Edited version of private advice

Authorisation Number: 1051644212992

Date of advice: 09 March 2020

Ruling

Subject: GST and income tax - luxury car

Question 1

For the purposes of subsection 69-10(4) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), is the vehicle excluded from being a luxury car because of subsection 25-1(2) of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act)?

Answer

Yes

Question 2

For the purposes of section 40-230 of the Income Tax Assessment Act 1997 (ITAA 1997) is the vehicle not a car that is designed to carry passengers?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances.

You ordered and purchased a completely modified vehicle which before modification would normally be subject to the luxury car limit for depreciation and subject to the GST credit claim limits also.

Relevant details of the modified vehicle have been provided.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999, subsection 69-10(1)

A New Tax System (Goods and Services Tax) Act 1999, subsection 69-10(4)

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

A New Tax System (Luxury Car Tax) Act 1999 subsection 25-1(2)

Income Tax Assessment Act 1997 section 40-230

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Summary

For the purposes of subsection 69-10(4) of the GST Act, the vehicle is not a luxury car because of subsection 25-1(2) of the LCT Act as it is a commercial vehicle.

Detailed reasoning

Subsection 69-10(1) of the GST Act provides that if:

(a) you are entitled to an input tax credit for a * creditable acquisition or * creditable importation of a * car ; and

(b) you are not, for the purposes of the A New Tax System (Luxury Car Tax) Act 1999 , entitled to quote an * ABN in relation to the supply to which the creditable acquisition relates, or in relation to the importation, as the case requires; and

(c) the * GST inclusive market value of the car exceeds the • car limit for the * financial year in which you first used the car for any purpose;

the amount of the input tax credit on the acquisition or importation is the amount of GST payable on the supply or importation of the car up to 1/11 of that limit.

However subsection 69-10(4) of the GST Act states that section 69-10 does not apply in relation to:

(a) the acquisition or importation of a * car that is not a • luxury car because of subsection 25-1(2) of the A New Tax System (Luxury Car Tax) Act 1999;

Section 25-1 of the LCT Act provides the meaning of luxury car:

(1) A luxury car is a * car whose * luxury car tax value exceeds the * luxury car tax threshold.

Under paragraph 25-1(2)(c) of the LCT Act a car is not a luxury car if it is:

a commercial vehicle that is not designed for the principal purpose of carrying passengers; or

You have stated that prior to modification the vehicle would have been subject to the LCT. If the modifications have changed the nature of the vehicle into a 'commercial vehicle that is not designed for the principal purpose of carrying passengers' it will not be considered a luxury car.

The term 'commercial vehicle' is not defined in the LCT Act and therefore, the ordinary meaning of the words applies. The Macquarie Dictionary online, www.macquariedictionary.com.au viewed 3 March 2020, gives the following meaning to the term 'commercial vehicle':

a vehicle able to carry goods or passengers, and designated for use by businesses, as a panel van, utility, etc.

To work out the principal purpose for which a vehicle has been designed, things to consider include:

• its appearance and presentation
• relevant promotional material and how it is marketed
• its specifications
• the load carrying capacity, and
• the number of passengers it can carry.

This broader test allows factors, such as appearance and marketing to be taken into account when determining the classification of a vehicle. The determination of the question is generally the result of a process of weighing all the relevant factors. No single factor is determinative.

Miscellaneous Taxation Ruling MT 2024 Fringe benefits tax: Dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel (MT 2024) provides guidance on determining the principal purpose of vehicles such as dual cab utilities.

MT 2024 details the method used to determine whether the principal purpose of a vehicle is for carrying passengers and states the following at paragraph 14:

...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.

The Vehicle Standard (Australian Design Rule - Definitions and Vehicle Categories) 2005 at 4.5.2 states that:

A vehicle constructed for both the carriage of persons and the carriage of goods shall be considered to be primarily for the carriage of goods if the number of seating positions times 68kg is less than 50 percent of the difference between the 'Gross Vehicle Mass' and the 'Un-laden Mass'.

The term un-laden mass is defined in the ADR as:

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.

Taking into account all of the above factors, it is considered that the modified vehicle is a commercial vehicle that is not designed for the principal purpose of carrying passengers. Therefore it is not a luxury car in accordance with subsection 25-1(2) of the LCT Act.

Consequently, because of subsection 25-1(2) of the LCT Act the vehicle is not a luxury car for the purposes of section 69-10(4) of the GST Act and section 69-10 of the GST Act will not apply to the acquisition of the vehicle.

Question 2

Subsection 40-230(1) of the ITAA 1997 states that:

The first element of the cost of a car designed mainly for carrying passengers (after applying section 40-225 and Subdivision 27-B) is reduced to the car limit for the financial year in which you started to hold it if its cost exceeds that limit.

The car limit under section 40-230 of the ITAA 1997 will not apply to a car that is not designed mainly for carrying passengers.

As explained in the reasons for decision to question one, the modified vehicle is not designed for the principal purpose of carrying passengers therefore it is not a car designed mainly for carrying passengers for the purposes of section 40-230 of the ITAA 1997.