| Disclaimer This edited version will be removed from the Database after 30 September 2025. If you believe the issues detailed in this edited version warrant retention in an alternative form, email publicguidance@ato.gov.au This edited version has been archived due to the length of time since original publication.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: 1011588497642
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: Small Business and General Business Investment Tax Break
Does the demonstration vehicle qualify as a new depreciating asset for the purposes of the 50% investment allowance under Division 41 of the Income Tax Assessment Act 1997 (ITAA 1997)?
No.
This ruling applies for the following period
Year ended 30 June 2009
The scheme commenced on
1 July 2009.
Relevant facts
You are a self employed operator of a small business entity.
You purchased a demonstration vehicle in early 2009 which had travelled over 11,000 kilometres.
The vehicle was used as a demonstrator for approximately seven months.
The vehicle was registered by the dealer as a demonstration vehicle and the dealer has confirmed that the vehicle was used for testing and trialling.
You purchased the vehicle at a discounted price.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 40-B
Income Tax Assessment Act 1997 Division 41
Income Tax Assessment Act 1997 Subsection 41-20(3)
Income Tax Assessment Act 1997 Section 328-110
Reasons for decision
Small business tax break
Under Division 41 of the ITAA 1997 a deduction is available (the tax break) for eligible expenditure on new investment in tangible, depreciating assets.
Small business entities are able to claim a 50% bonus tax deduction for eligible assets costing over $1,000 that they:
· commit to investing in between 13 December 2008 and 31 December 2009, and
· start to use or have installed ready for use by 31 December 2010.
To qualify for the tax break you need to meet the definition of a small business entity in section 328-110 of the ITAA 1997. This generally means that the taxpayer is carrying on a business and has an annual turnover of $2 million or less.
A business can commit to investing in an asset by entering into a contract under which they will hold the asset.
Eligible assets
The general rule is that the tax break is only available for investment in new assets for which a deduction is available under Subdivision 40-B of the ITAA 1997. There is an exception in the case where the previous use of the asset was merely for the purposes of reasonable testing and trialling, set out in subsection 41-20(3) of the ITAA 1997.
Reasonable testing and trialling
To come within the scope of the exception for reasonable testing and trialling, not only must the use satisfy the description of testing or trialling, the nature and extent of that use must also be reasonable.
Whether the use of a demonstrator vehicle for the purposes of testing and trialling is 'reasonable' is a question of fact and degree. Where it can be objectively concluded that factors such as the period of use and the extent of use mean that the vehicle can no longer be considered new, then the testing and trialling will not be reasonable.
In the case of a motor vehicle that is sold as a demonstrator, some indicators of whether the vehicle can still be considered new are the duration of the period for which it has been used, the extent of the use in terms of total kilometres travelled, the amount of the discount offered and the extent of manufacturers warranty available.
As a guide it may be accepted that a vehicle which would otherwise qualify as new will continue to be so regarded where it is used for ordinary demonstration purposes for less than three months.
The term "ordinary" is used to guard against the situation where there may be excessive use of a vehicle for demonstration purposes in a three month period which would lead to the conclusion that the particular vehicle could not be regarded as new in the hands of the purchaser.
In your case
The dealer has confirmed that the vehicle was used for testing and trialling. Therefore, the question at hand is whether the use of a demonstrator vehicle for the purposes of testing and trialling can be considered reasonable.
Where it can be objectively concluded that factors such as the period of use and the extent of use mean that the vehicle can no longer be considered new, then the testing and trialling will not be reasonable.
The vehicle you purchased had been used as a demonstrator over a significant period of time, seven months, and the mileage of over 11,000 kilometres exceeds that which would be expected for 'ordinary' demonstration purposes.
Accordingly, the use of the vehicle by the dealer is not reasonable testing and trialling for the purposes of subsection 41-20(3) of the ITAA 1997.
You are therefore not entitled to claim the investment allowance for this vehicle.