Edited version of private advice

Authorisation Number: 1052121556970

Date of advice: 5 June 2023

Ruling

Subject: FBT - car fringe benefits

Question

Would car travel undertaken by an XXX employee when on call, in the following scenarios, be classified as a business journey for the purposes of section 10 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) in circumstances where:

1. The employee carries bulky specialised equipment in the car between home and their regular worksite, and

2. The employee carries bulky specialised equipment in the car between home and other worksites?

Answer

1.    Yes.

2.    Yes.

This ruling applies for the following periods:

Fringe Benefits Tax (FBT) year ended XXX

FBT year ended XXX

FBT year ended XXX

FBT year ended XXX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

XXX uses both the statutory method and the operating cost method under sections 9 and 10 respectively of the FBTAA to determine the taxable value of a car fringe benefit.

XXX has employees who are on call and are required to respond immediately to emergency calls 24 hours a day, seven days a week, except for personal leave periods.

The employees are provided with a sedan, station wagon or four-wheel drive vehicle These vehicles are unmarked.

The vehicle is taken home and garaged at or near the employee's place of residence. It is therefore available for the private use of the employee under section 7 of the FBTAA.

In order to reduce the response time, the employees are required to carry equipment in the car with them at all times. The equipment, including specialised equipment, is necessary for the employees to carry out their duties.

The total measurement of the equipment is approximately one cubic meter and occupies half of the car boot. The total weight is approximately 60-70 kilograms.

Relevant legislative provisions

Section 8-1 of theFringe Benefits Assessment Act 1986

Section 10 of the Fringe Benefits Assessment Act 1986

Section 136(1) of the Fringe Benefits Assessment Act 1986

Reasons for decision

Question

Would car travel undertaken by an XXX employee when on call, in the following scenarios, be classified as a business journey for the purposes of section 10 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) in circumstances where:

1.    The employee carries bulky specialised equipment in the car between home and their regular worksite, and

2.    The employee carries bulky specialised equipment in the car between home and other worksites?

Summary

Car travel undertaken by an XXX employee when on call is considered to constitute a business journey for the purposes of section 10 of the FBTAA in circumstances where the employee carries bulky specialised equipment in the car between home and their regular worksite, and between home and other worksites.

This is because the XXX on-call employees' home to work travel can be attributed to the need to transport bulky, valuable and cumbersome equipment. It therefore comes within one of the exceptions to the general principle that travel between home and work is private in nature and non-deductible (where the taxpayer is required to carry bulky equipment in order to perform their work).

Detailed reasoning

The term 'business journey' is defined in subsection 136(1) of the FBTAA as follows:

(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 private use, being an application that results in the provision of a fringe benefit in relation to the employer;...

This definition requires consideration as to whether the journeys undertaken by the employees are private in nature. This is the same consideration required to determine the deductibility of travel between home and work in terms of subsection 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

Subsection 8-1(1) of the ITAA 1997 relevantly provides that:

You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing the assessable income.

However, as per subsection 8-1(2) of the ITAA 1997, an employee cannot deduct an amount to the extent that the outgoing is of capital, private or domestic nature, or relates to the earning of exempt income.

Generally, expenses incurred by a taxpayer in travelling between home and work are not deductible under section 8-1 of the ITAA 1997 as they are considered to be private in nature. This is because normally, expenses incurred in travelling from home to work are not treated as incurred in the derivation of assessable income but instead are treated as incurred in order to enable the taxpayer to derive assessable income. This well-established principle was reinforced by the High Court in Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478 (Lunney & Hayley).

The High Court's reasons in Lunney & Hayley for the general principle of non-deductibility of home to work travel are twofold:

Whilst it is necessary for a taxpayer to arrive at work to derive income, they do not start deriving that income until they actually arrive at work. As such, their travel expenses are a prerequisite to the earning of their assessable income, rather than being incurred in the course of gaining that income.

The essential character of expenses incurred in travelling from home to work are of a private or domestic nature, as they relate to the taxpayer's personal and living expenses as part of the taxpayer's choice of where to live and at what distance from work. Therefore, the expenses would not satisfy subsection 8-1(2) of the ITAA 1997.

However, subsequent court decisions have modified this general principle in various circumstances. For example, Federal Commissioner of Taxation v. Vogt 75 ATC 4073; 5 ATR 274 (Vogt's Case), whereby it was found that exceptional circumstances exist, under which a taxpayer may be entitled to a deduction for direct home to work travel expenses, for example:

(1) If taxpayer has a home office which is a place of business;

(2) If taxpayer has to carry bulky equipment; or

(3) If taxpayer has shifting places of employment.

The exceptional circumstances in (2) is considered further below in respect of XXX's circumstances.

Bulky equipment

Paragraph 79 of Taxation Ruling 2021/1: Income tax: when are deductions allowed for employees' transport expenses (TR 2021/1) explains that where the nature of the employment creates a practical necessity due to work duties, to transport bulky equipment, to and from a regular place of work (including to and from home), the expenses of transporting that bulky equipment may be deductible - It is construed by the Commissioner as a narrow exception to the ordinary principle that travel from home to a regular place of work is private and thus not deductible.

A footnote at paragraph 79 of TR 2021/1 provides further explanation on the meaning of 'bulky':

It is a question of fact whether equipment is bulky. In Crestani and Commissioner of Taxation [1998} AATA 612, Senior Member Block stated at [7]:

I do not think that the term 'bulky' should be construed to refer to only an article which is of large size, such as the musical instruments which were the subject of the decision in FC of T v Vogt 75 ATC 4073. The term is, in my view, more aptly construed as similar to 'cumbersome' in the sense that it is not easily portable.

Paragraph 90 of TR 2021/1 provides that, to come within this exception, it is necessary that:

•         the equipment is essential for the performance of the employee's employment duties

•         the equipment is bulky such that transportation by car or other private vehicle is the only realistic option, and

•         transporting the items to and from their regular place of work is a practical necessity because there is no secure area for the storage of the equipment provided at the employee's regular place of work or the equipment needs to be transported to a different site each day.

Equipment essential to performance of employee's duties

The Commissioner considers that the equipment is essential for the performance of the employee's employment duties

The equipment is bulky

The equipment is bulky such that transport by the employee's vehicle is the only realistic option

Practical necessity of transportation to and from places of work

Transporting the equipment to and from the employee's home and their regular/other place of work is a practical necessity.

Conclusion

The journeys in the vehicle between home and the regular and other worksites are not considered to be private in nature and the costs would be deductible under section 8-1 of the ITAA 1997.

As each journey is not private in nature as required for deductibility under section 8-1 of the ITAA 1997, they are business journeys as defined in subsection 136(1) of the FBTAA and classified as a 'business journey' for the purpose of calculating the taxable value of car fringe benefits under section 10 of the FBTAA.