Edited version of private advice

Authorisation Number: 1051987801862

Date of advice: 31 May 2022

Ruling

Subject: Car cost limit exemption

Question

Is the vehicle exempt from the car limit under section 40-230 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You work in the construction industry and you purchased a dual cab utility during the year ended 30 June 20XX.

You use this vehicle in the course of producing an income to carry and tow bulky and heavy equipment.

The vehicle was advertised and marketed as a commercial vehicle.

The vehicle's payload capacity is 800kgs.

The vehicle has 5 seats.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 40-230

Income Tax Assessment Act 1997 section 995-1

Fringe Benefits Tax Assessment Act 1986 subsection 8(2)

Reasons for decision

Subsection 40-230(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states:

'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.'

'Car' is defined under section 995-1 of the ITAA 1997 as a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

If a vehicle carries less than 9 passengers and has a payload capacity of less than 1 tonne it is classified as a car and will generally be subject to the car cost limit in section 40-230 of the ITAA 1997.

The one tonne amount relates to the maximum load your vehicle can carry, also known as the payload capacity. The payload capacity is the gross vehicle mass (GVM) as specified on the compliance plate by the manufacturer, reduced by the basic kerb weight of the vehicle.

Miscellaneous Taxation Ruling MT 2024 Fringe Benefits Tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel states that 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) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986), 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. It is understood that this approach is consistent with that adopted under the Australian Design Rules in determining what is a passenger vehicle.

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 purposes of the application of the Australian Design Rules.

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 and as such ineligible for work-related use exemption.

By way of illustration, if a vehicle has a gross vehicle weight of 2,000 kgs, a basic kerb weight of 1,400 kgs, and has a designed seating capacity of five, the vehicle would be considered to be a vehicle designed principally for the carriage of passengers. This is because the total load capacity is 600 kgs of which the majority, 340 kgs, would be absorbed by its designed passenger carrying capacity.

This test can be applied in determining whether a car is 'mainly designed for parrying passengers' as stated in subsection 40-230(1) of the ITAA 1997 as the term 'mainly designed' is broader than the term 'principally designed' set out in sub-section 8(2) of the (FBTAA 1986).

Conclusion

In your circumstances, the vehicle you purchased has a payload capacity of 800kgs. The vehicle is designed to carry five passengers meaning that 340kgs is designed to be absorbed by its passenger carrying capacity.

As the majority of the payload capacity is not allocated to passenger carrying capacity, the vehicle is not 'mainly designed' for carrying passengers and the car cost limit does not apply to this vehicle.