1 Is the entity entitled to a full GST credit of the GST paid on the acquisition of the vehicle under section 11-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
1 No Question 2 Is the entity entitled to claim full GST credits for the modification costs and ongoing expenses of the vehicle under section 11-5 of the GST Act? Answer 2 Yes Issue 2 - Income tax and deductibility Question 1 Is the entity entitled to claim deductions for the running costs of the vehicle under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? Answer Yes This ruling applies for the following periods : 1 July 20XX to 30 June 20XX 1 July 20XX to 30 June 20XX 1 July 20XX to 30 June 20XX 1 July 20XX to 30 June 20XX The scheme commenced on: 1 July 20XX
This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The entity is a mechanical and auto electrical business specialising in custom vehicle builds. Your business includes services extending to high-end modifications and second-stage manufacturing. You are registered for Goods & Services Tax (GST). The purpose of the acquisition of the vehicle was to market endorsed products to clients, showcase the business' workmanship and capabilities and support operational requirements, including parts/accessories delivery and pick-ups, transporting vehicles for sublet work, staff transport, product display and road testing. The vehicle was modified and the modifications included: • Custom electrical battery systems and mechanical upgrades • Second Stage of Manufacture (SSM) Suspension approvals and Gross Vehicle Mass (GVM) upgrades • Upgraded wheels and tyres • Cooling system enhancements
• Sub-fuel tanks • Air boxes and snorkels and other custom accessories tailored to the specific models of the vehicle. • A new compliance plate from a SSM which overrides the original manufacturers plate. You modified the vehicle using stock and parts from your business. The use of the vehicle would not be primarily as a car for transporting passengers but primarily to demonstrate endorsed products and custom builds, road testing and showing clients how modifications work, delivering and collecting of specialised parts and fittings and as an overall advertising tool. There will be minor transport of staff when required and for transporting clients to and from sublet work on their vehicles. You confirmed that the vehicle is held and used wholly for business purposes. The vehicle is used a demonstrating and marketing tool integral to the profitability and sales growth of the business. The vehicle is used for picking up parts from other suppliers and as a marketing tool to showcase modifications and custom fit-puts available to clients. Marketing events and field trips are all work related and not private in nature.
A logbook is kept at your workshop to record the details of the vehicle use. Assumption As the vehicle is not being provided to an employee, you do not have any Fringe Benefits Tax (FBT) obligations in relation to the vehicle. Relevant legislative provision A New Tax System (Goods and Services Tax) Act 1999 section 11-5 A New Tax System (Goods and Services Tax) Act 1999 section 11-15 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 section 25-1 Income Tax Assessment Act 1997 section 8-1 Income Tax Assessment Act 1997 subsection 8-1(1) Income Tax Assessment Act 1997 subsection 8-1(2)
These reasons for decision accompany the Notice of private ruling for The Trustee of the Family Trust. This is to explain how we reached our decision. This is not part of the private ruling. Issue 1 - Goods and Services Tax (GST) and car limit All references are to A New Tax System (Goods and Services Tax) Act 1999 unless otherwise noted. Question 1 Is the entity entitled to a full GST credit of the GST paid on the acquisition of the vehicle under section 11-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Summary No, the vehicle was purchased from the Dealer for a total GST inclusive amount which exceeds the 'car limit' for the 2025-2026 financial year at $69,674. You are entitled to claim only the amount of GST credit at 1/11th of the car limit. Reasons for decision Under section 11-20 you are entitled to a GST credit for any creditable acquisition that you make. Section 11-5 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) 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), you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to you making supplies that would be input taxed or the acquisition is of a private or domestic nature. Based on the information provided, your purchase of the unmodified vehicle satisfies paragraphs 11-5(a) to (d) as follows: a) you have purchased the vehicle to carry on your enterprise and the vehicle is used primarily for business purposes (100% business use). The vehicle is not used for private and domestic purposes and you do not use the vehicle to make any input taxed supplies. Therefore, you have acquired the vehicle for a creditable purpose, and b) the supply of the unmodified vehicle to you was a taxable supply, and c) you have paid for the vehicle, and d) you are registered for GST.
Therefore, you have made a creditable acquisition under section 11-5 when you acquired the unmodified vehicle for your business. You are entitled to claim GST credits on the unmodified vehicle. 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) applies. Subsection 69-10(1) 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), a 'car' and the 'car limit' refers to the Income Tax Assessment Act 1997 (ITAA 1997) sections 995-1 and 40-230 respectively.
Section 995-1 of the ITAA 1997 defines 'car' as a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than one tonne and fewer than nine passengers and defines 'motor vehicle' as any motor-powered road vehicle (including a 4-wheel drive vehicle). The car limit for the 2025-26 financial year is $69,674. The unmodified vehicle meets the definition of a car as it is designed to carry a load of less than one tonne and carry fewer than nine passengers. Therefore, as the unmodified vehicle is a car designed mainly for carrying passengers, it is not exempt from the car limit under section 69-10(1). However, subsection 69-10(1) applies unless it is excluded by subsection 69-10(4). Subsection 69-10(4) provides 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).
The tax invoice for the unmodified vehicle from the Dealer includes Luxury Car Tax (LCT) and thus the unmodified vehicle is a luxury car under the LCT Act. Subsequently, subsection 69-10(4) does not exclude the application of subsection 69-10(1) to your GST credits claim on the unmodified vehicle. In conclusion, the unmodified vehicle was purchased from the Dealer for a total GST inclusive amount which exceeds the 'car limit' for the 2025-2026 financial year at $69,674, you are entitled to claim only the amount of GST credit at 1/11th of the car limit. Question 2 Is the entity entitled to claim full GST credits for the modification costs and ongoing expenses of the vehicle under section 11-5 of the GST Act? Summary Where the acquisitions for the modification costs andongoing expenses of the vehicle you make meet all the requirements of section 11-5 of the GST Act, you are entitled to a GST credit on your purchase of these acquisitions as provided under section 11-20 of the GST Act. As explained previously, under section 11-20 you are entitled to a GST credit for any creditable acquisition that you make, and section 11-5 provides when you make a creditable acquisition.
Under subsection 11-15(1) you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. You will acquire the modification costs andongoing expenses of the vehicle for a creditable purpose within the meaning provided section 11-15(1) and (2) because you will make the acquisitions in carrying on your enterprise, the acquisitions do not relate to making supplies that would be input taxed and the acquisitions will not be of a private or domestic nature. Based on the information provided, the modification costs and ongoing expenses of the vehicle will satisfy paragraphs 11-5(a) to (d) as follows: a) you have/will acquire the modification costs andongoing expenses of the vehicle for a creditable purpose, and b) the supplies of the modification costs andongoing expenses of the vehicle are/will be taxable supplies, and c) you have/will provide consideration for the modification costs andongoing expenses of the Vehicle, and d) you are registered for GST.
Therefore, where the acquisitions for the modification costs andongoing expenses of the vehicle you make meet all the requirements of section 11-5 (as explained above), you are entitled to an GST credit on your purchase of these acquisitions as provided under section 11-20. Issue 2 - Income Tax and Deductibility All references are to the Income Tax Assessment Act 1997 unless otherwise noted. Question 1 Is the entity entitled to claim deductions for the running costs of the vehicle under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? Summary As the vehicle is exclusively used in carrying on your business for the purpose of gaining or producing assessable income, you are entitled to claim deductions for the running costs you incurred under section 8-1 of the ITAA 1997. Detailed reasoning Section 8-1 contains the general rules for deductibility. The two positive limbs are contained in subsection 8-1(1) which provides that you can deduct from your assessable income any loss or outgoing to the extent that: • it is incurred in gaining or producing assessable income, or
• it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. It is both sufficient and necessary that the occasion of the loss or outgoing be found in whatever is productive of the assessable income or, if none produced, would be expected to produce assessable income ( Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 ( Ronpibon Tin )). To satisfy the second positive limb, a nexus must exist between the outgoing and a business carried on for the purpose of gaining or producing assessable income. Two things must be established: firstly, the expense was necessarily incurred in carrying on a business; and secondly, that the carrying on of the business was for the purposes of gaining or producing assessable income. The outlay must have been incurred in the carrying on of a business, that is, it must be part of the cost of trading operations ( John Fairfax & Sons Pty Ltd v Federal Commissioner of Taxation (1959) 101 CLR 30).
An outgoing will be "necessarily incurred in carrying on a business" if it is clearly appropriate or adapted for the carrying on of the business or, in other words, reasonably capable of being seen as desirable or appropriate from the point of view of the pursuit of the business ends of the business. If the expense meets this definition, it will not be denied deductibility if it was not strictly necessary ( Ronpibon Tin ; Clough at [56]-[62]). Subsection 8-1(2) contains the negative limbs which qualifies the application of the positive limbs and states that you cannot deduct a loss or outgoing to the extent that: • it is a loss or outgoing of capital or of a capital nature; or • it is a loss or outgoing of a private or domestic in nature; or • it is incurred in relation to gaining or producing your exempt income or non-assessable non-exempt income; or • a provision of this Act prevents you from deducting it. Application to your circumstances In your case, you purchased and modified the vehicle as a core marketing asset that directly supports your strategic positioning and revenue generation.
The vehicle is exclusively used in carrying on your business primarily to demonstrate endorsed products and custom builds, road testing and showing clients how modifications work, delivering and collecting of specialised parts and fittings and as an overall advertising tool. Therefore, the ongoing running costs such as fuel, maintenance, insurance, registration, you incurred in carrying on the business are deductible under subsection 8-1(1).