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Edited version of your written advice
Authorisation Number: 1012775594937
Ruling
Subject: Stamp duty
Question 1
Are you entitled to a deduction for the full cost of stamp duty incurred when purchasing a vehicle?
Answer
No.
Question 2
Is the stamp duty part of the cost of the vehicle when calculating the deduction for the decline in value?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commenced on:
1 July 2013
Relevant facts
Entity A operates a business.
The business purchased a replacement work vehicle. The vehicle is used only by the business with no private use.
The business incurred a cost for the stamp duty.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Income Tax Assessment Act 1997 Section 40-25.
Income Tax Assessment Act 1997 Section 40-185.
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, or is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income except where the loss or outgoing is of a capital, private or domestic nature.
The following guidelines for determining whether a loss or outgoing is of a capital nature have been set down by the High Court in Sun Newspapers Ltd. and Associated Newspapers Ltd. v. Federal Commissioner of Taxation
(1938) 5 ATD 23; 5 ATD 87; 61 CLR 337:
• the expenditure is related to the business structure itself, that is, the establishment, replacement or enlargement of the profit yielding structure rather than the money earning process, or
• the nature of the advantage has lasting and enduring benefit, or
• the payment is 'once and for all' for the future use of the asset or advantage rather than being recurrent and ongoing.
Stamp duty is considered to be a capital expense because the advantage sought by the payment is a lasting advantage and the cost is a one off- payment not a periodic one.
Therefore no deduction is allowable under section 8-1 of the ITAA 1997.
However section 40-25 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose.
The vehicle is a depreciating asset for tax purposes. The cost of a depreciating asset includes the purchase price as well as costs paid for starting to hold the asset. Stamp duty costs are included in the cost of the vehicle when calculating the allowable depreciation deduction.
Should you need further information in relation to calculating the allowable depreciation deduction please refer to the booklet Guide to depreciating assets and other information which is available on the Australian Taxation Office website www.ato.gov.au.