Edited version of your written advice

Authorisation Number: 1051502360017

Date of advice: 11 April 2019

Ruling

Subject: Depreciation – car limit.

Question:

Is the full cost of the luxury car ($XXX,XXX) subject to depreciation calculations?

Answer:

No.

This ruling applies for the following period:

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

The scheme commences on:

1 July 2016

Relevant facts and circumstances

You purchased a luxury car.

You paid $XXX,XXX for the car.

The car was purchased for the sole purpose of supplying a car service

Relevant legislative provisions

Income Assessment Act 1997 Division 40

Income Assessment Act 1997 section 40-25

Income Assessment Act 1997 section 40-230

Income Assessment Act 1997 section 995-1

Reasons for decision

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.

1. The amount you are taken to have paid, and

2. The amount you have paid for a capital improvement to the asset (i.e. the amount paid to bring the asset to its present condition and location).

However, section 40-230 of the ITAA 97, sets out an adjustment by which the first element of the cost of a car is limited.

Section 40-230:

The first element of the cost of a car designed mainly for carrying passengers (after applying section 40-225 and Subdivision 27-B) is reduced to the car limit for the financial year in which you started to hold it if its cost exceeds that limit.

Car is defined in section 995-1 of the ITAA 1997:

motor vehicle (except a motor cycle or similar vehicle) that is designed to carry a load of less than 1 tonne and fewer than 9 passengers and motor vehicle is also defined in section 995-1 as any motor powered road vehicle (including a 4 wheel drive vehicle).

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 2017-18 financial year? (TD 2017/18) provides the car limit under section 40-230 of the ITAA 1997.

Accordingly, the car limit for the 20XX financial year is $57,581.

However, there are instances where the car limit does not apply to the first element of the cost of a car.

Subsection 40-230(2) provides that the car limit does not apply to a car:

a) Fitted out for transporting disabled people in wheelchairs for profit; or

b) Whose first element of cost exceeds that limit only because of modifications made to enable an individual with a disability to use it for a taxable purpose.

One principle of statutory interpretation is that ‘the explicit mention of one (thing) is the exclusion of another’, or put another way, when one or more things of a class are expressly mentioned, others of the same class are excluded.

Applying this principle, subsection 40-230(2) lists a specific class, i.e. situations in which cars are exempted from the general rule that the car limit applies. Cars that are used ‘for the sole purpose of supplying a limousine service’ are not included in this list. Therefore, under this rule of statutory interpretation, they are excluded from the exceptions to the general rule.

Application to your situation

The car purchased by you for the sole purpose of providing a car service may be depreciated. However it is of a type of car to which the car cost limit does apply. Therefore, when working out the car’s decline in value for the 20XX income year, the first element of the cost base of the car is reduced to $X. Any amount above that limit is not subject to depreciation calculations.