Edited version of private ruling

Authorisation Number: 1011458572921

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Ruling

Subject: LCT and modification of a four wheel drive station wagon

Question

Is luxury car tax (LCT) applicable to the sale of a new four wheel drive station wagon which is modified with a dropsied body to accommodate commercial goods carrying prior to sale, delivery and registration?

Answer: Yes.

LCT is applicable to the sale of a new four wheel drive station wagon which is modified with a dropsied body to accommodate commercial goods carrying prior to sale, delivery and registration.

Relevant facts

You are a motor vehicle dealership.

You are registered for goods and services tax (GST) and have an Australian business number (ABN).

You are selling a new four-wheel drive station wagon (the vehicle) to a client.

The recommended retail price (RRP) of the vehicle is over $70,000 including GST and LCT.

Prior to delivery to the client, the vehicle is modified with a drop-side rear tray to accommodate the carrying of commercial goods.

The modification is to cut and shorten the chassis and fit a drop-side rear tray to accommodate the carrying of commercial goods.

The modification will decrease the passenger carrying capacity of the vehicle from 8 persons to 5 persons.

The vehicle will be ultimately sold as a dual cab drop side utility with a load carrying capacity which exceeds the total passenger carrying capacity.

The cost of the modification is $14,500.

The sale price of the vehicle will exceed the LCT threshold, which is $57,466 for the 2010/2011 financial year.

The invoice for the modification is sent to you and the cost is then added to the total amount invoiced to the client for the vehicle.

Reasons for decision

Section 25-1 of the A New Tax System (Luxury Car Tax) Act 1999, (LCT Act), provides that a luxury car is a car with a value which exceeds the LCT threshold.

Pursuant to section 27-1 of the LCT Act a car is a motor vehicle (except a motor cycle or similar vehicle) that is:

· designed to carry a load of less than two tonnes and fewer than nine passengers; or

· a limousine (regardless of the number of passengers it is designed to carry).

Section 27-1 of the LCT Act also provides that a motor vehicle means a motor-powered road vehicle (including a four wheel drive vehicle).

Paragraph 2.10 of the Explanatory Memorandum to the LCT Act provides that the definition of a car includes all passenger cars including station wagons, all four wheel drives, light trucks, motor homes, campervans and hearses.

The current Tax Office view is contained in Guide to Luxury Car Tax (NAT 3394) which states the following:

Vehicles designed for either the principal purpose of carrying passengers (including paying passengers), or sport or recreation purposes, are not commercial vehicles, and may be subject to LCT.

These vehicles include:

· station wagons

· passenger sedans

· people movers, and

· sports utility vehicles (SUV's).

The vehicle is advertised by the manufacturer on its website in the 4WD and SUV category.

There is nothing to indicate that this vehicle is anything other than a vehicle designed to carry passengers. Its appearance and presentation is that of a 4-door SUV, capable of carrying up to 8 passengers. As such, the Tax Office view is that this vehicle fits all of the criteria of a luxury car.

Paragraph 2.10 of the Explanatory Memorandum to the LCT Act provides that the definition of a car includes all passenger cars, station wagons, all four wheel drives and light trucks. It is therefore considered that the appearance and presentation of the vehicle fit the definition of a car for LCT purposes, the principal purpose of which is designed for the carriage of passengers, not goods for commerce or trade.

It should be noted that any subsequent modification made to this vehicle will not, in itself, change the purpose for which the vehicle was designed, and therefore the vehicle remains subject to LCT.

The price of the vehicle prior to modification is more than the LCT threshold of $57,466 for the 2010-2011 financial year. Its classification as an SUV means that it is also a car for the purposes of the LCT Act; this is despite the modification effectively changing the vehicle into a "dual-cab" vehicle capable of carrying both passengers and goods for commerce and trade. The vehicle is not a vehicle of a kind to which an LCT exemption is capable of being applied; i.e. it cannot be classified as a commercial vehicle, such as a truck or a van, designed for the principal purpose of carrying goods for business or trade. Therefore, it will be subject to LCT prior to commencement of the required modification.

Subdivision 5-20(3) of the LCT Act provides that:

3. The *luxury car tax value of a *car includes the *price of all supplies in relation to the car that are made to, or are paid for by, the *recipient of the car or an *associate of the recipient and that are:

(a) made before the *end supply of the car; or

(b) made under an arrangement made with the supplier of the car, or with an associate of the supplier, at or before the time of the end supply.

* asterisked terms are found in the Dictionary at section 195-1.

In this instance

· the vehicle is modified before it is supplied to the client, who is then invoiced for the total cost of the vehicle plus modifications; and

· the arrangement to modify the vehicle is made with you before the delivery of the modified vehicle to the client.

Therefore, as all the conditions of subsection 5-20(3) above are satisfied, the LCT value of the vehicle will include the price of the modification.

In relation to your advice that the load carrying capacity of the vehicle after modification will exceed the total passenger carrying capacity, we advise that load carrying capacity is just one of the tests applied to determine the principal purpose for which a vehicle is designed. In this instance the vehicle being modified was clearly designed as a passenger vehicle. The key word here is "designed" ~ the principal purpose of the manufacturer was to design a vehicle to carry passengers, not goods for commerce or trade. Therefore, in this instance, modification to the original design does not automatically change the principal purpose for which this vehicle was originally designed.

Conclusion

The modification carried out on the vehicle; removing part of the chassis and adding a "dropsied body" (sic) to accommodate the carrying of commercial goods; does not alter its inherent design, which is that of a car for LCT purposes.

Therefore as the price of this vehicle including modification, will be more than the LCT threshold, it will be subject to LCT.

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