Edited version of your private ruling

Authorisation Number: 1012340907975

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Ruling

Subject: Exempt Car Expense Payment Benefits

Question 1

Is the proposed reimbursement on a cents per kilometre basis, by you of certain car expenses incurred by an employee, in respect of the employee's own car, an exempt benefit under section 22 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

If the answer to Question 1 is 'yes', is the value of the proposed reimbursement by you of the employee's car expenses a 'reportable fringe benefits amount' for which the grossed-up value is to be included on the employee's payment summary?

Answer

No.

Question 3

Is the proposed reimbursement by you of the loan principal in respect of the employee's personal loan, used to purchase the employee's car, an 'expense payment fringe benefit' for the purposes of the FBTAA?

Answer

Yes.

Question 4

If the answer to Question 3 is 'yes', is the taxable value of the expense payment fringe benefit reduced to 'nil' under the 'otherwise deductible rule' per section 24 of the FBTAA?

Answer

No.

Question 5

If the answer to Question 3 is 'yes', is the value of the proposed reimbursement of the employee's loan principal a 'reportable fringe benefits amount' for which the grossed-up value is to be included on the employee's payment summary?

Answer

Yes, if the value of the reimbursement (or in aggregate with the taxable values of other applicable fringe benefits) is more than $2,000 in the FBT year.

Question 6

Is the proposed reimbursement by you of the loan interest in respect of the employee's personal loan, used to purchase the employee's car, an 'expense payment fringe benefit' for the purposes of the FBTAA?

Answer

Yes.

Question 7

If the answer to Question 6 is 'yes', is the taxable value of the expense payment fringe benefit reduced to 'nil' under the 'otherwise deductible rule' per section 24 of the FBTAA?

Answer

Yes.

Question 8

If the answer to Question 6 is 'yes', is the value of the proposed reimbursement of the employee's loan interest a 'reportable fringe benefits amount' for which the grossed-up value is to be included on the employee's payment summary?

Answer

No.

This ruling applies for the following periods:

1 April 2012 - 31 March 2013

1 April 2013 - 31 March 2014

1 April 2014 - 31 March 2015.

The scheme commenced on:

1 July 2012.

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.

You propose to reimburse an employee for the cost of various expenses (car expenses) incurred by the employee in respect of a car owned by the employee.

The reimbursement of the above car expenses will be in accordance with the terms of a valid salary sacrifice arrangement (SSA) proposed to be entered into between you and the employee.

The amount of the reimbursement in relation to the car expenses will be calculated on a 'cents per kilometre' basis in relation to:

· fuel;

· insurance;

· repairs;

· registration;

· maintenance; and

· depreciation.

It is only the employee who incurs the relevant car expenses.

The employee purchased the employee's car using a personal loan (car loan).

The employee has no fixed place of employment.

An integral part of the employee's duties of employment involves the employee travelling in the employee's car between your clients.

The employee travels directly from the employee's home to a client's location at the start of the day and directly home from a client's location at the end of the day.

The 'business use' of the employee's car is determined using a car log book.

The employee's car has been determined as being used wholly for business purposes.

The total annual distance travelled in the employee's car will be less than 5,000 kilometres and all use of the car will take place within Australia.

Under the terms of the proposed SSA, you will also reimburse the loan principal and the loan interest in respect of the employee's personal loan used to purchase the car.

The proposed reimbursement of the loan principal and also the loan interest payments in respect of the employee's car loan will be determined on the actual expenditure incurred for each of those items and will not be reimbursed on a 'cents per kilometre' basis.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 5E(2)

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 22

Fringe Benefits Tax Assessment Act 1986 paragraph 22(a)

Fringe Benefits Tax Assessment Act 1986 section 23

Fringe Benefits Tax Assessment Act 1986 section 24

Fringe Benefits Tax Assessment Act 1986 section 135P

Fringe Benefits Tax Assessment Act 1986 section 135Q

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 15-70

Income Tax Assessment Act 1997 section 28-13

Income Tax Assessment Act 1997 section 28-165

Income Tax Assessment Act 1997 Division 900

Reasons for decision

Question 1

Is the proposed reimbursement on a cents per kilometre basis, by you of certain car expenses incurred by an employee, in respect of the employee's own car, an exempt benefit under section 22 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Detailed reasoning

Section 22 of the FBTAA exempts certain car expense payment benefits, provided all the required conditions are met. Section 22 of the FBTAA states:

Where:

(a) an expense payment benefit provided to an employee of an employer in respect of his or her employment is constituted by the reimbursement of the employee, in whole or in part, in respect of an amount of a Division 28 car expense incurred by the employee in relation to a car owned by, or leased to, the employee;

(b) in a case where the car is leased to the employee - the recipients expenditure is not attributable to a period when the lessor is the provider of a car benefit in relation to the car in relation to the employee;

(c) the benefit is not in respect of relocation transport;

(ca) the benefit is not in respect of an employment interview or selection test;

(cb) the benefit is not associated with:

(i) a work-related medical examination of the employee;

(ii) work-related medical screening of the employee;

(iii) work-related preventative health care of the employee;

(iv) work-related counselling of the employee or of an associate of the employee; or

(v) migrant language training of the employee or of an associate of the employee;

(cc) neither of the following subparagraphs applies in relation to the transport to which the benefit relates:

(i) the transport was provided wholly or partly to enable the employee, or an associate of the employee, to have a holiday;

(ii) the transport was provided at a time when the employee had ceased to perform the duties of that employment; and

(d) the reimbursement is calculated by reference to the distance travelled by the car; the expense payment benefit is an exempt benefit.

It is considered, based on the facts given, that paragraph 22(b) of the FBTAA has no application to this case, and, the requirements of each of paragraphs 22(c), 22 (ca), 22(cb) and 22(d) of the FBTAA respectively are met.

Therefore, for the exemption under section 22 of the FBTAA to apply to this case, the only remaining requirement to be satisfied, is that of paragraph 22(a) of the FBTAA. Paragraph 22(a) of the FBTAA requires the following conditions to be met:

(a) There is an 'expense payment benefit' constituted by a reimbursement to an employee of an employer in respect of the employee's employment,

(b) The above reimbursement, in whole or part, is in respect of an amount of a 'Division 28 car expense',

(c) The relevant 'Division 28 car expense' was incurred by the employee, and

(d) The relevant 'Division 28 car expense' was, as relevant here, in relation to a car owned by the employee.

(a) Is there an 'expense payment benefit' of the required kind?

Subsection 136(1) of the FBTAA defines an 'expense payment benefit' as meaning, for the purposes of the FBTAA, a benefit referred to in section 20 of the FBTAA.

Paragraph 20(b) of the FBTAA states that an 'expense payment benefit' arises where a person (the 'provider') reimburses another person (the 'recipient'), in whole or part, in respect of an amount of expenditure incurred by the recipient.

You (the 'provider'), propose to reimburse the car expenses incurred by the employee (the 'recipient'), on a 'cents per kilometre basis'. Albeit, that by using this methodology no particular expense is being reimbursed, it is nonetheless, still a 'reimbursement', as it is not paid unless the relevant expenses have been incurred by the employee.

Nonetheless, that reimbursement (to be of the required kind), must be in respect of the relevant employee's employment.

The meaning of the phrase 'in respect of the employment of the employee' was considered in J&G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; 44 ATR 22 (Knowles). It was found in Knowles that the words 'in respect of' must be given a meaning that depends on the context in which they are used. In the case of the FBTAA, this means that there must be a sufficient or material relationship or connection between the provision of the benefit and the employee's employment. The establishment of a mere casual link between the benefit and the employee's employment is not necessarily enough.

It is considered that the reimbursement in this case is, indeed, in respect of the employment of the employee due to the fact that the reimbursement will be made in accordance with the terms of the SSA between yourself and the employee.

As the reimbursement is in respect of the employment of the employee you have, therefore, met this condition.

(b) Is the reimbursement in respect of an amount of a 'Division 28 car expense'?

Subsection 136(1) of the FBTAA states that a 'Division 28 car expense' means 'a car expense as defined in section 28-13 of the Income Tax Assessment Act 1997 [ITAA 1997], but does not include a car expense covered by section 28-165 of that Act'.

Car expenses covered by section 28-165 of the ITAA 1997 relate to particular types of cars taken on hire. That section has no application to this case.

Section 28-13 of the ITAA 1997 states that:

28-13(1)  A car expense is a loss or outgoing to do with a ^*car.

28-13(2)  In addition, any of the following is a car expense:

(a) a loss or outgoing to do with operating a ^*car;

(b) the decline in value of a car.

28-13(3) None of the following is a car expense:

(a) a loss or outgoing incurred, or a payment made, in respect of travel

outside Australia;

(b) a taxi fare or similar loss or outgoing. 

The expenses to be reimbursed will be in respect of:

· fuel;

· insurance;

· repairs;

· registration;

· maintenance; and

· depreciation.

The relevant expenses of fuel, insurance, repairs, registration and maintenance will meet the requirements of paragraph 28-13(2)(a) of the ITAA 1997, and the costs of depreciation will meet paragraph 28-13(2)(b) of the ITAA 1997.

As none of the reimbursed expenses relate to travel outside Australia or taxi fares, the requirements of subsection 28-13(3) of the ITAA 1997 are also met.

Therefore, as the expenses to be reimbursement are car expenses as defined in section 28-13, the reimbursement is in respect of Division 28. You have, therefore, met this condition.

(c) Is the 'Division 28 car expense' incurred by the employee?

For the purposes of paragraph 22(a) of the FBTAA, the Division 28 car expenses must only be incurred by the employee (and not, for example, be incurred by an associate or deemed associate of the employee).

As it is only the employee who will incur the relevant expenditure in this case, you have met this condition.

(d) Is the 'Division 28 car expense' in relation to a car owned by the employee?

As the car is owned by the employee, you have met this condition.

Conclusion on the application of paragraph 22(a) of the FBTAA

As detailed above, paragraph 22(a) of the FBTAA, requires the following conditions to be met for that paragraph to apply:

(a) (a) There is an 'expense payment benefit' constituted by a reimbursement to an employee of an employer in respect of the employee's employment,

(b) (b) The above reimbursement, in whole or part, is in respect of an amount of a 'Division 28 car expense',

(c) (c) The relevant 'Division 28 car expense' was incurred by the employee, and

(d) (d) The relevant 'Division 28 car expense' was, as relevant here, in relation to a car owned by the employee.

As you have met all of the conditions of paragraph 22(a) of the FBTAA, the proposed reimbursement on a cents per kilometre basis by you of the relevant car expenses incurred by the employee is, therefore, an exempt benefit.

It may be noted that:

· a reimbursement which is an exempt benefit under section 22 of the FBTAA, is included in the assessable income of the employee under section 15-70 of the ITAA 1997, and

· the employee will also have to satisfy the income substantiation rules for car expenses under Division 900 of the ITAA 1997 in order to claim an offsetting income tax deduction.

Question 2

If the answer to Question 1 is 'yes', is the value of the proposed reimbursement by you of the employee's car expenses a 'reportable fringe benefits amount' for which the grossed-up value is to be included on the employee's payment summary?

Detailed reasoning

A 'reportable fringe benefits amount' is defined in subsection 136(1) of the FBTAA as having the meaning given by section 135P or 135Q of the FBTAA (as appropriate). Section 135Q of the FBTAA does not apply to this case.

Section 135P of the FBTAA states that an employee has a 'reportable fringe benefits amount' if the employee's 'individual fringe benefits amount' for the fringe benefits tax (FBT) year in respect of the employee's employment by the employer is more than $2,000.

Subsection 136(1) of the FBTAA defines an employee's 'individual fringe benefits amount' as having the meaning given by section 5E of the FBTAA.

Subsection 5E(2) of the FBTAA states that the 'General Rule' is that 'the individual fringe benefits amount is the sum of the employee's share of the taxable value of each fringe benefit that relates to the year of tax and is provided in respect of the employment other than an excluded fringe benefit'.

Therefore, for general purposes, an employee's 'individual fringe benefits amount' for a FBT year is the sum of the employee's share of the taxable value of all fringe benefits provided in respect of the employee's employment, save for certain 'excluded fringe benefits'. In this case, none of the benefits provided are 'excluded fringe benefits'.

Accordingly, an 'individual fringe benefits amount' directly relates to the 'taxable value(s) of relevant fringe benefit(s) provided in respect of the employment of the employee in the FBT year.

However, paragraph (g) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA excludes from that term 'a benefit that is an exempt benefit'.

As it has been determined in Question 1 that the proposed reimbursement of the car expenses is an exempt benefit, such a reimbursement, not being a fringe benefit, cannot be a 'reportable fringe benefits amount' for the purposes of the FBTAA.

Accordingly, the reimbursement of the car expenses does not have to be reported on the employee's payment summary.

Question 3

Is the proposed reimbursement by you of the loan principal in respect of the employee's personal loan, used to purchase the employee's car, an 'expense payment fringe benefit' for the purposes of the FBTAA?

Detailed reasoning

As discussed in Question 1, paragraph 20(b) of the FBTAA states that an 'expense payment benefit' arises where a person (the 'provider') reimburses another person (the 'recipient'), in whole or in part, in respect of an amount of expenditure incurred by the recipient.

The proposed reimbursement by you of the loan principal will, therefore, constitute an expense payment benefit under section 20 of the FBTAA.

Subsection 136(1) of the FBTAA defines an 'expense payment fringe benefit' as meaning a 'fringe benefit' that is an expense payment benefit.

In basic terms, a fringe benefit, as defined in subsection 136(1) of the FBTAA, is a benefit provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employee's employment and such benefit is not otherwise exempted.

It is considered that the reimbursement of the loan principal is in respect of the employment of the employee due to the fact that the reimbursement will be made in accordance with the terms of the salary sacrifice arrangements between you and the employee.

Therefore, it is considered that the proposed reimbursement by you of the loan principal in respect of the employee's personal loan will be an 'expense payment fringe benefit' for the purposes of the FBTAA.

It may also be noted, as relevant here, that section 23 of the FBTAA states that the taxable value 'of an external expense payment fringe benefit provided during the year of tax is the amount of the reimbursement referred to in paragraph 20(b) [of the FBTAA]. That is, the value of the reimbursement will be the taxable value of the resultant expense payment fringe benefit.

Question 4

If the answer to Question 3 is 'yes', is the taxable value of the expense payment fringe benefit reduced to 'nil' under the 'otherwise deductible rule' per section 24 of the FBTAA?

Detailed reasoning

Section 24 of the FBTAA provides for a reduction of the taxable value of an expense payment fringe benefit under the 'otherwise deductible rule' (ODR).

Broadly, the application of the ODR means that the taxable value of the expense payment fringe benefit is reduced by the amount the employee would have been entitled to claim as an income tax deduction (provided certain requirements are met).

The ODR only applies where the recipient of the benefit is the employee. This requirement is met in this case.

Also, the ODR only applies to a 'once-only deduction'. The term 'once only deduction', as defined in subsection 136(1) of the FBTAA, means a deduction that is wholly or partly allowable in the one year for the expense incurred and not in any other year. Therefore, the ODR does not apply to deductions for the decline in value of depreciating assets (except where the cost is less than $301).

Special rules operate where the expenditure that may be deductible to the employee is incurred in relation to a car expense payment benefit. However, despite the breadth of what may comprise a 'Division 28 car expense' for the purposes of the FBTAA, the reimbursement of the loan principal relates only to meeting the employee's personal loan obligations. It is considered, therefore, that the reimbursement of the loan principal is not a 'car expense payment benefit'.

Applying the ODR produces different results depending on whether the reimbursement was intended to be for the business element of the expense payment fringe benefit. This is because the employee is entitled to an income tax deduction for that portion of the expenditure incurred to derive the employee's assessable income, but not for that portion of the expenditure incurred for private or domestic purposes.

The expenditure of the employee is in respect of the loan principal for the employee's personal loan, and, as such, the employee would not be entitled to a deduction under section 8-1 of the ITAA 1997.

Consequently, the taxable value of the expense payment fringe benefit arising from the reimbursement by you of the loan principal in respect of the employee's personal loan, used to purchase the employee's car, will not be reduced under the ODR.

Question 5

If the answer to Question 3 is 'yes', is the value of the proposed reimbursement of the employee's loan principal a 'reportable fringe benefits amount' for which the grossed-up value is to be included on the employee's payment summary?

Detailed reasoning

As detailed in Question 2, section 135P of the FBTAA states that an employee has a 'reportable fringe benefits amount' if the employee's 'individual fringe benefits amount' for the FBT year in respect of the employee's employment by the employer is more than $2,000.

As also detailed in Question 2, an employee's 'individual fringe benefits amount' for a FBT year is the employee's share of the taxable value of all fringe benefits provided in respect of the employee's employment (except for certain 'excluded fringe benefits', none of which are provided in this case).

As detailed in Question 3, under section 23 of the FBTAA, the value of the reimbursement will be the taxable value of the resultant expense payment fringe benefit.

Therefore, where the value of the reimbursement (or in aggregate with the taxable values of other applicable fringe benefits), is more than $2,000 in the FBT year, the value of the proposed reimbursement of the employee's personal loan principal will be a 'reportable fringe benefits amount' for which the grossed-up value will be included on the employee's payment summary.

It may be further noted that, the reportable fringe benefits amounts relating to benefits provided during an FBT year (1 April to 31 March) is shown on the relevant employee's payment summary for the corresponding income year (for example, the grossed-up value of fringe benefits provided during the FBT year 1 April 2012 to 31 March 2013 will be shown on the employee's payment summary for the relevant income year).

Question 6

Is the proposed reimbursement by you of the loan interest in respect of the employee's personal loan, used to purchase the employee's car, an 'expense payment fringe benefit' for the purposes of the FBTAA?

Detailed reasoning

For similar reasons to those detailed in Question 3, which concluded that the reimbursement of the employee's personal loan principal was an expense payment fringe benefit, it is considered that the proposed reimbursement of the employee's personal loan interest will also be an expense payment fringe benefit.

It may also be noted that, as detailed in Question 3, the value of the reimbursement will be the taxable value of the resultant expense payment fringe benefit.

Question 7

If the answer to Question 6 is 'yes', is the taxable value of the expense payment fringe benefit reduced to 'nil' under the 'otherwise deductible rule' per section 24 of the FBTAA?

Detailed reasoning

Section 24 of the FBTAA provides for a reduction of the taxable value of an expense payment fringe benefit under the ODR.

Again, the recipient of the benefit is the employee and it is considered that the requirement for a 'once-only deduction' is met.

Despite the breadth of what may comprise a 'Division 28 car expense' for the purpose of the FBTAA, the reimbursement of the loan interest relates only to meeting the employee's personal loan obligations. It is considered, therefore, that the reimbursement of the loan interest is not a 'car expense payment benefit'.

The employee's personal loan interest is incurred in respect of a car that is wholly used for earning the employee's assessable income. Where an employee incurs an expense solely in performing employment-related duties, the expenditure will be wholly deductible under section 8-1 of the ITAA 1997.

Therefore, as the reimbursement relates to loan interest that is wholly deductible to the employee, the taxable value of the expense payment fringe benefit arising from the reimbursement will be, accordingly, reduced to 'nil'.

Question 8

If the answer to Question 6 is 'yes', is the value of the proposed reimbursement of the employee's loan interest a 'reportable fringe benefits amount' for which the grossed-up value is to be included on the employee's payment summary?

Detailed reasoning

As detailed in Question 2, section 135P of the FBTAA states that an employee has a 'reportable fringe benefits amount' if the employee's 'individual fringe benefits amount' for the FBT year in respect of the employee's employment by the employer is more than $2,000.

As also detailed in Question 2, an employee's 'individual fringe benefits amount' for a FBT year, is the sum of the employee's share of the taxable value of all fringe benefits provided in respect of the employee's employment (except for certain 'excluded fringe benefits', none of which are provided in this case).

As considered in Question 3, under section 23 of the FBTAA, the value of the reimbursement will be the taxable value of the resultant expense payment fringe benefit.

As determined in Question 7, the taxable value of the relevant expense payment fringe benefit will be reduced to 'nil'. There is, consequently, no need to report the grossed-up value of that fringe benefit (which would also be 'nil') on the employee's payment summary.