Motor Vehicle Expenses - leased motor vehicle - deductibility of GST on payment of the residual value

Is a deduction allowable under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the Goods and Services Tax (GST) paid by the taxpayer in relation to the residual value of a leased motor vehicle?

No, a deduction is not allowable under section 8-1 of the ITAA 1997 for the GST paid by the taxpayer in relation to the residual value of a leased motor vehicle.

It was a condition of the taxpayer's employment that they own and maintain a motor vehicle for work purposes.

The taxpayer leased a motor vehicle on a finance lease and made regular lease payments.

The taxpayer used the motor vehicle for work purposes.

Under the finance lease the taxpayer had the option to purchase the vehicle at the end of the lease for its residual value.

The taxpayer paid the residual value and the GST on that value.

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.

The GST incurred on losses or outgoings may be deductible under section 8-1 of the ITAA 1997 in certain circumstances, as determined by Division 27 of the ITAA 1997, but only if the loss or outgoing is otherwise deductible.

Although the taxpayer acquired the motor vehicle for work related purposes the payment of the residual value under the lease was for the purpose of acquiring the motor vehicle. This payment is of a capital nature and is not deductible under section 8-1 of the ITAA 1997. Therefore, the taxpayer cannot claim a deduction under section 8-1 of the ITAA 1997 for the GST paid in relation to that capital payment.