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Edited version of private ruling
Authorisation Number: 1011657904912
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Ruling
Subject: Tax break investment allowance
Does the truck qualify as an eligible asset for the small business tax break under Division 41 of the Income Tax Assessment Act 1997 (ITAA 1997)?
No.
This ruling applies for the following periods:
1 July 2009 - 30 June 2010
The scheme commences on:
1 July 2009
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You purchased an ex demonstrator truck prior to 31 December 2009.
The truck has been registered and used as a demonstrator for approximately 18 months and travelled a significant amount of kilometres.
The sale price represents a discount of approximately 20% of the new truck price.
The truck came with the balance of a new truck warranty, operating from registration date.
Relevant legislative provisions
Income Tax Assessment Act 1997 Paragraph 41-20(1)(d)
Income Tax Assessment Act 1997 Subsection 41-20(3)
Income Tax Assessment Act 1997 Section 41-35
Income Tax Assessment Act 1997 Section 328-110
Reasons for decision
Small business tax break
Under the Tax Laws Amendment (Small Business and General Business Tax Break) Act 2009 a deduction is available (the tax break) for eligible expenditure on new investment in tangible, depreciating assets.
New investment in an eligible asset must be made between 13 December 2008 and 31 December 2009 for the tax break to apply.
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 under subsection 41-20(3) of the ITAA 1997 in the case where the previous use of the asset was merely for the purposes of reasonable testing and trialling.
Reasonable testing and trialling
An asset can still be considered new despite it having been used for testing and trialling, if the nature and extent of that use is consistent with the asset retaining the essential attributes of what would be regarded as a new asset. In this sense, the adverb 'reasonable' qualifies the nature and extent of the testing and trialling which can have occurred but not prevent the asset from being eligible for the tax break. Accordingly, if the testing and trialling results in the asset losing the quality of what is essentially a new asset, then it is considered that the use will mean the asset is ineligible for the tax break.
Where it can be objectively concluded that factors such as the period of use and the extent of use mean that the asset can no longer be considered new, then the testing and trialling will not be reasonable.
In the case of a demonstrator truck, relevant factors in regard to reasonable testing and trialling include 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 manufacturer's warranty available. For further information on the concept of reasonable testing and trialling see ATO ID 2009/101.
Application to your situation
The truck has only been used for testing and trialling. Therefore the question at hand is whether the use of the truck for the purposes of testing and trialling can be considered to be reasonable.
Relevant factors include:
· the truck had been registered and used as a demonstrator for approximately 18 months
· the number of kilometres travelled. The truck travelled a significant amount of kilometres in the course of its use for testing and trialling, and
· the market value of the truck compared to the regular retail price. The sale price represents a discount of approximately 20% of the new truck price.
These factors when viewed objectively detract from the newness of the truck and indicate that the asset has not been used merely for reasonable testing and trialling.
The truck is not considered to be an eligible asset for the tax break.