Edited version of private ruling

Authorisation Number: 1011824684967

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Ruling

Subject: Provision of Toyota Landcruiser GXL 200 Series Diesel vehicles-Exempt or Non Exempt Vehicles

Question 1

Are the Toyota Landcruiser GXL 200 Series Diesel four wheel drive vehicles provided by the Taxpayer to its employees eligible for exemption under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986?

Advice/Answer 1

No

This ruling applies for the following period

Year ended 31 March 2008

Year ended 31 March 2009

Year ended 31 March 2010

Year ended 31 March 2011

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

The scheme commences on:

1 April 2007

Relevant facts

The taxpayer purchased particular model vehicles. They were subsequently replaced in 2008 by Toyota Landcruiser GXL 200 Series Diesel vehicles for use as Company vehicles because of the suitability of this type of vehicle for the role. Towards the end of the recent year the 2008 model vehicles will be replaced with the latest model of Landcruisers.

The key features are:

1. The four wheel drive capability of the vehicles is required for performing duties on off-road 4WD tracks generally in poor condition.

2. Towing capacity of 3,500 kg for towing their heavy machinery.

3. Flexibility in its internal configuration to pack up seats to allow carriage of tools, stock, safety equipment and sign installation teams of up to 8 people.

4. Availability of industrial strength add-on features, such as strong roof racks to carry stock and ladders and safety features such as flashing lights, bull bar with winch for country driving and removal and installation of signage.

5. The vehicles have large side panels to accommodate company signage showing their presence in the field. Vehicle branding is a requirement of many customers when working on their property.

6. There are no other suitable vehicles in the market that are FBT exempt that meet all the above business requirements of the vehicles.

In daily use the vehicles are used for carrying people and equipment as well as towing trailers and cherry pickers. It is also used for delivering and picking up stock from sub-contractors and suppliers. While positioned on building sites the vehicle serves as part of taxpayer's safety equipment when the flashing lights are in use. The vehicles carry rotating lights at all times.

The signage and safety lights mounted on the roofracks, are permanently attached to the vehicles. They carry ladders, installation equipment and tools in readiness for the particular emergency work out of normal business hours.

The vehicles are predominantly used for legitimate business purposes and only for minimal personal use.

Toyota Landcruiser GXL 200-year of manufacture 2008 vehicles are listed as ineligible for exemption in the ATO's document 'Fringe benefits tax - exempt motor vehicles available on the ATO website: www.ato.gov.au

Assumptions

None

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Division Part 111

Fringe Benefits Tax Assessment Act 1986 Section 7

Fringe Benefits Tax Assessment Act 1986 Subsection 7(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 8(2)

Fringe Benefits Tax Assessment Act 1986 Section 136

Fringe Benefits Tax Assessment Act 1986 Section 136 (1) and

Income Tax Assessment Act 1997 995-1(1)

Reasons for decision

Question/Answer 1

Summary

The modifications made to the vehicles are not the type of permanent alterations outlined in Miscellaneous Taxation Ruling MT 2033. Therefore the Toyota Landcruiser GLX 200's design has not changed to a design that is not principally to carry passengers. Hence, the vehicles do not qualify for exemption under subsection 8(2) of the Fringe Benefits tax Assessment Act (FBTAA) 1986.

Detailed reasoning

The provisions relating to car fringe benefits are to be found in Division 2 of Part III of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

The term car is defined in subsection 136(1) FBTAA by reference to subsection 995-1(1) of the Income Tax Assessment Act 1997. The following types of vehicles (including four-wheel drive vehicles) come within the definition of a car.

· motor cars, station wagons, panel vans and utilities (excluding panel vans and utilities designed to carry a load of one tonne or more)

· all other goods-carrying vehicles designed to carry less than one tonne

· all other passenger-carrying vehicles designed to carry fewer than nine occupants.

Car benefits

Subsection 7(1) outlines the circumstances in which a car benefit will arise. In essence, the section states that a car benefit arises where a car is held and provided by:

(a) an employer;

(b) an associate of an employer; or

(c) some other person or entity under an arrangement with the employer

to an employee, or an associate of an employee, who applies the car to a private use

or where the car is taken to be available for private use

For the purposes of subsection 7(1) FBTAA, it is not relevant whether the car was used exclusively for business purposes or not.

The provision of the car benefit must be in respect of the employment of an employee, as per the definition of fringe benefit in subsection 136(1) of the FBTAA 1986, to be a fringe benefit potentially subject to fringe benefits tax.

However, under sub-sections 8(2) and 47(6) of the Fringe Benefits Tax Assessment Act ("the Act"), a liability for FBT will not arise where the private use of certain vehicles by employees during a particular year of tax is limited to certain work-related travel and non-work- related use that is minor, infrequent and irregular.

Work-related travel is defined in sub-section 136(1) of the FBTAA 1986 to be travel between the employee's residence and place of employment or other place at which employment duties are performed and any travel that is incidental to travel in the course of performing duties of employment.

The Taxpayer has requested a ruling that the Commissioner class the Toyota Landcruiser GXL 200 Series Diesel vehicles as FBT exempt vehicles under Taxpayer's specific circumstances.

Under sub-section 8(2) FBTAA, a vehicle may qualify for the exemption if, while classified as a car for the purposes of Division 2 of Part III of the Act, it is a taxi, panel van, utility truck or any other road vehicle that, while designed to carry a load of less than one tonne, is not designed for the principal purpose of carrying passengers.

Subsection 8(2) FBTAA states:

8(2) [Exempt vehicles]

A car benefit provided in a year of tax in respect of the employment of a current employee is an exempt benefit in relation to the year of tax if:

(a) the car is:

(i) a taxi, panel van or utility truck, designed to carry a load of less than 1 tonne; or

(ii) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

(b) there was no private use of the car during the year of tax and at a time when the benefit was provided other than:

(i) work-related travel of the employee; and

(ii) other private use by the employee or an associate of the employee, being other use that was minor, infrequent and irregular.

The ATO document Fringe benefits tax - exempt motor vehicles available on the ATO website lists the eligible and ineligible dual cab and four wheel drive vehicles and vans that would be exempt from FBT if the eligibility criteria for the exemption in the FBTAA are met. The list includes vehicles that are cars for FBT purposes that would be exempt where the eligibility criteria for exemption set out in subsection 8(2) FBTAA are met. The list is not exhaustive and consequently a car that meets the eligibility criteria for exemption set out in subsection 8(2) FBTAA will qualify as an exempt vehicle even if not on the list.

The Toyota Landcruiser GXL 200 specified by the TP is listed in this ATO document as ineligible for the exemption.

The Toyota Landcruiser GXL 200 Series Diesel as specified by the Tax Payer fall within the definition of a car. As the Toyota Landcruiser GXL 200 Series Diesel four wheel drive vehicle is not a taxi, panel van or utility truck, designed to carry a load of less than 1 tonne it can not qualify for the work related exemption under subparagraph (a)(i) in subsection 8(2) FBTAA above.

It remains to be considered whether the Toyota Landcruiser GXL 200 Series Diesel could qualify under subparagraph 8(2)(a)(ii) FBTAA as a vehicle not designed for the principal purpose of carrying passengers.

Miscellaneous taxation Ruling MT 2033 explains if certain permanent modifications are made to a car that is a vehicle designed principally to carry passengers its design may change such that it is no longer principally for carrying passengers. Hence it would qualify for exemption under subsection 8(2) of the FBTAA 1986.

The Toyota Landcruisers' features and use described by Tax Payer in the application (towing capacity ---, flexibility in its internal configuration to ----, availability of industrial strength add-on features such as ----, etc) do not alter the essential design of the car. This is established, broadly, by its designed seating and load carrying capacity.

Towing capacity is not relevant in determining whether the principal purposes of the vehicles to carry passengers.

There is no evidence of modifications to the Toyota Landcruisers that effect the type of permanent alterations outlined with MT 2033. Applying the MT 2033 guidelines, the add on features, attachments and towing capacity described in the application would not make the vehicle exempt under subsection 8(2) exemption.

The provision and use of the Toyota Land cruisers can not be treated as exempt benefits under subsection 8(2) FBTAA as they do not satisfy the conditions in subsection 8(2) FBTAA. Notwithstanding the of use to which the vehicles are put in Taxpayer's business, the vehicles are cars within the definition of a car in subsection 136(1) FBTAA and are designed for the principal purpose of carrying passengers and therefore specifically excluded from the category of motor vehicles to which the subsection 8(2) FBTAA exemption can apply.

The fact that the vehicles are predominantly used for business purposes and they provide sufficient space for the carriage of tools and installation equipment used in the business is also not relevant in determining if the use of the car is principally to carry passengers..

As explained above under clause 8(2)(a)(ii) cars will be capable of qualifying for the work-related use exemption only if the following test is satisfied -

 while having a designed load capacity of less than one tonne, they are not designed for the principal purpose of carrying passengers

Miscellaneous Taxation Ruling MT 2024 describes the method to be used in determining whether a dual cab vehicle is eligible for exemption where private use is limited.

MT 2024 paragraph 14 explains that the appropriate basis for determining this issue is whether or not the majority of the designed load capacity is attributable to passenger carrying capacity. It is understood that this approach is consistent with that adopted under the Australian Design Rules in determining what is a passenger vehicle.

MT 2024 paragraph 15, 16 &17 state :

15. For this purpose the designed passenger carrying capacity is to be determined by multiplying the designed seating capacity (including the driver's) by 68 kg, which is the figure adopted for the purposes of the application of the Australian Design Rules.

16. If the total passenger weight so determined exceeds the remaining "load" capacity, the vehicle is to be treated as being designed for the principal purpose of carrying passengers and as such ineligible for work-related use exemption.

The Toyota Landcruiser GXL 200 identified in the ruling application has

a designed seating capacity of eight and load carrying capacity of 575 KG. It would be considered to be a vehicle designed principally for the carriage of passengers. This is because using the approach consistent with that adopted under the Australian Design Rules more than 50% of the total load carrying capacity of 575 kgs of the Toyota Landcruiser GXL 200 would be absorbed by its designed passenger carrying capacity (8x68Kg=544kg).

However, Taxation Determination TD 94/19 states that this if the vehicle is a vehicle other than a dual cab then the method used to determine exemption eligibility in MT 2024 is not appropriate. TD 94/19 indicates that in determining the principal purpose for which any other vehicle was designed, in addition to having regard to the load carrying capacity regard should also be had to the following factors including, but not limited to, the following:

· the appearance and presentation of the vehicle

· any relevant promotional literature

· the emphasis evident in marketing

· the vehicle's specifications

· passenger carrying capacity.

As explained above more than 50% of the load carrying capacity of 575Kg is attributable to the passenger carrying capacity. However, the test, as outlined in MT 2024, is not determinative on its own and is only one factor in determining the principal purpose test in accordance with TD 94/19.

The appearance and presentation of the Toyota Landcruiser GXL 200 is that of 4WD people mover passenger vehicle designed for towing, offroad recreational and other offroad use. A segment of the market targeted is families with children. Families and recreational buyers are a significant segment of the market for the Toyota Landcruiser GXL 200 series.

The example in TD 94/19 indicates that even if more than 50% of the load capacity is attributable to the carriage of goods the vehicle would not automatically qualify for the exemption under section 8(2) FBTAA. The other factors listed in TD 94/19 also need to be taken into account.

Off road capability is typical of most wagons/ four-wheel drives in the market place. It does not matter that the Toyota Landcruiser GXL 200 is used predominantly for business purposes and minimal private use and the seats can be folded to make additional space for goods; the principal purpose of their design is for the transport of passengers.

It is the inherent design of the vehicle rather than the use to which the vehicle is put that is considered first for subsection 8(2) FBTAA exemption.

The appearance and presentation of the Toyota Landcruiser GXL 200 shows that the principal purpose of their design is for the transport of passengers. It is not marketed as principally for the purpose of carrying goods used for business or trade.

The specifications of the Toyota Landcruiser GXL 200 in the promotional literature specify a seating capacity of eight indicating its inherent design is that of a passenger carrying vehicle.

The key features listed by Tax Payer in the ruling application lack sufficient evidence to support a conclusion that the Toyota Landcruiser GXL 200 vehicles are not designed for the principal purpose of carrying passengers.

For the reasons stated above the Toyota Landcruiser GXL 200 will not be eligible for exemption status under subsection 8(2) FBTAA. The provision of the Toyota Landcruiser GXL 200 to an employee in respect of the employment of the employee will give rise to car fringe benefits by virtue of sections 7 and 136 FBTAA.

Note: The determination of the taxable value of car fringe benefits may be by one of two methods; the statutory formula contained in section 9 FBTAA or the operating cost basis in section 10 FBTAA.

The statutory formula will apply unless the employer elects to adopt the operating costs basis.

Under the operating cost method the percentage of private use is applied to total operating costs during the FBT year which is reduced by employee contributions. To use this method a log book must be kept for 12 consecutive weeks and the log book requirements must be met.

Operating cost method:

Taxable value = (A x B) - C

Where:

· · A is the total operating costs

· · B is the percentage of private use, and

· · C is the employee contribution

Provided that the employer adopts the operating cost method of valuing car benefits (section 10 of the Act) and the necessary log book requirements are satisfied, the operating cost method may result in a lower/minimal taxable value and FBT liability in circumstances where the vehicles are predominantly used for legitimate business purposes and only for minimal personal use

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