Private ruling: Fringe benefit tax
Date of advice: 23 June 2015
Published: June 2015
Ruling period: Fringe benefit tax year ended 31 March 2015
Date scheme commenced: 1 April 2014

Ruling: Q1: Will a car fringe benefit arise from the private use of the vehicle? | A1: No

Relevant facts and circumstances: An employee who recently commenced working for you is seeking to transfer a novated lease arrangement from their previous employer. You have a policy of only entering into a novated lease for a vehicle which is a car. The following details are shown for the vehicle on the manufacturer's website: GVM (kg) 3200 kerb Weight (kg) 2064 Payload (kg) 1136 Front Axle Load (Maximum) (kg) 1480 Rear Axle Load (Maximum) (kg) 1850 Gross Combined Mass Incl. Braked Trailer (kg) 6000 A bull bar and tray liner have been added to the vehicle since purchase. On dd/mm/yyyy your employee had the vehicle weighed. The following details are shown on the weight ticket: Front weight 1294 kg Rear weight 902 kg Total weight 2196 kg

Relevant legislative provisions: Fringe Benefit Tax Assessment Act 1986 Section 7 | Fringe Benefit Tax Assessment Act 1986 Section 136(1)

Reasons for decision: Summary: This ruling concerns if a car fringe benefit will arise if you enter into a novated lease for the vehicle which will be garaged at the employee's residence and used for private purposes by the employee. For the purpose of the ruling, the relevant legislation sections to consider are: • Section 7 of the Fringe Benefit Tax Assessment Act (FBTAA)1986 which provides the definition of a car fringe benefit; and • Section 136 (1) of the FBTAA and subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) which provide the definition of a car. | Detailed Reasoning - Detailed reasoning: Section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) sets out the circumstances in which a car benefit will be provided. One of the requirements is for the vehicle that is provided to be a car. The definition of car in subsection 136 (1) of the FBTAA states that car has the meaning giving by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). Subsection 995-1(1) of the ITAA 1997 defines a car to mean: a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load less than 1 tonne and fewer than 9 passengers. Guidance that is to be used in determining the load carrying capacity of a vehicle is provided in Miscellaneous Taxation Ruling 2024 Fringe Benefit Tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel. Paragraph 11 of MT 2024 provides that 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. For this purpose the basic kerb weight is synonymous with unladed weight, as specified in the Australian Design Rules, being the weight of the vehicle with a full tank of fuel, oil and coolant together with spare wheel, tools (including jack) and installed options. The Australian Design Rules formulated by the Department of Transport and Regional Services, defines 'Unladen Mass' as: the mass of a vehicle with full capacity of lubricating oil, coolant and fuel but without goods, occupants or options except those which are essential to the test for which unladen mass is specified. In applying this guidance, the load carrying capacity is to be determined on the basis of the details provided by the manufacturer. The calculation does not take into account items such as bull bars or tray liner that are subsequently fitted to the vehicle after manufacture. Support for this conclusion was provided in the Tax Office response to agenda item 3.3 of the meeting of the FBT subcommittee of the National Tax Liaison Group meeting held on 10 May 2007. The following questions were asked: | Detailed Reasoning - Background: A car is defined for FBT purposes as meaning a 'motor vehicle...being a motor car, station wagon, panel van, utility truck or similar vehicle, designed to carry a load of less than one tonne...'. The Commissioner's guidance in Miscellaneous Taxation Ruling MT 2024 provides that in determining the load carrying capacity of a vehicle, '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. For this purpose, basic kerb weight is synonymous with unladen weight, as specified in the Australian Design Rules (ADR), being the weight of the vehicle with a full tank of fuel, oil and coolant together with spare wheel, tools (including jack) and installed options. It does not include the weight of goods or occupants.' Having regard to the above, an anomaly appears to arise in the definition of the ADR. Under the ADR, 'unladen weight' refers to 'fuel filled to nominal capacity and...standard equipment fitted'. However, the Commissioner's interpretation allows for a full tank of fuel and options fitted to the vehicle. In our view it is unclear whether the Commissioner's approach requires clarification given that the ADR may have changed since the introduction of MT 2024. | Detailed Reasoning - Issues to address: The following examples illustrate how the interpretation of MT 2024 may give a different result if the ADR are followed. | Detailed Reasoning - Scenario 1: A vehicle has a gross vehicle mass of 2,850 kilos. The manufacturer has specified a tare mass, inclusive of 10 litres of petrol, (not a full tank of petrol, only 10 litres), of 1,800 kilos. At the dealership (not at the factory), as part of the sale to the lessor, the petrol tank is filled up to full and the weight of the fill up of 70 litres was 70 kilos (assume 1 litre = 1 kilo). | Detailed Reasoning - Questions: Does the top up to 70 litres of fuel mean that the vehicle is a 'car' for FBT purposes? If the vehicle is a 'car', is it because the total load carrying capacity is 990 kilos (1,050-70+10 litre weight already in manufacturer specifications)? | Detailed Reasoning - Scenario 2: A vehicle has a gross vehicle mass of 2,830 kilos. The manufacturer has specified a tare mass, inclusive of 10 litres of petrol) of 1,800 kilos. At this point, it seems the designed load carrying capacity would be 1,030 kilos and at this point the vehicle would not be a 'car' for FBT purposes. At the dealership (not at the factory), as part of the sale of the vehicle, an alloy bull bar of 45 kilos is attached to the vehicle. | Detailed Reasoning - Questions: Is it correct, with this inclusion of the bull bar alone at dealership level, (without resort to potential of fuel top up), that the vehicle is now a 'car'? The Tax Office response stated: As noted in the LCA submission it was unclear whether the Commissioner's approach in MT 2024 requires clarification given that the Australian Design Rules (ADR) may have changed since the introduction of MT 2024. Broadly, this issue relates to definitions that appear in Vehicle Standard (Australian design rule definitions and vehicle categories) 2005 . The submission suggests that 'load capacity' is the difference between 'gross vehicle mass' and its 'tare mass' with 'tare mass' variously defined (depending on what type of vehicle it is) as having its fuel levels filled to only 10 litres or left empty. On the basis of those definitions, it was queried whether the reference to 'designed load capacity' as found at paragraph 11 of MT 2024 should instead be equated to 'load capacity'. As a consequence of that analysis the reference to a full tank of fuel as found in paragraph 11 of MT 2024 would not be correct. Scenario 1 applies that analysis. The Tax Office advised that it has contacted the Department of Transport and Regional Services, who are responsible for formulating the ADR that is inclusive of the document mentioned above, to ascertain their opinion on the changes alluded to in the ADR. It was confirmed that the phrase 'nominal capacity' as found in the definition of 'unladen mass', (being 'the mass of the vehicle in running order unoccupied and unladen with all fluid reservoirs filled to nominal capacity including fuel, and with all standard equipment') referred to the capacity of the tank and not to an arbitrary smaller amount such as that used in 'tare mass'. In that respect, in terms of paragraph 11 of MT 2024 as the ADR have not changed, it is still correct to state that the calculation of determining 'designed load capacity' is based on 'gross vehicle weight' reduced by the 'basic kerb weight' and that that term is still synonymous with 'unladen mass'. Accordingly, the methodology set out in MT 2024 remains correct. Given the above confirmation of the methodology adopted in MT 2024, there is no requirement to provide a response to scenario 1 and the queries raised in respect of scenario 1. In relation to scenario 2, as specified in paragraph 11 of 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. On that basis, additional items such bull bars that are fitted at the dealership would not be included in this calculation. In applying this guidance, a search on the manufacturer's website indicates that the vehicle has gross vehicle mass of 3200 kilograms and kerb weight of 2064 kilograms. Therefore, the designed carry load of your vehicle is 1136 kilograms. As this is more than 1 tonne, the vehicle is not a car. Therefore, a car fringe benefit will not arise from the private use of the vehicle. Rather, the private use of the vehicle will be a residual benefit.