Edited version of your private ruling

Authorisation Number: 1012487104552

Ruling

Subject: Fringe benefits tax (FBT) - car fringe benefit

Question 1

Does a prestige personalised car number plate (PPP) purchased by the Company and attached to a company owned car form part of the base value of the car for the purposes of subsection 9(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Does a PPP lent at no cost to the Company by the PPP's owner and attached to a company owned car form part of the base value of the company car for the purposes subsection 9(2) of the FBTAA?

Answer

Yes.

This ruling applies for the following period

1 April 2013 to 31 March 2014

The scheme commenced on

The scheme has commenced.

Relevant facts

In 19XX a current shareholder of the Company purchased the ownership of a number of a specific states PPP.

The shareholder is the spouse of the Company's director but the shareholder is not an employee or a director of the company.

The Company's Director has also acquired ownership of one other PPP.

The Company now proposes to purchase, at market value, all X PPP for investment purposes.

After completion of the proposed purchase of the PPP, the company also proposes to allow the PPP with the letters XX' to be attached to a company owned car used by the Director.

However, as an alternative, the shareholder may still retain ownership of the PPP with the letters XX but allow it to be attached to the company car used by the Director.

If this alternative option is adopted, the shareholder will not receive any payment or other forms of compensation for allowing the company to use that particular PPP on the car used by the Director.

The Director uses the company car for both the business operations of the company and also for their own private purposes.

The company uses the statutory formula method for determining its fringe benefits tax (FBT) liability in respect of the company car used by the Director.

The relevant car used by the Director is owned by the company and the car was purchased on a specified date.

When a vehicle is first registered in a particular state in Australia, it is issued with standard number plates for that vehicle.

Personalised Plates purchased for use in this particular state include the following features:

· 'Personalised Plates provide both 'private plates' and 'business plates'.

· 'Business plates' can incorporate, for example, a company logo, business name, website address or contact details.

· 'Private plates' come in a variety of unique letter combinations and various colours.

· Personalised plates incur no annual fees or costs.

· If the owner of a personalised plate wishes to attach the personalised plate to a vehicle they cannot do so until a 'Remove and/or Attach Personalised Number Plates' form is processed by the State Transport and Main Roads department (Main Roads) in that particular state and if standard plates are already attached to the relevant car the standard plates must be handed back to Main Roads.

· There is no time limit to place new personalised plates on a vehicle but they should be attached as soon as a 'Remove and/or Attach' form is completed and lodged with Main Roads. If plates are upgraded, restyled or relace the current plates, the original plates must be returned to Main Roads within 14 days of the receipt of the new plates.

· A personalised plate is not required to be handed back if the owner moves elsewhere or if the owner no longer requires them.

· However, the plates can be transferred or sold to another person after the initial purchase.

· Private buying and selling of a personalised plate requires the completion and lodgement of a 'Transfer of Ownership' form with Main Roads and also a transfer fee must be paid.

· Transferring personalised plates to an immediate family member can be done fees exempt (conditions apply).

· The ownership details of the personalised plates need not match the registration details of the vehicle provided both parties have authorised the attachment.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 9

Fringe Benefits Tax Assessment Act 1986 Subsection 9(2)

Fringe Benefits Tax Assessment Act 1986 Section 13

Fringe Benefits Tax Assessment Act 1986 Subsection 13(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 13(4)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

ATO view documents

Fringe benefits tax - a guide for employers, paragraph 7.4

Miscellaneous Taxation Ruling MT 2021

Taxation Ruling TR 2000/4

ATO Interpretative Decision ATO ID 2011/47

Other references (non ATO view, such as court cases)

FC of T v. Polaroid Australia Pty Ltd 71 ATC 4249; (1971)2 ATR 653

Zendel Australia Ltd & Others v. FC of T 92 ATC 4515; (1992) 24ATR 101

Air International Pty Ltd v. Chief Executive Officer of Customs [2001] FCA 1386; (2001) 67 ALD 571

Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986 (Clause 136)

National Tax Liaison Group FBT Sub-committee minutes 30 May 2002, Item 12

National Tax Liaison Group FBT Sub-committee minutes 20 May 2004, Item 9

National Tax Liaison Group FBT Sub-committee minutes 26 February 2009, Item 10

National Tax Liaison Group FBT Sub-committee minutes 12 May 2011, Item 10

Macquarie Dictionary, online edition

Reasons for decision

Question 1

Detailed reasoning

1. The 'base value of the car' is one of the elements of the formula in subsection 9(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) used to calculate the taxable value of car fringe benefits under the statutory formula method of section 9 of the FBTAA.

2. In basic terms, the 'base value' for a car that is owned comprises of:

· the original cost price (excluding registration and stamp duty)

· the cost of any fitted 'non-business accessories'

· dealer delivery charges.

3. 'Any 'non-business accessories' added after purchase of the car increases the base value of the car in the FBT year in which they are added and for subsequent years.

4. The term 'non-business accessory' is defined in subsection 136(1) of the FBTAA as follows:

non-business accessory, in relation to a car, means an accessory fitted to the car, whether at the factory where the car was assembled or at some other place, other than an accessory required to meet the special needs of any business operations in relation to which the car is used.

5. The term 'fitting' is also defined in subsection 136(1) of the FBTAA as follows:

fitting, in relation to a non-business accessory, includes the acquisition of the accessory.

6. However, the FBTAA does not define what is an 'accessory', nor does the FBTAA, define, what is meant by the phrase 'accessory fitted to a car'.

7. The Macquarie Dictionary, on-line edition, defines the word 'accessory' to include:

1. a subordinate part or object; something added or attached for convenience, attractiveness, etc., such as a spotlight, heater, driving mirror, etc., for a vehicle. 2. (plural) the additional parts of an outfit, as shoes, gloves, hat, handbag, etc.

8. The meaning of the word 'accessory' has been considered in a number of cases relating to sales tax and customs tariff classification. In FC of T v. Polaroid Australia Pty Ltd 71 ATC 4249; (1971) 2 ATR 653, Gibbs J. stated at ATC 4253; ATR 657:

The ordinary dictionary meaning of accessory is an adjunct, which itself is defined as something joined to another, but subordinate, as auxiliary, or dependent upon it.

9. In Zendel Australia Ltd & Others v. FC of T 92 ATC 4515; (1992) 24 ATR 101, Hill J. held that an accessory must contribute to the working of some principal item or its general effect and also an accessory must be an adjunct to an item rather than an adjunct to a process. In determining whether aluminium foil was an accessory for an oven, Hill J at ATC 4520; ATR 107 stated:

As the dictionary definitions demonstrate for an item to be an 'accessory' in the relevant sense that item must contribute to the working of some principal item or its general effect. Thus both a camera lens and light meter are, as Gibbs J observed, accessories to a camera; mag wheels may be an accessory to a car, a crisper may be an accessory to a refrigerator, or perhaps even a baking dish might be an accessory to a stove, at least if custom made for it. In each of these examples the accessory actually contributes to the functioning of the principle item.

10. In Air International Pty Ltd v. Chief Executive Officer of Customs [2001] FCA 1386; (2001) 67 ALD 571 ( Air International ), Weinberg J. at FCA 51; ALD 51 said:

However, an air conditioning system which is installed in a passenger motor vehicle can, in a meaningful sense, be described as being a part, and an accessory, and a component of that vehicle.

11. The Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986 (at Clause 136) says:

"non-business accessory" is an item the cost of which will be added to the cost price of a car for the purpose of determining the taxable value of a car fringe benefit. It is an accessory not required for the particular needs of the business operations served by the car. An example would be an air-conditioner.

12. Therefore, what may be regarded as a component of a car, such as the air-conditioner described in the Explanatory Memorandum and in Air International, can also be considered to be an 'accessory'.

13. The Macquarie Dictionary, on line edition, defines the word 'fitted' to include:

1. made so as to conform to the shape of something else. 2. (of carpets) extending from wall to wall. 3. provided or equipped with accessories.

14. The decision to add personalised plates to a car in is a voluntary one and not mandatory. Personalised number plates are optional extras when added to a car.

15. It is considered that personalised plates can constitute an 'accessory', or accessories', to a car in the same way that alloy wheels, rear spoilers, seat covers, paint protection, fabric protection, rust protection and window tinting may also be considered to constitute an 'accessory', or 'accessories', to a car for the purposes of the definition of 'non-business accessory' in subsection 136(1) of the FBTAA.

16. Although personalised plates need not ever be affixed to a car, it considered that once personalised plates are, in fact, fastened to a car they have been 'fitted to the car' for the purposes of the definition of 'non-business accessory' in subsection 136(1) of the FBTAA.

17. Consequently, when the PPP, with the letters XX, are, in fact, affixed to the car used by the Director these personalised plates will constitute an 'accessory' that is 'fitted' to that particular car for the purposes of the definition of 'non-business accessory' in subsection 136(1) of the FBTAA.

18. It is further considered that the above view is not necessarily altered by the fact that the company's original reason for acquiring all PPPs (including the PPP, with the letters 'XX') was for the purposes of investment.

19. Nonetheless, it is only a 'non-business accessory' fitted to a car that increases the base value of the car for the purposes of subsection 9(2) FBTAA.

20. A 'non-business accessory' is one that is 'other than an accessory required to meet the special needs of any business operations in relation to which the car is used'.

21. The term 'special needs' is not defined in the FBTAA, however, the Macquarie Dictionary, on-line edition' defines the terms 'special' and 'need' as follows:

special

3. relating or peculiar to a particular person, thing, instance, etc..

need

1. a case or instance in which some necessity or want exists; a requirement...

2. urgent want, as of something requisite...

3. necessity arising from the circumstances of a case...

22. The term 'business operations' is defined in subsection 136(1) of the FBTAA specifically in relation to either a government body or a non-profit company. However, further guidance on the meaning of the term 'business operations' is provided in Taxation Ruling TR 2000/4 which states:

39. The term 'business operations' is defined in subsection 136(1) in relation to a government body or a non-profit company to include any operation or activity carried out by that body or company.

40. In relation to other persons, 'business operations' is not defined and has to be given its ordinary meaning. 'Operations' is a very wide expression, for example, 'mining operations' is wider than 'the working of a mining property' (see Parker v. FC of T (1953) 90 CLR 489, at 494; (1954) ALR 26, at 28; (1953) 10 ATD 287, at 291; (1953) 27 ALJ 574, at 575). Whether a particular activity or series of activities amounts to a business operation is a question of fact.

41. In the context of the definition of 'business premises' in subsection 136(1) we consider that the term 'business operations' has a broad meaning. In our view 'business operations' ought to be regarded as wider than 'carrying on a business' and would include both passive and active dealings, including isolated transactions of a person, without the need to establish that the person was carrying on a business, provided the dealings were undertaken for the purpose of profit making by way of a business operation or a commercial transaction.

42. Where a business exists, the term 'business operations' would include a wide range of activities undertaken by the person carrying on the business. Support for this view can be found in the judgment of Merkel J in Esso Australia Ltd v. FC of T 98 ATC 4953, at 4957; (1998) 40 ATR 76, at 80; 157 ALR 652, at 656.

23. The company car provided to the Director is used by him for both the business operations of the company and also for their own private purposes.

24. However, despite the wide meaning that may be attributed to the term 'business operations', there is no evidence that when the car is being used by the Director for the company's business operations there is any particular requirement arising from such use that necessitates the fitting of the PPP, with the letters 'XX', to the car.

25. In fact, the stated reason the relevant PPP are being fitted to the company car is because the plate's letters are considered to be somewhat similar to a letter in the Director's surname.

26. Therefore, the PPP, with the letters 'XX', will constitute a 'non-business accessory', as defined in subsection 136(1) of the FBTAA, when attached to the relevant car as it will be (a) 'fitted' to the car, (b) an 'accessory' to the car and (c) not required to meet the special needs of any business operations in relation to which the car is used.

27. It is considered, therefore, that the PPP, with the letters 'XX', when attached to the company car used by the Director forms part of the base value of the car for the purposes of subsection 9(2) of the FBTAA as that particular PPP meets all the requirements to constitute a 'non-business accessory' as defined in subsection 136(1) of the FBTAA.

28. Under subparagraph 9(2)(a)(iii) of the FBTAA what is added to the base value of the relevant car is the 'cost price of each non-business accessory'.

29. It may be noted that, as relevant here, subparagraph (b)(ii) of the definition of 'cost price, in subsection 136(1) of the FBTAA, states that the cost price of a non-business accessory fitted to a car is '...the expenditure incurred, by a person other than the recipient of a car benefit in relation to the car, for or in relation to the fitting of the accessory...'

30. As explained above (at paragraph 5), the term 'fitting' in relation to a non-business accessory includes the acquisition of the accessory.

31. Therefore, in this particular instance, the cost price of the PPP, with the letters 'XX', to be added to the base value of the car used by the Director will be the market value price paid by the company to obtain the ownership of that specific personalised plate.

Question 2

Detailed reasoning

1. As determined in Question 1 (at paragraph 24), the PPP, with the letters 'XX', when attached to the company car used by the Director will be a 'non-business accessory'.

2. In this instance, it is proposed that the shareholder will retain ownership of the relevant PPP and will not receive any payment or other forms of compensation for allowing the company to use that particular PPP on the car used by the Director.

3. Nevertheless, in such circumstances once the relevant PPP is attached to the company car used by the Director it will be a 'non-business accessory', as defined in subsection 136(1) of the FBTAA, for the same reasons as found in Question 1 being, namely, that when attached to the relevant car they will be (a) 'fitted' to the car, (b) an 'accessory' to the car and (c) not required to meet the special needs of any business operations in relation to which the car is used.

4. Therefore, it is considered that, once again, the PPP, with the letters 'XX', when attached to the company car used by the Director forms part of the base value of the car for the purposes of subsection 9(2) of the FBTAA.

5. Nevertheless it may be noted that as the company will obtain the use of the relevant PPP without having to make any payment or other forms of compensation there will be no apparent '...expenditure incurred, by a person other than the recipient of a car benefit in relation to the car, for or in relation to the fitting of the accessory...' that will meet the requirements of subparagraph (b)(ii) of the definition of 'cost price, in subsection 136(1) of the FBTAA.

6. However, in certain situations, subsection 13(4) of the FBTAA may apply for the purpose of determining the base value of a car under subsection 9(2) of the FBTAA. Section 13 of the FBTAA states (as applicable here):

SECTION 13 EXPENDITURE TO BE INCREASED IN CERTAIN CIRCUMSTANCES

13(1) [Determination of base value, operating cost]

The following provisions apply for the purpose of determining the base value of a car for the purposes of section 9...

13(2) ...

13(3) ...

13(4) [No expenditure incurred]

Where, in a case to which subsection (2) does not apply:

(a) a person acquires any property, or is provided with any benefit; and

(b) the person incurs no expenditure in respect of the acquisition of that property or the provision of that benefit;

the person shall be deemed to have incurred, in respect of the acquisition of that property or the provision of that benefit, expenditure equal to the amount that the person could reasonably be expected to have been required to pay to purchase that property, or obtain the provision of that benefit, on the open market.

7. Under subsection 13(4) of the FBTAA, where a person acquires property or is provided with a benefit for no expenditure the person is deemed, for the purposes of section 9 of the FBTAA, to have incurred expenditure equal to the open market value of the property or benefit.

8. In this case the company does not acquire ownership of the relevant PPP however it does obtain the use of that PPP to affix to the company car used by the Director.

9. The term 'benefit' as defined in subsection 136(1) of the FBTAA includes, amongst other things, 'any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility'.

10. It is considered that, due to the wide ambit of what may constitute a 'benefit' for the purposes of the FBTAA, the company is receiving a 'benefit' by obtaining the use of the PPP to affix to the company car used by the Director.

11. It is also considered that, as the establishment of the base value of a car under section 9 of the FBTAA is to enable the taxable value of the relevant car fringe benefit to be determined and that, in turn, enables the employer's fringe benefit liability to be determined, then subsection 13(4) of the FBTAA has application to benefits received by the employer.

12. That is, the company can be the relevant 'person' for the purposes of subsection 13(4) of the FBTAA.

13. Consequently, in this particular instance, the cost price of the PPP, with the letters 'XX', to be added to the base value of the car used by the Director will be the open market value that would have had to been paid by the company to purchase that specific personalised plate.