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Subject: Fringe benefits tax: use of a modified vehicle

Question

Will the use of the modified vehicle to transport an employee between the employee's place of residence and employment be an exempt benefit under subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

This ruling applies for the following periods:

Year ending 31 March 2012

Year ending 31 March 2013

Year ending 31 March 2014

Year ending 31 March 2015

The scheme commences on:

1 April 2011

Relevant facts and circumstances

Due to security concerns you provide a modified vehicle to employees to use when travelling between their place of residence and place of employment.

Following the modifications the specifications of the vehicle changed as follows:

Gross vehicle weight as specified on the compliance plate by the manufacturer:

Base vehicle weight: x kg

Modified vehicle weight y kg

The basic kerb weight

Base vehicle weight d kg

Modified vehicle weight e kg

The vehicle can carry up to 5 passengers

The maximum carrying weight of passengers and equipment

Base vehicle c kg

Modified vehicle f kg

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Will the use of the modified vehicle to transport an employee between the employee's place of residence and employment be an exempt benefit under subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Generally, travel between an employee's residence and place of employment will be a private journey. A fringe benefit may arise when a vehicle held by the employer is used for this travel.

The fringe benefit may be a car fringe benefit if the travel is undertaken in a car. Alternatively, the travel may be a residual fringe benefit if the vehicle is not a car.

In determining whether the benefit is a car benefit or a residual benefit it is necessary to initially consider whether the vehicle is a car.

The definition of 'car' in subsection 136(1) of the FBTAA adopts the definition of 'car' contained in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

Subsection 995-1(1) of the ITAA 1997 defines a 'car' to mean:

… a ^*motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers

In applying this definition, the modified vehicle that is used to transport the employee will be a car if it is:

· a motor vehicle;

· not a motor cycle or similar vehicle; and

· is designed to carry a load of less than 1 tonne and fewer than 9 passengers.

Each of these conditions are considered in relation to the modified vehicle below:

Is the modified vehicle a motor vehicle?

Subsection 136(1) of the FBTAA adopts the definition of 'motor vehicle' contained in subsection 995-1(1) of the ITAA 1997.

Subsection 995-1(1) of the ITAA 1997 defines a 'motor vehicle' to mean:

… any motor-powered road vehicle (including a 4 wheel drive vehicle).

The modified vehicle comes within this definition.

Is the modified vehicle a motor bike or similar vehicle?

Although the term 'motor bike' is not defined in either the FBTAA or the ITAA 1997, it is accepted the modified vehicle is not a motor bike or similar vehicle.

Is the modified vehicle designed to carry a load of less than 1 tonne and fewer than 9 passengers?

This condition contains two requirements.

Is the modified vehicle designed to carry a load of less than 1 tonne?

Guidance for determining whether a vehicle is designed to carry a load of less than 1 tonne is provided in Taxation Ruling MT 2024 Fringe Benefits Tax: Dual cab vehicles eligibility for exemption.

Paragraphs 11 and 12 of MT 2024 state:

11. Consistent with that approach, the designed load capacity of a motor vehicle is to be taken as the gross vehicle weight as specified on the compliance plate by the manufacturer (broadly, the maximum all-up loaded weight), reduced by the basic kerb weight of the vehicle. For this purpose, basic kerb weight is synonymous with unladen weight, as specified in the Australian Design Rules, being the weight of the vehicle with a full tank of fuel, oil and coolant together with spare wheel, tools (including jack) and installed options. It does not include the weight of goods or occupants.

12. In the case of cab/chassis vehicles, the designed load capacity is to be ascertained after the body has been fitted to the vehicle, i.e. to satisfy the one tonne test, the margin between the gross vehicle weight and the basic kerb weight must not be less than one tonne plus the weight of the body which is ultimately attached to the vehicle.

As set out in paragraph 11 the designed load capacity of a motor vehicle is the gross vehicle weight as specified on the compliance plate by the manufacturer reduced by the basic kerb weight of the vehicle. If this test was applied to the base vehicle weight the load capacity would be less than one tonne.

However, paragraph 12 provides that in the case of cab/chassis vehicles, the designed load capacity of the vehicle is to be ascertained after the body has been fitted to the vehicle. This inclusion of the weight of the body which is ultimately attached to the vehicle will equally apply to the situation being considered in a similar manner to the hearse referred to in paragraph 8 of Taxation Ruling MT 2033.

If the weight of the modifications is included, the difference between the gross vehicle weight and the basic kerb weight is more than one tonne. Therefore, the modified vehicle is not designed to carry a load of less than one tonne.

Is the modified vehicle designed to carry fewer than nine passengers?

The modified vehicle is designed to carry up to five passengers. Although this is less than nine, the modified vehicle is not considered to be a car as it is not designed to carry a load of less than one tonne.

As the modified vehicle is not a car, a car benefit will not arise from the private use of the vehicle. Instead, a residual benefit will arise from the private use of the vehicle.

Will the residual benefit be an exempt benefit?

Under subsection 47(6) of the FBTAA, the private use of a vehicle that is not a car may be an exempt benefit when the specified conditions are met.

Subsection 47(6) of the FBTAA states

[Motor vehicles] Where -

(a) a residual benefit consisting of the provision of a motor vehicle is provided in a year of tax in respect of the employment of a current employee;

(aa) the motor vehicle is not:

(i) a taxi let on hire to the provider; or

(ii) a car, not being:

(A) a panel van or utility truck; or

(B) 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 motor vehicle 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 of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular;

the benefit is an exempt benefit in relation to the year of tax.

Therefore, the private use of the modified vehicle will be an exempt benefit where:

· the benefit is a residual benefit that consists of the provision or use of a motor vehicle;

· the motor vehicle is not a taxi, or a car designed principally to carry passengers; and

· the private use of the vehicle is restricted to 'work-related travel' of the employee and other private use that is minor, infrequent and irregular.

These three conditions are considered below:

Is the benefit a residual benefit that consists of the provision or use of a motor vehicle?

As discussed above, the benefit is a residual benefit that consists of the provision or use of a motor vehicle.

Is the motor vehicle a taxi or a car designed principally to carry passengers?

The motor vehicle is not a taxi and as discussed above is not a car.

Is the private use of the vehicle restricted to 'work-related travel' of the employee and other private use that is minor, infrequent and irregular?

'Work-related travel' is defined in subsection 136(1) of the FBTAA as follows:

in relation to an employee, means -

(a) travel by the employee between -

(i) the place of residence of the employee; and

(ii) the place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or

(b) travel by the employee that is incidental to travel in the course of performing the duties of his or her employment;

The modified vehicles are only used to transport employees between their place of residence and employment and to make business journeys. Apart from any private use that may arise from the travel between the employee's place of residence and place of employment, the private use will be minor, infrequent and irregular.

Conclusion

The private use of the modified vehicle to travel between the employee's place of residence and place of employment will be a residual benefit that is an exempt benefit under subsection 47(6) of the FBTAA.

In your private ruling application you contended the travel between the place of employment and place of residence would not be a private use due to the security issues associated with the travel.

While it is accepted, the travel may not in every circumstance be a private journey; we do not accept the contention that the security concerns will change the nature of the travel from private to business. In this regard, we note that paragraph 5E(3)(l) of the FBTAA provides an exclusion from reporting for a fringe benefit that is provided to address a security concern relating to the personal safety of an employee (or an associate) that arises in respect of the employee's employment. In explaining the fringe benefits to which the exclusion would apply, the Explanatory Memorandum to Tax Laws Amendment (2006 Measures No. 3) Bill 2006 said:

Depending on the nature of the threat assessment, types of security measures that address security concerns might include (but are not restricted to) an employer-provided residential burglar alarm, drive-by security patrols, personal bodyguards, personal protective equipment and protective modifications to a motor vehicle.

In accordance with these examples, we do not accept the contention that a fringe benefit will not arise from the use of the modified vehicle to travel between the place of employment and place of residence.

However, as set out in Taxation Ruling MT 2027 Fringe Benefits Tax: private use of cars: home to work travel there are several situations in which the travel between home and work will constitute a business journey. These circumstances are also discussed in Taxation Ruling IT 112 The deductibility of travelling expenses between residence and place of employment or business.

The situations in which the travel between home and work will be accepted as being a business journey include where:

· the employment duties are of an itinerant nature (discussed in paragraphs 25 to 27 of MT 2027 and paragraph 21(e) of IT 112); or

· where the travel incorporates the transport of equipment (discussed in paragraphs 37 and 38 of MT 2027 and paragraphs 21(b)(i) and (ii) of IT 112).

Depending upon the employee's circumstances it is possible that either of these may apply to the travel between the place of residence and place of employment in the modified vehicle.

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