Edited version of your private ruling

Authorisation Number: 1012588689012

Ruling

Subject: Capital gains tax - disposal of truck and personal use asset

Question 1:

Is the capital gain made on the disposal of the truck included in the company's income tax?

Answer:

Yes.

Question 2:

Is the truck considered to be a personal use asset?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2014

The scheme commences on

1 July 2013

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 are the company director of a company.

Early last year you in your role as the director of the company purchased a heavy rigid truck.

You used your company director's credit card to purchase the truck at an auction for a specified amount which included goods and services tax.

You used the company credit card as the company already had an account established with the auction company.

The receipt for the truck was issued in the company's name.

You purchased the truck in an effort to obtain experience in order to find employment.

You used your company director's credit card to pay for the truck to be repaired to a roadworthy condition.

The motor registry office of the relevant state required the truck to be registered in the company name as the purchase receipt was in the company's name.

The company does not provide transport services and the truck was not used for other business purposes.

You decided to dispose of the truck as you had no inclination to drive trucks for employment as you had difficulty learning to drive.

You developed an anxiety of driving the truck due to a near accident.

Approximately X months later you disposed of the truck to an individual and the proceeds were paid back to your director's credit card.

A capital gain was made on the disposal of the truck.

You have lost the paperwork for the disposal of the truck.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 Section 104-30

Income Tax Assessment Act 1997 Section 118-24

Income Tax Assessment Act 1997 Division 328

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

The most common capital gains tax (CGT) event is CGT event A1, which happens when you dispose of a CGT asset. The time of the event is when you enter into the contract for its disposal or if there is no contract when a change of ownership occurs.

We consider that the company was the owner of the truck, as the director of the company you purchased, registered, repaired and disposed of it in the company's name.

CGT event A1 occurred when you disposed of the truck.

Personal use assets

A personal use asset held by an individual is a CGT asset, other than collectable, that you use or keep mainly for personal use or enjoyment of yourself or your associate(s). Personal use assets may include such items as boats, furniture, electrical goods.

Therefore, a personal use asset cannot be held by a company as it is not an individual.

Depreciating asset

A capital gain or capital loss you make from a CGT event that happens to a depreciating asset is disregarded if the asset was:

· an asset you held, or

· if you are a partner, an asset of the partnership, or

· if you are absolutely entitled to the asset as against the trustee of a trust (disregarding any disability) an asset of the trustee,

where the decline in value of the asset was work our under Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997), or the deduction for the asset was calculated under Division 328 of the ITAA 1997, or would have been if the asset had been used.

Motor vehicles, such as a truck are often a necessity for business. Where their use is for business purposes the cost is tax deductible as it is a depreciable asset.

In your case, the company does not provide transport services and the truck was not used for other business purposes. Therefore, the truck is not depreciable asset so the above provisions do not apply.

As the company is the owner of the truck it is liable for the capital gain made on its disposal.

For the discount method to apply the company must have owned the truck for a period of 12 months, but as the truck was held by the company for a period of approximately X months, the discount method cannot be used to calculate your capital gain. You will need to use the 'other' method to calculate your capital gain.

Generally, to use the 'other' method, you simply subtract your cost base from your capital proceeds. The amount of proceeds left is your capital gain.

For more information on the cost base and how to calculate your capital gain please see our website - www.ato.gov.au.