| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012578385787
Ruling
Subject: Non-business accessory
Question 1
Will the installation of a warning device increase the base value and operating cost of a car, and therefore, increase the fringe benefits tax payable?
Answer
Yes
This ruling applies for the following periods:
Year ended 31 March 20YY
Year ended 31 March 20ZZ
The scheme commences on:
1 April 2013
Relevant facts and circumstances
You have provided your employee with a motor vehicle through a novated lease and funded through a salary packaging arrangement.
The lease agreement commenced after 10 May 20XX.
The employee would like a warning device installed as part of the salary packaging and leasing arrangement.
You are seeking a ruling to establish if the installation of a warning device will increase the taxable value of a car benefit and therefore fringe benefits tax payable.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986 Subsection 9(2)
Fringe Benefits Tax Assessment Act 1986 Section 10
Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)
Reasons for decision
The installation of a warning device is considered to be a non-business accessory as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as follows:
in relation to a car, means an accessory fitted to the car, whether at the factory where the car was assembled or at some other place, other than an accessory required to meet the special needs of any business operations in relation to which the car is used.
The installation of a warning device is not considered to meet the special needs of any business operations. It is therefore a non-business accessory.
The cost price of a non-business accessory is an important element in the determining the taxable value of car fringe benefits.
The cost price of a non-business accessory not manufactured by the owner is the expenditure incurred on the accessory including its fitting (other than by the recipient) reduced by any contribution by the recipient of the car benefit at or about the time when the expenditure was incurred (subparagraph (b)(ii) in the definition of 'cost price' in subsection 136(1) of the FBTAA).
The cost price of the warning device will be the purchase price and cost of fitting.
There are two valuation methods available for determining the taxable value of car fringe benefits: the statutory formula and the operating cost method
Statutory formula
The taxable value of car fringe benefits using the statutory formula is as follows (subsection 9(1) of the FBTAA):
ABC - E
D
where:
A is the base value of the car;
B is the applicable statutory percentage;
C is the number of days during that year of tax on which the car fringe benefits were provided by the provider;
D is the number of days in that year of tax; and
E is the amount (if any) of the recipient's payment.
The base value of a car is defined in subsection 9(2)(a) of the FBTAA and includes the cost price of each non-business accessory that: was fitted to the car after the earliest holding time and before the end of the year of tax; and remained fitted to the car at a time during the year of tax when the car was held by the provider.
Therefore, the installation of a non-business accessory such as a warning device will increase the base value of the car and increase the taxable value of car fringe benefits calculated using the statutory formula.
Operating cost method
Subsection 10(2) of the FBTAA sets out the formula for calculating the taxable value of a car fringe benefit under the operating cost method as follows:
(C x (100% - BP)) - R
where:
C is the operating cost of the car during the holding period;
BP is:
(a) if, under section 10A or 10B, the employer is not entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period - nil; or
(b) (Omitted by No 145 of 1995)
(c) in any other case - the business use percentage applicable to the car for the holding period; and
R is the amount (if any) of the recipient's payment.
Operating costs of a car include repairs, maintenance, fuel, registration and insurance, and leasing costs.
The installation of a warning device under the leasing arrangement may increase your leasing costs, and therefore, increase the operating costs which will increase the taxable value of car fringe benefits calculated using the operating costs method.
Summary
Under both methods for calculating the taxable value of car fringe benefits the installation of a warning device will increase fringe benefits tax payable.
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).
