Edited version of your private ruling

Authorisation Number: 1012462167771

Ruling

Subject: Fringe benefits tax

Question 1

Do the modifications made by you to vehicles originally designed as passenger cars and provided to your employees, result in the modified vehicles qualifying as cars pursuant to subparagraph 8(2)(b)(ii) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?

Answer

Yes

This ruling applies for the following periods:

1 April 2012 to 31 March 2016

The scheme commences on:

1 April 2012

Relevant facts and circumstances

You are in the business of wholesale distribution.

You currently own a number of cars including hatches. These cars are primarily used as delivery vehicles by sales representatives. These cars have proved extremely reliable and you are reluctant to trade them in on new vehicles at this point in time.

These cars are 4-5 seaters designed primarily to carry passengers and are sold by the manufacturer as passenger cars. You state that these cars attract FBT on any home-to-work travel and any incidental private use (which is negligible in the case of these cars).

To improve the practicality of these vehicles that are used by the sales representatives to deliver confectionery (in both the hatch and the back seats), you are seriously considering modifying these cars to essentially convert them into 4-door hatch 'panel vans'. The rear seats would be bolted down and a flat floor would be affixed. A protective screen behind the driver's seat would also be fitted.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 8

Fringe Benefits Tax Assessment Act 1986 section 8(2)

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

Fringe Benefits Tax Assessment Act 1986 subsection 8(2)(a)(ii)

Reasons for decision

Summary

The modifications made by you to vehicles originally designed as passengers cars, and provided to your employees, result in the modified vehicles qualifying as exempt vehicles pursuant to subparagraph 8(2)(a)(ii) of the FBTAA 1986.

Detailed reasoning

Section 8 of the FBTAA 1986 deals with exempt car benefits and as a result, a liability for FBT will not arise where the private use of certain cars during a particular year of tax is limited to work-related travel. Subsection 8(2) of the FBTAA 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 employees; and

(ii) other private use by the employee or an associate of the employee, being other use that was minor, infrequent and irregular.

Vehicles manufactured as hatches are designed for the principal purpose of carrying passengers and therefore generally do not qualify for exemption under subsection 8(2) of the FBTAA.

Miscellaneous Taxation Ruling 2033 (MT 2033) Fringe benefits tax: application of sub-section 8(2) exemption to modified cars deals with the application of subsection 8(2) exemption to modified cars. It clarifies what types of modifications to vehicles originally designed as passengers cars will result in the vehicle, as modified, will qualify for the exemption.

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 MT 2033 states:

10. Simply removing the rear seat or bolting it down would not be sufficient for this purpose. However, if, as has been put to this 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 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).

Therefore, 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 modification to your vehicles includes the rear seat being bolted down, a flat floor being affixed and a protective screen behind the drivers' seat being fitted. The fitting of a protective screen in conjunction with the seats being bolted down and a flat floor being affixed is a strong indication that the conversion would not be readily reversed. Based on the relevant paragraphs of MT 2033, the proposed modification will be sufficient to effect a permanent change to the cars and alter the essential design of the car. Hence, the vehicle will satisfy paragraph 8(2)(a)(ii) of the FBTAA after the modification.