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Ruling

Subject: Fringe Benefits Tax - Car fringe benefit - business journey

Question 1

Are all journeys between motels and workplaces by an employee using the employer's vehicle considered to be business journeys for the purpose of calculating the taxable value of a car fringe benefit under section 10 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Are all journeys between motels and worksites by an employee using the employer's vehicle considered to be business journeys for the purpose of calculating the taxable value of a car fringe benefit under section 10 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

This ruling applies for the following periods:

Year ending 31 March 2013

Year ending 31 March 2014

Year ending 31 March 2015

Year ending 31 March 2016

Year ending 31 March 2017

Year ending 31 March 2018

The scheme commences on:

1 April 2012

Relevant facts and circumstances

The employer has a work unit, which aims to deliver various legal advice and support services.

There are 10 vehicles that have been assigned to the work unit for use by the employee's to perform their duties.

The vehicles are garaged at the employer's various workplaces when they are not being used.

The employee's are required to travel to different worksites in various locations every day.

They are rostered to attend different worksites every day.

The cars have been provided to the employee's for journeys between the following places:

· Workplace and different workplace for business meetings, preparing legal documents, researching legal sites, etc.;

· Workplace and worksite;

· Workplace and motel to attend worksite in country area;

· Motel in country area and worksite; and

· Motel in country area and different workplace for business meetings, preparing legal documents, researching legal sites, etc.

Under the employer's policy log books are required to be maintained for each vehicle.

You have provided a log book example that is representative of the 10 cars used by the employee's for a 12 week period.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 7

Fringe Benefits Tax Assessment Act 1986 section 10

Fringe Benefits Tax Assessment Act 1986 section 136

Reasons for decision

Question 1

Summary

All journeys between motels and workplaces by an employee using the employer's vehicle are considered to be business journeys for the purpose of calculating the taxable value of a car fringe benefit under section 10 of the FBTAA.

Detailed reasoning

The General Rule

Under paragraph 7(1)(a) of the FBTAA a car benefit will arise at any time of day in respect of the employment of the employee where a car that is held by an employer is either:

(i) applied to a private use by an employee or an associate of an employee, or

(ii) taken to be available for the private use of an employee or an associate of the employee.

In accordance with paragraph 7(2)(b) of the FBTAA, a car shall be taken to be available for private use on a day where, in respect of the employment of an employee, the car is garaged or kept at or near a place of residence of the employee, or an associate of the employee, for the purposes of subparagraph 7(1)(a)(ii) of the FBTAA.

Subsection 136(1) of the FBTAA defines a 'place of residence', in relation to a person as:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not on a shared basis.

Accommodation in the form of a motel room is 'sleeping accommodation' that is used on a temporary basis.

Deemed availability for private use under subsection 7(2) of the FBTAA is not dependent on any actual use or actual availability for any use. Where the conditions of the subsection are met then the car concerned is taken to be available for private use.

In applying these rules, a car that is parked overnight at or near such temporary accommodation is treated as being available for private use of the employee regardless of whether or not the employee has permission to use it privately.

Therefore as the cars are garaged at the motels where the employees stay whilst travelling, a car benefit will arise from the provision of the cars to the employees, unless the benefit is an exempt benefit.

The FBTAA provides two alternative methods of valuing such benefits:

· the statutory formula method under section 9;

· the operating cost method under section 10.

Where the employer elects to use the operating cost method, the taxable value will be reduced to nil where the business use percentage is 100 percent. Subsection 136(1) of the FBTAA defines the business use percentage as the number of business kilometres travelled by the car during the holding period divided by the total number of kilometres travelled by the car during the holding period.

Calculating the percentage of business use

Subsection 10(2) of the FBTAA states:

Subject to this Part, where an election is made under subsection (1), the taxable value, or the aggregate of the taxable values, as the case requires, of the car fringe benefits in relation to the employer in relation to the year of tax that relate to the car while it was held by a particular person (in this section referred to as the "provider" during a particular period (in this section referred to as the holding period) in the year of tax is the amount calculated in accordance with the formula:

(C x (100% - BP)) - R

where:

C is the operating cost of the car during the holding period;

BP is -

(a) if, under section 10A or 10B, the employer is not entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period - nil; or

(b) ............

(c) in any other case - the business use percentage applicable to the car for the holding period; and

R is the amount (if any) of the recipients payment.

To ascertain the percentage of business use of a particular car, and to substantiate that percentage of business use, certain requirements must be met. Sections 10A and 10B of the FBTAA provide that the business use percentage will be nil unless certain records such as odometer records and a log book containing details of the business journeys undertaken during the log book period, have been maintained.

Logbook records are required to be maintained for each car for a continuous 12 week period and every 5 years. The business use percentage established during this period can be used for 5 years unless the actual business use percentage varies substantially.

Business and Private Journeys

Private use of a motor vehicle is defined in subsection 136(1) of the FBTAA as:

any use of the motor vehicle by the employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee.

For the purposes of the operating cost method a business journey is defined in subsection 136(1) of the FBTAA as:

a journey undertaken in a car otherwise than in the application of the car to a private use, being an application that results in the provision of a fringe benefit in relation to the employer

The distinction between private and business use is whether, when the car is used by an employee or associate, it is being used exclusively in the course of producing assessable income of the employee.

Paragraph 12 of Taxation Ruling MT 2027 (MT 2027) provides the following:

Determining the distinction between private and business use for FBT purposes, therefore, can be approached by asking the question whether, if the employee had incurred expenditure on that use of the car, the expenditure would have been wholly deductible for income tax purposes.

Taxation Ruling TR 95/13 Income tax: employee police officers - allowance, reimbursements and work-related deductions (TR 95/13) provides the following in relation to work-related travel:

Travel from the normal work place to an alternative work place while still on duty and back to the normal work place or directly home

220. A deduction is allowable for the cost of travel from a police officer's normal work place to other work places. The cost of travel from the alternative work place back to normal work place or directly home is also an allowable deduction. This travel is undertaken in the performance of a police officer's duties. It is incurred in the course of gaining assessable income and is allowable as a deduction.

221. Example: Michelle is a police officer who is required to travel from her regular place of employment to a district court for work-related purposes. The cost of any travel undertaken from the regular place of employment to the district court and then back to the regular place of employment or directly home from the district court is an allowable deduction.

Application to your situation

A car benefit is deemed to have arisen under subsection 7(1) of the FBTAA in relation to the vehicles used by the employees when they are garaged overnight at motels whilst they are travelling.

You have advised that you use the operating cost method in subsection 10(2) of the FBTAA to determine the taxable value of the car benefit being provided.

The log book entries you have provided demonstrate that the journeys commence at the employee's normal work place and end either back at their normal place of work or at a motel if they are required to stay overnight at an alternative location in order to attend another worksite or undertake other duties.

The employee's are also required to travel between the motel, at which they stay whilst away from their normal work place, and another workplace at which they carry out their duties.

These journeys are undertaken in the performance of the employee's duties and as a result are considered to be business journeys.

Therefore, all journeys between motels and workplaces by an employee using the employer's vehicle are considered to be business journeys for the purpose of calculating the taxable value of a car fringe benefit under section 10 of the FBTAA.

Question 2

Summary

All journeys between motels and worksites by an employee using the employer's vehicle are considered to be business journeys for the purpose of calculating the taxable value of a car fringe benefit under section 10 of the FBTAA.

Detailed reasoning

As determined in question 1 a car benefit will arise under subsection 7(1) of the FBTAA when the cars used by the employee's are garaged overnight at the motels where they stay whilst travelling for work-related purposes.

The log book entries you have provided demonstrate that the journeys recommence at the employee's motel and end either back at a motel if they are required to travel for multiple nights or back at their normal place of work.

The journeys between motels and worksites occur as a result of a employee being required to work away from their normal work place in order to perform their duties.

Whilst away from their normal place of work they are considered to be travelling for work and thus the journeys would be considered to be business journeys.

Therefore, all journeys between motels and worksites by an employee using the employer's vehicle are considered to be business journeys for the purpose of calculating the taxable value of a car fringe benefit under section 10 of the FBTAA.