EXPLANATORY STATEMENT
Select Legislative Instrument 2010 No. 74
Issued by authority of the Assistant Treasurer
Income Tax Assessment Act 1997
Income Tax Assessment Amendment Regulations 2010 (No. 4)
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 2008-09 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 (series ID A2326656J) within the Consumer Price Index (ABS catalogue number 6401.0).
The proposed rates for the 2009-10 income year would not change from the 2008‑09 rates and are as follows:
Description | Engine capacity of car not powered by a rotary engine (cc) | Engine capacity of car powered by a rotary engine (cc) | 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 Regulations would commence on the day after they are registered on the Federal Register of Legislative Instruments.
Overview
The Income Tax Assessment Amendment Regulations 2010 (No. 4), issued under the authority of the Assistant Treasurer, provide the ‘cents per kilometre’ rates for calculating deductions for car expenses for the 2008-09 income year. These regulations are made under the authority of section 909-1 of the Income Tax Assessment Act 1997, which allows the Governor-General to make regulations necessary for carrying out or giving effect to the Act. The purpose of these specific regulations is to update the rates used in the ‘cents per kilometre’ method for calculating car expense deductions, which are based on the car's engine capacity and are prescribed in the Income Tax Assessment Regulations 1997. These rates are annually updated to reflect changes in the Consumer Price Index, ensuring they remain relevant and reflective of current economic conditions. The rates are consistent for the 2009-10 financial year and are used not only for income tax purposes but also for the purposes of the Fringe Benefits Tax Assessment Act 1986, aligning the treatment of car expenses across different tax frameworks.
Scope and Application
The Income Tax Assessment Amendment Regulations 2010 (No. 4) applies to individuals and entities that incur motor vehicle expenses in the course of deriving assessable income or carrying on a business. This includes taxpayers who opt to calculate their car expenses using the ‘cents per kilometre’ method, which allows them to claim a deduction based on the number of business kilometres travelled multiplied by a specified rate. The method is applicable for the first 5,000 business kilometres of the year of income. The rates prescribed in the regulations are based on the car’s engine capacity and are updated annually to reflect changes in the Consumer Price Index. These regulations apply across the Commonwealth of Australia and align with the Income Tax Assessment Act 1997 and the Fringe Benefits Tax Assessment Act 1986. The regulations also specify that no consultation was undertaken due to the well-established process for updating these rates, and no taxpayers are adversely affected by the changes. The rates prescribed apply specifically for the 2008-09 financial year and would commence on the day after the regulations are registered on the Federal Register of Legislative Instruments.
Key Provisions
The Income Tax Assessment Amendment Regulations 2010 (No. 4) (the Regulations) insert the 'cents per kilometre' rates for calculating deductions for car expenses for the 2008-09 income year into Part 2 of Schedule 1 of the Income Tax Assessment Regulations 1997 (the Principal Regulations) (reg 1). The rates vary based on the engine capacity of the car and are determined according to the Consumer Price Index (CPI) (reg 1). The rates prescribed in the Regulations are set at 63 cents per kilometre for small cars, 74 cents for medium cars, and 75 cents for large cars (reg 1).
The Regulations impose obligations on taxpayers who wish to claim deductions for car expenses incurred in the course of deriving assessable income or carrying on a business. Taxpayers must use the prescribed 'cents per kilometre' rates when calculating their deductions, provided they have travelled 5,000 business kilometres or less (s 28-25, Act). The rates apply to both private and business use of a car and are updated annually by regulation (s 28-25, Act). In addition, the Regulations apply to the calculation of fringe benefits under the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) (s 136(1), FBTAA 1986).
Breach of the Regulations may result in the taxpayer being unable to claim a deduction for car expenses, which may lead to an increased tax liability. There are no specific criminal or civil penalties prescribed for breach of the Regulations. However, taxpayers who fail to comply with the requirements of the Act and Regulations may be subject to penalties under section 284 of the Act or section 284A of the FBTAA 1986, which may include fines or imprisonment in certain circumstances. The maximum penalty for failure to comply with the Act or FBTAA 1986 is generally dependent on the degree of negligence or intentional disregard of the law and can range from a fine of up to $22,200 for individuals to a fine of up to $111,000 for corporations (s 284, Act; s 284A, FBTAA 1986).