Edited version of private ruling

Authorisation Number: 1011861310582

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: FBT- Eligible Exempt Vehicles

Question 1

Is a base model Mercedes ML300 vehicle eligible for exemption under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

Question 2

Will modifying a particular 4WD Wagon 7 seater (X) by removing the 2 rear seats and installing aluminium drawers and container make it eligible for exemption under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

This ruling applies for the following period

01 April 2010 - 31 March 2013

Relevant facts

The Taxpayer (TP) has recently been awarded contracts to do work in distant locations.

The employee currently uses a particular 1Tonne work ute to travel to work sites around Australia. It is used to carry equipment and various steel and aluminium fabrications for work purposes. - however these are never very heavy and often testing and measuring equipment need to be kept out of the weather (i.e. not in the back of the ute).

The work in the distant locations requires driving for over 1000 to kms to and from the job site. The employee has decided to change work cars to something more suitable for travelling long distances. The TP proposes to provide the employee a base model Mercedes ML300 for this purpose.

A base model Mercedes ML300 has 5 seats and an advertised payload of 725kg (kerb weight of 2185kg and a gross vehicle mass of 2910kg). The Vehicle will have aluminium drawers and container installed in the boot to hold equipment.

The employee's private use of the Mercedes ML300 will be limited to:

· travel between home and work

· travel incidental to travel in the course of performing employment-related duties, and

· any non-work-related use is minor, infrequent and irregular (for example, occasional use of the vehicle to remove domestic rubbish).

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Division Part 111

Fringe Benefits Tax Assessment Act 1986 Section 7

Fringe Benefits Tax Assessment Act 1986 Subsection 7(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 8(2)

Fringe Benefits Tax Assessment Act 1986 Section 136

Fringe Benefits Tax Assessment Act 1986 Section 136 (1) and

Income Tax Assessment Act 1997 995-1(1)

Reasons for decision

Summary

Question 1

Mercedes ML300

The Mercedes ML 300 is designed for the principal purpose of carrying passengers and there fore is not an eligible exempt vehicle within the ambit of sub-section 8(2) FBTAA exemption.

Question 2

4WD Wagon X

The proposed modifications to the 4WD wagon vehicle do not meet the extent of permanent alterations needed as outlined in Miscellaneous Taxation Ruling MT 2033 (MT 2033) to bring it within the ambit of sub-section 8(2) FBTAA exemption.

Detailed reasoning

The provisions relating to car fringe benefits are to be found in Division 2 of Part III of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

The term car is defined in subsection 136(1) FBTAA by reference to subsection 995-1(1) of the Income Tax Assessment Act 1997. The following types of vehicles (including four-wheel drive vehicles) come within the definition of a car.

· motor cars, station wagons, panel vans and utilities (excluding panel vans and utilities designed to carry a load of one tonne or more)

· all other goods-carrying vehicles designed to carry less than one tonne

· all other passenger-carrying vehicles designed to carry fewer than nine occupants.

Under sub-sections 8(2) of the Fringe Benefits Tax Assessment Act ("the Act"), a liability for FBT will not arise where the private use of certain vehicles by employees during a particular year of tax is limited to certain work-related travel and non-work- related use that is minor, infrequent and irregular.

Work-related travel is defined in sub-section 136(1) of the FBTAA 1986 to be travel between the employee's residence and place of employment or other place at which employment duties are performed and any travel that is incidental to travel in the course of performing duties of employment.

Under sub-section 8(2) FBTAA, a vehicle may qualify for the exemption if, while classified as a car for the purposes of Division 2 of Part III of the Act, it is a taxi, panel van, utility truck or any other road vehicle that, while designed to carry a load of less than one tonne, is not designed for the principal purpose of carrying passengers.

Subsection 8(2) FBTAA states:

8(2)  [Exempt vehicles]  

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.

As can be seen above a taxi, panel van or utility truck, designed to carry a load of less than 1 tonne are specifically exempted if they satisfy the work related criteria in paragraph 8(2)(b) FBTAA above.

The Mercedes ML 300 and the 4WD Wagon X fall within the definition of a car. As both these vehicles are not a taxi, panel van or utility truck, designed to carry a load of less than 1 tonne they cannot qualify for the work related exemption under subparagraph (a)(i) in subsection 8(2) FBTAA above.

It remains to be considered whether these could qualify under subparagraph 8(2)(a)(ii) FBTAA as a vehicle not designed for the principal purpose of carrying passengers.

Mercedes ML300

As explained above only a taxi, panel van or utility truck, designed to carry a load of less than 1 tonne are specifically exempted by subparagraph 8(2)(a)(i) FBTAA if they satisfy the work related criteria in paragraph 8(2)(b) FBTAA above. The Mercedes ML300 is neither a panel van nor utility truck in the ordinary meaning of these terms. Therefore to qualify as an eligible exempt vehicle it needs to satisfy subparagraph 8(2)(a)(ii) FBTAA as a vehicle not designed for the principal purpose of carrying passengers.

In relation to dual cab or crew cab vehicles MT 2024 outlines the method for determining whether or not the majority of the designed load capacity is attributable to passenger carrying capacity.

Taxation Determination TD 94/19 (TD 94/19) states the method outlined in paragraphs 14 to 16 of MT 2024 does not apply to vehicles other than dual cab or crew cab vehicles. It only applies to dual cab or crew cab vehicles, where according to that method if the majority of the load carrying capacity of the dual or crew cab is attributable to passenger carrying capacity, then it is taken to have been designed for the principal purpose of carrying passengers, regardless of any other considerations.

The Mercedes ML 300 is not a dual cab or crew cab vehicle. Therefore, although the Mercedes ML 300 has a load carrying capacity of 725Kg of which less than 50% is attributable to the passenger carrying capacity, on its own this is not determinative as to the principal purpose of the vehicle. The example in TD 94/19 clearly indicates that other factors, apart from the load carrying capacity, need to be considered in determining the principal purpose for which the vehicle was designed.

TD 94/19 states the following in paragraphs 2 and 3:

Paragraph 2. In determining the principal purpose for which any other vehicle was designed, regard should be had to factors including, but not limited to, the following:

*

 the appearance and presentation of the vehicle

*

 any relevant promotional literature

*

 the emphasis evident in marketing

*

 the vehicle's specifications

*

 load carrying capacity

*

 passenger carrying capacity

Paragraph 3. It is emphasised that the exemption provided in subsection 8(2) only applies where, during the year, private use of the car is restricted to:

*

 travel by the employee between the employee's home and the place of work, and

*

 travel which is incidental to travel undertaken for work purposes, and

*

 other private use which is minor, infrequent and irregular.

The Mercedes ML 300 has the capacity to carry 5 people. The manufacturer's promotional literature for the Mercedes 300 ML vehicle does not emphasise that the Mercedes 300 ML was designed with tradesmen's work purposes in mind or that in addition to its passenger carrying purpose it is suited for the trades or other occupational purposes. Promotional literature for the vehicle emphasises attributes that are more indicative of luxury interior and sporty/adventure features than tradesmen's work purposes. It makes reference to stowage facilities able to accommodate many items and the rear seats needing to be folded down in order to carry bulky items. Many passenger carrying vehicles these days have a similar spacious load compartment and generous stowage facilities.

The promotional literature and the vehicle's specifications also indicate that the vehicle is designed with off road capabilities and comfort.

The features of the ML 300 vehicle outlined in the manufacturer's literature as summarised above, indicates the vehicle is designed principally to carry passengers. The fact that the vehicle has off road capability and is suitable for long distances does not alter the principal design purpose of the vehicle.

MT 2033 states that where a car is sufficiently modified its principal purpose may change such that an exemption under subsection 8(2) FBTAA may apply. However, the installation of aluminium drawers and containers in the boot to hold equipment does not sufficiently modify the vehicle such that its design is altered from one principally to carry passengers to one that is not principally to carry passengers.

Accordingly, the Mercedes Ml 300 will not be eligible for exemption status under subsection 8(2) FBTAA. The provision of the Mercedes ML 300 to an employee in respect of the employment of the employee will give rise to car fringe benefits by virtue of sections 7 and 136 FBTAA.

4WD Wagon X

The 4WD Wagon X is neither a panel van nor utility truck in the ordinary meaning of these terms. Accordingly, it is not specifically exempted by subparagraph 8(2)(a)(i) FBTAA even if it satisfies work related criteria in paragraph 8(2)(b) FBTAA. Therefore to be an eligible exempt vehicle it needs to satisfy subparagraph 8(2)(a)(ii) FBTAA as a vehicle not designed for the principal purpose of carrying passengers.

The 4 WD wagon X with a seating capacity of 7 and is designed for the principal purpose of carrying passengers.

As stated above MT 2033 indicates that modifications to the design of a car may change its principal purpose such that an exemption under subsection 8(2) FBTAA may apply.

MT 2033 clarifies what types of modifications to vehicles originally designed as passenger cars will result in the vehicle, as modified, will qualify for the exemption.

It explains that if certain permanent modifications are made to a car that is a vehicle designed principally to carry passengers, its design may change such that it is no longer regarded as principally for carrying passengers. Hence it would qualify for exemption under subsection 8(2) of the FBTAA 1986.

Applying the MT 2033 guidelines, merely removing the 2 rear seats and installing aluminium drawers and container are not sufficient to accept that the modifications would result in altering the purpose of the vehicle's design from one that is principally for carrying passengers to one that is not.

Paragraph 10 of MT 2033 makes the point that, by itself, removing or bolting down the rear seat would not be sufficient to change the design. The proposed modifications to the 4WD Wagon X do not meet the extent of modifications needed as explained in paragraph 10 MT 2033 to bring the vehicle within the ambit of sub-section 8(2) FBTAA exemption. The modified 4WD Wagon X would be regarded as designed for the principal purpose of carrying passengers and therefore specifically excluded from the category of motor vehicles to which the subsection 8(2) FBTAA exemption can apply.

Further, the fact that the 4WD Wagon X would be used predominantly for business purposes and it can provide protection from the weather is not relevant in determining if the use of the car is principally to carry passengers.

For the reasons stated above the 4WD Wagon X will not be eligible for exemption status under subsection 8(2) FBTAA. The provision of the 4WD Wagon X to an employee in respect of the employment of the employee will give rise to car fringe benefits by virtue of sections 7 and 136 FBTAA