Edited version of private advice

Authorisation Number: 1051830742563

Date of advice: 22 April 2021

Ruling

Subject: Luxury car tax

Question 1

Is the "modified vehicle" a luxury car for the purposes of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act)?

Answer

Yes

Question 2

Are you entitled to a credit, pursuant to Division 17 of the LCT Act, for the luxury car tax you have borne on acquisition of the vehicle?

Answer

No

This ruling applies for the following period:

Year ended 30 June XXXX

The scheme commences on:

1 November XXXX

Relevant facts and circumstances

You purchased a four-wheel drive wagon from a car Dealership for a price that is inclusive of luxury car tax.

Prior to the vehicle being delivered to you, it was modified by a third-party Modifier primarily to increase the gross vehicle mass (GVM). This would allow the vehicle to carry more goods than passengers (i.e. passenger carrying capacity is less than 50% of load carrying capacity)

The "modified vehicle" has seating capacity for seven passengers.

You provided documentation to show that this modification was done under second stage manufacturing, and vehicle is now classified as category NB1 vehicle(Australian Design Rules).

After you took delivery of the vehicle, you removed several seats from the vehicle, and put these into storage. The anchorage points for all seven seats have been retained in the modified vehicle.

You intend on using the vehicle to conduct your business.

Assumptions

The modified vehicle was provided to you by way of a single taxable supply.

Relevant legislative provisions

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

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

Reasons for decision

Question 1: Detailed reasoning

Generally, luxury car tax (LCT) is payable when there is a taxable supply or taxable importation of a luxury car.

Section 25-1 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 of vehicles that are specified in the regulations to be emergency vehicles; or

b)    specially 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

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

d)    a motor home or campervan.

Items 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 is 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 modified vehicle is a motor-powered road vehicle with seating capacity for seven passengers, and has a load carrying capacity of less than 2 tonnes, and therefore falls under the definition of a car for the purposes of the LCT Act.

The vehicle falls under the definition of a luxury car because the vehicle has an LCT value above the LCT threshold.

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).

Whilst a vehicle may be categorised as an NB1 commercial goods vehicle under the Motor Vehicle Standards Act 1989 (MVS Act), that does not automatically mean that the vehicle is exempt from LCT. Broadly, this is because the vehicle classification provided to a car under the Australian Design Rules (ADR's), which are made under the MVS Act, is not administered by the Commissioner of Taxation. Whilst the Commissioner may refer to the vehicle's classification under the MVS Act in applying paragraph 25-1(2)(c) of the LCT Act, the Commissioner is not under an obligation to do so in every circumstance.

The Commissioner has published several public advice and guidance products in respect of related matters, directed at the interpretation of a car's 'principal purpose' for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). For clarity, it is the Commissioner's view that each of the products detailed below may be relied upon to interpret the meaning of 'principal purpose' as that term is used in paragraph 25-1(2)(c) of the LCT Act.

The Commissioner's current view, as provided in Miscellaneous Taxation Ruling MT 2024 Fringe benefits tax: Dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel (MT 2024) is that the test in clause 4.5.2 of the ADR's is the appropriate test for determining the principal purpose of crew cab and dual cab utility vehicles which have a load capacity of less than one tonne. This test provides that the principal purpose of the vehicle may be determined by reference to how the majority of the vehicle's load capacity is utilised, where each passenger seat is allocated 68kg of the available load capacity.

For all other cars (including utility vehicles with a load capacity greater than one tonne), the Commissioner considers that the appropriate test is to consider the factors detailed in Taxation Determination TD 94/19 Fringe benefits tax: is the method outlined in Taxation Ruling MT 2024 appropriate for determining whether a vehicle, other than a dual or crew cab, is 'designed for the principal purpose of carrying passengers' and thereby ineligible for the work-related use exemption available under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986?(TD 94/19), as well as any other relevant factors. The factors in TD 94/19 are to be considered on balance against all other relevant factors, with no single factor being determinative.

The vehicle in question is not a utility vehicle. It is therefore appropriate to apply the factors listed in TD 94/19 to determine the principal purpose of the vehicle.

While we consider all relevant factors in determining whether LCT applies to a modified vehicle, we specifically consider whether or not the vehicle can be returned to its original state, and whether in its modified form, the vehicle maintains its original design for the principal purpose of carrying passengers.

A GVM upgrade will not of itself alter the principal purpose for which a vehicle is designed. A typical GVM upgrade will be affected by replacing existing parts with improved parts, which perform the same function as the original parts. The GVM upgrade will not affect or impede seating capacity, such that the vehicle's original seating capacity continues to be among the most significant and prominent of design features.

In order for the modifications to alter the principal purpose of the vehicle, additional modifications would be required. Examples of the types of modifications which the Commissioner considers would alter the principal purpose can be found in Miscellaneous Taxation Ruling MT 2033 Fringe benefits tax: application of sub-section 8(2) exemption to modified cars (MT 2033).

Applying each of the factors listed in TD 94/19, we consider that the modifications described in the facts will not change the principal purpose of the vehicle to that of a goods carrying vehicle.

Accordingly, we consider that the modified vehicle is still a luxury car principally designed for the purpose of carrying passengers.

Question 2: Detailed reasoning

The Commissioner's view on the meaning of "supply" is provided in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9). GSTR 2006/9 details a series of propositions which need to be considered when determining when a supply occurs, and what the supply is comprised of.

Luxury car tax is payable by a supplier when a luxury car is supplied to a recipient. Where a luxury car is supplied to a recipient, and that car is modified as part of a separate taxable supply, the modifications made to the car will not change the composition of the first supply. This is because LCT is assessed at the point in time at which the supply occurs, and accordingly the modifications undertaken by the modifier, are not taken into consideration in determining the principal purpose of the car at the point in time that it was supplied to the recipient, as these form part of a separate taxable supply.

For clarity, we have assumed that the modified vehicle was provided to you by way of a single taxable supply.

Per the above, the removal of seats from the vehicle following delivery to you is not taken into consideration, as this occurred after the vehicle was supplied to you. For clarity, we also note that the removal of seats in the manner described in your ruling application is not considered to be a 'permanent' modification, per the principles provided in MT 2033, and is not taken into consideration when assessing the modified vehicle for this reason as well.

As previously noted, we consider that the modifications undertaken by the modifier do not alter the principal purpose of the vehicle, and as such, the car remains a luxury car on which luxury car tax is payable.

Accordingly, for the reasons provided above we consider that you acquired a luxury car on which luxury car tax was payable. Therefore, you are not entitled to a credit under Division 17 of the LCT Act for the LCT you have borne on acquisition of the luxury car.

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