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Ruling

Subject: Fringe Benefits Tax

Question 1

Does the transfer of an employee from one employer entity to another employer entity within the income tax consolidated group require the new employer to use the single statutory rate of 20% (or transitional rate), for the purpose of calculating the taxable value of car fringe benefits under subsection 9(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?

Advice/Answers

Yes

Question 2

If the answer to question 1 is yes, when do the new rates for calculating the taxable car fringe benefits under subsection 9(1) of the FBTAA apply from?

Advice/Answers

The new rates will apply immediately the new commitment is entered into.

This ruling applies for the following period

1 April 2011 to 31 March 2012

The scheme commenced on

The date the relevant employee transfers to the new entity.

Relevant facts

The entity is a member of an income tax consolidated group. This income tax consolidated group is made up of several entities which employ staff and offer car fringe benefits to those staff.

All employer entities within the consolidated group use the statutory formula contained in subsection 9(1) of the FBTAA 1986 for calculating the taxable car fringe benefit.

An employee of one of the entities of the consolidated group may move from one employer entity in the consolidated group of entities to another employer entity within the consolidated group of entities.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 - Section 9

Reasons for decision

Issue 1

Question 1

Changes to the statutory formula method of calculating car fringe benefits were announced in the 2011 Budget. These changes are now law. The new rules apply to all car fringe benefits provided after 7.30pm AEST on 10 May 2011, except where there is a 'pre-existing commitment' in place to provide the car. The term 'pre-existing commitment' means a commitment to the application or availability of the car that was made prior to 7.30pm AEST on 10 May 2011.

Under the changes made, the progressive statutory rates (where the statutory formula method is used for valuing car fringe benefits) has been replaced with a single statutory rate of 20% regardless of the kilometres travelled.

For the FBT years ended 31 March 2012 to 2015 there will be transitional rates that apply for any new commitments.

All pre existing commitments will remain under the old statutory rates unless there is a change made to that commitment, e.g. refinancing the car.

Section 8 of the Tax Laws Amendment (2011 Measures No.5) Act 2011 sets out the application of the changes made to subsection 9(1) of the FBTAA. Under paragraph 8(2)(b) the change to the statutory formula does not apply where the commitment to the application or availability of the car is made by the employer before 7.30pm AEST on 10 May 2011.

Any change of the employer, even within the same group of companies, will constitute a new commitment to the application or availability of the car by the new employer. As this new commitment was made after 7.30pm AEST on 10 May 2011 the statutory rate of 20% (or applicable transitional rate) will be used by the new employer immediately. You can choose to skip the transitional arrangements and apply the 20% statutory rate. However, you cannot skip the transitional arrangements where an employee would be worse off as a result of this choice. That is, the employee cannot be placed at a direct financial disadvantage as a result of this choice, unless you have obtained the consent of the employee. For example, you cannot require an employee to bear the financial impact of skipping the transitional arrangements by charging the employee a higher salary packaging amount as a result of an increase in FBT payable, merely to save on compliance costs unless you have obtained the consent of the employee to do so.

The choice to skip the transitional arrangements is on a car by car basis. You do not need to notify the ATO of your choice, as your business records are sufficient evidence of this.

Application of the law to your individual circumstances

You as one of the employer entities within the income tax consolidated group are a separate employer for the purposes of the FBTAA 1986, and a move by an employee from one employer entity in the consolidated group to another employer entity in the consolidated group, is a change of the current employer.

Any changes of the current employer made after 7.30pm, AEST on 10 May 2011 is a new commitment and the employee will be required to apply the new 20% statutory rate (or transitional rate) immediately.

Question 2

If an employee of one of the employer entities within the consolidated group moves to another employer entity within the consolidated group, the employee would fall under the new arrangements for valuing car fringe benefits.

Under the above circumstances, any car fringe benefits provided by the new employer will come under the new statutory rates immediately.