Product Ruling PR 2013/14
Date of effect: 1 August 2012

What this ruling is about: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. 2. In this Product Ruling, the scheme involves the execution of a Business Vehicle Loan (BVL) with a Guaranteed Future Value (GFV), offered by Toyota Finance Australia Limited (TFA) with respect to new Toyota and Lexus Vehicles (Vehicles). 3. This Product Ruling does not: Class of entities 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as the Customer. 5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities who: 6. The class of entities who can rely on the Ruling section of this Product Ruling does not include entities who: Superannuation Industry (Supervision) Act 1993 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. Qualifications 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 26 of this Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then:

Class of entities or scheme: 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as the Customer. 5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities who: 6. The class of entities who can rely on the Ruling section of this Product Ruling does not include entities who: | Superannuation Industry (Supervision) Act 1993: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. | Qualifications: 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 26 of this Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 10. This Product Ruling applies prospectively from 1 August 2012. It therefore applies only to the specified class of entities that enter into the scheme from 1 August 2012 until 30 June 2016, being its period of application. This Product Ruling will continue to apply to those entities even after its period of application has ended for the scheme entered into during the period of application. 11. However the Product Ruling only applies to the extent that there is no change in the scheme or in the entity's involvement in the scheme. | Changes in the law: 12. Although this Product Ruling deals with the income tax laws enacted at the time it was issued, later amendments may impact on this Product Ruling. Any such changes will take precedence over the application of this Product Ruling and, to that extent, this Product Ruling will have no effect. 13. Entities who are considering participating in the scheme are advised to confirm with their taxation adviser that changes in the law have not affected this Product Ruling since it was issued. | Note to promoters and advisers: 14. Product Rulings were introduced for the purpose of providing certainty about tax consequences for entities in schemes such as this. In keeping with that intention the Commissioner suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling has issued. 15. Subject to paragraph 3 and the assumptions in paragraph 26 of this Ruling: 16. The scheme that is the subject of this Ruling is identified and described in the following documents: 17. For the purposes of describing the scheme to which this Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which a Customer, or any associate of a Customer, will be a party to, which are a part of the scheme. Capitalised terms have the meaning provided in the BVL. 18. All Australian Securities and Investments Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. | Overview: 19. As part of its business of offering a range of business vehicle finance, TFA offers some of its Customers registered for GST a GFV feature in its standard BVL for new Vehicles. The GFV feature is not offered in relation to Vehicles other than new Vehicles. 20. The BVL is comprised of the Business Vehicle Loan Standard Terms and Conditions Booklet containing the standard terms and conditions for a BVL and the Loan Offer - Toyota Access Business Vehicle Loan or the Loan Offer - Lexus Ownership Solutions Business Vehicle Loan containing the details of the loan. Under the terms of the BVL: 21. Customers have the following choices at the end of the term of the BVL (that is, when the final payment is due): 22. The final payment required to be made by a Customer who has selected the GFV feature under the BVL (the Last Repayment) is set at the GFV. The GFV is based on an assessment by TFA of a number of factors, including the term of the BVL and the Contract Usage during the contract term (as nominated by the Customer), expected fair wear and tear and the anticipated costs of disposal of the Vehicle at the end of the contract term. The GFV is set at the beginning of the term and fixed for the duration of the BVL. 23. If the Vehicle at the Appraisal date is not in good repair and working order (Fair Wear and Tear excepted) and/or has exceeded the Contract Usage such that it does not meet the Standard, but not so far below the Standard that the Credit Provider may inform the Customer that they may not sell the Vehicle to the Purchaser for the GFV, the GFV will be reduced by the Excess Usage Adjustment. The reduced GFV is the Adjusted GFV. 24. The GFV (or Adjusted GFV) is payable to the Customer in consideration for their sale of the Vehicle to the Purchaser and will be applied by the Purchaser against the Last Repayment. Where the Adjusted GFV is less than the Last Repayment, the Customer will be required to pay the balance outstanding to the Credit Provider out of their own funds. 25. When the Customer has agreed to sell the Vehicle to the Purchaser for the GFV (or Adjusted GFV) and, if necessary has paid to the Credit Provider any amount equal to the difference between the Adjusted GFV and the Last Repayment, the Credit Provider will immediately release its mortgage over the Vehicle and title to the Vehicle will then pass unencumbered to the Purchaser. Where, on the other hand, the Customer elects not to sell the Vehicle to the Purchaser for the GFV (or Adjusted GFV), the Customer is required to satisfy all their obligations under the BVL (without utilisation of the GFV mechanism). Where the Customer has satisfied all of their obligations under the BVL, the Credit Provider will then release its mortgage over the Vehicle. | Assumptions: 26. This Ruling is made on the basis of the following assumptions: Commissioner of Taxation 26 June 2013 | Deductibility of interest: Section 8-1: 27. Expenditure, including interest on money borrowed, is deductible under section 8-1 if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce a taxpayer's assessable income, provided that the expenditure is not of a capital, private or domestic nature. 28. The essential character of interest on money borrowed is a question of fact to be determined by reference to the objective circumstances of the use to which the borrowed funds are put by the borrower ( Federal Commissioner of Taxation v. Munro (1926) 38 CLR 153). 29. Interest paid on a borrowing used to acquire an income producing asset is generally treated as deductible under section 8-1 where it is expected that assessable income would be derived from the investment. Interest incurred by a Customer under a BVL which includes a GFV to finance the acquisition of a Vehicle used solely in the Customer's business or income producing activities therefore has sufficient connection with the gaining of assessable income to be deductible under section 8-1 in the year in which it is incurred. | Deductibility of capital expenditure: Division 40: 30. Division 40 provides a deduction for the decline in value of a depreciating asset held to the extent the asset is used for a taxable purpose (section 40-25). 31. A Vehicle is a depreciating asset. As the legal owner of the Vehicle from the time of its acquisition, a Customer under a BVL which includes a GFV is entitled to deduct an amount equal to the decline in value for an income year of the Vehicle it holds during that year pursuant to item 10 of the table in section 40-40. 32. Pursuant to the assumption at paragraph 27(b) of this Product Ruling, no part of the Vehicle's decline in value will be attributable to the Customer's use of the Vehicle for a purpose other than a taxable purpose (as defined in subsection 40-25(7)) and the deduction available under subsection 40-25(1) will therefore not be reduced pursuant to subsection 40-25(2). | Limited recourse debt: Division 243: 33. Division 243 provides that an amount must be included in your assessable income where, on the termination of a limited recourse debt (as defined in section 243-20), capital allowance deductions that have been obtained in respect of expenditure that is funded by the limited recourse debt are excessive having regard to the amount of unpaid debt. | Part IVA - anti-avoidance: 34. Provided that the scheme ruled on is entered into and carried out as disclosed in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply. 35. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: This Product Ruling has been given on the basis that the entity or the entities that applied for the Product Ruling, and their associates, will abide by its strict terms of use. Any failure to comply with the terms of use may lead to the withdrawal of this Product Ruling. 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. 2. In this Product Ruling, the scheme involves the execution of a Business Vehicle Loan (BVL) with a Guaranteed Future Value (GFV), offered by Toyota Finance Australia Limited (TFA) with respect to new Toyota and Lexus Vehicles (Vehicles). 3. This Product Ruling does not: | Class of entities: 4. This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as the Customer. 5. The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities who: 6. The class of entities who can rely on the Ruling section of this Product Ruling does not include entities who: | Superannuation Industry (Supervision) Act 1993: 7. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA. | Qualifications: 8. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 26 of this Ruling. 9. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then:


Appendix: Deductibility of interest: Section 8-1: 27. Expenditure, including interest on money borrowed, is deductible under section 8-1 if its essential character is that of expenditure that has a sufficient connection with the operations or activities which more directly gain or produce a taxpayer's assessable income, provided that the expenditure is not of a capital, private or domestic nature. 28. The essential character of interest on money borrowed is a question of fact to be determined by reference to the objective circumstances of the use to which the borrowed funds are put by the borrower ( Federal Commissioner of Taxation v. Munro (1926) 38 CLR 153). 29. Interest paid on a borrowing used to acquire an income producing asset is generally treated as deductible under section 8-1 where it is expected that assessable income would be derived from the investment. Interest incurred by a Customer under a BVL which includes a GFV to finance the acquisition of a Vehicle used solely in the Customer's business or income producing activities therefore has sufficient connection with the gaining of assessable income to be deductible under section 8-1 in the year in which it is incurred. | Deductibility of capital expenditure: Division 40: 30. Division 40 provides a deduction for the decline in value of a depreciating asset held to the extent the asset is used for a taxable purpose (section 40-25). 31. A Vehicle is a depreciating asset. As the legal owner of the Vehicle from the time of its acquisition, a Customer under a BVL which includes a GFV is entitled to deduct an amount equal to the decline in value for an income year of the Vehicle it holds during that year pursuant to item 10 of the table in section 40-40. 32. Pursuant to the assumption at paragraph 27(b) of this Product Ruling, no part of the Vehicle's decline in value will be attributable to the Customer's use of the Vehicle for a purpose other than a taxable purpose (as defined in subsection 40-25(7)) and the deduction available under subsection 40-25(1) will therefore not be reduced pursuant to subsection 40-25(2). | Limited recourse debt: Division 243: 33. Division 243 provides that an amount must be included in your assessable income where, on the termination of a limited recourse debt (as defined in section 243-20), capital allowance deductions that have been obtained in respect of expenditure that is funded by the limited recourse debt are excessive having regard to the amount of unpaid debt. | Part IVA - anti-avoidance: 34. Provided that the scheme ruled on is entered into and carried out as disclosed in this Ruling, it is accepted that the scheme is an ordinary commercial transaction and Part IVA of the ITAA 1936 will not apply.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information. | This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available , provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. If the scheme is not carried out as described, participants lose the protection of this Product Ruling. | Appendix 2 -Detailed contents list


Legislative references: ITAA 1936 Pt IVA ITAA 1997 ITAA 1997 8-1 ITAA 1997 Div 40 ITAA 1997 40-25 ITAA 1997 40-25(1) ITAA 1997 40-25(2) ITAA 1997 40-25(7) ITAA 1997 40-40 ITAA 1997 Div 230 ITAA 1997 Div 243 ITAA 1997 243-20 SISA 1993 TAA 1953
Case references: Federal Commissioner of Taxation v. Munro (1926) 38 CLR 153
Subject references: financial products interest product rulings public rulings taxation administration