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Ruling

Subject: Modified cars

Question

Do the modifications to vehicles originally designed as passenger cars result in the modified vehicles qualifying as exempt vehicles pursuant to subparagraphs 8(2)(a)(ii) and 47(6)(aa)(ii) of the Fringe Benefits Tax Assessment Act 1986 ?

Yes.

This ruling applies for the following period

1 April 2012 to 31 March 2013

The scheme commenced on

1 April 2012

Relevant facts

The Entity will be purchasing passenger vehicles, weighing less than one tonne each. The Entity intends changing the configuration of the rear hatch and seating areas of the vehicles to use the entire area for storage. This will involve placing a cage behind the front seats and fixing the rear seats in the fully flat position. A new floor will be permanently fixed and additional storage compartments will then be added to this area to allow it to be used for carrying goods.

Once completed, the vehicles will be inspected by the relevant transport authority, and the compliance plates changed to show the vehicles seat two people. The vehicles will then be registered as such.

Relevant legislative provisions

Subparagraph 8(2)(a)(ii) of the Fringe Benefits Tax Assessment Act 1986

Subparagraph 47(6)(aa)(ii) of the Fringe Benefits Tax Assessment Act 1986

Subsection 995-1(1) of the Income Tax Assessment Act 1997

Reasons for decision

Detailed reasoning

Under the fringe benefits tax (FBT) legislation, a car fringe benefit arises when a car held by an employer is made available for any private use by an employee.

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) defines a car to have the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), which in turn defines a car as:

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.

However, pursuant to section 8 of the FBTAA, certain vehicles that may be used for private purposes give rise to benefits that are exempt from FBT.

In particular, subsection 8(2) of the FBTAA deals with exempt vehicles and provides that:

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 effect of this provision is that a passenger car designed principally to carry a load of less than 1 tonne and fewer than 9 passengers will not be capable of providing exempt benefits under this provision.

In the case of the Entity, it will be acquiring passenger cars weighing less than one tonne each and designed to carry fewer than nine passengers. These vehicles therefore fall outside of the above provision. However it is intended that these cars will be converted such that the rear hatch and seating areas will be used entirely for storage.

A vehicle's design is generally established at the time of manufacture. In order to change that design it would be necessary that the modifications effect a permanent alteration to the vehicle. Whether or not modifications to a car satisfy this test must be determined on the facts of the particular case.

Taxation Ruling MT 2033 Fringe benefits tax: application of sub-section 8(2) exemption to modified cars provides guidelines in the application of subsection 8(2) to modified cars. As a general rule, the requirement that modifications effect a permanent change to the car would be satisfied where they are not capable of being readily reversed such that the car could, if required, be used alternatively as a passenger or non-passenger car on a regular basis (paragraph 9).

Paragraph 10 of MT 2033 states:

Simply removing the rear seat or bolting it down would not be sufficient for this purpose. However, if, as has been put to this Office, that were to be done in conjunction with the fixing of a rigid floor panel, the reinforcement of internal panels, the fixing of a protective screen behind the driver's seat and the fixing of shelving, etc., to a service vehicle, it would be accepted that the modifications were such as to bring the vehicle within the ambit of subsection 8(2). Of course, the modifications would need to extend throughout the entire rear area, including that previously devoted to the rear seat. Simply fixing shelving etc., to the area behind the rear seat location would not bring the vehicle within the ambit of sub-section 8(2).

In the Entity's case, the vehicles in question will be modified to the extent described in paragraph 10 of MT 2033. That is, the modified vehicles will be permanently altered to become road vehicles designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers). This will be achieved by placing a cage behind the front seats and fixing the rear seats in the fully flat position. A new floor will be permanently fixed and additional storage compartments will then be added to this area to allow it to be used for carrying goods. These modifications bring the vehicles within the ambit of paragraph 8(2)(a) of the FBTAA.

Consequently, the modified vehicles qualify as exempt vehicles pursuant to subparagraph 8(2)(a)(ii) of the FBTAA.

Subparagraph 47(6)(aa)(ii) of the FBTAA contains a similar provision to subparagraph 8(2)(a)(ii) of the FBTAA and provides an exempt benefit where, among other conditions:

(aa) the motor vehicle is not:

(ii) a car, not being:

(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)

In other words, as with 8(2)(a)(ii) of the FBTAA, a passenger car designed principally to carry a load of less than 1 tonne and fewer than 9 passengers will not be capable of providing exempt benefits under this provision.

A car weighing less than one tonne that is not a passenger car, however, would meet the requirement for exemption under subsection 47(6) of the FBTAA. The Entity's proposed modifications are intended to achieve this outcome (by converting the vehicles from passenger cars).

Although not directly addressed in MT 2033, the same principles are considered as applying to modified vehicles under subparagraph 47(6)(aa)(ii) of the FBTAA as they do under subparagraph 8(2)(a)(ii) of the FBTAA. Consequently, the modified vehicles qualify as exempt vehicles pursuant to subparagraph 47(6)(aa)(ii) of the FBTAA.

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