Are you entitled to a full input tax credit for the GST included in the price of the vehicle that you purchased in the 2022-23 financial year?
Yes. This ruling applies for the following period : 1 June 20YY to 1 July 20YY
You are registered for GST. In the 20YY-YY financial year you purchased a vehicle from a vendor, who is registered for GST and sold the vehicle to you in the course or furtherance of its enterprise. You have purchased the vehicle to carry on your enterprise and the vehicle will be used solely for business purposes (100% business use). The vehicle has the following specifications: • The Gross Vehicle Mass for the vehicle is 3450kg • The Basic Kerb Weight for the vehicle is 2749kg • The payload/carrying capacity for the vehicle is 701kg • The towing capacity for the vehicle is 4500kg • The seating capacity for the vehicle is 5 people
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 section 69-10 A New Tax System (Luxury Car Tax) Act 1999 subsection 25-1(2) Income Tax Assessment Act 1997 section 995-1
Summary Subsection 69-10(4) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) does exclude the application of subsection 69-10(1) of the GST Act and does not limit your entitlement to input tax credits on the purchase of the vehicle. Detailed reasoning Under section 11-20 of the GST Act you are entitled to an input tax 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. However, under subsection 11-15(2) of the GST Act you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.
Based on the information provided, you would satisfy paragraphs 11-5(a) to (d) of the GST Act as follows: (a) You have purchased the vehicle to carry on your enterprise and the vehicle will be used solely for business purposes (100% business use). The vehicle will not be used for private and domestic purposes, and you will not use the vehicle to make any input taxed supplies. Therefore, you will have acquired the vehicle for a creditable purpose, and (b) the supply of the vehicle to you is a taxable supply, and (c) you have provided consideration for the vehicle, and (d) you are registered for GST. Therefore, you have made a creditable acquisition under section 11-5 of the GST Act when you acquire the vehicle for your business. You are therefore entitled to claim an input tax credit for the GST paid on the vehicle. The amount of input tax 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.
Subsection 69-10(1) of the GST Act limits the amount of input tax 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 input tax credit is 1/11th of that limit. For the purpose of subsection 69-10(1) of the GST Act, a 'car' is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). Section 995-1 of the ITAA 1997 defines a 'car' as a motor vehicle designed to carry a load of less than 1 tonne and fewer than 9 passengers. The vehicle is designed to carry a load of less than 1 tonne and fewer than 9 passengers and therefore considered a car. For the 20YY/YY financial year, the car limit is $XX. However, subsection 69-10(4) of the GST Act provides an exclusion to subsection 69-10(1) of the GST Act. Subsection 69-10(4) provides that subsection 69-10(1) 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 11 January 2024, 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. Vehicle's that are listed as a dual cab, such as the vehicle described, are assessed under the vehicle type of a crew cab as per 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). 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 the 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: 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. Section 4.5.2 of the Vehicle Standard (Australian Design Rule - Definitions and Vehicle Categories) 2005 states:
4.5.2 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 kg is less than 50 percent of the difference between the 'Gross Vehicle Mass' and the 'Unladen 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 (GVM) and the unladen mass (i.e. the payload). Based on the information provided, the vehicle can carry 5 passengers, meaning the passenger carrying capacity is 340kg (5 passengers x 68kg). Therefore, the passenger weight of 340kg is less than 50% of the payload of 701kg. As such, the vehicle has a principal purpose of carrying goods.
Taking into account the calculation utilised from MT 2024, it is considered that the vehicle is a commercial vehicle that is not designed for the principal purpose of carrying passengers; instead, the vehicle is a commercial vehicle used for the principal purpose of carrying goods used for business or trade. Therefore, the vehicle is not a luxury car in accordance with subsection 25-1(2) of the LCT Act. Subsequently, subsection 69-10(4) of the GST Act does exclude the application of subsection 69-10(1) of the GST Act and does not limit your entitlement to input tax credits on the purchase of the vehicle. In conclusion, the vehicle is considered as exempt from the car limit as it is not a car designed for the principal purpose to carry passengers.