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Tax Law – Exempt commercial motor vehicle benefits

We have already looked at car fringe benefits in another article. However, now we will look at the FBT exemption that applies to commercial motor vehicles.

Commercial vehicles

An employee’s usage of certain forms of vehicle is FBT exempt where the employee only uses the vehicle to:

  • travel between home and work;
  • travel incidental to course of duties; and
  • minor, infrequent and irregular non work-related use.

Commercial vehicles defined

Commercial vehicles are defined as one of the following:

  • it carries more than one tonne or is designed for the principal purpose of carrying 9 or more passengers;
  • it carries less than one tonne and fewer than 9 passengers but is a taxi, panel van or utility truck; or
  • it is designed to carry a load of less than 1 tonne but is not designed to carry passengers.

Note that the relevant provisions of the FBT Act are not clearly drafted, potentially causing much confusion. They are also not clearly labelled as referring to “commercial vehicles”, making it hard to spot them.

Dual cab vehicles

A dual cab vehicle is essentially a “ute”, a goods vehicle with a tray attached to a cab. However, they differ from a utility truck in that the area used for the tray section has been partially taken up with more passenger seating.

Dual cab vehicles have special treatment by the ATO. They are accepted by the ATO as commercial vehicles (for the purposes of FBT exemption) where the dual cab vehicle is able to carry one tonne even with the extra cab attached.

“Designed to carry passengers”

Sometimes a major issue is whether the vehicle is “designed for the principal purpose of carrying passengers”. This restriction ensures that the exemption is not available for non-commercial vehicles.

The ATO has stated that a vehicle can be said to be “designed” to carry passengers based on the following factors:

  • the appearance and presentation of the vehicle;
  • how it is marketed and promoted; and
  • the vehicle’s specifications, load carrying capacity and passenger carrying capacity.

The ATO gives the example of a 4WD station wagon, which may be capable of carrying a load of only 865 kg, and whose promotional literature emphasises its passenger carrying capacity over its load carrying capacity.

Since the vehicle is not a taxi, panel van or utility truck, it is excluded from the exemption and subject to FBT.

Example: Cars modified for commercial purposes

A vehicle that carries less than 1 tonne may still be exempt as a commercial vehicle if it is not designed for the principal purpose of carrying passengers.

X Co runs a pizza restaurant that offers home delivery. It buys six delivery vehicles which are essentially hatchback cars. Their carrying capacity is much less than one tonne.

However, in their guise as delivery vehicles they are useless for carrying passengers. The hatchbacks are modified in such a way that the passenger seat and the entire rear are occupied with a device for keeping pizzas warm during delivery.

The modifications may be undone within about an hour. It is cumbersome to modify the vehicles, as the equipment is bulky. However, a single person could turn the pizza cars into normal hatchbacks capable of carrying passengers, within about an hour.

In this case, the employees do not receive the exemption. The cars are designed to carry passengers, and have a carrying capacity of less than one tonne. The fact that an hour’s cumbersome effort is needed to make the car usable in this usual capacity does not affect things.

However, things may be different if the car is permanently modified, so that removing the modifications is more difficult or impossible. In that situation the FBT exemption may apply.

Conclusion

If you have concerns about commercial vehicle exemptions and FBT, call LAC Lawyers and we can provide advice and assistance.

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