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Edited version of private advice
Authorisation Number: 1012633866158
Ruling
Subject: Car fringe benefits and the base value of a car
Question 1
Is the base value of the car for the purposes of calculating a car fringe benefit under section 9 of the FBTAA the market value on the day the novated lease was entered into of Amount B?
Answer
Yes
Question 2
If the answer to question 1 is no, is the base value of the car for the purposes of calculating a car fringe benefit under section 9 of the FBTAA the cost of the car when it was originally purchased by the employee of Amount A?
Answer
Not answered as answer to Question 1 was yes.
This ruling applies for the following period:
Year ended 31 March 2015
The scheme commences on:
1 April 2014
Relevant facts and circumstances
Timeline of activities
• On Date A the employee purchased a car for Amount A under a finance agreement with Company A;
• On Date B the Employer was incorporated; and
• On Date C the Employer, the employee entered into a novated lease agreement with Company B in respect of the car.
The value of the car when the lease was entered into was Amount B. Amount B was also the amount paid by Company B to acquire the car from Company A.
Relevant legislative provisions
FBTAA section 9
FBTAA subsection 136(1)
FBTAA section 162
Reasons for decision
Section 9 of the FBTAA determines the taxable value of a car fringe benefit using a statutory formula. This formula uses the base value of a car and the base value is determined under paragraph 9(2)(a) and the base value is either 'the cost price of the car' (if it is owned) or the 'leased car value' (if leased), at the 'earliest holding time'.
As the car is not owned by the employer the base value will be determined using the leased car value which if defined in subsection 136(1) of the FBTAA as:
in relation to a car held but not owned by a person at a particular time, means:
(a) in a case to which paragraph (b) does not apply - the amount that the person could reasonably be expected to have been required to pay to purchase the car from the owner at that time under an arm's length transaction; or
(b) if the person commenced to lease the car at that time from a lessor who purchased the car at or about that time - the cost price of the car to the lessor.
In respect of the earliest holding time it is described in paragraph 9(2)(b) of the FBTAA as:
the earliest holding time, in relation to a car held by the provider at a particular time (in this paragraph referred to as the current time), is the earliest time before the current time when the car was held by the provider or an associate of the provider; and
What this paragraph means is that the base value is always the base value of the car at the time it was first held by the provider of the car benefit.
Section 162 of the FBTAA explains when a car is held by a person and it states:
In this Act, unless the contrary intention appears, 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.
Based on the definition of when a car is held, as the Employer was incorporated on Date B the first time it could ever hold the car was Date B. Therefore the value of Amount A cannot apply. The most the base value could be would be the arm's length value as at Date B.
In can be concluded that the Employer first holds the car from the point they entered into the novated lease on Date C. Prior to that the person holding the car would have been the employee (though their agreement with Company A), and a car fringe benefit couldn't have arisen.
Therefore the base value is determined in respect of the amount paid by the lessor (Company B), to purchase the car.
As Company B paid Amount B to purchase the car which they then leased to the Employer via a novated lease the base value of the car is Amount B.
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