Edited version of your written advice

Authorisation Number: 1051205884949

Date of advice: 10 April 2017

Ruling

Subject: Fringe benefits tax: car benefit

Question 1

Is the car travel undertaken by employees when on call classified as a business journey in terms of section 10 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where:

(a) the employee carries specified equipment in the car between home and their regular work site?

(b) the employee carries specified equipment in the car between home and other work sites?

Answer

(a) Yes.

(b) Yes.

This ruling applies for the following periods:

1 April 2017 to 31 March 2018

1 April 2018 to 31 March 2019

1 April 2019 to 31 March 2020

1 April 2020 to 31 March 2021

1 April 2021 to 31 March 2022

The scheme commenced on:

The scheme has commenced.

Relevant facts and circumstances

The provider uses both the statutory method and the operating cost method under section 9 and section 10 respectively of the FBTAA to determine the taxable value of car fringe benefits.

The provider has employees who are provided with a motor vehicle.

The vehicle is garaged at or near the employee’s place of residence and therefore, in terms of section 7 of the FBTAA it is taken to be available for the private use of the employee.

Some of the travel by the employees is between home and work. There is also travel between home and other work sites or when there is a visit to a branch, which is not their usual place of employment.

The employees are required to carry equipment in the car with them at all times. The equipment, including specialised equipment, is necessary for the employees to carry out their duties.

The total measurement of the items is approximately one cubic metre and they occupy half of the car boot. The total weight is about 60-70 kg.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986

Section 10

Subsection 136(1)

Income Tax Assessment Act 1997

Section 8-1

Reasons for decision

All legislative references are to provisions of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) unless otherwise stated.

Question 1

Summary

The issue is whether the car travel to and from work by the employees when carrying the equipment comes within the definition of a business journey in terms of subsection 136(1). Note that by definition the private use of a vehicle is excluded as not being a business journey.

This distinction between private and business use is common to the Income Tax Assessment Act 1997 (ITAA 1997). Briefly stated section 8-1 of the ITAA 1997 provides a deduction for expenditure incurred in the derivation of assessable income but denies that deduction where the expenditure is of a private nature.

There is a body of case law which has considered the question of a deduction for the cost of travel to work in terms of section 8-1 of the ITAA 1997 and former subsection 51(1) of the Income Tax Assessment Act 1936. That body of case law is examined.

Generally, expenses incurred in travelling between home and work are not deductible under section 8-1 of the ITAA 1997 as they are considered to be private in nature. This well established principle was reinforced by the High Court in Lunney v FC of T and Hayley v. FC of T (1958) 100 CLR 478.

However, subsequent court decisions have modified this general principle in various circumstances.

One of the exceptions to the general principle is the transportation of bulky equipment between home and work.

The ATO view concerning a deduction for expenditure incurred in transporting bulky equipment between home and work, as contained in public rulings, is discussed.

The term “bulky equipment” is not defined in the legislation. Relevant case law on what constitutes bulky equipment is examined in order to determine whether the equipment carried by the employees can be regarded as bulky equipment.

The equipment carried by the employees is considered to come within the description bulky equipment. The duties of the employees require that it be readily available and carried in the car at all times. The bulky equipment is consequently transported on journeys to and from work.

Therefore, the journeys in the vehicles between home and work are not considered to be private in nature and the costs would be deductible under section 8-1 of the ITAA 1997.

As the journeys are not private in nature, the journeys are business journeys as defined in subsection 136(1). Hence they are classified as business journeys for the purpose of calculating the taxable value of car fringe benefits under section 10.

Detailed reasoning

The term “business journey” which is relevant to the decision upon this application is defined in subsection 136(1).

The definition requires consideration of whether the journeys undertaken by the employees are private in nature.

This is the same consideration required to determine the deductibility of travel expenses between home and work in terms of subsection 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

Generally, expenses incurred in travelling between home and work are not deductible under subsection 8-1(1) of the ITAA 1997 as they are considered to be private in nature. This is because normally expenses incurred in travelling from home to work are not treated as incurred in the derivation of assessable income but instead are treated as incurred in order to enable the taxpayer to derive assessable income. This well established principle was reinforced by the High Court in Lunney v FC of T and Hayley v. FC of T (1958) 100 CLR 478.

However, subsequent court decisions have modified this general principle in various circumstances. One example is the decision in FC of T v. Vogt 75 ATC 4073; 5 ATR 274 (Vogt's Case) which is discussed below.

This means there are exceptional circumstances under which a taxpayer may be entitled to a deduction for direct home to work travel expenses, for example:

(1) If the taxpayer has a home office which is a place of business;

(2) If the taxpayer has to carry bulky equipment; or

(3) If the taxpayer has shifting places of employment.

It is considered that exception (1) is not applicable to the circumstances in this case.

Bulky equipment

The ATO view regarding the deductibility of expenses incurred in transporting bulky equipment between home and work is contained in a number of public rulings including Taxation Ruling IT 112: Deductibility of travelling expenses between residence and place of employment or business (IT 112) and Taxation Ruling TR 95/34: Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses (TR 95/34).

The ATO view regarding a deduction for travel costs where there is the requirement to carry bulky equipment appears in TR 95/34 at paragraphs 63 and 64.

Paragraph 63 of TR 95/34 is interpreted as providing that a deduction is allowable for the cost of travel from home to work where it is necessary for an employee to carry bulky equipment to perform their duties in earning assessable income.

The term “bulky equipment” is not defined in the legislation and it is a matter of fact and degree as to what amounts to “bulky equipment” in the individual circumstances of each situation. Accordingly, it is necessary to consider the relevant case law on what constitutes bulky equipment in order to determine whether the equipment that the employees transport in their cars can be regarded as bulky equipment.

The principles regarding when travel between home and work is not private in nature because of the need to transport bulky equipment, as outlined in the above mentioned Taxation Rulings came from various court and Administrative Appeals Tribunal (Tribunal) decisions Those decisions include Vogt’s case, Crestani v FC of T 98 ATC 2219; 40 ATR 1037 (Crestani's Case), Case 43/94 94 ATC 387, AAT 96/54 (1994) 29 ATR 1081 (Case 43/94) Case Z22 92 ATC 230; 23 ATR 1189 (Case Z22), Scott v. FC of T (No 3) 2002 ATC 2243 (Scott’s case). The factors taken into account by the courts and the Tribunal in these decisions included volume, weight, overall size and how cumbersome the items are.

In Vogt’s case a professional musician was employed at a club, was a member of a band and also earned fees playing at a recording studio and another club. He was required to provide his own instruments and take them to the clubs and the studio, and to the venues at which the band performed. The musician kept his musical instruments and associated equipment (trumpet, flugelhorn, acoustic bass, electric bass and amplifiers) at his home. He did so because it was necessary to practise on them and because it was the only practical place to keep them. The instruments and equipment were very bulky. The musician used a vehicle to transport the instruments and equipment from his home to wherever he was required to perform.

The taxpayer was allowed a deduction for the expenditure on travel from home to work and back because the expense could be attributed to the need for the transportation of bulky equipment to various places of work, rather than to private travel between home and work.

The court held that the essential character of the expenditure was such that it should be regarded as having been incurred in gaining or producing the assessable income. The mode of the musician’s travel was simply a consequence of the means which he employed to get his instruments to the place of performance that is by carrying them in the motor vehicle which he drove (75 ATC 4073 at 4078; 5 ATR 274 at 279).

In Crestani's Case, the Tribunal found that a 25cm wide, 26cm high and 57 cm long toolbox that weighed 27 kilograms was bulky within the meaning contained in paragraphs 138 to 141 of Taxation Ruling TR 95/19 Income tax: airline industry employees - allowances, reimbursements and work-related deductions (TR 95/19). Note that paragraphs 138 to 141 in TR 95/19 are a reflection of paragraphs 63 to 71 in TR 95/34.

The Tribunal found that the toolbox was not 'easy to lift, and could not, in the opinion of the Tribunal, conveniently be carried for any distance’. In the course of his decision, Senior Member Block stated:

I do not think that the term 'bulky' should be construed to refer only to an article which is of a larger size, such as the musical instruments which were the subject of the decision in FC of T v Vogt The term is, in my view, more aptly to be construed as similar to 'cumbersome' in the sense that it is not easily portable.

In Case 43/94 a Royal Australian Air Force flight sergeant was denied a deduction for the cost of using his car to transport various items of work equipment to and from work. Among the items the taxpayer was required to have available were:

● flying suit

● torch

● personal survival gear

● full dress uniform

● working uniform

● flying jacket

● flying boots

The taxpayer carried the required equipment in a briefcase sized navigational bag and a standard air force issue duffle bag measuring 75cm long x  55cm wide and 50cm deep which, when packed, weighed 20 kilograms and sometimes also carried a suit bag weighing 10 kg. The Tribunal found (at paragraph 14) that 'the duffle bag with its contents was not of a size or weight to impede facile transportation’. The Tribunal concluded that the taxpayer's travel expenses should be attributed to his travel to and from work rather than the carriage of various items constituting his work equipment. In arriving at this conclusion, the Tribunal stated (paragraph 19 of the decision):

...the mode of transporting the duffel bag, the navigational bag, and occasionally the suit bag, was simply a consequence of the means adopted by the taxpayer in conveying himself to and from his place of employment. Merely putting those items in the boot of his car did not alter either the nature of the trip or the character of the expenditure.

In Case Z22, the Tribunal held that the taxpayer was not entitled to a deduction for the cost of using his car to transport various work related tools to and from work. The taxpayer carried the tools in a canvas bag about 25 to 30 centimetres long, 15 centimetres wide and 30 centimetres deep which weighed approximately 15 kilograms. In the course of his decision, Mr Barbour observed that:

The applicant acknowledged that he carries the bag over his shoulder and although it gets heavy after carrying it for an extended period, no other valid reason for not using public transport was presented. The applicant would not have to carry or hold the bag once on public transport and it is difficult to see why it should be regarded as being especially awkward; for example, in comparison to a heavy attaché or briefcase.

Scott’s case dealt with the deductibility of motor vehicle expenses incurred by a dental practitioner for travel between his home and a second surgery operated by the practice, which was about 70 kilometres from the main surgery. The distance from the taxpayer’s home to the second surgery is not stated in the decision, but presumably it is comparable. On each trip he carried a box that typically contained, amongst other things, patient files, a cash float and wax denture moulds. The box was about the size of an archive box and weighed up to about 10 kilograms. The box was open at the top and could not always be sealed because of the shape of the items it held.

The Administrative Appeals Tribunal (AAT) held that if the exception to the rule in Lunney and Hayley only extended to the carriage of bulky equipment to and from work, the taxpayer's claim for his travel expenses would fail. However, in the AAT’s view, the exception extended to cover the cost of transporting items that have other attributes (other than weight or bulkiness) for example items that are valuable, have a noxious smell, which are offensive, or may scandalise or embarrass other people. The AAT found that the taxpayer carried items which were sufficiently sensitive and valuable to justify special arrangements for their transport. The AAT, in finding that the taxpayer was entitled to a deduction for the cost of using his motor vehicle to transport the box to and from work, stated (at paragraph 17 of the decision):

He (and his fellow travellers were he to use public transport, and his patients) might feel distinctly uncomfortable were the contents of the box to spill or be observed by others. Since the evidence suggests the contents of the box might be visible to others because it often could not be sealed, special arrangements for its transport were justified.

Application to the provider’s employees’ circumstances

The employees carry equipment between home and the regular worksite, call out work locations and other worksites. The items transported have a dimension of approximately one cubic meter, weigh about 60-70 kg in total and occupy about half the boot of the vehicle. Additionally some of the individual items are specialised. Collectively the equipment is cumbersome. The equipment transported is therefore of a size and weight which is considered bulky.

The equipment carried is bulky and the duties of the employees require it to be readily available for use. Further, it is accepted that the carrying of the equipment in the boot of the vehicle arises out of the nature of the employee’s duties and not as a matter of convenience or personal choice. Thus there is a work related need to transport the equipment in the vehicle when travelling between home and the regular worksite or other worksites.

Therefore, the journeys in the vehicles between home and work are not considered to be private in nature and the costs would be deductible under section 8-1 of the ITAA 1997.

As the journeys are not private in nature, the journeys are business journeys as defined in subsection 136(1). Hence they are business journeys for the purpose of calculating the taxable value of car fringe benefits under section 10.

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