Edited version of private advice

Authorisation Number: 1051930906354

Date of advice: 10 December 2021

Ruling

Subject: Modified cars - work-related use - exemption

Question

Do the modified motor vehicles that are provided, qualify for the exemption under subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 because as a result of modifications, they are not cars?

Answer

Yes.

This ruling applies for the following periods:

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

The employer develops and produces specialised equipment for both the consumer market and military personnel.

Their contract with the defence force requires them to maintain the equipment during its operational life (approximately 5 years)

In addition, they are required to tow heavy specialist equipment to be used in the field.

To complete the job, they require specialised 4WD vehicles to enable them to carry the materials from site to site and, thereafter, travel from site to maintain them.

The vehicles purchased by the employer are two Toyota Land Cruiser 200 Sahara 2020 4 Wheel Drives.

The vehicles have been extensively modified to carry loads not normally associated with consumer vehicles and have had Gross Vehicle Modification (GVM) upgrades to increase capacity from 3350 kg to 3800 kg for vehicle one and from 3350 to 4015 kg for vehicle two.

Most of the time, the vehicles are in the field travelling from site to site, maintaining and delivering new equipment (60-80% of the vehicle's life will be out in the field). They generally come back to the head office only to restock on supplies.

They will be garaged from Motel to Motel during these periods.

When working in remote areas the vehicles may be away from the office for extended periods of time up to several months.

The vehicles are used primarily "off road".

It is intended that the vehicles will be left overnight at the factory during their down time.

Employees are only permitted to take the vehicles home when they are required to start work early the next day. During this time, it is impractical for them to come to the factory, so the vehicles are loaded the night prior, and staff leave immediately from home to synchronise with the defence force's early start.

The company has a written policy in place that employees do not use Company Motor Vehicles for private purposes

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Section 162

Fringe Benefits Tax Assessment Act 1986 Subsection 7(1)

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)

Question

Do the modified motor vehicles that are provided, qualify for the exemption under subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 because as a result of modifications, they are not cars?

Summary

Yes, the private use of themodified vehicles, being the Toyota LC 200 Sahara models is not a fringe benefit and will give rise to a residual benefit under section 45 of the FBTAA. This benefit will qualify as an exempt residual benefit under subsection 47(6) FBTAA. Therefore, no fringe benefit will arise in respect of the use of the vehicles.

Detailed reasoning

A car fringe benefit arises when an employer provides a motor vehicle that is a car to an employee. However, an exemption may be available for car benefits that arise from the provision of work-related cars. In the current circumstances, work-related vehicles are potentially provided to employees. The motor vehicles which were originally designed as passenger cars have however, been modified.

Car fringe benefits will not arise if the vehicles have been modified to the extent that they no longer meet the definition of a car. The provision of a motor vehicle that is not a car may give rise to a residual benefit. An exemption is available under subsection 47(6) where the motor vehicle is not a car; the vehicle is used for work related travel, or travel incidental to employment duties; and any private use is minor, infrequent and irregular. If the exemption applies, the benefits are exempt residual benefits; and therefore, no fringe benefits will arise.

It is first necessary to consider whether the provision of the modified 2020 Toyota LC200 Saharas provided by the Employer to employees would constitute a 'car fringe benefit'.

Car fringe benefit

Section 7 of the FBTAA sets out the circumstances in which the use of a car will be a taxable fringe benefit.

Subsection 7(1) of the FBTAA describes what constitutes a car fringe benefit, as follows:

7(1) [Car applied to, available for employee's private use]

Where:

(a)  at any time on a day, in respect of the employment of an employee, a car held by a

person (in this subsection referred to as the "provider":

                                            (i)        is applied to a private use by the employee or an associate of the employee; or

                                           (ii)        is taken to be available for the private use of the employee or an associate of the employee; and

(b)  either of the following conditions is satisfied:

                                            (i)        the provider is the employer, or an associate of the employer, of the employee;

                                           (ii)        the car is so applied or available, as the case may be, under an arrangement

between:

(A)  the provider or another person; and

(B)  the employer, or an associate of the employer, of the employee;

that application or availability of the car shall be taken to constitute a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee.

Will the motor vehicle be 'held' by the provider (the Employer)?

Under section 162 of the FBTAA, a car is held by a person if that person holds or leases it or it is otherwise made available to that person. According to the facts provided, the Employer has purchased two motor vehicles for the employees to use mainly in its business operations.

Therefore, the motor vehicle will be held by the provider, who is the Employer.

Is the Employer's motor vehicle a 'car'?

Subsection 136(1) of the FBTAA states that for the purposes of the FBTAA, the definition for a car is the definition contained in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

Subsection 995-1(1) of the ITAA 1997 defines 'car' to mean:

a.      ....A motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

According to the facts of the case, the motor vehicles (with 7 seats) purchased by the employer are 2020 Toyota Landcruiser LC 200/Sahara models.

In terms of whether Toyota Landcruiser LC 200/Sahara models have a designed load capacity of less than one tonne, paragraph 11 of 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 a description of how to calculate a vehicle's 'designed carry load':

11. ...the designed load capacity of a motor vehicle is to be taken as the gross vehicle weight as specified on the compliance plate by the manufacturer (broadly, the maximum all-up-loaded weight), reduced by the basic kerb weight of the vehicle. For this purpose, basic kerb weight is synonymous with unladen weight, as specified in the Australian Design Rules, being the weight of the vehicle with a full tank of fuel, oil and coolant together with spare wheel, tools (including jack) and installed options. It does not include the weight of goods or occupants.

The Vehicle Standard (Australian Design Rule - Definitions and Vehicle Categories) 2005 contains the following definitions:

a.    GROSS VEHICLE MASS (GVM) - the maximum laden mass of a motor vehicle as specified by the 'Manufacturer'.

b.    MANUFACTURER - the name of the person or company who accepts responsibility for compliance with the Australian Design Rules and to whom the 'Compliance Plate' approval certificate is issued.

c.     UNLADEN MASS [or 'Unladen Weight'] - 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.

'Standard equipment' refers to the common equipment that a specific model of car is supplied with as specific and provided by the manufacturer.

According to the facts of the case, the motor vehicles provided to the employees by the employer being the 2020 Toyota LC 200 Sahara models initially had a GVM of 3350 kg and Unladen Mass of 2720 kg. The designed load capacity of these vehicles is thus 630 kg, which is less than one tonne.

Therefore, the Employer's vehicles being the two 2020 Toyota LC 200 Sahara models, initially met the definition of a 'car' for the purposes of FBTAA.

However, the two aforementioned vehicles have had modifications which increased the GVM from 3350 to 3800 in the first vehicle and 3335 to 4015 in the second vehicle. As a result, the designed load capacity for both vehicles is more than one tonne and therefore the Employer's vehicles no longer meet the definition of a car.

As the vehicles no longer meet the definition of a car, car benefits cannot be provided even though the vehicles are held by the employer and may be applied to or available for private use.

Is the provision of the modified motor vehicle a 'residual benefit' for the purposes of section 45 of the FBTAA?

Section 45 (Division 12) of the FBTAA 1986 provides that a benefit will be a 'residual benefit' if:

a.    ...the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

Subsection 136(1) of the FBTAA 1986 defines 'benefit' to include:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a)    an arrangement for or in relation to:

                                          (i)        the performance of work (including work of a professional nature), whether with or without the provision of property;

                                         (ii)        the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

                                        (iii)        the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money.

The right to use a motor vehicle other than a car comes within this definition. In the current case the modified vehicles no longer meet the definition of a car. The employees are working in remote areas; they take the vehicles into the field and may be away from the office for extended periods of time up to several months. It is accepted that the employees have a right to use the vehicles (e.g., for travel from the workplace to the motel where they would be staying). As the use of the motor vehicles is not a benefit covered by a provision of Subdivision A of Divisions 2 to 11, the use of the vehicles is considered to be a residual benefit.

Is the provision of the modified motor vehicle an exempt residual benefit for the purposes of subsection 47(6) of the FBTAA?

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 vehicle used for taxi travel (other than a limousine) 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 motor vehicle during the year of tax and at a time the benefit was provided other than:

(i)    work-related travel of the employee; and

(ii) other private use of the motor vehicle 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.

Application

For the exemption to apply, the motor vehicles must be provided in respect of the employment of current employees; the vehicles cannot be cars; they must be used for work related travel, or travel incidental to employment duties; and any private use must be minor, infrequent and irregular.

The vehicles owned by the employer are specialised 4WD vehicles that are used primarily "off road". The vehicles are used to tow heavy specialist equipment. Most of the time, the employees are driving the vehicles out in the field travelling from site to site, maintaining and delivering new equipment (60-80% of the vehicle's life will be out in the field). They generally come back to the head office only to restock on supplies. When working in remote areas, the employees may take the vehicles away from the office for extended periods of time up to several months. They will be garaged from Motel to Motel during these periods. It is intended that the vehicles will be left overnight at the factory during their down time.

Employees are only permitted to take the vehicles home when they are required to start work early the next day. During this time, it is impractical for them to come to the factory, so the vehicles are loaded the night prior, and staff leave immediately from home to synchronise with the defence force's early start. The company has a written policy in place that employees do not use Company Motor Vehicles for private purposes.

Based on the facts, it is accepted that provided the motor vehicles are not cars, all of the requirements of the exemption in subsection 47(6) are satisfied.

Are the motor vehicles cars?

As discussed above, the modifications have increased the designed load capacity for both motor vehicles and therefore they are not cars for the purposes of determining whether there is a car benefit under subsection 7(1). In respect of whether the motor vehicles still meet the definition of a car in regard to the exemption: Miscellaneous Taxation Ruling MT 2033 Fringe benefits tax: application of sub-section 8(2) exemption to modified cars (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.

Whether or not modifications to a car satisfy the test detailed in Para 7 needs to be determined on the facts of the particular case. However, as a general rule, the requirement that modifications affect 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.

Simply removing the rear seat or bolting it down would not be sufficient for this purpose. However, if, .... 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's 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 subsection 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).

According to the employer, the modifications consist of the following elements:

'Besides the GVM upgrades, the towing capacity has been increased. This is due to the need to tow heavy specialist equipment to the required defence locations. They are also fitted with testing equipment and (extra) storage to hold spare parts'.

A 'Certificate of Compliance' was issued approving suspension upgrade to carry a greater Gross Vehicle Mass (GVM) of 3,800 kg for one vehicle. Another 'Certificate of Compliance' was issued' that carried out modifications to upgrade another vehicle to carry a greater Gross Vehicle Mass (GVM) of 4,015 kg.

The modifications to the vehicles are sufficient to satisfy the requirements of sub 995-1 of the ITAA 1997 such that each vehicle is considered a 'motor vehicle' not designed to carry a load of less than one tonne therefore are excluded from being categorised as a 'car'.

Significantly, the modifications to the vehicles also satisfy the requirements of subparagraph 8(2)(a)(ii) under 'Exempt Car Benefits' and sub-paragraph 47(6)(a)(ii)(B) under 'Exempt Residual Benefits' in that each vehicle is considered a 'motor vehicle' not designed to carry a load of less than one tonne.

It is accepted that the changes to the motor vehicles are permanent and not readily reversed. Therefore, the motor vehicles are not cars for the purposes of the exemption

Summary

The use of themodified vehicles, being the Toyota LC 200 Sahara models will give rise to a residual benefit under section 45 of the FBTAA. This benefit will qualify as an exempt residual benefit under subsection 47(6) FBTAA. Therefore, no fringe benefit will arise in respect of the use of the vehicles.