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Ruling

Subject: Vehicle depreciation limits

Question

Is your vehicle subject to the depreciation car limit under section 40-230 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You operate a business.

During the 2010-11 financial year you purchased a four wheel drive vehicle.

You use the vehicle primarily for towing your business equipment.

You also use the lockable cabin to carry and store your equipment.

The cost of the vehicle was greater than the car limit in the 2010-11 financial year.

The total carrying capacity of your vehicle is 600kg.

Your vehicle is licensed to seat eight, including the driver.

The passenger carrying capacity of your vehicle is greater than its load carrying capacity.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 40-230 and

Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision

Summary

Your vehicle is considered to be a car that is designed mainly for carrying passengers; therefore the first element of the cost of your car will need to be reduced down to the car limit for the purposes of depreciating it under section 40-230 of the ITAA 1997.

Detailed Reasoning

Section 40-230 of the ITAA 1997 states that the first element of the cost of a car that is designed mainly for carrying passengers is reduced down to the car limit, if it exceeds that amount, for the financial year in which you started to hold it. The car limit for the 2010-11 financial year was $57,466.

Section 995-1 of the ITAA 1997 defines a car as a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers. A motor vehicle is in turn defined as a motor-powered road vehicle (including a four wheel drive vehicle).

The meaning of 'a car designed mainly for carrying passengers' is not defined in the income tax legislation; however fringe benefit tax laws classify their motor vehicles the same as the income tax laws and have issued a number of ATO view documents to assist with the interpretation of this matter.

Miscellaneous Taxation Ruling MT 2024 paragraph 14 explains that the appropriate basis for determining this issue, with regards to dual cab utes, 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 a passenger vehicle is.

MT 2024 also states that 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.

However, Taxation Determination TD 94/19 states that if the vehicle is something other than a dual cab then the method used to determine exemption eligibility in MT 2024 is not appropriate. TD 94/19 indicates that in determining the principal purpose for which any other vehicle was designed, in addition to having regard to the load carrying capacity regard should also be had to the following factors including, but not limited to:

· the appearance and presentation of the vehicle,

· any relevant promotional literature,

· the emphasis evident in marketing,

· the vehicle's specifications, and

· passenger carrying capacity.

The appearance and presentation of your vehicle is that of a four wheel drive passenger vehicle designed for towing, off-road recreational and other off-road use. Families and recreational buyers are a significant segment of the market for this vehicle.

The promotional literature of your vehicle also provides this view, stating that it is designed to be the perfect everyday companion to the Australian outdoor lifestyle.

In addition to this, the majority of the standard features included in your vehicle are aimed at the safety and comfort of its passengers. They include seats that fold down to make additional space for goods, cruise control, air conditioning, power windows, multi-terrain anti-skid braking system, door trims and audio controls on the steering wheel.

The vehicle can also seat eight passengers, including the driver, which results in a passenger carrying capacity greater than its load carrying capacity.

Although the vehicle is suitable for your specific business purposes, it is not marketed as principally for the purpose of carrying goods used for business or trade. Both the appearance and presentation of the vehicle indicate that the principal purpose of its design is for the transport of passengers.

As per section 40-230 of the ITAA 1997, it is the inherent design of the vehicle rather than the use to which the vehicle is put that is considered first in determining whether it is subject to the car limit.

Therefore it is considered that your vehicle is a car that is designed mainly for carrying passengers. As such the cost of your car will need to be reduced down to the car limit of $57,466 for the purposes of depreciating it under section 40-230 of the ITAA 1997.