Edited version of private advice

Authorisation Number: 1052128926932

Date of advice: 30 August 2023

Ruling

Subject: GST - depreciation -commercial vehicle

Question 1

Are you entitled to claim the full GST credit of the GST paid on the acquisition of the Vehicle under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

Can depreciation be claimed on the full cost of the vehicle?

Answer

Yes.

Question 3

Will the double cab utility provided by the Employer qualify for the exemption available under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You carry on an enterprise in a building sector business.

You are registered for GST.

During the 2022- 23 financial year, you purchased a Vehicle.

The purchase price of the Vehicle included GST and you provided a tax invoice for the purchase of this Vehicle.

The cost of the Vehicle was above the car limit for that year.

You provided the Vehicle specifications. The vehicle was designed to carry a load of less than one tonne.

The Vehicle is used by a licenced employee to transport tools of trade. The Vehicle is used for travel to different jobs each day. During this time, travel occurs to and from sites and to various suppliers for materials.

The private use of the Vehicle is minor, infrequent and irregular. You have confirmed that the Vehicle is for business use only subject to company policy.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 Subdivision 40-C

Income Tax Assessment Act 1997 section 40-25

Income Tax Assessment Act 1997 section 40-185

Income Tax Assessment Act 1997 section 40-190

Income Tax Assessment Act 1997 section 40-225

Income Tax Assessment Act 1997 section 40-230

Income Tax Assessment Act 1997 section 995-1

Fringe Benefits Tax Assessment Act 1986 Section 7

Fringe Benefits Tax Assessment Act 1986 Subsection 8(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 162

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

A New Tax System (Goods and Services Tax) Act 1999 subsection 69-10(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 69-10(4)

A New Tax System (Luxury Car Tax) Act 1999 paragraph 25-1(2)(c)

Reasons for decision

These reasons for decision accompany the Notice of private ruling.

This is to explain how we reached our decision. This is not part of the private ruling.

Is the employer's motor vehicle a 'car'?

Subsection 136(1) of the FBTAA states that for the purposes of the FBTAA, the definition for a 'car' is the definition contained in subsection 995-1(1) of the ITAA 1997.

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

...A motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

According to the facts of this case, the Vehicle provided by the employer (with 5 seats) is designed to carry fewer than 9 passengers.

In terms of whether the five-seater Vehicle has a designed load capacity of less than one tonne, paragraph 11 of 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) provides a description of how to calculate a vehicle's 'designed carry load':

11....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 ADR, 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, that is, 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.

The Vehicle Standard (Australian Design Rule - Definitions and Vehicle Categories) 2005 (ADR) - made under section 12 of the Road Vehicle Standards Act 2018 - contains the following definitions:

GROSS VEHICLE MASS (GVM) - the maximum laden mass of a motor vehicle as specified by the 'Manufacturer'.

MANUFACTURER - the person who:

•         holds an approval under subsection 10A(1), (2) or (3) of the Motor Vehicle Standards Act 1989, to place an 'Identification Plate' on the vehicle; or

•         holds a road vehicle type approval or a road vehicle component type approval, granted under the Road Vehicle Standards Act 2018, which covers the vehicle or component (as applicable).

UNLADEN MASS [or 'Kerb Mass'] - the mass of the vehicle in running order unoccupied and unladen with all fluid reservoirs filled to nominal capacity including fuel, and with all standard equipment.

'Standard equipment' refers to the common equipment that a specific model of car is supplied with as specified and provided by the manufacturer.

According to the facts of the scheme, the Vehicle purchased by the employer has a designed load capacity less than one tonne. Therefore, this Vehicle would be considered to meet the definition of a 'car' in subsection 995-1(1) of the ITAA 1997.

The term 'commercial vehicle' is not defined in the LCT Act and therefore, the ordinary meaning of the words applies. The Macquarie Dictionary online, the following meaning to the term 'commercial vehicle':

a vehicle able to carry goods or passengers, and designated for use by businesses, as a panel van, utility, etc.

The one tonne limit relates to the maximum load your vehicle can carry, known as the payload capacity. The payload capacity is the gross vehicle mass (GVM) reduced by the basic kerb weight of the vehicle.

Whether carrying passengers is the principal purpose of dual cab vehicles is considered in clause 4.5.2 of the Vehicle Standard (Australian Design Rules - Definitions and Vehicle Categories) 2005 (ADR) which sets out that:

A vehicle constructed for both the carriage of persons and the carriage of goods shall be considered to be primarily for the carriage of goods if the number of seating positions times 68 kilograms is less than 50 percent of the difference between the 'Gross Vehicle Mass' and the 'Unladen Mass'.

Vehicles that are listed as a dual cab, as the Vehicle is described, are assessed under the vehicle type of a dual cab as per MT 2024. Dual cab vehicles with a load carrying capacity of less than one tonne can be designed to carry both passengers and goods. The principal purpose of these vehicles depends on its load carrying capacity and whether it is designed to carry mainly passengers or goods. MT 2024 provides a calculation that can be used to determine the principal purpose for which a dual cab has been designed.

MT 2024 details the method used to determine whether the principal purpose of a vehicle is for carrying passengers and states the following at paragraph 14, 15 and 16:

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 ADR, 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 kilograms, which is the figure adopted for the purposes of the application of the ADR.

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 and as such ineligible for work-related use exemption.

When the ADR test is applied to the Vehicle, the load capacity exceeds the total passenger weight, the principal purpose of the vehicle is not for carrying passengers.

Question One:

Are you entitled to claim the full GST credit of the GST paid on the acquisition of the Vehicle under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Summary

You are entitled to claim the full GST credit of the GST paid on the acquisition of the Vehicle under section 11-20 of the GST Act as the acquisition would be a creditable acquisition under section 11-5 of the GST Act.

Detailed reasoning

Under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you are entitled to the input tax credits for any creditable acquisition that you make.

Section 11-5 of the GST Act provides you make a creditable acquisition if:

(a)  you acquire anything solely or partly for a creditable purpose; and

(b)  the supply of the thing to you is a taxable supply; and

(c)   you provide, or are liable to provide, consideration for the supply; and

(d)  you are registered or required to be registered for GST

Under subsection 11-15(1) of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

However, under subsection 11-15(2) of the GST Act you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

Based on the information provided, you satisfy paragraphs 11-5(a) to (d) of the GST Act as follows:

(a)  you purchased the Vehicle to carry on your enterprise and the Vehicle is used for business purposes and you do not use the Vehicle to make any input taxed supplies. Therefore, you acquired the Vehicle for a creditable purpose, and

(b)  the supply of the Vehicle to you is a taxable supply, and

(c)   you provided consideration for the Vehicle, and

(d)  you are registered for GST.

Therefore, you made a creditable acquisition under section 11-5 of the GST Act when you acquired the Vehicle for your business. You are therefore entitled to claim GST credits on the Vehicle.

The amount of GST credit for a creditable acquisition is equal to the GST payable on the supply of thing acquired unless:

1. the acquisition is partly creditable; in which case, the GST credit is worked out based on the extent of the creditable purpose, or
2. subsection 69-10(1) of the GST Act applies.

The acquisition is not partly creditable because you have confirmed that the vehicle is for business use only subject to company policy.

Subsection 69-10(1) of the GST Act limits the amount of GST credit for a creditable acquisition or creditable importation of a 'car'. Where the GST inclusive market value of the 'car' exceeds the 'car limit' for the financial year in which you first used the car for any purpose, the amount of GST credit is 1/11th of that limit.

For the purpose of subsection 69-10(1) of the GST Act, a 'car' and the 'car limit' refers to the ITAA 1997 sections 995-1 and 40-230 respectively.

Subsection 40-230(3) of the ITAA 1997 states the 'car limit' is indexed each year. For the 2022-23 financial year, the car limit is $64,741.

The Vehicle was purchased for an amount exceeding the 'car limit' during the 2022-23 financial year.

Subsection 69-10(1) applies unless it is excluded by subsection 69-10(4) of the GST Act.

Subsection 69-10(4) provides that subsection 69-10(1) does not apply to a vehicle that is not a luxury car under subsection 25-1(2) of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act).

Paragraph 25-1(2)(c) of the LCT Act provides that a car is not a luxury car if it is a commercial vehicle that is not designed for the principal purposes of carrying passengers.

The term 'commercial vehicle' is not defined in the LCT Act and therefore, the ordinary meaning of the words applies. The Macquarie Dictionary online, the following meaning to the term 'commercial vehicle':

a vehicle able to carry goods or passengers, and designated for use by businesses, as a panel van, utility, etc.

Taking into account the calculation utilised from MT 2024, the Vehicle is considered a commercial vehicle that is not designed for the principal purpose of carrying passengers, instead the Vehicle is a commercial vehicle used for the principal purpose of carrying goods used for business or trade.

Therefore, as the Vehicle is not a luxury car in accordance with subsection 25-1(2) of the LCT Act, subsection 69-10(4) of the GST Act excludes the application of subsection 69-10(1) to your GST credits claim on the purchase of the vehicle. Accordingly, you are entitled to claim the full GST credit equal to the GST that you paid on the acquisition of the Vehicle.

Question Two:

Can depreciation be claimed on the full cost of the vehicle?

Summary

The car limit does not apply to the Vehicle. Section 40-230(1) ITAA 1997 states that the cost of a car designed mainly for carrying passengers is reduced to the car limit. Under the ADR the principal purpose of the Vehicle is not 'mainly designed' for carrying passengers and as a result the car cost limit does not apply.

Detailed reasoning

Section 40-230 of the ITAA 1997, where applicable, adjusts the first element of the cost of a car that is designed mainly for carrying passengers down to the car limit for the financial year in which you started to hold it, if its cost exceeds that limit.

The Commissioner accepts that the principal purpose of a dual or crew cab utility Vehicle, with a load capacity of less than two tonnes, may be determined by applying the ADR.

This test can also be applied in determining whether a car is 'mainly designed for carrying passengers' as stipulated in subsection 40-230(1) of the ITAA 1997 as the term 'mainly designed' is broader than the term 'principal purpose' used in the ADR.

As the majority of the payload capacity is not allocated to passenger carrying capacity, the Vehicle is not 'mainly designed' for carrying passengers and the car limit in section 40-230 of the ITAA 1997 does not apply to the Vehicle. For the income tax purposes of temporary full expensing, you would be entitled to claim the full cost of your Vehicle.

Question Three:

Will the Vehicle provided by the employer qualify for the exemption available under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The Vehicle provided by the employer will be an exempt benefit under subsection 8(2) of the FBTAA.

Detailed Reasoning

A 'car fringe benefit' arises when an employer provides a motor vehicle that is a car to an employee. However, an exemption from fringe benefits tax (FBT) may be available in certain circumstances.

To determine whether an exemption applies, it is firstly necessary to consider whether theVehicle provided by the employer to the employee constitutes a 'car fringe benefit' as defined in subsection 136(1) of the FBTAA.

Car fringe benefit

Subsection 136(1) of the FBTAA defines a 'car fringe benefit' as a 'fringe benefit that is a car benefit'. A 'car benefit' is defined in subsection 136(1) to mean a benefit referred to in subsection 7(1) of the FBTAA.

Benefit

The definition of 'benefit' in subsection 136(1) of the FBTAA provides that a benefit will include:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a)  an arrangement for or in relation to:

(i)   the performance of work (including work of a professional nature), whether with or without the provision of property; ...

Car benefit

Subsection 7(1) of the FBTAA explains when a car benefit arises. It states:

7(1) [Car applied to, available for employee's private use]

Where:

(a)  at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as the "provider":

                                            (i)        is applied to a private use by the employee or an associate of the employee; or

                                           (ii)        is taken to be available for the private use of the employee or an associate of the

employee; and

(b)  either of the following conditions is satisfied:

                                            (i)        the provider is the employer, or an associate of the employer, of the employee;

                                           (ii)        the car is so applied or available, as the case may be, under an arrangement

between:

(A)  the provider or another person; and

(B)  the employer, or an associate of the employer, of the employee;

that application or availability of the car shall be taken to constitutility a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee.

7(2)

Where, at a particular time, the following conditions are satisfied in relation to an employee of an employer:

(a) a car is held by a person, being:

(i) the employer;

(ii) an associate of the employer; or

(iii) a person (other than the employer or an associate of the employer) with whom, or in respect of whom, the employer or an associate of the employer has an arrangement relating to the use or availability of the car.

(b) the car is garaged or kept at or near a place of residence of the employee or of an associate of the employee.

the car shall be taken, for the purposes of this Act, to be available at that time for the private use of the employee or associate, as the case may be.

Will the motor vehicle be 'held' by the provider (the employer)?

Under section 162 of the FBTAA, a car is held by a person if that person holds or leases it or it is otherwise made available to that person. According to the facts provided, the employer operates a business and purchased a Vehicle which will be provided to a licensed person to use mainly for its business operations.

The Commissioner therefore considers the Vehicle to be 'held' by the employer.

Is the car provided in respect of the employee's employment?

It is firstly necessary to consider whether the licensed person to whom the car is provided is an employee of the employer.

The term 'employee' is defined in subsection 136(1) of the FBTAA to mean includes a current, future or former employee. A 'current employee' is defined in subsection 136(1) of the FBTAA to mean 'a person who receives, or is entitled to receive, salary or wages'.

'Salary or wages' is defined in subsection 136(1) of the FBTAA to be a payment from which an amount must be withheld under one of a number of specified provisions in Schedule 1 to the Taxation Administration Act 1953 (TAA) which deal with payments to employees, company directors and office holders.

The Commissioner considers that the licensed person to whom the car is provided is an employee of the employer.

As per subsection 136(1) of the FBTAA, the term 'in respect of' - in relation to the employment of an employee - includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee:

•         whether or not the benefit also relates to some other matter or thing

•         whether the employment is past, present or future

•         whether or not the benefit is surplus to the recipient's requirements

•         whether or not the benefit is also provided to another person

•         whether or not the benefit is offset by any inconvenience or disadvantage

•         whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment

•         whether or not the provision of the benefit is in the nature of income, and

•         whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles), the full Federal Court - in examining the meaning of 'in respect of' an employee's employment - held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'. A similar view was also held in Essenbourne Pty Ltd v FC of T 2002 ATC 5201 and Starrim Pty Ltd v FCT (2000) 102 FCR 194; [2000] FCA 952; 2000 ATC 4460; (2000) 44 ATR 487.

To establish whether a sufficient or material connection will exist between the provision by the employer of a car and the employment of the employee, it is necessary to consider the circumstances in which the car will be provided.

According to the facts of the scheme, the employer purchased a car for the employee to use mainly in business operations. As such, it is clear that, for the purposes of the scheme, the provision by the employer of a car to the employee would be considered to be 'in respect of an employee's employment'.

Is the car applied or taken to be available for the private use of the employee?

The ATO's Fringe Benefits Tax - A Guide for Employers publication provides that:

Private use is everything else other than in the exclusive course of working, running a business or otherwise earning income. This means that private use of a car includes any use that is dual purpose and has both private and business aspects to it.

The term applied means actual private use of the car by your employee or where your employee (or a third party) has used the car in accordance with the directions given by you or another person that the car be used for their private use. Private use means any use. It does not just mean driving the car.

'Private use' is defined in subsection 136(1) of the FBTAA to mean any use that is not exclusively in the course of producing assessable income of an employee.

In AAT Case 9824 (1994) 29 ATR 1246, a car was garaged at premises that were both the employee's residence and the employer's business premises. It was held that the car was garaged at the employee's residence and thus was available for private use.

As per the principles embodied in Taxation Determination (TD) 94/16 and the ATO's Fringe Benefits Tax - A Guide for Employers publication, a car that is garaged at an employee's home is treated as being available for private use of the employee regardless of whether they have permission to use it for private purposes. In particular, where the place of employment and place of residence are the same, the car is taken to be available for the private use of the employee.

According to the facts of the scheme, the Vehicle that is provided to the employee will be applied or taken to be available for the private use of the employee. Therefore, as per the facts of the scheme, a motor vehicle (which meets the definition of a 'car') will be held by the employer and provided to the employee in respect of the employee's employment. The car will be applied or taken to be available for the private use of the employee. As such, each of the conditions in subsections 7(1) and 7(2) of the FBTAA will be satisfied.

A car benefit would thus arise in respect of the provision of the Vehicle to the employee pursuant to section 7 of the FBTAA.

Is the provision of the motor vehicle an exempt car benefit for the purposes of subsection 8(2) of the FBTAA?

Subsection 8(2) of the FBTAA allows for a car benefit provided by an employer to an employee to be an exempt benefit where certain conditions are met.

The ATO's Fringe Benefits Tax - A Guide for Employers publication states:

If you provide (or make available) one of the following cars to your employee, it will be exempt from FBT in certain circumstances:

•         a taxi, panel van or utility truck designed to carry a load of less than one tonne, or

•         any other road vehicle that is not designed principally to carry passengers and is designed to carry a load of less than one tonne.

Dual-cab vehicles must meet these requirements to fall within this exemption (see section 7.5.4).

To be exempt, the employee's private use of such a vehicle must be limited to:

•         Home-to-Work Travel: travel between the employee's place of residence and the employee's place of employment

•         Incidental-Work Travel: incidental travel in the course of performing employment-related duties, and

•         Minor-Private Travel: the other private use of that car is minor, infrequent and irregular. For example, occasional use of the vehicle to remove domestic rubbish.

Subsection 8(2) of the FBTAA states that a car benefit will be exempt if:

(a) the car is:

(i)    a panel van or utility truck, designed to carry a load of less than 1 tonne; or

(ia) used for taxi travel, designed to carry a load of less than 1 tonne, and not a limousine; 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.

Paragraph 8(2)(a) 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)

Subparagraphs (i) and (ia) would not apply in this case as the car provided is a Vehicle which is not a panel van, utility van, limousine or used for taxi travel. MT 2024 states the test required to determine a vehicle's main purpose is a through the application of the ADR.

When the ADR test is applied to the Vehicle, the principal purpose of the vehicle is not for carrying passengers. Paragraph 8(2)(a) of the FBTAA is satisfied as a result.

Paragraph 8(2)(b) There was no private use of the car during the year of tax

As per the facts of the case, the Vehicle is used for the transportation of tools, travel between sites and to the suppliers of materials. Private use is limited as per company policy. Therefore, the only use of the car will be either work-related and any private use will be minor, infrequent and irregular.

As such, the scheme would satisfy paragraph 8(2)(b) of the FBTAA.

Therefore, as both paragraphs 8(2)(a) and 8(2)(b) of the FBTAA would be satisfied under the scheme, the provision of the Vehicle by the employer to the employee in respect of the employee's employment would constitute an exempt benefit pursuant to subsection 8(2) of the FBTAA.

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