Disclaimer
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 advice

Authorisation Number: 1052403795755

Date of advice: 12 June 2025

Ruling

Subject: Depreciation

Question 1

Is a 20XX car exempt from the car limit for depreciation purposes under section 40-230 of the Income Tax Assessment Act 1997 (the ITAA 1997)?

Answer

Yes

Question 2

Is a modified car with an upgraded gross vehicle mass exempt from the car limit for depreciation purposes under section 40-230 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You carry on a business.

You plan to purchase a motor vehicle in the relevant income year. You are considering two options.

The first option is to purchase a 20XX car. The price of the vehicle is approximately $XX including GST. It will be used for business purposes.

The 20XX car has:

•                     a dual cabin and tray (cargo area);

•                     the gross vehicle mass (GVM) of X kg;

•                     the kerb weight of X kg;

•                     5 seats;

and will have some minor fittings.

The second option is to purchase a car with less than one tonne of payload.

The vehicle will be modified using a Second Stage Manufacture (SSM) to upgrade its GVM, allowing the payload to increase to over one tonne. The upgrade will be undertaken before the vehicle registration, and it will be completed with a new compliance plate.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 section 40-25

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(3)

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

A deduction for the decline in value of depreciating assets is available under Division 40 of the ITAA 1997. Specifically, a deduction is available for the decline in value of a depreciating asset that is held by you to produce assessable income under section 40-25 of the ITAA 1997.Subsection 40-230(1) of the ITAA 1997 limits the deduction for the depreciation of a vehicle to the car limit defined in subsection 40-230(3) of the ITAA 1997 if a vehicle is designed mainly to carry passengers. The car limit amount is $X for the 20XX-XX income year.

Under section 995-1 of the ITAA 1997, a car (for income tax purposes) is defined as a motor vehicle designed to carry both:

•                     a load less than one tonne (1,000 kg); and

•                     fewer than 9 passengers.

Some vehicles are designed to carry both goods and passengers. The Australian Design Rules outline how to determine what a vehicle was designed to carry. Under section 4.5.2 of the Vehicle Standard Australian Design Rule (ADR 2005), a vehicle designed to carry both goods and passengers is considered a goods vehicle if the number of seats multiplied by X kg is less than half of the carrying capacity or payload of the vehicle, otherwise it will be considered a vehicle designed mainly to carry passengers.

Application to your circumstances

A 20XX car, with 5 seats has:

•                     the gross vehicle mass of X kg;

•                     the kerb weight of X kg; and

•                     carrying capacity of X kg.

The number of seating positions multiplied by X kg is X kg, which is less than X kg, being half of the vehicle's carrying capacity of X kg.

It is considered that the 20XX car is not designed to mainly carrying passengers. Therefore, the car limit in section 40-230 of the ITAA 1997 will not apply.

The car that you consider purchasing carries less than one tonne of payload.

The vehicle will be modified using a Second Stage Manufacture (SSM) and will have:

•                     an upgrade GVM;

•                     a payload of more than one tonne; and

•                     a new compliance plate.

The vehicle after the modification will not meet the car definition set out in section 995-1 of the ITAA 1997 because it carries a load of more than one tonne. It is classified as an "other vehicle" for income tax purposes. The car limit in section 40-230 of the ITAA 1997 will not apply.

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).