Edited version of your written advice

Authorisation Number: 1012659955718

Ruling

Subject: Car benefits

Question 1

Will a car fringe benefit arise when a regional employee garages your car at their residence?

Answer

Yes

Question 2

In calculating the taxable value of the car fringe benefits that arise from a car that has been garaged at the residence of a regional employee, can the journeys between home and work be treated as a business journey?

Answer

Yes

This ruling applies for the following period:

Year ended 31 March 2013

The scheme commenced on:

1 April 2012

Relevant facts and circumstances

You provide a range of services including counselling in people's homes and education seminars.

For such services to be supplied in regional areas, you have acquired a number of cars for use by the employees located in the regional areas.

Some of these cars are taken home by employees on the basis that:

• there is no off-street/on-premises parking overnight;

• the cars have equipment in them which your counsellors use in performance of their duties;

• the regional counsellors often have a meeting scheduled in the morning before they go to the regional office; and

• the counsellors sometimes have meetings on the way home from the regional office and it would not be practical to then take the car back to the regional office.

Local police have stated it would not be safe to leave the motor vehicle overnight on the street outside of the regional offices.

You provided the Duty Statements for the employees.

To perform their duties, the regional employees are required to transport a range of equipment to their work locations.

During the year ended 31 March 2013 logbooks were kept for a 12 week period for each of the cars based in regional offices that were taken home.

You provided a summary of these logbooks and advised the number of annual kilometres travelled by each of the regional motor vehicles.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 7(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 7(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 10(2)

Fringe Benefits Tax Assessment Act 1986 Section 10A

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 162F

Fringe Benefits Tax Assessment Act 1986 Section 162G

Reasons for decision

1. Will a car fringe benefit arise when the employees located in regional areas garage your cars at their residence?

A car benefit is discussed in section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as follows:

7(1) [Car applied to, available for employee's private use] Where:

(a) at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as the provider):

(i) is applied to a private use by the employee or an associate of the employee; or

(ii) is taken to be available for the private use of the employee or an associate of the employee; and

(b) either of the following conditions is satisfied:

(i) the provider is the employer, or an associate of the employer, of the employee;

(ii) the car is so applied or available, as the case may be, under an arrangement between:

(A) the provider or another person; and

(B) the employer, or an associate of the employer, of the employee;

that application or availability of the car shall be taken to constitute a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee.

Therefore, a car fringe benefit will arise whenever an employee uses the car for a private purpose, or the car is taken to be available for the private use of the employee.

Subsection 7(2) of the FBTAA sets out when a car will be taken to be available for the private use of the employee. Subsection 7(2) states:

7(2) [Car garaged at employee's residence] Where, at a particular time, the following conditions are satisfied in relation to an employee of an employer:

(a) a car is held by a person, being:

(i) the employer;

(ii) an associate of the employer; or

(iii) a person (other than the employer or an associate of the employer)

with whom, or in respect of whom, the employer or an associate of the employer has an arrangement relating to the use or availability of the car;

(b) the car is garaged or kept at or near a place of residence of the employee or of an associate of the employee;

the car shall be taken, for the purposes of this Act, to be available at that time for the private use of the employee or associate, as the case may be.

You allow certain of your regional employees to garage a car held by you, at or near their residence. The car is taken to be available for private use of the employee and therefore a car fringe benefit will arise on any day when the car is garaged at the home of an employee.

As set out in ATO Interpretative Decision ATO ID 2003/613 Fringe Benefits Tax Car fringe benefits: car taken to be available for private use under the statutory formula method (ATO ID 2003/613) the fact that the employer's vehicle is garaged at or near an employee's residence to protect the car from theft or vandalism will not alter this conclusion. Similarly, the fact that the employees may require the car to go to a meeting on the way to or from work and is required to carry equipment that is used at the meeting will not alter the outcome.

However, where the home garaging occurs as a result of an employee who is classified as an itinerant employee garaging the car at their home, the taxable value of the car fringe benefits that arise from the car can be reduced to reflect the business use of the car if an election is made to use the operating cost method to calculate the taxable value and the necessary records are kept.

The calculation of the taxable value of a car fringe benefit using the operating cost method

The taxable value of a car fringe benefit under the operating cost method is stated in subsection 10(2) of the FBTAA as follows:

Subject to this Part, where an election is made under subsection (1), the taxable value, or the aggregate of the taxable values, as the case requires, of the car fringe benefits in relation to the employer in relation to the year of tax that relate to the car while it was held by a particular person (in this section referred to as the provider) during a particular period (in this section referred to as the holding period) in the year of tax is the amount calculated in accordance with the formula:

(C x (100% - BP) - R

where:

C is the operating cost of the car during the holding period;

BP is:

(a) if, under section 10A or 10B, the employer is not entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period - nil; or

(b) (Omitted by No 145 of 1995)

(c) In any other case - the business use percentage applicable to the car for the holding period:

and

R is the amount (if any) of the recipient's payment.

For a reduction in the operating costs to be claimed under the operating cost method it is necessary for the requirements of either section 10A or 10B of the FBTAA to be met. Section 10A applies where the year of tax is a logbook year and section 10B applies in a year that is not a logbook year.

In general terms, section 162G of the FBTAA provides that a year will be a logbook year of tax if a logbook is kept for the car during the year, or none of the previous four years was a log book year of tax for the employer in relation to the car.

The summary of logbook records indicates that the logbooks for each of the cars were kept during the year ended 31 March 2013. Therefore, the year ended 31 March 2013 was a logbook year of tax and the business use percentage will be 0% if the requirements of section 10A of the FBTAA were not met.

Section 10A of the FBTAA states:

Where one or more car fringe benefits in relation to an employer in relation to a year of tax relate to a car while it was held by a particular person (in this section called the provider) during a particular period (in this section called the holding period) in a year of tax that is a log book year of tax of the employer in relation to the car, the employer is entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period if, and only if:

(a) log book records and odometer records are maintained by or on behalf of the provider for an applicable log book period in relation to the car; and

(b) odometer records are maintained by or on behalf of the provider for the holding period; and

(c) if the provider is not the employer - those log book records and odometer records are given to the employer before the declaration date; and

(d) the employer specifies the employer's estimate of the number of business kilometres travelled by the car during the holding period; and

(e) the employer specifies a percentage as the business use percentage applicable to the car in relation to the provider for the holding period.

In considering these requirements:

Logbook and odometer records were maintained for a 12 week period. Therefore, the requirements of paragraph 10A(a) were met.

It is not clear whether odometer records were kept for the period of the year for which the car was held. However, it is noted that you advised the annual kilometres travelled for each of the cars. Provided this fact is based on the odometer readings on the first and last days of the period of the year for which the car was held, the requirements of paragraph 10A(b) were met.

As the employer was the provider it is not necessary to consider paragraph 10A(c).

Paragraph 10A(d) requires the employer to estimate the number of business kilometres travelled by the car during the holding period. Section 162F requires this estimate to be made having regard to all relevant matters including any log book records, odometer records or other records that have been maintained and any variations in the pattern of use of the car.

From the information provided, it is not clear whether this process occurred. The information provided indicates you have determined the total number of kilometres travelled during the holding period and the number of business kilometres travelled by the car during the logbook period. However, it is not clear whether you estimated the number of business kilometres travelled during the holding period.

Paragraph 10A(e) requires the employer to specify the business use percentage for the holding period. In making this estimate the definition of business use percentage in subsection 136(1) provides that the business use percentage means the percentage worked out using the following formula:

Number of business

kilometres travelled by the

car during the holding

period x 100%

Total number of kilometres

travelled by the car during the holding period

This calculation uses the information kept for the purposes of paragraphs 10A(b) and 10A(d).

A business kilometre is defined in subsection 136(1) to mean 'a kilometre travelled by the car in the course of a business journey'.

Business journey is defined in subsection 136(1) of the FBTAA as follows:

(a) 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 …

In your ruling application you advised that the employees in keeping the logbooks had treated the journeys between home and work as business journeys and requested a ruling as to whether this was the appropriate treatment of the journeys.

2. In calculating the taxable value of the car fringe benefits that arise from the cars garaged at the residence of a regional employee, can the journeys between home and work be treated as a business journey?

Guidance for determining whether the journey between home and work is a business journey is provided in Taxation Ruling No. MT 2027 Fringe Benefits Tax: Private use of cars: home to work travel (MT 2027).

The general rule for considering this issue is set out in paragraphs 14 and 15 of MT 2027. Paragraphs 14 and 15 of MT 2027 state:

14. 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.

15. The fact that the car may be used during the day in the course of business operations would not alter this result unless, as discussed in paragraphs 25-27, it is concluded that the office or employment is essentially itinerant in nature. See, for example, the majority decision in Lunney and Hayley at page 500, quoting with approval the comments of Denning L.J. in Newsom v Robertson (1952) 2 All ER 728; (1952) 33 TC 542, who concluded that costs incurred by a barrister in travelling between his home and chambers were not business expenses, despite acknowledging that the expenses incurred in travelling from chambers to various courts during the course of the day were.

In applying these paragraphs, the journeys will be private unless one of the following exceptions apply:

• the travel is undertaken by an employee on stand-by duty after the employee has commenced their employment duties;

• the travel is between two places of employment or business;

• the employment duties are of an itinerant nature;

• an employee who has a regular place of employment garages the car at home solely for the purpose of using the car to travel to an alternative destination which is not a regular place of employment at which the employee performs substantial employment duties.; or

• the travel involves the transport of equipment which the employee is required to keep at their residence.

In your ruling application, you contended the employment duties are of an itinerant nature. The circumstances in which this exception will apply are discussed at paragraphs 25 to 27 of MT 2027.

Employment Duties of an Itinerant Nature (Commercial Travellers, etc.)

25. 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.

26. Wiener's case dealt with a teacher who, under a trial scheme, was allocated as part of her normal teaching duties the task of instructing pupils at five different schools. On the facts of the particular case, it was concluded that the duties were inherently itinerant. More common examples of the application of this principle would include commercial travellers and government inspectors whose homes can be seen to be a base of operations from which they travel to one of a number of locations throughout the day, over a continuing period.

27. Commonly, in these cases, the employee will attend at the employer's office periodically (e.g., once a week) to complete or file reports, pick up supplies or organise future trips. Travel from home to the office and back made in these limited circumstances will be accepted as an ordinary incident of the business travel and, as such, will also be treated as business travel.

Further guidance is provided in Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses (TR 95/34).

Paragraph 7 of TR 95/34 lists the following characteristics as being indicators of itinerancy:

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

(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;

(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;

(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);

(ii) the employee's home constitutes a base of operations;

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

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

In considering these factors:

• You provide a model of service under which your employees visit clients in their homes, rather than having the clients visit your office;

• The employees are required to:

• attend regional seminars to promote your organisation and the services that you provide;

• attend Seminars in the region;

• hold Information Sessions across the region;

• deliver education programs across the region;

• resource support groups and liaise with support group facilitators across the region;

• travel to various service providers throughout the region; and

• attend various meetings and staff development sessions in another city.

• The employees are in remote locations where the clients have limited transport

These factors indicate:

• travel is a fundamental part of the employee's work;

• the employees are required to travel to numerous work locations including client's homes, seminars, information sessions, various service providers and meetings in another city;

• employees are continually travelling from one work site to another;

• the employee's pattern of work changes each day; and

• the employee is required to carry equipment from site to site.

On the basis of these factors it is accepted the employment duties are of an itinerate nature and the journeys between home and the first and last places of work on the day are business journeys.