Edited version of private advice

Authorisation Number: 1051592591600

Date of advice: 7 November 2019

Ruling

Subject: Fringe benefits tax - car benefits

Question

Is the provision of a benefit by way of certain private use of a particular vehicle exempt from Fringe Benefits Tax under subsection 8(2) or 47(6) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

This ruling applies for the following period

Year ended 31 March 20XX

The scheme commenced on

1 April 20XX

Relevant facts

A particular vehicle has a designed load capacity of less than one tonne, and carrying capacity of less than nine passengers.

The particular vehicle has been modified by removing three seats across the very back of the vehicle to allow installations of slide out features and maintenance tools and equipment including material racks for maintenance applications. Although difficult, and not economically feasible, the modifications could be reversed.

The particular vehicle will transport required tools and equipment at rear fixed covered section, and will travel between field sites.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 8(2)

Fringe Benefits Tax Assessment Act 1986 subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Is the provision of a benefit by way of certain private use of a particular vehicle exempt from Fringe Benefits Tax under subsection 8(2) or 47(6) of the Fringe Benefits Tax Assessment Act 1986?

Exempt car benefits are addressed in subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as follows.

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.

Exempt benefits for a vehicle other than a car are addressed in subsection 47(6) of the FBTAA as follows.

Where:

(a) a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee:

(aa) the motor vehicle is not:

(i) a taxi let on hire to the provider; or

(ii) a car, not being:

(A) a panel van or utility truck; or

(B) 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 benefit is an exempt benefit in relation to the year of tax.

The private use of a motor vehicle (either a 'car' for FBT purposes or otherwise) is therefore exempt from FBT under subsection 8(2) or 47(6) of the FBTAA if all of the following conditions are satisfied:

• the vehicle is a taxi, panel van, utility or other commercial vehicle (that is, one not designed principally to carry passengers)
• the employee's private use of such a vehicle is 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.

Guidance in relation to whether a vehicle (other than a dual cab or crew cab) is designed for the principal purpose of carrying passengers is provided in Taxation Determination TD 94/19 Fringe benefits tax: is the method in Taxation Ruling MT 2024 appropriate for determining whether a vehicle, other than a dual or crew cab, is 'designed for the principal purpose of carrying passengers' and thereby ineligible for the work-related use exemption available under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986? (TD 94/19).

Paragraph 2 of TD 94/19 states the following:

In determining the principal purpose for which any other vehicle was designed, regard should be had to factors including, but not limited to, the following:

·         the appearance and presentation of the vehicle

·         any relevant promotional literature

·         the emphasis in marketing

·         the vehicle's specifications

·         load capacity

·         passenger carrying capacity

The particular vehicle has a designed load capacity of less than one tonne, and carrying capacity of less than nine passengers. The appearance and presentation of the particular vehicle as originally designed and displayed in promotional literature and marketing is that of a vehicle designed for the principal purpose of carrying passengers. The vehicle specifications in terms gross vehicle mass and kerb weight confirm that the particular vehicle is a vehicle designed to carry a load of less than one tonne. The features of the particular vehicle lists seating capacity as less than nine. In accordance with paragraph 2 of TD 94/19, it is concluded the principal purpose of the particular vehicle is to carry passengers.

Is the vehicle a 'car' and not a taxi, panel van or other commercial vehicle?

The term 'car' is defined in subsection 136(1) of the FBTAA as follows:

has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997

The term 'car' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA) 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 particular vehicle is therefore a car and not a taxi, panel van, utility or other road vehicle other than one designed principally to carry passengers. Subsection 8(2)(a)(i) and (ii) of the FBTAA is not satisfied, and the particular vehicle is not exempt from fringe benefits tax.

Modified vehicles

Miscellaneous Taxation Ruling MT 2033 provides that a modified vehicle may also qualify as an exempt vehicle if the modification or alteration permanently affects the inherent design of the vehicle, and is not capable of being readily reversed, such that the design does not remain that of a passenger carrying vehicle.

5. Whether a car is of a kind to which the work-related use exemption is capable of applying depends on the vehicle's inherent design rather than the use to which the particular car is put. Thus, for example, the fact that the rear seat of a station wagon may be folded down and service equipment located in the extended rear section is not relevant for the purposes of the exemption, i.e. the car's design remains that of a passenger carrying vehicle.

...

9. ...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.

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 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).

Modifications have been made to the particular vehicle. While difficult, and not economically feasible, the modifications could be reversed.

Any modifications would not be permanent, and the particular vehicle's design remains that of a passenger carrying vehicle.

The modifications made to the particular vehicle can be distinguished from the situation in paragraph 10 in MT 2033. The modifications made to the particular vehicle of removing three seats across the very back still leaves a seating capacity of less than nine, which still indicates that the vehicle is designed for the principal purpose of carrying passengers. The example in paragraph 10 of MT 2033 discusses a protective screen behind the driver seat which reduces seating capacity to two, and converts the rest of the vehicle principally to a business purpose, rather than principally for carrying passengers. Such modifications are not similar to the modifications made to the particular vehicle, and can be distinguished.

The exemption under subsection 8(2) of the FBTAA still does not apply as the particular vehicle is a car, but is not a taxi, panel van, utility or any other road vehicle designed to carry a load of less than one tonne, other than a vehicle principally designed to carry passengers.

The exemption under subsection 47(6) of the FBTAA does not apply as the exemption only applies to vehicles other than a car, and the particular vehicle is a car.