Edited version of private advice

Authorisation Number: 1051749717374

Date of advice: 9 September 2020

Ruling

Subject: Goods and services tax - business deduction

Question 1

How much GST can you claim on the purchase of the motor vehicle?

Answer

Provided you hold a valid tax invoice, the amount of GST that you are entitled to claim should be calculated as follows:

GST included in the price you paid to acquire the motor vehicle X the percentage of the business use.

Question 2

For the purposes of section 40-230 of the Income Tax Assessment Act 1997 (ITAA 1997) is the vehicle not a car that is designed to carry passengers?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Company purchased a motor vehicle on XX X 20XX.

The motor vehicle is a Dual Cab with the carrying capacity is more than 1 tonne. The motor vehicle is designed to carry fewer than 9 passengers.

The vehicle has a listed seating capacity of 5 persons.

The purchase price of the motor vehicle was $XX,XXX which was a taxable supply to you.

The motor vehicle is primarily used to carry out a primary production farm enterprise.

The private use of the motor vehicle is minor, infrequent and irregular.

You are registered for GST.

Luxury Car Tax(LCT) was not included as part of the price of the vehicle.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999, subsection 69-10(1)

A New Tax System (Goods and Services Tax) Act 1999, subsection 69-10(4)

A New Tax System (Luxury Car Tax) Act 1999 section 25-1

A New Tax System (Luxury Car Tax) Act 1999 subsection 25-1(2)

Income Tax Assessment Act 1997 section 40-230

Reasons for decision

GST Claimable

You are entitled to claim input tax credits on creditable acquisitions that you make. Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines a creditable acquisition as follows:

You make a creditable acquisition if:

you acquire anything solely or partly for a * creditable purpose; and

the supply of the thing to you is a * taxable supply; and

you provide, or are liable to provide, * consideration for the supply; and

you are * registered, or * required to be registered.

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)

You purchased the motor vehicle primarily to carry out your primary production enterprise, the supply was a taxable supply to you, you provided consideration and you are registered for GST. Therefore, the purchase of the motor vehicle meets the requirements of a creditable acquisition.

The amount of input tax credit that you are entitled to claim generally is an amount equal to the GST payable on the supply of the thing acquired. However, the amount of the input tax credit is reduced if the acquisition is only partly creditable.

Note: The motor vehicle in this case is not a car for the purposes of the GST Act as it has a load capacity of more than one tonne. Therefore, the limitations under Division 69 of the GST Act for claiming input tax credits for luxury cars do not apply in this case.

Given that you use the vehicle for private purpose also, to this extent the purchase of the motor vehicle is not for a creditable purpose. Therefore, you are required to determine the private use of the motor vehicle. Please refer to goods and services tax ruling GSTR 2006/4, Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose(GSTR 2006/4) for information regarding how to calculate the private use of the motor vehicle.

The amount of GST (input tax credits) that you are entitled to claim should be calculated as follows:

GST included in the price you paid to acquire the motor vehicle X the percentage of the business use.

If the supply of the motor vehicle to you was a fully taxable supply, the amount of GST in the above formula should be $X,XXX.XX (that is 1/11^th of the purchase price of $XX,XXX).

You must hold a valid tax invoice to claim the relevant amount of input tax credits.

Question 2

Income Tax Depreciation claimable

A deduction for the decline in value of depreciating assets is available under Division 40 of the Income Tax Assessment Act 1997(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).

As you have stated the Vehicle has a carrying capacity of over one tone and is primarily used to carry goods as part of your primary production business as per the invoice provided. On the invoice you have quoted your ABN. The web page from ato.gov.au, QC 22099 states as one of the possible reasons for when 'When LCT doesn't apply' is the quoting of an ABN.

Where a taxpayer Quotes their A.B.N. they may defer liability to Luxury Car Tax, provided they intend on applying the car to a quotable purpose per section 9-5 of the Luxury Car Tax Act.

The test in section 9-5 is a sole purpose test.

Section 9-5 of the LCT Act contemplates three quotable purposes

(a) holding the car as trading stock, other than holding it for hire or lease; or

(b) * research and development for the manufacturer of the car; or

(c) exporting the car in circumstances where the export is * GST-free under Subdivision 38-E of the * GST Act . The quoting system is designed to ensure that only the end-customer who is supplied with the car pays LCT

In the present case, you intend on using the car on your farm. Although the car will be used in furtherance of an enterprise, the car will not be held as trading stock, for the purpose of research, or in circumstances in which the car will be exported exclusive of GST. This is not a quotable purpose, so you cannot defer LCT on this basis.

Section 25-1 of the LCT Act provides the meaning of luxury car:

(1) A luxury car is a * car whose * luxury car tax value exceeds the * luxury car tax threshold.

Under paragraph 25-1(2)(c) of the LCT Act a car is not a luxury car if it is:

·         a commercial vehicle that is not designed for the principal purpose of carrying passengers; or

The term 'commercial vehicle' is not defined in the LCT Act and therefore, the ordinary meaning of the words applies. The Macquarie Dictionary online, gives the following meaning to the term 'commercial vehicle':

·         a vehicle able to carry goods or passengers, and designated for use by businesses, as a panel van, utility, etc.

To work out the principal purpose for which a car with a load capacity greater than one tonne has been designed, the Commissioner considers that it is appropriate to consider each of the factors detailed in Taxation Determination TD 94/19 Fringe benefits tax: is the method outlined in Taxation Ruling MT 2024 appropriate for determining whether a vehicle, other than a dual or crew cab, is 'designed for the principal purpose of carrying passengers' and thereby ineligible for the work-related use exemption available under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 ? Paragraph 2 of TD 94/19 relevantly provides that:

2. In determining the principal purpose for which any other vehicle was designed, regard should be had to factors including, but not limited to, the following:

-        the appearance and presentation of the vehicle

-        any relevant promotional literature

-        the emphasis evident in marketing

-        the vehicle's specifications

-        load carrying capacity

-        passenger carrying capacity.

Taking into account all of the above factors, it is considered that the vehicle is a commercial vehicle that is not designed for the principal purpose of carrying passengers. Therefore, it is not a luxury car in accordance with paragraph 25-1(2)(c) of the LCT Act.

Conclusion

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.

The car limit under section 40-230 of the ITAA 1997 will not apply to a car that is not designed mainly for carrying passengers.

As explained in the reasons for decision to question one, the vehicle is not designed for the principal purpose of carrying passengers, therefore it is not a car designed mainly for carrying passengers for the purposes of section 40-230 of the ITAA 1997.

All of the above factors indicate that the depreciation claimable would not be limited to the to the relevant 2019 LCT threshold of $57,581. However, the cost base used to calculate the amount of depreciation of the vehicle should be limited to the percentage of the business use.