| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012757944671
Ruling
Subject: Car limit
Question 1
Does the car limit apply to vehicles used for business purposes?
Answer
Yes
This ruling applies for the following period:
1 July 2013 to 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
• The entity operates a business organising events in an Australian state
• As part of the business the entity hires out luxury cars
• The cars are only used for business purposes
Relevant legislative provisions
Income Assessment Act 1997 Division 40
Income Assessment Act 1997 Subdivision 960-M
Income Assessment Act 1997 Subsection 960-275(1)
Reasons for decision
Issue 1
Application of the car limit in relation to vehicles used solely by an entity
Question 1
Does the car limit apply to vehicles used for business purposes by the entity?
Summary
Under section 40-230 of the Income Tax Assessment Act (ITAA 97) the first element of the cost of a car is reduced to the car limit for the financial year that you started to hold it if its cost exceeds that limit. There is no provision for the Commissioner to exercise discretion in relation to the application of the car limit when depreciating assets.
Detailed reasoning
A deduction for the decline in value of depreciating assets is available under Division 40 of the ITAA 1997. Specifically, a deduction is available for the decline in value of a depreciating asset that is held by you to produce assessable income under section 40-25 of ITAA 1997.
The decline in value of your depreciating assets is calculated on the basis of the cost of the asset to you. The cost of a depreciating asset held by you is comprised of two elements. The first element is the consideration you paid for your asset; the second element is the cost of bringing the asset to its present condition (s 40-180 and s 40-190 of ITAA 97). The cost rules apply regardless of whether the asset is acquired new or second hand.
However, under section 40-230 of the ITAA 97, the first element of the cost of a car is reduced to the car limit for the financial year that you started to hold it if its cost exceeds that limit. Under Subdivision 960-M of the ITAA 1997 the car limit is indexed each year for inflation. Taxation Determination TD 2013/15 Income tax: what is the car limit under section 40-230 of the Income Tax Assessment Act 1997 for the 2013-14 financial year? (TD 2013/15) provides the car limit under section 40-230 of the ITAA 1997.
Therefore, vehicles purchased by you for use in your business may be depreciated. However, the first element of the cost base of a vehicle is reduced to the car limit applicable to the year in which you first held the vehicle. The car limit under section 40-230 of the ITAA 1997 for the 2013-14 financial year is $57,466.
There is no provision enabling the Commissioner to exercise discretion in relation to the application of the car limit to the first element when depreciating the value of assets.