Edited version of your written advice

Authorisation Number: 1051376237885

Date of advice: 28 May 2018

Ruling

Subject: FBT Car benefit

Question 1

Will the Commissioner exercise discretion under section 123B of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to waive the substantiation requirements for log books and accept the estimates of the Taxpayer to determine the taxable value of car fringe benefits for FBT returns required to be lodged prior to 2017 FBT year ?

Answer

No.

Question 2

Will the Commissioner allow the Taxpayer to register for Fringe Benefits Tax (FBT) from 1 July 2015 onwards (as a small business entity) and lodge FBT returns from that date onwards?

Answer

You are required to lodge an FBT return for any FBT year you identify you have a FBT liability.

This ruling applies for the following period(s)

FBT year 1 April 201X to 31 March 201X

Relevant facts and circumstances

You made a Private Ruling Application (PBR) to the Commissioner requesting the Commissioner to register you for FBT (as a small business entity) and to lodge FBT returns from 1 July 2015.

You made the following statement of facts:

● You made a voluntary disclosure to the Commissioner of Taxation that your new accountant identified there was a previously undeclared single car fringe benefit - being the provision of a car to an employee since December 2009.

● You are not registered for FBT and have not lodged a FBT return in the past to report any FBT liability.

● Your previous accountant advised that in his opinion the car provided to your employee was not available for private use as the car was parked at the business address – hence there was no FBT liability.

● Your new accountant has identified that there is a FBT liability because your business address is also the employee’s home address.

● Your new accountant intends to register you for FBT from 1 July 2015 and lodge the FBT return for the year 2016.

● Records and information relating to the running expenses of the car are not available to accurately calculate the FBT liability for the car fringe benefit under the operating cost method.

● You also do not have detailed records or working papers to confirm the percentage of car expenses claimed as a deduction by the company since December 2009 albeit you believe it was 100% of the expenses.

● Your accountant’s examination of dairy records kept by the employee indicates the private use of the car has been relatively minor during the period.

● Using the available data, your accountant provided an estimate of you your FBT liability for each year.

● Your accountant does not consider it commercially viable to calculate the actual FBT liability as it should have been done at the time.

● You made the voluntary disclosure as soon as you were made aware of your potential FBT liability and request the Commissioner to take these facts into consideration in determining any potential penalties and interests in the resolution of this matter.

● You have stated that you don’t possess a written business expense policy for the company. You are a small business with two directors. Since 2010 financial year (FY) until 2016 one director worked full time in the business and was paid a small salary. You also provided a car to this director and paid the running expenses. The director from time to time determined what expenses the company necessarily incurs to operate the business.

● You provided an incomplete log book spreadsheet recreated from diary records showing the date, reason for travel, start odometer, end odometer and total kilometres. You further provided registration details and insurance details and service records for the vehicle. Upon request you provided copies of calendars for relevant years including information such as event dates, appointments, lectures, doctor appointments, brief explanation of the purpose of the journey (i.e. shorthand or acronym format), duration, etc. The calendar entries do not record odometer readings at the beginning and end of each journey as outlined in the spreadsheet. The dates of travel on the calendar for the first half of 2016 do not correlate with the records of travel outlined in the recreated spreadsheet for the same period.

Relevant legislative provisions

Subsection 7(1) Fringe Benefit Tax Assessment Act 1986 (FBTAA)

Subsection 7(2) FBTAA

Section 9FBTAA

Subsection 9(2) FBTAA

Subparagraph 9(2)(a)(i)

Section 10 FBTAA

Section 10A FBTAA

Section 66FBTAA

Section 68 FBTAA

Section 123B FBTAA

Subsection 123B(2) FBTAA

Subsection 123B(3) FBTAA

Subsection 136(1) FBTAA

Reasons for decision

Question 1

Summary

The Commissioner will not exercise the discretion under section 123B of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to waive the substantiation requirements for log books and accept the estimates of the Company to determine the taxable value of car fringe benefits for FBT returns required to be lodged prior to 201X FBT year.

Detailed reasoning

Subsection 7(1) of the FBTAA provides that a car benefit will arise where an employer holds a car and the car is applied for private use or is taken to be available for private use by the employee or an associate of an employee. Where a car held by the employer is on any day, garaged or kept at or near the place of residence of the employee it is taken to have been available for the private use of the employee. Therefore a car benefit arises if a car is garaged at an employee’s place of residence overnight regardless of any actual private use under subsection 7(2) of the FBTAA. See also Chapter 7.1 of the publication ‘Fringe Benefits Tax – A Guide for Employers’ that confirms the ATO view.

An employer can elect to calculate the taxable value of a car fringe benefit using either the statutory formula method in section 9 of the FBTAA or the operating cost method in section 10 of the FBTAA - whichever provides the lowest taxable value. If the employer cannot satisfy the requirements of the operating cost method then the statutory formula method applies.

Statutory formula method

The statutory formula method takes into account the base value of the car, the period during the year that the car was applied or available for private use of the employee, less any payments made by the employee to the employer in consideration of the car benefit. From 1 April 2014 a flat statutory percentage of 20% applies, regardless of the distance travelled to all car benefits.

The statutory formula also provides for a 1/3^rd reduction in base value of the car under subsection 9(2) of the FBTAA. This reduction applies from 1 April after the fourth anniversary of the date on which you first owned or lease the car, and the reduction only applies once. This reduction does not apply to non-business accessories added after the acquisition of the car. Where the reduction in base value is applicable, the statutory rates are applied to the reduced base value.

Operating cost method

Section 10A of the FBTAA allows the taxable value of a car fringe benefit to be determined using the operating cost method. The taxable value is calculated according to a formula that determines the amount of the car operating costs that are attributable to non-business purposes. An election according to subsection 10(1) of FBTAA must be made by the employer in relation to a particular car in relation to a year of tax no later than the day on which the FBT returns is due to be lodged, and it is a requirement that a log book is maintained.

The definition of ‘log book records’ in subsection 136(1) of the FBTAA requires a document to be kept that sets out, in English. ‘Logbook records’ means a daily logbook or similar document that sets out for each business journey undertaken in the car particulars as soon as reasonably practicable after, the end of each journey:

● The date on which the journey began and the date on which it ended;

● The odometer readings at the beginning and end of the journey;

● The number of kilometres travelled by the car in the course of the journey; and

● The purpose of the journey.

Subsection 123(2) of the FBTAA states that, for the purposes of sections 10A and 10B of the FBTAA, if an employer fails to maintain log book records or odometer records for the retention period, then those documents shall be deemed never to have been maintained. An employer must generally retain odometer and logbook records for five years from the assessment date to which they relate.

Commissioner’s discretion

Section 123B of the FBTAA provides the Commissioner with the discretion to waive the substantiation requirements if the nature and quality of evidence provided by a person satisfies the Commissioner that the taxable value of the benefit is not greater than the amount specified in the taxpayer’s return for the FBT year. According to subsection 123B(3) of the FBTAA, this discretion may only be exercised in certain instances, such as:

(a) in the course of reviewing on the Commissioner’s own motion the affairs of the employer, or

(b) in considering an objection against the assessment of the employer of the year of tax, or

(c) in considering whether to make an amendment of the assessment of the employer of the year of tax in response to a request made by the employer before the commencement of this section.

As neither of these events have occurred, it is not possible for the discretion to be exercised at this time. However, it is possible for the Commissioner to advise whether the discretion would otherwise be exercised if one of these events occurred based on the information submitted by you to date.

Paragraphs 13.4 and 13.5 of the Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 4) 1991 state that section 123B of the FBTAA was introduced to allow the Commissioner a similar discretion to that which operates under the income tax legislation. As the requirements in the Income Tax Assessment Act 1997 are similar to section 123B of the FBTAA, Taxation Ruling TR 97/24 Income tax: relief from the effects of failing to substantiate can provide guidance when considering the ‘nature and quality’ of evidence that would satisfy the Commissioner to exercise the discretion.

Paragraph 13 states:

It is the Commissioner’s view that relief is not available where there is no supporting documentation or factual material evidencing the expense. It follows that a taxpayer’s estimate of an expense supported only by an assertion that the estimate is reasonable does not constitute evidence of a nature and quality to satisfy the Commissioner to exercise the discretion.

Specifically, paragraph 41 of TR 97/24 states:

It is not possible to specify the nature and quality of supporting evidence that satisfies the Commissioner in all circumstances. Each case must be considered on its own merits and a common sense approach applied.

Further, paragraph 9.41 of the Explanatory Memorandum to the Taxation Laws Amendment (FBT Cost of Compliance) Bill 1995, which amended section 123B of the FBTAA, states:

Section 123B will be amended so that the Commissioner will need to consider only the nature and quality of the employer’s evidence.

Application to your circumstance

You have made the provision of a car to an employee. Although the car was primarily used for business purposes, it was garaged at the employee’s residence which was also the business premises. As a result you have made the provision of a car fringe benefit because the car held by an employer was on any day, garaged or kept at or near the place of residence of an employee (or an associate of an employee). Therefore it is taken to be available for the private use of the employee or the associate on that day.

The taxable value of the car fringe benefit can be calculated using the statutory formula method or the operating cost method. To use the operating cost method, you have to satisfy the requirements outlined in sections 10 and 10A of the FBTAA - i.e. make an election to use the method, maintain a log book, and maintain odometer records.

In the circumstances you have not meet the record keeping requirements to be eligible to use the operating cost method because you have not maintained a log book. It is acknowledged that you have provided a recreated spreadsheet based on diaries (i.e. outlook calendar records) and service records to demonstrate the level of business use of the car, but this does not meet the requirements under section 10A of FBTAA. The Commissioner also does not have evidence to demonstrate that you maintained odometer readings.

In a recreated spreadsheet you have provided details for certain periods of the business use calculation, narrated the distance travelled, the purpose of the journey, odometer readings and the total kilometres travelled by the car. The total kilometres travelled for business purposes was divided over the total average kilometres travelled for the car in determining the percentage of business use.

You advised this spreadsheet was recreated from diaries (outlook calendars) and service records which you provided copies of.

We have reviewed your records and have noted that many of the entries in the diaries do not contain odometer readings at the beginning and end of the journey, the number of kilometres travelled, and the purpose of the journey cannot always be ascertained as business or private because of the use of acronyms. As a result we cannot be certain how the odometer readings have been determined in the recreated spreadsheet.

We also note that the dates of travel in the dairies for the first half of 2016 do not often correlate with entries in the recreated spreadsheet.

Accordingly, based on the nature and quality of the evidence that you provided, the Commissioner cannot be satisfied that the taxable value of the car fringe benefit would not be greater than the amount specified by you. As a result, the Commissioner would likely not exercise his discretion under section 123B of the FBTAA to waive the substantiation requirements to enable you to apply the operating cost method when you lodge your FBT return.

As a result you would be required to calculate your taxable value using the statutory formula method (as discussed above) to meet your FBT liability for the relevant FBT years.

In your circumstances, as the car was purchased in 2009, and was held for more than four years, you may reduce the base value of the car by one-third of the cost price of the car from 1 April 2014 under subparagraph 9(2)(a)(i) of the FBTAA. However, no reduction would be available to the base value of the car for expenditure incurred on non-business accessories fitted after the car was first held (see Taxation Determination TD 94/28).

Question 2

Summary

You are required to lodge an FBT return for any FBT year you identify you have a FBT liability.

Detailed reasoning

Section 66 of the FBTAA provides that employers self-assess their FBT liability for benefits provided to employees. Section 68 of the FBTAA requires employers to lodge an annual return by the 21 May each year where there is an FBT liability for that FBT year.

According to section 7 of the FBTAA 1986, a car benefit arises where an employee or an associate of an employee is provided with a car, the car is held by the provider and the car is either applied for private use or available for private use.

According to the facts provided you have identified that you have made the provision of a car benefit to an employee (director) from 2009 when the car was purchased. You did not lodge an FBT return because your previous accountant advised that you did not have an FBT liability as the car was garaged at the business premises and therefore no car fringe benefit arose.

Your new accountant however reviewed your tax affairs and has advised that a car fringe benefit has been provided to an employee because, in applying subsection 7(2) of the FBTAA, the car ‘was available for private use’ being garaged at the residential premises of the employee (also the business premises).

You therefore have to calculate your FBT liability in relation to the provision of the car fringe benefit to the employee and lodge FBT returns for the relevant FBT years.

We acknowledge that you would like to make a voluntary disclosure by lodging your FBT returns for prior FBT years. Your lodgement of FBT returns for prior FBT years to the Commissioner can be processed as voluntary disclosures. Consideration of the imposition of penalties and interest can be had at that time.