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Ruling

Subject: Exempt Car Fringe Benefit

Question 1

Would the use of the Passenger Vehicle A by Employee A qualify for an exempt car fringe benefit?

Answer

No

This ruling applies for the following periods:

Fringe Benefits Tax Year ended 31 March 2011

The scheme commences on:

1 April 2010

Relevant facts and circumstances

Employer A provides vehicles to staff for both work purposes and private use. Where one tonne utilities are provided for work purposes, they do not attract Fringe benefits tax. Where Employer A provides passenger vehicles that are driven home at night, Employer A applies FBT legislation to each of these vehicles as they are deemed to be available for private use, and FBT is paid accordingly.

In determining the type of vehicle suitable for the role. Employer A reviewed the types of vehicles available for use and judged that the available range of utilities was not suitable from a work prospective, due to a number of OH&S issues.

It was therefore determined that the most suitable vehicle in terms of fitness for purpose was Passenger Vehicle A.

The rear passenger seats and the goods carrying compartments do not have any items fixed to them. They do have devices on them that are used for the job.

The rear passenger seats are able to be used to carry passengers if the work devices are removed.

An illustration of the extent of the modification to the Passenger Vehicle A was supplied in the private ruling process. It shows that there is a special cradle that is attached to the front passenger seat. The cradle is used to carry computer equipment. This cradle can be removed but involves removing a number of bolts to do this.

The employee who uses Passenger Vehicle A is required to return the vehicle to Employer A's business premises during times of leave so that the vehicle is available for use by other staff during this time. Other than this, the employee is able to drive the Passenger Vehicle A home at night.

Employer A has applied the Fringe Benefits legislation to Passenger Vehicle A. Fringe Benefits tax is paid by Employer A on the vehicle and the gross up value is reported on the employee's statement of earnings.

Relevant legislative provisions

Section 7 of the Fringe Benefits Tax Assessment Act 1986

Section 8 of the Fringe Benefits Tax Assessment Act 1986

Section 9 of the Fringe Benefits Tax Assessment Act 1986

Section 47 of the Fringe Benefits Tax Assessment Act 1986

Section 136 of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Exempt Motor Vehicles

A motor vehicle may be an exempt motor vehicle if the conditions in either subsections 8(2) or 47(6) of the Fringe Benefits tax Assessment Act 1986 (FBTAA 1986) are satisfied.

Under both provisions for a vehicle to be exempt the private use of the vehicle must be limited to:

Travel between home and work

Travel that is incidental to travel in the course of duties of employment

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

Subsection 8(2) of the FBTAA 1986 exempts certain motor vehicle benefits that are car benefits. For the benefit to be a car benefit, the vehicle must fir within the definition of a car. Car is defined in subsection 136(1) of the FBTAA 1986 to have the same definition as car in section 995-1 of the Income Tax Assessment Act 1997.

Section 991 defines a car as:

"a motor vehicle (except a motor cycle or simular vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers)."

Specifically paragraph 8(2)(a) of the FBTAA 1986 states:

· a taxi, panel van or utility truck designed to carry a load of less than 1 tonne; or

· any other load vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers)

· will be exempt if the private use is limited as explained above.

Subsection 47(6) of the FBTAA 1986 on the other hand basically exempts motor vehicle fringe benefits where the motor vehicle is not a car and the private use is limited as explained earlier.

The Passenger Vehicle A is a car and it is not a taxi, panel van or utility truck, it needs to be principally designed not to carry passengers and have minimal private use for the car fringe benefit to be exempt under subsection 8(2) of the FBTAA 1986.

The normal specifications of the Passenger Vehicle A indicate that it is principally designed to carry passengers and therefore the car benefit would not be exempt from fringe benefits tax.

However, where a car is sufficiently modified, its principal use may change from one to carry passengers to one not to carry passengers, as outlined in Miscellaneous Taxation Ruling MT2033.

Modification of Motor Vehicle Making it Exempt

On occasions, modifications to vehicles originally designed as passenger cars will result in the vehicle, as modified, qualifying for the exemption.

In this case, the rear passenger seats and the goods carrying compartments do not have any items fixed to them. They do have devices on them that are used for the job. The rear passenger seats are able to be used to carry passengers if the work devices are removed. There is however a special cradle that is attached to the front passenger seat. This cradle can be removed by removing a number of bolts.

Whether or not modifications to a car satisfy the test detailed in paragraph 7 of the MT2033 needs to be determined on the facts of the particular case. However, as a general rule, the requirement that modifications effect a permanent change to the car would be satisfied where they are not capable of being readily reversed such that the car could, if required, be used alternatively as a passenger or non-passenger car on a regular basis. The fact that re-conversion may be made difficult by the bulk of any equipment or goods regularly stored in the rear section is not relevant for this purpose; rather, satisfaction of the requirement is to be found in the nature of the modifications themselves.

Simply removing the rear seat or bolting it down would not be sufficient for this purpose. However, if, as has been put to the Taxation Office, that were to be done in conjunction with the fixing of a rigid floor panel, the reinforcement of internal panels, the fixing of a protective screen behind the driver's seat and the fixing of shelving, etc., to a service vehicle, it would be accepted that the modifications were such as to bring the vehicle within the ambit of sub-section 8(2) of the FBTAA 1986. Of course, the modifications would need to extend throughout the entire rear area, including that previously devoted to the rear seat. Simply fixing shelving etc., to the area behind the rear seat location would not bring the vehicle within the ambit of sub-section 8(2).

In this case, the only modification made to the Passenger Vehicle A is the fixing of a cradle to the front seat. The vehicle is still able to carry the driver and 3 passengers with the cradle attached to the front passenger seat. Further, although it requires the removing of several bolts, which may take sometime, the vehicle can be converted back to its normal 5 passenger carrying capacity. Hence, the vehicle has not been modified to the extent required by MT2033.

Therefore, the use of the Passenger Vehicle A by Employee A under the circumstances described in the private binding ruling does not qualify as an exempt car fringe benefit.