Edited version of your written advice

Authorisation Number: 1013086893179

Date of advice: 13 September 2016

Ruling

Subject: Fringe benefits tax - motor vehicle benefits

Question 1

Is the provision of a the Vehicle with a carrying capacity of 1040 kg for use by your employee a residual benefit under section 45 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

If the answer to question 1 is yes, is the residual benefit an exempt benefit under subsection 47(6) of the FBTAA?

Answer

No

Question 3

If the answer to question 2 is no, can the taxable value of the residual fringe benefit be reduced in relation to business use of the vehicle under section 52 of the FBTAA?

Answer

Yes

Question 4

If the answer to question 3 is yes, in the absence of a log book, would the estimate of the number of private kilometres travelled, detailed in the facts, provide a reasonably based estimate for the purposes of calculating the taxable value of the residual fringe benefit under section 50 or 51 of the FBTAA?

Answer

Yes

Question 5

Is the residual fringe benefit included in the 'reportable fringe benefits amount', if any, and reported on the Employee's pay-as-you-go summary under Division 16 of the Taxation Administration Act 1953?

Answer

Yes

This ruling applies for the following period:

Fringe benefits tax year ended 31 March 2016

The scheme commences on:

1 April 2015

Relevant facts and circumstances

You provide an employee (the Employee) with a vehicle (the Vehicle) under a salary packaging arrangement on a fully maintained basis.

The carrying capacity of the Vehicle is 1040 kg.

Log book records have not been maintained for the Vehicle.

The Employee uses the Vehicle on each work day for postage and collection of mail, and three times per fortnight for collection of purchases for the business.

The Vehicle is otherwise available for the private usage of the Employee. In addition to travel to and from work, the employee makes approximately two private trips per week and these trips are generally made at the same times.

You have estimated the number of private kilometres (km) travelled, and private use percentage by estimating the number of business km travelled

You hold the Vehicle under a novated lease and do not pay a separate amount for the use of the Vehicle as part of the novated lease payments.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986

Subsection 5E(2)

Subsection 5E(3)

Section 45

Section 47

Subsection 47(6)

Section 50

Section 51

Section 52

Section 135P

Section 135Q

Subsection 136(1)

Income Tax Assessment Act 1997

Subsection 995-1(1)

Taxation Administration Act 1953

Division 16

Section 16-153

Section 16-155

Section 16-160

Section 16-170

Reasons for decision

Question 1

Summary

Providing the use of the Vehicle to your employee is a residual benefit under section 45 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Detailed reasoning

Division 12 of the FBTAA sets out the rules in relation to the taxation of residual fringe benefits.

Chapter 18 of the Fringe benefits tax - a guide for employers (NAT 1054) (the FBT Guide) provides guidance in relation to residual fringe benefits, and explains that the term 'fringe benefit' has very broad meaning, and includes any right, privilege, service or facility provided in respect of employment (18.1).

Section 45 of the FBTAA, within Division 12, defines a residual benefit as any benefit that is not subject to the rules provided in Divisions 2 to 11.

Division 2 of the FBTAA specifically deals with car fringe benefits. However, a motor vehicle only falls within this Division if it satisfies the definition of a 'car' in subsection 136(1) of the FBTAA.

For the purpose of the FBTAA, 'car' has the same meaning as that given in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). Under that subsection, 'car' is defined to be a motor vehicle designed to carry a load of less than 1 tonne (1000 kgs), and fewer than 9 passengers.

In your case, you provide your employee the right to use the Vehicle in respect of their employment. As the Vehicle is designed to carry more than 1 tonne, it is not a car for the purposes of the FBTAA and Division 2 does not apply.

As there are no other specific provisions that apply to providing the use the Vehicle, the benefit is a residual benefit under subsection 45 of the FBTAA and the rules in Division 12 apply.

Question 2

Summary

As the Vehicle is used for regular and frequent private use, the residual benefit is not an exempt benefit under subsection 47(6) of the FBTAA, and you are required to pay FBT on the taxable value of the residual fringe benefit.

Detailed reasoning

Section 47 of the FBTAA provides various exemptions that may apply to residual fringe benefits.

Subsection 47(6) provides an exemption in respect of residual benefits consisting of the provision, or use, of a motor vehicle.

The FBT Guide, at 20.2 explains that if you provide an employee with the use of a motor vehicle that is not a car, the use is an exempt benefit where any private use is restricted to the following circumstances:

• Travel to and from work

• Use that is incidental to travel in the course of performing employment-related duties

• Non-work-related use that is minor, infrequent and irregular.

The FBTAA does not define what is meant by the words minor, infrequent and irregular, and on that basis, their ordinary meaning applies. The Macquarie Dictionary 2009, rev. 5^th ed, The Macquarie Library Pty Ltd, NSW provides the following definitions:

minor

adjective

1. lesser, as in size, extent or importance …

infrequent

adjective

1. happening or occurring at long intervals or not often …

2. not constant, habitual, or regular …

irregular

adjective

not characterised by any fixed principle, method, or rate: irregular intervals

For the purposes of subsection 47(6) of the FBTAA, all three of the conditions must be satisfied.

In your case, your employee uses the Vehicle for both business and private use. You advise that in addition to regular travel to and from work, the employee makes two private use trips each week that occur at the same time. These two, weekly, trips are regular and frequent.

As the Vehicle is used for regular and frequent private use, the residual fringe benefit is not an exempt benefit under subsection 47(6) of the FBTAA.

Question 3

Summary

As you provide your employee the right to use the vehicle on a fully maintained basis, including fuel, where a Residual benefit declaration - vehicles other than cars is provided to you by the Employee, specifying:

• the business connection of the travel in the Vehicle, and either

• the deductible percentage, or

• the number of private kilometres travelled (if using the cents per kilometre method),

the gross taxable value of the benefit may be reduced in relation to the business use of the Vehicle.

Detailed reasoning

Where the recipient of a residual fringe benefit is the employee (rather than an associate of the employee), the taxable value of a residual fringe benefit may be reduced in accordance with the otherwise deductible rule in section 52 of the FBTAA.

Paragraph 23 of MT 2034 explains that under section 52, the gross taxable value of a residual benefit that is the right to use a vehicle is subject to reduction to the extent to which, had the employee paid to use the vehicle, the amount would have been deductible for income tax purposes.

As noted in paragraph 13, the appropriate reduction factor is the proportion of business kilometres travelled to total kilometres travelled in the vehicle during the year. The principles outlined in ruling MT2027 in determining the private use of cars are similarly relevant for this purpose.

The reduction under section 52 of the FBTAA is dependent on certain substantiation requirements being satisfied. Unless those requirements are satisfied, the taxable benefit will be established on the basis of the total (private and business) kilometres travelled by the employee in the vehicle (MT 2034, paragraph 24).

The reduction will apply only where the employee lodges with the employer a declaration in the approved form, specifying the business connection and deductible percentage, i.e. the business proportion of total kilometres travelled (paragraph 52(1)(c) of the FBTAA). If using the cents per kilometre method, it is acceptable for the declaration to state the number of private kilometres travelled rather than the deductible percentage.

NOTE: The approved form, a Residual benefit declaration - vehicles other than cars is available on the ATO website (search using quick code QC 17516).

You provide your employee the right to use the vehicle on a fully maintained basis, including fuel. As such, where a declaration is provided to you by the Employee that specifies:

• the business connection of the travel in the Vehicle, and either

• the deductible percentage, or

• the number of private kilometres travelled (if using the cents per kilometre method),

the gross taxable value of the benefit may be reduced in relation to the business use of the Vehicle.

Question 4

Summary

Your method of estimating the number of private kilometres travelled by the Vehicle is comparable to the example provided in the FBT Guide, and is accepted as a reasonably based estimate, in the absence of a log book.

Detailed reasoning

The FBTAA does not prescribe which method employers should use to determine the taxable value of a right to use a motor vehicle other than a car. It is open to employers to elect a method they consider will give them a better outcome.

The FBT Guide and MT 2034 outline a number of acceptable methods of valuing the benefit, and both the 'cents per kilometre' method and the 'operating cost' method require you to estimate either:

• the number of private kilometres travelled by the vehicle in the year, or

• the number of business kilometres travelled by the vehicle in the year.

The legislation in relation to residual fringe benefits does not require detailed log book records to be kept for vehicles that are not cars. However, many businesses would maintain some form of log book records and these should be used, where possible, in determining the extent of private use of the vehicle (FBT Guide, at 18.6).

In the absence of such records, soundly based estimates of the number of private kilometres travelled are acceptable (FBT Guide, at 18.6). The example provided in the FBT Guide (18.6) suggests how a soundly based estimate may be achieved and states:

'you could determine the home-to-work component of private use by multiplying the number of journeys during the year by the distance between the employee's residence and place of employment.'

As detailed in the facts, you have estimated the number of private kilometres and private use percentage by estimating the number of business kilometres travelled. You have achieved this by:

• multiplying the number of trips taken by the Employee to collect mail and other purchases during the year, by the approximate distance travelled to complete these tasks, and

• dividing this amount from the total kilometres travelled for the year, obtained using odometer records for the Vehicle.

Your method is comparable to the example provided in the FBT Guide at 18.6, and is accepted as a reasonably based estimate of the number of private kilometres travelled for the purpose of calculating the taxable value of providing the Employee with the use of the Vehicle, in the absence of a log book.

Question 5

Summary

As the right to use the Vehicle is a residual fringe benefit, and is not an exempt benefit or an excluded benefit, the taxable value of the residual fringe benefit is included in the Employee's 'reportable fringe benefits amount', if any.

Where a 'reportable fringe benefits amount' for an employee exists, it must be reported on the Employee's payment summary under Division 16 of the TAA.

Detailed reasoning

An employer's PAYG withholding obligations are set out in Division 16 of the TAA. Sections 16-153, 16-155, 16-160 and 16-170 of the TAA set out various reporting requirement that may apply where an employee has a 'reportable fringe benefits amount'.

Whether an employee has a 'reportable fringe benefits amount' for a year of income, and the size of that amount, is determined under two sections of the FBTAA:

• Section 135Q of the FBTAA only applies to benefits exempted under sections 57A or 58, and

• Section 135P of the FBTAA applies in all other cases.

Section 135P of the FBTAA provides that an employee's 'reportable fringe benefits amount' for an income year is dependent on their 'individual fringe benefits amount' for the FBT year. The 'individual fringe benefits amount' is:

'the sum of the employee's share of the taxable value of each fringe benefit that relates to the year of tax and is provided in respect of employment other than an excluded fringe benefit.' (subsection 5E(2)).

Excluded fringe benefits, as specified in subsection 5E(3) of the FBTAA, are taxable benefits that are excluded from the reportable fringe benefits tax arrangements. The FBT Guide lists the following as excluded fringe benefits:

• Entertainment by way of food and drink, and benefits associated with that entertainment, such as travel and accommodation.

• Car parking fringe benefits (excluding car parking expense payment benefits).

• Hiring or leasing entertainment facilities such as corporate boxes.

• Certain remote area residential fuel.

• Certain remote area housing assistance.

• Certain remote area home ownership schemes.

• Certain remote area home repurchase schemes.

• Costs of occasional travel to a major Australian population centre by employees and their families living in a remote area.

• Freight costs for food provided to employees living in a remote area.

• Fringe benefits provided to address certain security concerns relating to the personal safety of an employee, or an associate of the employee, arising from the employee's employment.

• Emergency or other essential health care provided to an employee or associate while the employee is working outside Australia.

• Certain Australian Government overseas living allowance payments.

• Certain benefits provided to Defence Force members.

• Certain benefits provided to police officers.

• Certain car benefits arising from travel between home and work by police officers, ambulance officers and fire fighters using marked emergency vehicles.

• From 1 April 2007, car benefits arising from an employee's private use of pooled or shared cars.

As determined above, providing your employee with the right to use the Vehicle is a residual fringe benefit. The residual fringe benefit is not an exempt benefit and is not an excluded benefit.

As such, the taxable value of the residual fringe benefit is included in the Employee's reportable fringe benefits amount, if any.

Where a 'reportable fringe benefits amount' for an employee exists, it must be reported on the Employee's payment summary under Division 16 of the TAA.