Edited version of private advice

Authorisation Number: 1051829675857

Date of advice: 22 April 2021

Ruling

Subject: Car limit

Question 1

Would the 'car limit' apply to the acquisition of the Vehicle under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

No.

Question 2

Would the 'car limit' apply to the purchase of the Vehicle under the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 2

No.

This ruling applies for the following period:

Ending 30 June 20XX

Relevant facts and circumstances

You are carrying on an enterprise and registered for GST.

Relevant legislative provisions

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 subsection 69-10(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 69-10(4)

A New Tax System (Luxury Car Tax) Act 1999 subsection 25-1(2)

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 subsection 40-230(1)

Reasons for decision

Question 1

Detailed reasoning

Under section 11-20 of the GST Act you are entitled to GST 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. Therefore, you will 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 GST credits on the 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) of the GST Act applies.

Subsection 69-10(1) of the GST Act 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) of the GST Act, 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 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.

Subsection 40-230(1) of the ITAA 1997 states that the first element of the cost of a car designed mainly for carrying passengers will be reduced to the car limit for the financial year in which you started to hold it if its cost exceeds that limit.

For the 20XX/XX financial year, the car cost limit is $XX,XXX.

A vehicle that is not defined as a car mainly designed for carrying passengers will not be subject to the car limit under section 40-230 of the ITAA 1997.

Vehicle's that are both listed as a dual cab, as the vehicle is described, are assessed under the vehicle type of a crew cab as per Miscellaneous Taxation Ruling 2024 (MT2024). 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 its load carrying capacity and whether it is designed to carry mainly passengers or goods. MT2024 provides a calculation that can be used to determine the principal purpose for which a crew cab has been designed.

MT2024 details the method used to determine whether the principal purpose of a vehicle is for carrying passengers and states the following at paragraph 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.

The ADR at 4.5.2 state that:

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 68kg is less than 50 percent of the difference between the 'Gross Vehicle Mass' and the 'Un-laden 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 GVM and the unladen mass (i.e. the payload).

However, subsection 69-10(1) applies unless it is excluded by subsection 69-10(4) of the GST Act. 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).

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 27^th January 2021, 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.

Taking into account the calculation utilised from MT2024, 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, it 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 not exclude the application of subsection 69-10(1).

Question 2

Detailed Reasoning

As per the reasoning in Question 1, the Vehicle is not a car designed mainly for carrying passengers, therefore it is not subject to the car limit under subsection 40-230(1) of the ITAA 1997.