Taxation Determination TD 2006/40
Date of effect: 31 May 2006




Examples: Example 1: 2. A taxpayer, who is registered for GST purposes, purchases a car designed mainly for carrying passengers in July 2005. The car is acquired solely for a creditable purpose . 3. The car had a purchase price of $77,000. The car limit for the 2005-06 financial years is $57, 009. The first element of the cost of the car ($77,000) is reduced by the input tax credit of $5,182 (1/11 of $57,009) that the taxpayer is entitled to for the acquisition of the car to $71,818. As this amount exceeds the car limit, the first element of the cost of the car will be further reduced to the car limit of $57,009 . | Example 2: 4. The taxpayer referred to in Example 1 purchases another car designed mainly for carrying passengers in July 2005. The car is acquired solely for a creditable purpose . 5. The car had a purchase price of $60,000. The car limit for the 2005-06 financial year is $57,009. The first element of the cost of the car ($60,000) is reduced by the input tax credit of $5,182 (1/11 of $57,009) that the taxpayer is entitled to for the acquisition of the car to $54,818. As this does not exceed the car limit, the first element of the cost of the car will not be further reduced under section 40-230 . Date of effect 6. This Determination applies to years of income commencing both before and after its date of issue. However, the Determination does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of the Determination. Commissioner of Taxation 31 May 2006 Explanation 7. Subsection 40-230(1) reduces the first element of the cost of a car designed mainly for carrying passengers to the car limit for the financial year in which the taxpayer starts to hold the car if the car's cost exceeds that limit. [3] However, if the acquisition or importation of the car also constitutes a creditable acquisition or creditable importation, the first element of the cost of the car is first reduced under Subdivision 27-B by any input tax credit the taxpayer is or becomes entitled to for the acquisition or importation of the car. [4] 8. The use of the words 'after applying Subdivision 27-B' in subsection 40-230(1) ensure that: 9. This ordering of the reductions to the first element of the cost of the car ensures that the reduction for any input tax credit does not apply after the first element of the cost of the car has been reduced to the car limit thereby reducing the first element of cost of the car below the car limit. Previously issued as Draft TD 2006/D11

Appendix: 7. Subsection 40-230(1) reduces the first element of the cost of a car designed mainly for carrying passengers to the car limit for the financial year in which the taxpayer starts to hold the car if the car's cost exceeds that limit. [3] However, if the acquisition or importation of the car also constitutes a creditable acquisition or creditable importation, the first element of the cost of the car is first reduced under Subdivision 27-B by any input tax credit the taxpayer is or becomes entitled to for the acquisition or importation of the car. [4] 8. The use of the words 'after applying Subdivision 27-B' in subsection 40-230(1) ensure that: 9. This ordering of the reductions to the first element of the cost of the car ensures that the reduction for any input tax credit does not apply after the first element of the cost of the car has been reduced to the car limit thereby reducing the first element of cost of the car below the car limit. Previously issued as Draft TD 2006/D11


Ruling: 1. Yes. Subsection 40-230(1) of the Income Tax Assessment Act 1997 [1] does reduce the first element of the cost of a car designed mainly for carrying passengers by the amount of any input tax credit the taxpayer is or becomes entitled to for the acquisition or importation of the car before the car limit is applied. [2]


Legislative references: TAA 1953 ANTS(GST)A 1999 69-10 ITAA 1997 Subdiv 27-B ITAA 1997 40-230 ITAA 1997 40-230(1) ITAA 1997 Subdiv 960-M
Subject references: car limit cost adjustments cost of a depreciating asset first element of cost input tax credit entitlement