Private ruling: Luxury car tax
Date of advice: 4 March 2024
Published: 22 April 2024
Ruling period: 1 July 2023 to 30 June 2024 | 1 July 2024 to 30 June 2025 | 1 July 2025 to 30 June 2026 | 1 July 2026 to 30 June 2027
Date scheme commenced: 1 July 2023

Ruling: Q1: Will modified vehicles, continue to be luxury cars on which Luxury Car Tax is payable? | A1: No. | Q2: Are vehicles purchased, which are then modified, and subsequently held as trading stock, luxury cars on which Luxury Car Tax is payable? | A2: No.

Relevant facts and circumstances: You are registered for Goods and Services Tax (GST). You modify 4 wheel drives into dual cab utility vehicles. The base price of the unmodified vehicles are above the luxury car threshold. The vehicles are modified by cutting the rear of the vehicle, extending the chassis, and increasing the gross vehicle mass (GVM). The process of the modifications is permanent. The modified vehicles have a seating capacity of 5 passengers. When modified, the vehicles have a GVM greater than 4,200kg, with a tare mass greater than 2,600kg. The modified vehicles are an NB1 category Goods vehicle. The modified vehicles are used for dual purposes, carrying goods. You modify vehicles against specific orders upon request of the customer.

Relevant legislative provisions: A New Tax System (Luxury Car Tax) Act 1999 section 25-1, | A New Tax System (Luxury Car Tax) Act 1999 section 5-10 and | A New Tax System (Luxury Car Tax) Act 1999 section 9-5.

Reasons for decision: Detailed Reasoning - Detailed reasoning: In determining whether the modified vehicles are subject to luxury car tax (LCT), it will need to fall within the definition of a luxury car under the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act). Subsection 25-1(1) of the LCT Act provides that a luxury car is a car, whose luxury car tax value exceeds the luxury car tax threshold. However, Paragraph 25-1(2)(c) of the LCT Act provides that a car is not a luxury car if it is a commercial vehicle, and not designed for the principal purpose of carrying passengers. The modified vehicles are classified as an NB1 commercial goods-carrying vehicle. The original vehicle was designed for the principal purpose of carrying passengers and later modified to increase its goods carrying capacity for commercial purposes, resulting in a dual purpose utility vehicle. To work out the principal purpose for which a vehicle has been designed, see Luxury Car Tax Determination LCTD 2023/1: how to determine the principal purpose of a vehicle. Paragraphs 54 to 59 of LCTD 2023/1 provide a simplified method for determining the principal purpose of a utility vehicle which is classified as a goods vehicle for the purposes of the Road Vehicles Standards Act 2018 (RVSA 2018). When modified, the passenger capacity for 5 passengers (including the driver) is 5 x 68kg = 340kg, and the remaining load capacity for the vehicles exceeds the passenger capacity. As the passenger capacity does not exceed the remaining load capacity, it is considered that the modified vehicles are not designed for the principal purpose of carrying passengers. Accordingly, the modified vehicles are a commercial vehicle not designed for the principal purpose of carrying passengers, and as such, not luxury cars for the purposes of the LCT Act. | Detailed Reasoning - Question 2: Are vehicles purchased, which are then modified, and subsequently held as trading stock, luxury cars on which Luxury Car Tax is payable? | Detailed Reasoning - Detailed reasoning: Generally, LCT is payable when there is a taxable supply or taxable importation of a luxury car. Under certain circumstances, a recipient or importer may quote their ABN for the supply or importation to avoid the luxury car tax that is otherwise payable. Under paragraph 5-10(2) of the LCT Act, a supply is taken not to be a taxable supply of a luxury car when the recipient quotes for the supply. Quoting delays the LCT payable on the supply of the car until such time that the car is supplied or imported at the retail level where the recipient or importer is not entitled to quote an ABN. Section 9-5 of the LCT Act details the circumstances under which you are entitled to quote your ABN in relation to the supply of a luxury car. Paragraph 9-5(1)(a) of the LCT Act states that you are entitled to quote if you have the intention of holding the car as trading stock and for no other purpose at the time you make the quote. Therefore, it needs to be determined whether you will be holding the vehicle as trading stock. The term 'trading stock' is not defined in the LCT Act. Accordingly, it is appropriate to examine the ordinary meaning of the term. The ordinary meaning of 'trading stock' includes not only goods held for the purpose of sale or exchange in the ordinary course of trade but also materials which a manufacturer holds for use in manufacture. Raw materials and work in progress of a manufacturer are also considered to be 'trading stock' as stated by Mason J in Federal Commissioner of Taxation v. St Hubert's Island Pty Ltd (in liq) (1978) 138 CLR 210; 78 ATC 4104; (1978) 8 ATR 452. Vehicles that are acquired for the purpose of modification, restoration and resale will be the 'trading stock' of a dealer in the same way that raw materials, work in progress and finished goods are the 'trading stock' of a manufacturer of goods. Where you purchase a motor vehicle for the purpose of modification and sale, and for no other purpose (that is, hire, loan or private and domestic purposes), you are entitled to quote your ABN in relation to the supply of those cars. | Detailed Reasoning - Sale of the modified vehicle: As discussed in Question 1, the modified vehicle is a commercial vehicle that is designed for the principal purpose of carrying goods. The modified vehicle is not a luxury car for the purpose of the LCT Act. Therefore, there is no luxury car tax payable on the sale of the modified vehicle.