EXPLANATORY STATEMENT
Select Legislative Instrument 2009 No. 54
Issued by authority of the Assistant Treasurer
Income Tax Assessment Act 1997
Income Tax Assessment Amendment Regulations 2009 (No. 2)
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 2008-09 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. Division 28 of the Act outlines the rules for calculating deductions for car expenses. The taxpayer can calculate a deduction for car expenses using one of four specified methods. The ‘cents per kilometre’ method in section 28-25 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 for more than 5,000 business kilometres, he or she must use one of the other methods outlined in Division 28 of the Act.
The cents per kilometre rates are updated every year by regulation. The rates are revised each year and the rates currently prescribed apply for the 2007-08 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 proposed rates for the 2008-09 income year are 7.8 per cent higher than the 2007‑08 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 | 63 |
Medium car | Exceeding 1600cc but not exceeding 2600cc | Exceeding 800cc but not exceeding 1300cc | 74 |
Large car | Exceeding 2600cc | Exceeding 1300cc | 75 |
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.
No consultation was undertaken on the Regulations. However, the process for updating the cents per kilometre rates is well established and is not controversial. No taxpayers are adversely affected by changes to the cents per kilometre rates.
The proposed Regulations would commence on the day after they are registered on the Federal Register of Legislative Instruments.
Overview
The Income Tax Assessment Amendment Regulations 2009 (No. 2) were enacted to update the ‘cents per kilometre’ rates for calculating deductions for car expenses for the 2008-09 income year. These regulations were issued by authority of the Assistant Treasurer under section 909-1 of the Income Tax Assessment Act 1997. The primary objective of these amendments is to ensure that the prescribed rates for the deduction of motor vehicle expenses align with the changes in the Private Motoring Subgroup within the Consumer Price Index. The rates are determined by the Department of Education, Employment, and Workplace Relations for the Australian Public Service and are updated annually to reflect any relevant changes. These regulations are also applicable under the Fringe Benefits Tax Assessment Act 1986, where the ‘basic car rate’ is defined to be the same as the rate prescribed under the Income Tax Assessment Act.
Scope and Application
The Income Tax Assessment Amendment Regulations 2009 (No. 2) are subordinate legislation made under section 909-1 of the Income Tax Assessment Act 1997. These Regulations are issued by authority of the Assistant Treasurer and primarily concern the update of the ‘cents per kilometre’ rates used for calculating deductions for car expenses for the 2008-09 income year. These rates are inserted into Part 2 of Schedule 1 of the Income Tax Assessment Regulations 1997. The purpose of these amendments is to provide taxpayers with the updated rates for claiming deductions for motor vehicle expenses incurred in the course of deriving assessable income or carrying on a business, as allowed under section 8-1 of the Act. The rates are determined based on the car’s engine capacity and are influenced by the Private Motoring Subgroup within the Consumer Price Index, as calculated by the Department of Education, Employment, and Workplace Relations for the Australian Public Service. The new rates apply to small, medium, and large cars, with small cars having a rate of 63 cents per kilometre, medium cars 74 cents, and large cars 75 cents. These Regulations also affect the Fringe Benefits Tax Assessment Act 1986, as the ‘basic car rate’ used in the FBTAA is aligned with the rates prescribed in the Income Tax Assessment Act 1997.
Key Provisions
The main sections of these regulations focus on updating the 'cents per kilometre' rates for calculating deductions for car expenses for the 2008-09 income year. According to section 28-25 of the Income Tax Assessment Act 1997 (the Act), the deduction for car expenses can be calculated using one of four specified methods, one of which is the 'cents per kilometre' method. This method allows taxpayers to multiply the number of business kilometres the car travelled during the year by a specified rate determined by the car’s engine capacity. The rates prescribed in these regulations apply specifically to the 2008-09 income year and are updated annually based on changes in the Private Motoring Subgroup within the Consumer Price Index.
The regulations impose specific obligations on taxpayers who wish to claim deductions for car expenses using the 'cents per kilometre' method. They must ensure that their car expenses are within the prescribed rates for the relevant income year, which in this case are 63 cents for small cars, 74 cents for medium cars, and 75 cents for large cars. Taxpayers must also ensure that they only claim deductions for the first 5,000 business kilometres using this method. If they exceed this limit, they must use one of the other specified methods outlined in Division 28 of the Act.
There are no explicit offences, penalties, or civil/criminal consequences mentioned for breaching these regulations. However, taxpayers who fail to comply with the correct method or exceed the prescribed rates may be subject to audit and review by the Australian Taxation Office (ATO). If the ATO finds that a taxpayer has incorrectly claimed deductions, they may need to repay the amount claimed, plus interest and penalties. The penalties for tax evasion or fraud can be severe, including fines and imprisonment, as outlined in the Income Tax Assessment Act 1997. It is essential for taxpayers to adhere to the correct methods and rates to avoid any potential consequences.