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Edited version of private advice
Authorisation Number: 1012654997770
Ruling
Subject: Allowances and PAYGW
Question 1
Is the Business Use Subsidy an allowance?
Answer
Yes.
Question 2
Should Pay As You Go Withholding be applied to Business Use Subsidy?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
The scheme commenced on
1 July 2013
Relevant facts and circumstances
In addition to providing certain employees with flexible salary sacrifice arrangements you also pay to some employees a business use subsidy (BUS) for the general use of the employee's novated lease vehicle. Those who enter into a BUS agreement are required to make their novated lease vehicle available for use by other employees, somewhat akin to a car pooling arrangement.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Taxation Administration Act 1953 section 12-35 in Schedule 1
Reasons for decision
Business Use Subsidy
Subsection 6-6(2) of the ITAA 1997 states if you are an Australian resident your assessable income includes the ordinary income you derive directly or indirectly from all sources whether in or out of Australia during the income year.
Paragraph 2 of Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement states:
A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.
In your circumstances you pay a predetermined amount to your employees to make their cars available to your car pool. It is paid regardless of whether the employees incurs expenses and they have discretion whether or not to expend the allowance
Withholding
Section 12-35 in Schedule 1 to the Taxation Administration Act 1953 (TAA) imposes an obligation on the paying entity to withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee.
Subsection 12-1(1) of Schedule 1 to the TAA however, provides that an entity need not withhold an amount from a payment if the whole of the payment is exempt income of the recipient.
Under subsection 6-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997), an amount of ordinary income or statutory income will be treated as exempt income if it is made exempt by a provision of the Act. Subsection 6-20(2) provides that ordinary income may also be exempt income if it is excluded expressly or by implication from being assessable income.
The allowance Business Use Subsidy paid to your employees is not exempt income under any provision of the ITAA 1997 and therefore you are required to withhold from payments made.