Private ruling: Business deductions - promotional vehicle
Published: February 2012
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for the cost of purchasing a motor vehicle that is used in your business activities? | A1: No | Q2: Are you entitled to a deduction for the decline in value of a motor vehicle that is used in your business activities? | A2: Yes | Q3: Are you entitled to a deduction for the cost of restoring a motor vehicle that is used in your business activities? | A3: No | Q4: Are you entitled to a deduction for the running costs of a motor vehicle that is used in your business activities? | A4: Yes

Relevant facts and circumstances: The business wishes to widen its client base. You intend to restore a motor vehicle to its original condition, taking before and after photographs of the vehicle. These photographs would be used in advertising material for the business. The vehicle would be taken to events where it would be placed on display. These events would take place one or two times per month. During these events the following activities would also take place: Distribution of flyers and business cards Display of a signboard showing before and after photos of the motor vehicle's restoration Approach potential clients to discuss the quality of work the business produces and the results that can be achieved The restored motor vehicle will enable potential clients to view your finished product and provide owners of vehicles with proof that you are able to match and duplicate paint finishes, in a finish and standard that is undetectable. On a day-to-day basis, when the motor vehicle is not being used for business purposes, it will be stored in a shed with other business vehicles at the business address. The motor vehicle will not be utilised for any personal use.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 40-25 | Income Tax Assessment Act 1997 Section 40-175 | Income Tax Assessment Act 1997 Section 40-180 | Income Tax Assessment Act 1997 Section 40-185 | Income Tax Assessment Act 1997 Section 40-190

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. Advertising and marketing expenses are deductible under section 8-1 of the ITAA 1997 to the extent that the expenses are sufficiently related to the production of assessable income. In this situation you intend to restore a motor vehicle to its original condition, highlighting the standard services that the business can provide. The car will be photographed for promotional material and will be displayed at various events one to two times a month to promote the business. | Detailed Reasoning - Cost of purchasing motor vehicle: The cost of purchasing an asset is generally of a capital nature and is therefore not immediately deductible as an ordinary business expense. However, section 40-25 of the ITAA 1997 may allow a capital allowance deduction for the decline in value of a depreciating asset used for income-producing activities. A depreciating asset is an asset that has a limited effective life and that is reasonably expected to decline in value over the time it is used. A motor vehicle is considered to be a depreciating asset. You are not entitled to a deduction under section 8-1 of the ITAA 1997 for the purchase of the vehicle as it is capital in nature. However, a deduction will be allowed for decline in value in accordance with section 40-25 of the ITAA 1997 from the date the car is first held. | Detailed Reasoning - Restoration of motor vehicle: The decline in value of a depreciating asset is calculated on the basis of the cost of the asset to the particular taxpayer. The cost of a depreciating asset consists of both the first and second elements (section 40-175 of the ITAA 1997). The first element of cost is worked out at the time you begin to hold the asset. Generally the first element of cost is the amount paid, or taken to have been paid, to hold the asset (sections 40-180 and 40-185 of the ITAA 1997). The second element of cost is worked out after the taxpayer has begun to hold the asset. This element includes capital expenditure incurred in bringing the asset to its present condition and location (section 40-190 of the ITAA 1997). The motor vehicle will be considered to be a depreciating asset. It is considered that the intended work to restore the vehicle will result in an improvement to the vehicle's condition. Accordingly, these costs will be included as the second element of the cost base for the purposes of calculating the decline in value of the asset. Therefore, you will not be entitled to a deduction under section 8-1 for the cost of restoring vehicle. | Detailed Reasoning - Running costs: Non-capital costs associated with the maintenance of depreciating assets are deductible under section 8-1 of the ITAA 1997. Accordingly, you are entitled to a deduction for the running costs for the motor vehicle under section 8-1 of the ITAA 1997. | Detailed Reasoning - Apportionment for private use: It should be noted that where the vehicle is used for personal use, the deductions will need to be apportioned accordingly.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.