Edited version of private ruling

Authorisation Number: 1011642487675

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Ruling

Subject: FBT: statutory car formula, base value of second car acquired.

Issue 1

Question 1:

For the purposes of determining, the annualised kilometres travelled in accordance with paragraph 9(2)(d) of the Fringe Benefits Tax assessment Act 1986, does the holding period of the first car end on the day after the date of the accident?

Answer:

Yes.

Question 2:

Will the base value of the second car be the same as the base value of the replaced first car?

Answer:

No.

This ruling applies for the following period:

1 April 2010 to 31 March 2011

1 April 2011 to 31 March 2012

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

The scheme commenced on

14 April 2010.

Relevant facts:

On 13 April 2010, the employee acquired a car.

The total cost of the first car was an amount. The base value for the car is cost price of the vehicle price less stamp duty, registration and compulsory third party was another amount.

On 13 April 2010, a novated lease was signed between the employee, employer and the credit provider. The car was delivered on 14 April 2010.

The finance and costs are being deducted from pre-tax salary and post-tax deductions are made as employee contributions to reduce the taxable value of the car fringe benefit using the statutory car formula.

The first car was written-off after an accident. The first car was no longer available for private use.

The insurance company acknowledged the write-off and a new car was ordered.

The contract for purchase for the second car was entered into.

The second car replaced the first car, when it was delivered to the employee.

The total cost of the second car was an amount inclusive of accessories. The total cost of the second car excluding stamp duty, registration and compulsory third party was another lesser amount.

Relevant legislative provisions

Subsection 136(1) Fringe Benefits Tax Assessment Act 1986

Subsection 9(1) Fringe Benefits Tax Assessment Act 1986

Subsection 9(2) Fringe Benefits Tax Assessment Act 1986

Section 162 Fringe Benefits Tax Assessment Act 1986

Section 162C Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Issue 1

Question 1

Summary

The holding period of the first car ends on the day after the date of the accident.

Detailed reasoning

The statutory formula method is one of two methods by which an employer can calculate the taxable value of a car fringe benefit, (the other method is known as the operating cost method).

Under section 9 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) the taxable value of a car fringe benefit using the statutory formula method, is calculated using the formula in subsection 9(1).

The formula is as follows:

Taxable value = (A x B x C) - E
D

Where:

A is the base value of the car.

B is the statutory fraction.

C is the number of days during the FBT year on which you provided car fringe benefits.

D is the number of days in the FBT year.

E is the employee contribution.

The first car was involved in an accident, the car written-off by the insurance company, and the employee was given the option to acquire a replacement car.

The employee acquired another car that is the same model and make of the car that he had acquired previously.

The first car is deemed not to be available for private use after the accident because the car could not be driven.

However, the employer did not hold the same car for the whole FBT year and hence the actual kilometres travelled have to be annualised, in order to work out the statutory fraction that applies in the main statutory formula.

The annualised number of whole kilometres travelled by the car during the year of tax is calculated under paragraph 9(2)(d) of the FBTAA using the following formula:

A x B

C

§ A is the number of whole kilometres travelled by the car during the period in the year of tax when the car was held by the provider.

§ B is the number of days in the year of tax.

§ C is the number of days in the holding period.

The holding period of a car is explained in section 162C of the FBTAA. The relevant provision to determine the end date of the holding period is paragraph 162C(b)(ii) of the FBTAA, which states that the holding period ends when the person ceased to hold the car.

In the circumstances, it is considered that the first car was held from 14 April 2010, up to and including the date of the accident.

Question 2

Summary

The base value of the second car is not the same as the first car, because the first car was written off and no longer available for private use. The leased car value and the cost price of the second car is not the same as the first car.

Detailed reasoning

There is no discretion in the FBTAA allowing for the aggregation of kilometres travelled where there are two different cars provided as car fringe benefits.

A separate car fringe benefit is provided to the employee on each day car was used by the employee for private purposes or was taken to be available for private use.

There are two cars and the taxable value of the second car fringe benefit is based on base value of the second car.

The first car is written off and a replacement car is acquired.

The annualisation of kilometres travelled in the second car is required, as this car was not held of the whole year.

Base Value

In subparagraph 9(b)(a)(ii) of the FBTAA, the base value is calculated in accordance with the formula AB.

Subsection 9(2) of the FBTAA, states that the purposes of this section, the base value of the car is the sum of:

….


(ii) in a case to which subparagraph (i) does not apply - the amount calculated in accordance with the formula AB
where:

A is the leased car value of the car at the earliest holding time; and

B is:

…

(B) in any other case - 1; and


(iii) the cost price of each non-business accessory that:

(A) was fitted to the car after the earliest holding time and before the end of the year of tax; and

(B) remained fitted to the car at a time during the year of tax when the car was held by the provider;

The base value of the second car is the 'leased car value' of the car as defined in subsection 136(1) of the FBTAA:

"leased car value", in relation to a car held but not owned by a person at a particular time, means:
…
(b) if the person commenced to lease the car at that time from a lessor who purchased the car at or about that time - the cost price of the car to the lessor.

In determining the cost price of the car to the lessor, it is necessary to refer to the definition of 'cost price' in subsection 136(1) of the FBTAA.

"cost price" :
(a) in relation to a car owned by a person, means:
...
(ii) where neither subparagraph (i) nor (iii) applies, an amount equal to the sum of: (A) the expenditure incurred by the person (other than expenditure in respect of registration or in respect of a tax on, or on a transfer of, registration) that is directly attributable to the acquisition or delivery of the car or, if subsection 7(6) applies in relation to the car, the leased car value of the car when the person first took the car on hire; and

(B) the amount of any additional expenditure incurred by the person for or in relation to the fitting of non-business accessories to the car at or about the time when the car was acquired by the person, reduced by the amount of any reimbursement of the whole or a part of that expenditure paid, at or about the time when the expenditure was incurred, by a recipient of a car benefit in relation to the car; or


…
(b) in relation to a non-business accessory fitted to a car, means:

…


(ii) where neither subparagraph (i) nor (iii) applies - the expenditure incurred, by a person other than a recipient of a car benefit in relation to the car, for or in relation to the fitting of the accessory, reduced by the amount of any reimbursement of the whole or a part of that expenditure paid at or about that time by a recipient of a car benefit in relation to the car; and

…

The total cost of the second car including non-business accessories, registration fees, dealer delivery charges and compulsory third party insurance was an amount. This is the total price of the car to the lessor, before the relevant adjustments.

The total cost price of the second car excluding stamp duty, registration and compulsory third party was a reduced amount. This is the base value of the second car.

Conclusion

The employer has correctly calculated the base value of both cars and correctly applied the provisions.

The FBTAA does not provide for an alternative approach to calculate the taxable value of a car fringe benefit using the Statutory Formula Method.

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