Edited version of private advice

Authorisation Number: 1052126487869

Date of advice: 7 June 2023

Ruling

Subject: Car limit depreciation

Question 1

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

Answer

No.

Question 2

Does the car limit apply to limit the GST (Good and Services Tax) entitlement on the full amount of GST credit for the purchase of the Vehicle under subsection 69-10(1) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

This ruling applies for the following period:

Income year ending 30 June 2022

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

The Company purchased the Vehicle on 5 July 2021.

The Company is GST registered.

The Vehicle will be used for use in the business. Its use will include carrying tools and towing work trailers.

The Vehicle will have some private incidental usage.

The Vehicle has the following specifications:

•         Gross vehicle mass: 3,300kg

•         Basic kerb weight: 2,543kg

•         Payload capacity: 757kg

•         Passenger seating capacity: 5 people

Relevant legislative provisions

Section 40-230 of the Income Tax Assessment Act 1997

Subsection 995-1(1) of the Income Tax Assessment Act 1997

Subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986

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

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

Reasons for decision

Issue 1

Question 1

Summary

The Vehicle is not considered as a car that is designed mainly for carrying passengers and therefore for the purposes of section 40-230 of the ITAA 1997 it is not subject to the car limit.

Detailed reasoning

Section 40-230 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 27B) is reduced to the car limit for the financial year in which its held if its cost exceeds the limit.

Under subsection 995-1(1) of the ITAA 1997 the definition of a 'car' is a motor vehicle that is designed to carry a load of less than one tonne and fewer than nine passengers. The term 'motor vehicle' is defined as any motor powered road vehicle (including a four wheel drive vehicle).

The one tonne limit relates to the maximum load a vehicle can carry, known as the payload capacity. The payload capacity is the gross vehicle mass reduced by the basic kerb weight of the vehicle. MT 2024 Fringe benefits tax: Dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel (MT 2024) is the ruling that provides guidance on the principal purpose test for crew cab vehicles.

Paragraph 4 of MT 2024 states that a vehicle may qualify for the exemption under the Fringe Benefits Tax Act 1986 (FBT Act 1986) if any other classification of a car (e.g. taxi, panel van, utility truck) or any other road vehicle designed to carry less than one tonne is not designed for the principal purpose of carrying passengers.

Paragraph 8 of MT 2024 states that crew cabs will be capable of qualifying for the work-related use exemption if either of the following tests are met:

a)    They are designed to carry a load of one tonne or more, or more than eight passengers; or

b)    While having a designed load capacity of less than one tonne, they are not designed for the principal purpose of carrying passengers (subsection 8(2) of the FBT Act 1986)

It is considered that the appropriate basis for determining the principal purpose of the vehicle is whether or not the majority of the designed load capacity is attributable to passenger carrying capacity.

Relevantly paragraph 15 of MT 2024 provides that the designed passenger carrying capacity is to be determined by multiplying the designed seating capacity (including the driver's) by 68kg which is the figure adopted under application of the Australian Design Rules.

In this case, the Vehicle's payload capacity is the maximum amount of weight that the vehicle can safely carry which is 757kg. This is less than one tonne and therefore the Vehicle meets the definition of both a car and a motor vehicle under subsection 995-1(1) of the ITAA 1997.

Now we consider the principal purpose the Vehicle is designed for. This is done via the calculation method provided under paragraphs 14 and 15 of MT 2024. The payload capacity is 757kg and the passenger carrying capacity is 68kg multiplied by the number of passengers (including the driver) which is 5, the result is 340kg. As the passenger carrying capacity is less than half of the payload capacity, the Vehicle is not considered to be a car that is mainly designed for carrying passengers.

Accordingly. the car limit does not apply to the Vehicle as it is not designed mainly for carrying passengers under subsection 40-230(1) of the ITAA 1997.

Question 2

Summary

The car limit does not apply to limit the GST entitlement on the full amount of input tax credit for the purchase of the Vehicle.

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 1/11^th 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.

Subsection 69-10(4) of the GST Act 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 purpose 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 definition of 'commercial vehicle' is:

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

Per the reasoning in Question 1, the Vehicle is not designed for the principal purpose of carrying passengers and is used in carrying on the business of concreting services.

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

Accordingly, subsection 69-10(1) of the GST Act does not apply to limit the GST entitlement on the full amount of input tax credit for the purchase of the Vehicle.