Edited version of private ruling

Authorisation Number: 1011693400057

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Ruling

Subject: Base value of a car for fringe benefits tax valuation

Question

Can the value of a trade in vehicle that is owned by an employer, reduce the base value of a replacement car purchased by the employer?

Answer: No.

This ruling applies for the following periods:

Year ending 31 March 2011

Year ending 31 March 2012

Year ending 31 March 2013

The scheme commences on:

1 April 2010

Relevant facts and circumstances

You provide vehicles to employees under a lease back arrangement. The vehicles are available for business usage during the day but employees have full private usage of these vehicles outside of working hours.

You use the statutory formula method to calculate the taxable value of fringe benefits that arises from the provision of these motor vehicles to employees.

When you acquire a new car to provide to an employee you will often trade in the previous car that was provided to that same employee.

You have provided an invoice from the motor vehicle dealer showing that the price of the new vehicle is offset by the trade in value of the previous vehicle that you owned.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 9(1) and

Fringe Benefits Tax Assessment Act 1986 subsection 136(1).

Your ruling application states that you use the statutory method to calculate the taxable fringe benefit that arises from the provision of motor vehicles to your employees. When considering whether or not the base value of a motor vehicle can be reduced it is necessary to consider how the taxable value of a car is calculated under the statutory formula method.

Section 9 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides the formula for calculating the taxable value of a car fringe benefit when using the statutory method.

Subsection 9(1) of the FBTAA states that the taxable value of the car fringe benefit using the statutory method is as follows:

ABC - E

D

Where

A is the base value of the car

B is the statutory fraction

C is the number of days during that year of tax in which the car fringe benefits were provided by the provider;

D is the number of days in that year of tax; and

E is the amount (if any) of the recipient's payment

The base value of a car is defined under paragraph 9(2)(a) of the FBTAA as:

(b) the base value of the car is the sum of:

i. where, at the earliest holding time, the car was owned by the provider or an associate of the provider, the amount calculated in accordance with the formula:

AB

where:

A is the cost price of the car to the provider or associate, as the case may be; and

Cost price is defined under subparagraph 136(1)(a)(ii) of the FBTAA where the car was not manufactured by the person as:

ii) where neither subparagraph 9i) nor 9ii) applies, an amount equal to the sum of:

(A) the expenditure incurred by the person (other than the expenditure in respect of a tax on, or on a transfer of, registration) that is directly attributable to the acquisition or delivery of the car or, if subsection 7(6) applies in relation to the car, the leased value of the car when the person first took the car on hire; and

(B) the amount of any additional expenditure incurred by the person for or in relation to the fitting of non business accessories to the car at or about the time when the car was acquired by the person, reduced by the amount of any reimbursement of the whole or part of that expenditure paid, at or about the time when the expenditure was incurred by a recipient of a car benefit in relation to the car; or

Miscellaneous Tax Ruling MT 2021, Fringe Benefits Tax: Response to Questions by Major Rural Organisation considers the cost price of a car.

Question 22 of part 3 of MT 2021 states:

What is the cost price of a car where the employer acquires the car at a price which reflects a trade in by some other person?

Answer

The cost price is the amount of expenditure incurred by the employer in acquiring the car. If another person (e.g., the employee who is to have the private use of the car) supplies a trade in vehicle, the cost price to the employer would be the purchase price minus the trade-in allowed.

In applying MT 2021 to your situation you are the owner of the trade in vehicle and you are providing the car as a trade in to reduce the price of the replacement car. Your circumstances are different to those contemplated in MT 2021 as the trade in is not being provided by another person, the value of the trade in car owned by you will not reduce the cost price of the replacement car purchased by you because the vehicle you are trading in is your asset.

The value of the trade in and the cash paid for the new vehicle make up the total expenditure you incur in purchasing the new vehicle.

You are unable to reduce the cost price of the replacement car by the value of the trade in.