Edited version of your written advice

Authorisation Number: 1051416137724

Date of advice: 15 August 2018

Ruling

Subject: Luxury Car Tax

Question 1

Is the dual cab utility vehicle (“the modified vehicle”) a commercial vehicle for the purpose of the A New Tax System (Luxury Car Tax) Act 1999?

Answer

Yes

Question 2

Is Luxury Car Tax payable at any time between the purchase of the 4 wheel drive “the original vehicle”, modifying the vehicle, and then making the sale of the modified vehicle to a customer?

Answer

No

This ruling applies for the following periods:

2017-18 income year

2018-19 income year

2019-20 income year

2020-21 income year

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are registered for Goods and Services Tax (GST) and Luxury Car Tax (LCT).

You are carrying on an automotive business whereby you sell the 4 wheel drive (“the original vehicle”) and also the dual cab utility vehicle (“the modified vehicle”).

You purchase the original vehicle without LCT because you quote your Australian Business Number (ABN) on the basis that you will hold the vehicle as trading stock.

The original vehicle is then modified by extending the wheelbase and increasing the carrying load. These modifications are carried out by a third party.

Modifications are done on request of the buyer. Modifications are completed prior to the sale of the modified vehicle to the buyer.

You advised that the modified vehicle is classified under the Australian Design Rules as an NB1 commercial goods-carrying vehicle and has a tare mass of 2,800 kg and gross vehicle mass (GVM) of 3,800 kg. It still has seats for five passengers.

You hold the modified vehicle as trading stock and promote and market it as a goods-carrying dual cab utility vehicle with one tonne carrying capacity.

The base price for the modified vehicle exceeds the luxury car tax threshold.

Relevant legislative provisions

A New Tax System (Luxury Car Tax) Act 1999 Section 25-1

A New Tax System (Luxury Car Tax) Act 1999 Section 27-1

A New Tax System (Luxury Car Tax) Act 1999 Section 5-10

A New Tax System (Luxury Car Tax) Act 1999 Section 9-5

Reasons for decision

Question 1

Is the dual cab utility vehicle (“the modified vehicle”) a commercial vehicle for the purpose of the A New Tax System (Luxury Car Tax) Act 1999?

Detailed reasoning

In determining whether the modified vehicle is subject to luxury car tax (LCT), it will need to fall within the definition of a luxury car under the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act).

Subsection 25-1(1) of the LCT Act provides that a luxury car is a car, whose luxury car tax value exceeds the luxury car tax threshold.

According to section 27-1 of the LCT Act a car is defined as follows:

car means a *motor vehicle (except a motor cycle or similar vehicle) that is:

a) designed to carry a load of less than 2 tonnes and fewer than 9 passengers; or

b) a limousine (regardless of the number of passengers it is designed to carry)…

motor vehicle means a motor-powered road vehicle (including 4 wheel drive vehicles).

The modified vehicle is a motor-powered road vehicle with a 5 seater capacity and a 1 tonne load capacity, thus it would fall under the definition of a car for the purposes of the LCT Act. The modified vehicle is also a luxury car because its LCT value is above the LCT thresholds.

Nevertheless, the modified vehicle is classified under the Australian Design Rules (ADR) as an NB1 commercial goods-carrying vehicle. The original vehicle was designed for the principal purpose of carrying passengers and later modified to increase its goods carrying capacity for commercial purposes, thereby resulting in a dual purpose vehicle. The modifications are made prior to the vehicle being entered into home consumption.

Paragraph 25-1(2)(c) of the LCT Act provides that a car is not a luxury car if it is a commercial vehicle that is not designed for the principal purpose of carrying passengers.

For LCT purposes, a commercial vehicle is:

● designed for the principal purpose of carrying goods used for business or trade

● not subject to LCT.

Commercial vehicles include:

● trucks

● hearses

● some vans, for example vans designed to carry a load of less than two tonnes, fewer than nine passengers and have a value over the LCT threshold.

Vehicles designed mainly for carrying passengers (including paying passengers), or for sport or recreation purposes, are not commercial vehicles and you may have to pay LCT on them. These vehicles include:

● station wagons

● passenger sedans

● people movers

● sports utility vehicles (SUVs).

To work out the main purpose (principal purpose) for which a vehicle has been designed, see Miscellaneous Taxation Ruling MT2024 Fringe benefits tax: Dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel.

Paragraphs 14 to 16 of the Miscellaneous Taxation Ruling MT2024 detail the method to determine whether the principal purpose of a vehicle is for carrying passengers and the relevant extracts state the following:

…It is considered that the appropriate basis for determining this issue is whether or not the majority of the designed load capacity is attributable to passenger carrying capacity. This approach is consistent with that adopted under the Australian Design Rules in determining what is a passenger vehicle.

For this purpose the designed passenger carrying capacity is to be determined by multiplying the designed seating capacity (including the driver’s) by 68 kg, which is the figure adopted for the purpose of the application of the Australian Design Rules.

If the total passenger weight so determined exceeds the remaining “load” capacity, the vehicle is to be treated as being designed for the principal purpose of carrying passengers.

The modified vehicle’s tare mass is 2,800 kg and has a gross vehicle mass (GVM) of 3,800 kg. It has seats for five passengers. Applying the principle above to the specifications of the modified vehicle yields the following result:

● the load capacity (GVM less unladen vehicle mass) is 3,800kg – 2,800kg = 1,000kg

● the passenger capacity for 5 passengers (including the driver) is 5 x 68kg = 340kg

● the remaining load capacity is 1000kg – 340kgs = 660kg

As the passenger capacity (340kg) did not exceed the remaining load capacity (660kg), the modified vehicle is treated as not being designed for the principal purpose of carrying passengers.

The photos you supplied regarding the original vehicle and modified vehicle confirmed that the modifications are permanent. You also promote and market the vehicle as a goods-carrying dual cab utility vehicle with one tonne carrying capacity.

Accordingly, the modified vehicle is a commercial vehicle and not a luxury car for the purpose of the LCT Act.

Question 2

Is Luxury Car Tax payable at any time between the purchase of the 4 wheel drive “the original vehicle”, modifying the vehicle, and then making the sale of the modified vehicle to a customer?

Detailed reasoning

Generally, luxury car tax is payable when there is a taxable supply or taxable importation of a luxury car. Under certain circumstances, a recipient or importer may quote their ABN for the supply or importation to avoid the luxury car tax that is otherwise payable.

Under paragraph 5-10(2) of the LCT Act, a supply is taken not to be a taxable supply of a luxury car when the recipient quotes for the supply. Quoting delays the LCT payable on the supply of the car until such time that the car is supplied or imported at the retail level where the recipient or importer is not entitled to quote an ABN.

Section 9-5 of the LCT details the circumstances under which you are entitled to quote your ABN in relation to the supply of a luxury car.

Paragraph 9-5(1)(a) of the LCT Act states that you are entitled to quote if you have the intention of holding the car as trading stock and for no other purpose at the time you make the quote. Therefore, it needs to be determined whether you will be holding the vehicle as trading stock.

The term 'trading stock' is not defined in the LCT Act. Accordingly, it is appropriate to examine the ordinary meaning of that term. The ordinary meaning of 'trading stock' includes not only goods held for the purpose of sale or exchange in the ordinary course of trade but also things such as materials which a manufacturer holds for use in manufacture.

Raw materials and work in progress of a manufacturer are also considered to be 'trading stock' as stated by Mason J in Federal Commissioner of Taxation v. St Hubert's Island Pty Ltd (in liq) (1978) 138 CLR 210; 78 ATC 4104; (1978) 8 ATR 452

Vehicles that are acquired for the purpose of modification, restoration and resale will be the 'trading stock' of a dealer in the same way that raw materials, work in progress and finished goods are the 'trading stock' of a manufacturer of goods.

Where you purchase a motor vehicle for the purpose of modification and sale, and for no other purpose (that is, hire, loan or private and domestic purposes), you are entitled to quote your ABN in relation to the supply of those cars.

Purchase of the original vehicle

You advised that when you purchase the original vehicle, you quote your ABN on the basis that you will hold the vehicle as trading stock. As such, the supply of the original vehicle to you is not a taxable supply of a luxury car under paragraph 5-10(2)(a) of the LCT Act. Therefore, there is no luxury car tax payable on the supply of the original vehicle to you.

Sale of the modified vehicle

As discussed in Question 1, the modified vehicle is a commercial vehicle that is designed for the principal purpose of carrying goods. The modified vehicle is not a luxury car for the purpose of the LCT Act. Therefore, there is no luxury car tax payable on the sale of the modified vehicle.