Issue
Are the registration, insurance and brokerage amounts paid by the taxpayer included in the cost of a motor vehicle under section 42-65 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. Registration, insurance and brokerage amounts paid by the taxpayer are not included in the cost of the motor vehicle under section 42-65 of the ITAA 1997.
Facts
The taxpayer is a finance provider and leases cars to lessees under arm's length commercial arrangements in the normal course of its business operations. The arrangements are not a hire purchase agreement as defined in subsection 995-1(1) of the ITAA 1997. The cars are plant within the meaning of that term in section 42-18 of the ITAA 1997.
The taxpayer is the legal owner of a car it leases to a lessee. The leased car is registered (with the State Government body that administers and levies motor vehicle registrations) in the name of the lessee. The taxpayer finances amounts for the registration and insurance of the leased car for the first year. Subsequent amounts for registration and insurance during the lease period are met by the lessee. The taxpayer also finances a once-only brokerage fee paid to a finance broker for sourcing the lease arrangement with the taxpayer.
Reasons for Decision
The cost of a unit of plant is worked out under Subdivision 42-B of the ITAA 1997. It is worked out using the last applicable row in the table in subsection 42-65(1) of the ITAA 1997. The cost specified in the applicable row may be adjusted by other provisions as indicated in the table.
Item 1 in the table is the only one that applies to the taxpayer's circumstances and it provides that for plant generally the cost is 'its cost to you'. None of the potential adjustments apply to the car in these circumstances.
The term 'cost' is not defined in the ITAA 1997 and is to be interpreted according to its ordinary meaning. In BP Refinery (Kwinana) Ltd v. FCT (1960) 8 AITR 113; (1960) 12 ATD 204 it was considered that the word 'cost' bore the meaning which it has in the business life of the community. Cost includes not only the purchase price to acquire the plant but installation expenses such as freight and delivery expenses.
Registration and insurance amounts are periodic expenses that secure no lasting advantage. Registration is paid to permit use of the car on the road for a period of time. Similarly, insurance payments secure comprehensive motor vehicle insurance for a period of time. These amounts are associated with the operation or running of a car rather than its acquisition or installation. The brokerage fee is paid for sourcing of a finance provider and has no connection with the acquisition of the car by the taxpayer.
The registration, insurance and finance brokerage amounts are not part of the 'cost to you' of the car. They are not included in the cost of plant under section 42-65 of the ITAA 1997.