Edited version of private advice

Authorisation Number: 1052174541483

Date of advice: 28 September 2023

Ruling

Subject: Car limit

Question

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

Answer

No

This ruling applies for the following period:

Income Year ended 30 June 20XX

The scheme commenced on:

DD MM 20XX

Relevant facts and circumstances

Company X carries on a business and is registered for GST.

Company X purchased a vehicle (the Vehicle) in the income year ended 30 June 20XX.

The Vehicle has been purchased to carry tools and tow work trailers.

The Vehicle will also have some incidental private usage.

The Vehicle has the following specifications:

•                     the gross vehicle mass is 3,300kg

•                     the basic kerb wight is 2,583kg

•                     the payload capacity is 717kg

•                     the seating capacity is 5 people

Relevant legislative provisions

Income Tax Assessment Act 1997 section 40-230

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

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.

'Car' is defined under section 995-1 of the ITAA 1997 as a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

Based on the information provided, the vehicle has a payload capacity of 717kg and can carry 5 passengers.

The vehicle meets the definition of a car under section 995-1 of the ITAA 1997, as it is designed to carry a load of less than one tonne and carry fewer than nine passengers.

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 that vehicles that are both listed as a crew cab (dual cab) and a four-wheel drive are assessed under the vehicle type of a crew cab.

Crew cab vehicles with a load carrying capacity of less than two tonnes can be designed to carry both passengers and goods. The principal purpose of these vehicles depends on its load carrying capacity and whether it is designed to carry mainly passengers or goods. MT 2024 provides a calculation that can be used to determine the principal purpose for which a crew cab has been designed.

MT 2024 details the method used to determine whether the principal purpose of a vehicle is 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'.

This calculation provides that a vehicle will be considered to be constructed for primarily carrying goods if the number of seats multiplied by 68kg is less than 50% of the difference between the Gross Vehicle Mass and the Un-laden mass (i.e. the payload).

In this case the Vehicle has 5 seating positions including the driver's seat, meaning the passenger carrying capacity is 340kg (5 seating positions x 68kg). The vehicle has a payload of 717kg. 50% of the Vehicle's payload is 358.5kg.

Therefore, as the passenger weight of 340kg of the Vehicle is less than 50% of the payload, the Vehicle has a principal purpose of carrying goods.

The vehicle has a principal purpose of carrying goods and it is not a car mainly designed for carrying passengers. Therefore, it will not be subject to the car limit under section 40-230 of the ITAA 1997.