Edited version of your private ruling

Authorisation Number: 1012606532125

Ruling

Subject: Fringe benefits tax

Question 1

Are the car fringe benefits provided by the entity to its employees GST-creditable benefits under section 149A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and therefore included in working out the employer's type 1 aggregate fringe benefits taxable amount in subsection 5C(3) of the FBTAA?

Answer

No

Question 2

If the car fringe benefits are not GST-creditable fringe benefits, will the benefits be included in working out the employer's type 2 aggregate fringe benefits taxable amount in subsection 5C(4) of the FBTAA?

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

• The entity is a government entity (Gov1) that provides car fringe benefits to its employees.

• The cars are leased through another government entity (Gov2).

• GST has always historically been paid on the lease repayments. The repayments comprise of administration, depreciation, end of lease charge, finance, insurance and non-capitalised costs and registration. These repayments were grossed up for GST then pro-rated based on the number of days the vehicle is held by the department.

• The lease repayments are not consideration for supply in accordance with section 9-17(3) of the GST Act 1999 and are therefore not subject to GST.

• Gov1 calculates its FBT under the statutory and operating cost methods, and then chooses the lower of the two methods for the lodged return.

• A recent invoice issued to Gov1 shows no GST was charged on the supply from Gov2. No input tax credit has been claimed against the lease payments as no GST has been charged.

• Gov1 provides the car fringe benefits to its employees as the arrangement is between Gov1 and the employee and not Gov2 and the employee.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 5C(3)

Fringe Benefits Tax Assessment Act 1986 subsection 5C(4)

Fringe Benefits Tax Assessment Act 1986 subsection 7(1)

Fringe Benefits Tax Assessment Act 1986 subsection 53(1)

Fringe Benefits Tax Assessment Act 1986 section 149A

Fringe Benefits Tax Assessment Act 1986 subsection 162(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-17

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

Reasons for decision

Subsection 5C(3) of the FBTAA contains the method statement of how to work out an employer's type 1 aggregate fringe benefits amount. Steps 1 and 3 in the method statement require the employer to identify the fringe benefits that are 'GST-creditable benefits'.

Section 149A of the FBTAA defines a 'GST-creditable benefit' as follows:

149A(1) A benefit provided in respect of the employment of an employee is a GST-creditable benefit if either of the following is or was entitled to an input tax credit under Division 111 of the A New Tax System (Goods and Services Tax) Act 1999 because of the provision of the benefit:

a. The person who provided the benefit;

b. A person who is or was a member of the same GST group (as defined in that Act) as the person who provided the benefit.

149A(2) A benefit provided in respect of the employment of an employee is also a GST-creditable benefit if:

a. The benefit consists of:

i. A thing (A New Tax System (Goods and Services Tax) Act 1999; or

ii. An interest in such a thing; or

iii. A right over such a thing; or

iv. a personal right to call for or be granted any interest in or right over such a thing; or

v. a licence to use such a thing; or

vi. any other contractual right exercisable over or in relation to such a thing; and

b. the thing was acquired (within the meaning of that Act) or imported (within the meaning of that Act) and either of the following is or was entitled to an input tax credit under that Act because of the acquisition or importation:

i. the person who provided the benefit;

ii. a person who is or was a member of the same GST group (as defined in that Act) as the person who provided the benefit.

The relevant benefit is a car benefit. Subsection 7(1) of the FBTAA sets out the circumstances in which a car benefit will arise. 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.

In combining these 2 definitions, a car fringe benefit will be a GST-creditable benefit if the provider (the person who holds the car), or a person in the same GST group is entitled to a GST input tax credit under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the acquisition of the car.

Therefore, the questions to be considered are as follows:

(a) Is the provider entitled to a GST input tax credit for the acquisition of the car?

(b) If the provider is not entitled to a GST input tax credit for the acquisition of the car, is a person in the same GST group entitled to a GST input tax credit from the acquisition of the car?

Is the provider entitled to a GST input tax credit for the acquisition of the car?

To determine the answer to this question it is necessary to identify the provider of the benefit. This requires identifying the person who holds the car.

Subsection 162(1) of the FBTAA provides that a reference to a car held by a person is a reference to:

(a) a car owned by the person;

(b) a car leased to the person; or

(c) a car otherwise made available to the person by another person

Gov1 leases the cars from Gov2 and then provides those cars for the benefit of its employees. It is therefore considered that Gov1 'holds' the car and is the provider of the benefit.

Taxation Ruling 2001/2 Fringe benefits tax: the operation of the new fringe benefits tax gross up formula from 1 April 2000 provides guidance on determining if a benefit is a type 1 or type 2 benefit and the gross up rate that should be used. It states at paragraph 14:

14. The classification of a fringe benefit (or excluded fringe benefit) as a type 1 benefit does not depend on the extent of the GST input tax credit entitlement to the provider. Nor does the classification as a type 1 benefit depend on whether the input tax credit is subsequently claimed. The test is whether there is any entitlement to a GST input tax credit.

The lease repayments are not consideration for supply in accordance with subsection 9-17(3) of the GST Act 1999 and are therefore not subject to GST. Consequently, no GST is payable by Gov1 to Gov2 under section 9-40 of the GST Act.

As no GST was paid by Gov1 on the lease repayments, there is no entitlement to an input tax credit and no input tax credit can be claimed.

Gov1 is not entitled to an input tax credit, for the provision of vehicles to its employees. The benefit is therefore not a GST-creditable benefit under section 149A of the FBTAA.

Is a person in the same GST group entitled to a GST input tax credit from the acquisition of the car?

Although Gov 2 would pay GST on the acquisition of the car and therefore would be entitled to an input tax credit, it is not in the same GST group as Gov1.

Therefore, the car benefit will not be a GST-creditable benefit.

Is this conclusion altered by the input tax credits claimed for the fuel, tyres and maintenance?

In considering the possible consequences of the GST paid on the fuel, tyres and maintenance it is necessary to identify the benefit being provided. The car benefit arises from the private use or availability of the car for private use. This is different to the provision of fuel, tyres and maintenance.

These expenses are separate benefits that are covered by section 53 of the FBTAA. As set out in the Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986:

Sub-clause 53(1) operates to ensure that the supply of petrol, etc., for an employer-provided car does not give rise to a taxable benefit additional to that under Division 2 in relation to the use or availability for use of the car for private purposes.

Subsection 53(1) states:

For the purposes of this Act:

(a) a car expense payment benefit;

(b) a car property benefit; or

(c) a car residual benefit;

in respect of a car, being a benefit that is attributable to a period when a car fringe benefit was provided, or would but for subsection 8(2) have been provided, in relation to the car, is an exempt benefit.

Therefore, the provision of fuel, tyres, repairs and maintenance are separate benefits and will not affect the classification of the car benefit.

Support for this conclusion is provided by paragraphs 126 and 127 of TR 2001/2 which state:

126. The determining factor for which gross-up rate you use for a car fringe benefit is whether the provider was entitled to an input tax credit at the time the car was acquired. Under those circumstances, the relevant matter is the original purchase of the car even though non-business accessories, on which GST has been paid and which may give rise to an entitlement to an input tax credit, may subsequently be fitted. Despite the subsequent addition of such non-business accessories the lower gross-up rate of 1.9417 will still be used where the car was purchased before 23 May 2001.

Example 20

127. Diantha Ltd is a company registered for GST that purchased a car on 3 April 2001 for $33,000 including GST. The company provides the car to its company accountant in the FBT year ended 31 March 2002. When Diantha Ltd calculates its FBT liability in respect of the car fringe benefits for the 2002 FBT year it will use the lower gross-up rate of 1.9417 as it is not entitled to an input tax credit for the $3,000 GST it paid on the car's purchase. If Diantha Ltd subsequently fitted non-business accessories it would still use the lower gross-up rate to calculate the fringe benefits taxable amount for the car fringe benefit.

Conclusion

The benefit is a not a GST-creditable benefit and therefore the type 1 rate will not apply in calculating the employer's type 1 aggregate fringe benefits amount in subsection 5C(3) of the FBTAA.

Question 2

The method statement in subsection 5C(4) of the FBTAA provides that all the benefits not taken into account in subsection 5C(3) should be included in subsection 5C(4) to calculate the employer's type 2 aggregate fringe benefits tax amount.

The car fringe benefits provided by Gov1 to its employees are not GST-creditable benefits under section 149A of the FBTAA. Therefore, the benefits will be included in subsection 5C(4).

Consequently, the type 2 rate will apply to calculate the employer's type 2 aggregate fringe benefits amount in subsection 5C(4) of the FBTAA.

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