Edited version of private advice

Authorisation Number: 1051589398642

Date of advice: 17 October 2019

Ruling

Subject: Goods and services tax (GST) and claiming GST credit for purchase of a vehicle

Question 1

Is a vehicle exempt from the car limit under section 40-230 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. The vehicle is exempt from the car limit under section 40-230 of the ITAA 1997 as it is not a car designed mainly for carrying passengers as required under subsection 40-230(1) of the ITAA 1997.

Question 2

Are you entitled to claim full GST credit for the purchase of the vehicle used 100% in your enterprise?

Answer

Yes. Your vehicle is a commercial vehicle which you use 100% in your enterprise and therefore you are entitled to claim full GST credit for the purchase of the vehicle.

Relevant facts and circumstances

You are an Australian entity which is registered for GST.

You purchased a dual cab truck (vehicle) to use 100% in your business.

The vehicle is used to carry/tow steel from factory to sites.

The vehicle has a payload of 913kg and is designed to carry up to 6 passengers.

You currently hold a tax invoice for the vehicle. You have not paid any luxury car tax for the vehicle as it is considered as a commercial vehicle.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

Income Tax Assessment Act 1997 (ITAA 1997) section 40-230

A New Tax System (Goods and Services Tax) Act 1999 section 69-10

Reasons for decisions

Issue 1

Subsection 40-230(1) of the ITAA 1997 states that:

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 under section 995-1 of the ITAA 1997 as a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

Based on the information provided, the Vehicle has a payload of 913kg and is designed to carry a load capacity of more than 1 tonne. Taking into consideration: the appearance and presentation of the vehicle; relevant promotional and marketing material; the specifications; the load carrying capacity; the number of passengers the vehicle can carry and the certificate of registration classifies the vehicle as a light truck, the vehicle does not meet the definition of a car under section 995-1 of the ITAA 1997.

A vehicle that is not defined as a car mainly designed for carrying passengers will not be subject to the car limit under section 40-230 of the ITAA 1997.

Issue 2

Under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999

(GST Act) you are entitled to GST credit for any creditable acquisition that you make.

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

• you acquire anything solely or partly for a creditable purpose
• the supply of the thing to you is a taxable supply
• you provide, or are liable to provide, consideration for the supply and
• you are registered or required to be registered for GST.

According to section 11-15 of the GST Act, which provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that:

(a)  the acquisition relates to making supplies that would be input taxed, or

(b)  the acquisition is of a private or domestic nature.

Based on the information provided, you satisfy paragraph 11-5(a) to 1-5(d) of the GST Act as follows:

(a)  you have purchased the vehicle to carry on your enterprise and the vehicle is used solely for business purposes (100% business use). The vehicle is not used for private and domestic purposes and you do not use the vehicle to make any input taxed supplies. Therefore, you have acquired the vehicle for a creditable purpose; and

(b)  the supply of the vehicle to you is a taxable supply, and

(c)  you have paid for the vehicle including; and

(d)  you are registered for GST.

Therefore, you have made a creditable acquisition under section 11-5 of the GST Act when you acquired the vehicle for your business. You are entitled to claim the GST credits on the vehicle.

The amount of GST credit for a creditable acquisition is equal to the GST payable on the supply of thing acquired unless:

1. the acquisition is partly creditable; in which case, the GST credit is worked out based on the extent of the creditable purpose; or
2. subsection 69-10(1) of the GST Act applies

Subsection 69-10(1) of the GST Act limits the amount of GST credit for a creditable acquisition or creditable importation of a car. Where the GST inclusive market value of the car exceeds the car limit for the financial year in which you first used the car for any purpose, the amount of GST credit is 1/11^th of that limit.

For the purpose of subsection 69-10(1) of the GST Act, a 'car' refers to a car as defined in the ITAA 1997. As discussed in our response to Question 1, the vehicle does not fit the definition of a car in the ITAA 1997. Therefore, subsection 69-10(1) of the GST Act does not apply.

Accordingly, you are entitled to claim full GST credit equal to the GST that you paid on your acquisition of the vehicle.