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Subject: FBT-Car Fringe Benefit- Operating cost method-Bulky equip

Question 1

Are the trips undertaken between home and work by the employees when on call, in the following scenarios, classified as business journeys under section 10 of the Fringe Benefits Tax Assessment Act 1986?

1. The carriage of the specified equipment in the car of the on call employee between home and their regular work site?

2. The carriage of the specified equipment in the car of the on call employees between home and other work sites?

Answer

1. Yes

2. Yes

This ruling applies for the following periods:

01 April 2012- 31 march 2017

Relevant facts and circumstances

The taxpayer (TP) uses both the statutory method under section 9 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and the operating cost method under section 10 of the FBTAA to determine the taxable value of a car fringe benefit.

The employees who are on call carry equipment, including specialised equipment between home and work and between home and other work sites in a sedan, station wagon or four wheel drive provided by the TP.

The total measurement of the above items is approximately one cubic meter and occupies half of the car boot. The total weight is about 60- 70 kgs.

A sedan, station wagon or four wheel drive vehicle is provided to on-call employees who are required to respond immediately to emergency calls 24/7 except for personal leave period. To reduce the response time, equipment including specialised equipment necessary for the employees to carry out their duties is carried in the car at all times. The vehicle is taken home and garaged at or near the employee's place of residence. It is therefore available for private use under section 7 of the FBTA 1986.

The employee has salary sacrificed for the private use of the vehicle.

Assumptions

None

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 - Section 10

Fringe Benefits Tax Assessment Act 1986 - Subsection 136(1)

Income Tax Assessment Act 1997 - Section 8-1.

Reasons for decision

Question 1

Summary

The on call employees' home to work journeys are considered business travel because their home to work travel can be attributed to the need to transport bulky, valuable and cumbersome equipment, and therefore comes within one of the exceptions to the general principle that travel between home and work is private in nature and non-deductible, that is where the taxpayer is required to carry bulky equipment in order to perform their work.

Question 1

Detailed reasoning

Business journey' as relevant to this application is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 as:

business journey means:

(a) for the purposes of the application of Division 2 of Part III in relation to a car fringe benefit in relation to an employer in relation to a car - 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;...

This definition requires the consideration as to whether the journeys are private in nature. This is the same consideration required to determine the deductibility of travel between home and work.

Subsection 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that taxpayers can deduct from their assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing the assessable income.

However, they cannot deduct an amount to the extent that the outgoing is of a capital, private or domestic nature, or relates to the earning of exempt income (subsection 8-1(2) of the ITAA 1997).

Generally, expenses incurred by taxpayers in travelling between home and work are not deductible under section 8-1 of the ITAA 1997 as they are considered to be private in nature. This is because normally expenses incurred in travelling from home to work are not treated as incurred in the derivation of assessable income but are rather incurred in order to enable the taxpayer to derive assessable income. This well established principle was reinforced by the High Court in Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478.

The High Courts reasons for the general principle of non deductibility of home to work travel are twofold:

      Whilst it is necessary for a taxpayer to arrive at work to derive income, they do not start deriving that income until they actually arrive at work.  As such, their travel expenses are a prerequisite to the earning of their assessable income, rather than being incurred in the course of gaining that income. Accordingly, the travel expenses are not incidental and relevant to the derivation of their assessable income and would not fulfil the requirements of subsection 8-1(1) of the ITAA 1997.

      The essential character of expenses incurred in travelling from home to work are of a private or domestic nature, as they relate to the taxpayer's  personal and living expenses as part of the taxpayer's choice of where to live and at what distance from work. Therefore, the expenses would not satisfy subsection 8-1(2) of the ITAA 1997.

However, subsequent court decisions have modified this general principle in various circumstances. For example, Federal Commissioner of Taxation v. Vogt 75 ATC 4073; 5 ATR 274 (Vogt's Case).

This means there are exceptional circumstances under which taxpayer may be entitled to a deduction for direct home to work travel expenses, for example:

(1) If taxpayer has a home office which is a place of business;

(2) If taxpayer has to carry bulky equipment; or

(3) If taxpayer has shifting places of employment.

It is considered that exception (1) is not applicable in your circumstances.

Bulky equipment

The Commissioners views regarding the deductibility of expenses incurred in transporting bulky equipment between home and work is contained in a number of public rulings including Taxation Ruling IT 112: Deductibility of travelling expenses between residence and place of employment or business (IT 112) and Taxation Ruling TR 95/34: Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses (TR 95/34). The Commissioners views regarding bulky equipment contained in these rulings can be summarised as follows (paragraphs 63 and 64 of TR 95/34):

· A deduction may be allowable if the transport costs can be attributed to the transportation of bulky equipment rather than to private travel between home and work.

· If the equipment is transported to and from work by the employee as a matter of convenience or personal choice, it is considered that the transport costs are private and no deduction is allowable.

· A deduction is not allowable if a secure area for the storage of equipment is provided at the work place.

As explained above, paragraph 63 of TR 95/34 states that a deduction is allowable for home to work travel where an employee has a necessity to carry bulky equipment to perform their duties in earning assessable income.

The tax legislation does not define the term bulky equipment and it is a matter of fact and degree in the individual circumstances. Accordingly, it is necessary to consider the relevant case law on what constitutes bulky in order to determine whether the equipment that the on call employees transport in their cars can be regarded as bulky.

The principles regarding when travel between home and work is not private in nature because of the need to transport bulky equipment, as outlined in the above mentioned Taxation Rulings came from various court and tribunal decisions e.g. Vogts case, Crestani v Federal Commissioner of Taxation 98 ATC 2219; 40 ATR 1037 (Crestani's Case), Case 43/94 94 ATC 387, AAT 96/54 (1994) 29 ATR 1081 (Case 43/94) Case Z22 92 ATC 230; 23 ATR 7944 (Case Z22), Scott v. Federal Commissioner of Taxation (No 3) 2002 ATC 2243 (Scott's case). The factors taken into account by the courts in these decisions included volume, weight, overall size and how cumbersome the items are.

In Vogts case the taxpayer, a professional musician, was allowed a deduction for his home to work and back travel because the expense could be attributed to the transportation of bulky equipment (musical instruments) to various places of work, rather than to private travel between home and work. The equipment constituted two guitars, each with its own amplifier, a trumpet and a flugel horn. He normally took all his instruments home in order to practice.

The deduction was allowed because the travel was seen as attributable to the need to transport the instruments to work venues. The mode of his travel was simply a consequence of the means which he employed to get his instruments to the place of performance, that is by carrying them in the motor vehicle which he drove (75 ATC 4073 at 4078; 5 ATR 274 at 279).

In Crestani's Case, the Tribunal found that a 25cm wide, 28cm high and 57 cm long toolbox that weighed 27 kilograms was bulky within the meaning contained in paragraphs 138 to 141 of Taxation Ruling TR 95/19 Income tax: airline industry employees - allowances, reimbursements and work-related deductions (TR 95/19), a reflection of paragraphs 63 to 71 of TR 95/34. The Tribunal found that the toolbox was not 'easy to lift, and could not, in the opinion of the Tribunal, conveniently be carried for any distance'. In the course of his decision, Block J stated:

I do not think that the term 'bulky' should be construed to refer only to an article which is of a larger size, such as the musical instruments which were the subject of the decision in FC of T v Vogt The term is, in my view, more aptly to be construed as similar to 'cumbersome' in the sense that it is not easily portable.

In Case 43/94 a Royal Australian Air Force flight sergeant was denied a deduction for the cost of using his car to transport various items of work equipment to and form work. Among the items the taxpayer was required to have available were:

flying suit

torch

personal survival gear

full dress uniform

working uniform

flying jacket

flying boots

The taxpayer carried the required equipment in a briefcase sized navigational bag and a standard air force issue duffle bag measuring 75cm long x  55cm wide and 50cm deep which, when packed, weighed 20 kilograms and sometimes also carried a suit bag weighing 10 kg. The Tribunal found (at paragraph 14) that 'the duffle bag with its contents was not of a size or weight to impede facile transportation'. The Tribunal concluded that the taxpayer's travel expenses should be attributed to his travel to and from work rather than the carriage of various items constituting his work equipment. In arriving at this conclusion, the Tribunal stated (paragraph 19 of the decision):

...the mode of transporting the duffel bag, the navigational bag, and occasionally the suit bag, was simply a consequence of the means adopted by the taxpayer in conveying himself to and from his place of employment. Merely putting those items in the boot of his car did not alter either the nature of the trip or the character of the expenditure.

In Case Z22, the Tribunal held that the taxpayer was not entitled to a deduction for the cost of using his car to transport various work related tools to and from work. The taxpayer carried the tools in a canvass bag 10 to 12 inches long, 6 inches wide and 12 inches deep which weighed approximately 15 kilograms. In the course of his decision, Mr Barbour observed that:

The applicant acknowledged that he carries the bag over his shoulder and although it gets heavy after carrying it for an extended period, no other valid reason for not using public transport was presented. The applicant would not have to carry or hold the bag once on public transport and it is difficult to see why it should be regarded as being especially awkward; for example, in comparison to a heavy attach or briefcase.

Scott's case dealt with the deductibility of motor vehicle expenses incurred by a dental practitioner for travel between his home and a second surgery operated by the practice, which was about 70 kilometres from the main surgery. The distance from the taxpayer's home to the second surgery is not stated in the decision, but presumably is comparable. On each trip he carried a box that typically contained, amongst other things, patient files, cash float and wax denture moulds. The box was about the size of an archive box and weighed up to about 10 kilograms. The box was open at the top and could not always be sealed because of the shape of the items it held.

The AAT held that if the exception to the rule in Lunney and Hayley only extended to the carriage of bulky equipment to and from work, the taxpayer's claim for his travel expenses would fail. However, in the AATs view, the exception extended to cover the cost of transporting items that have other attributes (other than weight or bulkiness) for example items that are valuable, have a noxious smell, which are offensive, or may scandalise or embarrass other people. The AAT found that the taxpayer carried items which were sufficiently sensitive and valuable to justify special arrangements for their transport. The AAT, in finding that the taxpayer was entitled to a deduction for the cost of using his motor vehicle to transport the box to and from work, stated (at paragraph 17 of the decision):

He (and his fellow travellers were he to use public transport, and his patients) might feel distinctly uncomfortable were the contents of the box to spill or be observed by others. Since the evidence suggests the contents of the box might be visible to others because it often could not be sealed, special arrangements for its transport were justified.

Application to the on call employees' circumstances

The on call employees carry equipment between their home and regular worksite, call out work locations and other worksites. The measurement of the items transported is approximately one cubic meter in size, about 60-70 Kgs in total weight and occupies half the boot of the vehicle. Additionally some of the items individually are specialised, valuable and cumbersome. The equipment transported is therefore of a size and weight to be considered bulky.

The equipment carried is bulky and the duties of the on call employees require them to be readily available for use in emergency situations, where it is critical to reduce response times .It is accepted that the carrying in the boot of the vehicle arose out of the nature of the employees duties and not as a matter of convenience or personal choice. Thus there is a work related necessity to transport the equipment in the vehicle when travelling between home and other/regular worksites.

Therefore, the journeys in the vehicles between home and worksites are not considered to be private in nature and would be deductible under section 8-1 of the ITAA 1997.

As the journeys are not private in nature as required for deductibility under section 8-1 of the ITAA 1997, the journeys are business journeys as defined in subsection 136(1) of the FBTAA 1986 and classified as business journeys for the purpose of calculating the taxable value of car fringe benefits under section 10 of the FBTAA1986.