Edited version of private ruling

Authorisation Number: 1011694492133

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: Proposed merger of two employers

Question 1

Will Employer A be required to lodge a fringe benefits return from the relevant period?

Answer

Yes

Question 2

If the answer to question one is yes, would Employer A need to annualise the kilometre travelled from the relevant date to the date of merger, in accordance with paragraph 9(2)(c) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following period

1 April 2010 to 31 March 2012.

The proposed scheme will commence on

1 July 2011.

Relevant facts

Employer A lodges a separate fringe benefits tax return for all fringe benefits provided to employees under their employment.

If the merger goes through, employer A will not exist from the relevant date.

From the relevant date, employer A may cease to provide services in its own right and commence providing services as part of employer B.

Employer A believes all companies within the group are 'associated' to each other. Therefore, moving to another employer means the new employer takes responsibility for the fringe benefits provided by the previous employer. Employer B will remit the fringe benefits tax and lodge a FBT return for the previous employer's employees who received fringe benefits before and after the merger.

Currently, Employer A's employees use the statutory formula method to calculate car fringe benefits. This applies to the majority of the employees.

Employer A believes that employees who have salary sacrificed part of their cash salary for non-cash benefits and are receiving a car fringe benefit because of the novated lease agreement between the lessor, lessee and employee, will be either advantage or disadvantage some employees, if the kilometres travelled are annualised, up to the relevant date.

Assumption

No agreement or arrangement is made between Employer B and Employer A.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 135(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 159(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 160(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 66

Fringe Benefits Tax Assessment Act 1986 Subsection 162(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 9(1)

Income Tax Assessment Act 1936 Section 318

Reasons for decision

Question 1

Detailed reasoning

Section 66 of the FBTAA requires each employer to lodge a single return for the fringe benefits provided to its employees, as there is no provision for consolidation of returns amongst 'associated' companies.

Assuming there is no arrangement or agreement between Employer B and Employer A, Employer A will be required to lodge a part-year FBT return for the relevant period.

Where an employee who performs duties for and on behalf of Employer A and receives fringe benefits, Employer A has to account for these fringe benefits provided, for the relevant period.

If the assumption is incorrect and an arrangement is made between Employer A and Employer B stating that Employer B will take over and continue to provide fringe benefits to employees from Employer A, then Employer B becomes the employer, for the full year.

Employer B would have to remit the tax and lodge a FBT return including all fringe benefits provided for the whole year for all Employer A's employees, who are employed by Employer B, from 1 July 2011, hence Employer A will not be required to lodge a FBT return.

Note also that novated lease agreements must be resigned if they relate to Employer A. Employer A is currently the 'holder' (defined in subsection 162(1) of the FBTAA) of the leased car and Employer A is providing the car to an employee for private use. This is further clarified in subsections 162C(a) and (b) of the FBTAA, which outlines the holding period of car during the year of tax. These sections outline when a car commences to be held and when the car ceases to be held by the employer.

If the novated leases are re-entered into, then after the 'takeover' (merger), all the fringe benefits tax for the full FBT year will be accounted for and paid by Employer B. Employer B will become the 'holder' of the car.

If the novated leases are not re-entered into, Employer A remains the employer who is providing the car fringe benefits up to the date of the merger, and will be required to annualise the kilometres travelled up to and including the relevant date. Employer A will apply the statutory percentage into the statutory formula to work out the employees individual amount, calculate and remit the fringe benefits tax and lodge a final FBT return.

If no arrangement or agreement is made between Employer A and Employer B. Employer A will have to annualise the kilometres travelled up to the date prior to the merger, lodge their final FBT return and pay any tax outstanding.

Following on, Employer B takes over from teh relevant date. Employer B would account for all fringe benefits provided to their employees, and lodge a FBT return, by 21 May of the year following the year in which the fringe benefits are provided.

Moreover, if the notional value of the car fringe benefit provided to an employee, is more then $2000, then the grossed-up amount (type 2 gross up rate), has to be include in the employee's payment summary.

The changeover can cause some anomalies that can disadvantage or provide an advantage to an employee, if kilometres have to be annualised, under the statutory formula. The tax office cannot re-assess the consequences of low or high kilometres travelled prior to or after the merger.

Question 2

Detailed reasoning

As stated in the detailed reasoning for question 1, where there is no arrangement or agreement between Employer A and Employer B, resulting in Employer A being required to lodge a FBT return for the relevant period, it follows as this is a part year return, the taxable value for the car fringe benefits is calculated using the annualised kilometres.

Note it also follows that if there is an agreement or arrangement and Employer A is not required to lodge a part year FBT return and Employer B lodges a full year FBT return, no annualisation of kilometres travelled is required.

After the merger, Employer B will annualise the kilometres travelled from the relevant period, for employees from Employer A who have continued to receive the car fringe benefits provided in respect of their employment with Employer B, under the statutory formula method.

Employer B will prepare a FBT return for all employees who have merged from Employer A from the relevant date and their own employees (for the full FBT year). Employer B is required to lodge the relevant FBT return by 21 May of the relevant year or a later date as required by the Commissioner.