Edited version of your written advice

Authorisation Number: 1012995566693

Date of advice: 15 April 2016

Ruling

Subject: Fringe benefits tax

Question 1

Is the private use of trading stock provided to the Directors of the Company an 'in-house residual fringe benefit' according to the definition provided in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

This ruling applies for the following period:

Year ending 30 March 2015

The scheme commences on:

In the year ended 31 March 2015

Relevant facts and circumstances

The Company buys and sells transport vehicles

It purchased an item of stock in the March 2015 Quarter

The Directors maintain a log book for this item and there is a small portion of private use.

The Directors will make an employee contribution to cover the market value hourly rate for this particular item of stock.

The Directors use the vehicle for minor private use on their holidays

Reasons for Decision

Is the private use of trading stock provided to the Directors of the Company an 'in-house residual fringe benefit' according to the definition provided in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides the following definition of a 'fringe benefit':

fringe benefit, in relation

or to an associate of the employee by:

the employer; or to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

(c) being a benefit provided to the employee

(d) …

in respect of the employment of the employee, but does not include:

…

(g) a benefit that is an exempt benefit in relation to the year of tax; or

…

'Benefit' in this context is also defined in subsection 136(1) of the FBTAA as follows:

Benefit includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property;

(ii) the provision of, or the use of facilities for, entertainment, recreation or instruction; or

(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money.

The provision of trading stock for private use is a benefit that is a fringe benefit as it is provided to the Directors of the Company and is not an exempt benefit.

In order to calculate the taxable value of a fringe benefit it is necessary to initially consider the type of benefit that is provided. The FBTAA is divided into 13 types of benefits and each type has its own valuation rules.

Section 45 of the FBTAA defines residual benefits as:

45 Residual benefits

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

The taxable values of residual benefits are calculated using different methods according to whether the benefits are in-house residual fringe benefits or external residual fringe benefits.

Subsection 136(1) defines an 'in-house residual fringe benefit' as follows:

in-house residual fringe benefit, in relation to an employer, means a residual fringe benefit in relation to the employer:

(a) where both of the following conditions are satisfied:

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

(ii) at or about the comparison time, the provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; or

(a) where all of the following conditions are satisfied:

(i) the provider is not the employer or an associate of the employer;

(ii) the provider purchased the benefit from the employer or an associate of the employer (which employer or associate is in this definition called the seller);

(iii) at or about the comparison time, both the provider and the seller carried on a business that consisted of or included the provision of identical or similar property principally to outsiders;

but does not include a benefit provided under a contract of investment insurance.

Chapter 18 of Fringe benefits tax - a guide for employers (FBT guide for employers) (NAT 1054) provides the following summary of in-house residual fringe benefits:

18.4 In-house residual fringe benefits

A residual fringe benefit is valued as an in-house residual fringe benefit if you (or an associate) provide the benefit and it is identical or similar to rights, services or facilities you (or an associate) provide to the public in the ordinary course of business. Examples include professional advice provided free or at a discount by a law firm to its employees, and video recorders hired out to employees of a television rental firm at a discount.

In summary, by making trading stock available for private use to the Directors of the Company there will be an in-house residual fringe benefit if the following conditions are satisfied:

1. you carry on a business that consists of or includes the provision of identical or similar benefits principally members of the public; and

2. the benefit is not provided under a contract of investment insurance.

Each of the conditions above, are considered in turn.

1. Do you carry on a business that consists of or includes the provision of identical or similar benefits principally members of the public?

The transport vehicle is not available for lease or charter to the public because this is not permitted by regulations. Minor private use is made of the transport vehicle by its owners when on holiday.

2. Is the benefit a benefit that is not provided under a contract of investment insurance?

The benefit is a benefit that is not provided under a contract of investment insurance.

Conclusion

The company make available to its Company Directors trading stock for their private use. As the conditions discussed above are not met the benefit is not a benefit in accordance with subsection 136(1) definition of in-house residual fringe benefit.

The private use of the vehicle is a residual fringe benefit and the concessional taxable valuation rules under Section 49 paragraph (a) of the FBTAA are not available.

For residual fringe benefits to which the in-house concessions do not apply, the taxable value of the benefit where the benefit was not purchased at arm's length is the amount the employee could reasonably be expected to have paid at arm's length less any amount paid by the employee.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 section 48

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)