Edited version of private advice

Authorisation Number: 1051563359209

Date of advice: 14 August 2019

Ruling

Subject: Exempt car benefits

Question

Is the provision of a motor vehicle to a director an exempt benefit under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where the vehicle has been used solely for business purposes?

Answer

No. The provision of the motor vehicle is not an exempt benefit. It will be subject to Fringe Benefits Tax. The liability will be determined using the statutory formula method under section 9 of the FBTAA as a logbook was not maintained.

This ruling applies for the following periods

Year ended 31 March 2016

Year ended 31 March 2017

Year ended 31 March 2018

Year ended 31 March 2019

The scheme commenced on

1 April 2015

Relevant facts

The company operates a business in a regional area. The business has a small retail outlet in a town, which also has a workshop and office space. A retail attendant, a service manager and office manager worked from the retail outlet in the town.

Part of the business operations (i.e. works program, equipment purchases and servicing needs) were also conducted from the home of the director. The company registered as a home based business in accordance with local government requirements.

The director used their private property and sheds to store equipment and materials for use on worksites.

The majority of the work motor vehicles were also stored at the director's private residence and employees would meet there each morning to get supplies and equipment for the day's jobs before leaving for various worksites as required.

The director receives all callouts and attends to the majority of after-hours jobs. The director was required to spend considerable time driving between various locations and being on site away from both the home base and retail outlet.

The director acquired a four-wheel drive vehicle for use as a business vehicle. The vehicle was principally designed to carry fewer than nine passengers with a load capacity less than one tonne. Modifications were made to the vehicle such that it was at all times ready to respond to call-outs as well as general jobs on a daily basis. The back row of drop down seats were removed and a set of drawers bolted into the back section behind the passenger seats. This reduced the number of passengers the vehicle could carry from seven to five. The passenger seats behind the driver's seat were generally laid down for carrying additional tools and equipment, but could be put up to take workers to worksites as required.

The vehicle has business signage on it and the back of the vehicle is fully equipped with tools and equipment.

The vehicle, together with all the other work vehicles, has been tracked using a tracking system. Information can be accessed to determine where the vehicle has been and duration on any given day. The other work motor vehicles are equipped with the same tracking system. This was to assist in managing job flow and assistance amongst staff members on jobs. The system does not allow the input of data detailing the purpose of the trips as business or private.

At all times, the director has had another vehicle which was used for private travel.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 8(2)

Fringe Benefits Tax Assessment Act 1986 subsection 10(2)

Fringe Benefits Tax Assessment Act 1986 section 10A

Fringe Benefits Tax Assessment Act 1986 section 10B

Fringe Benefits Tax Assessment Act 1986 subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

Is the provision of a motor vehicle to a director an exempt benefit under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where the vehicle has been used solely for business purposes?

Exempt car benefits are addressed in subsection 8(2) of the FBTAA as follows.

A car benefit provided in a year of tax in respect of the employment of a current employee is an exempt benefit in relation to the year of tax if:

(a) the car is:

(i) a taxi, panel van or utility truck, designed to carry a load of less than 1 tonne; or

(ii) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

(b) there was no private use of the car during the year of tax and at a time when the benefit was provided other than:

(i) work-related travel of the employee; and

(ii) other private use by the employee or an associate of the employee, being other use that was minor, infrequent and irregular.

Exempt benefits for a vehicle other than a car are addressed in subsection 47(6) of the FBTAA as follows.

Where:

(a) a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee:

(aa) the motor vehicle is not:

(i) a taxi let on hire to the provider; or

(ii) a car, not being:

(A) a panel van or utility truck; or

(B) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

(b) there was no private use of the car during the year of tax and at a time when the benefit was provided other than:

(i) work-related travel of the employee; and

(ii) other private use by the employee or an associate of the employee, being other use that was minor, infrequent and irregular.

the benefit is an exempt benefit in relation to the year of tax.

The private use of a motor vehicle (either a car or otherwise) is therefore exempt from FBT under either subsections 8(2) or 47(6) of the FBTAA if all of the following conditions are satisfied:

·        the vehicle is a panel van, utility or other commercial vehicle (that is, one not designed principally to carry passengers)

·        the employee's private use of such a vehicle is limited to

·        travel between home and work

·        travel that is incidental to travel in the course of duties of employment

·        non-work related use that is minor, infrequent and irregular.

A four-wheel drive vehicle would qualify as an exempt vehicle if it is:

·        designed to carry a load of one tonne or more, or

·        designed to carry more than eight passengers, or

·        not designed for the principal purpose of carrying passengers.

Guidance in relation to whether a four-wheel vehicle is designed for the principal purpose of carrying passengers is provided in Taxation Determination TD 94/19 Fringe benefits tax: is the method in Taxation Ruling MT 2024 appropriate for determining whether a vehicle, other than a dual or crew cab, is 'designed for the principal purpose of carrying passengers' and thereby ineligible for the work-related use exemption available under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986? (TD 94/19).

Paragraph 2 of TD 94/19 states as follows:

In determining the principal purpose for which any other vehicle was designed, regard should be had to factors including, but not limited to, the following:

·        the appearance and presentation of the vehicle

·        any relevant promotional literature

·        the emphasis in marketing

·        the vehicle's specifications

·        load capacity

·        passenger carrying capacity

The four-wheel drive vehicle in question has a carrying capacity of less than one tonne, and is designed principally to carry passengers. The other factors also lead to the conclusion the vehicle is designed principally to carry passengers.

The vehicle is a car and not a taxi, panel van, utility or other commercial vehicle which is not designed principally to carry passengers. The four-wheel drive therefore does not satisfy the conditions to be an exempt vehicle under either subsections 8(2) and 47(6) of the FBTAA.

Miscellaneous Taxation Ruling MT 2033 provides that a modified vehicle may also qualify as an exempt vehicle if the modification or alteration permanently affects the inherent design of the vehicle, and is not capable of being readily reversed, such that the design does not remain that of a passenger carrying vehicle. The vehicle in question is designed with a capacity to transport seven passengers. It is a passenger carrying vehicle. In this instance, the back row of seats have been removed and replaced with a set of drawers, thus reducing the capacity to five passengers. The seats behind the driver's seat were generally laid down for carrying additional tools and equipment, but could be put up to maintain five passengers. The modifications were therefore not permanent, and could readily be reversed. The vehicle's design therefore remains that for the principal purpose of carrying passengers. The modifications to the vehicle also does not result in it meeting the conditions to be an exempt vehicle.

The provision of the motor vehicle to the director is therefore a car fringe benefit under section 7 of the FBTAA as it is available at the director's home for private use.

Is the director's work itinerant in nature?

Although the vehicle in question is not an exempt vehicle under subsections 8(2) or 47(6) of the FBTAA, the use of the vehicle from the home base to work sites may be considered to be business journeys if the director carries out itinerant work.

Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses (TR 95/34) provides guidance on itinerant work.

Paragraph 7 of TR 95/34 states:

...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.

Applying these factors to the director's circumstances:

• travel is a fundamental part of an employee's work;
• the director has different places of work;
• the director may travel from one work site to another;
• the director has no regular pattern of work sites;
• the director's home constitutes a base of operations; and
• the director has to carry bulky equipment from home to different work sites.

The director may therefore carry out itinerant work. The use of the vehicle to and from the director's home base may be considered to be business journeys.

'Business journey' is defined in subsection 136(1) of the FBTAA 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;

Use of the cost basis (or operating cost) method to calculate car benefits

The taxable value of a car benefit calculated under the cost basis method can be reduced by the business use of the vehicle under the formula in subsection 10(2) of the FBTAA:

(C x (100% - BP)) - R

where:

C is the operating cost of the car during the holding period:

BP is:

(a) if, under section 10A or 10B, the employer is not entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period - nil; or

...

(c) in any other case - the business use percentage applicable to the car for the holding period;

and

R is the amount (if any) of the recipient's payment.

The taxable value of a car benefit however can only be reduced by the business use of the vehicle if the employer complies with sections 10A or 10B of the FBTAA.

Section 10A of the FBTAA states:

Where one or more car fringe benefits in relation to an employer in relation to a year of tax relate to a car while it was held by a particular person (in this section called the provider) during a particular period (in this section called the holding period) in a year of tax that is a log book year of tax of the employer in relation to the car, the employer is entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period if, and only if:

(a) log book records and odometer records are maintained by or on behalf of the provider for an applicable log book period in relation to the car; and

(b) odometer records are maintained by or on behalf of the provider for the holding period; and

(c) if the provider is not the employer - those log books and odometer records are given to the employer before the declaration date; and

(d) the employer specifies the employer's estimate of the number of business kilometres travelled by the car during the holding period; and

(e) the employer specifies a percentage as the business use percentage applicable to the car in relation to the provider for the holding period.

In summary, section 10A of the FBTAA requires that all of the following conditions are satisfied in a log book year:

(a) log book records are maintained for an applicable log book period;

(b) odometer records are maintained for an applicable log book period;

(c) odometer records are maintained for the period of the year in which the car was held (the holding period);

(d) the employer estimates the number of business kilometres travelled during the holding period;

(e) the employer specifies the business use percentage for the holding period.

Section 10B of the FBTAA states:

Where one or more car fringe benefits in relation to an employer in relation to a year of tax relate to a car while it was held by a particular person (in this section called the "provider") during a particular period (in this section called the "holding period") in a year of tax that is not a log book year of tax of the employer in relation to the car, the employer is entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period in the car if, and only if:

(a) odometer records are maintained by or on behalf of the provider in relation to the car for the holding period and, if the provider is not the employer, are given to the employer before the declaration date; and

(b) the employer specifies the employer's estimate of the number of business kilometres travelled by the car in the holding period; and

(c) the employer specifies the business use percentage applicable to the car in relation to the provider for the holding period.

In summary, section 10B of the FBTAA requires that all of the following conditions are satisfied in a non-log book year:

(a) maintain odometer records for the beginning and end of the holding period;

(b) determine the number of business kilometres travelled by the car in the holding period;

(c) calculate the business use percentage for the estimated number of business kilometres and the odometer readings for the beginning and end of the holding period.

Application to the director's circumstances

A tracking system was used to monitor movement of the director's use of the four-wheel drive. The system did not allow for the input of data to record the purpose of the trips as either business or private.

There is no indication that log books have been maintained for any year, or that odometer records were maintained. Therefore, no year was a log book year, and section 10A of the FBTAA cannot apply.

There is also no indication that odometer records were maintained at the beginning and end of the holding period in a non-log book year. Therefore, section 10B of the FBTAA cannot apply in a non-log book year.

As neither section 10A nor 10B of the FBTAA are satisfied, there is no reduction in the taxable value of a car benefit under the cost basis method.

The taxable value of the car fringe benefit will therefore be determined using the statutory formula method under section 9 of the FBTAA.