Edited version of private ruling

Authorisation Number: 1011810723966

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Ruling

Subject: Fringe benefits tax

Question 1

Should the base value of a leased car transferred from either of the Companies to the taxpayer be re-valued to market value for fringe benefits tax purposes as a result of the change in identity of the provider?

Answer: No

Question 2

Will the taxpayer be required to annualise the number of kilometres travelled by the employees transferred to it as a result of the restructure in order to determine the statutory fraction to apply when calculating the taxable value of car fringe benefits provided during the year ended 31 March 2012?

Answer: Yes

Question 3

Will the taxpayer be required to annualise the number of kilometres travelled by the employees transferred from it as a result of the restructure in order to determine the statutory fraction to apply when calculating the taxable value of car fringe benefits provided during the year ended 31 March 2012?

Answer: Yes

This ruling applies for the following period:

Year ended 31 March 2012

The scheme commences on:

2011

Relevant facts and circumstances

There will be a restructure affecting Company A, Company B and the taxpayer Company (collectively the Companies).

The restructure will result in the retention of two of the companies, including the taxpayer. (The two continuing companies will be described as Continuing Companies when referring to them collectively after the restructure.)

The restructure will involve the transfer of businesses and/or shares of a subsidiary dependant on where and how certain businesses are held by each the Companies.

The restructure is intended to occur part way during the fringe benefits tax year.

The restructure will be effected by the transfer of businesses as follows:

· An asset, liability or instrument of a business of the Companies will become an asset, liability or instrument of the Continuing Companies.

· An employee of an existing business in the Companies will be taken to be an employee of that business in the Continuing Companies.

· The applicable Continuing Companies will be declared the successor in law of the Companies, for the purposes of a business.

As part of the restructure, some employees will be transferred from one of the Companies to one of the Continuing Companies. This means that the Continuing Company will become successor at law in relation to the employment contracts for transferring employees such that it will not be necessary for new employment contracts to be entered into.

Leased cars which are provided to employees may also be transferred from the Companies to the Continuing Companies.

Assumption

The contracts in relation to the lease of motor vehicles will remain with the existing leasing companies.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1936 Section 9,

Fringe Benefits Tax Assessment Act 1936 Subsection 136(1) and

Fringe Benefits Tax Assessment Act 1936 Section 162.

Reasons for decision

All references made in these reasons for decision are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise stated.

Question 1

Summary

For the purposes of calculating the taxable value of car fringe benefits provided to employees who have transferred to the taxpayer from Company A or Company B, the base value of those cars will not have to be re-valued to market value. This is because both Company A and Company B are associates of the taxpayer and have held the cars since the earliest holding time.

Detailed reasoning

The taxpayer will be providing car fringe benefits to the employees that will be transferred to it from Company A and Company B. It is anticipated that the taxpayer will commence to employ those employees and lease the cars to be provided to them part way during the FBT year.

The determination of the base value of a car is part of the calculation of car fringe benefits under section 9.

In order to determine the base value of a car that is leased, under paragraph 9(2)(a) it is necessary to determine the leased car value of the car at the earliest holding time.

Under paragraph 9(2)(b) the earliest holding time:

… in relation to a car held by the provider at a particular time (in this paragraph referred to as the "current time"), is the earliest time before the current time when the car was held by the provider or an associate of the provider.

A car that is leased by a person is considered to be held by that person under section162. The other Companies currently lease the cars that will be transferred to the taxpayer. If they are associates of the taxpayer, the earliest holding time in relation to those cars will be that time when they commenced to lease the car.

Therefore it is necessary to determine whether the other Companies are associates of the taxpayer.

The definition of an associate in subsection 136(1) is the same as the definition in section 318 of the Income Tax Assessment Act 1936 (ITAA 1936).

Subsection 318(2) of the ITAA 1936 sets out the associates of a company.

Subsection 318(6) of the ITAA 1936 provides interpretation for some of the expressions used in subsection 318(2) of the ITAA 1936.

Each of the Companies are associates of each other under paragraph 318(2)(e) of the ITAA 1936. Thus they are associates of the taxpayer for FBT purposes under section 136(1).

Since both Company A and Company B are associates of the taxpayer, the earliest holding time will be the time when those companies commenced to lease the cars. For the taxpayer, therefore, the base value will be the leased car value of the cars at the time its associates commenced to lease the car.

There will be no need for the taxpayer to re-value to market value as the base value of the car will continue to be the same.

Question 2

Summary

The taxpayer will be required to annualise the number of kilometres travelled by the employees transferred to it as a result of the restructure in order to determine the statutory fraction to apply when calculating the taxable value of car fringe benefits provided to those employees.

Detailed reasoning

The taxpayer will be providing car fringe benefits to the employees that will be transferred to it from Company A and Company B. Those employees will be employed by the taxpayer from the proposed date of the restructure.

Paragraph 9(2)(c) provides that the statutory fraction will depend upon the annualised kilometres travelled by the car.

The annualised number of kilometres travelled by the car is defined in paragraph 9(2)(d) as follows:

the annualised number of whole kilometres travelled by the car during the year of tax is the number calculated in accordance with the formula

AB

C

where:

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 (in this subsection referred to as the ``holding period'');

B is the number of days in the year of tax; and

C is the number of days in the holding period; and

Year of tax is defined in subsection 136(1) to mean '…the year starting on 1 April 197, and each later year starting on 1 April'. Therefore the figure at B will be 365 for the 2012 year of tax.

This formula depends upon the distance travelled and the number of days the car was held by the provider.

In accordance with subsection 9(1) the provider of a car benefit is the person who holds the car. A reference to a car held by a person under subsection 162(1) includes a car leased to the person.

Until the proposed date of the restructure the relevant cars are leased by Company A or Company B and therefore held by them. From the proposed date of the restructure the taxpayer will lease the cars and therefore hold those cars.

The taxpayer will required to calculate the taxable value of the car fringe benefits it provides to employees transferred to it from the date it commences to hold the cars.

The taxpayer will be required to annualise the number of kilometres travelled in accordance with the formula in paragraph 9(2)(d) on the basis that it held the car for only part of the year.

Question 3

Summary

The taxpayer will be required to annualise the number of kilometres travelled by the employees transferred from it as a result of the restructure in order to determine the statutory fraction to apply when calculating the taxable value of car fringe benefits provided to those employees.

Detailed reasoning

As explained in the reasons for decision for question two, the statutory fraction will depend upon the annualised kilometres travelled by the car. The formula takes into account the number of days that the provider of the benefit has held the car and the number of kilometres travelled during that period.

Until the proposed date of the restructure the taxpayer leases the cars it provides to its employees who will be transferring to another Continuing Company. From that date it will no longer hold those cars.

The taxpayer will be required to calculate the taxable value of the car fringe benefits it provided to those transferring employees up until the date of the restructure.

The taxpayer must annualise the number of kilometres travelled in accordance with the formula in paragraph 9(2)(d) on the basis that it held the car for only part of the year.

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