Edited version of private advice

Authorisation Number: 1052079599092

Date of advice: 15 February 2023

Ruling

Subject: Car cost limits

Question

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

Answer

Yes.

Question

Does the 'car limit' rule apply to limit your goods and services tax (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 (GST Act)?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You carry on the business and are registered for GST.

You have purchased a crew cab utility vehicle (the Vehicle) for use in the business. Its use will include carrying tools and towing work trailers.

The Vehicle will only be used for business purposes.

The Vehicle has the following specifications:

•         The gross vehicle mass (GVM) is 4,495 kg.

•         The basic kerb weight is 3,609 kg.

•         The payload/carrying capacity is 886 kg.

•         The seating capacity is 6 people.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 40-230

Income Tax Assessment Act 1997 subsection 995-1(1)

Fringe Benefits Tax Assessment Act 1986 subsection 8(2)

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)

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

Reasons for decision

Question 1

Summary

As the Vehicle's 408 kg passenger carrying capacity is less than half of the Vehicle's 886 kg payload capacity, it is not considered to be a car that is designed mainly for carrying passengers. As such, the first element of the Vehicle's cost is not adjusted to the car limit.

Detailed reasoning

Section 40-230 of the ITAA 1997, where applicable, adjusts the first element of the cost of a car that is designed mainly for carrying passengers down to the car limit for the financial year in which you started to hold it, if its cost exceeds that limit.

A 'car' means a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than one tonne and fewer than 9 passengers (subsection 995-1(1) of the ITAA 1997).

The one tonne limit relates to the maximum load your vehicle can carry, known as the payload capacity. The payload capacity is the gross vehicle mass (GVM) reduced by the basic kerb weight of the vehicle.

Whether carrying passengers is the principal purpose of crew cab vehicles is considered in 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).

MT 2024 outlines that a crew cab that has a designed load carrying capacity of less than one tonne may still qualify for the work-related use exemption, under sub-section 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986), if the vehicle is not designed for the principal purpose of carrying passengers.

The approach outlined in MT 2024 is consistent with that adopted under the Australian Design Rules in determining what is a passenger vehicle. It provides that the principal purpose of the crew cab vehicle may be determined by reference to how the majority of the vehicle's load capacity is utilised. If the passenger carrying capacity, calculated on a 68 kg allocation per passenger seat, exceeds the remaining load capacity, the vehicle is treated as being designed for the principal purpose of carrying passengers.

This test can also be applied in determining whether a car is 'mainly designed for carrying passengers' as stipulated in subsection 40-230(1) of the ITAA 1997 as the term 'mainly designed' is broader than the term 'principally designed' set out in sub-section 8(2) of the FBTAA 1986.

Application to your circumstances

The payload capacity of the Vehicle is 886 kg, and it is designed to carry 6 passengers. The Vehicle meets the definition of a car in subsection 995-1(1) of the ITAA 1997.

However, as the Vehicle's passenger carrying capacity of 408 kg (6 passengers at 68 kg each), is less than half of the Vehicle's 886 kg load carrying capacity, it is not considered to be a car that is designed mainly for (or for the principal purpose of), carrying passengers. As such the car limit in section 40-230 of the ITAA 1997 does not apply to the Vehicle.

Question 2

Summary

As the Vehicle is a commercial vehicle used for the principal purpose of carrying goods it is not a car that is a luxury car and therefore, the car limit does not apply to limit your input tax credits entitlement on the GST paid on its purchase.

Detailed reasoning

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 purposes of subsection 69-10(1) of the GST Act, a 'car' is defined in subsection 995-1(1) of the ITAA 1997.

However, 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, 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.

Application to your circumstances

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

Therefore, your 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 the car limit under subsection 69-10(1) of the GST Act to limit your GST entitlement on the GST paid on the purchase of the vehicle. As such, your vehicle is not subject to the car limit under subsection 69-10(1) of the GST Act.