Edited version of private ruling

Authorisation Number: 1011670631009

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Ruling

Subject: Will the modified vehicles qualify as exempt vehicles under subsection 8(2) of the FBTAA?

Question 1

Do the modifications made to the vehicles result in the modified vehicles qualifying as exempt vehicles under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

Year Ending 31 March 2012

Year ending 31 March 2013

The scheme commences on:

01/04/2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You currently own a number of vehicles acquired during 2007,2008 and 2009. These cars are primarily used as delivery vehicles by sales representatives. You are in the process of updating your fleet and will acquire a number of new motor vehicles.

The new vehicles are 5 seaters designed primarily to carry passengers and are sold as passenger cars. They attract FBT on any home to work travel and any incidental private use (which is negligible in the case of these cars).

However, to improve the practicality of these vehicles that are used by sales representatives for deliveries, you are seriously considering modifying the cars to essentially convert them into 5 door panel vans. At this point in time, the rear seats would be bolted down and a flat floor would be affixed. It is also likely that a protective screen behind the drivers seat would also be fitted.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 8(2),

Fringe Benefits Tax Assessment Act 1986 8(2)(a) and

Fringe Benefits Tax Assessment Act 1986 8(2)(b).

Summary

Your vehicles will qualify for the exemption under paragaraph 8(2)(a) of the FBTAA because the changes you have made are not readily reversible, indicating that there is a permanent alteration to the vehicles.

Detailed reasoning

Generally, a taxable car benefit arises for FBT purposes where an employer's car is used by an employee or an associate of the employee for private purposes or is available for their private use.

Subsection 8(2) of the FBTAA acts to exempt certain cars from fringe benefits tax. It states:

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.

Miscellaneous Taxation Ruling 2033 Fringe Benefits Tax: application of subsection 8(2) exemption to modified cars (MT 2033) considers whether modifications to vehicles originally designed as passenger cars will result in the modified vehicles being eligible for the exemption under subsection 8(2) of the FBTAA.

The ruling looks at the type of modification done to the car to determine whether the modification has changed its inherent design from that of a passenger carrying vehicle.

Paragraph 9 of MT 2033 requires that modifications actually effect a permanent change to the car, to the extent that they are not capable of being readily reversed so that the car could be used alternatively as a passenger or non-passenger car on a regular basis.

Paragraph 10 of the ruling makes the point that, by itself, removing or bolting down the rear seat would not be sufficient to change the design. However, this in conjunction with certain other modifications would allow the car to meet the definition in paragraph 8(2)(a) of the FBTAA.

You are considering modifying a number of your vehicles. The modifications would include:

§ the rear seats being folded down and bolted down

§ a flat floor being fitted and then permanently bolted onto the folded seats, and

§ it is also likely that a protective screen behind the driver's seat would be fitted.

The fact that the modification includes the rear seats being bolted down and a flat floor being permanently bolted indicates that the car is not capable of being readily reversed such that car could alternatively be used as a passenger or non-passenger vehicle. This is in keeping with paragraph 9 of MT 2033.

The modifications to the vehicles satisfy paragraph 8(2)(a) of the FBTAA.

To qualify for exemption under section 8(2) of the FBTAA you are also required to satisfy the requirements of paragraph 8(2)(b). You have stated that there will be a strictly enforced policy in place to satisfy paragraph 8(2)(b) of the FBTAA, in that the only private use of the car will be minor, infrequent and irregular in relation to any work-related travel.

Furthermore, paragraph 11 of MT 2033 states that the exemption under subsection 8(2) will not apply in the year in which the modifications are effected if, during that year, the unmodified car was used by the employee (or associate) for private purposes or was available for his or her private use.

Your vehicles will qualify for the exemption under subsection 8(2) of the FBTAA after the proposed modifications. This exemption will apply in the FBT year following the modification to vehicles that were available to employees (or associates) for private use. It should be noted that to qualify for the exemption the requirements of subsection 8(2) of the FBTAA must be met at all times during an FBT year when the car benefit is provided.