Private ruling: Depreciation car limit
Published: May 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the ute considered a car for depreciation purposes? | A1: Yes | Q2: Is the ute subject to the car limit for depreciation purposes? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 s ection 40-25 | Income Tax Assessment Act 1997 subsection 40-25(2) | Income Tax Assessment Act 1997 section 40-175 | Income Tax Assessment Act 1997 section 40-180 | Income Tax Assessment Act 1997 section 40-225 | Income Tax Assessment Act 1997 paragraph 40-230(1)(b) | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: Section 40-25 of the ITAA1997 allows a deduction for the decline in value of a depreciating asset to the extent that it is used for a taxable purpose. Subsection 40-25(2) of the ITAA 1997 states you must reduce your deduction by the part of the asset's decline in value that is attributable to your use of the asset, or your having it installed ready for use, for a purpose other than a taxable purpose. A depreciating asset's cost consists of two elements under section 40-175 of the ITAA 1997. | Detailed Reasoning - First Element: The first element is worked out at the time you begin to hold the asset and is generally the amount you paid for it (section 40-180 of the ITAA 1997). Included in the cost of the first element are items such as the delivery and installation costs. | Detailed Reasoning - Second Element: The second element generally consists of amounts paid since you started to hold the asset that have contributed to its present condition and location according to section 40-190 of the ITAA 1997. The first element of the cost of certain cars is subject to a limit. Subsection 40-230(1) provides that the first element of the cost of a car designed mainly for carrying passengers (after applying section 40-225 and Subdivision 27-B) 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 term 'car' is defined in subsection 995-1(1) 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.' If a ute is designed to carry a load of one tonne or more, it is not a 'car' as defined in subsection 995-1(1). Therefore, section 40-230 of the ITAA 1997 would not apply. In your case, the ute is considered a car for the purposes of section 40-230 of the ITAA 1997 as it is designed to carry fewer than 9 passengers and has a carrying capacity of less than one tonne. Therefore, the car limit does apply for the purposes of working out the ute's decline in value. Note : Where you use the ute to undertake travel to engage in work for the business, for the purpose of producing assessable income, you can deduct an amount for its depreciation under section 40-25 of the ITAA 1997. However, the deduction should be reduced by an amount that reasonably reflected the time when the motor vehicle is not used for a taxable purpose in your business activities.

Relevant facts: You intend to acquire a ute which seats two passengers. | The carrying capacity of the ute vehicle is under one tonne. | You intend using the ute for a taxable purpose.