Edited version of your written advice

Authorisation Number: 1012873792262

Date of advice: 17 September 2015

Ruling

Subject: Fringe benefits tax: load carrying capacity of a motor vehicle

Question

Does the calculation of the designed load carrying capacity of a motor vehicle for the purposes of the Fringe Benefits Tax Assessment Act 1986 take into account:

(a) accessories fitted by the manufacturer that are standard equipment of the particular vehicle, and

(b) accessories that are not standard equipment of the particular vehicle?

Answer

(a) Yes

(b) No

This ruling applies for the following periods:

FBT year ended 31 March 2016

FBT year ended 31 March 2017

FBT year ended 31 March 2018

The scheme commences on:

1 April 2015

Relevant facts and circumstances

You have several cars that employees are able to use for personal purposes.

You currently use the statutory formula method to calculate the taxable value of the car fringe benefits that arise from this personal use.

You are considering acquiring some dual cab vehicles to replace the cars.

There are a number of models of the dual cab vehicles you are considering.

The main difference between the models is the accessories that are fitted to the particular model.

In addition to the accessories that are fitted to the particular model by the manufacturer (standard equipment) it is possible to fit a range of accessories to the vehicles.

The accessories (e.g. canopies, tow bars, bull bars, towbar, roof racks and bonnet protectors) may be genuine accessories supplied by the manufacturer that are fitted by the dealer prior to delivery.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 7

Fringe Benefits Tax Assessment Act 1986 section 9

Fringe Benefits Tax Assessment Act 1986 section 136

Income Tax Assessment Act 1997 sub-section 995-1(1)

Income Tax Assessment Act 1936 section 82AF

Reasons for decision

What accessories are taken into account in determining the load carrying capacity of a motor vehicle for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

This ruling concerns whether the installation of accessories (other than standard accessories) to a dual-cab vehicle prior to the vehicle's delivery will effectively reduce the designed load capacity of the vehicle, for the purpose of classifying a vehicle as a car for fringe benefits tax purposes.

Relevant legislation sections to consider for this ruling are section 136(1) of the FBTAA and subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) which provide the definition of a car.

Detailed reasoning

In general terms, the method used to determine the taxable value of a fringe benefit that arises from the private use of a vehicle held by the employer will depend upon whether the fringe benefit is a car fringe benefit as described within section 7 of the FBTAA, or whether it is a residual fringe benefit.

If the fringe benefit is a car fringe benefit, the employer can elect to use either the statutory formula method in section 9 of the FBTAA, or the operating cost method in section 10 of the FBTAA. By contrast, if the fringe benefit is a residual fringe benefit, Miscellaneous Taxation Ruling MT 2034 Fringe benefits tax: private use of motor vehicles other than cars provides that the taxable value can be determined using the operating cost method, or a cents per kilometre rate if there is extensive business use of the vehicle.

For the fringe benefit to be a car fringe benefit, the vehicle must be a car.

Definition of car for FBT purposes

Section 136 of the FBTAA states that for the purposes of the FBTAA, the definition for a car is the definition contained in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)

Subsection 995-1(1) of the ITAA 1997 defines 'car' to mean:

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.

The key concepts are that in order to be classified as a car, the vehicle in question must be:

• a motor vehicle that is not a motor cycle or similar vehicle

• designed to carry a load of less than one tonne, and

• designed to carry fewer than nine passengers.

The vehicles under consideration satisfy the first and third requirement in that they are not a motor cycle or similar vehicle and are designed to carry fewer than nine passengers. The issue then becomes contingent on whether the vehicle is designed to carry a load of less than one tonne.

Designed to carry a load of less than one tonne

The method for determining the designed load capacity of a motor vehicle for the purposes of the FBTAA is set out in paragraphs 11 and 12 of MT 2024 Fringe benefits tax: dual cab vehicles Eligibility for exemption where private use is limited to certain work-related travel.

Paragraphs 11 and 12 of MT 2024 state:

11. ..the designed load capacity of a motor vehicle is to be taken as the gross vehicle weight as specified on the compliance plate by the manufacturer (broadly, the maximum all-up loaded weight), reduced by the basic kerb weight of the vehicle. For this purpose, basic kerb weight is synonymous with unladen weight, as specified in the Australian Design Rules, being the weight of the vehicle with a full tank of fuel, oil and coolant together with spare wheel, tools (including jack) and installed options. It does not include the weight of goods or occupants.

12. In the case of cab/chassis vehicles, the designed load capacity is to be ascertained after the body has been fitted to the vehicle, i.e. to satisfy the one tonne test, the margin between the gross vehicle weight and the basic kerb weight must not be less than one tonne plus the weight of the body which is ultimately attached to the vehicle.

This methodology was based on the methodology that was used to determine whether the former investment allowance provisions in section 82AF of the Income Tax Assessment Act 1936 (ITAA 1936) applied to a particular vehicle. The application of this provision was considered by the Board of Review in Case J63 77 ATC 537.

In its decision, the Board at ATC 538 said:

2. The terms of the legislation that would operate to exclude the cost of the vehicle in question from the benefits of double-depreciation (sec. 57AD) and investment allowance (sec. 82AF) read so far as they are relevant to this reference: -

…

``Section 82AF (1)....

(2) This Subdivision does not apply in relation to -

(a) motor vehicles (including vehicles known as four wheel drive vehicles) that are -

(i)....

(ii)....

(iii) other road vehicles designed to carry loads of less than 1 tonne or fewer than 9 passengers.''

…

3. The emphasis on the ``design'' factor in both pieces of legislation is quite clear, and, in my view, the answers to the question posed by this reference have to be sought with the assistance of the definitions in the Australian Design Rules. As has already been noted, the term ``load'' is not used in those Rules and therefore has not been defined. There being no definition of the word ``load'' in the Rules, I have turned my attention to those relevant factors in the Australian Design Rules for which definitions are provided and from which an interpretation of the word ``load'' might be derived.

4. I find the relevant definitions to be -

(i) ``Maximum Loaded Vehicle Weight''

This is defined as meaning ``for a goods vehicle, the gross vehicle weight as defined.''

``Gross Vehicle Weight'' in turn is defined as ``the maximum weight of a goods vehicle for which compliance with current and appropriate Australian Design Rules has been or can be established.''

(ii) ``Unladen Weight''

This means the weight of a vehicle with a full capacity of lubricating oil, coolant and fuel but without goods, occupants or options except those options which are essential to the test for which unladen weight is specified.

Definition of 'gross vehicle weight' as defined by Australian Design Rules

The Vehicle Standard (Australian Design Rule - Definitions and Vehicle Categories) 2005 contains the following definitions:

GROSS VEHICLE MASS (GVM) - the maximum laden mass of a motor vehicle as specified by the 'Manufacturer'

LADEN MASS - the mass of a vehicle and its load borne on the surface on which it is standing or running.

MANUFACTURER - the name of the person or company who accepts responsibility for compliance with the Australian Design Rules and to whom the 'Compliance Plate' approval certificate is issued.

The definition of 'Gross Vehicle Mass' retains the same meaning as it was at the time MT2024 issued. This is supported by the Tax Office response to agenda item 3.3 of the meeting of the FBT subcommittee of the National Tax Liaison Group meeting held on 10 May 2007. The agenda item asked whether the approach set out in MT 2024 still applied and included the following scenario:

A vehicle has a gross vehicle mass of 2,830 kilos. The manufacturer has specified a tare mass, inclusive of 10 litres of petrol) of 1,800 kilos. At this point, it seems the designed load carrying capacity would be 1,030 kilos and at this point the vehicle would not be a 'car' for FBT purposes.

At the dealership (not at the factory), as part of the sale of the vehicle, an alloy bull bar of 45 kilos is attached to the vehicle.

Questions

• Is it correct, with this inclusion of the bull bar alone at dealership level, (without resort to potential of fuel top up), that the vehicle is now a 'car'?

The ATO response stated:

In terms of paragraph 11 of MT 2024 as the ADR have not changed, it is still correct to state that the calculation of determining 'designed load capacity' is based on 'gross vehicle weight' reduced by the 'basic kerb weight' and that that term is still synonymous with 'unladen mass'. Accordingly, the methodology set out in MT 2024 remains correct.

…

In relation to scenario 2, as specified in paragraph 11 of MT 2024, the 'designed load capacity' of a motor vehicle is to be taken as the gross vehicle weight as specified on the compliance plate by the manufacturer. On that basis, additional items such bull bars that are fitted at the dealership would not be included in this calculation.

From this, we determine that the gross vehicle mass of the vehicle is determined to be the gross vehicle weight as specified on the compliance plate by the manufacturer.

Definition of 'unladen vehicle weight' as defined by Australian Design Rules

The current Australian Design rules provide the following definition for 'unladen mass' which has the same meaning as 'unladen vehicle weight'.

UNLADEN MASS - the mass of the vehicle in running order unoccupied and unladen with all fluid reservoirs filled to nominal capacity including fuel, and with all standard equipment.

Standard equipment refers to the common equipment that a specific model of car is supplied with as specified and provided by the manufacturer.

In applying the decision in Case J63, the Australian Design Rules and the ATO response provided at the meeting of the FBT subcommittee of the National Tax Liaison Group, the accessories that are included are those that are fitted at the time the gross vehicle weight is determined by the manufacturer. The difference between the two weights at that time is the load capacity of the vehicle at the time it was designed.

Therefore, the calculation of the designed load carrying capacity of a motor vehicle for the purposes of the FBTAA will take into account the accessories fitted by the manufacturer that are standard equipment of the particular vehicle, but not accessories that are not standard equipment of the particular vehicle. The fact that a particular accessory may be a genuine accessory provided by the manufacturer will not alter this outcome.