The motor vehicle cost limit is $57,180 for the 2010 financial year and $57,466 for the 2011 year.
The luxury car limit only applies to the depreciation deductions in relation to motor vehicles. The luxury car limit does not affect interest deductions claimed on vehicle loans.
Generally, if you purchase a car and the price is more than the car limit, the maximum amount of GST credit you can claim is one-eleventh of that limit. Therefore, for 2010, the maximum GST credit you can claim is $5,198 (that is, 1/11 x $57,180).
This means that the maximum cost base for depreciation purposes is only $51,982. The excess cost over $57,180 is non-depreciable and therefore non-deductible.
For example, if you purchased a vehicle for $70,000 in 2010, $12,820 would never be depreciable for income tax purposes. To make matters worse, if the same vehicle was subject to fringe benefits tax, the full original cost would be used as the FBT cost base. This can make it very expensive to hold luxury cars in a company or Trust, especially where the private use is high or where no log books are kept.
Leased Luxury Cars
For income tax purposes, there are special rules for leasing of luxury cars.
Where a car is leased with a cost that exceeds the depreciation cost limit, the lease is treated as a notional sale and loan transaction for tax purposes (similar to a hire purchase). That is, the lessor (finance company) is treated as having sold the car to the lessee (the business) and made a loan to the lessee to finance the cost of the notional acquisition.
The lessee cannot claim a deduction for the lease payments but can claim depreciation deductions and interest deductions based on the notional loan.
The lessee can only claim depreciation on the car up to the depreciation cost limit. That is, when calculating depreciation deductions you assume that the car was purchased for the luxury car limit.
If you lease a car, you may be entitled to claim a GST credit for the GST included in each lease payment, based on the amount you use the car in carrying on your business. The amount of GST credit you can claim for GST included in the lease payments is not limited to one-eleventh of the car limit.
Luxury Car Tax
A luxury car is a car that has a GST-inclusive value that is higher than the luxury car tax threshold ($57,180 in the 2010 year). You can not claim a credit for any luxury car tax you pay when you purchase a luxury car, regardless of how much you use the car in carrying on your business.