Edited version of private ruling

Authorisation Number: 1011694512961

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fac sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: FBT: Consequences - taxable value of car fringe benefits using a novated lease arrangement of employee moving from one company to another company within the same group.

Question 1

In calculating the taxable value of a car fringe benefit, using the statutory formula, will the kilometres travelled be annualised if an employee moves from employer A to employer B within the same group, during the fringe benefits tax (FBT) year?

Answer:

Yes.

Question 2

When an employee moves from employer A to employer B, will the new employer be responsible for the payment of the fringe benefits tax for fringe benefits provided by employer A?

Answer:

No.

This ruling applies for the following periods:

1 April 2010 to 31 March 2012.

The scheme commences on:

1 April 2010.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Employer A has hired employees, and provides fringe benefits, in respect of that employment, which is or was paid wholly out of money appropriated under the company's salary and wages account.

The terms and conditions of employment of employees are outlined in the employer's employment policy guidelines.

Some employees use the salary sacrifice policy for non-cash salary benefits.

A number of employees own a car but transfer all their rights, except for the ownership to the employer through a novated car lease.

The statutory formula method is used in most cases.

During each FBT year, a number of employees who have novated leases move from employer A to employer B, within the same group.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Paragraphs 159(2)(b) and (c)

Fringe Benefits Tax Assessment Act 1986 Subsection 159(3)

Fringe Benefits Tax Assessment Act 1986 Section 66

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 7

Fringe Benefits Tax Assessment Act 1986 Section 9

Fringe Benefits Tax Assessment Act 1986 Subsection 162(1)

Income Tax Assessment Act 1936 Section 318
Question 1

Background

An employer is liable for fringe benefits tax where a fringe benefit is provided in respect of the employment of an employee, during a FBT year of tax. Employer A must calculate and pay fringe benefits tax. An employer is also subject to the other obligations applying to employers, including the obligation to furnish a fringe benefits tax return.

Subsection 66(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), states that each employer whether related or not (associated) has to lodge and pay fringe benefits tax (FBT) on the fringe benefits provided to its employees during the FBT year of tax.

There are no grouping provisions for FBT as there are for income tax as outlined under the consolidation provisions in the Income Tax Assessment Act 1997. Each company in a group has to lodge a FBT return each year and pay their own FBT liability under the self-assessment regime.

Generally, a benefit provided by an associate of an employer or to an associate of an employee is subject to FBT in the same manner as if the employer had provided it or the employee had received it. The current employer has to account for fringe benefit provided in its own right and any fringe benefits provided by an associated company to all employees performing duties for the current employer.

'Associate' is defined in subsection 136(1) of the FBTAA that refers to section 318 of the Income Tax Assessment Act 1936 (ITAA 1936).

Therefore, an employer, whose employee moves from one company to another company within the same group, will be responsible for the fringe benefits tax as calculated on the fringe benefits provided during the employee's employment with the first employer.

The first employer has to calculate and remit FBT (if any) on a pro-rata basis, on any fringe benefit provided to the employee up to the date the employee ceased being employed by the first employer.

Statutory formula (Section 9 of the FBTAA)

Section 7 of the FBTAA outlines that a car fringe benefit provided is calculated on the car available or being available for private use, on a daily basis.

Under section 9 of the FBTAA, the first employer is required to work out the taxable value of the car fringe benefit provided to each employee.

Part IIA of the FBTAA, outlines initially calculating the employee's individual fringe benefits amount, the employer's aggregate fringe benefits and then the employer's fringe benefits taxable amount. This is important because the employer has to calculate each employee's fringe benefits amount before progressing to the next stage of the calculation of the overall fringe benefits taxable amount.

Therefore, the actual kilometres travelled for the period commencing 1 April to the date the employee moves to another company within the same group, within that FBT year have to be annualised. Annualisation is outlined in paragraphs 9(2)(c) and (d) of the FBTAA and applies to each employee moving to another employer and provided with a car fringe benefit under the statutory formula method.

When calculating the taxable value of a car fringe benefit provided via a salary sacrifice arrangement using a novated lease, the employer has no choice but to annualise the kilometres actually travelled.

Furthermore, when an employee moves to another employer, the first employer will no longer be holder of the car, as a new novated lease would be signed between the new employer, lessor and lessee. Subsection 162(1) of the FBTAA states a car is held by a person is a reference to a car leased (novated) to the employer.

If it is negotiated between employer A and employer B where employer A provides the car as a fringe benefit (as an associate of the new employer) and the car is 'held' by the first employer, but the new employer B will pay the FBT.

The company policy requires each company within the group to account for its own fringe benefits provided. All fringe benefits have to be budgeted by each company within the group.

In the examples provided in your application, the advantage or disadvantage to the employee when they shift to another employer during the year of tax is a consequence of choosing the statutory formula method.

The transfer to another company, during the fringe benefit year of tax, requires the first employer to annualise the kilometres actually travelled for those employees in this scheme. The statutory fraction ascertained, is then multiplied by the base value of the leased car and the resulting amount is apportioned based on the number of days you provided the car fringe benefits.

Question 2

Detailed reasoning.

Employer B will not account for the fringe benefits provided by employer A, despite both companies being associated to each other.

The new employer will not be responsible for fringe benefits provided by another company unless there is an agreement between both companies and the 'associate' employer provides the fringe benefits.

In the scheme provided, the employee actually moves from employer A to employer B, the novated lease has to be changed therefore employer A no longer holds the car, as defined in subsection 162(1) of the FBTAA.

A new novated car lease would be required and employer B will be the new employer, because the new employer is responsible for accounting for all fringe benefits provided to the new employee from the date the employee joins the employer B.

The new employer has to pay FBT from the date the employee joins employer B (as long as a car fringe benefit exists and the statutory formula method is used to calculate the taxable value of the car fringe benefit.

If employer B uses the statutory formula, the employee may be advantaged or disadvantaged when the actual kilometres travelled are annualised, during the same year of tax.

It is the duty of the previous employer to account for car fringe benefits provided to the employee, who performs duties for employer A, prior to the employee moving to another company. This occurs by apportioning the fringe benefit up to the date the employee is employed by them.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).