Edited version of your written advice

Date of advice: 14 March 2017

Ruling

Subject: Car fringe benefit - deemed to be available for private use

Question

Would a motor vehicle acquired by the Employer for use by the Employee mainly for business purposes be subject to Fringe Benefits Tax (FBT) when garaged at the Employee's home which is also the Employer's business premises?

Answer

Yes.

This ruling applies for the following period(s)

1 April 2017 to 31 March 2020

The scheme commences on

1 April 2017

Relevant facts and circumstances

The Employer provides a range of business advisory, tax and accounting services.

The Employee is a director of the Employer.

The Employee's home also serves as a place where the Employer's business is conducted. There is a designated area of the Employee's home which is only used for income-producing activities.

The Employer has proposed a scheme whereby the Employer will purchase a motor vehicle for the Employee to use mainly in business operations.

The motor vehicle will be garaged at the Employee's home at night.

The motor vehicle will also be used as an advertising tool.

Assumption

The motor vehicle to be purchased by the Employer meets the definition of a 'car' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986.

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 7(2A)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision

Question

Would a motor vehicle acquired by the Employer for use by the Employee mainly for business purposes be subject to FBT when garaged at the Employee's home which is also the Employer's business premises?

Summary

As the motor vehicle to be acquired by the Employer will be garaged at the Employee's home (which also serves as the Employer's business premises), it will be deemed to be available for the private use of the Employee.

A car fringe benefit therefore arises in respect of the motor vehicle, regardless of whether or not the Employee has permission to use the vehicle for private purposes.

On this basis, the motor vehicle will be subject to FBT.

Detailed reasoning

Section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) sets out the circumstances in which the use of a car will be a taxable fringe benefit.

Subsection 7(1) of the FBTAA describes what constitutes a car fringe benefit.

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.

Subsection 7(2) of the FBTAA deals with the availability of a car for an employee's private use when the car is garaged at or near an employee's residence.

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.

Chapter 7 of the ATO publication entitled Fringe Benefits Tax - A Guide for Employers outlines the following in relation to car fringe benefits.

7.1 What is a car fringe benefit?

A car fringe benefit most commonly arises where you (the employer) make a car you 'hold' available for the private use of an employee (or the car is treated as being available). A car you hold generally means a car you own or lease.

The following types of vehicles (including four-wheel drive vehicles) are cars:

● motor cars, station wagons, panel vans and utilities (excluding panel vans and utilities designed to carry a load of one tonne or more)

● all other goods-carrying vehicles designed to carry less than one tonne, and

● all other passenger-carrying vehicles designed to carry fewer than nine occupants.

You make a car available for private use by an employee on any day that:

● it is actually used for private purposes by the employee, or

● the car is available for the private use of the employee.

A car is treated as being available for private use by an employee on any day that:

● the car is not at your premises, and the employee is allowed to use it for private purposes, or

● the car is garaged at the employee's home.

A car that is garaged at an employee's home is treated as being available for the private use of the employee regardless of whether they have permission to use it for private purposes. Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee.

Taxation Determination TD 94/16 Fringe benefits tax: where an employee is provided with a car by the employer and the car is kept in safe storage (e.g. in a commercial garage) while the employee is travelling, under what circumstances is that car taken to be available for private use under section 7 of the Fringe Benefits Tax Assessment Act 1986 (TD 94/16) states that where an employer's car is kept in safe storage at or near the employee's place of residence, it will be taken to be available for the employee's private use regardless of any prohibition on the use of the car.

In considering whether a car fringe benefit has been provided in the current circumstances, each of the conditions as provided in subsections 7(1) and 7(2) of the FBTAA are discussed below.

Will the motor vehicle be 'held' by the provider (the Employer)?

As stipulated in Fringe Benefits Tax - A Guide for Employers, a car is 'held' if it is owned or leased.

According to the facts provided, the Employer proposes to purchase a motor vehicle for the Employee to use mainly in business operations.

Therefore, the motor vehicle will be held by the provider, who is the Employer.

Is the Employer's motor vehicle a 'car'?

Subsection 136(1) of the FBTAA provides that a 'car' has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997. That provision defines a 'car' as:

...a ^*motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

According to the facts and the assumption made for the proposed scheme, the motor vehicle to be purchased by the Employer will meet the definition of a 'car' for the purposes of the FBTAA.

Is the car provided in respect of the Employee's employment?

As per subsection 136(1) of the FBTAA, the term 'in respect of' - in relation to the employment of an employee - includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee:

● whether or not the benefit also relates to some other matter or thing

● whether the employment is past, present or future

● whether or not the benefit is surplus to the recipient's requirements

● whether or not the benefit is also provided to another person

● whether or not the benefit is offset by any inconvenience or disadvantage

● whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment

● whether or not the provision of the benefit is in the nature of income, and

● whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

In J and G Knowles and Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles), the full Federal Court - in examining the meaning of 'in respect of' an employee's employment - held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'. A similar view was also held in Essenbourne Pty Ltd v FC of T 2002 ATC 5201 and Starrim Pty Ltd v FCT (2000) 102 FCR 194; [2000] FCA 952; 2000 ATC 4460; (2000) 44 ATR 487.

To establish whether a sufficient or material connection will exist between the provision by the Employer of a car and the employment of the Employee, it is necessary to consider the circumstances in which the car will be provided.

According to the facts of the proposed scheme, the Employer will purchase a car for the Employee to use mainly in business operations. As such, it is clear that for the purposes of the proposed scheme, the provision by the Employer of a car to the Employee would be considered to be 'in respect of an employee's employment'.

Is the car applied or taken to be available for the private use of the Employee?

'Private use' is defined in subsection 136(1) of the FBTAA to mean any use that is not exclusively in the course of producing assessable income of an employee.

In AAT Case 9824 (1994) 29 ATR 1246 1994) 29 ATR 1246, a car was garaged at premises that were both the employee's residence and the employer's business premises. It was held that the car was garaged at the employee's residence and thus was available for private use.

As per the principles embodied in TD 94/16 and Fringe Benefits Tax - A Guide for Employers, a car that is garaged at an employee's home is treated as being available for private use of the employee regardless of whether they have permission to use it for private purposes. In particular, where the place of employment and place of residence are the same, the car is taken to be available for the private use of the employee.

Therefore, this means that the car will be deemed for the purposes of subsection 7(2) of the FBTAA to be available for the private use of the Employee whilst the car is garaged at the Employee's place of residence.

Subsection 7(2) of the FBTAA will not apply to a car that is used by an ambulance service, a fire-fighting service or a police service that carries the stipulated characteristics of these emergency vehicles as described in subsection 7(2A) of the FBTAA. However, the car proposed to be purchased by the Employer for the Employee's use will not be used for ambulance, fire-fighting or police services, and as such, the exemption under subsection 7(2A) will not apply to the Employer's car.

Conclusion

As per the facts of the proposed scheme, a motor vehicle (which meets the definition of a 'car') will be held by the Employer and provided to the Employee in respect of the Employee's employment. This car will be deemed to be available for the private use of the Employee as it will be garaged at the Employee's home (which also serves as the Employer's business premises). As such, each of the conditions in subsections 7(1) and 7(2) of the FBTAA will be satisfied.

A car fringe benefit therefore arises in respect of the car pursuant to section 7 of the FBTAA, regardless of whether or not the Employee has permission to use the vehicle for private purposes.

On this basis, the motor vehicle will be subject to FBT.

Further issues for you to consider

The Commissioner considers that, if the car is intended to be used for both business and private use, the Employer should elect to value the car fringe benefit on the cost basis pursuant to section 10 of the FBTAA. The use of this method will determine the percentage of business use of the car. The Employer should ensure that logbook records and odometer records are maintained to substantiate the business use.