Edited version of your private ruling

Authorisation Number: 1012580308830

Ruling

Subject: Base value for car benefits

Question 1

Can the 'importer price' be used to determine the base value of a car for the purpose of calculating car fringe benefits that arise from the use of that car?

Answer

Yes.

This ruling applies for the following periods:

1 April 2014 - 31 March 2015

1 April 2015 - 31 March 2016

1 April 2016 - 31 March 2017

1 April 2017 - 31 March 2018

1 April 2018 - 31 March 2019.

The scheme commenced on:

1 April 2014.

Relevant facts and circumstances:

You are a motor vehicle manufacturer.

Your head company is based overseas, and is also a motor vehicle manufacturer.

You have provided a copy of the Group structure, which shows the voting and capital rights of the corporations in your conglomerate.

You propose to lease cars from another subsidiary of the overseas company.

The cars are manufactured by the overseas company.

The overseas company sells the newly manufactured cars to an Australian subsidiary for a price known as the 'importer price'.

The 'importer price' is a globally consistent price representative of a commercially acceptable mark-up to the cost of manufacture.

You advise that transfer pricing documentation reflects that the 'importer price' charged to the subsidiary by the overseas company is at arm's length.

In addition to paying the 'importer price' the importing subsidiary company is responsible for all costs of the cars entering Australia, including:

· freight costs

· insurance

· inspection costs

· customs duty

· import duty, and

· storage costs.

For fringe benefits tax purposes, you propose to value some cars using the statutory formula method under section 9 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 9

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 162(1)

Fringe Benefits Tax Assessment Act 1986 section 318.

Reasons for decision

Question 1

Can the 'importer price' be used to determine the base value of a car for the purpose of calculating car fringe benefits that arise from the use of that car?

Detailed reasoning

In determining your FBT liability that arises from providing the cars to employees for their private use, you propose to value some of the cars using the statutory formula method under section 9 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Subsection 9(1) of the FBTAA states that the taxable value of the car fringe benefit using the statutory formula method is as follows:

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

Number of days

during that year of tax

on which the car fringe benefits amount (if any)

0.2 x Base value x were provided by the provider - of the

of the car Number of days recipient's

in that year of tax payment

What is the base value of the car?

Subsection 9(2) of the FBTAA provides the calculations for determining the base value of the car as:

(a) the base value of the car is the sum of:

(i) where, at the earliest holding time, the car was owned by the provider or an associate of the provider, the amount calculated in accordance with the formula AB,

Where:

A is the cost of the car to the provider or associate, as the case may be; and

B is:

(A) in a case where the commencement of the year of tax is later than the fourth anniversary of the earliest holding time - 2/3; or

(B) in any other case - 1; and

(ii) in a case to which subparagraph (i) does not apply - the amount calculated in accordance with the formula AB,

Where:

A is the leased car value of the car at the earliest holding time; and

B is:

(A) in a case where the commencement of the year of tax is later than the fourth anniversary of the earliest holding time - 2/3; or

(B) in any other case - 1; …

In applying this calculation, it is necessary to determine the earliest holding time.

The earliest holding time is defined in paragraph 9(2)(b) of the FBTAA as:

(b) the earliest holding time, in relation to a car held by the provider at a particular time (in this paragraph referred to as the "current time"), is the earliest time before the current time when the car was held by the provider or an associate of the provider;…

Therefore, the base value of the car will be determined by the earliest time the car was held by the provider or an associate of the provider.

Who is the provider?

Subsection 9(1) of the FBTAA provides that, for the purposes of using the statutory formula method, the provider is the person who holds the car.

Subsection 162(1) of the FBTAA provides that a car will be held by a person if it is either owned by the person, leased to the person or otherwise made available to the person by another person.

As you are the lessee of the car, you will be the provider.

Are you, a subsidiary of the overseas company and the overseas company associates?

Subsection 136(1) of the FBTAA provides that 'associate has the meaning given by section 318 of the Income Tax Assessment Act 1936.'

Subsection 318(2) of the Income Tax Assessment Act 1936 (ITAA 1936) determines who will be associates of a company and states:

For the purposes of this Part, the following are associates of a company (in this subsection called the "primary entity"):

…

(d) another entity (in this paragraph called the 'controlling entity") where;

(i) the primary entity is sufficiently influenced by:

(A) the controlling entity; or

(B) the controlling entity and another entity or entities or

(i) a majority voting interest in the primary entity is held by:

(A) the controlling entity; or

(B) the controlling entity and the entities that, if the controlling entity were the primary entity, would be associates of the controlling entity because of subsection (1), because of subparagraph (i) of this paragraph, because of another paragraph of this subsection or because of subsection (3);

…

(f) any other entity that, if a third entity that is an associate of the primary entity because of paragraph (d) of this subsection were the primary entity, would be an associate of that third entity because of subsection (1), because of another paragraph of this subsection or because of subsection (3).

In your situation you and the overseas company will be associates if the overseas company holds a majority voting interest in you.

Paragraph 318(6)(c) of the ITAA 1936 states:

an entity or entities hold a majority voting interest in a company if the entity or entities are in a position to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of the company.

Your overseas company has over 50% of the voting rights in a company which holds 100% of the voting rights in you. Therefore the overseas company is an associate for the purposes of subsection 9(2) of the FBTAA.

You propose to lease the cars from a subsidiary of the overseas company. As the subsidiary purchased the cars from the overseas company, it is necessary to consider whether the subsidiary is also an associate.

Under paragraph 318(2)(f) of the ITAA 1936, the subsidiary from which you propose to lease the cars is considered to be your associate if they are an associate of the overseas company.

As the overseas company holds 100% of the voting rights of the subsidiary from which you propose to lease the cars, the subsidiary is an associate of the overseas company under paragraph 318(2)(d).

Therefore the subsidiary of the overseas company from which you propose to lease the cars, is also your associate for the purposes of subsection 9(2) of the FBTAA.

When was the car first held?

As both the subsidiary from which you propose to lease the cars and the overseas company are associates, the earliest holding time will be when the manufacturing process by the overseas company is complete and the car has come into existence.

What is the 'cost price' of the car to your head company?

The term 'cost price' is defined in subsection 136(1) of the FBTAA, and where a car is owned and manufactured by the same person, subparagraph 136(1)(a)(i) applies.

Subparagraph 136(1)(a)(i) of the FBTAA states:

cost price … means:

… the amount for which the car could reasonably have been expected to have been sold by the person by wholesale under an arm's length transaction at or about the time when the car was applied to the person's own use;

Where the manufacturer sells the car, it will be applied to the manufacturer's own use. Thus, the cost price of the car will be the amount that the manufacturer could reasonably expect to receive if the manufacturer had sold the car by wholesale under an arm's length transaction, at or about the time that the car was applied to the manufacturer's own use.

This will be the 'importer price' which is the arm's length sale price of the car prior to any additional charges associated with importing the car into Australia.

The 'importer price' can therefore be used to calculate the base value.

Conclusion

The base value of the car which you provide to an employee, will be the cost price of the car to your head company at the earliest holding time, being the 'importer price'.