Edited version of private advice

Authorisation Number: 1051804965303

Date of advice: 11 February 2021

Ruling

Subject: Car limit

Question 1

Are you entitled to a full GST credit of the GST paid on the acquisition of the vehicle made on XXXX 2020 under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, you are entitled to a full GST credit of the GST paid on the acquisition of the vehicle made on XXXX 2020 under section 11-20 of the GST Act as the acquisition is a creditable acquisition under section 11-5 of the GST Act.

Question 2

Is the vehicle exempt from the car limit under section 40-230 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. The vehicle is exempt from the car limit under section 40-230 of the ITAA 1997 as it is not a car designed mainly for carrying passengers as required under subsection 40-230(1) of the ITAA 1997.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

XXXX 2020

Relevant facts and circumstances

You operate a business and you are registered for GST.

You provided a tax invoice which shows you purchased a Crew Cab ute on XXXX 2020 for a total of $XX,XXX including GST of $X,XXX.

A discount was given but was not a discount for a trade-in.

The vehicle is marketed by the dealership as a commercial vehicle and no luxury car tax was included on the invoice.

The vehicle has seating capacity for five passengers (including the driver).

The load carrying capacity (payload) of the vehicle is less than one tonne.

You use the vehicle solely for business use.

The vehicle was ready to use in your business as soon as you acquired it however as you will be carrying more than one tonne of equipment in the tray you are having the vehicle engineered/upgraded to increase the payload of the vehicle to more than one tonne. The modifications to the Vehicle will be completed by 30 June 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 40-230

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

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 11-15(2)

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

A New Tax System (Luxury Car Tax) Act 1999 subsection 25-1(2)

A New Tax System (Goods and Services Tax) Act 1999 subsection 69-10(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 69-10(4)

Reasons for decision

Question 1

Under section 11-20 of the GST Act you are entitled to GST credit for any creditable acquisition that you make.

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

(a)  you acquire anything solely or partly for a creditable purpose,

(b)  the supply of the thing to you is a taxable supply,

(c)   you provide, or are liable to provide, consideration for the supply, and

(d)  you are registered or required to be registered for GST.

Under subsection 11-15(1) of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

However, under subsection 11-15(2) of the GST Act you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

Based on the information provided, you satisfy paragraphs 11-5(a) to (d) of the GST Act as follows:

(a)  you have purchased the vehicle to carry on your enterprise and the vehicle is used solely for business purposes (100% business use). The vehicle is not used for private and domestic purposes and you do not use the vehicle to make any input taxed supplies. Therefore, you have acquired the vehicle for a creditable purpose, and

(b)  the supply of the vehicle to you is a taxable supply, and

(c)   you have paid for the vehicle including GST, and

(d)  you are registered for GST.

Therefore, you have made a creditable acquisition under section 11-5 of the GST Act when you acquired the vehicle for your business. You are entitled to claim GST credits on the vehicle.

The amount of GST credit for a creditable acquisition is equal to the GST payable on the supply of thing acquired unless:

1.    the acquisition is partly creditable; in which case, the GST credit is worked out based on the extent of the creditable purpose, or

2.    subsection 69-10(1) of the GST Act applies.

Subsection 69-10(1) of the GST Act limits the amount of GST credit for a creditable acquisition or creditable importation of a 'car'. Where the GST inclusive market value of the 'car' exceeds the 'car limit' for the financial year in which you first used the car for any purpose, the amount of GST credit is 1/11th of that limit.

For the purpose of subsection 69-10(1) of the GST Act, a 'car' and the 'car limit' refers to the Income Tax Assessment Act 1997 (ITAA 1997) sections 995-1 and 40-230 respectively.

Section 995-1 of the ITAA 1997 defines a 'car' as a motor vehicle designed to carry a load of less than one tonne and fewer than nine passengers.

On the date of purchase the vehicle was designed to carry a load of less than one tonne and fewer than nine passengers.

Subsection 40-230(1) of the ITAA 1997 states that the first element of the cost of a car designed mainly for carrying passengers will be reduced to the car limit for the financial year in which you started to hold it if its cost exceeds that limit.

For the 20XX financial year, the car cost limit is $XX,XXX.

A vehicle that is not defined as a car mainly designed for carrying passengers will not be subject to the car limit under section 40-230 of the ITAA 1997.

Vehicle's that are both listed as a crew cab (dual cab) and a four-wheel drive, as the vehicle is described, are assessed under the vehicle type of a crew cab as per Miscellaneous Taxation Ruling 2024 (MT2024). Crew Cab vehicles with a load carrying capacity of less than two tonnes can be designed to carry both passengers and goods. The principal purpose of these vehicles depends on its load carrying capacity and whether it is designed to carry mainly passengers or goods. MT2024 provides a calculation that can be used to determine the principal purpose for which a crew cab has been designed.

MT 2024 details the method used to determine whether the principal purpose of a vehicle is for carrying passengers and states the following at paragraph 14:

...It is considered that the appropriate basis for determining this issue is whether or not the majority of the designed load capacity is attributable to passenger carrying capacity. This approach is consistent with that adopted under the Australian Design Rules (ADR) in determining what is a passenger vehicle.

The ADR at 4.5.2 state that:

A vehicle constructed for both the carriage of persons and the carriage of goods shall be considered to be primarily for the carriage of goods if the number of seating positions times 68kg is less than 50 percent of the difference between the 'Gross Vehicle Mass' and the 'Un-laden Mass'.

This calculation provides that a vehicle will be considered to be constructed for primarily carrying goods if the number of seats multiplied by 68kg is less than 50% of the difference between the GVM and the unladen mass (i.e. the payload).

In this case, based on the information provided, the vehicle can carry five passengers, meaning the passenger carrying capacity is 340kg (five passengers x 68kg).

Therefore, as the passenger weight of 340kg is less than 50% of the payload, the vehicle has a principal purpose of carrying goods.

However, subsection 69-10(1) applies unless it is excluded by subsection 69-10(4) of the GST Act. Subsection 69-10(4) provides subsection 69-10(1) does not apply to a vehicle that is not a luxury car under subsection 25-1(2) of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act).

Paragraph 25-1(2)(c) of the LCT Act provides that a car is not a luxury car if it is a commercial vehicle that is not designed for the principal purposes of carrying passengers.

The term 'commercial vehicle' is not defined in the LCT Act and therefore, the ordinary meaning of the words applies. The Macquarie Dictionary online, www.macquariedictionary.com.au, gives the following meaning to the term 'commercial vehicle':

a vehicle able to carry goods or passengers, and designated for use by businesses, as a panel van, utility, etc.

Taking into account the calculation utilised from MT2024, it is considered that the vehicle is a commercial vehicle that is not designed for the principal purpose of carrying passengers, instead, the vehicle is a commercial vehicle used for the principal purpose of carrying goods used for business or trade. Therefore, it is not a luxury car in accordance with subsection 25-1(2) of the LCT Act.

Subsequently, subsection 69-10(4) of the GST Act does not exclude the application of subsection 69-10(1) to your GST credits claim on your vehicle.

In conclusion, the vehicle is considered exempt from the car limit under section 40-230 of the ITAA 1997 as it is not a car designed mainly to carry passengers. This is regardless of the modifications you are having made to the vehicle.

Accordingly, you are entitled to claim full GST credit equal to the GST that you have paid on the acquisition of the vehicle on XXXX 2020.

Question 2

Section 40-175 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the cost of a depreciating asset you hold consists of two elements:

•         the first element is worked out at the time you began to hold the asset and is generally the amount paid for it (section 40-180 of the ITAA 1997)

•         the second element generally consists of amounts you have paid since you started to hold the asset that have contributed to bringing the asset to its present condition and location (section 40-190 of the ITAA 1997).

Subsection 40-230(1) of the ITAA 1997 states that the first element of the cost of a car designed mainly for carrying passengers is reduced to the car limit for the financial year in which you started to hold it if its cost exceeds the car limit.

As explained in the Detailed reasoning for Question 1, the vehicle is treated as not being a car designed for the principal purpose of carrying passengers.

Therefore, as the vehicle is not a car designed mainly for carrying passengers it is exempt from the car limit under section 40-230 of the ITAA 1997.

The first element of the cost of the vehicle does not need to be reduced to the car limit. The cost of the modifications to the vehicle will be included in the second element of the cost of the vehicle and are not subject to the car limit.

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