Edited version of private advice

Authorisation Number: 1051934229005

Date of advice: 16 December 2021

Ruling

Subject: Luxury car tax

The ruling requires the Commissioner to determine whether certain modified vehicles are commercial vehicles designed for the principal purpose of carrying goods for the purposes of A New Tax System (Luxury Car Tax) Act 1999 (LCT Act).

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

Commercial vehicles include:

•                trucks

•                hearses

•                some vans, for example, cargo or delivery 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 Australian Design Rules 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.

The method outlined in MT 2024 only applies to dual cab or crew cab vehicles.

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:

2. 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 evident in marketing

•         the vehicle's specifications

•         load carrying capacity

•         passenger carrying capacity

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

Miscellaneous Taxation Ruling MT 2033 Fringe benefits tax: application of sub-section 8(2) exemption to modified cars (MT 2033) provides that a car's 'principal purpose' is generally established at the point of manufacture, and only permanent modifications are considered when determining the principal purpose of a modified car. Paragraph 9 of MT 2033 states:

9. Whether or not modifications to a car satisfy the test ...needs to be determined on the facts of the particular case. However, 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.

The vehicles in question are not dual cab utility vehicles. As such, we apply each of the factors listed in TD 94/19 and taking into account the permanency and extent of the modifications, we consider some of the vehicles to be commercial with a principal purpose of carrying goods, while other variants still maintain their original design purpose as passenger carrying vehicles.

This ruling applies for the following periods:

Year ending 30 June 2024

The scheme commences on:

1 December 2021

Relevant legislative provisions

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

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