1051515754449 | Legal database

Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private advice

Authorisation Number: 1051515754449

Date of advice: 17 May 2019

Ruling

Subject: Luxury Car Tax

Question

Does four wheel drive vehicle model with modifications meet the definition of a luxury car for the purposes of section 25-1 of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act)?

Answer

The Commissioner ruled that the four wheel drive vehicle with modifications did not meet the definition of a luxury car under LCT Act.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The car dealer, you, intends to modify and sell a four-wheel drive vehicle to a customer. The final sale price, including modifications, will be above the Luxury Car Tax threshold. The modifications include an extended wheelbase conversion and chassis extension, a 3880kg GVM upgrade from 3350 kg, installation of a steel tray and lockable steel-box, stainless steel water tank and an extra diesel tank mounted under the tray.

The modifications involved included the removal of two seats from a seven-seater to a five-seater (including the driver), with an unchanged kerb weight of 2740kg.The removal of the seats allows for the installation of the modifications, as above.

Relevant legislative provisions

A New Tax System (Luxury Car Tax) Act 1999 section 5-5,

A New Tax System (Luxury Car Tax) Act 1999 section 25-1 and

A New Tax System (Luxury Car Tax) Act 1999 section 27-1.

Reasons for decision

Under section 5-5 of A New Tax System (Luxury Car Tax) Act 1999 (LCT Act), luxury car tax (LCT) is payable on any taxable supply of a luxury car.

Paragraph 25-1(2)(c) of the LCT Act provides the definition of a luxury car and states:

25-1 Meaning of luxury car

1) A luxury car is a *car whose *luxury car tax value exceeds the *luxury car tax threshold.

2) However, a *car is not a *luxury car if it is:

a) a vehicle that is specified in the regulations to be an emergency vehicle, or that is in a class

b) of vehicles that are specified in the regulations to be emergency vehicles; or

c) specifically fitted out for transporting *disabled people seated in wheelchairs (unless the supply of the car is *GST-free under Subdivision 38-P of the *GST Act); or

d) a commercial vehicle that is not designed for the principal purpose of carrying passengers; or

e) a motor home or campervan.

Item marked with an * are defined in the dictionary at section 27-1 of the LCT Act.

Section 27-1 of the LCT Act defines a car as follows:

car means a *motor vehicle (except a motor cycle or similar vehicle) that is:

(a) designed to carry a load of less than 2 tonnes and fewer than 9 passengers; or

(b) a limousine (regardless of the number of passengers it is designed to carry) motor vehicle means a motor-powered road vehicle (including 4 wheel drive vehicles).

The four-wheel drive vehicle is a motor-powered road vehicle with a 7 seater capacity, and thus would fall under the definition of a car for the purposes of the LCT Act. However, under paragraph 25-1(2)(c) of the LCT Act, a car is not a luxury car if it is a commercial vehicle that is not designed for the principal purpose of carrying passengers.

For LCT purposes, the Commissioner considers a commercial vehicle is:

· designed for the principal purpose of carrying goods used for business or trade

· not subject to LCT

Commercial vehicles include:

· trucks

· hearses

· some vans, for example, vans designed to carry a load of less than two tonnes, fewer than nine passengers and have a value over the LCT threshold

Vehicles designed mainly for carrying passengers (including paying passengers) or for sport or recreation purposes are not commercial vehicles and may have luxury car tax payable for them. These vehicles include:

· station wagons

· passenger sedans

· people movers

· sport utility vehicles (SUVs)

To work out the main purpose (principal purpose) for which a vehicle has been designed, see Miscellaneous Taxation Ruling MT 2024 Fringe benefits tax: Dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel.

Paragraphs 14 to 16 of the MT 2024 detail the method to determine whether the principal purpose of a vehicle is for carrying passengers and the relevant extracts state the following:

14) It is considered 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. This approach is consistent with that adopted under the Australian Design Rules in determining what is a passenger vehicle.

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 purpose 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.

This principal when applied to the specifications of the modified four-wheel drive yields the following result:

· the load capacity is 1140kg (GVM - unladen vehicle mass = 3880 - 2740 = 1140)

· the passenger capacity for 5 passengers (including the driver) is 5 x 68kg = 340kg

· the remaining load capacity is (1140kg - 340kgs) = 800kg

As the passenger capacity (340kg) did not exceed the remaining load capacity (800kg), the modified four-wheel drive vehicle model is treated as not being designed for the principal purpose of carrying passengers.

Furthermore, the modifications have been made are for the purposes of carrying goods and equipment. The appearance of the vehicle may not have changed substantially but the characteristics including the modifications means that this vehicle is for the purpose of carrying goods and equipment used for business or trade. As such, the four-wheel drive vehicle model is not a luxury car for the purposes of the LCT Act because it is a commercial vehicle designed for the principal purpose of carrying goods for business or trade.

Thus the sale of the modified four-wheel drive vehicle model is not a sale of a luxury car and therefore is not subject to LCT.

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).