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Ruling

Subject: Salary sacrifice - exempt vehicle

Question 1

Is a ute, designed to carry more than 1 tonne, provided to an employee, under an effective salary sacrifice arrangement, an exempt benefit pursuant to subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

This ruling applies for the following periods:

1 April 2011 to 31 March 2014

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.

The employee works as a manager in a Pty Ltd company.

The employee wishes to enter into a salary packaging arrangement with the employer for a ute via a novated lease. The ute is a dual cab and is designed to carry a load of more than 1 tonne.

The employee's sole use of the vehicle will be travelling from his home to his workplace. He has another vehicle that he would use for all private travel. He does have a need to carry bulky tools or equipment in the ute from time to time with his role as a manager.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 45

Reasons for decision

Under subsections 8(2) and 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), a liability to FBT will not arise where the private use of certain vehicles by employees during a particular year of tax is limited to certain work-related travel and non-work-related use that is minor, infrequent and irregular.

A car is defined under section 136(1) of the FBTAA as:

a motor vehicle (including a vehicle known as a four wheel drive vehicle), being:

(a) a motor car, station wagon, panel van, utility truck or similar vehicle, designed to carry a load of less than 1 tonne; or

(b) any other road vehicle designed to carry a load of less than 1 tonne or fewer than 9 passengers;

but does not include a motor cycle or similar vehicle.

As the models of motor vehicles you mentioned are designed to carry a load of more than 1 tonne, they are not cars and will not fall within Division 2 Car benefits of the FBTAA.

A residual fringe benefit is defined under section 45 of the FBTAA which states that:

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Division 2 to 11 inclusive.

It includes the private use of property such as a motor vehicle which is not classified as a car for FBT purposes. As the motor vehicle is a ute designed to carry a load of more than 1 tonne, it does not qualify as a car for FBT purposes, any private use of it qualifies as a residual benefit.

However, where the vehicle is used for limited private use, the benefit is an exempt benefit under subsection 47(6) of the FBTAA.

Where an employee is provided with the use of motor vehicle that is not a car, such use is an exempt benefit if any private use is restricted to the following circumstances:

· travel to and from work;

· use which is incidental to travel in the course of duties of employment; and

· non-work related use that is minor, infrequent and irregular, for example, use by an employee to remove domestic rubbish.

Paragraph 8 of taxation ruling MT 2034 Fringe benefits tax: private use of motor vehicles other than cars states

A significant exemption from FBT is, however, provided under sub-section 47(6) of the Act. Under this sub-section, no liability for FBT will arise in respect of the provision of a vehicle to an employee where there is no private use of the vehicle by the employee or where private use of the vehicle by the employee during a year of tax is limited to certain work-related travel. Work related travel is defined in sub-section 136(1) of the Act to be travel between the employee's residence and place of employment or other place at which employment duties are performed and any travel that is incidental to travel in the course of performing duties of employment. It should be noted that in the event that private use is not so limited, FBT liability extends to all private use, including private home to work travel.

In your circumstance, the employee has another vehicle that he would use for all private travel. He will use the ute solely for travel to and from work and to carry bulky tools or equipment from time to time with his manger role. It satisfies the definition of work-related travel in sub-section 136(1) of the FBTAA.

As you provide the ute under a salary sacrifice arrangement via a novated lease, you need to satisfy the requirements of an effective salary sacrifice arrangement.

The requirements of an effective salary sacrifice arrangements are the following.

· It must be an arrangement before services.

· There should be agreement between the employer and employee.

· There should be no access to the sacrificed salary.

In Taxation Ruling 1999/15, Income tax and fringe benefits tax: taxation consequences of certain motor vehicle lease novation arrangements; a full novation is defined as a novation (transfer) of all the rights and obligations in a finance lease or in a finance lease and sub-lease arrangement. As a result of a full novation the employer takes over all the rights and responsibilities contained in the original lease.

The effects of a full novation are:

There are no income tax consequences for the employee during the period when the employer makes the lease payments.

The employer is entitled to an income tax deduction for lease expenses where the vehicle is provided to an employee as part of a salary sacrifice arrangement.

If you provide a motor vehicle to the employee under an effective salary sacrifice arrangement via a novated lease that is not a car as defined by the Act and the private use of the vehicle does not exceed the limits as set out above, then it will be an exempt fringe benefit.

We considered the facts in your case satisfied the conditions set out in subsection 47(6) of the FBTAA, and advised that the benefit to be provided to the employee is an exempt benefit.