The ATO has just released Tax Determination TD 2015/16 announcing the car limit for 2015/2016. The car limit remains unchanged at $57 466. This limit is relevant for working out the depreciation and GST claims on cars. Note it is not relevant for the purposes of Luxury Car Tax; which is a separate threshold.
The GST credit available on the acquisition of a business car is limited if the market value of the car, including any luxury car tax and GST, exceeds the car limit which applies for the financial year in which you start to use the car for any purpose. Where this is the case, the GST credit is limited to 1/11th of the applicable car limit. The limit applies to ‘cars’ (broadly, vehicles designed to carry a load of less than one tonne and fewer than nine passengers – motor cycles are excluded):
In July 2015, Steve buys a car for $80,000 (including GST and Luxury Car Tax) which is to be used 100% in his business. As the cost of Steve’s car exceeds the car limit, his GST credit is limited to $5,224 (1/11th of the 2015/2016 car limit of $57,466).
If the car was instead used only 90% for business purposes, then the maximum GST credit would be further reduced to $4,701 ($5,224 x 90%)
Note that the limit does not apply if you intend to use the car as trading stock, for research and development for the car’s manufacturer, or as a GST-free export. In these cases a full GST credit of 1/11th of the cost of the car may be claimed.
If the first element of the cost of a car exceeds the car limit, the cost of that car is reduced to the car limit. For depreciation purposes, in working out the cost, any available GST credit is deducted:
Following on from Example 1, for depreciation purposes the cost of the car would be reduced by the maximum available GST credit of $5,224. This reduces the cost to $74,776. As this still exceeds the 2015/2015 car limit, depreciation is calculated as if the cost was $57,466 (i.e. the claim is capped at this amount).
Assume instead that the car was purchased for $58,000. In this case, the maximum GST credit would remain at $5,224; meaning that the cost of the car for depreciation purposes would be reduced to $53,776. As this is now less than the 2015/2016 car limit, the depreciation claim is not capped. It can be worked out on the full GST-exclusive cost of the car ($52,776).