Edited version of private advice

Authorisation Number: 1052206662937

Date of advice: 4 January 2024

Ruling

Subject: Deduction - car limit for depreciation

Question 1

Is your dual cab utility vehicle exempt from the car limit for depreciation purposes under section 40-230 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Is your dual cab utility vehicle an eligible vehicle for the purposes of the exemption found in section 8 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following period:

Financial year ended 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You have supplied the make, model, variant, and make year of a utility you purchased to carry tool and materials for the work done by your company. You subsequently had the vehicle modified to better accommodate the tools and materials required for the work done by your company. These modifications were completed before you took delivery of the vehicle. You have supplied the cost of the vehicle and the cost of the modifications.

You have supplied the gross vehicle mass and kerb weight of the vehicle. The carrying capacity of the vehicle is less than 1 tonne. The vehicle has company signage on its exterior.

The vehicle is sold as a dual cab utility or truck with 5 seats.

The vehicle was not purchased for carrying passengers and there is little capacity with the modifications for private use. This vehicle has been supplied to an employee for his work use. The employee using the vehicle stores his tools and material in the vehicle and parks it at his residence overnight. He drives the vehicle straight to his first place of work in the morning and straight home from his last place of work each night.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 section 40-25

Income Tax Assessment Act 1997 section 40-230

Income Tax Assessment Act 1997 subsection 40-230(1)

Income Tax Assessment Act 1997 subsection 40-230(3)

Fringe Benefits Tax Assessment Act 1986 section 7

Fringe Benefits Tax Assessment Act 1986 subsection 7(1)

Fringe Benefits Tax Assessment Act 1986 subsection 7(2)

Fringe Benefits Tax Assessment Act 1986 subsection 7(5)

Fringe Benefits Tax Assessment Act 1986 section 8

Fringe Benefits Tax Assessment Act 1986 subsection 8(2)

Fringe Benefits Tax Assessment Act 1986 paragraph 8(2)(a)

Fringe Benefits Tax Assessment Act 1986 subparagraph 8(2)(a)(i)

Fringe Benefits Tax Assessment Act 1986 subparagraph 8(2)(a)(ia)

Fringe Benefits Tax Assessment Act 1986 paragraph 8(2)(b)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Question 1

Summary

As your vehicle is a goods vehicle the car limit in section 40-230 of the ITAA 1997 will not apply.

Reasons for decision

A deduction for the decline in value of depreciating assets is available under Division 40 of the ITAA 1997. Specifically, a deduction is available for the decline in value of a depreciating asset that is held by you to produce assessable income under section 40-25 of the ITAA. Under subsection 40-230(1) a taxpayer cannot claim more for the depreciation of their asset than the car limit defined in subsection 40-230(3) for a vehicle designed mainly to carry passengers.

Some cars are designed to carry both goods and passengers. In determining what a car was designed to carry the ATO has considered the Australian Design Rules. Under section 4.5.2 of the Vehicle Standard Australian Design Rule (ADR 2005) a vehicle designed to carry both goods and passengers is considered a goods vehicle if the number of seats multiplied by 68 Kilograms is less than half of the carrying capacity or payload of the vehicle, otherwise it will be considered a passenger vehicle.

You have supplied the make, model, variant, and make year of your utility. With 5 seats and a tray your vehicle is designed to carry both goods and passengers. The number of seats multiplied by 68 kilograms is less than half the carrying capacity of the vehicle. Therefore it can be considered your vehicle was designed to carry goods. In this case the car limit will not apply for depreciation purposes.

Question 2

Summary

The vehicle's load capacity exceeds the total passenger weight, so it is accepted that the vehicle is a work-related car. Further, it is accepted that the vehicle is used for work-related travel and there is minimal private use.

Reasons for decision

The term 'fringe benefit' is defined in subsection 136(1) of the FBTAA. This definition requires that the following conditions are satisfied:

1)    a benefit is provided during or in respect of the fringe benefits tax year

2)    the benefit is provided to an employee or an associate of the employee

3)    the benefit is provided by the employer, or an associate of the employer, or a third party

4)    the benefit is not an exempt benefit, or a benefit that is excluded from being a fringe benefit.

The term 'car fringe benefit' is also defined in subsection 136(1) of the FBTAA as provision of a car to an employee by an employer in an arrangement such as that described in section 7 of the FBTAA. A car benefit means a fringe benefit provided under such an arrangement. Under section 7 of the FBTAA, a car benefit arises if:

1)    an employee or associate is provided with a car

2)    the car is held by the employer (or an associate, or a third party under an arrangement)

3)    the car is either

a.    applied to private use

b.    available for private use (for example where the vehicle is garaged at the employee's residence).

The term 'private use' is defined in subsection 136(1) of the FBTAA to mean, in relation to a motor vehicle, any use by the employee or associate that is not exclusively in the course of producing assessable income of the employee.

Subsection 7(5) of the FBTAA provides that a car is 'applied' by a person if it is applied in accordance with the directions, instructions or wishes of the person - that is, it will cover situations where the employee does not personally apply the car to a private use but directs some other person to do so.

Under subsection 7(2) of the FBTAA, a car will be taken to be available for the private use of an employee on any day that the car is garaged or kept at or near a place of residence of the employee.

Under the above provisions a liability for fringe benefits tax (FBT) arises where an employer provides or makes available for private use a motor vehicle (car) which is provided by the employer to an employee.

In applying the above requirements it is accepted that the vehicle meets the definition of a car and is held by the employer. The car is also provided to the employee in respect of employment. A car that is garaged at the employee's place of residence is deemed as being available for the private use of the employee regardless of whether or not the employee has permission to use it privately under subsection 7(2) of the FBTAA.

Therefore, as the car is garaged at the home of the employee, a car benefit will arise under section 7(1) of the FBTAA, unless the benefit is an exempt benefit.

Section 8 of the FBTAA provides exemption from fringe benefits tax for car benefits provided in respect of certain types of cars that have limited private use as specified within that section.

Subsection 8(2) of the FBTAA states that a car benefit will be exempt if:

(a) the car is:

(i)    a panel van or utility truck, designed to carry a load of less than 1 tonne; or

(ia) used for taxi travel, designed to carry a load of less than 1 tonne, and not a limousine; or

(ii)   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 car during the year of tax and at a time when the benefit was provided other than:

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

(ii) other private use by the employee or an associate of the employee, being other use that was minor, infrequent and irregular.

Miscellaneous Taxation Ruling MT 2024: Fringe benefits tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel differentiates between utility trucks and dual cabs. As stated in paragraph 14 of this ruling a dual cab vehicle with a load carrying capacity of less than one tonne that is not designed principally for carrying passengers may qualify for the work-related use exemption under sub-section 8(2).

In determining whether a dual cab vehicle is designed principally for carrying passengers paragraph 14 of MT 2024 refers to the approach adopted by the Australian Design Rules. The issue of whether a work-related exemption is available to an employer can be decided by determining whether the majority of the designed load capacity is attributable to goods or passenger carrying capacity.

If the total passenger weight 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. Where the load capacity exceeds the total passenger weight, eligibility for the work-related use exemption arises.

You have supplied a modified dual cab utility vehicle with 5 seats to an employee for work use. Each subsection of subsection 8(2) of the FBTAA will now be considered and applied to your circumstances.

Paragraph 8(2)(a) 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)

Subparagraphs (i) and (ia) would not apply in this case as the car provided is a vehicle which is not a panel van, utility van, limousine or used for taxi travel. MT 2024 states the test required to determine a vehicle's main purpose is through the application of the Australian Design Rules.

As defined in MT 2024 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. You have supplied the gross vehicle mass and the basic kerb weight.

The designed passenger carrying capacity is to be determined by multiplying the designed seating capacity (including the driver's) by 68 kilograms, which is the figure adopted for the purposes of the application of the Australian Design Rules. The designed seating capacity of the vehicle is 5 seats.

As the load capacity is more than twice the total passenger weight it is accepted that the vehicle is a work-related car.

Paragraph 8(2)(b) there was no private use of the car during the year of tax

The vehicle is used for the transportation of tools and travel between work sites, and the capacity for private use is limited. Therefore, the only use of the car will be work-related, and any private use will be minor, infrequent, and irregular as per provided in the facts.

As such, the scheme under which you have supplied a modified dual cab utility vehicle to an employee for work use would satisfy paragraph 8(2)(b) of the FBTAA.

Therefore, as both paragraphs 8(2)(a) and 8(2)(b) of the FBTAA would be satisfied under the scheme, the provision of the vehicle by the employer to the employee in respect of the employee's employment would constitute an exempt benefit pursuant to subsection 8(2) of the FBTAA.