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Edited version of your written advice
Authorisation Number: 1051316586383
Date of advice: 5 December 2017
Ruling
Subject: Effective life and car limits of electric cars for depreciation purposes
Question 1
Can the advertised expected life of eight years for an electric car be applied as per the eight years for a motor vehicle - car as stated in the Commissioners annual determination of effective lives of assets for depreciation?
Answer
Yes
Question 2
Does the car cost limit for the purposes of depreciation apply to an electric car?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You operate a business as a sole trader.
You purchased an electric car for use in your business in 2016 over the car limit amount.
Relevant legislative provisions
subdivision 40-C of the Income Tax Assessment Act 1997
subsection 40-100(1) of the Income Tax Assessment Act 1997
subsection 40-230 of the Income Tax Assessment Act 1997
section 995-1of the Income Tax Assessment Act 1997
Reasons for decision
Question 1
The decline in value of a depreciating asset is calculated on the basis of the effective life of the asset. The Commissioner produces an annual determination of the effective life of a range of assets in accordance with subsection 40-100(1) of the Income Tax Assessment Act 1997 (ITAA 1997). The most recent such determination is Taxation Ruling TR 2017/2 - Income tax: effective life of depreciating assets (applicable from 1 July 2017) (TR 2017/2).
An electric car is not specifically listed in TR 2017/2 however the term 'car', for the purposes of the ITAA 1997, is defined in subsection 995-1(1) of the ITAA 1997 to mean 'a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than one tonne and fewer than nine passengers.'
As such the Commissioner’s effective life of eight years for Motor Vehicles, cars, would also apply to your electric car.
Question 2
Deductions for the decline in value (depreciation) of a car for the purposes of the capital allowances provisions are worked out under Division 40 of the ITAA 1997. The cost of a depreciating asset has two elements. The first element of the cost is worked out under Subdivision 40-C of the ITAA 1997 as at the time the taxpayer starts to hold the asset and includes amounts the taxpayer is taken to have paid to hold the asset, such as the acquisition price.
The first element of the cost of certain cars is subject to a limit. Subsection 40-230(1) of the ITAA 1997 provides 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 the taxpayer started to hold it if its cost exceeds that limit. The car limit for the 2015-16 income year, during which you purchased your car, is $XX,XXX. This is the amount you must use for your depreciation calculations.