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Edited version of your written advice
Authorisation Number: 1051193517468
Date of Advice: 8 March 2017
Ruling
Subject: Fringe Benefits Tax: car benefit
Question 1
Will the modified vehicles to be purchased by A Pty Ltd from B Pty Ltd for use by A Pty Ltd in its business be exempt vehicles in terms of subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986?
Answer
Yes.
This ruling applies for the following periods:
1 April 2016 to 31 March 2017
1 April 2017 to 31 March 2018
The scheme commenced on:
The scheme has commenced.
Relevant facts and circumstances
A Pty Ltd and B Pty Ltd are related entities as they are both wholly owned by C Pty Ltd.
B Pty Ltd received a Notice of Private Ruling related to fringe benefits tax (FBT) car benefit and the modification of motor vehicles. The ruling was that the modifications to motor vehicles originally designed as passenger cars did not result in the modified vehicles qualifying as exempt vehicles pursuant to subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).
B Pty Ltd objected to the private ruling and the objection was allowed in full.
The motor vehicles, which weigh less than one tonne, are designed to carry passengers and they seat 4-5 passengers. To improve their practicality and enable sales representatives to deliver their products, B Pty Ltd modified the motor vehicles by folding down and bolting down the rear seats and fitting a flat plywood floor and bolting it down. A safety cargo barrier was also fitted behind the driver's seat.
A Pty Ltd will buy from B Pty Ltd two (2) of the abovementioned modified motor vehicles.
The modified motor vehicles when acquired by A Pty Ltd will be used by sales representatives for A Pty Ltd to deliver their products.
A copy of a Notice of Private Ruling issued to A Pty Ltd concerning fringe benefits tax car benefit and the modification of cars owned by A Pty Ltd contains the following statement:
There is a strictly enforced policy in place that the only private use of the car will be minor, infrequent and irregular in addition to any work related travel.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986
Subsection 8(2)
Reasons for decision
Question 1
All legislative references are to provisions of the Fringe Benefits Tax Assessment Act 1986 unless otherwise stated
Summary
The legislation to be considered is subsection 8(2) which relates to exempt vehicles.
You provided a copy of a Notice of objection issued to B Pty Ltd, the related company from which A Pty Ltd will buy two modified cars. The objection was to a private ruling which ruled that the modified cars owned by B Pty Ltd were not exempt vehicles in terms of subparagraph 8(2)(a)(i). The objection was allowed in full.
The nature of the modifications made to the cars and the reasons for the objection decision are examined. This involves the application of Miscellaneous Taxation Ruling MT 2033 Fringe benefits tax: application of subsection 8(2) exemption to modified cars (MT 2033).
The character of the modified cars as exempt vehicles will be retained when acquired by A Pty Ltd from B Pty Ltd and in the hands of A Pty Ltd. This is as stated in MT 2033 to be because “satisfaction of the requirement is to be found in the nature of the modifications themselves”.
Paragraph 8(2)(b) regarding private use of the modified cars is also considered. In view of the stated strict enforced policy of A Pty Ltd which limits the private use of the cars to that which corresponds with the terms of subparagraphs 8(2)(b)(i) and (ii) the requirements of paragraph 8(2)(b) are met.
Therefore it is concluded that the modified cars to be purchased by A Pty Ltd from B Pty Ltd for use by A Pty Ltd in its business will be exempt vehicles in terms of subsection 8(2).
Detailed reasoning
Section 8 of the FBTAA relates to exempt car benefits.
The modified cars which A Pty Ltd will buy from B Pty Ltd were accepted by the ATO as coming within the description of exempt vehicles in subparagraph 8(2)(a)(i).
This is evidenced by the Notice of objection decision issued to B Pty Ltd where the objection was allowed in full. In that case B Pty Ltd had objected to a private ruling which ruled that the modifications made to cars it owned were insufficient to satisfy the meaning of exempt vehicles in subparagraph 8(2)(a)(i).
In reaching the decision upon the objection that the modified cars did come within the terms of subparagraph 8(2)(a)(i) the Commissioner applied Miscellaneous Taxation Ruling MT 2033 Fringe benefits tax: application of subsection 8(2) exemption to modified cars (MT 2033). In particular paragraph 9 and paragraph 10 of MT 2033 were considered.
Paragraph 9 of MT 2033 has as a general rule, the requirement that modifications effect a permanent change to the car. This means that the modification could not be readily reversed so that the car could be used as a passenger car or non-passenger car on a regular basis.
In this case the modification of the cars owned by B Pty Ltd, which were originally designed as passenger cars, consisted of folding down and bolting down the rear seats, installing a flat panel floor that was also bolted down, and fitting a barrier or screen behind the driver's seat. These modifications satisfy the requirements of paragraph 9 and paragraph 10 of MT 2033.
Accordingly, the modified cars were accepted as coming within subparagraph 8(2)(a)(i).
When the modified cars are purchased by A Pty Ltd from B Pty Ltd they will be accepted as exempt vehicles within subparagraph 8(2)(a)(i) when in the hands of A Pty Ltd. This is as stated in paragraph 9 of MT 2033 to be because “satisfaction of the requirement is to be found in the nature of the modifications themselves”.
It is also necessary to consider paragraph 8(2)(b) and determine whether that provision is met.
As noted above paragraph 8(2)(b) relates to the private use of the modified cars.
You provided a copy of the Notice of Private Ruling issued to A Pty Ltd concerning fringe benefits tax and the modification of cars owned by A Pty Ltd.
The “Relevant facts and circumstances” in that Notice contains the following statement:
There is a strictly enforced policy in place that the only private use of the car will be minor, infrequent and irregular in addition to any work related travel.
In view of that statement it is accepted that paragraph 8(2)(b) is met.
Therefore it is concluded that the modified cars to be purchased by A Pty Ltd from B Pty Ltd for use by A Pty Ltd in its business will be exempt vehicles in terms of subsection 8(2).
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