Is the Vehicle exempt from the car limit for depreciation purpose under section 40-230 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. This ruling applies for the following period : Year ended 30 June 20YY The scheme commenced on: 1 July 20YY
You are registered for GST. You specialise in the construction industry You purchased a Vehicle for $X inclusive of $X GST on the DD MM YYYY. The Vehicle was advertised as a commercial vehicle and no Luxury Car Tax was applicable as per the invoice for the purchase provided. The Vehicle is used to carry heavy tools, equipment and tow large machinery and is 100% used for business use. The Vehicle specifications state: • Gross vehicle Mass: Xkg • Kerb Weight: Xkg • Payload: Xkg • Towing Capacity: Xkg • Seating Capacity: 5 seats
Income Tax Assessment Act 1997 Section 40-230 Income Tax Assessment Act 1997 Section 995-1
Section 40-175 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the cost of a depreciating asset you hold consists of two elements: • the first element is worked out at the time you began to hold the asset and is generally the amount paid for it (section 40-180 of the ITAA 1997) • the second element generally consists of amounts you have paid since you started to hold the asset that have contributed to bring the asset to its present condition and location (section 40-190 of the ITAA 1997). Subsection 40-230(1) of the ITAA 1997 states that the first element of the cost of a car designed mainly for carrying passengers is reduced to the car limit for the financial year in which you started to hold it if its cost exceeds the car limit. The car limit is contained in subsection 40-230(3) of the ITAA 1997. The car limit for the 20YY-YY income year was $XX. 'Car' is defined under section 995-1 of the ITAA 1997. It is a motor vehicle (except a motorcycle or similar vehicle) mainly designed to carry a load of less than one tonne and fewer than 9 passengers.
If the vehicle you have purchased carries less than 9 passengers and has a payload capacity of less than one tonne, it is classified as a car and will be subject to the car cost limit stipulated in section 40-230 of the ITAA 1997. The one tonne limit relates to the maximum load your vehicle can carry, also known as the payload capacity. The payload capacity is the gross vehicle mass (GVM) as specified on the compliance plate by the manufacturer, reduced by the basic kerb weight of the vehicle. 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) states that a dual cab that has a designed load carrying capacity of less than one tonne may still qualify for the work-related use exemption under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) if the vehicle is not designed for the principal purpose of carrying passengers. 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 multiplied by 68 kilograms is less than 50% of the difference between the 'gross vehicle mass' and the 'unladen mass' (also referred to as 'kerb weight'). 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. For example, if a vehicle has a gross vehicle weight of 2,000kg, a kerb weight of 1,400kg, and has a seating capacity of 5, the vehicle would be considered to be a vehicle designed principally for the carriage of passengers. This is because the total load capacity is 600kg of which the majority, 340kg, would be absorbed by its designed passenger carrying capacity.
This test can be applied in determining whether a car is 'mainly designed for carrying passengers' as stipulated in subsection 40-230(1) of the ITAA 1997. This is because the term 'mainly designed' is broader than the term 'principally designed' set out in sub-section 8(2) of the FBTAA 1986. Further guidance for determining the principal purpose for which a car was designed is contained in Taxation Determination TD 94/19 Fringe benefits tax: is the method outlined in Taxation Ruling MT 2024 appropriate for determining whether a vehicle, other than a dual or crew cab, is 'designed for the principal purpose of carrying passengers' and thereby ineligible for the work-related use exemption available under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986? (TD 94/19). TD 94/19 confirms that for dual or crew cab vehicles, the method outlined in MT 2024 applies. For other vehicles, the Commissioner advises that regard should be had to the following factors: • the appearance and presentation of the vehicle; • any relevant promotional literature; • the emphasis evident in marketing; • the vehicle's specifications;
• load carrying capacity; and • passenger carrying capacity. Application to your circumstances In your circumstances, the Vehicle has GVM of Xkg and kerb weight of Xkg giving it a payload capacity of Xkg. The vehicle is designed to carry 5 passengers meaning that Xkg is designed to be absorbed by its passenger carrying capacity, leaving Xkg available. As the majority of the payload capacity is not allocated to passenger carrying capacity, the Commissioner considers that the Vehicle is not 'mainly designed' for carrying passengers. Therefore, the Vehicle is exempt from the car limit for depreciation purposes under section 40-230 of the ITAA 1997.