Taxable use of motor vehicles

(Clause 143)

Summary of proposed amendment

The Goods and Services Tax Act 1985 is to be amended so it expressly allows the taxable use of motor vehicles to be identified by using a three-month logbook period.

Application date

The amendment will apply from 1 April 2011.

Key features

Under the apportionment rules that came into force on 1 April 2011, a person can claim an input tax deduction by reference to the actual taxable use of goods or services, subject to certain exclusions.

The bill will amend the GST apportionment rules by inserting a cross-reference to the Income Tax Act 2007 to allow the actual taxable use of a motor vehicle to be identified by using the three-month logbook period. This method of identifying taxable and non-taxable use may also be used for identifying the intended taxable use of the motor vehicle as estimated on acquisition of the vehicle – which may be useful if the vehicle is purchased as a replacement for another motor vehicle for which usage has been determined by the logbook method.

Background

Before the introduction of the apportionment rules, Inland Revenue issued guidelines which allowed a person to identify the taxable use of a motor vehicle by reference to a three-month logbook method. Under that method, a logbook could be kept for a minimum of three months to work out the taxable and private use of the motor vehicle. The taxpayer could then use the result of the three-month record as the approximation of their taxable and private use over the next three years, unless the use of the vehicle changed by more than 20 percent.

As the new apportionment rules require taxpayers to be able to identify the actual taxable use of a motor vehicle, the rules arguably have the effect of overriding the logbook guidelines.

Expressly allowing taxpayers to use the three-month logbook method for GST and income tax purposes should decrease compliance costs for affected taxpayers.