Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private ruling

Authorisation Number: 1011683018214

Ruling

Subject: Investment allowance for new vehicle.

General Business Tax Break

Issue

Rate of deduction

Question

Will the Commissioner allow the taxpayer to claim the 10% tax break for a vehicle under Division 41 of the Income Tax Assessment Act 1997 for the year ended 30 June 2010?

Answer: Yes

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

The taxpayer is eligible for the general business tax break.

The taxpayer entered into a purchase contract for a vehicle in July 2009 (the vehicle).

The taxpayer has supplied a copy of a tax invoice dated during July 2009 from the vendor for the purchase of the vehicle.

Included in the invoice amount is an amount for Luxury Car Tax.

The taxpayer is using the 1/3 of actual expenses method to calculate the vehicle expenses for the year ending 30 June 2010.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 Division 41

Reasons for decision

Summary

The Commissioner will allow the taxpayer to claim the 10% tax break for a vehicle under Division 41 of the Income Tax Assessment Act 1997 for the year ended 30 June 2010.

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 amounts used to work out if the taxpayer has satisfied the new investment threshold and the amount of the tax break they are entitled to.

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:

To qualify for the 10% deduction the taxpayer must:

The taxpayer entered into a purchase contract for the vehicle in July 2009. Therefore the taxpayer is within the investment commitment time period for the 10% tax break.

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 started to use the vehicle or had it installed ready for use on or before 31 December 2010 as evidenced by the use of the 1/3 of actual expenses for vehicle expenses during the 2009/2010 year.

Therefore the taxpayer qualifies for the 10% tax break in relation to the vehicle for the year ended 30 June 2010.

The vehicle is a luxury vehicle and consequentially the deduction is worked out using a cost price of $57,180 (net of input tax credits).

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).