NEW YEAR, NEW CAR?

If you are thinking of a new vehicle this year, it is helpful to understand the rules around what can be claimed from a GST viewpoint and overall implications of the claims you can make depending on your choice of vehicle.

The Car Limit and Key Exceptions

According to the Collins dictionary, a car is a “motor vehicle with room for a small number of passengers”. In everyday life, this definition serves us well. It is simple, sensible and easy to understand. Unfortunately, in the world of tax and GST, nothing is simple, sensible or easy to understand, and this extends to the definition of a “car”!

The definition of a car is very important as it has a role to play in a whole raft of measures, some of which include:

• the so-called “Car Limit”, against which GST claims and depreciation deductions are calculated;

• the applicability of various fringe benefits tax (FBT) concessions and exemptions;

• the applicability of other indirect taxes such as luxury car tax (LCT);

• the manner in which personal income tax deductions are claimed.

Of these, it is the Car Limit - which serves to cap GST claims and depreciation claims for income tax purposes.

What is the Car Limit?

The Car Limit for the 2023/24 financial year is $68,108.

From a GST standpoint, the maximum GST credit you can claim on the purchase of a car (except in certain circumstances) is one-eleventh of the Car Limit, which is $6,191 in 2023/24.

From an income tax standpoint, the Car Limit represents the maximum value that can be used for calculating depreciation on the business use of a car first used or leased in the 2023/24 income year.

The Car Limit is indexed annually in line with movements in the motor vehicle purchase subgroup of the consumer price index (CPI).

For GST-registered businesses, the allowable GST credit (with reference to the Car Limit) should be calculated first. This is then subtracted from the cost of the vehicle and the resulting amount referenced against the Car Limit for a second time in determining the amount by which depreciation can be based for income tax purposes (noting that this calculation is, strictly speaking, the domain of the registered tax agent).

Exceptions

In certain circumstances you can claim a GST credit for the full amount of GST included in the price of a car even if the car costs more than the Car Limit. Those circumstance are where:

1. the vehicle is not considered to be a “car” in the first place; or

2. the vehicle is considered to be a car, but it is used in carrying on a business and at least one of the following conditions is met:

• the car is held solely as trading stock, other than for hire or lease;

• the car is held for the purposes of carrying out research and development for the manufacturer of the car;

• the car is exported in circumstances where the export is GST-free;

• the car is an emergency vehicle;

• the car is a commercial vehicle that is not designed for the principal purpose of carrying passengers;

• the car is a motor home or campervan; or

• the car is a vehicle specifically fitted out for transporting disabled people seated in wheelchairs. 

If purchasing a new car this year, even if you are using the car solely for business purposes, the cost limit will come into play where the purchase price exceeds the cost limit. This won’t come into play however, where the vehicle does not meet the definition of a “car” or is a “commercial vehicle not designed for the principal purpose of carrying passengers”. Each of these carve outs are complex in their own ways and you should turn to your bookkeeping technician at Integral Bookkeeping & Business Solutions or contact your accountant for further guidance.