Edited version of your private ruling

Authorisation Number: 1012596691119

Ruling

Subject: Residual Fringe Benefit

Question 1

Is the provision of a chauffeur an external period residual fringe benefit?

Answer

Yes where the chauffeur is provided on an ongoing basis. Where the chauffeur is provided for periods of less than a day the benefit will be an external residual non-period residual fringe benefit.

Question 2

Can the chauffeurs' employment costs be used to calculate the taxable value of the benefit?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

The scheme commences on:

1 April 2013

Relevant facts and circumstances

You provide a chauffeur to certain employees.

Depending upon the employee, the chauffeur may be provided on an on-going basis, or may be provided on an as-required basis.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Section 50

Fringe Benefits Tax Assessment Act 1986 Section 52

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 149(1)

Reasons for decision

1. Is the provision of a chauffeur a fringe benefit?

In general terms, the definition of 'fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides that a fringe benefit will arise when the following conditions are satisfied:

(i) a benefit is provided to an employee (or an associate of an employer);

(ii) the benefit is provided by the employer, an associate of the employer, or in a situation that comes within either paragraph (e) or (ea) of the fringe benefit definition;

(iii) the benefit is provided in respect of the employment of the employee; and

(iv) the benefit is not one of the benefits specifically excluded from being a fringe benefit by virtue of paragraphs (f) to (s) of the fringe benefit definition.

Each of these conditions is considered below:

(i) Is the provision of a chauffeur a benefit?

The definition of 'benefit' in subsection 136(1) of the FBTAA provides that a benefit will include:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property;

(ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money.

The provision of a chauffeur to drive a car at the direction of an employee comes within this definition.

(i) Is the benefit provided by the employer, an associate of the employer, or in a situation that comes within either paragraph (e), or (ea) of the fringe benefit definition?

The chauffeur is provided by the employer of the recipient of the benefit.

(ii) Is the benefit provided in respect of the employee's employment?

Subsection 136(1) of the FBTAA defines 'in respect of' to include 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment'.

As the chauffeurs are provided under the terms of employment, the benefit is considered to be provided in respect of the employment of the employee.

(iii) Is the benefit one of the benefits specifically excluded from being a fringe benefit by virtue of paragraphs (f) to (s) of the fringe benefit definition?

The benefit is not specifically excluded from being a fringe benefit by virtue of paragraphs (f) to (s) of the fringe benefit definition.

Therefore, the provision of a chauffeur will be a fringe benefit.

(iv) Can the chauffeurs' employment costs be used to calculate the taxable value of the benefit?

As the benefit is a 'fringe benefit' it is necessary to determine the taxable value of the benefit. This will depend upon the type of benefit that is being provided as each type of benefit has its own valuation rules.

The classification of the benefit that arises from the provision of an on-call chauffeur is considered in ATO Interpretative Decision ATO ID 2003/498 Fringe benefit tax Car benefit: service of a chauffeur (ATO ID 2003/498). The conclusion reached in ATO ID 2003/498 was that the service of a chauffeur is a residual benefit as defined in subsection 136(1) of the FBTAA.

The calculation of the taxable value of a residual fringe benefit is set out in sections 48 to 51 of FBTAA. These sections provide different valuation rules depending upon whether the residual benefit is:

• an in-house, or external residual fringe benefit; and

• a period, or non-period residual fringe benefit .

In general terms, a residual benefit will be an in-house residual benefit if the employer (or an associate) carries on a business that includes the provision of identical or similar benefits principally to outsiders. A residual benefit that is not an in-house residual benefit will be an external benefit.

As you are not in the business of providing identical or similar benefits to members of the public, the provision of the chauffeur will be an external residual benefit.

In general terms, where an external residual fringe benefit is provided for less than one day, the external residual fringe benefit will be valued as an external non-period residual fringe benefit in accordance with section 50 of the FBTAA. Where the fringe benefit is provided over a longer period, it will be valued as an external period residual fringe benefit in accordance with section 51 of the FBTAA.

The taxable value of an external non-period residual fringe benefit is set out in section 50 of the FBTAA as follows:

Subject to this Part, the taxable value of an external non-period residual fringe benefit in relation to an employer in relation to a year of tax is:

(a) where the provider was the employer or an associate of the employer and the benefit was purchased by the provider under an arm's length transaction - the amount paid or payable by the provider for the benefit;

(b) where the provider was not the employer or an associate of the employee and the employer, or an associate of the employer, incurred expenditure to the provider under an arm's length transaction in respect of the provision of the benefit - the amount of that expenditure; or

(c) in any other case - the notional value of the benefit at the comparison time;

reduced by the amount of the recipients contribution.

Similar valuation rules are contained within section 51 of the FBTAA which states:

Subject to this Part, the taxable value of an external period residual fringe benefit in relation to an employer in relation to a year of tax is:

(a) (a) where the provider was the employer or an associate of the employer and the recipients overall benefit was purchased by the provider under an arm's length transaction - the amount paid or payable by the provider in respect of the recipients current benefit;

(b) (b) where the provider was not the employer or an associate of the employer and the employer, or an associate of the employer, incurred expenditure to the provider under an arm's length transaction in respect of the provision of the recipients current benefit - the amount of that expenditure; or

(c) (c) in any other case - the notional value of the recipients current benefit;

reduced by the amount of the recipients contribution insofar as it relates to the recipients current benefit.

Paragraph (a) of both sections apply where the provider is the employer or an associate of the employer who purchases the benefit under an arm's length transaction. Although you are the provider of the benefit, you do not purchase the benefit. Rather, you provide an employee to drive a car that you hold. Therefore, the valuation method in paragraph (a) is not applicable.

Nor is the valuation method contained in paragraph (b) as the provider is the provider.

Therefore, in accordance with paragraph (c) of sections 50 and 51 the taxable value of the benefit will be the notional value of the benefit.

The definition of notional value in subsection 136(1) of the FBTAA provides that the notional value will be:

the amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arm's length transaction.

This value may be reduced by the application of the 'otherwise deductible' rule if the requirements of section 52 of the FBTAA are met.

In your application, you submitted that there is not a market rate that can be used to determine the taxable value as the terms of engagement and requirements of the chauffeurs are significantly different to those that apply to on-call chauffeurs in the general market. Given the factors outlined in your application we accept your submission.

We also agree that in the circumstances, the appropriate value can be determined using the chauffeurs' employment costs as a third party in an arm's length situation would use these costs to determine the amount charged for the chauffeurs' services. For example, the relevant costs may include:

• salary or wages;

• allowances;

• overtime (if applicable);

• superannuation;

• leave, including leave loading; and

• on-costs such as payroll tax.

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