Edited version of your written advice

Authorisation Number: 1012696899091

Ruling

Subject: Recipient's payment

Question

Was a recipient's payment made when calculating the taxable value of a car fringe benefit using the statutory formula method under subsection 9(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer:

No.

This ruling applies for the following period

FBT year ended 31 March 2013

The scheme commenced on

1 April 2012

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The company was subject to an employer obligations audit. The audit found that the company had provided car fringe benefits to an employee but had not complied with its fringe benefits tax (FBT) obligations for the year ended 31 March 2013. The company was asked to lodge its FBT return.

Once the return was lodged the company was found to be compliant with its FBT obligations as communicated via a Completion of employer obligations audit letter. The company declared no employee contributions.

The company is seeking to determine whether the taxable value of car fringe benefits can be reduced by a recipient's payment. The company stated in the private ruling submission that it has an obligation to make a payment to the employee in question. The company and employee have agreed to set off the employee's obligation to the employer against the employer's obligation.

A letter was sent to the company seeking further detail about the arrangement, in particular written evidence of the agreement between the employee and the company. During a subsequent telephone conversation, the ATO was informed that there was no written evidence or written agreement stating that the employer and employee have agreed to set-off the employee's obligation to the employer against the employer's obligation to the employee. It was advised that a verbal arrangement was in place.

Relevant legislative provisions

Section 7 of the Fringe Benefits Tax Assessment Act 1986

Subsection 9(1) of the Fringe Benefits Tax Assessment Act 1986

Subparagraph 9(2)(e)(i) of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision

The taxable value of a car fringe benefit using the statutory formula method is calculated using the formula contained in subsection 9(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

This formula includes the ability to reduce the taxable value by the employee making a 'recipient's payment'

This payment can be made in a number of ways including by way of a journal entry and paragraph 2 of Miscellaneous Taxation Ruling MT 2050 Fringe Benefits Tax: payment of recipients' contribution by journal entry explains the conditions that need to be satisfied in order for the 'recipients payment' to be made by journal entry. This paragraph states:

Journal entries in an employer's accounts are a payment of a 'recipients contribution', 'recipient's payment' or 'recipients rent' only if all of the following conditions are met:

(a) the employee has an obligation to make a contribution to the employer towards a fringe benefit;

(b) the employer has an obligation to make a payment to the employee;

(c) the employer and employee agree to set-off the employee's obligation to the employer against the employer's obligation to the employee.

If any of these conditions are not met then a journal entry cannot be used to make the recipients payment.

In respect of the employee having an obligation under condition (a), paragraph 7 of MT 2050 states in part:

Consequently, journal entries can only be used for the payment of an employee's contribution towards a fringe benefit if the employee is obliged to make that contribution. It is the employer (being the taxpayer) who needs to prove that such an obligation on the employee exists.

In this case an audit determined that the company had provided car fringe benefits. As a result the company lodged a 2013 FBT return and in the table in question 23 of the return (details of fringe benefits provided) the company listed the recipient's payment (employee contribution) for car fringe benefits as Nil.

In completing the employer's declaration at question 25 of the return the company declared that no recipient's payment was received.

As a result when the return was lodged the company declared that the employee had no obligation to make a contribution at this point.

Returning to paragraph 7 of MT 2050 no employee had an obligation to make a payment towards the car fringe benefit. Had there been an obligation this would have been reflected the return.

As a result MT 2050 has no application because the first of the three conditions in paragraph 2 was not satisfied.