Edited version of private ruling

Authorisation Number: 1011860795958

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Ruling

Subject: Small business tax break

Question 1

Will the motor vehicle purchased by you qualify for the small business tax break under Division 41 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You are a partnership.

You purchased a prior year model motor vehicle.

You have forwarded a letter from the dealer which states that the motor vehicle was sold to you as a new vehicle and that one of your partners was registered as the first owner. The letter also states that at no stage was the motor vehicle ever licensed or used as a demonstrator and that your business was the first and sole owner/user of the motor vehicle.

A copy of the sale contract, sales invoice and registration receipt are attached to the letter from the dealer. The sale contract includes a stock number for the motor vehicle and indicates that the motor vehicle was sold as new.

The odometer reading of the motor vehicle at the time of purchase was less than ten kilometres.

The motor vehicle is a partnership asset.

You have requested that this private ruling determine whether the motor vehicle satisfies the trading stock held ready for sale provision. You have stated that all of the other requirements for the small business tax break are satisfied.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 41

Income Tax Assessment Act 1997 Subsection 41-20(3)

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

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 and for new expenditure on existing assets.  

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. To be considered to be a new asset, the asset would need to have been previously only held as trading stock by a dealer. 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.

In your case

The dealer has confirmed that the motor vehicle was sold as a new vehicle, was never licensed or used as a demonstrator, and that you were the first and sole owner and user of the motor vehicle. Additionally, the motor vehicle had an odometer reading of less than ten kilometres at the time of purchase.

The motor vehicle would therefore be considered to be a new asset for the purposes of the small business tax break as the only previous use of the motor vehicle was to be held as trading stock by the dealer. As you have advised that you satisfy all of the other relevant requirements, the motor vehicle purchased by you will qualify for the small business tax break under Division 41 of the ITAA 1997.