Edited version of your written advice

Authorisation Number: 1012655834212

Ruling

Subject: Modified cars

Question

Do the modifications to vehicles originally designed as passenger cars result in the modified vehicles qualifying as exempt vehicles pursuant to subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 ?

No.

This ruling applies for the following period

FBT year ended 31 March 2015

FBT year ended 31 March 2016

FBT year ended 31 March 2017

The scheme commenced on

1 April 2014

Relevant facts and circumstances

The employer owns a number of vehicles that are primarily used as delivery vehicles by sales representatives.

The vehicles are 4-5 seaters designed to carry passengers. To improve their practicality and enable sales representatives to deliver their products, the employer modifies the vehicles. A safety cargo barrier is then fitted behind the driver's seat. After these modifications the vehicles can no longer be used as passenger vehicles.

Relevant legislative provisions

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

Summary

Modifications to the vehicles do not result in the vehicles being converted into panel vans, nor do they result in permanent changes which cannot be readily reversed. The result is that the vehicles do not fall within the parameters of subparagraphs 8(2)(a)(i) and 8(2)(a)(ii) of the Fringe Benefits Tax Assessment Act 1986.

Detailed reasoning

Under the fringe benefits tax (FBT) legislation, a car fringe benefit arises when a car held by an employer is made available for any private use by an employee.

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) defines a car to have the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), which in turn defines a car as:

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

However, pursuant to section 8 of the FBTAA, certain vehicles that may be used for private purposes give rise to benefits that are exempt from FBT.

In particular, subsection 8(2) of the FBTAA deals with exempt vehicles and provides that:

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.

The effect of this provision is that a passenger car designed principally to carry a load of less than 1 tonne and fewer than 9 passengers will not be capable of providing exempt benefits under this provision.

In the case of the employer, it has a number of passenger cars weighing less than one tonne each and designed to carry fewer than nine passengers. These vehicles therefore fall outside of the above provision. However it is intended that these cars will be converted such that the rear seating areas will be used for storage.

A vehicle's design is generally established at the time of manufacture. In order to change that design it would be necessary that the modifications effect a permanent alteration to the vehicle. Whether or not modifications to a car satisfy this test needs to be determined on the facts of the particular case.

Taxation Ruling MT 2033 Fringe benefits tax: application of sub-section 8(2) exemption to modified cars provides guidelines in the application of subsection 8(2) to modified cars. 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 (paragraph 9).

Paragraph 10 of MT 2033 states:

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 subsection 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).

In the employer's case, the vehicles in question are modified and a safety cargo barrier is then fitted behind the driver's seat.

As stated in paragraph 10 of MT 2033 simply bolting the rear seat down is not sufficient for the purpose of effecting a permanent change to the car. Although the employer also bolts a plywood floor and inserts a cargo barrier, these modifications do not go far enough towards meeting the requirements stipulated in paragraph 10 of MT 2033. That is, the modified vehicles will not be sufficiently altered such that they are not capable of being readily reversed. The bolting of rear seats, is a process that can be readily reversed should the need arise, as is the insertion and removal of the cargo barrier fitted behind the driver's seat. As stated in paragraph 10, the modifications need to extend throughout the entire area (of the rear) and in the employer's case they do not.

The employer has also argued that the modifications result in the vehicles being akin to panel vans. Despite being 2 seaters for the periods in which the rear seats are bolted down, the ATO does not accept that the vehicles become panel vans. Although they share the similarity of being 2 seaters, this is not sufficient to suggest that the vehicles have now become panel vans. Being 'akin to panel vans' is insufficient to meet the meaning of subparagraph 8(2)(a)(i) of the FBTAA.

In short, the modifications do not bring the vehicles within the ambit of paragraph 8(2)(a) of the FBTAA. Consequently, the modified vehicles do not qualify as exempt vehicles pursuant to subparagraph 8(2)(a)(ii) of the FBTAA.