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Ruling

Subject: Car fringe benefits

Issue 1

Question 1

Are the individuals employees of the company as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

If the answer to question 1 is yes, does section 57 of Fringe Benefits Tax FBTAA apply in respect of benefits provided by to these individuals?

Answer

No

Question 3

If the answer to question 1 is yes, is travel undertaken by these individuals between home and various locations in a company car to perform their duties 'business journeys' as defined in subsection 136(1) of the FBTAA?

Answer

Yes

Question 4

If the answer to question 1 is yes, is travel undertaken by these individuals between home and Location A in a company car a 'business journey' as defined in subsection 136(1) of the FBTAA where they are performing their duties for someone else?

Answer

No

Question 5

If the answer to question 1 is yes, is travel undertaken by these individuals between home and Location A in a company car a 'business journey' as defined in subsection 136(1) of the FBTAA where the individuals are not performing any duties of employment?

Answer

No

Question 6

If the answer to question 1 is yes, is travel undertaken by these individuals between home and Location A in a company car a 'business journey' as defined in subsection 136(1) of the FBTAA where the individuals is performing their duties for the company?

Answer

Yes

Question 7

The provision requires the identification of taxpayer so the question has been removed for publication.

Issue 2

Question 1

For the purposes of the transitional arrangement contained in section 9 of the FBTAA, is a new commitment created when a replacement car is provided under an existing novated lease?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

Year ended 31 March 2017

Year ended 31 March 2018

The scheme commences on:

On or after 1 January 2012

Relevant facts and circumstances

Issue 1

The Company is not a religious institution but has a number of individuals working for them who are religious practitioners.

A copy if the agreement which details the duties and the terms of conditions in which they must perform their duties was provided.

They are provided with a company car to perform these duties and a sample travel record detailing travel in that car has been provided.

An earlier ruling has been issued stating that these individuals were employees for the purposes of the FBTAA.

Another ruling also advising the Company that a pay as you go withholding event arose from payments made to these individuals.

Issue 2

An employee entered into a novated lease arrangement with the Company. The lease term was 5 years. The car was involved in an accident and written off. The car was with a car with same make and model and base value.

The novated lease agreement was provided

Relevant legislative provisions

FBTAA section 7

FBTAA section 9

FBTAA section 57

FBTAA section 135S

FBTAA subsection 136(1)

FBTAA subsection 138(2)

FBTAA section 162

TAA schedule 1 section 12-5

TAA schedule 1 section 12-35

TAA schedule 1 section 12-45

TAA schedule 1 section 12-47

Reasons for decision

Summary

The individuals are employees (as defined under subsection 136(1) of the FBTAA), as the allowances paid to them are considered to be withholding events under section 12-35 of Schedule 1 to the TAA.

Detailed reasoning

An employee is defined in subsection 136(1) of the FBTAA to mean a current, future or a former employee.

Subsection 136(1)of the FBTAA defines a:

· future employee as 'a person who will become a current employee'

· former employee as 'a person who has been a current employee'; and

· current employee as a person who receives, or is entitled to receive, salary or wages'.

Salary or wages is defined is defined in subsection 136(1) of the FBTAA to mean:

a) a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; and

(aa) a payment from which an amount must be withheld (even if the amount is not withheld) under paragraph 12-110(1)(ca) (about parental leave pay) in Schedule 1 to the Taxation Administration Act 1953, other than a payment under Part 3-3 of the Paid Parental Leave Act 2010 (Payment of instalments by Secretary); and

(b) a payment from which an amount must be withheld (even if the amount is not withheld) under section 12-47 in Schedule 1 to the Taxation Administration Act 1953 where:

(i) the payment is made to a religious practitioner by a religious institution; and

(ii) the activity, or series of activities, for which the payment is made is done by the religious practitioner as a member of the religious institution.

Withholding payments covered

Item Provision Subject matter

1 Section 12-35 Payment to employee

2 Section 12-40 Payment to company director

3 Section 12-45 Payment to office holder

4 Section 12-115 Commonwealth education or training payment

5 Section 12-120 Compensation, sickness or accident payment

Therefore for a person to be an employee under the FBTAA one of the above withholding events would need to apply to a payment that individual receives.

An earlier fringe benefits tax (FBT) ruling concluded that section 12-35 of Schedule 1 to the TAA applied to these individuals. This is one of the withholding events that would make these individuals an employee under the FBTAA.

Section 12-35 of Schedule 1 to the TAA 1953 provides that:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

Taxation Ruling TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees provides guidance in determining whether an individual is an employee. In looking at whether someone is an employee it looks at

· Control (paragraphs 26 to 31)

· Does the worker operate on their own account or in the business of the payer? (paragraphs 32 to 34)

· 'Results' contracts (paragraphs 35 to 40)

· Whether the work can be delegated or subcontracted (paragraphs 41 to 43)

· Risk (paragraph 44)

· Provision of tools and equipment and payment of business expenses (paragraph 45 to 50)

· Other indicators (paragraphs 51 and 52)

Control

Paragraph 26 of TR 2005/16 states:

The classic 'test' for determining the nature of the relationship between a person who engages another to perform work and the person so engaged is the degree of control which the former can exercise over the latter. A common law employee is told not only what work is to be done, but how and where it is to be done. With the increasing usage of skilled labour and consequential reduction in supervisory functions, the importance of control lies not so much in its actual exercise, although clearly that is relevant, as in the right of the employer to exercise it. As stated by Dixon J in Humberstone v. Northern Timber Mills:

The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter's orders and directions.

This documents provided demonstrates a degree of control over the individuals.

Does the worker operate on their own account or in the business of the payer?

Paragraph 32.of TR 2005/16 states:

In Hollis v. Vabu, the majority of the High Court quoted the following statement made by Windeyer J in Marshall v. Whittaker's Building Supply Co (1963) 109 CLR 210:

… the distinction between an employee and independent contractor is 'rooted fundamentally in the difference between a person who serves his employer in his, the employer's business, and a person who carries on a trade or business of his own.

This distinction is also referred to as the integration or organisation test.

The documents do not show the individuals are operating a business of providing services to customers.

'Results' contracts

Paragraph 35 of TR 2006/16 states:

Where the substance of a contract is to achieve a specified result, there is a strong (but not conclusive) indication that the contract is one for services. In World Book (Australia) Pty Ltd v. FC of T Sheller JA said:

Undertaking the production of a given result has been considered to be a mark, if not the mark, of an independent contractor'

The individuals do not have to provide results.

Whether the work can be delegated or subcontracted

Paragraph 41 of TR 2006/12 states:

The power to delegate or subcontract (in the sense of the capacity to engage others to do the work) is a significant factor in deciding whether a worker is an employee or independent contractor. If a person is contractually required to personally perform the work, this is an indication that the person is an employee.

The work cannot be delegated or subcontracted.

Risk

Paragraph 44 of TR 2006/12 states:

Where the worker bears little or no risk of the costs arising out of injury or defect in carrying out their work, he or she is more likely to be an employee. On the other hand, an independent contractor bears the commercial risk and responsibility for any poor workmanship or injury sustained in the performance of work. An independent contractor often carries their own insurance and indemnity policies.

The agreement states that the company is not providing insurance and indemnity over the individuals

However the duties being performed are not in respect of a product is being produced so there are no risks or costs associated.

Provision of tools and equipment and payment of business expenses

Paragraphs 45 and 50 of TR 2005/16 state:

45. It had been held that the provision of assets, equipment and tools by an individual and the incurring of expenses and other overheads is an indicator that the individual is an independent contractor

50. Further, an employee, unlike an independent contractor, is often reimbursed (or receives an allowance) for expenses incurred in the course of employment, including for the use of their own assets such as a car

Tools and equipment and an allowance are provided.

Other indications

Paragraphs 51 and 52 of TR 2005/16 state:

In addition to the above, other indicators of the nature of the contractual relationship have been variously stated and have been added to from time to time. Those suggesting an employer-employee relationship include the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged, provision of benefits such as annual, sick and long service leave and the provision of other benefits prescribed under an award for employees. However, the fact that a contract does not contain provisions for annual and sick leave will not, in itself, be an indicator of a principal/independent contractor relationship.

The requirement that a worker wear a company uniform is an indicator of an employment relationship existing between the contracting parties. In Hollis v. Vabu, the fact that the couriers were presented to the public and to those using the courier service as emanations of Vabu (the couriers were wearing uniforms bearing Vabu's logo) was an important factor supporting the majority's decision that the bicycle couriers were employees.

The agreement does not include a reference to leave provisions but a uniform is provided.

Conclusion

Based on the information provided it could be concluded that section 12-35 of Schedule 1 to the TAA will apply and the individuals are employees as defined under subsection 136(1) of the FBTAA.

Issue 1 Question 2

Summary

Section 57 of the FBTAA does not apply as the benefits in question are provided in respect of the employment with the Company who is not a religious institution.

Detailed reasoning

Section 57 of the FBTAA requires that the employer of the employee is a religious institution.

Section 57 of the FBTAA will not apply as the Company is not a religious institution.

Issue 1 Question 3

Summary

Journeys from home to various work locations are all considered business journeys as it is considered that the duties of the individuals are itinerant in nature. Any journeys undertaken by them between their home and a location where they are performing their duties for the Company are not private.

Detailed reasoning

A business journey is defined in subsection 136(1) of the FBTAA in part as:

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; or . . .

Miscellaneous Taxation Ruling MT 2027 Fringe benefits tax : private use of cars : home to work travel states:

As discussed in Taxation Ruling IT 112, the decision in Lunney and Hayley v FCT (1958) 100 CLR affirmed the position that travel between home and a person's regular place of employment or business is ordinarily private travel. While travel to work is a necessary pre-requisite to earning income it is not undertaken in the course of earning that income. Put at its simplest, travel to work is private; travel on work is business.

However paragraph 27 of MT 2027 states:

It has long been acknowledged that travel from an employee's home may constitute business travel where the nature of the office or employment is inherently itinerant (see, for example, the comments of Lords Wilberforce and Simon in Taylor v Provan (1975) AC 194 at pages 1213 and 1219 respectively). More recently, this issue was addressed in Australia in FCT v Wiener, 78 ATC 4006; 8 ATR 335, from which the following guidelines for the application of the principle have been adopted (see Taxation Ruling IT 2122). These are that travel will be indicated as business travel where the nature of the office or employment is such that -

(a) it is inherently itinerant;

(b) travel is a fundamental part of the employee's work;

(c) it is impractical for the employee to perform the duties without the use of a car;

(d) the terms of employment require the employee to perform duties at more than one place of employment;

(e) the nature of the job itself makes travel in the performance of duties essential; and

(f) it can be said of the employee that he or she is travelling in the performance of the employment duties from the time of leaving home.

This paragraph is further expanded on in Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses and paragraph 7 states:

There have been a number of cases considered by the Courts, Boards of Review and Administrative Appeals Tribunal where deductions for transport expenses were allowed on the basis of the taxpayers' 'shifting places of work'. 'Shifting places of work' is another term for itinerancy. In these cases the obligation to incur the transport expenses arose from the nature of the taxpayers' work, such that they were considered to be travelling in the performance of their duties from the moment of leaving home. The following characteristics have emerged from these cases as being indicators of itinerancy:

a) travel is a fundamental part of the employee's work (paragraphs 22 to 27 below);

b) the existence of a 'web' of work places in the employee's regular employment, that is, the employee has no fixed place of work (paragraphs 28 to 33 below);

c) the employee continually travels from one work site to another. An employee must regularly work at more than one work site before returning to his or her usual place of residence (paragraphs 34 to 45 below);

d) other factors that may indicate itinerancy (to a lesser degree) include:

(i) the employee has a degree of uncertainty of location in his or her employment (that is, no long term plan and no regular pattern exists) (paragraphs 47 to 55 below);

(ii) the employee's home constitutes a base of operations (paragraphs 56 to 62 below);

(iii) the employee has to carry bulky equipment from home to different work sites (paragraphs 63 to 71 below);

(iv) the employer provides an allowance in recognition of the employee's need to travel continually between different work sites (paragraphs 72 to 75 below).

The duty statement and travel patterns show that travel is a fundamental part of the duties. It is not a position that can be performed in one location.

In respect of a web of work places paragraph 28 of TR 95/34 states:

An employee may earn income by performing his or her duties at several work sites. The location of those sites may make it necessary to travel to the various sites. If an employee performs work at a single site and then moves to other sites on a regular basis, it would be considered that a 'web' of work places exists. In Wiener's case, the taxpayer was required to attend four to five schools each day. This constituted a 'web' of work places.

In respect of continual travel paragraph 34 of TR 95/34 states:

In certain work situations continual unsettled travel from one work place to another is a common factor. In some instances, an employee's ongoing engagement may require him or her to attend various sites in different localities nominated by the employer. In most such cases the need to travel from place to place would be a necessary condition of employment.

In looking at the travel patterns provided there are occasions where the individuals travel to multiple work sites but on other days the travel can be from home to where their office is located. This does not indicate that a web of workplaces exist that the individuals travel to on a regular basis. In addition the travel pattern does not demonstrate that there is continual travel to locations as nominated by the Company.

In respect of uncertainty paragraphs 47 and 48 of TR 95/34 states

The element of uncertainty of location is generally another distinct characteristic of itinerant employment. Unlike an ordinary worker who makes the daily journey to his or her regular place of work, the itinerant worker often cannot be certain of the location of their work sites.

'Uncertainty' in this context, relates only to uncertainty of location, and not to uncertainty of employment. A deduction is not allowable for transport or travel expenses incurred in obtaining new employment. This is because the expenditure is:

'...incurred in getting, not in doing, work as an employee. It would come at a point too soon to be properly regarded as incurred in gaining assessable income.' (see FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 at ATC 4163; ATR 549).

In addition paragraphs 50 and 51 of TR 95/34 states:

The concept of uncertainty was highlighted in Case T106 where the taxpayer was often uncertain about the work site he would be required to attend until the actual day of work. Senior Member Roach said (ATC at 1194; ATR at 3095):

'He does not work according to any regular pattern as to work site; there is no long-term plan by which he can predict what will be required of him in the future; and there is no certainty as to the range of work sites he may be called on to attend over a period. In my view his occupation is that of an itinerant worker.'

This can be contrasted with a worker who has a fixed place of employment and is aware of the location of the work place.

What the travel patterns and the duties indicate is that in there is a degree of uncertainty in the location of employment. Although the individuals have an office the duties require them to travel to where they are needed. Although there are days they only travel from home to work and back home again this is not the norm.

Based on the travel pattern and the duty statement provided it can be accepted that the duties of the individuals are itinerant because:

· travel is a fundamental part of the position; and

· there is a demonstrated degree of uncertainty in the location of employment

Issue 1 Question 4

Summary

The travel is not a business journey as (in their second role) there is no evidence to show that the duties undertaken are itinerant.

Detailed reasoning

Example 2 in paragraphs 93 to 95 of TR 95/34 states:

Brian is a bank employee who works at the same branch each day. In addition to his normal duties, Brian is rostered on stand-by duty after hours to attend automatic telling machines (ATMs) within a given area when break-downs occur. If Brian is called to attend an ATM his employer pays him an allowance from the time he leaves home until his return.

Brian has two distinct parts of his employment. The first requiring daily travel between his home and his usual branch, and the second requiring travel between his home and the ATMs within his area. Brian's usual pattern of travel involves attendance at several ATMs before returning home.

A deduction is not allowable for the cost of transport between his home and his usual branch. It is a private expense and falls within the general rule of Lunney's case (see paragraph 77 to 82 above). A deduction is allowable for the cost of transport between Brian's home and the ATMs because this part of his employment is inherently itinerant for the following reasons:

(a) travel is a fundamental part of Brian's stand-by duties;

(b) the various ATMs within Brian's given area are a web of work places;

(c) there is usually continual travel from one ATM to another;

(d) Brian's stand-by duties have a degree of uncertainty; and

(e) an allowance is paid by his employer in recognition of the need to travel.

We have concluded that when working for the Company the duties are itinerant. However the individuals also undertake activities for another entity.

As the example above demonstrates where there is two roles one can be itinerant while the other may not be. Where the are two distinct roles they are looked at separately. Therefore we need to look at the duties undertaken for the second entity separately to those undertaken on behalf of the Company.

Paragraph 29 of TR 95/34 states:

In Case U97 87 ATC 584; AAT Case 68 (1987) 18 ATR 3491 (Case U97), the taxpayer was employed as a fireman. He was attached to a fire station located close to his home in a northern suburb of Sydney, but for some years worked as a relief fireman. In that capacity, he was commonly sent to other fire stations in the Sydney fire district. The only distinguishing feature of his claim was that he travelled to one outer station regularly for a number of days then another outer station for another period. In deciding that the taxpayer was not itinerant, Senior Member McMahon stated (ATC at 588; ATR at 3495-3496):

'There is not the web of workplaces that one looks for as a structure for the applicant's working life if that life is to be regarded as itinerant.'

Paragraph 52 of TR 95/34 states:

The fireman's duties in Case U97 did not demonstrate the characteristic of uncertainty, although he was not required to serve at the same station for every day during the year. He was generally aware of his commitments well in advance.

In respect of the duties performed for the second entity they are only performed occasionally and there is no uncertainty as to where they will be performed. As a result the individuals will know in advance where they are required to travel to.

Therefore travel from home and back to perform duties for the second entity are private and not business journeys.

Issue 1 Question 5

Summary

Any travel in a private capacity is not a business journey. Travelling to a location simply attend rather than work is a private journey.

Detailed reasoning

As explained a business journey is defined in subsection 136(1) of the FBTAA in part as:

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; or . . .

Although the individuals may attend the same location when we need to look at the reason for the journey to determine if it is business or private.

On the days they travel to the location to visit but not in order to perform any duties of employment the individuals are there in a private capacity.

The travel to that location on those occasions will always be private travel.

Issue 1 Question 6

Summary

As explained in our answer to question two any travel from home to a location where the individuals are performing their duties for the Company will be a business journey.

This would include where travel in this instance.

Issue 1 Question 6

The provision requires the identification of taxpayer so the reasons have been removed for publication.

Issue 2 Question 1

Summary

As we are dealing with two cars there are separate car benefits.

Section 9 of the FBTAA applies to a particular car and not the lease that allows a car to be made available. The transitional arrangements are only contemplated after the car has been identified.

When the second car is first made available to an employee will be a new commitment for the purposes of the transitional arrangements.

Detailed reasoning

The transitional arrangements under section 9 of the FBTAA deals with change to the statutory formula. This changes removed the tiered statutory fraction based on kilometres travelled and relaced it with a flat rate of 20%.

The transitional arrangements had the effect of phasing in the change based on the last time a commitment was made in respect of making a car available to an employee. In looking at the transitional arrangements in subsection 9(1) of the FBTAA states in part:

(1) The amendments made by this Part apply to a car fringe benefit in relation to a year of tax beginning on or after 1 April 2011, whether the car fringe benefit is provided before, on or after the commencement of this item.

(2) Despite subitem (1), the amendments do not apply to a car fringe benefit, in relation to an employer in relation to a year of tax, that relates to a car, if:

(a) any car fringe benefit, in relation to the employer in relation to the year of tax in respect of employment of an employee by the employer, that relates to the car is constituted by the application or availability of the car for a period; and

(b) the last time at which:

(i) the employer, or an associate of the employer; or

(ii) the employee, or an associate of the employee;

committed to the application or availability of the car for that period, in respect of the employment, occurred before 7.30 pm Australian Eastern Standard Time on 10 May 2011. . .

However subsection 9(1) of the FBTAA (which remains unchanged as a result of the amendments) states in part

Subject to this Part, where one or more car fringe benefits in relation to an employer in relation to a year of tax relate to a particular car held by a particular person (in this section referred to as the "provider"), the taxable value of that fringe benefit, or the aggregate of the taxable values of those fringe benefits, as the case may be, in relation to that year of tax, is the amount calculated in accordance with the formula: . . .

Although the changes to subsection 9(1) of the FBTAA changed the formula used in the subsection it did not change the reference to 'a particular car held by a particular person'.

Therefore before applying the formula a particular car has to be identified. The statutory formula is then applied to that car. In applying the transitional arrangement to the formula you then look at the last time there was a commitment in respect of that car.

Although a car is being replaced under an existing lease agreement for the purposes of subsection 9(1) of the FBTAA both the old and new car need to be dealt with separately. Where the cars are made available for private use two separate car benefits arise under section 7 of the FBTAA.

In addition under the lease the novation is cancelled when the car is written off. When the novation ceases the employer stops holding the original car and the lease reverts back to the employee. at the time it is. If a replacement car is acquired and novated the employer begin to hold this new car from the new novation date and the employer is then able to make that car available to an employee.

Regardless of the fact that subsection 9(1) of the FBTAA requires that the car itself be identified, the lease agreement itself also deals with cars separately in respect of when the employer may hold a car under the lease. This is because the car needs to be identified so it can be novated in order for a car benefit to arise.

Therefore when the replacement car is made available under the lease agreement that a new commitment for the purposes of subsection 9(1) of the FBTAA has been made.