Private ruling: Luxury car tax
Date of advice: 20 December 2019
Published: February 2020
Ruling period: 1 July 2019 to 30 June 2020 | 1 July 2020 to 30 June 2021 | 1 July 2021 to 30 June 2022 | 1 July 2022 to 30 June 2023
Date scheme commenced: 1 July 2019

Ruling: Q1: Do the branded modified four-wheel drive vehicles models meet the definition of a luxury car for the purposes of section 25-1 of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act)? | A1: No

Relevant facts and circumstances: You are a local business that specialises in modifying four-wheel drive vehicles on request by customers. You have indicated that the business is looking to move into retailing the modified vehicles and present them as your own branded vehicles; offering eight variants from three models. The vehicles will be purchased from a licensed motor dealer that may attract LCT depending on the four-wheel drive version purchased. Modifications for the three models (total of eight variants) are being carried out by your own experienced modification mechanics. You have indicated the final price for each variant will be above the LCT threshold. Modifications for the models on offer include: · installation of internal storage cargo containers, with internal storage capacity up to 3000L · permanent removal of up to six seats and reduction of overall tare weight, depending on the final variant offered · GVM upgrade, depending on the final variant offered · The original vehicles' towing capacity of 3500kg will be modified, depending on each variant · new suspension system for increased load carrying capacity (+ 650kg) · bull bar or nudge bar · tradie bar (ladder frame) for long loads · roof rack · installation of High Density Polyethylene (HDP) rear cargo area shell, similar to a ute tray, · rear cargo barrier behind the front seats · options available include rear cargo barrier and installed tool boxes The marketing brochure you provided for the modified branded vehicle series makes reference to commercial fit out suited for tradespersons primarily for a goods carrying purpose.

Relevant legislative provisions: A New Tax System (Luxury Car Tax) Act 1999 section 5-5, | A New Tax System (Luxury Car Tax) Act 1999 section 25-1 and | A New Tax System (Luxury Car Tax) Act 1999 section 27-1.

Reasons for decision: Summary: Under section 5-5 of A New Tax System (Luxury Car Tax) Act 1999 (LCT Act), luxury car tax (LCT) is payable on any taxable supply of a luxury car. Paragraph 25-1 of the LCT Act provides the definition of a luxury car and states: | Detailed Reasoning - 25-1 Meaning of luxury car: 1) A luxury car is a *car whose *luxury car tax value exceeds the *luxury car tax threshold. 2) However, a *car is not a *luxury car if it is: a) a vehicle that is specified in the regulations to be an emergency vehicle, or that is in a class of vehicles that are specified in the regulations to be emergency vehicles; or b) specifically fitted out for transporting *disabled people seated in wheelchairs (unless the supply of the car is *GST-free under Subdivision 38-P of the *GST Act); or c) a commercial vehicle that is not designed for the principal purpose of carrying passengers; or d) a motor home or campervan. Items marked with an * are defined in the dictionary at section 27-1 of the LCT Act. Section 27-1 of the LCT Act defines a car is as follows: car means a *motor vehicle (except a motor cycle or similar vehicle) that is: (a) designed to carry a load of less than 2 tonnes and fewer than 9 passengers; or (b) a limousine (regardless of the number of passengers it is designed to carry) motor vehicle means a motor-powered road vehicle (including 4 wheel drive vehicles). The four-wheel drive model is a motor-powered road vehicle with seating capacity of 5, 7, or 8, and thus would fall under the definition of a car for the purposes of the LCT Act. However, under paragraph 25-1(2)(c) of the LCT Act, a car is not a luxury car if it is a commercial vehicle that is not designed for the principal purpose of carrying passengers. For LCT purposes, the Commissioner considers a commercial vehicle is: · designed for the principal purpose of carrying goods used for business or trade · not subject to LCT Commercial vehicles include: · trucks · hearses · some vans, for example, vans designed to carry a load of less than two tonnes, fewer than nine passengers and have a value over the LCT threshold Vehicles designed mainly for carrying passengers (including paying passengers) or for sport or recreation purposes are not commercial vehicles and may have luxury car tax payable for them. These vehicles include: · station wagons · passenger sedans · people movers · sport utility vehicles (SUVs) 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? provides (at paragraph 2) that in determining the principal purpose for which a vehicle (other than a dual cab or crew cab vehicle) regard should be had to factors including, but not limited to, the following: · its appearance and presentation · relevant promotional material and how it is marketed · its specifications · the load carrying capacity · the number of passengers it can carry. Paragraphs 14 to 16 of Miscellaneous Taxation Ruling MT2024 Fringe benefits tax: dual cab vehicles eligibility for exemption where private use is limited details the appropriate basis to determine whether the principal purpose of a dual cab or crew cab vehicle is for carrying passengers, and the relevant extracts state the following: 14) It is considered that the appropriate basis for determining this issue is whether or not the majority of the designed load capacity is attributable to passenger carrying capacity. This approach is consistent with that adopted under the Australian Design Rules in determining what is a passenger vehicle. 15) For this purpose the designed passenger carrying capacity is to be determined by multiplying the designed seating capacity (including the driver's) by 68 kg, which is the figure adopted for the purpose of the application of the Australian Design Rules. 16) If the total passenger weight so determined exceeds the remaining "load" capacity, the vehicle is to be treated as being designed for the principal purpose of carrying passengers. You plan to modify the base four-wheel drive series model and offer three branded models with eight variants. The eight variants of the three models and their respective specifications (i.e. gross vehicle mass (GVM), unladen mass and seating capacity) can be summarised in the table below. | Detailed Reasoning - Towing Capacity (kg): 1 4000 2630 2 2500 2 3350 2630 2 2500 3 4000 2690 5 2500 4 3400 2690 5 2500 5 4000 2710 7 2500 6 4000 2710 8 2500 7 3690 2710 7 2500 8 3830 2710 8 2500 The modifications have been made are for the principal purpose of carrying goods and equipment. The appearance of each vehicle variant has been changed substantially and the characteristics including the permanent modifications mean that this vehicle has been marketed for the purpose of carrying goods and equipment used for business or trade. Applying the approach provided in paragraphs 14 to 16 of MT2024 to the specifications of the four-wheel drive model variant 1 yields the following result: · the load capacity is 1370kg (GVM - unladen vehicle mass = 4000 - 2630 = 1370) · the passenger capacity for 2 passengers (including the driver) is 2 x 68kg = 136kg · the remaining load capacity is (1370kg - 136kgs) = 1234kg As the passenger capacity (136kg) did not exceed the remaining load capacity (1234kg), the modified four-wheel drive model variant 1 is treated as not being designed for the principal purpose of carrying passengers. When this approach is applied to the other models and variants, which is summarised in the table below, the four-wheel drive models are treated as not being designed for the principal purpose of carrying passengers. | Detailed Reasoning - Remaining capacity (kg): 1 1370 136 1234 2 720 136 584 3 1310 340 970 4 710 340 370 5 1290 476 814 6 1290 544 746 7 980 476 504 8 1120 544 576 Applying TD94/19 and MT2024 to the modified four-wheel drive models, it is considered that the vehicles are not luxury cars for the purposes of the LCT Act because each vehicle is considered to be a commercial vehicle designed for the principal purpose of carrying goods used for a business or trade. The supply of the branded modified four-wheel drive series models are not a taxable supply of a luxury car and therefore are not subject to LCT.