Edited version of your private ruling

Authorisation Number: 1012046865314

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. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Fringe Benefits Tax: Base Value of Car

Question 1

Is the base value of a car for the purposes of section 9 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) the amount actually paid by the company?

Answer

Yes

Question 2

Will the company be able to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the registration costs of the vehicle?

Answer

Yes

Question 3

Will the company be able to claim a deduction under section 8-1 of the ITAA 1997 for the stamp duty on registration of the vehicle?

Answer

No

Question 4

Will the cost for the purposes of the calculation of depreciation under Division 40 of the ITAA 1997 include the amount actually paid by the company?

Answer

Yes

This ruling applies for the following period<s>:

Year ending 31 March 2012

Year ending 31 March 2013

Year ending 31 March 2014

Year ending 31 March 2015

Year ending 31 March 2016

The scheme commences on:

1 October 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 vehicle is to be driven by an employee or associate

The vehicle will be subject to FBT

The vehicle is to be registered in the name of the company

The vehicle will not be purchased for cash, no borrowed funds will be used and the vehicle will not be encumbered

The company intends to treat the purchase of the vehicle as it would any other asset on the books of the company.

The company has a cap or ceiling, currently at $XX for the purchase of the vehicle.

This $XX cap or ceiling includes all stamp duty, registration, on road costs as well as factory or after market options and accessories

The employee wishes to have a more expensive vehicle.

The employee will pay the amount over and above the $XX cap or ceiling, such amount to be paid at the time of delivery directly to the motor dealer (Note that this is paid from the employees after tax income directly to an unrelated third party and not to the company (employer))

If any accessories or options that are after market' are included in the amount paid for by the employee they will be so noted. In the future, upon the either sale of the vehicle or the employee leaving the company (the event(s)), the employee may arrange to have the accessories removed at the employees expense and to bring the vehicle back into a condition as if the accessories were never fitted providing this is done within XX days of the event(s) or notification of the event(s) whichever comes first, and that all work is performed by a person(s) (approved by the company in writing)) in a workmanlike manner so as not to compromise the integrity of the vehicle and to repair any damage caused as a result of the original fitting or subsequent removal of the accessories.

The company will not enter into any sale or lease back, buy back or other option or variation thereof with the employee in relation to the vehicle.

The company will claim all running expenses including but not limited to insurance, registration, servicing and maintenance (the employee may also contribute towards the cost of petrol and maintenance)

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1,

Income Tax Assessment Act 1997 Section 40-185,

Income Tax Assessment Act 1997 Section 40-190,

Fringe Benefits Tax Assessment Act 1986 Section 9 and

Fringe Benefits Tax Assessment Act 1986 Section 136.

Reasons for decision

Question 1

In using the statutory formula method under subsection 9(1) of the FBTAA, an employer needs to determine the base value of the car. The base value of a car is determined under paragraph 9(2)(a) of the FBTAA depending on whether at the earliest holding time the car was owned by the provider or an associate of the provider.

The base value of the car under section 9(2) of the FBTAA is the sum of the cost price of the car and the cost price of each non-business accessory fitted to the car.

Cost price is defined in subsection 136(1) of the FBTAA. The cost price of a car owned by an entity will be the amount of the purchase price which was borne by that entity (inclusive of goods and services tax (GST) and luxury car tax where applicable).

Sub-subparagraph 136(a)(ii)(A) of the FBTAA states:

The expenditure incurred by the person (other than expenditure in respect of registration or in respect of a tax on, or on a transfer of, registration) that is directly attributable to the acquisition or delivery of the car …

Where there has been an up-front cash payment by an employee to a car dealer, with the knowledge of the employer, the expenditure incurred by the employer is reduced by the amount of the employee payment.

Under the contract of sale between the employer and the car dealer, the employer would have a liability to the car dealer for a lesser amount, being the reduced purchase price of the car reflecting the amount that the employee has paid to the car dealer.

In this situation, the employee will be paying an amount directly to the car dealer for the purchase of the vehicle, as such the cost price is reduced to the actual amount incurred by the employer for the purchase of the vehicle.

Question 2

Motor vehicle expenses incurred in the course of carrying on a business are allowable deductions under section 8-1 of the ITAA 1997. These costs include the ongoing costs of running a motor vehicle it does not include those payments for costs which are directly related to the acquisition of the motor vehicle.

With regards to registration costs, although it could be argued that the cost of registration is directly attributable to the acquisition of the car, Sub-subparagraph 136(a)(ii)(A) of the FBTAA specifically excludes it as being a part of the cost price of the vehicle. Registration costs are incurring each year and therefore an ongoing cost of the vehicle and may be deducted under section 8-1 of the ITAA 1997.

Question 3

For the stamp duty to qualify as expenditure under section 8-1 of the ITAA 1997 it must satisfy the positive limbs in subsection 8-1(1) of the ITAA 1997 and not fall under the exclusions set out in the negative limbs of subsection 8-1(2) of the ITAA 1997. The stamp duty in this case is of a capital nature and is therefore not deductible because it falls under the negative limb of paragraph 8-1(2)(a) of the ITAA 1997.

The stamp duty in this particular case relates to the initial registration of a motor vehicle. The initial stamp duty cost is a capital nature expenditure directly related to the depreciable asset that is necessarily incurred to facilitate the delivery of a car that can be driven and used immediately upon delivery to the customer. The stamp duty cost only occurs once at the start of ownership upon initial registration and delivery of the car, and is not a recurrent expense for holding the asset during the effective life. This stamp duty forms part of the asset's cost base.

Therefore the company will not be able to deduct the stamp duty costs as a deduction; rather it will form part of the cost for the purposes of depreciation

Question 4

Under section 40-25 of the ITAA 1997, an amount is able to be deducted for the decline in value of a depreciating asset that has been held at any time during the year.

The amount of the deduction is calculated based on the cost of the asset. The cost of an asset includes two elements, the amount that is taken to have been paid under section 40-185 of the ITAA 1997 and also capital costs relating to bringing the asset to its present condition under section 40-190 of the ITAA 1997.

The first element of cost is worked out from the time an entity first starts holding an asset and is taken to be the cost that applies in the table in subsection 40-180(2) of the ITAA 1997 or the amount that is taken to have been paid to hold the asset under section 40-185 of the ITAA 1997. The amount paid or taken to have been paid to hold the asset is the greater of the sum of either consideration given or amounts included in assessable income under subsection 40-185(1) of the ITAA 1997 and its included table.

In your situation, the amount paid will be the actual amount paid by the company and will not include the amount paid by the employee.

The second element of cost is worked out from the time an entity first starts holding a depreciating asset under subsection 40-190(1). It is the amount that is taken to have been paid under section 40-185 for each economic benefit that has contributed to bringing the asset to its present condition and location since you started to hold the asset under subsection 40-190(2).

The stamp duty was paid in order to register the vehicle and allow delivery and immediate use to the customer/lessee. The payment of the stamp duty represents an economic benefit used to bring the vehicle to its condition at the time of delivery. 

Therefore, the stamp duty in question is expenditure of a capital nature and is reflected in the depreciable assets current condition and forms part of the second element of cost under section 40-190