Edited version of private advice

Authorisation Number: 1051897398007

Date of advice: 20 September 2021

Ruling

Subject: GST - the application of the car cost limit

Question 1

Is the specified dual cab utility vehicle (the vehicle) considered to be a vehicle that is not designed for the principal purpose of carrying passengers?

Answer

Yes, based on the information provided, the vehicle is considered to be a vehicle and designed primarily for the carriage of goods. Refer to the reasons for decision for additional information.

Question 2

Would the 'car limit' rule apply to the capital allowance of the Vehicle under subsection 40-230(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No. Refer to the reasons for decision for additional information.

Question 3

Would the 'car limit' rule apply to limit your GST entitlement on the GST paid on the purchase of the vehicle under Subsection 69-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

No. Refer to the reasons for decision for additional information

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 2020

Relevant facts and circumstances

The entity is carrying on an enterprise and is registered for GST.

It has been stated the entity's intention is to purchase a dual cab utility (the vehicle) during the financial year ending 30 June 20XX.

The load carrying capacity/payload of the vehicle is 701 Kg (Gross Vehicle Mass of 3,450kg less Kerb Weight of 2,749kg).

The towing capacity of the vehicle is 4,500kg.

The seating capacity is five people.

The vehicle will primarily be used for business purposes.

No modification will be carried out on the vehicle at the time of purchase.

The vehicle will be register as a commercial goods vehicle.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 40-230(1)

Income Tax Assessment Act 1997 section 995-1

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 subsection 25-1(2)

Detailed reasoning

Question 1

Miscellaneous Taxation Ruling MT 2024 Fringe benefits tax: Dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel (MT 2024) provides guidance on determining the principal purpose of vehicles such as dual cab utilities.

MT 2024 details the method used to determine whether the principal purpose of a vehicle is designed for carrying passengers and states the following at paragraph 14:

...It is considered that the appropriate basis for determining this issue is whether or not the majority of the designed load capacity is attributable to passenger carrying capacity. This approach is consistent with that adopted under the Australian Design Rules (ADR) in determining what is a passenger vehicle.

The ADR at 4.5.2 state that:

A vehicle constructed for both the carriage of persons and the carriage of goods shall be considered to be primarily for the carriage of goods if the number of seating positions times 68kg is less than 50 percent of the difference between the 'Gross Vehicle Mass' and the 'Un-laden Mass'.

Based on the information provided, the vehicle has a payload of 701kg and is designed to carry five passengers. Applying the test, the passenger carrying capacity is 340kg, (5 x 68kg) which is less than 50% of the pay load.

Therefore, the vehicle is not designed for the principal purpose of carrying passengers and is a vehicle designed for the primarily for the carriage of goods.

Question 2

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines a 'car' as a motor vehicle designed to carry a load of less than 1 tonne and fewer than 9 passengers.

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.

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.

As per the reasoning in Question 1, it is considered that the vehicle is not designed for the principal purpose of carrying passengers, and therefore, does not meet the definition of a car under section 995-1 of the ITAA 1997.

Consequently, the vehicle is not subject to the car limit under subsection 40-230(1) of the ITAA 1997.

Question 3

Subsection 69-10(1) of the GST Act limits the amount of input tax 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 input tax credit is 1/11th of that limit.

For the purpose of subsection 69-10(1) of the GST Act, a 'car' is defined in section 995-1 of the ITAA 1997 as detailed in Question 2.

However, subsection 69-10(4) of the GST Act provides an exclusion to subsection 69-10(1) of the GST Act. Subsection 69-10(4) provides that subsection 69-10(1) does not apply to a vehicle that is not a luxury car under subsection 25-1(2) of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act).

Paragraph 25-1(2)(c) of the LCT Act provides that a car is not a luxury car if it is a commercial vehicle that is not designed for the principal purposes of carrying passengers.

The term 'commercial vehicle' is not defined in the LCT Act and therefore, the ordinary meaning of the words applies. The Macquarie Dictionary online[1], 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.

As per the reasoning in Question 1, the vehicle is not designed for the principal purpose of carrying passengers and you have advised it will be used for business or trade.

Therefore, the vehicle is a commercial vehicle used for the principal purpose of carrying goods and not a luxury car in accordance with subsection 25-1(2) of the LCT Act.

Subsequently, as subsection 69-10(4) of the GST Act applies it excludes the application of subsection 69-10(1) of the GST Act and your entitlement to input tax credits for the purchase of the vehicle is not subject to the car limit.

[1] www.macquariedictionary.com.au