Edited version of private ruling

Authorisation Number: 1011474895890

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Ruling

Authorisation Number: 1011474895890

Subject: Car fringe benefits and residual fringe benefits

Question 1

Do car fringe benefits arise under the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where an Entity A City 1 based employee (Entity A employee) has the use of a Entity A owned car (car) whilst engaged on a project in city 2 for periods ranging from 1 week to 4 weeks's duration?

Answer

Yes.

Question 2

If the answer to question 1 is 'yes', are relevant car journeys to and from Entity A office in City 1 and Entity A employee's home in City 1 to be regarded as 'business journeys' for the purposes of determining the taxable value of the car fringe benefits under the 'operating cost method' in section 10 of the FBTAA?

Answer

Yes.

Question 3

If the answer to question 1 is 'yes', are relevant car journeys to and from Entity A employee's home in City 1 and Entity A employee's hotel in City 2 (Entity A employee's hotel) to be regarded as 'business journeys' for the purposes of determining the taxable value of the car fringe benefits under the 'operating cost method' in section 10 of the FBTAA?

Answer

Yes.

Question 4

If the answer to question 1 is 'yes', are relevant car journeys to and from the Entity A employee's hotel and Entity A office in City 2 to be regarded as 'business journeys' for the purposes of determining the taxable value of the car fringe benefits under the 'operating cost method' in section 10 of the FBTAA?

Answer

Yes.

Issue 2 Residual fringe benefits

Question 1

Do residual fringe benefits arise under the FBTAA where a City 1 based Entity A employee has the use of an Entity A hired car (hire car) whilst engaged on a project in City 2 for periods ranging from 1 week to 4 weeks's duration?

Answer

Yes.

Question 2

If the answer to question 1 is 'yes' is the taxable value of the residual fringe benefits reduced to 'nil' under the 'otherwise deductible rule' in section 52 of the FBTAA?

Answer

Yes.

Relevant facts and circumstances

Entity A has a large fleet of pool cars which are available for official business travel and approved private travel. Entity A owns (or leases) each of the pool cars in its fleet.

Entity A uses the operating cost method for calculating the taxable value of any car fringe benefits and requires all employees using cars to complete log book records.

Some City 1 Entity A employees (Entity A employees) are required to perform temporary project duties in Entity A business premises in City 2.

Entity A employees engaged on such temporary duties are provided with Entity A pool cars (pool cars) which they take home on a Sunday night for subsequent travel to City 2 the following Monday morning. When Entity A employees take the pool cars home they are always parked at or near their home.

On the relevant Monday mornings, Entity A employees use the pool cars to initially travel from their City 1 homes to their City 2 city hotels and then onto Entity A business premises.

Whilst the pool cars are garaged at City 2 business premises during a business day they are also available for Entity A staff to use.

Entity A employees are not provided with a set workstation whilst at the City 2 business premises but occupy any available workstation and use their laptop to gain access to all available systems.

When Entity A employees have finished their daily work at the City 2 business premises they use the pool cars to return to their City 2 hotels.

Entity A employees then return the next day to the City 2 business premises from their City 2 hotels and the process is repeated until Entity A employees end their duties at the City 2 business premises.

On completion of Entity A employees' duties at the City 2 business premises Entity A employees use the pools cars to return to their City 1 homes and subsequently use the pool cars from their City 1 homes to return the cars to the pool in City 1.

The City 1 Entity A employees may be required to stay in City 2 for one or more weekends but they are prohibited from using the pool cars for private purposes and such prohibition is consistently enforced by Entity A.

Where Entity A employees are required to stay in City 2 for more than one weekend they sometimes may use the pool cars to return to their homes at weekends and then journey back to City 2 at the end of the weekend. Entity A employees have Entity A permission to do this.

Entity A pays Entity A employees travelling allowances (TA) and also pays for Entity A employees' accommodation whilst they are in City 2. However, no TA is paid at weekends for those Entity A employees who travel home at weekends during the project.

Entity A sometimes hires cars from a rental company on a monthly invoice basis and these hire cars can also provided, on occasion, for the use of City 1 Entity A employees on temporary project work in City 2 on exactly the same basis as when these Entity A employees may be provided with Entity A owned cars.

Reasons for decision

Issue 1 Car fringe benefits

Question 1

Do car fringe benefits arise under the FBTAA where a City 1 based Entity A employee has the use of a car whilst engaged on a project in City 2 for periods ranging from 1 week to 4 weeks's duration?

Detailed reasoning

Subsection 7(1) of the FBTAA provides that a car benefit arises at any time on a day where in respect of the employment of an employee, a car held by an employer is either:

§ applied to a private use by the employee or an associate of the employee; or

§ taken to be available for the private use of the employee or an associate of the employee.

It is accepted that the relevant vehicles in this case readily satisfy the definition of a 'car' for the purposes of the FBTAA.

Subsection 162(1) of the FBTAA states that a car is 'held' by a person when it is (a) owned by the person, (b) leased to the person and (c) otherwise made available to the person by another person. As Entity A owns (or leases) the relevant pool cars it, therefore, 'holds' such cars for the purposes of the FBTAA.

Subsection 7(2) of the FBTAA provides that a car is 'taken to be available for private use' on a day where, in respect of the employment of an employee, the car is garaged or kept at or near a place of residence of the employee.

Subsection 136(1) of the FBTAA defines a 'place of residence' as:

§ a place of residence at which the person resides; or

§ a place at which the person has sleeping accommodation; whether on a permanent or temporary basis and whether or not on a shared basis.

Subsection 7(2) of the FBTAA is based simply on the location of the car in relation to an employee's place of residence as defined.

Where the car is parked at or near the employee's place of residence, this will constitute days on which the car is 'taken to be available for the private use' of the employee.

Accommodation in the form of a hotel room is 'sleeping accommodation' that is used on a temporary basis. Therefore, where the car is parked at or near such temporary accommodation, this will also constitute days on which the car is 'taken to be available for the private use' of the employee.

Deemed availability for private use under subsection 7(2) of the FBTAA is not dependent on any actual use or actual availability for any use. Where the conditions of the aforementioned subsection are met the car is still taken to be 'available for private use'. The wide provisions of subsection 7(2) of the FBTAA are not otherwise qualified in the FBTAA.

Therefore, on any day that the relevant cars are parked at either Entity A employee's home or at the relevant City 2 hotel whilst the employee is engaged on the project in City 2 a car benefit will arise under section 7 of the FBTAA.

In basic terms, a fringe benefit, as defined in subsection 136(1) of the FBTAA, is a benefit provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employee's employment and such benefit is not otherwise exempted.

The use of the car is being provided to the Entity A employee to enable that employee to take part in an Entity A project as part of that employee's work duties. Therefore, the use of the car is being directly provided in respect of Entity A employee's employment. Consequently, on those days that a car benefit arises in respect of Entity A employee a car fringe benefit will also arise. This holds true irrespective of the length of the period on which Entity A employee may be engaged on the relevant project in City 2.

Question 2

If the answer to question 1 is 'yes', are relevant car journeys to and from Entity A office in City 1 and Entity A employee's home in City 1 to be regarded as 'business journeys' for the purposes of determining the taxable value of the car fringe benefits under the 'operating cost method' in section 10 of the FBTAA?

Detailed reasoning

The taxable value of a car fringe benefit determined under section 10 of the FBTAA is a percentage of the total costs of operating the car during the fringe benefits tax (FBT) year. The percentage varies with the extent of actual private use. The lower the incidence of actual private use, the lower the taxable value.

Subsection 136(1) of the FBTAA contains the following definitions:

"private use", in relation to a motor vehicle, in relation to an employee...means any use of the motor vehicle by the employee...that is not exclusively in the course of producing assessable income of the employee.

"business journey" means:

(a) ...in relation to a car fringe benefit in relation to an employer in relation to a car - a journey undertaken in a car otherwise than in the application of the car to a private use, being an application that results in the provision of a fringe benefit in relation to the employer; or

Guidance on when a car is being used for either private or business purposes is provided in Taxation Ruling MT 2027, Fringe benefits tax: private use of cars: home to work travel, which states:

8. By virtue of the definition of "private use" in sub-section 136(1), any use of a car by an employee...that is not exclusively in the course of producing assessable income of the employee will constitute private use.

9. ...

10. A critical question in determining the distinction between private and business use, therefore, is whether, when the car is used by an employee...it is being used exclusively in the course of producing assessable income of the employee...

11. In essence, the test for determining business use for FBT purposes is the same as that asked under the income tax law in deciding whether expenses incurred in operating a car are deductible under section of the Income Tax Assessment Act [1997]. There the result turns on whether the expenditure is incurred in gaining or producing assessable income or in carrying on a business for that purpose. A finding that expenditure incurred in the operation of a car satisfied that test is seen as synonymous with the determination that the car is used for that purpose.

12. Determining the distinction between private and business use for FBT purposes, therefore, can be approached by asking the question whether, if the employee had incurred expenditure on that use of the car, the expenditure would have been wholly deductible for income tax purposes.

....

36. Where an employer provides an employee with a car solely for the purposes of undertaking a business journey from the employee's home the next morning, the trip home on the preceding night will be accepted as business travel, being incidental to the next morning's journey. However, this approach is restricted to circumstances of the kind detailed and would not, for example, apply where a person has regular use of the car for private purposes.

It is considered that the relevant car journeys to and from the Entity A office in City 1 and Entity A employee's home in City 1 falls squarely within the guidance provided by paragraph 36 of MT 2027 and, therefore, should be regarded as 'business journeys' for the purposes of determining the taxable value of the car fringe benefits under the 'operating cost method' in section 10 of the FBTAA.

Question 3

If the answer to question 1 is 'yes', are the relevant car journeys to and from Entity A employee's home in City 1 and Entity A employee's hotel to be regarded as 'business journeys' for the purposes of determining the taxable value of the car fringe benefits under the 'operating cost method' in section 10 of the FBTAA?

Detailed reasoning

For similar reasons to those in Question 2 above, it is considered that during the duration of the relevant project the car journeys to and from Entity A employee's home in City 1 and Entity A employee's hotel should also be regarded as 'business journeys' for the purposes of determining the taxable value of the car fringe benefits under the 'operating cost method' in section 10 of the FBTAA.

It is also considered that the above view is not altered by whether the Entity A employee is engaged on the relevant project for 1 or more weeks nor is the above view altered by whether Entity A employee travels back and forth between Entity A employee's home in City 1 and Entity A employee's hotel when the relevant project is for a period of more than 1 week.

When an employee is located away from his or her normal location for a period of more than 21 days a question may, perhaps, arise as to whether the employee is to be regarded as 'living away from home' after the 21 day period has elapsed?

In this respect, Miscellaneous Taxation Ruling MT 2030 provides guidance on the types of allowances that may arise under such circumstances and also when an employee may be regarded as living away from home. MT 2030 states as follows:

14. As the [various Taxation Boards of Review decisions relating to former section 51A of the Income Tax Assessment Act 1936] illustrate, the question whether an employee is living away from his or her usual place of residence normally involves a choice between two places of residence, i.e., the place where the employee is living at the time or some other place. A person is regarded as living away from a usual place of residence if, but for having to change residence in order to work temporarily for his employer at another locality, the employee would have continued to live at the former place. It would be relevant in reaching that view that there is an intention or expectation of the employee returning to live at the former place of residence on cessation of work at the temporary job locality...

...

38. A living-away-from-home allowance is paid where the employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able to carry out employment duties for a time at the new (but temporary) workplace. A travelling allowance, on the other hand, is paid because the employee is travelling in the course of performing his or her job. In the former case, there is a change of job location and an actual change of residence to a place at or near that location. In the latter, the employee does not change job locations but simply travels in order to carry out the requirements of the job.

...

41. There will be circumstances, however, when an employee is away from his or her home base for a brief period in which it may be difficult to conclude whether the employee is living away from home or travelling. As a practical general rule, where the period away does not exceed 21 days the allowance will be treated as a travelling allowance rather than a living-away-from-home allowance. For longer periods, it will be necessary to determine the nature of the allowance with the guidance provided by this Ruling.

Entity A employees have, in the absence of any information to the contrary, their usual place of residence in City 1 but temporarily reside in the City 2 hotel for the duration of the project up to a maximum of 4 weeks.

It is considered that although Entity A employees may be performing work duties in City 2 these project duties are but merely an extension of their normal City 1 based duties. In other words, there is a temporary change of location in which Entity A employees do their job rather than there being a change in the job location itself.

Therefore, it is further considered that an Entity A employee in these particular cases is to be regarded as travelling in the course of performing his or her duties rather than living away from home.

It may be noted that the '21 day rule' cited in paragraph 41 of MT 2030 is only a 'practical general rule' for use in cases where it is difficult to conclude whether an employee is either living away from home or travelling. It may also be noted that the maximum amount of time that some of Entity A employees may continuously reside at the City 2 hotel is only 28 days.

Where Entity A employee travels intermittently between Entity A employee's home in City 1 and Entity A employee's hotel during those project periods extending for longer than 1 week such car journeys are to be regarded in the particular circumstances presented, and in the absence of any other evidence to the contrary, as being but merely several discrete instances of the same kind of business travel falling within the guidance provided by paragraph 36 of MT 2027 as is the first journey at the beginning of the project and the final journey at the end of the project.

Question 4

If the answer to question 1 is 'yes', are relevant car journeys to and from Entity A employee's hotel and Entity A office in City 2 to be regarded as 'business journeys' for the purposes of determining the taxable value of the car fringe benefits under the 'operating cost method' in section 10 of the FBTAA?

Detailed reasoning

Once again it is considered that, for similar reasons to those in Question 2 above, for the duration of the relevant project the car journeys to and from Entity A employee's hotel and Entity A office in City 2 are to be regarded as 'business journeys' for the purposes of determining the taxable value of the car fringe benefits under the 'operating cost method' in section 10 of the FBTAA.

Issue 2 Residual fringe benefits

Question 1

Do residual fringe benefits arise under the FBTAA where a Entity A City 1 based employee has the use of an Entity A hired car (hire car) whilst engaged on a project in City 2 for periods ranging from 1 week to 4 weeks's duration?

Detailed reasoning

Section 45 of the FBTAA states that a residual benefit is one that is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA. Therefore, in basic terms, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA.

As referred to previously above, one of the prime requirements for a car benefit to arise under section 7 of the FBTAA is that the relevant car is 'held' by the provider. However, where a car is hired for period of less than three months the provider is considered not to 'hold' the car for that time for the purposes of the FBTAA.

Therefore, the provision of the use of the hire car to Entity A employee does not result in a car benefit under section 7 of the FBTAAs the hire period in each individual instance in this case is for less than three months.

It is also considered that none of the other benefits falling within Subdivision A of Divisions 2 to 11 inclusive of the FBTAA apply to the given circumstances concerning the provision of the use of the hire car. Consequently, the provision of the use of the hire car to Entity A employee constitutes a residual benefit under section 45 of the FBTAA.

The use of the hire car is being provided to Entity A employee to enable Entity A employee to take part in Entity A project as part of Entity A employee's work duties. Therefore, the use of the hire car is being directly provided in respect of Entity A employee's employment. Consequently, on those days that a residual benefit arises in respect of Entity A employee a residual fringe benefit will also arise. This holds true irrespective of the length of the period on which Entity A employee may be engaged on the relevant project in City 2.

Question 2

If the answer to question 1 is 'yes' is the taxable values of the residual fringe benefits reduced to 'nil' under the 'otherwise deductible rule' in section 52 of the FBTAA?

Detailed reasoning

The taxable value of a residual fringe benefit may be reduced under the 'otherwise deductible rule' in section 52 of the FBTAA. The taxable value is so reduced to the extent that the relevant employee would have been entitled to a 'once-only' income tax deduction for the expenditure concerned had it not been paid or reimbursed by the provider of the residual fringe benefit.

As determined previously above, those car journeys undertaken by Entity A employee in an Entity A held car to and from Entity A office in City 1 and Entity A employee's home in City 1, to and from Entity A employee's home in City 1 and Entity A employee's hotel in City 2 and also to and from Entity A employee's hotel and Entity A office in City 2 would be considered to be 'business journeys' for the purposes of determining the taxable values of the relevant car fringe benefits under section 10 of the FBTAA.

It is considered, therefore, that when car journeys are, alternatively, undertaken in a hire car (rather than in an Entity A held car) such car journeys would similarly be regarded as being 'business journeys' and for which Entity A employee would be entitled to a 'once-only' income tax deduction for the expenditure concerned had it not been paid, instead, by Entity A as the provider of the residual fringe benefit.

Accordingly, the taxable values of the residual fringe benefits would be reduced to 'nil' under section 52 of the FBTAA where the only use of the hire car by Entity A employee for the duration of the relevant project is for those car journeys to and from Entity A office in City 1 and Entity A employee's home in City 1, to and from Entity A employee's home in City 1 and Entity A employee's hotel in City 2, to and from Entity A employee's hotel and Entity A office in City 2 and there is no other private use of the car whilst Entity A employee was engaged on the relevant project.

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