Edited version of private advice

Authorisation Number: 1052014919909

Date of advice: 4 August 2022

Ruling

Subject: Vehicle classification

Question

Is the vehicle regarded as a commercial vehicle and exempt from the car cost limit under section 40-230 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2021

The scheme commences on:

1 July 2020

Relevant facts and circumstances

You own a used motor vehicle business.

A new 20XX vehicle was purchased, which was modified from new to have a 1,020kg payload and a 3,800kg gross vehicle mass (GVM) upgrade. The GVM upgrade was through second stage manufacturing.

As per the vehicle 200 document from vehicle, the vehicle originally had the following ratings:

•                    Kerb weight: 2,740kg

•                    GVM: 3,350kg

•                    Gross Combined Mass: 6,850kg

•                    Seating: 7

As per the original compliance plate the GVM was 3,350kg and designed with 7 seats. The vehicle now has 5 seats and is reflected on the modified vehicle compliance plates.

The vehicle is required to both carry and tow heavy and bulky items. The vehicle was purchased with this purpose in mind.

The back two seats have been removed and it is rarely used for carrying people.

The modifications listed were carried out before you were allowed to pick it up from the dealership, as per Australian Design Rules (ADR).

You believe it is recognised as a commercial vehicle and does not attract luxury car tax (LCT).

A mobile workshop was built into where the rear two seats were removed.

You use the vehicle for towing and breakdown and that is why there is a mobile workshop inside.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 40-230

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Subsection 40-230(1) of the 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 and means a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

The one tonne capacity is 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 original compliance plate by the manufacturer, reduced by the basic kerb weight of the vehicle.

The basic kerb weight is the weight of the vehicle with a full tank of fuel, oil and coolant together with spare wheel, tools (including jack) and factory-installed options. It does not include the weight of passengers, goods or accessories.

Payload capacity = GVM - basic kerb weight

Administrator's Circular 0-4-6 by the Department of Infrastructure, Transport, Regional Development, and Communications provides:

1.1 This Circular sets out the requirements for Manufacturers making application for Identification Plate Approval (IPA) for additions to, or modifications undertaken on a New Vehicle that already has affixed a completed vehicle Identification Plate. Such arrangements are identified as "Second-Stage-of-Manufacture" (SSM) IPA.

3.4 Typical examples of modified new vehicles that should access these SSM arrangements are:

•                    Light and Medium Goods vehicles subject to a Gross Vehicle Mass upgrade and/or a reduction in Lightly Laden Test Mass.

•

A SSM GVM upgrade is an alteration to the original vehicle. It's in addition to, but does not replace, the original manufacturer's plate.

Miscellaneous Taxation Ruling MT 2024 Fringe benefits tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel suggests that application can be had to the Australian Design Rules calculation to determine whether the vehicle is mainly designed to carry passengers. The calculation is 68kg multiplied by the number of seating positions the vehicle was designed with - whether they are removed or removeable is disregarded as it matters how the vehicle is "designed" and sold.

Your vehicle was manufactured with 7 seats.

If more than 50% of the original payload is remaining after taking into account passengers, the car limit does not apply as the vehicle is not designed mainly for carrying passengers.

Your applicable payload is the original payload of 610kg (GVM - Kerb weight) or (3,350kg-2,740kg).

The designed passenger carrying capacity is to be determined by multiplying the designed seating capacity (including the driver's) by 68kg, which is the figure adopted for the purposes of the application of the Australian Design Rules. The capacity of your vehicle allocated to carrying passengers is 7 x 68kg = 476kg. Using the reduced seating capacity after the modification of your vehicle, the capacity allocated to carrying passengers is 5 x 68kg = 340kg.

Both 476kg and 340kg are greater than 50% of 610kg, therefore under the Australian Design Rules the vehicle is a car for the purposes of the ITAA 1997.

A car that is mainly designed for carrying passengers will be subject to the car limit under section 40-230 of the ITAA 1997. Your vehicle is a car designed mainly for carrying passengers and is subject to the car limit. For the year ended 30 June 2021 the car limit is $59,136.