Edited version of your written advice

Authorisation Number: 1051182906426

Date of advice: 1 February 2017

Ruling

Subject: Fringe benefits tax - car fringe benefits

Question 1

Is the travel undertaken by employees considered to be a business journey for the purposes of section 10 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes. Travel between various job locations is considered to be travel undertaken in the course of producing assessable income of the employee and are business journeys for the purposes of section 10 of the FBTAA.

Question 2

Is the travel undertaken by employees between their homes and their places of work considered to be a business journey for the purposes of section 10 of the FBTAA?

Answer

Yes. Travel between home and work locations is considered to be travel undertaken in the course of producing assessable income of the employee and are business journeys for the purposes of section 10 of the FBTAA.

This ruling applies for the following periods:

1 April 201X to 31 March 202X

Relevant facts and circumstances

Employees are expected to undertake the vast majority of their work at the locations and are provided with a vehicle for their use as well as a laptop or tablet and mobile phone.

Employees' use these assets to commence work prior to departing home by:

● Co-ordinating staff and resources;

● Calling team members;

● Accessing emails and other documentation;

● Receiving calls, emails and text messages; and

● Undertaking research and analysis using electronic tools such as a laptop or tablet.

There is no longer a requirement for the employees to attend their office on a daily basis.

Attendance at the office is on an ad hoc basis for administrative purposes.

Employees spend the vast majority of their time completing their duties on the road from their vehicles.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986

Section 7

Section 10

Subsection 136(1)

Section 162

Reasons for decision

Question 1

Calculating the aggregate taxable values of car fringe benefits under the operating cost method in section 10 of the FBTAA requires, among other things, a determination of the 'business use percentage' applicable to the car. Under the definition of 'business use percentage' in subsection 136(1) of the FBTAA, the percentage is dependant, in part, on the number of business kilometres travelled by the car. The definition of 'business kilometre' is 'a kilometre travelled by the car in the course of a business journey'.

Subsection 136(1) of the FBTAA relevantly defines 'business journey' to mean:

(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…

Division 2 of Part III of the FBTAA sets out the circumstances in which a car fringe benefit will arise and how the taxable value of that benefit is to be calculated.

Subsection 7(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) sets out the conditions for a car, owned or leased by an employer, being provided to an employee or an associate of the employee as a car benefit.

The car must be:

● applied to a private use (sub-paragraph 7(1)(a)(i) of the FBTAA); or

● taken to be available for private use (sub-paragraph 7(1)(a)(ii) of the FBTAA).

The term 'private use' is defined in subsection 136(1) of the FBTAA to mean, in relation to a motor vehicle, any use by the employee or associate 'that is not exclusively in the course of producing assessable income of the employee'.

Miscellaneous Taxation Ruling MT 2027 Fringe benefits tax: private use of cars: home to work travel explains the difference between private use and business use for fringe benefits tax purposes at paragraphs 8 to 12:

8. By virtue of the definition of "private use" in sub-section 136(1), any use of a car by an employee or associate that is not exclusively in the course of producing assessable income of the employee will constitute private use.

9. For the purposes of the operating cost valuation method, a business journey is defined in sub-section 136(1) to be, in effect, any use of the car other than private use by an employee or associate. As explained in paragraph 3, details of business journeys are required to be entered in a log book or similar document if they are to be taken into account in determining the private use proportion of a car for the purposes of the application of the operating cost method.

10. A critical question in determining the distinction between private and business use, therefore, is whether, when the car is used by an employee or associate, it is being used exclusively in the course of producing assessable income of the employee…

11. In essence, the test for determining business use for FBT purposes is the same as that asked under the income tax law in deciding whether expenses incurred in operating a car are deductible under section 51 of the Income Tax Assessment Act. There the result turns on whether the expenditure is incurred in gaining or producing assessable income or in carrying on a business for that purpose. A finding that expenditure incurred in the operation of a car satisfied that test is seen as synonymous with the determination that the car is used for that purpose.

12. Determining the distinction between private and business use for FBT purposes, therefore, can be approached by asking the question whether, if the employee had incurred expenditure on that use of the car, the expenditure would have been wholly deductible for income tax purposes.

Employment Duties of an Itinerant Nature

Paragraph 25 of MT 2027 states:

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.

Taxation Ruling TR 95/34, Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses, provides further guidance as to when an employee's work is itinerant.

Paragraph 7 of TR 95/34 states:

There have been a number of cases considered by the Courts, Boards of Review and Administrative Appeals Tribunal where deductions for transport expenses were allowed on the basis of the taxpayers' 'shifting places of work'. 'Shifting places of work' is another term for itinerancy. In these cases the obligation to incur the transport expenses arose from the nature of the taxpayers' work, such that they were considered to be travelling in the performance of their duties from the moment of leaving home. The following characteristics have emerged from these cases 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…

Importantly, TR 95/34 considers that the above characteristics are not exhaustive; no single factor on its own is decisive; the individual's occupation or industry does not determine if they are engaged in itinerant work, it is the nature of the individual's duties that determines it and itinerant work may be permanent or temporary in an employee's duties.

Travel a fundamental part of the employee's work.

Paragraph 22 of TR 95/34 states:

Travel must be an essential feature of an employee's duties in order for that work to be classified as itinerant. In Taylor v. Provan [1975] AC 194 Lord Simon (discussing the rule established in Ricketts v. Colquhoun [1926] AC 1) said at 221:

'...the obligation to incur the expenses of travelling in question must arise out of the nature of the office or employment itself, and not out of the circumstances of the particular person appointed to the office or employed under contract of employment - two different classes of travelling expenses readily come to mind. The first is where the office or employment is of itself inherently an itinerant one. ...In such cases the taxpayer may well be travelling in the performance of the duties of the office or employment from the moment of his leaving home to the moment of his return there - a visit to any head office might well be purely incidental or fortuitous.'

Paragraph 23 of TR 95/34 refers to Taxation, Commissioner of (Cth) v. Wiener (1978) 78 ATC 4006; 8 ATR 335 (Weiner's case) where the teacher was required to comply with a strict timetable that kept her on the move throughout each of the days; the transport remained at her disposal throughout each of those days.

Paragraph 24 of TR 95/34 refers to Brightman J's statement in Horton v. Young [1972] 47 TC 60: 1 Ch 157 at 164 describing a person's itinerant profession as having no fixed place or places at which to carry on the profession but moves continually from one place to another.

The tax office publication Fringe benefits tax: a guide for employers (NAT 1054-02.2005) (the Employers Guide) at page 35 considers employment duties of an itinerant nature and states:

Commonly, in these cases the employee works at the employer's office periodically (for example, once a week) to complete or file reports, pick up supplies or organise future trips. Travel between home and the office made in these limited circumstances is accepted as an ordinary incident of the business travel and, as such, is also treated as business travel.

Web of work places or employee has no fixed place of work

A web of work places exists where the employee performs duties at several work sites in a day.

Paragraph 28 of TR 95/34 refers to Weiner's case for an example of a 'web' of work places where a teacher was required to instruct pupils at four to five different schools each day.

Paragraph 29 of TR 95/34 contrasts Weiner's case with a relief fireman in Case U97 87 ATC 584; AAT Case 68 (1987) 18 ATR 3491 (Case U97) who did not have a web of work places where, for a time, he travelled to one station for a number of days then another station for another period. Senior Member McMahon stated (ATC at 588; ATR at 3495-3496):

There is not the web of workplaces that one looks for as a structure for the applicant's working life if that life is to be regarded as itinerant.

Continual travel from one worksite to another

Paragraph 34 of TR 95/34 states:

In certain work situations continual unsettled travel from one work place to another is a common factor. In some instances, an employee's ongoing engagement may require him or her to attend various sites in different localities nominated by the employer. In most such cases the need to travel from place to place would be a necessary condition of employment.

Paragraph 37 of TR 95/34 goes on to state:

Continual travel refers to the frequency with which an employee moves from one work site to another. It envisages that the employee regularly works at more than one work site before returning to his or her usual place of residence.

TR 95/34 refers to Case T106 86 ATC 1192; AAT Case 17 (1987) 18 ATR 3093 (case T106) where an 'off-sider' in the building industry was required to be continually dispatched to sites at various locations as an example of a taxpayer's employment being of an itinerant nature.

Conclusion

Employees are not required to attend their office on a regular basis, which allows them to work from their residences. It is impractical for them to perform all of their duties without the use of a vehicle as there is no fixed place of work. The travel that is undertaken meets the following criteria:

● The employee's role is inherently itinerant;

● Travel is a fundamental part of the employee's work

● It is impractical for the employee the duties without the use of a car;

● The terms of employment require the employee to perform duties at more than one place of employment;

● The nature of the job itself makes travel in the performance of duties essential; and

● It can be said of the employee that he or she is travelling in the performance of the employment from the time of leaving home.

Therefore it is accepted that the travel undertaken is employment related and is regarded as a business journey for the purposes of section 10 of the FBTAA.

Question 2

Home to work travel - the general rule

Based on the High Court decision in Lunney v FCT (1958) 100 CLR 478; 7 AITR 166, expenditure incurred on travel between home and work is generally not deductible. This is because the expenditure does not satisfy a positive limb of subsection 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) or is denied deductibility because it is caught by the private/domestic limb in subsection 8-1(2) of the ITAA 1997.

This 'rule' is explained in some detail at paragraphs 14 to 16 of MT 2027:

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.

16. Further, the general position is unaffected by the fact that travel is undertaken at a time when public transport may not be available or may not be readily available (see, for example, Case R22 84 ATC 212; Case 76 27 CTBR (NS) 601 and Case R69 84 ATC 491; Case 123 27 CTBR (NS) 977).

Some exceptions to the general rule

There are a number of exceptions to the general rule that travel between a person's home and place of employment is private in nature. These include:

● travel while on stand-by duty;

● travel between places of employment/business;

● employment duties of an itinerant nature;

● business trip on way to or from work;

● travel incorporating the transport of equipment; and

● certain sportsmen and shearers

Home as a base of operations

In certain circumstances, travel between a person's home and their place(s) of employment will not be regarded as private travel. This will generally be the case where an employee carries out employment activities at home or the home is used as a base of business operations (e.g. painters, plumbers, electricians).

TR 95/34 refers to Taxation, Commissioner of (Cth) v. Collings (1976) 10 ALR 475; (1976) 76 ATC 4254; (1976) 6 ATR 476 (Collings case) where a highly trained computer consultant was required to be more than just being on stand-by duty. Her home and office were two separate but necessary places of work because of the special nature of her duties. She was provided with a portable terminal to use at home that was connected to the work computer. It was common for her to receive telephone calls at home and give advice to workers at the office. Her travel was at times when advice had been given but the computer was still not working.

In Taxation Ruling IT 112, Deductibility of travelling expenses between residence and place of employment or business, guidelines were provided in relation to various decisions of the Supreme Court, including the Collings case. At subparagraph 21(c) the ruling states, in cases comparable with the Collings Case:

Although it is not anticipated that the same circumstances present in this case will arise very often in other cases… The journeys to and from home were made necessary by the special nature of the taxpayer's employment whereby she was engaged on a special assignment and was continuously on duty wherever she was.

Subparagraph 21(c)(ii) of IT 112 draws a distinction between the facts in the Collings Case and employees on stand-by duty at their homes and who are required to obey a summons to cope with some emergency. For example the mere fact an airline pilot on stand-by duty at home is not enough to conclude at those times the airline pilot's duties are itinerant.

Employment duties of an itinerant nature

As discussed above, in the case of employees whose work is inherently itinerant, travel from home to places of work will not be regarded as private travel where:

● the travel is a fundamental part of the work

● it is impractical not to use a car for the work

● the terms of employment require duties to be performed in more than one place

● the nature of the job makes travel in performing duties essential; and

● it can be said that the employee is travelling in performance of duties from the time of leaving home.

The ATO publication Fringe benefits tax: a guide for employers in Chapter 7.5 provides an example of employment duties of an itinerant nature where the employee's home can be considered to be a base of operations:

Travel from an employee's home may be considered business travel where the nature of the office or employment is itinerant. Examples include commercial travellers and government inspectors whose homes are a base of operations, from which they travel to one of a number of locations throughout the day, over a continuing period.

Commonly, in these cases the employee works at the employer's office periodically (for example, once a week) to complete or file reports, pick up supplies or organise future trips. Travel between home and the office made in these limited circumstances is accepted as an ordinary incident of the business travel and, as such, is also treated as business travel.

Conclusion

In this instance the facts indicate that the employees spend a considerable amount of time working from home. They are provided with all the assets necessary to perform their duties at home and infrequently attend their office for training and administration purposes.

Employees also carry out their employment duties from their vehicles.

As the employees carry out substantial employment duties at their homes (their base of operations), any travel to their work locations and back to their homes will be regarded as a business journey. As the vehicles supplied by their employer are used by the employee for the purpose of producing their assessable income, there is no private use in this instance.