Edited version of private ruling

Authorisation Number: 1011615581446

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Car Fringe Benefit

Question 1

When an employer provided car is garaged at an employee's home and a prohibition policy on private use on weekends and public holidays is in force can the days available for private use be reduced for the FBT year?

Answer: No.

Question 2

What constitutes a prohibition against private use of a car and what is required for it to be consistently enforced?

Answer: see explanation below.

Relevant facts

You are a Government organisation that partners with employers to design training that meets their standards, enabling students to acquire the necessary skills to assist them to succeed in the outside world.

You provide a number of cars to assist certain employees in the performance of their day to day work activities. As you do not have access to secure car parking facilities the cars are garaged at employees' homes outside of office hours and on weekends and public holidays. This situation necessitates that the employees drive the cars from work to home and home to work. Under your vehicle management policy the cars are not available for private use. The prohibition on additional private use is enforced via a written agreement which all employees who use a vehicle must agree to and sign. Vehicle management policy excludes use on weekends and public holidays. To ensure the employees are adhering to the agreement the organisation carries out random checks of motor vehicle odometer readings.

You are seeking clarification as to whether your enforcement of the prohibition policy in relation to the private use of the cars by your employees would enable you, for the FBT year, to reduce the number of days that cars are available for private use by employees.

Reasons for decision

Question 1

Sub section 136(1) of the Fringe benefits Tax Assessment Act 1986 (FBTAA) provides the following definition of a car:

car means a ^*motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

Subsection 7(1) of the FBTAA describes what constitutes a car fringe benefit.

7(1) [Car applied to, available for employee's private use] 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.

Subsection 7(2) of the FBTAA deals with the availability of a car for an employee's private use when the car is garaged at or near an employee's residence.

7(2) [Car garaged at employee's residence] Where, at a particular time, the following conditions are satisfied in relation to an employee of an employer:

(a) a car is held by a person, being:

(i) the employer;

(ii) an associate of the employer; or

(iii) a person (other than the employer or an associate of the employer) with whom, or in respect of whom, the employer or an associate of the employer has an arrangement relating to the use or availability of the car;

(b) the car is garaged or kept at or near a place of residence of the employee or of an associate of the employee;

the car shall be taken, for the purposes of this Act, to be available at that time for the private use of the employee or associate, as the case may be.

Chapter 7 of the ATO publication Fringe Benefits Tax-A Guide for Employers outlines the following in relation to car fringe benefits.

7.1 What is a car fringe benefit?

A car fringe benefit most commonly arises where you (the employer) make a car you 'hold' available for the private use of an employee (or the car is treated as being available). A car you hold generally means a car you own or lease.

The following types of vehicles (including four-wheel drive vehicles) are cars:

· motor cars, station wagons, panel vans and utilities (excluding panel vans and utilities designed to carry a load of one tonne or more)

· all other goods-carrying vehicles designed to carry less than one tonne, and

· all other passenger-carrying vehicles designed to carry fewer than nine occupants.

You make a car available for private use by an employee on any day that:

· it is actually used for private purposes by the employee, or

· the car is available for the private use of the employee.

A car is treated as being available for private use by an employee on any day that:

· the car is not at your premises, and the employee is allowed to use it for private purposes, or

· the car is garaged at the employee's home.

A car that is garaged at an employee's home is treated as being available for the private use of the employee regardless of whether they have permission to use it for private purposes. Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee.

As a general rule, travel to and from work is private use of a vehicle.

Section 3 Question 20 of Taxation Ruling MT 2021 deals with the constitution of a prohibition against private use of a car and what is required for it to be consistently enforced.

Question 2

There would need to be a situation where an express prohibition had been made by the employer in clear and unequivocal terms. Employees would also need to be made aware that the prohibition was genuine and would be reinforced, if necessary, by disciplinary measures for its breach. Consistent enforcement could comprise regular checks of odometer readings against business kilometres claimed to have been travelled by employees. In short, it would not be sufficient for an employer to issue the instruction either on the general understanding that it would be honoured in the breach, or without establishing a system of review to detect and deter breaches

TD 94/16 expands further on the question of private usage of a car by an employee and the issue of the prohibition of such usage.

1. Where an employer's car is kept in safe storage at or near the employee's place of residence it will be taken to be available for the employee's private use regardless of any prohibition on the use of the car (subsection 7(2)). Further, the employer's car will also be taken to be available for the employee's private use where it is kept in safe storage away from the employee's place of residence but not at the employer's business premises, and the employee or an associate of the employee remains entitled to apply the car to a private use.

2. Where, however:

(a) the employer's car is kept in safe storage away from the employee's place of residence; and

(b) the employer's car is not at the employer's business premises; and

(c) the custody and control of the car has been removed from the employee and from the associates of the employee; and

(d) the employee is not entitled to use the car for private purposes and an associate of the employee is not entitled to use the car,

the car will not be taken to be available for the employee's private use, unless the condition in paragraph 2d. is not consistently enforced (subsections 7(3) & (4)).

Examples

1. An employee who is provided with a car by her employer leaves the car in a commercial storage facility (e.g. an airport parking station) while on an interstate business trip. The employee cannot leave the car on the employer's premises because no car parking facilities are available. The commercial storage facility is not in the vicinity of the employee's residence. The car will not be taken as being available for the employee's private use if the employer removes the control and custody of the car from the employee (e.g. takes the car keys) and enforces a prohibition on the private use of the car by the employee or any associate of the employee.

2. An employee who is provided with a car by his employer leaves the car in safe storage at or near his residence while on an overseas business trip. Regardless of the conditions set out in paragraph 2d, the car is considered to be available for private use.

Even where a prohibition on private usage is in place and strictly enforced this is overridden if the car is garaged at the employee's residence. From the information supplied by the taxpayer whilst a prohibition on private usage on weekends and public holidays is strictly enforced the cars are at all times garaged at employees' residences. Therefore whilst the current garaging arrangements exist the number of days for which cars are available for private use during the FBT year cannot be reduced.