Edited version of private advice

Authorisation Number: 1051811579997

Date of advice: 4 March 2021

Ruling

Subject: Luxury car tax

Question

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

Answer

No

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:

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

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

Relevant facts and circumstances

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

You are a car dealership.

Vehicle 1

Your customer intends on purchasing a four-wheel drive (4WD) vehicle which has 7 seats.

Prior to purchasing the vehicle, the customer would like to have the gross vehicle mass (GVM) upgraded to allow additional goods carrying capacity (modified vehicle 1). This is to be completed under 2nd Stage Manufacturing prior to registration and you supplying "the modified vehicle" to the customer.

No further modifications will be made to the vehicle, and the external appearance of the vehicle will not change.

Vehicle 2

Your customer intends on purchasing a 4WD vehicle which has 7 seats.

Prior to purchasing the vehicle, the customer would like to have the GVM upgraded. In addition, the customer will remove the rear 2 seats (3rd row), transforming it from 7-seater to 5-seater, allowing for additional goods carrying space (modified vehicle 2). This is to be completed under 2nd Stage Manufacturing prior to registration, and you supplying "the modified vehicle" to the customer.

No further modifications will be made to the vehicle, and the external appearance of the vehicle will not change.

Relevant legislative provisions

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)    specially 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 vehicles are motor-powered road vehicle with capacity for 5 or 7 passengers, and each has a load carrying capacity of less than 2 tonnes, and therefore falls under the definition of a car for the purposes of the LCT Act.

The vehicles would fall under the definition of a luxury car because both vehicles have an LCT value above the LCT threshold. 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 has published several public advice and guidance products in respect of related matters, directed at the interpretation of a car's 'principal purpose' for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). For clarity, it is the Commissioner's view that each of the products detailed below may be relied upon to interpret the meaning of 'principal purpose' as that term is used in paragraph 25-1(2)(c) of the LCT Act.

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 Australian Design Rules (ADR's) is the appropriate test for determining the principal purpose of 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.

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.

The vehicles in question are not dual cab utility vehicles. It is therefore appropriate to apply the factors listed in TD 94/19 to determine the principle purpose of the vehicles.

While we consider all relevant factors in determining whether LCT applies to a modified vehicle, we specifically consider whether or not the vehicle can be returned to its original state, and whether in its modified form, the vehicle maintains its original design for the principal purpose of carrying passengers.

Applying each of the factors listed in TD 94/19, we consider that the modifications described in the facts will not change the principal purpose of either Vehicle 1 or 2 to that of a goods carrying vehicle.

Accordingly, we consider that LCT is still payable on supply of the modified vehicles, as the modified vehicles are still luxury cars principally designed for the purpose of carrying passengers.