EXPLANATORY STATEMENT
Select Legislative Instrument 2008 No. 35
Issued by authority of the Assistant Treasurer
Income Tax Assessment Act 1997
Income Tax Assessment Amendment Regulations 2008 (No. 1)
Section 909‑1 of the Income Tax Assessment Act 1997 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
The purpose of the amending regulations is to insert the ‘cents per kilometre’ rates for calculating deductions for car expenses for the 2007-08 income year in Part 2 of Schedule 1 to the Income Tax Assessment Regulations 1997 (the Principal Regulations).
Motor vehicle expenses incurred in the course of deriving assessable income or carrying on a business are tax deductible under section 8-1 of the Act. The taxpayer can calculate a deduction for car expenses using one of four specified methods outlined in Division 28 of the Act. The ‘cents per kilometre’ method in section 28-25 of the Act is one of the four methods available to taxpayers. To calculate the deduction under the ‘cents per kilometre’ method, the number of business kilometres the car travelled during the year of income is multiplied by a specified number of cents. The cents per kilometre rate is determined in relation to the car’s engine capacity and is prescribed in the Principal Regulations. This method can be used for the first 5,000 business kilometres only. If a taxpayer wishes to claim more than 5,000 business kilometres, he or she must use one of the other methods outlined in Division 28 of the Act.
The number of cents used in the ‘cents per kilometre’ method are set out in Part 2 of Schedule 1 to the Principal Regulations. The rates are revised each year and the rates currently prescribed apply for the 2006-07 financial year. The rates in the Principal Regulations are based on the rates of motor vehicle allowance calculated by the Department of Education, Employment, and Workplace Relations for general use of the Australian Public Service and increase when there is an upward movement of the Private Motoring Subgroup within the Consumer Price Index.
The rates for the 2007-08 income year did not change from the 2006-07 rates and are as follows:
Description | Engine capacity of car not powered by a rotary engine (cubic centimetres) | Engine capacity of car powered by a rotary engine (cubic centimetres) | Rate per kilometre (cents) |
Small car | Not exceeding 1600cc | Not exceeding 800cc | 58 |
Medium car | Exceeding 1600cc but not exceeding 2600cc | Exceeding 800cc but not exceeding 1300cc | 69 |
Large car | Exceeding 2600cc | Exceeding 1300cc | 70 |
The Regulations are also relevant for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986). The definition of ‘basic car rate’ in subsection 136(1) of the FBTAA 1986 provides that the rate is the same as that prescribed for the purposes of section 28‑25 of the Act. ‘Basic car rate’ is used in the calculation of the taxable values of a number of fringe benefits.
The Regulations commenced on the day after they were registered on the Federal Register of Legislative Instruments.
Overview
The Income Tax Assessment Amendment Regulations 2008 (No. 1) were enacted to update the ‘cents per kilometre’ rates for calculating deductions for car expenses for the 2007-08 income year, as required under the Income Tax Assessment Act 1997. These regulations were made by the Governor-General under section 909-1 of the Act and are intended to ensure that taxpayers can accurately claim deductions for motor vehicle expenses incurred in the course of deriving assessable income or carrying on a business. The rates are prescribed in Part 2 of Schedule 1 to the Income Tax Assessment Regulations 1997 and are based on the rates of motor vehicle allowance calculated by the Department of Education, Employment, and Workplace Relations. These regulations also have implications under the Fringe Benefits Tax Assessment Act 1986 by aligning the ‘basic car rate’ with the rates prescribed under the Income Tax Assessment Act 1997. The policy objective is to provide clarity and consistency in the tax treatment of car expenses for the specified income year.
Scope and Application
The Income Tax Assessment Amendment Regulations 2008 (No. 1) amend the Income Tax Assessment Regulations 1997 by inserting the 'cents per kilometre' rates for calculating deductions for car expenses for the 2007-08 income year. These regulations apply to individuals and businesses that incur motor vehicle expenses in the course of deriving assessable income or carrying on a business. Under the Income Tax Assessment Act 1997, taxpayers can choose from four specified methods to calculate a deduction for car expenses, with the 'cents per kilometre' method being one of them. This method is applicable only for the first 5,000 business kilometres travelled by the car during the year of income. The prescribed rates for the 2007-08 income year, determined based on the car’s engine capacity, did not change from the 2006-07 rates and are set at 58 cents for small cars, 69 cents for medium cars, and 70 cents for large cars. These regulations are also relevant for the purposes of the Fringe Benefits Tax Assessment Act 1986, as they influence the 'basic car rate' used in the calculation of the taxable values of certain fringe benefits. The regulations extend to the Commonwealth and commenced on the day after they were registered on the Federal Register of Legislative Instruments.
Key Provisions
The Income Tax Assessment Amendment Regulations 2008 (No. 1) primarily focus on updating the ‘cents per kilometre’ rates for calculating deductions for car expenses for the 2007-08 income year. This is achieved by amending Part 2 of Schedule 1 to the Income Tax Assessment Regulations 1997 (Principal Regulations). Section 28-25 of the Income Tax Assessment Act 1997 (the Act) allows taxpayers to calculate a deduction for car expenses using the ‘cents per kilometre’ method, provided the car travelled 5,000 business kilometres or less during the year. The rates for this method are determined by the car’s engine capacity and are prescribed in the Principal Regulations. The rates for the 2007-08 income year remained unchanged from the previous year, with a rate of 58 cents for small cars, 69 cents for medium cars, and 70 cents for large cars, based on the engine capacity of the vehicle.
These Regulations impose specific obligations on taxpayers and entities involved in the calculation of car expenses deductions. They require taxpayers to use the prescribed ‘cents per kilometre’ rates to calculate their deductions for motor vehicle expenses incurred in the course of deriving assessable income or carrying on a business. For taxpayers who use the ‘cents per kilometre’ method, it is imperative that they accurately determine the appropriate rate based on the car's engine capacity and ensure they do not exceed the 5,000 business kilometre limit for this method. Furthermore, the Regulations mandate that these rates must be adhered to for the purposes of the Fringe Benefits Tax Assessment Act 1986, where the ‘basic car rate’ is defined as the same rate prescribed for section 28-25 of the Act. This consistency ensures uniformity in tax treatment across different areas of taxation.
The Regulations do not explicitly outline specific offences, penalties, or consequences for non-compliance. However, under the broader framework of the Income Tax Assessment Act 1997 and the Fringe Benefits Tax Assessment Act 1986, penalties for incorrect or misleading statements, failure to comply with tax obligations, or providing false or misleading information can be severe. These penalties can include fines, interest on unpaid tax, and in some cases, criminal prosecution. The specific penalties are detailed in the respective Acts and can vary depending on the nature and extent of the non-compliance. Taxpayers are encouraged to adhere to the prescribed rates and methods to avoid any potential penalties or legal consequences.