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This edited version has been archived due to the length of time since original publication.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 your written advice

Authorisation Number: 1012745764230

Ruling

Subject: Business - decline in value - motor vehicle

Question

Are modified vehicles purchased for the purposes of hiring to customers to drive laps of a race track, considered a car for the purposes of section 40-230 of the Income Tax Assessment Act 1997 (ITAA 1997), and therefore subject to the car limit for the 2013-14 financial year?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You purchased motor vehicles for an amount over the luxury car tax limit

The vehicles are where customers can purchase a ride to experience driving a sports car.

The vehicles are road registered, but are predominately used on a private road. The only time they are used on public roads is when they are being moved to the warehouse for storage, being refuelled, moved to charity events or taken for repairs.

Both vehicles are covered in advertising and have been modified with regards to braking systems to be used on a race track.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 27-B

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 Section 40-225

Income Tax Assessment Act 1997 Section 40-230

Income Tax Assessment Act 1997 Subsection 40-230(1)

Income Tax Assessment Act 1997 Subsection 40-230(2)

Income Tax Assessment Act 1997 Section 995-1

A New Tax System (Luxury Car Tax) Act 1999 Division 27

Reasons for decision

Deductions for the decline in value of a car for the purposes of the capital allowances provisions are worked out under Division 40 of the ITAA 1997. The cost of a depreciating asset has two elements. The first element of the cost is worked out under Subdivision 40-C of the ITAA 1997 as at the time the taxpayer starts to hold the asset and includes amounts the taxpayer is taken to have paid to hold the asset, such as the acquisition price.

The first element of the cost of certain cars is subject to a limit. Subsection 40-230(1) of the ITAA 1997 provides that the first element of the cost of a car designed mainly for carrying passengers (after applying section 40-225 and Subdivision 27-B) is reduced to the car limit for the financial year in which the taxpayer started to hold it if its cost exceeds that limit.

However subsection 40-230(2) of the ITAA 1997 states that the car limit does not apply to a car:

There are no other exemptions to subsection 40-230(1) of the ITAA 1997.

The term 'car', for the purposes of the ITAA 1997, is defined in subsection 995-1(1) of the ITAA 1997 to mean 'a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than one tonne and fewer than nine passengers.' This definition differs from that contained in that contained in the Luxury Car Tax Act (LCT Act) and has no exceptions.

Taxation determination 2006/39 discusses circumstances where a vehicle is modified such that it is no longer a 'car'. Where a conversion of a car involves extensive modifications which effect a permanent alteration to the vehicle so as to change its inherent design into a vehicle that is not designed mainly for carrying passengers, it will no longer meet the definition of a car.

In your circumstances, while your cars have been modified, they retain the function of carrying passengers.

Therefore, the car limit in section 40-230 of the ITAA 1997 does apply for the purposes of calculating the decline in value of the vehicles.

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).