Private ruling: GST and input tax credits
Published: December 2014

Ruling: Q1: Can you claim input tax credits in excess of 1/11th of the car limit on the purchase of cars that have a market value exceeding the luxury car tax threshold and that are registered for use on public roads, in Australia? Advice/Answer No, you cannot claim input tax credits greater than 1/11th of the car limit. This is because the vehicles satisfy the definition of 'car' for GST purposes.

Relevant facts and circumstances: You are registered for the goods and services tax (GST). You provide cars for hire on a race track - a driving experience. You purchased a number of cars in the relevant year. The cars have been fully sign-written with advertising. This includes your website and specific words prominently in view for all who see them. The cars are used on the racetrack where customers can purchase 'laps' in the vehicles and experience driving a sports car. The original equipment manufacturer supplied wheels have been stored - 4 sets of lightweight racing wheels have been purchased for the vehicles. One set is fitted to each car and the other sets are stored ready with fresh tyres as back up. Race Brake pads and fluids are fitted permanently to the cars. An in-car video and data system has been fitted to each car. The system consists of cameras in each car, a GPS system and integration to the cars electronics to get data from the engine. It also has a USB record feature for on-selling video to clients. Race quality Fire Extinguishers are fitted to the passenger side of each car. Tow hooks have been modified to allow easy recovery of vehicles. Public Liability Insurance was taken out as necessary for business. You recently contacted numerous companies but they have all declined to insure the cars on the basis that they are business cars used on a race track. The vehicles are kept at a Warehouse that has had extra security fitted. The cars are registered to be used on public roads in Australia by a relevant road traffic authority and are driven on public roads in circumstances where they are being moved to warehouse, refuelled, moved to charity events or taken for repairs.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 sections 69-10, 195-1

Reasons for decision: Summary: Under section 69-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), if the price of a car exceeds the car limit, generally the maximum GST credit claimable is 1/11th of the car limit. The car limit for 2014-15 is $57,466. If an entity registered for GST makes a creditable acquisition of a racing car or rally car, section 69-10 of the GST Act applies to restrict GST input tax credits if it is a 'car' as defined and the value exceeds the car limit. Section 195-1 of the GST Act gives 'car' the same meaning as section 995-1 of the ITAA 1997. A 'car' is defined as a 'motor vehicle (except a motor cycle or similar vehicle) that is designed to carry a load of less than 1 tonne and fewer than 9 passengers'. A 'motor vehicle' is further defined as a 'motor powered road vehicle (including a 4 wheel drive vehicle)'. The term 'road vehicle' is discussed in Sales Tax Ruling SST 13. Paragraph 3.2 states: The term 'road vehicle' refers to the class of vehicle, not to the actual use to which a particular vehicle may be put. It is a road vehicle if it is in a class of vehicle that is designed for use on public roads and it would be a road vehicle even though it may never be used or registered for use on public roads. Public roads can be closed to the public for the period of a racing or rally event. They are not public roads for the duration of the event. If the nature and fundamental design of a vehicle used as a rally or racing car, including any modifications or add-ons, makes it of a class of vehicle suitable and capable of being registered for use on public roads, anywhere in the world, it is a 'car' as defined. Section 69-10 of the GST Act applies to restrict any input tax credits if the value exceeds the car limit. For example, where a standard passenger car is modified for rallying or racing and the modifications do not extend to changing its fundamental design, it will remain a car. If the rally car or racing car, including any modifications or add-ons, is of a class of vehicle designed to be used only on racing or rally circuits or off-road, and is not capable of being registered for use on public roads, it is not a 'car' as defined. Section 69-10 of the GST Act will not apply to restrict input tax credits. If the car is used 100% for business use, the full amount of GST paid can be claimed as input tax credits. For example, where a racing car is designed and built from the ground up, or a standard passenger car is redesigned, stripped and rebuilt so that nature and fundamental design of the vehicle makes it incapable of being registered for use on public roads, it is not a 'car' as defined. Consequently, it is the Tax Office view that a modified 'car' remains a car, subject to the extent of modifications that remove it from the classification of cars. In this case the cars are used on the racetrack where customers can purchase 'laps' in the vehicles and experience driving a sports car. The cars are registered to be used on public roads in Australia by a relevant road traffic authority and that the cars are driven on public roads in circumstances where they are being moved to warehouse, refuelled, moved to charity events or taken for repairs. As the cars are registered and are in a class of vehicle suitable and capable of being registered for use on public roads in Australia, section 69-10 of the GST Act will apply to them and input tax credits available on their acquisition is limited to 1/11 th of the car limit.