Private ruling: FBT Exemptions: Modifications to cars
Date of advice: 21 April 2017
Published: September 2017
Ruling period: FBT Year ended 31 March 2017 | FBT Year ended 31 March 2018 | FBT Year ended 31 March 2019 | FBT Year ended 31 March 2020
Date scheme commenced: April 2016

Ruling: Q1: Do the modifications made by you to vehicles originally designed as passenger cars and provided to your employees for work related purposes, result in the modified vehicles qualifying as 'Exempt Vehicles' for the purpose of paragraph 8(2)(a) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)? | A1: Yes

Relevant facts and circumstances: You currently own a number of cars that are primarily used as delivery vehicles by sales representatives in your business. These cars seat four-to-five people and are primarily designed to carry passengers and are sold by as passenger cars. To improve the practicality of these vehicles that are used by the sales representatives to deliver their product (in both the rear and the back seats), you modify these cars to essentially convert them into 4-door 'panel vans'. At this point in time, the rear seats are folded down, flooring is fitted and both the flooring and seats are bolted down. A safety barrier is then fitted behind the driver's and front passenger seats.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986: Section 8

Reasons for decision: Summary: Section 8 of the FBTAA 1986 relevantly states: | Detailed Reasoning - 8(1) [Exempt application or availability for private use]: Except insofar as section 7 provides that the application or availability of a car held by a person is a benefit, the application or availability of a car held by a person is an exempt benefit. | Detailed Reasoning - 8(2) [Exempt vehicles]: A car benefit provided in a year of tax in respect of the employment of a current employee is an exempt benefit in relation to the year of tax if: (a) the car is: (i) a taxi, panel van or utility truck, designed to carry a load of less than 1 tonne; 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 The vehicles to which your application pertains are hatch-backs or station wagons which are, per your application: “primarily designed to carry passengers and are sold by Toyota as passenger cars”. In Case 58/94 (94 ATC 498), the taxpayer argued that a station wagon which was exclusively used for business purposes should be treated as an exempt benefit because of the use to which it was put. The Administrative Appeals Tribunal rejected the taxpayer's argument because the vehicle was designed for the principal purpose of carrying passengers and was specifically excluded from the category of vehicles to which the exemption could apply. Taxation Determination TD 94/19 provides guidance on factors to be considered for determining the principal purpose for which a car was designed, including: ● 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. In consideration of the above, the vehicles do not meet the definition of exempt vehicles pursuant to sub-paragraph 8(2)(a)(i) of the FBTAA 1986, as they are not considered to be taxi's, panel vans or utility trucks. So as to qualify as a car, which is an exempt vehicle, it is then necessary to consider the application of sub-paragraph 8(2)(a)(ii) of the FBTAA 1986. Sub-paragraph 8(2)(a)(ii) excludes from the definition of 'exempt vehicles', a car which is “designed for the principal purpose of carrying passengers”. In order for a vehicle to qualify as a car "not designed for the principal purpose of carrying passengers" , the car may be modified, however the modifications must alter the inherent design of the car and be permanent, or at least not readily reversible. Miscellaneous Taxation Ruling MT 2033: application of sub-section 8(2) exemption to modified cars provides [at paragraphs 7-10] that: 7. As to the second category of cases, a vehicle's design is generally established at the time of manufacture. In order to change that design it would be necessary that the modifications effect a permanent alteration to the vehicle. 8. A clear example of this would be the process involved in the production of hearses. Under this, a station wagon body is extended, the rear doors removed, flush panelling fitted and the compartment behind the driver's seat suitably modified. 9. Whether or not modifications to a car satisfy the test detailed in paragraph 7 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. 10. Simply removing the rear seat or bolting it down would not be sufficient for this purpose. However, if, as has been put to this Office, that were to be done in conjunction with the fixing of a rigid floor panel, the reinforcement of internal panels, the fixing of a protective screen behind the driver's seat and the fixing of shelving, etc., to a service vehicle, it would be accepted that the modifications were such as to bring the vehicle within the ambit of sub-section 8(2). Of course, the modifications would need to extend throughout the entire rear area, including that previously devoted to the rear seat. Simply fixing shelving etc., to the area behind the rear seat location would not bring the vehicle within the ambit of sub-section 8(2). However, in order for the car benefits to be exempt benefits, taxpayers will still need to satisfy the remaining conditions of section 8. In this respect, we note that MT 2033 further states [at paragraphs 11-12] that: 11. It should be noted that to qualify for the exemption the requirements of sub-section 8(2) must be satisfied at all times during an FBT year when the car benefit is provided, i.e., at all times when the car is used or available for the private use of the employee (or associate). Accordingly, the exemption will not apply in the year in which modifications are effected if, during that year, the unmodified car was used by the employee (or associate) for private purposes or was available for his or her private use. In determining for these purposes whether an unmodified car has been available for an employee's private use, particular regard should be had to sub-section 7(2) of the Act, the effect of which is that a car will be taken to be available for the private use of an employee on any day on which it is garaged at or near the employee's residence. 12. One final point should be noted in discussing eligibility for the exemption afforded by sub-section 8(2). As discussed in Ruling MT 2027, not all travel from an employee's home constitutes private travel. It follows that there will be cases where no FBT liability arises in respect of the use of a car garaged at an employee's home, notwithstanding its exclusion from the operation of sub-section 8(2). On the basis of the facts outlined in your ruling application, the modifications you made to the cars detailed in table 1 will satisfy the requirements of sub-paragraph 8(2)(a)(ii) such that the each of the vehicles will qualify as: a 'car', being a road vehicle designed to carry a load of less than one tonne (other than a vehicle designed for the principal purpose of carrying passengers). Accordingly, the cars detailed in table 1 of your application will be exempt vehicles for the purpose of paragraph 8(2)(a) of the FBTAA 1986. In applying the exemption from Fringe Benefits Tax, we note that the exemption will not apply in the year in which modifications are effected if, during that year, the unmodified car was used by the employee (or associate) for private purposes or was available for the employee's private use.

Other relevant facts: ● The modifications to the cars leave two seats available for the driver and a single passenger; | ● Modifications to the car are designed to create significant storage space, by modifying both the rear and back seats of each vehicle; | ● The vehicles are marketed as passenger vehicles, designed to carry a load of less than one tonne; | ● For the purposes of this ruling application, there will be a strictly enforced policy in place to satisfy paragraph 8(2)(b) of the FBTAA 1986, such that the only private use of the vehicles to which this application pertains will be, “minor, infrequent and irregular” in addition to any work-related travel.