Edited version of private advice

Authorisation Number: 1052241418704

Date of advice: 12 April 2024

Ruling

Subject: Deductions - depreciation

Question

Will the vehicle qualify for the exemption available under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question

Is the vehicle exempt from the car limit under subsection 40-230(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The trust acquired a station wagon motor vehicle (the vehicle) in the 20XX income year.

The cost of the vehicle was above the car limit for the 20XX income year.

The trust used the vehicle solely to store and transport tools, equipment and materials in the course of carrying on a business.

The vehicle specifications were provided. The vehicle has a seating capacity of 5 passengers.

The vehicle manufacture's website provides further information on the vehicle and the vehicle's marketing emphasises the car's loading capacity and work usability.

Relevant legislative provisions

Income Tax Assessment Act 1997 subdivision 40-C

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

Fringe Benefits Tax Assessment Act 1986 subsection 8(2)

Reasons for decision

Question 1

Exempt car benefit

Subsection 8(2) of the FBTAA provides that a car will be exempt from fringe benefits tax if:

(a)  the car is a taxi, panel van or utility vehicle designed to carry a load of less than one tonne, or another road vehicle not designed for the principal purpose of carrying passengers, and

(b)  there was no private use of the car during the year when the benefit was provided, except:

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

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

Therefore, in determining whether a car is of a type to which the work-related exemption could apply, the principal purpose of the design of the car is relevant.

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, 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.

In determining whether a dual cab vehicle is designed principally for carrying passengers, MT 2024 refers to the approach considered in clause 4.5.2 of the Vehicle Standard (Australian Design Rules - Definitions and Vehicle Categories) 2005 (ADR).

According to the ADR, a vehicle constructed for both the carriage of persons and the carriage of goods shall be considered to be primarily for the carriage of goods if the number of seating positions times 68 kilograms is less than 50% of the difference between the 'Gross Vehicle Mass' and the 'Unladen Mass'.

However, 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 provides guidance for determining the principal purpose for which a car was designed. For dual or crew cabs vehicles, the method outlined in Miscellaneous Tax Ruling MT 2024 applies. However, for other vehicles, the Commissioner advises that 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; and

•        passenger carrying capacity.

Application to your circumstances

In this case, the trust acquired a station wagon vehicle in the 20XX income year, where its sole use was for work-related travel in carrying and transporting equipment, tools and materials for the trust's business.

According to the manufacture's website, the station wagon vehicle is built with an adaptable cargo securing system and the marketing of the vehicle emphasises the car's loading capacity and work usability.

The vehicle specifications were provided. As the designed passenger carrying capacity is less than 50% of the load capacity, under the ADR, the vehicle will be taken to not be designed for the principal purpose of carrying passengers.

Therefore, as the vehicle's appearance, promotional literature and marketing, as well as the method under the ADR, emphasises the vehicle's load capacity, it will be taken to be designed for the purpose of the carriage of goods. Thus, as the vehicle has only been used for work-related travel and it is not designed mainly for carrying passengers, the vehicle will be exempt from fringe benefits tax.

Question 2

Car limit

The cost of a depreciating asset has two elements. The first element of the cost is worked out under Subdivision 40-C of the ITAA 1997 as at the time you start to hold the asset and includes amounts you have taken to have paid to hold the asset, such as the acquisition price.

Subsection 40-230(1) of the ITAA 1997 states that the first element of the cost of a motor vehicle that is designed mainly for carrying passengers will be reduced to the car limit for the financial year in which you started to hold it if its cost exceeds that limit. The car limit for the 20XX income year is $X

However, the car limit will not be applied to a car that is not designed mainly for carrying passengers. As outlined above under question 1, TD 94/19 provides that in determining the principal purpose for which a car 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; and

•        passenger carrying capacity.

Furthermore, clause 4.5.2 of the ADR can also be considered to determine if a vehicle is designed mainly for carrying passengers.

As outlined above under question 1, the ADR states that a vehicle shall be taken to be designed primarily for the carriage of goods if the designed passenger carrying capacity is less than 50% of the load capacity.

Application to your circumstances

In this case, the trust acquired a station wagon vehicle in the 20XX income year, where its sole use was for work-related travel in carrying and transporting equipment, tools and materials for the trust's business.

In regard to the car limit, as outlined under question 1, the vehicle will be taken to be designed primarily for the carriage of goods due to the vehicle's appearance, promotional literature and marketing, as well as the method under the ADR. Therefore, as the vehicle is not designed mainly for carrying passengers, the car limit will not be applied. Thus, the first element of the cost of the vehicle will not be reduced to the car limit under subsection 40-230(1) of the ITAA 1997.