Edited version of private advice

Authorisation Number: 1052297527354

Date of advice: 29 August 2024

Ruling

Subject: Car limit

Question 1

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

Answer

Yes.

Question 2

Does the 'car limit' rule under Subsection 69-10(1) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to limit your GST entitlement on the purchase of the vehicle?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2023

Relevant facts and circumstances

You are carrying on an enterprise and are registered for Goods and Services Tax (GST).

You have purchased a vehicle.

The vehicle will primarily be used in carrying on your enterprise, however you use the vehicle for private use approximately 5%.

The vehicle is advertised and sold as a commercial vehicle. It is a four-wheel drive, 4-door vehicle with 5 seats.

The vehicle has the following specifications:

•         The Gross Vehicle Mass for the vehicle is 3,450 kg

•         The unladen mass for the vehicle is 2,749 kg

•         The payload/carrying capacity for the vehicle is 701 kg

•         The towing capacity for the vehicle is 4,500 kg

•         The seating capacity for the vehicle is 5 people.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 40-230

Income Tax Assessment Act 1997 section 995-1

Fringe Benefits Tax Assessment Act 1986 subsection 8(2)

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

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

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

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

Reasons for decision

Question 1

Subsection 40-230(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states 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 you started to hold it if its cost exceeds that limit.

'Car' is defined under section 995-1 of the ITAA 1997 as a motor vehicle (except a motorcycle or similar vehicle) mainly designed to carry a load of less than one tonne and fewer than 9 passengers.

If the vehicle you have purchased carries less than 9 passengers and has a payload capacity of less than one tonne it is classified as a car and will be subject to the car cost limit stipulated in 40-230 of the ITAA 1997.

The one tonne limit relates to the maximum load your vehicle can carry, also known as the payload capacity. The payload capacity is the gross vehicle mass (GVM) as specified on the compliance plate by the manufacturer, reduced by the basic kerb weight of the vehicle.

Miscellaneous Taxation Ruling MT 2024 Fringe Benefits Tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel (MT 2024) states that a dual cab that has a designed load carrying capacity of less than one tonne may still qualify for the work-related use exemption, under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986), if the vehicle is not designed for the principal purpose of carrying passengers. 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. It is understood that this approach is consistent with that adopted under the Australian Design Rules in determining what is a passenger vehicle.

For this purpose, the designed passenger carrying capacity is to be determined by multiplying the designed seating capacity (including the driver's) by 68 kg, which is the figure adopted for the purposes of the application of the Australian Design Rules.

If the total passenger weight so determined exceeds the remaining "load" capacity, the vehicle is to be treated as being designed for the principal purpose of carrying passengers and as such ineligible for work-related use exemption.

By way of illustration, if a vehicle has a gross vehicle weight of 2,000 kg, a unladen mass of 1,400 kg, and has a designed seating capacity of five, the vehicle would be considered to be a vehicle designed principally for the carriage of passengers. This is because the total load capacity is 600 kg of which the majority, 340 kg, would be absorbed by its designed passenger carrying capacity.

This test can be applied in determining whether a car is 'mainly designed for carrying passengers' as stipulated in subsection 40-230(1) of the ITAA 1997 as the term 'mainly designed' is broader than the term 'principally designed' set out in sub-section 8(2) of the FBTAA 1986.

In your circumstances, the vehicle purchased has a GVM of 3450 kg and a unladen mass of 2749 kg giving it a payload capacity of 701 kg. The vehicle is designed to carry five passengers meaning that 340 kgs is designed to be absorbed by its passenger carrying capacity and leaving 361 kg available.

As the majority of the payload capacity is not allocated to passenger carrying capacity the vehicle is not 'mainly designed' for carrying passengers and the car cost limit does not apply to this vehicle.

Question 2

Detailed reasoning

Under section 11-20 of the GST Act you are entitled to an input tax 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 would satisfy paragraphs 11-5(a) to (d) of the GST Act as follows:

a)    You will purchase the vehicle to carry on your enterprise and the vehicle will be used primarily for business purposes (95% business use). The vehicle is used for private and domestic purposes (5%), and you will not use the vehicle to make any input taxed supplies. Therefore, you will have acquired the vehicle for a partly creditable purpose, and

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

c)    you have provided consideration for the vehicle, and

d)    you are registered for GST.

Therefore, you have made a partly creditable acquisition under section 11-5 of the GST Act when you acquire the vehicle for your business. You are therefore entitled to claim an input tax credit for the GST paid on the vehicle to the extent of its creditable purpose.

The amount of input tax 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 input tax 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 input tax credit is 1/11th of that limit.

For the purpose of subsection 69-10(1) of the GST Act, a 'car' is defined in section 995-1 of the ITAA 1997.

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 9 passengers.

The vehicle is designed to carry a load of less than one tonne and fewer than 9 passengers and therefore considered a car.

For the 2022/23 financial year, the car limit is $64,741.

However, subsection 69-10(4) of the GST Act provides an exclusion to subsection 69-10(1) of the GST Act. Subsection 69-10(4) provides that 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 viewed 5 August 2024, 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.

Vehicles that are listed as a dual cab, such as the vehicle described, are assessed under the vehicle type of a crew cab as per MT 2024. 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 the load carrying capacity and whether it is designed to carry mainly passengers or goods. MT 2024 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 and 15:

...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.

Section 4.5.2 of the Vehicle Standard (Australian Design Rule - Definitions and Vehicle Categories) 2005 states:

4.5.2 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 68 kg is less than 50 percent of the difference between the 'Gross Vehicle Mass' and the 'Unladen Mass'.

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

Based on the information provided, the vehicle can carry 5 passengers, meaning the passenger carrying capacity is 340 kg (5 passengers x 68 kg). Therefore, the passenger weight of 340 kg is less than 50% of the payload of 701 kg. As such, the vehicle has a principal purpose of carrying goods.

Taking into account the calculation utilised from MT 2024, 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, the vehicle 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 exclude the application of subsection 69-10(1) of the GST Act and does not limit your entitlement to input tax credits on the purchase of the vehicle to the extent of its creditable purpose.

In conclusion, the vehicle is considered as exempt from the car limit as it is not a car designed for the principal purpose to carry passengers.

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