A T O home
Legal Database
Access the database 
Browse database
View last document
Quick access 
View legislation
View a document
Email Cross Reference Material Previous/Next Section Contents Previous/Next Result
Printable version

ATO Interpretative Decision

ATO ID 2004/75 (Withdrawn)

Income Tax
Capital Allowances: cost - second element - initial motor vehicle registration, insurance and brokerage

Attention This ATO ID is withdrawn. Guidance on this issue can be found in Guide to depreciating assets 2016 (NAT 1996, PDF 623KB).
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 5 May 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Do registration, insurance and brokerage amounts paid by the taxpayer as lessor form part of the second element of cost of a motor vehicle under section 40-190 of the Income Tax Assessment Act 1997 (ITAA 1997)?


No. These amounts do not form part of the second element of cost of a motor vehicle under section 40-190 of the ITAA 1997.


The taxpayer is a finance provider and leases cars to lessees under arm's length commercial arrangements in the normal course of its business operations. The arrangements are not a hire purchase agreement as defined in subsection 995-1(1) of the ITAA 1997.

The taxpayer is the legal owner and holder of a car it leases to a lessee under item 10 of the table in section 40-40 of the ITAA 1997. The leased car is registered (with the State Government body that administers and levies motor vehicle registrations) in the name of the lessee. The taxpayer finances amounts for the registration and insurance of the leased car for the first year. Subsequent amounts for registration and insurance during the lease period are met by the lessee. The taxpayer also finances a once-only brokerage fee paid to a finance broker for sourcing the lease arrangement with the taxpayer.

Reasons for Decision

The cost of a depreciating asset consists of both the first and second elements (section 40-175 of the ITAA 1997). The first element of cost is worked out as at the time when the asset starts to be held (section 40-180 of the ITAA 1997) while the second element is worked out after that time (section 40-190 of the ITAA 1997).

Section 40-190 of the ITAA 1997 provides that the second element of cost is worked out after you start to hold the asset and includes, generally, the amount you are taken to have paid under section 40-185 of the ITAA 1997 for each economic benefit that has contributed to bringing the asset to its present condition and location.

An asset's condition refers to its general form, state or order and is represented by all of the economic benefits embodied in the asset. The registration, insurance and brokerage amounts are paid after the taxpayer starts to hold the car. The brokerage fee is for the sourcing of a finance provider and is not an amount paid for an economic benefit embodied in the car and so would not form part of the second element of cost.

Paragraph 2.90 of the Revised Explanatory Memorandum to the New Business Tax System (Capital Allowances) Act 2001 discusses the application of section 40-220 of the ITAA 1997 which reduces cost by any portion that is not of a capital nature. The paragraph contains an example that refers to the treatment of amounts for registration and insurance for a car. It notes that, while it could be argued that these amounts could be for an economic benefit that contributes to the asset's present condition, the expenditure is not capital or capital in nature and so would be excluded from cost.

Therefore amounts paid for registration, insurance and brokerage are not included in the car's second element of cost under section 40-190 of the ITAA 1997.

Date of decision: 14 January 2004

Year of income:Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   section 40-40
   section 40-175
   section 40-180
   section 40-185
   section 40-190
   section 40-220
   subsection 995-1(1)

Related ATO Interpretative Decisions
ATO ID 2004/73
ATO ID 2004/74

Other References
Revised Explanatory Memorandum to the New Business Tax System (Capital Allowances) Act 2001

Cost of a depreciating asset
Depreciating assets
Insurance expenses
Motor vehicle insurance
Second element of cost
Uniform capital allowances system

Siebel/TDMS Reference Number: 3736272; 1-AVBGU28

Business Line: Small Business/Individual Taxpayers

Date of publication: 23 January 2004

ISSN: 1445-2782

ATO ID 2004/75 (Withdrawn) history   Top  
   Date   Version 
   14 January 2004   Original statement   
 You are here ®   5 May 2017   Withdrawn   


Top of page
More information on page