Excluded fringe benefits - cars shared by employee of employer and employee of a contractor
Where a Department's car is used for private purposes by one Department employee and also by one employee of a contractor, will the private use by the Department employee be reported on his or her Payment Summary?
A car held by a Government Department is provided on separate occasions to two individuals. The car is applied to a private use by both individuals.
One individual is an employee of the Department. The other individual is an employee of a contractor that is not an associate of the Government Department.
There is an arrangement between the contractor and the Department for the Department to provide a car to the contactor's employee for private use while he/she performs duties at the Department.
FBT is paid as appropriate by the respective employers.
The meaning of 'fringe benefit' set out in section 136(1) of the Fringe Benefits Tax Assessment Act 1986 in relation to an employer includes both a benefit provided to an employee directly by the employer and, at (e) of the definition, a benefit provided to an employee by a person other than the employer or an associate of the employer under an arrangement. Further, for the requirements set out in regulation 3F of the Fringe Benefits Tax Regulations 1992 (as amended) to be satisfied, for a car fringe benefit to be an excluded fringe benefit, the car benefit must arise for more than one employee.
Industry view/suggested treatment
Since the Department has not itself provided a car fringe benefit to the contractor's employee, a car fringe benefit has only been provided to one employee of the Department. The private use of the Department's car by the Department employee is not an excluded fringe benefit and is therefore a reportable fringe benefit.
Section 136(1) of the Fringe Benefits Tax Assessment Act 1986 - definitions of 'fringe benefit' and 'arrangement'
Regulation 3F of the Fringe Benefits Tax Regulations 1992 (as amended)
This agenda item concerns the application of reporting exclusion for pooled or shared cars where a provider provides a car benefit to an employee of the provider and an employee of another employer that is not an associate.
Sub regulation 3F(1) provides that a car benefit as described in subsection 7(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) will be an excluded benefit that will not be reported on the employee's payment summary where:
- the benefit is either a fringe benefit or an exempt benefit that would have been a fringe benefit if it was not an exempt benefit;
- the car benefit relates to a car that gave rise to a car benefit for more than one employee during the relevant FBT year.
In applying this regulation, it is necessary to refer to the definition of car benefit in subsection 7(1) of the FBTAA.
For the benefit to be a car benefit, paragraph 7(1)(b) of the FBTAA requires either:
- the provider to be 'the employer, or an associate of the employer, of the employee'; or
- the car to be applied or available under an arrangement that involves 'the employer, or an associate of the employer, of the employee'.
That is, subsection 7(1) identifies a particular employer to which the car benefit relates. Given this linkage to the employer of the employee in subsection 7(1), the ATO agreed with the conclusion that the car benefit that arises from the private use of the Department's car by the Department employee will not be an excluded fringe benefit under regulation 3F.
Further support for this conclusion is provided by the way in which the employee's reportable fringe benefits amount is calculated. Subsection 135P(1) of the FBTAA provides that an employee will have a reportable fringe benefits amount if their individual fringe benefits amount in the year of income '… in respect of the employee's employment by the employer is more than $2,000'.
Section 5E of the FBTAA sets out the method used to calculate the employee's individual fringe benefits amount. An overview of the method is contained in subsection 5E(1) which states:
This section explains how to work out an employee's individual fringe benefits amount for a year of tax in respect of the employee's employment by an employer.
The general rule used to calculate the individual fringe benefits amount is contained in subsection 5E (2) which states:
The individual fringe benefits amount is the sum of the employee's share of the taxable value of each fringe benefit that relates to the year of tax and is provided in respect of the employment other than an excluded fringe benefit.
That is, in calculating the individual fringe benefits amount of an employee, the employer is required to work out the employee's share of the fringe benefits that form part of the employer's aggregate fringe benefits amount. As set out in section 5C of the FBTAA, these will be the fringe benefits that are provided in respect of the employer's employees. The calculation does not include any fringe benefits that the employer provides to an employee of another employer as they form part of the other employer's calculation.
Therefore, a Department which is the provider of a car benefit to both an employee of the Department and an employee of an unrelated employer will only be liable to pay fringe benefits tax on the car benefit provided to its employee and will allocate all of the taxable value of that car fringe benefit to its employee. As all of the taxable value is allocated to a single employee the car is not a shared car that comes within regulation 3F.