Edited version of private advice

Authorisation Number: 1051846617397

Date of advice: 16 August 2021

Ruling

Subject: FBT - provision of chauffeur services

Question

Can the taxable value of the residual benefit that arises from the provision of a chauffeur be reduced by the 'otherwise deductible' rule under section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) if the journey to which the residual benefit relates has been recorded as a business journey in a log book that satisfies the requirements of the definition of 'log book records' in subsection 136(1) of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 20xx

Year ended 31 March 20xx

Year ended 31 March 20xx

Year ended 31 March 20xx

Year ended 31 March 20xx

Relevant facts and circumstances

You provide a chauffeur to certain employees.

The chauffeur drives the car at the direction of the employee.

This may be for work related or private purposes.

You received a private ruling that ruled:

•         a residual benefit will arise from the provision of a chauffeur; and

•         a car benefit will arise when the car driven by the chauffeur is garaged at or near the residence of the chauffeur or is applied to a private use by either the chauffeur or the employee.

The private ruling also provided guidelines as to the journeys that will be considered to be a business journey for the purposes of using the cost basis to calculate the taxable value of the car fringe benefits.

Following the receipt of this private ruling, you developed and implemented a log book system to enable the operating costs to be reduced under the cost basis to take account of the business use percentage that is applicable to the car.

The details recorded in the log book for each business journey include:

•         employer's name;

•         driver's name;

•         make and model of the car;

•         car registration number;

•         date(s) on which each business journey began and ended;

•         odometer readings at the start and end of each business journey;

•         distance travelled for each business journey;

•         purpose of each business journey;

•         name of employee making the entry; and

•         car location overnight.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 10(2)

Fringe Benefits Tax Assessment Act 1986 section 10B

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Section 47A

Fringe Benefits Tax Assessment Act 1986 Section 50

Fringe Benefits Tax Assessment Act 1986 Subsection 50(c)

Fringe Benefits Tax Assessment Act 1986 Subsection 52(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 123B(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 132(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Can the taxable value of the residual benefit that arises from the provision of a chauffeur be reduced by the 'otherwise deductible' rule under section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) if the journey to which the residual benefit relates has been recorded as a business journey in a log book that satisfies the requirements of the definition of 'log book records' in subsection 136(1) of the FBTAA?

In general terms, the definition of 'fringe benefit' in subsection 136(1) of the FBTAA provides that a fringe benefit will arise when the following conditions are satisfied:

(i) a benefit is provided to an employee (or an associate of an employee);

(ii) the benefit is provided by the employer, an associate of the employer, or in a situation that comes within either paragraph (e), or (ea) of the fringe benefit definition;

(iii) the benefit is provided in respect of the employment of the employee; and

(iv) the benefit is not one of the benefits specifically excluded from being a fringe benefit by virtue of paragraphs (f) to (s) of the fringe benefit definition.

Each of these conditions are considered below:

(i)            Is the provision of a chauffeur a benefit?

The definition of 'benefit' in subsection 136(1) of the FBTAA provides that a benefit will include:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property;

(ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money.

As set out in the private ruling that issued to you, the provision of a chauffeur to drive a car at the direction of an employee comes within this definition.

(ii)          Is the benefit provided by the employer, an associate of the employer, or in a situation that comes within either paragraph (e), or (ea) of the fringe benefit definition?

The chauffeur is provided by the employer or an associate of the employer.

(iii)         Is the benefit provided in respect of the employee's employment?

Subsection 136(1) of the FBTAA defines 'in respect of' to include 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment'.

The chauffeurs are provided to the employees who occupy a certain position.

Given the position occupied is the reason for a chauffeur being provided, the benefit is considered to be provided in respect of the employment of the employee.

Is the benefit one of the benefits specifically excluded from being a fringe benefit by virtue of paragraphs (f) to (s) of the fringe benefit definition?

For the purpose of this ruling, the relevant paragraph is paragraph (g) which provides that an exempt benefit will not be a fringe benefit.

The FBTAA provides that a range of benefits will be an exempt benefit. The listed exempt benefits include:

• a residual benefit that is covered by a no-private-use declaration (section 47A of the FBTAA); and
• a car residual benefit (section 53 of the FBTAA).

No-private-use declaration

Section 47(A) of the FBTAA provides an exemption for certain residual benefits covered by a no-private-use declaration. It states:

(1) A residual fringe benefit that is covered by a no-private-use declaration is an exempt benefit.

(2) An employer may make a no-private-use declarationthat covers all the employer's residual fringe benefits for an FBT year that are covered by a consistently enforced policy in relation to the use of the property that is the subject of the benefit that would result in the taxable value of the benefit being nil.

(3) The declaration must be in a form approved in writing by the Commissioner and be made by the declaration date.

For this exemption to apply, the residual benefits that arise from the provision of the chauffeur must be 'covered by a consistently enforced policy in relation to the use of the property that is the subject of the benefit that would result in the taxable value of the benefit being nil'.

As a chauffeur can be used for private journeys this requirement cannot be satisfied. Therefore, the residual benefits cannot be covered by a no-private use declaration.

Car residual benefit

As discussed in the private ruling issued to you, the provision of the chauffeur will also not come within the exemption contained in section 53 of the FBTAA for certain benefits provided in respect of a car where a car fringe benefit arises in relation to the car.

Therefore, the provision of the chauffeur will not be an exempt benefit and it does not come within paragraphs (f) to (s) of the 'fringe benefit definition'.

As all of the conditions of the 'fringe benefit' definition are met the provision of a chauffeur to a parliamentary client will be a 'fringe benefit'.

The calculation of the taxable value of a residual fringe benefit

As the benefit is a 'fringe benefit' it is necessary to determine the taxable value of the benefit. This will depend upon the type of benefit that is being provided as each type of benefit has its own valuation rules.

As set out in the private ruling issued to you, the benefit will be a residual benefit under section 45 of the FBTAA as it does not come within Subdivision A of Divisions 2 to 11 (inclusive).

The calculation of the taxable value of a residual fringe benefit is set out in sections 48 to 51 of FBTAA. These sections provide different valuation rules depending upon whether the residual benefit is:

•         an in-house, or external residual fringe benefit; and

•         a period, or non-period residual fringe benefit

In general terms, a residual benefit will be an in-house residual benefit if the employer (or an associate) carries on a business that includes the provision of identical or similar benefits principally to outsiders. A residual benefit that is not an in-house residual benefit will be an external benefit.

As you are not in the business of providing identical or similar benefits to members of the public the provision of the chauffeur will be an external residual benefit.

In general terms, where an external residual fringe benefit is provided for less than one day, the external residual fringe benefit will be valued as an external non-period residual fringe benefit in accordance with section 50 of the FBTAA. Where the fringe benefit is provided over a longer period, it will be valued as an external period residual fringe benefit in accordance with section 51 of the FBTAA.

The period for which the benefit is provided will be the period for which the client uses the chauffeur.

As set out in the private ruling a chauffeur will generally drive from his or her residence to the employee's home to pick up the employee and then drive the employee to another destination which may be a location at which the employee undertakes work duties. Depending upon the period of time for which the employee is at that location the chauffeur may wait for the employee at the location, before driving the employee to another location. This may occur several times until the chauffeur drives the employee back to his or her residence at the end of the day.

Alternatively, the chauffeur may return to the chauffeur room to await the next assignment.

In both situations, the period for which the chauffeur is provided is less than one day. That is, during the course of the year the employee will receive a multiple number of residual benefits. As each will last less than one day they will be non-period residual benefits.

Section 50 of the FBTAA provides three different methods for valuing an external period fringe benefit. It states:

Subject to this Part, the taxable value of an external non-period residual fringe benefit in relation to an employer in relation to a year of tax is:

(a) where the provider was the employer or an associate of the employer and the benefit was purchased by the provider under an arm's length transaction - the amount paid or payable by the provider for the benefit;

(b) where the provider was not the employer or an associate of the employer and the employer, or an associate of the employer, incurred expenditure to the provider under an arm's length transaction in respect of the provision of the benefit - the amount of that expenditure; or

(c) in any other case - the notional value of the benefit at the comparison time;

reduced by the amount of the recipients contribution.

The relevant method will be the method contained in paragraph 50(c) as the provider is the employer or an associate, but the benefit was not purchased by the provider.

Accordingly, for the purpose of determining the taxable value, the benefit is to be based on the 'notional value' as per paragraph 50(c) of the FBTAA.

The definition of notional value in subsection 136(1) of the FBTAA provides that the notional value will be:

the amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arms length transaction.

This value may be reduced by the application of the 'otherwise deductible' rule if the requirements of section 52 of the FBTAA are met.

The use of the 'otherwise deductible' rule

In broad terms, the 'otherwise deductible' rule enables the taxable value to be reduced by the amount the employee would have been entitled to claim as an income tax deduction if the residual benefit had not been provided as a fringe benefit and the employee had purchased the benefit.

Generally, the 'otherwise deductible' will not apply unless the employee provides an employee declaration that is in the approved form to the employer. However, paragraph 52(1)(c) provides that this requirement does not apply where the fringe benefit is:

(i) an exclusive employee residual benefit;

(ia) covered by a recurring fringe benefit declaration (see section 152A);

(ii) an extended travel property benefit; or

(iii) a car property benefit,

the recipient gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner in respect of the recipients property.

Is the provision of a chauffeur for a business journey an 'exclusive residual fringe benefit'?

An 'exclusive employee residual benefit' is defined in subsection 136(1) of the FBTAA as:

a residual fringe benefit where, if the recipient had incurred expenditure in respect of the provision of the recipient's benefit, that expenditure would have been exclusively incurred in gaining or producing salary or wages of the recipient in respect of the employment to which the fringe benefit relates.

In applying this definition, a residual fringe benefit will be an 'exclusive employee residual benefit' where the service of a chauffeur is used by an employee exclusively in gaining salary and wages. If this requirement is met an employee declaration is not required to be provided to the employer.

In your current arrangement you have implemented a log book system. Under this system, the chauffeur records details of the 'business journeys' undertaken in the car.

'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; or

(b) for the purposes of the application of sections 19, 24, 44 and 52 in relation to a loan fringe benefit, an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit, as the case requires, in relation to an employee in relation to a car - a journey undertaken in the car in the course of producing assessable income of the employee.

'Private use' is defined in subsection 136(1) to mean:

any use of the motor vehicle by the employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee.

By applying the definition of 'private use' to paragraph (a) of the definition of 'business journey' the journeys that are recorded in the log book will be a journey that is exclusively in the course of producing assessable income of the employee. If the journey is exclusively in the course of producing assessable income of the employee for the purposes of calculating the taxable value of the car benefits, the expenditure (if incurred by the employee) in having a chauffeur drive the journey must also be taken to be exclusively incurred in gaining or producing salary or wages of the recipient. Therefore, the provision of the chauffeur for a 'business journey' will be an 'exclusive employee residual benefit'.

As the use of a chauffeur for a 'business journey' is an 'exclusive employee residual benefit' the 'otherwise deductible' rule can be applied without a declaration being provided by the employee.

Although it is not necessary for you to obtain a declaration from the employee, you still need to have a basis for applying the 'otherwise deductible' rule and treating a particular journey as an 'exclusive employee residual benefit'. As set out in subsection 132(1) of the FBTAA, you are required to keep records that record and explain all transactions and other acts that are relevant for the purpose of ascertaining the employer's liability.

Subsection 132(1) of the FBTAA states:

An employer shall:

(a) keep records that record and explain all transactions and other acts engaged in by the employer or any other person that are relevant for the purpose of ascertaining the employer's liability under this Act;

This requirement will be met where the residual benefit relates to the period for which 'log book records' have been kept in relation to the car used to transport the employee that provides the purpose of the journey undertaken by the particular employee. Therefore, you will have a basis for treating the residual benefit that arises from the chauffeur as being an 'exclusive employee residual benefit'.