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Edited version of your written advice
Authorisation Number: 1012718527212
Ruling
Subject: Cents per kilometre car deductions
Question 1
Are you entitled to calculate a deduction for car expenses, using the 'cents per kilometre' method, under Subdivision 28-C of the Income Tax Assessment Act 1997 (ITAA1997), in relation to a car that is powered entirely by an electric motor?
Answer
No
This ruling applies for the following period(s)
Income year ended 30 June 2015
The scheme commences on
1 July 2014
Relevant facts and circumstances
You are seriously contemplating replacing one of your work vehicles with an electric car.
You will use the car for both business and private purposes during the income year.
The relevant car does not have a petrol engine and is instead powered entirely by an electric synchronous motor.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 28-25
Income Tax Assessment Act 1997 subsection 28-25(2)
Income Tax Assessment Act 1997 subsection 28-25(3)
Income Tax Assessment Act 1997 section 995-1
Income Tax Assessment Regulations 1997 Part 1 of Schedule 1
Income Tax Assessment Regulations 1997 Part 2 of Schedule 1
Reasons for decision
Section 28-25 of the ITAA 1997 sets out how to calculate a deduction using the 'cents per kilometre' method as follows:
(1) To calculate your deduction using the "cents per kilometre" method, you multiply:
• the number of business kilometres the car travelled in the income year;
by:
• a number of cents based on the car's engine capacity.
The number of cents can be found in the regulations.
Subsection 28-25(2) and 28-25(3) of the ITAA 1997 specify that the aforementioned formula can be used for a maximum of 5,000 business kilometres per income year and defines 'business kilometres', respectively.
The rates used in the 'cents per kilometre' method are set out in part 2 of Schedule 1 to the ITAR 1997. The applicable rates are centred on whether the car is a 'small car', 'medium car' or 'large car'.
Part 1 of Schedule 1 to the ITAR 1997 defines, for the purposes of Schedule 1 of the ITAR 1997:
small car means a car that is powered by:
(a) an engine (other than a rotary engine) with a capacity that does not exceed 1600cm3; or
(b) a rotary engine with a capacity that does not exceed 800cm3
medium car means a car that is powered by:
(a) an engine (other than a rotary engine) with a capacity that exceeds 1600 cm3 but does not exceed 2600cm3; or
(b) a rotary engine with a capacity that exceeds 800 cm3 but does not exceed 1300cm3.
large car means a car that is powered by:
(a) an engine (other than a rotary engine) with a capacity that exceeds 2600cm3; or
(b) a rotary engine with a capacity that exceeds 1300 cm3.
It is recognised that an electric car will satisfy the definition of 'car' for the purposes of Division 28 of the ITAA 1997.
Furthermore, it is acknowledged that since 'engine' is not a defined term under either the ITAA 1997 or the ITAR 1997, the ordinary meaning of the word is employed.
According to the Macquarie Dictionary, the term 'engine' is defined as being:
'any mechanism or machine designed to convert energy into mechanical work…'
An electric car is powered by a electric motor, which converts energy from lithium ion battery packs stored within the vehicle to drive the axle of the car. Therefore, the electric motor will be an 'engine' under the ordinary meaning of the word as it clearly converts electrical energy into mechanical work.
It is clear from section 28-25 of the ITAA 1997 and Schedule 1 of the ITAR 1997, that in order to calculate a deduction for car expenses using the 'cents per kilometre' method, a car's 'engine capacity' must be determined in 'cc', or cubic centimetres.
The 'engine capacity' of a car in this context refers to the engine's displacement.
In order to determine an engine's displacement, and thus capacity, the bore, stroke and number of cylinders must be able to be measured.
However, since an electric motor does not have a bore or a stroke, and lacks the parts of a conventional internal combustion engine, such as cylinders and pistons, that determine an engine's displacement, the engine capacity of an electric motor is not able to be measured.
Hence, an electric engine has no capacity in terms of displacement. Its capacity is typically expressed in terms of ampere-hours or kilowatt hours.
Consequently, an electric (non-hybrid) car is precluded from using the 'cents per kilometre' method, as described in subsection 28-25(1) of the ITAA 1997 and defined in the Part 2 of Schedule 1 of the ITAR 1997, as the engine capacity of an electric motor is not able to be measured, and thus an applicable 'cents per kilometre' rate is not able to be determined.