30 June 2010 when the vehicle was not installed ready for use?
Answer
No
This ruling applies for the following period:
Year ended 30 June 2010
The scheme commences on:
1 July 2008
Relevant facts and circumstances
The taxpayer is a company.
The taxpayer is eligible for the general business tax break.
The taxpayer entered into a purchase contract for a vehicle and an elevated work platform from an overseas entity in early 2009 (the vehicle).
The taxpayer has supplied a copy of a tax invoice for the purchase of the vehicle.
The taxpayer has supplied a copy of an invoice from an overseas entity for the 10% deposit on the elevated work platform dated early 2009.
The taxpayer has supplied a copy of an invoice from an overseas entity for the balance of the elevated work platform.
The taxpayer has supplied a copy of an invoice from an overseas entity for the transport of the industrial device to an overseas port.
The taxpayer has supplied a copy of the funds transfer application for the final payment to the overseas entity dated the particular month early 2010.
The vehicle was fitted with the elevated work platform and ready for import the subsequent month 2010 after final inspection by the taxpayer.
The taxpayer anticipated that the vehicle would be installed ready for use in Australia prior to 30 June 2010.
The application for approval to import a vehicle was lodged with the relevant state authority by the taxpayer in the particular month early 2010.
The taxpayer received "in-principle approval" to register the vehicle in the second quarter 2010 in relation to the application the taxpayer had lodged with the relevant state authority.
Approval to import the vehicle was issued in the second quarter 2010 by the relevant state authority.
From this date in 2010 the taxpayer commenced proceedings to have the vehicle shipped from overseas to Australia.
The vehicle was not delivered to the taxpayer until after 30 June 2010.
As per the copy of the receipt supplied by the taxpayer the vehicle was registered in July 2010.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 40
Income Tax Assessment Act 1997 Division 41
Reasons for decision
Summary
Division 41 of the ITAA 1997 does not include any legislation that allows the Commissioner to extend the period to which the 30% tax break applies.
Detailed reasoning
The tax break is available for new investment in a tangible depreciating asset for which a capital allowance deduction is available under section 40-25 of the ITAA 1997.
An asset is new for the purpose of the tax break if it has never previously been used or installed ready for use either by the taxpayer or another entity for any purpose, anywhere.
In order for the taxpayer to be entitled to claim the tax break, they must be entitled to deductions for the asset's decline in value. This means the taxpayer must be the holder of the asset for the purposes of Division 40 of the ITAA 1997. To claim the tax break, the taxpayer must also use the asset for the principal purpose of carrying on a business.
New investment in relation to an asset needs to meet a certain threshold before it can qualify for the tax break. The new investment threshold for non small business entities is $10,000 (see section 41-35 of the ITAA 1997). The taxpayer needs to satisfy the new investment threshold for each individual asset.
Recognised new investment amounts are the units used to work out if the taxpayer has satisfied the new investment threshold and the amount of the tax break to which they are entitled.
To be a recognised new investment amount for an asset in any income year, the amount needs to be included in asset's cost as worked out in accordance with Subdivision 40-C of the ITAA 1997. The cost of an asset for capital allowances purposes only includes capital expenditure and does not include amounts that can be deducted under other provisions. The cost of an asset is reduced for any input tax credits the taxpayer is entitled to claim.
In order for an amount to be a recognised new investment amount, its investment commitment time must be between 13 December 2008 and 31 December 2009. The investment commitment time is when the taxpayer is committed to investing in an eligible asset.
For each new investment in an eligible asset, the first use time needs to occur on or before the 31 December 2010 for the amount to be a recognised new investment amount. For new assets, the first time use is when the taxpayer starts to use the asset or have it installed ready for use (see paragraph 41-30(a) of the ITAA 1997).
Provided all the eligibility criteria are satisfied for the income year, the tax beak can be claimed as a deduction in the income tax return for the income year in which the asset is first used or installed ready for use.
For entities that are not a small business entity, the tax break is worked out using a rate of either 30% or 10%, depending on when they committed to investing in the asset and used it, or installed it ready for use.
To qualify for the 30% deduction the taxpayer must:
· commit to investing in the asset between 13 December 2008 and 30 June 2009
· meet the new investment threshold of $10,000 for non-small business entities, and
· first use the asset or have it installed ready for use, or bring the asset to its modified or improved state, on or before 30 June 2010.
The taxpayer entered into a purchase contract for the vehicle in early 2009. Therefore the taxpayer is within the investment commitment time period.
The vehicle has a recognised new investment amount of greater than $10,000, thus satisfying the new investment threshold for non-small business entities.
The taxpayer had not started to use the vehicle or had it installed ready for use on or before 30 June 2010, as the vehicle had not yet been delivered.
Therefore the taxpayer does not qualify for the 30% tax break in relation to the vehicle for the year ended 30 June 2010.
Division 41 of the ITAA 1997 does not allow the Commissioner to extend the period under which the 30% rate of deduction for the tax break may be applied.
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