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Edited version of your private ruling
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Ruling
Subject: Fringe benefits tax
Question 1
Even though the employee has a financially binding commitment in relation to a novated lease on 18 May 2011, can the amendments to section 9 of the Fringe Benefits Tax Assessment Act 1986 not apply on the basis that the conditional acceptance on 5 May 2011 was a pre-existing commitment?
Answer
No
This ruling applies for the following periods:
Year ended 31 March 2012
The scheme commences 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.
Your employee applied for a novated finance lease on a vehicle and it was conditionally accepted on May 2011. Your approval as the employer was still necessary as was credit approval.
Due to circumstances out of your employee's control, the employee submitted a new quote on the evening of X May 2011.
The new submission was conditionally accepted on X May 2011 and was entirely accepted on X May 2011.
Your employee signed the agreement on X May 2011 which created an irrevocable offer by your employee to lease the vehicle.
The vehicle was ordered later in May 2011 and the employee was sent the paperwork on in June 2011.
The agreement that was provided to your employee on X May 2011 included FBT calculated based on the pre 7:30pm X May 2011 rates. It was subsequently communicated to your employee on 8 November 2011 that the FBT is calculated on the lease at a higher rate than that included on the agreement.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986 Section 9.
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
The amendments to section 9 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) will apply as a commitment to provide or make available the car was entered into on 18 May 2011 rather than at the time of the conditional acceptance on 5 May 2011.
Detailed reasoning
Section 9 of the FBTAA provides the formula for calculating the taxable value of car fringe benefits. This section was amended by Part 1 of Schedule 5 to the Tax Laws Amendment (2011 Measures No.5) Act 2011.
The amendments to section 9 of FBTAA made by this part apply to a car fringe benefits provided during the year of tax beginning on X April 2011. Under the amendments a flat statutory rate of 20% applies (subject to transitional rules) regardless of the distance travelled.
The amendments apply to all car fringe benefits provided after 7:30pm AEST on X May 2011 except where there is a pre-existing commitment in place to provide a 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 X May 2011.
In accordance with the Explanatory Memorandum to Tax Laws Amendment (2011 Measures No.5) Act 2011 a 'commitment' is entered into at the point where 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 your 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.
A commitment was entered into when your employee signed the agreement on X May 2011 which created an irrevocable offer by him to lease the vehicle. This is regardless of the fact that due to circumstances beyond your employee's control, the employee was delayed in entering into that commitment.
The conditional acceptance on X May 2011 is not sufficient to be considered a commitment as the employee was not financially bound by it. At that point, you had not approved the arrangement and credit had not yet been approved.
Consequently, since the commitment to the application or availability of the car was made after 7:30pm AEST on X May 2011, section 9 of the FBTAA as amended by Part 1 of Schedule 5 to the Tax Laws Amendment (2011 Measures No.5) Act 2011 will apply for the purposes of calculating car fringe benefits in relation to the car.