Edited version of private advice

Authorisation Number: 1051926557476

Date of advice: 31 March 2022

Ruling

Subject: Car limit

Question 1

Do both the Vehicle A and Vehicle B meet the definition of car under section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Will the car limit under section 40-230 of the ITAA 1997 apply to both the Vehicle A and Vehicle B to limit the first element of cost to $X?

Answer

Yes.

Question 3

Are you entitled to claim the entire purchase price of the Vehicle A and Vehicle B under the temporary full expensing measures?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

XX Month 20XX

Relevant facts and circumstances

On XX Month 20XX, R (you) purchased a 20XX Vehicle A for $X.

The Vehicle A has a seating capacity of X passengers.

On XX Month 20XX, you purchased a 20XX Vehicle B for $X.

The Vehicle B has a seating capacity of X passengers.

Neither the Vehicle A nor Vehicle B have been fitted with modifications for transporting disabled person/s.

Both the Vehicle A and Vehicle B are used 100% in your business and there is no personal use of either vehicle.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 Subdivision 40-C

Income Tax Assessment Act 1997 section 40-25

Income Tax Assessment Act 1997 section 40-185

Income Tax Assessment Act 1997 section 40-190

Income Tax Assessment Act 1997 section 40-225

Income Tax Assessment Act 1997 section 40-230

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Car

Car is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as a motor vehicle (except a motorcycle or similar vehicle) that is designed to carry a load of less than 1 tonne and fewer than 9 passengers. Motor vehicle is also defined in section 995-1 of the ITAA 1997 as any motor powered road vehicle (including a 4 wheel drive vehicle).

Car limit

The cost of a depreciating asset has two elements. The first element of the cost is worked out under Subdivision 40-C of the ITAA 1997 as at the time you start to hold the asset and includes amounts you have taken to have paid to hold the asset, such as the acquisition price.

Subsection 40-230(1) of the ITAA 1997 states that the first element of the cost of a motor vehicle will be 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 for the 20XX-XX financial year is $X.

Exceptions

Subsection 40-230(2) of the ITAA 1997 provides that the car limit does not apply to a car when:

•                    fitted out for transporting disabled people in wheelchairs for profit (for example specially modified taxis); or

•                    whose first element of cost exceeds the car limit only because of modifications made to enable an individual with a disability to use the car for a taxable purpose.

Temporary Full Expensing

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).

As mentioned above, section 40-230 of the ITAA 1997 states the first element of the cost of a car is reduced to the car limit for the financial year in which you started to hold it if its cost exceeds that limit.

Application to your circumstances

Both Vehicle A and Vehicle B meet the definition of a car under section 995-1 of the ITAA 1997 and are used 100% for business purposes. Neither car has been modified for the transportation of disabled persons and therefore the exception to the application of the car limit will not apply.

There is no discretion available to the Commissioner in relation to the application of the car limit. As such the first element of the cost base for each car will be reduced to the car limit of $X for the 20XX-XX income year for the purposes of Division 40 of the ITAA 1997 and the application of the temporary full expensing measures.