Edited version of private advice

Authorisation Number: 1051798865476

Date of advice: 27 January 2021

Ruling

Subject: Luxury car tax

Question 1

Is "the modified vehicle" a commercial vehicle designed for the principal purpose of carrying goods for the purposes of the A New Tax System (Luxury Car Tax) Act 1999?

Answer

Yes

Question 2

Based on the arrangement described in the facts, is luxury car tax payable on the supply of the vehicle to a customer?

Answer

Yes

This ruling applies for the following periods:

20XX - 20XX income year

20XX - 20XX income year

20XX - 20XX income year

20XX - 20XX income year

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a car dealership.

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

Customers may approach you to buy a modified vehicle ("the modified vehicle").

The supply arrangement:

In order for the modifications to be done, a customer may request you to recommend a third-party Modifier (Modifier), or a customer may have a specific Modifier that they wish to use.

You organise and facilitate the modification process with the Modifier by transporting the vehicle to and from the Modifier. You hold the title and ownership of the car when you send it to the Modifier, and you continue to hold the title during the modification process.

There are two contracts, one between you and the customer for sale of the vehicle, and the other between the Modifier and the customer for modification of the vehicle.

You do not have any legal liability in relation to the modification services.

You do not have any written agreements with the Modifier.

The Modifier invoices the client directly for the modification costs. You invoice the client separately for the cost of the unmodified vehicle.

Once the customer has paid both invoices, the vehicle is registered and delivered to the customer (transfer title to the customer). The transaction is complete.

The modifications:

The original vehicle will be cut at the rear, and have some rear seats removed for a tray to be fitted as part of the conversion. The gross vehicle mass (GVM) will also be upgraded.

The vehicle is modified into a dual cab utility vehicle.

You have provided photos to show the appearance of the vehicle pre and post modifications.

You also provided the vehicle specifications for the different vehicles and modifications.

Relevant legislative provisions

A New Tax System (Luxury Car Tax) Act 1999 Division 5

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

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

Reasons for decision

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).

Section 25-1 of the LCT Act provides the definition of a luxury car and states:

25-1 Meaning of luxury car

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

2)    However, a *car is not a *luxury car if it is:

a)    a vehicle that is specified in the regulations to be an emergency vehicle, or that is in a class of vehicles that are specified in the regulations to be emergency vehicles; or

b)    specifically fitted out for transporting *disabled people seated in wheelchairs (unless the supply of the car is *GST-free under Subdivision 38-P of the *GST Act); or

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

d)    a motor home or campervan.

Item marked with an * are defined in the dictionary at section 27-1 of the LCT Act.

Section 27-1 of the LCT Act defines a car is 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 has a load carrying capacity of less than 2 tonnes, and thus would fall under the definition of a car for the purposes of the LCT Act.

The vehicle falls under the definition of a luxury car because its LCT value is above the LCT thresholds. However, 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.

For LCT purposes, the Commissioner considers 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 may have luxury car tax payable for them. These vehicles include:

•         station wagons

•         passenger sedans

•         people movers

•         sport utility vehicles (SUVs).

The Commissioner's current view, as provided in 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) is that the test in clause 4.5.2 of the ADR's is the appropriate test for determining the principal purpose of single cab or dual cab utility vehicles which have a load capacity of less than one tonne. This test provides that the principal purpose of the vehicle may be determined by reference to how the majority of the vehicle's load capacity is utilised, where each passenger seat is allocated 68kg of the available load capacity.

Paragraphs 14 to 16 of the MT 2024 detail the method to determine whether the principal purpose of a vehicle is for carrying passengers and the relevant extracts state the following:

14)    ...a dual cab that has a designed load carrying capacity of less than one tonne may still qualify for the work-related use exemption, under sub-section 8(2), if the vehicle is not designed for the principal purpose of carrying passengers. 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.

15)    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.

16)    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...

For all other cars (including utility vehicles with a load capacity greater than one tonne), the Commissioner considers that the appropriate test is to consider the factors detailed in Taxation Determination TD 94/19 Fringe benefits tax: is the method outlined 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), as well as any other relevant factors. The factors in TD 94/19 are to be considered on balance against all other relevant factors, with no single factor being determinative.

Applying each of the factors listed in TD 94/19, we consider that the modifications you have made to convert the original vehicles to dual cab utility vehicles, have significantly changed both the appearance of the vehicle and its characteristics to that of goods carrying vehicles used for business or trade.

Furthermore, applying the test in MT 2024 as detailed at paragraphs 14-16 to the specifications of the modified vehicles, the passenger capacity did not exceed the remaining load capacity. The modified vehicles are treated as not being designed for the principal purpose of carrying passengers.

Accordingly, pursuant to paragraph 25-1(2)(c) of the LCT Act, the modified vehicles will not be subject to LCT as they are not 'luxury cars'.

The supply

Generally, luxury car tax is payable when there is a taxable supply of a luxury car (Division 5 of the LCT Act).

The meaning of 'supply' is provided in Subdivision 9-A of the A New Tax System (Goods and Services Tax) Act 1999 which is considered in further detail in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies.

Applying each of the propositions in GSTR 2006/9 to the facts provided, we consider that there is one arrangement under which two separate supplies are made:

1.    The supply of the (unmodified) car by you; and

2.    The supply of modification services by the Modifier.

We formed the view on the basis that:

•         there are two contracts - one between you and the customer; the other between the Modifier and the customer.

•         you do not have any legal liability in relation to the modification services.

•         you supply an unmodified vehicle and the customer opted to have it modified; rather than you supplying an already modified vehicle.

•         the fact that the title to the car is transferred to the customer and the car delivered only after the modification is merely a timing issue as agreed by you and the customer.

Accordingly, where you make a taxable supply of a luxury car (i.e. the unmodified vehicle's LCT value is above the LCT thresholds), you must pay luxury car tax on the supply of the luxury car.