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Ruling

Subject: Car fringe benefits

Question 1

For the purposes of calculating the taxable value of a car fringe benefit in accordance with section 10 of the Fringe Benefits Tax Assessment Act 1986, can the travel from the employee's home to several client's homes, be counted as business kilometres, if the duties of these employees are classified as itinerant work?

Answer

Yes

This ruling applies for the following period:

1 April 2011 to 31 March 2015

The scheme commenced on;

1 April 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The employer employs staff who regularly visit clients in remote areas. The clients are residing in their own homes. These clients reside in remote or regional areas.

The employer owns a fleet of cars that is made available to employees who garage the car at their home.

These employees travel extensively within the rural and regional areas.

The management have told employees that the car is not to be used for private usage, except for minor on route private usage.

Employees in rural or regional areas, visit the respective head quarters every second to third day, and weekly or fortnightly team meetings. Employees spend time preparing case notes on clients and/or pick up items. These employees spent a short time at the office.

Employees leave home by car to visit their clients. Depending on how much time is spent with one client, the employee may visit up to 6 clients per day.

Employer's motor vehicle policy statement states:

Vehicles are not to be used for the private purposes and

Some workers may be authorised to garage vehicles due to the itinerant nature of their work. An agreement covering conditions of use must be signed by staff member.

The employer requires each employee to sign an 'Agreement for garaging of a motor vehicle at home" which includes:

The vehicle cannot be used for any private travel or use.

Logbook records are kept in the 2011-2012 fringe benefit year. These records form the employers' recording keeping requirements.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 5B(1E)

Fringe Benefits Tax Assessment Act 1986 Section 7

Fringe benefits Tax Assessment Act 1986 Section 10

Fringe benefits Tax Assessment Act 1986 Section 10A

Fringe benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1997 Subsection 995-1 and

Income Tax Assessment Act 1997 Section 318.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

A car garaged at an employee's home, which is used to travel to client's homes, will result in a car fringe benefit. The itinerant nature of the employee's duties will make the home to work travel business kilometres resulting in nil taxable value of a car fringe benefit calculated in accordance with section 10 of the FBTAA. These employees have signed an agreement not to use the car for private travel. This helps to establish the 100% business kilometres use of the car.

Detailed reasoning

Section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides that where a car is provided to an employee (or associate) in respect of their employment and is applied to a private use or is available for private use by the employee (or associate) the private use or availability is a benefit provided by the employer.

Where a car is garaged at, or near, an employee's (or associates) residence, the car is taken to be "available" for the private use of the employee (or associate).

Additionally, where the car is not garaged at business premises of the employer (or an associate of the employer, or with whom the employer has an arrangement), and any of the following conditions is satisfied:

(a) the employee is entitled to apply the car to a private use;

(b) the employee is not performing the duties of his or her employment and has custody or control of the car;

(c) an associate of the employee is entitled to use, or has custody or control of, the car;

the car is taken to be "available" for private use of the employee (or associate).

Where a contract or agreement between the employee and employer prohibits the application of the car to private use, subsection 7(4) of the FBTAA provides that unless the prohibition is 'consistently enforced', the employee shall be deemed to be entitled to use the car for private use notwithstanding the prohibition.

Miscellaneous Tax Ruling MT 2021 provides that "consistent enforcement" could comprise of regular checks of odometer readings against business kilometres claimed to have been travelled by employees. It would not be sufficient for an employer to issue the instruction, without establishing a system of review to detect and deter breaches.

Application of the law and prohibition of private use.

A car garaged at the employee's residence is deemed available for private use even if it not used for private purposes. It is a car benefit as outlined in section 7 of the FBTAA and determined on a daily basis. This can also occur if the car is not permitted for private use, because the employee does not obey this requirement.

The car that is available for private use is a fringe benefit (as defined in subsection 136(1) of the FBTAA) because during the FBT year, the employer provided a car to an employee, in respect of their employment.

In calculating the taxable value of the car fringe benefit, an employer can choose between the operating cost method (section 10 of the FBTAA) and the statutory formula method (section 9 of the FBTAA).

The operating cost method of valuing a car fringe benefit requires (amongst other things) the recording of all kilometres travelled in a logbook with odometer records.

A logbook is required for the purposes of working out private use kilometres in the formula in subsection 10(2) of the FBTAA. A representative sample of 12 weeks has to be kept in the logbook year (the first year the operating cost method is used).

The employer cannot use the operating cost method unless the requirements for keeping a logbook in the 'logbook year' are met.

The first year of using the operating cost method is the 2012 FBT year. Furthermore, the employer has to elect to use the operating cost method. The employer makes the election when they lodge their 2012 FBT return.

Once the business/private use kilometres are recorded in the 2012 FBT year, these percentages can be used for a further 4 years.

Generally, travel to and from home is private use of a car.

However, under limited circumstances travel between home and work and the return journey home where the car is garaged overnight, may count as work travel. If the car usage is for business purposes only, for the operating cost method, the percentage of private use is nil as there are no private kilometres travelled in the employer's car and therefore the taxable value of the car fringe benefit will be nil.

Are the duties of the employees' itinerant in nature?

The tax office view regarding home to work travel is stated in MT 2027 Fringe Benefits Tax: private use of cars: home to work travel.

A business journey is defined in subsection 136(1) of the FBTAA to mean any use of the car other than private use.

Therefore, the difference between private and business use is critical for the purposes of working out the private use percentage used in the formula in subsection 10(2) of the FBTAA.

Whether the employee is an itinerant worker depends on the facts of each case.

If the employee's duties are itinerant in nature, the kilometres travelled between the employees home to a web of workplaces, will be business kilometres travelled.

Whether an employee's work is of an itinerant nature is determined for FBT purposes in the same way it is determined for income tax purposes.

The Tax Office position is stated in Taxation Ruling TR 95/34 income tax: employees carrying out itinerant work.

The following characteristics are indicators of itinerant duties:

§ the work is inherently itinerant

§ travel is a fundamental part of the employee's duties

§ it is impractical or the employee to perform the duties without using a car

§ the terms of employment require the employee to perform duties at more than one place of employment

§ the nature of the job itself makes travel essential for performing employment-related duties, and

§ the employee can be said to be travelling in the performance of their employment-related duties from the time they leave home.

Applying these indicators to employee's employment duties:

§ Employees are required to visit the client's home on a daily basis. They assist clients with daily chores, which include taking clients to attend appointments, amongst other things, in the car provided by the employer. The employee takes the client back to their home. The employee may visit other clients and then return home where the car is garaged overnight. Employees are required to be flexible, so may end up changing their itinerary at short notice.

§ Travel is fundamental part of the employee's duties, as the clients reside in remote or regional areas.

§ Use of public transport would be impractical and time consuming because the clients and employees live far apart. Clients reside in remote or regional areas. Travel from point a to point b can be over 100 kilometres per day.

§ The employer requires the employee to visit a number of clients during the day and therefore each employee has to visit several clients on any working day. They do not have a desk at the headquarters but visit the office once a week to file reports, make notes, check new client profiles, complete paper work, etc, therefore the employees work sites shifts daily and within each day.

§ In practical terms, the employee has to continually travel between one client and another client, on a daily basis. The employee visits several clients and each client's home is considered a different work site. The employee is at times uncertain whether he can visit another client on the same day.

§ The employee is required to travel to different work sites each day. The travel from home to a web of work sites is travelling on work and hence income tax deductible if the employee used his own car and kept proper records.

In conclusion, the employee's duties are itinerant in nature because:

§ Travel is a fundamental part of the employee's duties

§ The work structure displays a 'web' of workplaces

§ The employee continually moves from one client's home to another client's home, and

§ The employee commences travel from home. The home is their base of operations, therefore travelling on business and not a private journey.

Logbook records in the first year.

All travel from and return to the employee's home is 100% business use and supports the view that the employees duties are itinerant in nature. Therefore, all travel from home to a web of client's residences and subsequent return home, where the car is garaged, is all work related travel.

Correctly, recording all details in a logbook is therefore critical.

Further information for your consideration.

The employer has advised all employees that no private use of the car is allowed. Each employee has signed agreements to that effect.

The private use prohibition is in addition to itinerant duties of the employee.

However, the employer must carry out regular checks (audits) to ensure that employees are not using the car for private purposes. The need to check records are important because even though there is a prohibition against private use, the employer may end up paying FBT if private use is not detected, until the end of the FBT year. A car that has zero private use kilometres, can still result in car fringe benefit with a taxable value greater than nil.

In certain instances the private use of the car on route to or from the client's premises, is permissible.

If the employees travel off the normal route to or from the client's residence, that journey would be regarded as private travel and if this deviated pattern use is regular and frequent, these trips will be private travel. This deviation from the normal route, even though it is recorded as business travel, will be private use.

Therefore, it is imperative for the employer to check the logbooks, odometer records, client visitation records and question the employee if any anomalies occur, on a regular basis.

The car fringe benefit has no private use kilometres, hence the taxable value of the car fringe benefit is nil.

Conclusion

The employee's duties are itinerant in nature, as they have a web of work places they visit on a daily basis. Therefore, the travel from home to work and subsequent return trips home in a car provided by the employer are work related travel.

The logbook and record keeping requirements are important in capturing the actual kilometres travelled on business and/or private purposes. These records have to be kept to show that these car fringe benefits have 100% business travel.

Therefore, the taxable value, under the operating cost method, of the car fringe benefit is nil.