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EDITED VERSION OF NOTICE OF PRIVATE RULING
Authorisation Number: 53460
This Ruling is a 'Private Ruling' for the purposes of Part IVAA of the Taxation Administration Act 1953.
YEAR(S) OF INCOME TO WHICH THIS RULING APPLIES:
Year ended 31 March 2007
Year ended 31 March 2008
Year ended 31 March 2009
Year ended 31 March 2010
Fringe Benefits Tax Assessment Act 1986 Subsection 9(1).
Fringe Benefits Tax Assessment Act 1986 Subsection 10(3).
WHAT THIS RULING IS ABOUT:
Can the taxable value of the car fringe benefit arising from the proposed salary sacrifice arrangement be reduced by a recipient's payment made after the end of the Fringe Benefits Tax (FBT) year but prior to the lodgement of the FBT return?
THE SUBJECT OF THE RULING:
Under your remuneration package arrangements staff are able to elect to sacrifice part of their salary in return for the provision of a fully maintained car.
You are currently considering a proposal whereby:
1. the entitlement to full private use of a fully maintained car will be specified in an employee's contract (along with an equivalent cash salary they may choose to take in lieu of the car)
2. if an employee elects (in writing) to take the car benefit rather than the additional salary, the employee will be entitled to select a car which you will purchase
3. initially you will pay all the running costs
4. at the end of each FBT year you will calculate the cost of owning and running that car, and
5. if the total of the running costs exceed the specified 'salary equivalent', the employee will be required to reimburse the amount by which the costs exceeded the 'salary equivalent' amount. This amount will be paid from the employee's after tax income.
COMMENCEMENT OF ARRANGEMENT:
1 April 2005
Can the taxable value of the car fringe benefit arising from the proposed salary sacrifice arrangement be reduced by a recipient's payment made after the end of the FBT year but prior to the lodgement of the FBT return?
EXPLANATION: (This does not form part of the Notice of Private Ruling)
Under the proposed agreement an employee will be required to make a payment to you from their salary, after tax if the costs of owning and running the car provided to the employee under the salary sacrifice arrangement exceeds the salary equivalent amount stated in the agreement. As it is not possible for the amount of this payment to be calculated until after the end of the FBT year the payment will be made after the end of the FBT year.
Sections 9 and 10 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provide two alternative methods for calculating the taxable value of a car fringe benefit. Both methods enable the taxable value to be reduced by the amount of the recipient's payment.
Recipient's payment is defined in paragraphs 9(2)(e) and 10(3)(c) of the FBTAA. Both definitions provide that the recipient's payment will include:
in the case where expenses were incurred to the provider or employer during the holding period by recipients of the car fringe benefits by way of consideration for the provision of the car fringe benefits - the amount of those expenses paid by the recipients less any amount paid or payable to the recipients by way of reimbursement of those expenses…
This definition does not require the payment to be made by any particular time. However, the definition expressly requires that the payment by the employee must be by way of consideration for the benefit. That is, the employee must be required to make the payment in return for obtaining the benefit. This test would be satisfied, for example, where, at the time the benefit is provided, it was intended that the employee would make a future payment for the benefit equal to the taxable value of the benefit before deducting the employee contribution.
Taxation Ruling MT 2050 Fringe benefits tax; payment of recipients contribution by journal entry considers whether journal entries in an employer's accounts can be a payment of a 'recipient's contribution' under the FBTAA.
Paragraph 2 of MT 2050 states:
Journal entries in an employer's accounts are a payment of a 'recipients contribution', recipients payment' or 'recipients rent' only if all of the following conditions are met:
(a) the employee has an obligation to make a contribution to the employer towards a fringe benefit;
(b) the employer has an obligation to make a payment to the employee;
(c) the employer and employee agree to set-off the employee's obligation to the employer against the employer's obligation to the employee.
By applying these requirements to a payment by the employee in accordance with the proposed salary sacrifice agreement it can be concluded that the payment will reduce the taxable value of the car fringe benefit as the payment will be made in accordance with a written agreement which requires the employee to reimburse you from their after tax income if the costs of the car exceed the salary equivalent amount.
Therefore, your employee can make a recipient's payment after the end of the FBT year, prior to the lodgement of the FBT return and it will still be able to reduce the taxable value of the car fringe benefit provided.