EXPLANATORY STATEMENT
Select Legislative Instrument 2011 No. 57
Issued by authority of the Assistant Treasurer
Income Tax Assessment Act 1997
Income Tax Assessment Amendment Regulations 2011 (No. 3)
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 tax deductions for car expenses for the 2010-11 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 2009-10 financial year. The rates in the Principal Regulations 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 rates for the 2010-11 income year would not change from the 2009‑10 rates because the Private Motoring Subgroup index at September 2010 was still below its level at September 2008 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 2011 (No. 3) were enacted to insert the ‘cents per kilometre’ rates for calculating tax deductions for car expenses for the 2010-11 income year into the Income Tax Assessment Regulations 1997. This legislative instrument was introduced by the Assistant Treasurer and issued by authority of the Parliament, aiming to address the annual update of the rates for motor vehicle expenses, which are a significant consideration for taxpayers utilising the ‘cents per kilometre’ method under Division 28 of the Income Tax Assessment Act 1997. This method allows taxpayers to claim a tax deduction for the number of business kilometres a car travels, subject to a prescribed rate based on the car's engine capacity. The policy objective is to ensure that the tax system remains responsive to economic changes, particularly as reflected in the Consumer Price Index, while providing clarity and certainty for taxpayers in their compliance with tax obligations.
Scope and Application
The Income Tax Assessment Amendment Regulations 2011 (No. 3) apply to taxpayers who are eligible to claim deductions for motor vehicle expenses incurred in the course of deriving assessable income or carrying on a business under section 8-1 of the Income Tax Assessment Act 1997. These regulations specifically address the calculation of such deductions using the 'cents per kilometre' method outlined in Division 28 of the Act, particularly for the 2010-11 income year. The rates prescribed by these regulations are determined by the car’s engine capacity and are applied to both individual taxpayers and entities such as companies and partnerships that incur business-related motor vehicle expenses. The regulations are applicable across Australia and fall under the jurisdiction of the Commonwealth. While the regulations are extensive, they do not include any specific exclusions or exemptions beyond the scope of the methods for calculating deductions as prescribed in the Act. The rates prescribed in these regulations extend their application to fringe benefits tax as defined under the Fringe Benefits Tax Assessment Act 1986, ensuring consistency in the tax treatment of such expenses. The regulations are made pursuant to section 909-1 of the Income Tax Assessment Act 1997 and come into effect on the day after they are registered on the Federal Register of Legislative Instruments.
Key Provisions
The main sections of the Income Tax Assessment Amendment Regulations 2011 (No. 3) are focused on inserting the cents per kilometre rates for calculating tax deductions for car expenses for the 2010-11 income year. Section 28-25 of the Income Tax Assessment Act 1997 (ITAA 1997) allows taxpayers to use this method to calculate their deductions, and the rates are updated annually. For the 2010-11 income year, the rates have remained unchanged from the previous year due to the Private Motoring Subgroup index remaining below its level at September 2008. The rates are determined by the engine capacity of the car and are classified into three categories: small cars, medium cars, and large cars. The rates are 63 cents per kilometre for small cars, 74 cents per kilometre for medium cars, and 75 cents per kilometre for large cars.
These Regulations impose specific obligations on taxpayers who use the ‘cents per kilometre’ method to claim deductions for car expenses. They must ensure that they adhere to the prescribed rates for the relevant financial year, which are detailed in the Regulations. The rates are based on the engine capacity of the car and must be correctly applied when calculating the deductible amount. Furthermore, the Regulations also impact the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986), as the ‘basic car rate’ used in the calculation of the taxable values of certain fringe benefits is aligned with the rates prescribed in section 28-25 of the ITAA 1997.
Failure to comply with the prescribed rates set out in these Regulations may lead to incorrect tax deductions, which can result in various consequences. If a taxpayer incorrectly claims a deduction that exceeds the allowable amount, they may be required to repay the excess amount, along with any applicable interest. Additionally, the Australian Taxation Office (ATO) may impose penalties for incorrect claims, which can include fines or other financial penalties. It is important for taxpayers to ensure that they accurately calculate their deductions in accordance with the prescribed rates to avoid any potential issues with the ATO.