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Ruling

Subject: Car fringe benefits - non-business accessories

Question

Will the paint protection, fabric protection, rust protection and window tinting installed on a car be a 'non-business accessory' that is part of the 'cost price' of the car?

Answer

Yes.

This ruling applies for the following periods:

1 April 2010 - 31 March 2011

1 April 2011 - 31 March 2012

The scheme commenced on

1 April 2010

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 9(2)

Fringe Benefits Tax Assessment Act 1986 subsection 10(3)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Relevant facts and circumstances

You have purchased two cars.

Both cars have had paint protection, fabric protection, rust protection and window tinting installed.

The paint protection, fabric protection, rust protection and window tinting was installed on one of the cars at the time of delivery.

The other car had the paint protection, fabric protection, rust protection and window tinting installed sometime after purchase.

The paint protection is a clear layer of special wax or clear plastic film which is applied on top of the existing paint of the car. This protection cannot be removed.

Fabric protection is a protective coating which is sprayed onto the car, and forms a protective layer designed to alleviate oil and water based spills.

Rust protection is applied two ways:

(a) a protective product is sprayed on the underside of the car, and

(b) an electronic device is attached to the car that provides an electric current which prevents rust from forming.

Window tinting involves a sun resistant membrane being applied to the car windows.

Reasons for decision

Will the paint protection, fabric protection, rust protection and window tinting installed on a car be a 'non-business accessory' that is part of the 'cost price' of the car?

The Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides two alternative methods for calculating the taxable value of a car fringe benefit. The two methods are:

· the statutory formula method in section 9. The taxable value when using this method is a percentage of the car's 'base value'; and

· the operating cost method in section 10. The taxable value when using this method is a percentage of the total costs of operating the car during the FBT year.

Both methods can require the 'cost price' of the car to be calculated.

The definition of 'base value' in subsection 9(2) provides that the 'base value' of a car that is owned by the provider will be determined by the 'cost price' of the car and the 'cost price' of each 'non-business accessory' added to the car after it was purchased.

If the car is leased, the 'base value' will be determined by the 'leased car value' of the car and the 'cost price' of each 'non-business accessory' added to the car after it was purchased. The 'leased car value' is the 'cost price' of the car to the lessor.

The 'operating cost of the car' is defined in subsection 10(3) of the FBTAA to include:

· any car expenses (other than crash repair expenses);

· registration;

· insurance; and

· the depreciation and interest that is deemed to arise on each 'non-business accessory' fitted to the car after its purchase.

Where the car is owned the 'operating cost of the car' will also include a deemed depreciation and deemed interest. Both of these are determined by the 'cost price' of the car.

'Cost price' is defined in subsection 136(1) to mean:

· the expenditure incurred (other than registration and stamp duty) that is directly attributable to the acquisition or delivery of the car; and

· the amount of any additional expenditure incurred for or in relation to the fitting of a 'non-business accessory' to the car at or about the time when the car was acquired.

Therefore, the paint protection, fabric protection, rust protection and window tinting will form part of the 'cost price' if they are a 'non-business accessory'.

'Non-business accessory' is defined in subsection 136(1) of the FBTAA to mean:

… an accessory fitted to the car, whether at the factory where the car was assembled or at some other place, other than an accessory required to meet the special needs of any business operations in relation to which the car is used.

Subsection 136(1) of the FBTAA defines the term 'fitting' to include:

in relation to a non-business accessory, includes the acquisition of the accessory.

The FBTAA does not define what are accessories or what are accessories fitted to a car.

The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01, defines the word 'accessory' as:

3. a subordinate part or object; something added or attached for convenience, attractiveness, etc., such as a spotlight, heater, driving mirror, etc., for a vehicle.

4. (plural) the additional parts of an outfit, as shoes, gloves, hat, handbag, etc.

The meaning of the word 'accessory' has been considered in a number of cases relating to sales tax and customs tariff classification.

In FC of T v. Polaroid Australia Pty Ltd 71 ATC 4249; (1971) 2 ATR 653, Gibbs J. stated at ACT 4253; ATR 657:

The ordinary dictionary meaning of accessory is an adjunct, which itself is defined as something joined to another, but subordinate, as auxiliary, or dependent upon it.

In Zendel Australia Ltd & Others v. FC of T 92 ATC 4515; (1992) 24 ATR 101, Hill J. held that an accessory must contribute to the working of some principal item or its general effect and also an accessory must be an adjunct to an item rather than an adjunct to a process. In determining whether aluminium foil was an accessory for an oven, Hill J. at ATC 4520; ATR 107 stated:

… As the dictionary definitions demonstrate for an item to be an 'accessory' in the relevant sense that item must contribute to the working of some principal item or its general effect. Thus both a camera lens and a light meter are, as Gibbs J observed, accessories to a camera; mag wheels may be an accessory to a car, a crisper may be an accessory to a refrigerator, or perhaps a baking dish might be an accessory to a stove, at least if custom made for it. In each of these examples the accessory actually contributes to the functioning of the principle item.

Paint, fabric and rust protection and window tinting involves applying or coating a material or chemical onto a car such as pasting, painting or spraying and may involve other finishing processes. When the process is competed, the material which is applied is united with and covers the car's enamel, fabric, bodywork or windows. When complete, the material takes the same shape as to what it is applied and would be difficult, if not impossible, to remove.

Once the paint protection or the other optional extras are attached to the car, it could be argued that they become a component or part of the car itself.

In Air International Pty Ltd v. Chief Executive Officer of Customs [2001] FCA 1386; (2001) 67 ALD 571; (Air International), Weinberg J. at FCA 51; ALD 51 said:

However, an air conditioning system which is installed in a passenger motor vehicle can, in a meaningful sense, be described as being a part, and an accessory, and a component of that vehicle.

The Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986 (at Clause 136), says:

"non-business accessory" is an item the cost of which will be added to the cost price of a car for the purpose of determining the taxable Value of a car fringe benefit. It is an accessory not required for the particular needs of the business operations served by the car. An example would be an air-conditioner.

Therefore, what may be regarded as a component of a car such as the air-conditioner described in the Explanatory Memorandum and in Air International can also be an accessory.

The definition of non-business accessory in subsection 136(1) of the FBTAA requires that the item be an 'accessory fitted to the car'.

The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01, defines the word 'fitted' as:

1. made so as to conform to the shape of something else.

2. (of carpets) extending from wall to wall.

3. provided or equipped with accessories.

The process of applying paint protection which conforms to the shape of the car etc. is consistent with the definition of 'fitted'.

The paint protection, fabric protection, rust protection and window tinting are accessories fitted to the car.

These accessories are not required to meet the special needs of any business operations in relation to which the car is used.

Therefore, paint protection, fabric protection, rust protection and window tinting are each a 'non-business accessory' as defined in subsection 136(1) of the FBTAA.

As a 'non-business accessory' they will be part of the 'cost price of the car'.