Edited version of private advice

Authorisation Number: 1052239119934

Date of advice: 5 April 2024

Ruling

Subject: GST - temporary full expensing

Question 1

Will the company's vehicle qualify for the exemption available under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Is the company entitled to apply the temporary full expensing (TFE) measures under Subdivision 40-BB of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) to deduct in full the cost of the vehicle as a depreciating asset for the 20YY income year?

Answer

Yes

Question 3

Is the company entitled to a full input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the GST included in the price of the vehicle that you purchased in the 20YY income year?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The company acquired a dual cab motor vehicle (the vehicle) in the 20XX income year.

The cost of the vehicle was above the car limit for the 20XX income year.

The vehicle is used solely by the company in the course of carrying on a business to load and carry tools and equipment.

The company had an aggregated turnover of less than $10 million in the 20XX and 20XX income years.

The company is registered for GST.

The gross vehicle mass (GVM) of the vehicle is 4,496 kilograms.

The kerb weight of the vehicle is 3,609 kilograms.

The vehicle has a seating capacity of 6 passengers.

The vehicle has a load capacity of 887 kilograms.

Relevant legislative provisions

Income Tax Assessment Act 1997 subdivision 40-C

Income Tax Assessment Act 1997 subsection 40-230(1)

Income Tax Assessment Act 1997 subsection 328-110(1)

Income Tax Assessment Act 1997 section 995-1

Income Tax (Transitional Provisions) Act 1997 subdivision 40-BB

Income Tax (Transitional Provisions) Act 1997 section 40-155

Fringe Benefits Tax Assessment Act 1986 subsection 8(2)

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

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 paragraph 25-1(2)(c)

Reasons for decision

Question 1

Exempt car benefit

Subsection 8(2) of the FBTAA provides that a car will be exempt from fringe benefits tax if:

(a)  the car is a taxi, panel van or utility vehicle designed to carry a load of less than one tonne, or another road vehicle not designed for the principal purpose of carrying passengers and

(b)  there was no private use of the car during the year when the benefit was provided, except:

(i)            work-related travel of the employee and

(ii)           minor, infrequent and irregular private use by the employee or an associate of the employee.

Therefore, in determining whether a car is of a type to which the work-related exemption could apply, the principal purpose of the design of the car is relevant.

Miscellaneous Taxation Ruling MT 2024: Fringe benefits tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel differentiates between utility trucks and dual cabs. As stated in paragraph 14, a dual cab vehicle with a load carrying capacity of less than one tonne that is not designed principally for carrying passengers may qualify for the work-related use exemption.

In determining whether a dual cab vehicle is designed principally for carrying passengers, MT 2024 refers to the approach considered in clause 4.5.2 of the Vehicle Standard (Australian Design Rules - Definitions and Vehicle Categories) 2005 (ADR).

According to the ADR, 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 68 kilograms is less than 50 percent of the difference between the 'Gross Vehicle Mass' and the 'Unladen Mass'.

Therefore, if the total passenger weight exceeds the remaining 'load' capacity, the vehicle is to be treated as being designed for the principal purpose of carrying passengers and as such ineligible for work-related use exemption. Where the load capacity exceeds the total passenger weight, eligibility for the work-related use exemption arises.

Application to your circumstances

In this case, the company acquired a dual cab vehicle where its sole use was for work-related travel in carrying and transporting equipment and tools for the company's construction business. The vehicle had the following specifications:

•        A gross vehicle mass (GVM) of 4,496 kilograms;

•        A kerb weight of 3,609 kilograms; and

•        A seating capacity of 6 passengers.

Using the method for determining the purpose of a dual cab vehicle under the ADR outlined above, the total passenger weight of the vehicle can be calculated as 408 kilograms by multiplying 68 kilograms with the 6 number of seats. Furthermore, the loading capacity of the vehicle can also be calculated as 887 kilograms by subtracting the vehicle GVM of 4,496 kilograms by the vehicles kerb weight of 3,609 kilograms.

By comparing the vehicle's total passenger weight of 408 kilograms against the overall load capacity of 887 kilograms, it can be calculated that the vehicle's total passenger capacity takes up approximately 46% of the load capacity. As this percentage is less than 50 percent of the overall load capacity, the vehicle will be taken to not be designed for the principal purpose of carrying passengers.

Therefore, since the vehicle is not designed for the principal purpose of carrying passengers, and the vehicle has only been used for work-related travel, the vehicle will be exempt from fringe benefits tax.

Question 2

Temporary Full Expensing

Temporary full expensing (TFE) allows for the immediate write-off of the cost of depreciating assets and relevant additional expenditure under Subdivision 40-BB of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A).

Section 40-155 of the IT(TP)A requires an entity accessing TFE to be a 'small business entity'.

Subsection 328-110(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states:

You are a small business entity for an income year (the current year) if:

(a)  You carry on a business in the current year; and

(b)  one or both of the following applies:

(i)            you carried on a business in the previous income year and your aggregated turnover for the previous year was less than $10 million;

(ii)           your aggregated turnover for the current year is likely to be less than $10 million.

Furthermore, to be eligible for TFE, the depreciating asset must be:

•        New or second-hand (if it is a second-hand asset, your aggregated turnover is below $50 million);

•        First held by you at or after 7.30pm AEDT on 6 October 2020; and

•        First used or installed ready for use by you for a taxable purpose between 7.30pm AEDT on 6 October 2020 and 30 June 2023.

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 that is designed mainly for carrying passengers 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 2023 income year is $64,741.

However, the car limit will not be applied to a car that is not designed mainly for carrying passengers. The Commissioner has accepted that the approach outlined under clause 4.5.2 of the ADR can be applied to determine if a vehicle is designed mainly for carrying passengers.

As outlined above under question 1, the ADR states that a vehicle shall be taken to be designed primarily for the carriage of goods if the number of seating positions times 68 kilograms is less than 50 percent of the difference between the 'Gross Vehicle Mass' and the 'Unladen Mass'.

Application to your circumstances

In this case, the company acquired a dual cab vehicle in the 20YY income year, where its sole use was for work-related travel in carrying and transporting equipment and tools for the company's construction business. As the company had an aggregated turnover of less than $10 million in the 20YY and 20YY income years, it will be taken to be a small business entity.

In regard to the car limit, as outlined under question 1, the vehicle will be taken to be designed primarily for the carriage of goods under the ADR. Therefore, as the vehicle is not designed mainly for carrying passengers, the car limit will not be applied. Thus, the company will be entitled to apply TFE to deduct in full the cost of the vehicle as a depreciating asset for the 20YY income year.

Question 3

Under section 11-20 of the GST Act you are entitled to GST credit for any creditable acquisition that you make.

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

(a)  you acquire anything solely or partly for a creditable purpose,

(b)  the supply of the thing to you is a taxable supply,

(c)  you provide, or are liable to provide, consideration for the supply, and

(d)  you are registered or required to be registered for GST.

Under subsection 11-15(1) of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

The amount of GST credit for a creditable acquisition is equal to the GST payable on the supply of thing acquired unless:

1.    the acquisition is partly creditable; in which case, the GST credit is worked out based on the extent of the creditable purpose, or

2.    subsection 69-10(1) of the GST Act applies.

Car limit

Subsection 69-10(1) of the GST Act limits the amount of GST 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 GST credit is 1/11th of that limit.

For the purpose of subsection 69-10(1) of the GST Act, a 'car' and the 'car limit' refers to the Income Tax Assessment Act 1997 sections 995-1 and 40-230 respectively.

However, subsection 69-10(4) of the GST Act provides that the car limit 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, www.macquariedictionary.com.au viewed 16^th March 2021, 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.

Moreover, as outlined in question 1 above, MT 2024 states that dual cab vehicles with a load carrying capacity of less than one tonne 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.

As previously outlined in the above questions, a vehicle shall be taken to be designed primarily for the carriage of goods if the number of seating positions times 68 kilograms is less than 50 percent of the difference between the 'Gross Vehicle Mass' and the 'Unladen Mass'.

Application to your circumstances

In this case, the company acquired a dual cab vehicle in the 20YY income year, where its sole use was for work-related travel in carrying and transporting equipment and tools for the company's construction business. As the company is registered for GST and they use the vehicle in carrying on an enterprise, they will be entitled to GST credits for the acquisition of the vehicle.

In regard to the car limit, as outlined under question 1, the vehicle will be taken to be designed primarily for the carriage of goods under the ADR and thus, it will be a commercial vehicle. Therefore, the car limit will not apply to limit the amount of GST credits for the vehicle's acquisition. Therefore, the company is entitled to a full input tax credit for the GST included in the price of the vehicle that you purchased in the 20YY income year.