Edited version of private advice

Authorisation Number: 1052149052231

Date of advice: 27 July 2023

Ruling

Subject: Heritage number plate - business or personal-use asset

Question 1

Is the heritage number plate (number plate) treated as a business asset for CGT purposes, and if so, can it be depreciated/amortised?

Answer

No. The number plate is considered to be a personal-use CGT asset and is not a depreciating asset. As the number plate is not a depreciating asset it is not eligible for a deduction for the decline in value.

Question 2

Is the number plate eligible for the immediate write-off rules?

Answer

No. The number plate is not a depreciating asset and therefore it is not eligible for an immediate deduction under the temporary full expensing or instant asset write-off rules.

Question 3

Where the number plate is placed onto your business vehicle, will Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936) and/orFringe Benefits Tax (FBT) apply?

Summary

Yes. However, in your case we consider the true use to be of the vehicle itself and not the number plate. As such there is no value assigned to the use of the number plate and as a result there is no income tax or FBT consequence.

Question 4

If the number plate is a depreciating asset, does it carry its own cost limit?

Answer

Not applicable. The number plate is not a depreciating asset.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You operate a business providing professional services.

You have purchased a heritage number plate (number plate) for approximately over $XXX plus GST in the 20XX income year.

You do not intend to trade the number plate for profit or lease it for income.

You intend to hold the number plate in the business long term.

The number plate was placed onto your business vehicle one month after its purchase.

The business vehicle is a SUV which is used by the director of the business.

The apportionment of business vs private use is 95% business use and 5% private use.

The 5% of private use consists of personal errands.

The number plate does not provide advertising for your business, nor does your business vehicle have any decals or signs on it for advertising your business.

Relevant legislative provisions

Income Tax Assessment Act 1936 Division 7A

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 subsection 40-30(1)

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 108-20(2)

Fringe Benefits Tax Assessment Act 1986 Division 11

Fringe Benefits Tax Assessment Act 1986 section 40

Reasons for decision

All references are to the Income Tax Assessment Act 1997 unless otherwise specified.

Question 1

Is the heritage number plate (number plate) treated as a business asset for CGT purposes, and if so, can it be depreciated/amortised?

Summary

The number plate is considered to be a personal-use CGT asset and is not a depreciating asset. As the number plate is not a depreciating asset it is not eligible for a deduction for the decline in value.

Detailed reasoning

CGT Asset

Section 108-5 defines a 'CGT asset' as being:

•         Any kind of property; or

•         A legal or equitable right that is not property.

It is important to classify CGT assets into their relevant categories as special rules apply to each. The relevant categories of assets in Division 108 are:

•         CGT assets

•         Collectables

•         Personal use assets.

Each CGT asset needs to be classified into one of the three categories because special rules apply to personal use assets and collectables.

Personal use assets

A personal use asset is defined in subsection 108-20(2) to be a CGT asset that is used or kept mainly for your personal use or enjoyment, or for the personal use or enjoyment of your associates. The definition of associate is provided in subsection 318(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition of associate includes your relatives.

In Favaro v FC of T (1996) 34 ATR 1 96, the court highlighted that there is a difference between an asset used for personal use, compared to business use. The court there accepted that the expression "personal use" is used in "contradistinction to use for business or profit-making purposes".

Personal use assets do not include collectibles. Under subsection 108-10 a collectable is:

•         Artwork, jewellery, an antique, or a coin medallion

•         A rare folio, manuscript or book

•         A postage stamp or first day cover

You have stated that you do not intend to trade the number plate for profit or lease it for income. You intend to hold the number plate in the business long term and potentially display the number plate on a business vehicle. The number plate does not provide advertising for your business, nor does your business vehicle have any decals or signs on it for advertising your business.

The number plate is not being held to trade for profit nor is it being used in the business to generate income. The number plate is not a collectible. As such the number plate is considered to be a personal use asset that is used or kept mainly for your personal use or enjoyment, or for the personal use or enjoyment of your associates.

Depreciation

Division 40 contains the capital allowance provisions that allow for deductions for the decline in value of depreciating assets. To be eligible for a deduction under Division 40 an asset must be a depreciating asset. Section 40-30 specifies what assets are capable of being a depreciating asset for the purposes of Division 40. Under subsection 40-30(1) a depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used except for land, trading stock or an intangible asset.

The number plate does not have an effective life and is not expected to decline in value over time. If anything, the number plate is expected to increase in value over time or at least hold its value.

As the number plate does not meet the definition of a 'depreciating asset' it is not eligible for a deduction for the decline in value.

Question 2

Is the number plate eligible for the immediate write-off rules?

Summary

The number plate is not a depreciating asset and therefore it is not eligible for an immediate deduction under the temporary full expensing or instant asset write-off rules.

Detailed reasoning

Temporary Full Expensing

The Temporary Full Expensing ('TFE') rules allow eligible entities to claim an upfront deduction for the cost of qualifying depreciating assets. An eligible entity is entitled to claim TFE during the income tax years from 2020-21 to 2022-23. The temporary full expensing rules in Subdivision 40-BB modify the decline in value for which you claim a deduction under section 40-25 of the ITAA 1997.

To be eligible for temporary full expensing, the eligible assets must be a depreciating asset.

Section 40-30 specifies what assets are capable of being a depreciating asset for the purposes of Division 40. Under subsection 40-30(1) a depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used except for land, trading stock or an intangible asset.

The number plate does not have an effective life and is not expected to decline in value over time. If anything, the number plate is expected to increase in value over time or at least hold its value.

As the number plate does not meet the definition of a 'depreciating asset' it is not eligible for an immediate deduction under the TFE rules.

Instant Asset Write-off

Similar to the TFE rules for an asset to be eligible under the instant asset write-off rules the asset must be a depreciating asset.

As the number plate does not meet the definition of a 'depreciating asset' it is not eligible for an immediate deduction under the instant asset write-off rules.

Additionally, as the number plate is a capital asset, it is denied a deduction under section 8-1 as you cannot deduct a loss or outgoing that is capital or capital in nature.

Question 3

Where the number plate is placed onto your business vehicle, will Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936) and/orFringe Benefits Tax (FBT) apply?

Summary

Yes. However, in your case we consider the true use to be of the vehicle itself and not the number plate. As such there is no value assigned to the use of the number plate and as a result there is no income tax or FBT consequence.

Detailed reasoning

Division 7A of the ITAA 1936

Division 7A of the ITAA 1936 is intended to prevent profits or assets being provided to shareholders, former shareholders, their associates or former associates without being taxed.

Under Division 7A of the ITAA 1936, amounts paid, lent or forgiven by a private company to shareholders or to their associates (including former shareholders or former associates) are treated as dividends, unless they come within specified exclusions.

An 'associate' has the meaning given in section 318 of the ITAA 1936, which covers a broad range of entities that are associates of natural persons, companies, partnerships and trustees.

Section 318 of the ITAA 1936 defines 'associates' of an entity (either a natural person or a company) to mean:

•         a relative (as defined in subsection 6(1) of the ITAA 1936) to mean:

a) a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the individual or of the individual's spouse; and

b) the spouse of that individual or of any other person mentioned in (a) above. It should be noted that a 'spouse' does not include a person who is legally married to the individual but is living separately and apart from the individual on a permanent basis, or a spouse within a registered relationship who is living separately and apart from the person on a permanent basis),

•         a partner (and the spouse and child of a partner),

•         a partnership in which the entity is a partner,

•         a trustee of a trust of which the entity (or an associate of the entity) is a beneficiary,

•         a company which is sufficiently influenced by the entity (or an associate of the entity) or a majority voting interest in which is held by the entity (or an associate of the entity).

The scope of Division 7A was broadened to include as a 'payment', the provision of a private company asset for use by a shareholder or an associate pursuant to section 109CA of the ITAA 1936 (on or after 1 July 2009).

Under subsection 109CA(2) of the ITAA 1936 the time the 'payment' is made is the first time the shareholder or associate uses the asset with the permission of the provider of the asset or has a right to use the asset at a time the provider does not have a right to use the asset or provide the asset for use by another entity.

Where section 109CA of the ITAA 1936 applies you may be eligible for an exemption under subsections 109CA(4) and (5).

Under subsection 109CA(4) of the ITAA 1936 a 'payment' does not occur if the provision of the asset, if done in respect of employment of an employee, is a minor benefit under section 58P of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986).

Under subsection 109CA(5) of the ITAA 1936 a 'payment' does not occur to the extent that, if the shareholder or associate had incurred and paid expenditure in respect of the provision of the asset, a once-only deduction would have been allowable to the shareholder or associate in respect of the expenditure, ignoring Divisions 28 and 900 of the ITAA 1936.

A payment will also not be treated as a dividend under Division 7A where it is made by a private company to a shareholder or an associate of a shareholder, if the payment is made to the individual in their capacity as an employee or an associate of an employee. In this case FBT would apply.

Fringe Benefits Tax

FBT is a tax paid by employers on certain benefits provided to their employees, or to their employees' family or other associates.

Division 11 of the FBTAA 1986 applies to property fringe benefits.

Section 40 of the FBTAA 1986 states:

Where, at a particular time, a person (in this section referred to as the 'provider') provides property to another person (in this section referred to as the 'recipient'), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

Subsection 136(1) of the FBTAA 1986 defines 'property' to mean both intangible and tangible property. Subsection 136(1) further defines 'tangible property' to mean goods, including animals, including fish and gas and electricity.

The term 'goods' is not defined in the FBTAA 1986 and therefore takes its ordinary meaning. The Macquarie Dictionary Online defines the term 'goods' relevantly at paragraphs 1 and 2 as:

1. (plural) possessions, especially movable effects, or personal belongings.

2. (plural) articles of trade; wares; merchandise, especially that which is transported by land.

Application to your circumstances

The use of the number plate would attract Division 7A of the ITAA 1936 or FBT depending on the capacity in which the number plate was used. That is, if the use was in the capacity as a shareholder or shareholder associate Division 7A of the ITAA 1936 would apply or if the use was in respect of employment FBT would apply.

In your circumstances the number plate is attached to the business vehicle which is used 95% for business and the 5% private use consists of personal errands. It is not feasible for a shareholder or employee to remove the number plate prior to any business or personal use and then re-attach once the use is completed.

In your case we consider the true use to be of the vehicle itself and not the number plate. As such there is no value assigned to the use of the number plate and as a result there is no Division 7A or FBT consequence.

Question 4

If the number plate is a depreciating asset, does it carry its own cost limit?

Summary

Not applicable. The number plate is not a depreciating asset.