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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your private ruling

Authorisation Number: 1012581194214

Ruling

Subject: Fringe benefits tax

Question 1

As a result of the employees transferring from AA Co will the taxable value of car fringe benefits be calculated under the new rate in section 9 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) because it is considered to be a change to a pre-existing commitment?

Answer

Yes

Question 2

As a result of the employees transferring from AA Co will the company be unable to reduce its employees' aggregate taxable value of in-house fringe benefits under section 62 of the FBTAA because it is considered to be a material variation?

Answer

Yes

This ruling applies for the following periods:

1 April 2013 - 31 March 2014

The scheme commences on:

1 April 2013

Relevant facts and circumstances

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 9

Fringe Benefits Tax Assessment Act 1986 section 62

Reasons for decision

In the 2014 FBT year, AA Co and ZZ Co merged to form one entity. ZZ Co is the continuing entity and will take over the operations of AA Co. ZZ Co subsequently changed its name to AZ Co.

The employees of AA Co were transferred to AZ Co as a result of the amalgamation. However, the employee's remuneration, rights and conditions were preserved.

Subsection 9(1) of the FBTAA sets out the statutory formula that applies to determine the taxable value of car fringe benefits under section 7 of the FBTAA. Subsection 9(1) is amended by Schedule 5 of Tax Laws Amendment (2011 Measures No.5) Act 2011 and applies to car fringe benefits that commenced after 7:30pm AEST on 10 May 2011. The amendments replace the former range of statutory rates with a single statutory rate.

The amendments apply to all car fringe benefits after 7:30pm AEST on 10 May 2011 unless it can be provided that there was a pre-existing commitment in place to provide a car. In that case the transitional arrangements will apply to phase in the single statutory rate. A commitment is considered entered into at the point of time there is commitment to the transaction and it cannot be back out of.

The Explanatory Memorandum to Tax Laws Amendment (2011 Measures No. 5) Act 2011 (EM) states:

The EM provides an example of when an employee changes employers:

In this case, AA Co provided its employees with car fringe benefits which were entered into prior to 10 May 2011. It is considered that these are pre-existing commitments. However, when the employees changed employers, this triggered a new commitment and will be subject to the amendments. The new rate will apply from the date the new employment commences.

Question 2

Subsection 62(1) of the FBTAA allows the aggregate taxable value of in-house fringe benefits to be reduced by $1000. From 22 October 2012, the $1,000 annual reduction will not apply to in-house benefits where the employee accesses the benefit under a salary packaging arrangement (subsection 62(2) of the FBTAA).

However, under the transitional arrangements, the $1000 reduction will continue to apply to an existing salary packaging arrangement until the earlier of:

An existing salary packaging arrangement is a salary packaging arrangement entered into by the employer and employee before 22 October 2012.

In this case, AA Co employees received in-house fringe benefits under a salary packaging arrangement which were entered into prior to 22 October 2012. AZ Co will continue to provide these benefits after the employees are transferred.

In determining whether an alteration or variation is material to the existing salary packaging arrangement, regard must be had to the particular wording of the agreement. What is considered material will often depend on the facts and circumstances of the arrangement.

According to the Explanatory Memorandum to the Tax Laws Amendment (2012 Measures No. 6) Bill 2012 paragraph 7.48 states:

The transitional rules will not apply, as the employees have commenced employment with a new employer (AZ Co). Therefore, a material variation occurs on the date the employees commence employment with AZ Co and the $1,000 reduction in the aggregate taxable value of in-house fringe benefits cannot be applied.


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