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Ruling

Subject: Car fringe benefits

Question 1

Where there has been no change to an employee's employment contract and the employee is provided with car fringe benefits from the use of a car purchased prior to 10 May 2011 but then, post 10 May 2011 changes to a different assigned vehicle, with this new vehicle having been owned by you prior to 10 May 2011, will the Commissioner apply the existing statutory rates to calculate the taxable value of the car fringe benefits pursuant to section 9 of the Fringe Benefits Tax Assessment Act 1986?

Answer: Yes

Question 2

If the answer to Question 1 is no, will the statutory rates under the transitional arrangement be applied from the date the employee assigned to a different vehicle which was owned by you prior to 10 May 2011 pursuant to section 9 of the Fringe Benefits Tax Assessment Act 1986?

Answer: Not applicable

This ruling applies for the following periods:

1 April 2011 to 31 March 2012

The scheme commences on:

During 2011

Relevant facts and circumstances

The employer provided an employee with the use of a vehicle for both business and private as part of their contract of employment.

The employee has entered into their contract of employment before 7:30pm AEST 10 May 2011.

The employee will change the vehicle that they have been assigned at least once during an FBT year.

The vehicle will typically already be a part of the employer's fleet when it is assigned to the employee. That is, a vehicle will not be purchased for the purpose of providing it to a specific employee.

The vehicles in your fleet consists of vehicles purchased pre and post 11 May 2011.

The employee provided with the car fringe benefits will use a car purchased prior to 10 May 2011 but then, post 10 May 2011 changes to a different assigned vehicle.

This new assigned vehicle was acquired by the employer prior to 10 May 2011

There has been no change to an employee's employment contract.

The employee provided with car fringe benefits has no salary sacrifice arrangement in place pre or post 10 May 2011.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 9

Reasons for decision

Section 9 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides the formula for calculating the taxable value of a car fringe benefit using the Statutory Formula Method. Subsection 9(1) of the FBTAA states:

Subject to this Part, where one or more car fringe benefits in relation to an employer in relation to a year of tax relate to a particular car held by a particular person (in this section referred to as the 'provider'), the taxable value of that fringe benefit, or the aggregate of the taxable values of those fringe benefits, as the case may be, in relation to that year of tax, is the amount calculated in accordance with the formula

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 on 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.

Determining the statutory percentage

A flat statutory rate of 20% applies (subject to transitional rules), regardless of the distance travelled, to all car fringe benefits you provide after 7.30pm AEST on 10 May 2011 (except where there is a pre-existing commitment in place to provide a car).

Meaning of the term commitment:

A 'commitment' is entered into at the point there is a financially binding commitment to a transaction on one or more of the parties and it cannot be backed out of. The commitment needs to be one that relates to the application or availability of the car to an employee or associate.

For example, there are a number of steps involved where you negotiate with an employee and a salary packaging provider to put in place a novated lease arrangement in relation to a car. A commitment would generally be entered into, and would be financially binding, when you or the employee orders the car that is to be provided by way of a novated lease arrangement and there is a financial penalty if the order is cancelled.

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. Where you, or an employee or their associate, has committed to the car before 7.30pm AEST on 10 May 2011, but provision of the car fringe benefit does not take place until after 7.30pm AEST on 10 May 2011, the old statutory rules will apply.

Alterations that would not be considered to be changes to a pre-existing commitment

Any alterations that do not result in a change to the financially binding commitment to the application or availability of the car will not be considered to be changes to a pre-existing commitment and the existing statutory rates can continue to be applied.

Examples of alterations that would not be considered to be changes to a pre-existing commitment include:

§ more or fewer kilometres travelled resulting in a change to the amount of FBT payable and subsequent payments by the employee to you under a salary packaging arrangement, but does not involve an amendment or change to the lease contract

§ adjustments to salary packaging arrangements which alter post-tax employee contributions

§ use of an employer's 'fleet car' by different employees (not involving any salary sacrifice arrangements).

The employee has entered into the contract of employment before 7:30pm AEST 10 May 2011. The employee provided with car fringe has no involvement with salary sacrifice arrangements. The employee will change the vehicle that they have been assigned at least once during an FBT year, however, these vehicles were a part of the employer's fleet and were purchased by the employer before 7:30pm AEST 10 May 2011.

There will be no alterations to the pre-existing commitment that result in a new commitment. The employer can continue to use the existing statutory rates for all pre-existing commitments unless there is a change to that commitment.