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Ruling

Subject: Fringe benefits: car benefits

Question 1

Will a property fringe benefit arise when an employee hires one of your fleet vehicles for private use?

Answer

No. The benefit will be a car benefit

Question 2

If a fringe benefit arises from the hire of a fleet vehicle will the benefit an in-house fringe benefit?

Answer

No

Question 3

Will the car benefit be a minor benefit that is an exempt benefit under section 58P of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

A ruling can not be given in relation to this question as the answer will depend upon the circumstances in which each hiring of the car occurs.

Question 4

Will a fringe benefit arise when your mechanic services the employee's car where the costs associated with the service are recovered through a salary sacrifice arrangement with the employee?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

The scheme commences on:

On or after 1 January 2012

Relevant facts and circumstances

You have a fleet of vehicles ranging in size from small cars to large family size cars.

You permit your employees (part time, full time and casual) to hire the fleet vehicles for their private use.

You also enable employees of an adjacent employer to hire the fleet vehicles for their private use.

You do not hire the vehicles to anyone else.

Both your employees and the employees of the nearby employer pay a flat rate of XX cents per kilometre. In setting this rate you obtained details of the rates charged by a local car hire firm.

There are no other additional charges and all costs including fuel and risk of insurance claims are met by you.

The terms of hire are as follows:

· The vehicles are only available for hire if they are not otherwise required for business activities. Private hire of vehicles is the lowest priority of vehicle use.

· If a vehicle reserved for a private hirer is subsequently required for a higher priority, the private booking may be cancelled.

· The vehicle must be returned filled with fuel. If the vehicle has not been refuelled the fuel required to fill the vehicle will be charged at the current prevailing rate.

· The vehicle will be provided in a clean condition (inside and out) and must be returned in the same condition.

· The vehicle is not to be used off-road.

You offer a range of fringe benefits to employees including car fringe benefits, expense payment benefits, meal and entertainment benefits, and living-away-from-home benefits.

You also enable employees to have their private vehicles serviced by your mechanic with the costs being recovered by way of salary sacrifice.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 7

Fringe Benefits Tax Assessment Act 1986 Section 40

Fringe Benefits Tax Assessment Act 1986 Section 58P

Fringe Benefits Tax Assessment Act 1986 Subsection 132(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Will a property fringe benefit arise when an employee hires one of your fleet vehicles for private use?

A 'property benefit' is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to mean a benefit referred to in section 40 that is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III of the FBTAA. The relevant Division for the purposes of this ruling is Division 2 which deals with car benefits.

Subsection 7(1) of the FBTAA sets out the circumstances in which a car benefit will be taken to be provided. Subsection 7(1) states:

Where -

(a) at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as the "provider") -

(i) is applied to a private use by the employee or an associate of the employee; or

(ii) is taken to be available for the private use of the employee or an associate of the employee; and

(b) either of the following conditions is satisfied -

(i) the provider is the employer, or an associate of the employer, of the employee;

(ii) the car is so applied or available, as the case may be, under an arrangement between -

(A) the provider or another person; and

(B) the employer, or an associate of the employer, of the employee, that application or availability of the car shall be taken to constitute a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee.

Under the arrangement an employee will be able to apply a car that you hold to a private use. The private use of a fleet car will be a car benefit under subparagraph 7(1)(a)(i) of the FBTAA. Alternatively, a car benefit will be taken to arise under subparagraph 7(1)(a)(ii) when:

· the car is garaged at or near the employee's residence (subsection 7(2)); or

· the car is not at your business premises where the employee is entitled to apply the car to a private use (subsection 7(3)).

As the use of the car by the employee will be a benefit under Division 2 of the FBTAA it will not be a property benefit.

If a fringe benefit arises from the hire of a fleet vehicle will the benefit an in-house fringe benefit?

An in-house fringe benefit is defined in subsection 136(1) of the FBTAA as follows:

(a) an in-house expense payment fringe benefit;

(b) an in-house property fringe benefit; or

(c) an in-house residual fringe benefit;

As the benefit is a car benefit, rather than an expense payment benefit, a property benefit or a residual benefit it will not be an in-house fringe benefit.

Will the car benefit be a minor benefit that is an exempt benefit under section 58P of the FBTAA?

In general terms a benefit is a minor benefit and an exempt benefit under section 58P of the FBTAA where:

· the notional taxable value of the minor benefit is less than $300; and

· it would be concluded that it would be unreasonable, having regard to the specified criteria in paragraph 58P(1)(f), to treat the minor benefit as a fringe benefit.

Subsection 58P(1) states:

(a) a benefit (in this section called a "minor benefit") is provided in, or in respect of, a year of tax (in this section called the "current year of tax") in respect of the employment of an employee of an employer;

(b) the benefit is not an airline transport benefit;

(c) in the case of an expense payment fringe benefit, a property or a residual benefit - if the minor benefit were an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit, as the case may be, in relation to the employer, the expense payment fringe benefit, the property fringe benefit or the residual fringe benefit, as the case requires, would not be an in-house fringe benefit;

(d) in the case of a tax-exempt body entertainment benefit where the provider incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision of entertainment to the employee or an associate of the employee -

(i) the provision of entertainment to the employee or the associate of the employee, as the case may be -

(A) is incidental to the provision of entertainment to outsiders; and

(B) neither consists of, nor is provided in connection with, the provision of a meal (other than a meal consisting of light refreshments) to the employee or the associate of the employee, as the case may be; or

(ii) the entertainment is provided to the employee or the associate of the employee, as the case may be -

(A) on eligible premises of the employer; and

(B) solely as a means of recognising the special achievements of the employee in a matter relating to the employment of the employee;

(e) the notional taxable value of the minor benefit in relation to the current year of tax is less than $300; and

(f) having regard to -

(i) the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to -

(A) the minor benefit; or

(B) benefits provided in connection with the provision of the minor benefit; have been or can reasonably be expected to be provided;

(ii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of the minor benefit and any associated benefits, being benefits that are identical or similar to the minor benefit, in relation to the current year of tax or any other year of tax;

(iii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of any other associated benefits in relation to the current year of tax or any other year of tax;

(iv) the practical difficulty for the employer in determining the notional taxable values in relation to the current year of tax of -

(A) if the minor benefit is not a car benefit - the minor benefit; and

(B) if there are any associated benefits that are not car benefits - those associated benefits; and

(v) the circumstances surrounding the provision of the minor benefit and any associated benefits including, but without limiting the generality of the foregoing -

(A) whether the benefit concerned was provided to assist the employee to deal with an unexpected event; and

(B) whether the benefit concerned was provided otherwise than wholly or principally by way of a reward for services rendered, or to be rendered, by the employee;

it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefit in relation to the employer in relation to the current year of tax;

the minor benefit is an exempt benefit in relation to the current year of tax.

As the car benefit is not an airline transport benefit, an in-house benefit or a tax-exempt body entertainment benefit it will be an exempt benefit under subsection 58P(1) if:

· the notional value of the benefit is less than $300; and

· on the basis of the factors contained in paragraph 58P(1)(f) it would be unreasonable to treat the benefit as a fringe benefit.

Guidance as to the application of both of these requirements is provided in Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12).

The notional taxable value of the car benefits

The application of the minor benefits exemption to car benefits is discussed in paragraphs 246 to 261 of TR 2007/12. These paragraphs state:

Application of the minor benefits exemption to car benefits

246. The minor benefits exemption does not apply to car benefits that are provided as part of a SSA. The application of section 58P in situations where a SSA is in place has been discussed at paragraphs 241 to 244 of this Ruling.

247. However, the minor benefits exemption can generally apply to car benefits, as they are not one of the excluded benefits mentioned under subsection 58P(1). The EN states that:

the occasional use of an employer's vehicle by an employee for a special purpose such as rubbish removal or travel to or from work during a transport strike would be exempt benefits provided the employee in question did not have a general entitlement to use the vehicle for private purposes.³⁶

248. In applying the minor benefits provisions to car benefits the minor benefits threshold test requires a determination of the 'notional taxable value of the minor benefit' (being the car benefit). This is a different calculation from that made to calculate the taxable value of a car fringe benefit under Division 2 (see paragraphs 182 and 183 of this Ruling).

249. 'Notional taxable value' is defined in subsection 136(1) in relation to car benefits as:

the amount that if it were assumed that (a) in the case of a car benefit - the car benefit was a residual benefit

250. Miscellaneous Taxation Ruling MT 2034 provides for 2 methods that can be used for calculating the taxable value of a residual fringe benefit arising from the private use of a motor vehicle other than a car. It is considered appropriate to apply this methodology for the purpose of calculating the notional taxable value of a car.

251. The first method outlined at paragraph 12 of MT 2034 looks to the operating cost of the particular vehicle to the employer, that is, this is to calculate the operating costs such as fuel, repairs and maintenance, registration, insurance and leasing charges (or depreciation and imputed interest) for the relevant period.

252. The alternative method set out in paragraphs 15 and 16 of MT 2034 is to use the cents per kilometre as appropriate for the vehicle engine capacity.³⁷

253. As for any other minor benefit, once it is determined that the notional taxable value of the minor benefit (being the car benefit) is less than $300, using either of the methods discussed at paragraphs 250 to 252 of this Ruling, then the criteria under paragraph 58P(1)(f) need to be examined to determine if it is unreasonable to treat the minor benefit as a fringe benefit.

254. If it is concluded that it is unreasonable to treat the minor benefit as a fringe benefit, and so the minor benefit is an exempt benefit, then it needs to be considered how this impacts on the calculation of the taxable value of a car fringe benefit.

Operating cost method

255. Where an election is made to use the cost basis (or operating cost method) of calculating the taxable value of a car fringe benefit under section 10, then the 'business use percentage' applicable to the car needs to be determined. The term 'business use percentage' is defined under subsection 136(1) by way of a formula which takes account of the number of business kilometres travelled by a car during a holding period as a percentage of the total number of kilometres travelled.

256. In turn, the term 'business kilometre' is defined in subsection 136(1) as '... a kilometre travelled by a car in the course of a business journey.' Most relevantly, the term 'business journey' is defined in subsection 136(1) to mean:

for the purposes of the application of Division 2 of Part III 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 ... (emphasis added).

257. Where a journey is considered to be a minor benefit and it is concluded that it is an exempt benefit, it meets the definition of a 'business journey' as it is not private use that results in the provision of a fringe benefit, but rather it is private use that results in the provision of an exempt benefit. The employer should therefore record any journeys that are determined to be minor benefits as business journeys and therefore such journeys will not result in any increase in the taxable value of a car fringe benefit under the operating cost method.

Statutory formula method

258. Where the statutory formula method is used to calculate the taxable value of car fringe benefits, the formula under subsection 9(1) has regard to 'the number of days during that year of tax on which the car fringe benefits were provided by the provider'.

259. The use of a car that is determined to be a minor benefit is an exempt benefit and not a fringe benefit. This means that where a car is only used for the purpose of providing a minor benefit on any given day this will not be counted as a day where the car is used or available for private use.

260. Where a car is used for the purpose of providing a minor benefit to an employee on a particular day and other car benefits which are not minor benefits arise on the same day in relation to that car, the provision of the minor benefit will have no effect on the calculation of the taxable value under the statutory formula method.

261. It should be kept in mind that the statutory formula method of calculating car fringe benefits is a concessionary method that relieves employers from the need to keep many records, such as logbooks. It is acknowledged that use of this method will not always provide users with the best outcome when calculating the taxable value of a car fringe benefit. It is open to employers to elect to use the operating cost method if they consider that will give them a better outcome.

As set out in paragraph 250 of TR 2007/12 the methods that can be used to calculate the taxable value of a residual benefit arising from the private use of a motor vehicle other than a car are set out in Miscellaneous Taxation Ruling MT 2034 Fringe benefits tax: use of motor vehicles other than cars. (MT 2034).

Paragraphs 9 to 18 discuss the valuation where the vehicle is owned by the employer. These paragraphs state:

Valuation of Benefit - Employer's Vehicle

9. The example of an employee who is provided with the use of an employer's vehicle (e.g., a one tonne dual cab) on a continuing basis for both business and private use will serve to illustrate the basic valuation approach in this area.

10. In this example, the value of the benefit of the right to use the employer's vehicle is determined in accordance with paragraph 51(c) of the Act as the notional value of the benefit. Notional value is defined in sub-section 136(1) for these purposes as the amount that the employee could reasonably be expected to have been required to pay to obtain the benefit under an arm's length transaction.

11. One measure of that would be the rate charged to rent a similar vehicle on the open market. However, on the basis of information available to this office, such rates are generally based on short-term hire and even with available longer-term discounts, such an approach would generally produce an unrealistically high value. In addition they may not, in any event, encompass the full value of the benefit provided, e.g., the rate charged may not include the cost of fuel.

12. An alternative measure would be to look, broadly, to what would be the cost to the employee of providing his or her own vehicle of the same kind as that provided by the employer. However, rather than attempting a notional calculation of the cost to the employee of providing a similar vehicle, which becomes largely impracticable if different employees use the same vehicle over time, a more practical measure would be to look to the operating cost of the particular vehicle to the employer. Operating costs for these purposes would be as per component A of the car operating cost formula. As required by paragraph 10(3)(a), operating costs would thus include the cost of fuel, repairs and maintenance, registration and insurance and leasing charges (or depreciation and imputed interest, as appropriate). Any sales tax exemptions would, as for cars, be disregarded for these purposes.

13. The gross taxable value determined on this basis would be reduced under section 52 of the Act, broadly, according to the proportion of business kilometres to total kilometres travelled in the year - see paragraphs 23 to 27. If, rather than being provided for use by a single employee, the vehicle was used during the year by two or more employees, the aggregate value of the benefits provided to employees would similarly be determined by reducing the gross taxable value in the proportion of total business kilometres to total kilometres travelled in the year.

14. The preceding discussion assumes that the vehicle is provided on a fully maintained basis, including fuel. In the event that what is being provided to the employee is the use of a vehicle without the provision of fuel (i.e. where it is the employee's responsibility to provide fuel) the value of the benefit would be determined by reference to operating costs excluding fuel.

15. While, as discussed, the application of the car operating cost approach would provide an appropriate measure of the value of the benefit to employees of the use of vehicles other than cars, there is expressed in the legislation a clear intent not to require the same level of detail as that required for valuing car benefits. This is against the background of the type of vehicles involved, their expected high business usage and their general lack of suitability for significant private use. Accordingly, an approach that gave a reasonably based measure of that cost would be sufficient to satisfy the requirements of the law.

16. One method that would be acceptable for this purpose would be to determine the benefit on a cents per kilometre basis. Given that the vehicles under examination could be expected to be used extensively for business purposes - with the result that the standing costs would be spread over a substantial number of annual kilometres travelled - the following rates would be accepted for the purposes of valuing benefits provided in the transitional year -

(i) the rates to be applied for the fringe benefits tax year commencing 1 April 1993 (refer TD 93/59) are:

Engine Capacity Rate Per Kilometre

0 - 2500 cc 29 cents

Over 2500 cc 35 cents

Motor cycles 9 cents; and

(ii)  the rates to be applied for the fringe benefits tax year commencing 1 April 1994 (refer TD 94/22) are:

Engine Capacity Rate Per Kilometre

0 - 2500 cc 29 cents

Over 2500 cc 35 cents

Motor cycles 9 cents.

Reference should be made to the following paragraphs in determining the detailed application of these rules.

17. These rates could be applied to the total private kilometres travelled by the employee in the vehicle during the year to give the taxable value net of the reduction afforded by section 52 (see paragraphs 23 to 27). Where the vehicle is used by more than one employee during the year the rates would be applied to the aggregate number of private kilometres to give the aggregate value of the benefits provided to employees. The basis for determining the number of private kilometres travelled is discussed in paragraph 27.

18. Where the vehicle is provided without fuel the taxable value would, consistent with paragraph 14, be reduced accordingly. Thus, the taxable value determined in accordance with paragraphs 16 and 17 would be reduced by the private proportion of the employee's fuel costs. For this purpose a reduction determined by multiplying the number of private kilometres travelled by an estimate of fuel costs per kilometre based on average fuel costs and average fuel consumption of the vehicle would be accepted in the absence of specific records. The position where an employee pays consideration for the right to use the vehicle is discussed in paragraphs 28 to 31.

The valuation of a vehicle rented by the employer is discussed at paragraphs 19 to 22 of MT 2034. These paragraphs state:

Valuation of Benefit - Rented Vehicle

19. Where an employer takes out a vehicle on short-term hire for the specific purpose of making it available to an employee, the taxable value would be determined under paragraph 51(1)(a) or (b) as the arm's length amount paid by the employer. In the event that the vehicle is rented for one day only, the value of the benefit would be determined on the same basis under paragraph 50(a) or (b). Similarly where the employer meets hiring costs incurred by an employee, an expense payment benefit arises under Division 5 of Part III of the Act, the gross value of the benefit being the amount paid or reimbursed by the employer.

20. Where the hiring costs do not include the use of fuel, any payment or reimbursement of fuel costs by the employer would give rise to a benefit of an amount equal to the costs borne by the employer.

21. As mentioned in the preamble, the valuation rules detailed in the preceding paragraphs apply equally to cars taken out on short-term hire by virtue of the operation of sub-section 7(7) of the Act.

22. It should be noted that the discussion in paragraph 19 of the operation of sections 50 and 51 is based on the assumption that the employer is not in the business of providing such vehicles on hire to the public. In the event that this is not the case, e.g. where a vehicle rental firm hires out a vehicle other than a car to an employee free or at a discount, the taxable value would be determined under section 48 or 49 of the Act by reference to 75% of the lowest amount payable by members of the public at the time for equivalent rights. In those cases, reference should also be made to section 62 of the Act, the broad effect of which is to exempt from FBT the first $500 ($375 in the transitional year) of benefits provided to an employee that are of a kind supplied to the public in the ordinary course of the employer's business.

Paragraphs 28 to 31 of MT 2034 discuss the reduction to the taxable value to take account of the amount paid by the employee to the employer. Paragraphs 28 to 31 state:

Employee Contributions

28. In the event that an employee pays consideration to the employer for the right to use the vehicle, the gross taxable value of the benefit is reduced by the amount of the consideration paid. That reduction applies prior to the operation of section 52, i.e., the section 52 reduction applies to the value of the benefit net of any employee contributions. It should be noted that, unlike car benefits, the cost to the employee of providing fuel does not constitute an employee contribution (see the definition of recipients contribution in sub-section 136(1)). The position where it is the employee's responsibility to provide fuel is discussed in paragraphs 14 and 18.

29. In the circumstances where the operating cost method of valuing the benefit is being used, the taxable value determined in accordance with paragraph 12 would be reduced by the amount of the employee contribution prior to the further reduction under section 52. In the event that more than one employee has the use of the vehicle during a year, the operating cost of the vehicle for the year would need to be apportioned between employees according to the total kilometres travelled by each employee. The taxable value determined on that basis would be reduced firstly by the amount of an employee's contribution, with the reduction factor under section 52 then being applied to that net value.

30. As previously noted, the cents per kilometre basis detailed in paragraphs 16 and 17 anticipates the operation of section 52 by applying the per kilometre rate to private kilometres travelled. In the event that there was an employee contribution the order of reduction detailed in paragraph 28 would be achieved by applying the per kilometre rate to the total kilometres travelled by the employee, deducting from that the employee contribution and apportioning the result in the proportion of private kilometres to total kilometres.

31. It follows from the preceding paragraphs that in circumstances where an employee contribution is made, a declaration lodged in accordance with paragraph 26 would need to include details of the total kilometres travelled by the employee in the vehicle. The approved format for declarations lodged in accordance with that paragraph has been prepared on that basis. As with private kilometres, soundly based estimates of the total kilometres travelled would be accepted for this purpose (see paragraph 27).

Therefore, the method used to calculate the notional taxable value may differ depending upon whether you own, or lease the vehicles that are hired to the employee and the period for which the employee hires the vehicle. The alternative methods are summarised below:

In making these calculations it should be noted that as set out in paragraph 28 of MT 2034 the amount paid for fuel by the employee will not be a 'recipients contribution'.

As set out in paragraph 250 of TR 2007/12 the cents per kilometre rates set out in an annual Taxation determination can be used to determine the notional taxable value of the car benefit where you own the vehicle. The rates that apply for the fringe benefits tax (FBT) year commencing on 1 April 2012 are found in Taxation Determination TD 2012/6 Fringe benefits tax: what are the rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car for the fringe benefits tax year commencing on 1 April 2012? (TD 2012/6), namely,

As you have not provided any information in relation to the use of the cars by the employees it is not possible to determine whether the notional taxable value is less than $300. However, given the employee is paying 32 cents per kilometre for the hire of the vehicle, it is highly likely that the notional taxable value of some of the car benefits will be less than $300.

The criteria used to determine if it is unreasonable to treat the benefit as a fringe benefit

Infrequency and irregularity with which associated identical or similar benefits are provided

This criterion is discussed at paragraphs 200 to 217 of TR 2007/12 which state:

200. The first criterion to be considered is the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to the minor benefit or benefits that are given in connection with the minor benefit, are provided, or can reasonably be expected to be provided.

201. It is important to note that although this is the first criterion listed, it is not the main, or only, criterion and 'regard must be had to all factors, even if only to consider that a particular factor is irrelevant in the circumstances'.²⁷

202. 'Infrequency and irregularity' and 'identical or similar' are not defined in the FBTAA and therefore take their ordinary meaning.

203. The Macquarie Dictionary²⁸ defines 'infrequent' as:

1. happening or occurring at long intervals or not often

2. not constant, habitual or regular and 'irregular' as:

2. not characterised by any fixed principle, method or rate: irregular intervals

204. The Macquarie Dictionary defines 'identical' as:

1. (sometimes followed by to or with) corresponding exactly in nature, appearance, manner, etc.: this leaf is identical to that.

2. the very same: I almost bought the identical dress you are wearing and 'similar' as:

1. having a likeness or resemblance, especially in a general way.

205. The decision in the NAB case is of some assistance in interpreting the meaning of the words 'infrequency and irregularity', as they are used in section 58P. In reaching a conclusion under section 58P, Ryan J said that the notional taxable value of the minor benefit, being the travel by taxi on a particular day was 'small'. Ryan J then held that:

... on a broad view of the matters specified in paragraphs (F) of s58P(i) of the Act I am not able to conclude that it would be unreasonable to treat the presumptively minor benefit provided to Mr Brewster on 29 March 1988 as a fringe benefit in relation to the relevant year of tax.²⁹

206. Ryan J was able to find, on the evidence, that the associated benefits, being each journey by taxi cab undertaken in similar circumstances in the relevant tax year, were not provided infrequently or irregularly to the employee. This was based on the facts before the Court, including the facts that the employees were 'shift workers' and that they were entitled to the provision of transport by taxi cab at the end of afternoon shifts, both before and after night shifts, and before and after weekend shifts.

207. In Case 2/96 the term 'infrequent and irregular' was considered further. The AAT stated:

27. We do not think that the examples set out in the Draft Taxation Determination TD 94/D33 are of much assistance. Those examples focus on the 'infrequency and irregularity' factors set out in the section. Example 1 would have it that one taxi fare home (costing between $10 and $15) in each month would be sufficiently frequent and regular [sic] we think that this example is unlikely to be correct. It seems to us that there is a clear distinction to be drawn between benefits which are isolated or rare and benefits which are infrequent and irregular, and that the worked examples may have equated these concepts.

28. Taxation Determination TD 93/76 issued on 29 April 1993 focus [sic] on each of the tests in 58P(1)(f) in relation to redeemable vouchers; we do not think that the worked examples are of assistance in the present case.

29. Nor do we consider that, while accepting that the relevant employees are not shift workers, the 'balance of probabilities' test contended for by the Applicant can be the correct test; the wording of paragraph (f)(i) does not suggest to us that such a test was intended for this purpose. There were some employees who performed overtime work regularly, and must reasonably have expected that taxi fares would be provided; they would naturally have been aware of the fact that they were covered for this purpose by a relevant award.

34. The Tribunal has come to the conclusion having regard to the tests laid down in section 58P(1) that a benefit and its associated like benefits will be minor if, in relation to any given employee and in respect of each FBT year, the number of Total Trips is less than 48, or, on a monthly averaging basis, less than 4 per month. This view (which is inevitably somewhat arbitrary) is based on the view that that number of trips is likely to be infrequent, and having regard to the evidence as to the ad hoc nature of the applicant's requirements, irregular; further the employee could not reasonably have expected them.

208. Having regard to the above, it is clear that the words 'infrequent and irregular' do not mean 'isolated or rare'.

209. Furthermore, the Commissioner agrees that it is incorrect to say that a benefit can only be provided once a month to be considered as satisfying the meaning of 'infrequent'.

210. On the other hand, the view has often been expressed that the Commissioner should accept from the decision of the AAT in Case 2/96 that 48 times a year, or 4 times a month, would in any circumstances be considered 'infrequent and irregular'.

211. The Commissioner does not consider this would be appropriate. In fact the decision of the AAT was that:

This view (which is inevitably somewhat arbitrary) is based on the view that that number of trips is likely to be infrequent, and having regard to the evidence as to the ad hoc nature of the applicant's requirements, irregular; further the employee could not reasonably have expected them.³⁰

212. Whether a benefit is provided infrequently and irregularly will depend on the circumstances, as highlighted in Case 2/96.

213. Accordingly, it is not appropriate to specify the number of times associated benefits that are identical or similar to a minor benefit, or benefits provided in connection with the minor benefit, can be provided while satisfying the 'infrequency and irregularity' criterion.

214. However, the more often and regular those benefits are provided, the less likely that this criterion would be satisfied.

215. The term 'identical benefit' is defined in section 136(1), in relation to residual fringe benefits, to mean:

another benefit that is the same in all respects, except for differences (if any) that are minimal or insignificant and do not affect the value of the other benefit.

216. Although this definition does not apply to section 58P, it assists in understanding the meaning of the term and is not inconsistent with the ordinary (dictionary) meaning of 'identical'.

217. In giving meaning to the words 'identical' and 'similar', it is clear that the dictionary meanings, in the context of section 58P and its intended operation, are both appropriate and applicable.

The question of how regularly and frequently an employee receives the use of a car is a question of fact that will depend upon the individual circumstances of the employee.

Sum of the notional taxable values of the minor benefits and associated benefits which are identical or similar to the minor benefit

This criterion is discussed at paragraphs 218 to 224 of TR 2007/12 which state:

218. The second criterion to be considered is the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of the minor benefit and any associated benefits, being benefits that are identical or similar to the minor benefit, in relation to the current year or any other year of tax.

219. This criterion addresses the situation where there are multiple occasions where identical or similar benefits are provided to an employee.

220. In the NAB case Ryan J found that:

The sum of the presumptively minor benefit and all the associated benefits to Mr Brewster both in the current year of tax (amounting on the evidence to about $8,000) was substantial in the current tax years and might reasonably be expected to be similarly substantial in subsequent tax years.³¹

221. The greater the value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will qualify as an exempt benefit.

222. The value of the benefits in the current year as well as in any other year must be taken into account when determining the total value of benefits for the purposes of this criterion.

223. This will apply to identical or similar benefits that have been provided in the past and are likely to be provided in the future.

224. Even if the value of each benefit is below the minor benefits threshold, the sum of the values of the benefits provided, being identical benefits in the current year of tax, the previous year and those that are reasonably expected to be provided in the future, are all taken into consideration under this criterion.

As discussed at paragraphs 215 to 217 of a benefit will be identical to another benefit when it is the same in all respects except for differences (if any) that are minimal or insignificant and do not affect the value of the other benefit. In the context of the car benefit provision, a car benefit will be identical to another car benefit when both benefits involve the provision of the same type of car to travel the same distance over the same period of time. By contrast, a similar benefit as discussed in paragraph 204 of TR 2007/12 is a benefit that has a likeness or resemblance, especially in a general way. A possible example of a similar benefit is the use of a car to travel a different distance.

As set out in paragraph 218 of TR 2007/12, this criterion requires a consideration of the sum of the taxable values in relation to both the current year and any other year of tax. From the information provided it is not possible to make a conclusion about this criterion as it is a question of fact for which no information has been provided.

Sum of the notional taxable values of any other associated benefits

The sum of the notional taxable values of any other associated benefits is a question of fact for which no information has been provided. All that can be noted is that in the context of the arrangement, there may not be any other associated benefits that are not identical or similar to the benefit being considered.

The practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits

As discussed above, the method for calculating the notional taxable value may differ depending upon whether you own, or lease the vehicles that are hired to the employee and the period for which the employee hires the vehicle.

If you leased the cars that are provided to the employee the notional taxable value will be the leasing costs for the period of hire less the payment received from the employee. Although the calculation of the leasing costs will require an apportionment of the leasing costs, there should not be a practical difficulty in making this calculation for the current year as you know the amount paid for leasing the vehicle, the period for which the employee hired the vehicle and the amount paid by the employee.

Similarly, there should not be a practical difficulty in calculating the notional taxable value for the current year for a vehicle that you own as you will know the number of kilometres travelled by the employee using the car and the amount paid by the employee.

However, the inclusion of the notional taxable value for future years in the calculation will be a practical difficulty.

Circumstances surrounding the provision of the minor benefit and any associated benefits

This criterion is discussed in paragraphs 236 to 244 of TR 2007/12. These paragraphs state:

236. The fifth criterion requires consideration of the circumstances surrounding the provision of the minor benefit. Without limiting the generality of the circumstances to be considered surrounding the provision of the benefit, it is necessary to consider specifically whether the benefit was provided as a result of an unexpected event and whether or not it could be regarded to be provided wholly or principally as a reward for services rendered, or to be rendered, by the employee.

237. Whether a benefit is provided to assist the employee to deal with an unexpected event will always be a question of fact. The EN³⁴ included an example of an employer providing a short term loan to an employee to pay unexpected debts. This would be an example where this requirement of this criterion would be satisfied.

238. Whether a benefit was provided otherwise than wholly or principally by way of a reward for services rendered, or to be rendered, by the employee, will in some instances be clear (for example where the benefit is provided as part of a SSA). In other instances, whether a benefit has been provided wholly or principally as a reward for services will be less clear.

239. The difficulties associated with reaching a decision on this point are highlighted in the NAB case and Case 2/96. As noted by Ryan J in the NAB case, it can be difficult to determine whether the requirements of this criterion are satisfied in some situations:

It is debatable whether the aggregate of such benefits was provided wholly or principally by way of a reward for services to Mr Brewster but however the consideration indicated in s. 58P(2)(f)(v)(B) [sic] be evaluated, it would not in view of the preponderance the other way of the considerations to which I have just adverted, lead to the conclusion that it would be unreasonable to treat the benefit of 29 March 1988 as a fringe benefit in relation to Mr Brewster for the relevant tax year.

240. Also in Case 2/96, whilst the AAT was inclined to the view that taxi fares are likely to relate to services rendered or to be rendered, the AAT noted that this conclusion was debatable.

241. Whether a benefit has been provided wholly or principally for services rendered or to be rendered will depend on the circumstances. As the two cases illustrate, this can be difficult to determine and that it should be noted that this is merely one criterion to be considered when determining whether a benefit is a minor benefit. The Commissioner's view is that where a SSA is in place it is clear that any benefits provided under the SSA by the employer to the employee are wholly or principally by way of a reward for services rendered because the benefits have been provided in substitution for salary and wages. On the other hand, although a Christmas party provided to employees and their families may be considered to be a reward for services rendered or to be rendered, it would not necessarily be considered to have been provided wholly or principally by way of a reward for services rendered or to be rendered by the employee. In most instances a Christmas party would not be considered to be provided to an employee as a substitute for salary, wages or bonuses.

242. The definition of a 'salary sacrifice arrangement' as per TR 2001/10 paragraph 19 is:

...an arrangement under which an employee agrees to forego part of his or her total remuneration, that he or she would otherwise expect to receive as salary or wages, in return for the employer or someone associated with the employer providing benefits of a similar value.

243. The provision of benefits through a SSA forms part of the total remuneration package of an employee. Therefore, it is clear that, under these arrangements, benefits (together with salary) are provided wholly or principally as a reward for services rendered.

244. In considering the criteria in paragraph 58P(1)(f), and in particular the circumstances in which a benefit is provided under a SSA, a reasonable conclusion would be that all such benefits are not exempt benefits under section 58P.

In considering the two circumstances set out in subparagraph 58P(1)(f)(v) the provision of the car benefit is not:

· to assist the employee to deal with an unexpected event; and

· is not provided wholly or principally by way of a reward for services rendered, or to be rendered by the employee.

Conclusion

In the absence of additional information it is not possible to rule whether any of the car benefits will be a minor benefit.

Will a fringe benefit arise when your mechanic services the employee's car where the costs associated with the service are recovered through a salary sacrifice arrangement with the employee?

Your employees are able to enter into a salary sacrifice arrangement where they forego part of their salary to pay for mechanical servicing and maintenance of their private vehicles by your mechanic. Depending upon the particular arrangement, this arrangement may result in an expense payment benefit if you reimburse the employee, or it may be a residual benefit if the service is provided in your garage.

In your ruling application you asked whether this benefit will be an exempt benefit on the basis of being a minor benefit under section 58P of the FBTAA.

In relation to benefits provided under a salary sacrifice arrangement paragraph 16 of TR 2007/12 states:

The minor benefits exemption in section 58P does not apply to benefits that are provided to an employee under a SSA.

Further discussion is contained in paragraphs 242 to 244 of TR 2007/12 which state:

242. The definition of a 'salary sacrifice arrangement' as per TR 2001/10 paragraph 19 is:

...an arrangement under which an employee agrees to forego part of his or her total remuneration, that he or she would otherwise expect to receive as salary or wages, in return for the employer or someone associated with the employer providing benefits of a similar value.

243. The provision of benefits through a SSA forms part of the total remuneration package of an employee. Therefore, it is clear that, under these arrangements, benefits (together with salary) are provided wholly or principally as a reward for services rendered.

244. In considering the criteria in paragraph 58P(1)(f), and in particular the circumstances in which a benefit is provided under a SSA, a reasonable conclusion would be that all such benefits are not exempt benefits under section 58P.

On the basis of these paragraphs, the servicing of an employee's car under a salary sacrifice arrangement will not be an exempt minor benefit.

Cars provided to employees of the adjacent employer

In your ruling application you noted that employees of an adjacent employer are able to hire your fleet cars for their private use on the same terms and conditions as apply to your employees. As fringe benefits tax is paid by the employer you will not be liable to pay fringe benefits tax on the hire of the cars to the employees of the adjacent employer.

However, under subsection 132(2) of the FBTAA, you may be required to give details of the hiring of the cars to the adjacent employer. Subsection 132(2) states:

Where an associate of an employer provides, or arranges for the provision of, fringe benefits to, or to associates of, employees of the employer, the associate shall:

(a) keep records that record and explain all transactions and other acts engaged in by the associate or any other person in respect of the provision of those fringe benefits, being transactions or acts that are relevant for the purpose of ascertaining the employer's liability under this Act;

(b) give to the employer a copy of the records, so far as they relate to a year of tax, not later than 21 days after the end of that year of tax; and

(c) retain those records for a period of 5 years after the completion of the transactions or acts to which they relate.

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