Edited version of private advice

Authorisation Number: 1052298973530

Date of advice: 19 September 2024

Ruling

Subject: Exempt residual benefits

Question 1

Is the supply of the vehicle to an employee a car benefit as per section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer 1

No

Question 2

Is the supply of the vehicle to an employee an exempt residual benefit as per section 47 of the FBTAA?

Answer 2

Yes

This ruling applies for the following periods:

1 April 20XX to 31 March 20XX

1 April 20XX to 31 March 20XX

1 April 20XX to 31 March 20XX

1 April 20XX to 31 March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The company purchased a Nissan Patrol Wagon for business usage. The primary purpose of the vehicle is to carry the materials and tools required for work. As such, the vehicle payload were increased by engaging a third party to make the necessary alterations. Original vehicle details as follows:

•                     Make of the vehicle: Nissan

•                     Model: Patrol

•                     Badge: Y62

•                     Series: 5

•                     Version: Ti

•                     Body Type: Wagon

•                     Build date is 1 November 2023

•                     Compliance date is 01/2024

•                     Power (KW) 298

•                     Seating: 8

•                     Cylinders: 8

•                     Engine configuration: V

•                     Total cost of the vehicle is $87,000

On 2 February 2024, you increased the vehicle's payload to 1,457kg and retain 3.5t towing pre-registration. The gross vehicle mass (GVM) has increased to 4200kg. For pre-registration GVM, the maximum towing capacity remains 3500kg. Post-registration, GVM reduces towing capacity to 2800kg, when the vehicle is loaded to full 4200 GVM. The axle load ratings are front axle capacity is 1750kg; rear axle capacity is 2550kg. Total cost of the modifications is $15,497.50.

Additional information

•                     The primary use of the vehicle is to carry materials and tools for work purposes.

•                     Other use of the vehicle is minor and infrequent.

•                     The upgrades were done to increase the vehicle payload for work related purposes.

•                     The Nissan Patrol usually tows a 2.8-ton trailer full of work-related tools and materials.

•                     Kerb weight was 2812kg pre modification and 2743kg post modification.

•                     Total payload after modification is 1457kg.

•                     An electric brake controller for a 2.8t trailer and a tow bar was fitted pre-delivery of the vehicle.

•                     The GVM upgrade is permanent and irreversible.

•                     The relevant modifications were made pre-delivery to the employee.

•                     The tyre modifications were made to satisfy engineering requirements for the required load ratings.

•                     The default factory coil springs were replaced with heavy duty springs prior to delivery.

•                     The lower and upper control arms were replaced with heavy duty control arms.

•                     Suspension airbags were fitted to the rear springs of the vehicle along with category 6 indicators.

•                     Three of the eight seats have been removed to store additional equipment at the rear of the vehicle.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 7

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 section 47

Fringe Benefits Tax Assessment Act 1986 section 136(1)

Fringe Benefits Tax Assessment Act 1986 section 148(1)

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

Reasons for decision

These reasons for decision accompany the Notice of private ruling for the company.

This is to explain how we reached our decision. This is not part of the private ruling.

Question 1

Is the supply of the Nissan Patrol to an employee a car benefit as per section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The supply of the Nissan Patrol to an employee is not a car benefit, as it does not meet the definition of a car for the purposes of the FBTAA.

Detailed reasoning

What is a car benefit

Section 7(1)

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.

Is the vehicle a 'car' and not a taxi, panel van or other commercial vehicle?

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

has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997

The term 'car' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA) to mean:

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

Section 136(1) of the FBTAA provides that a 'car' has the meaning given by Section 995-

1(1) of the Income Tax Assessment Act 1997. That provision defines a 'car' as:

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

Prior to the payload capacity alterations taking place, the vehicle had a payload of 700kg. Following the payload capacity alterations, the vehicle has a payload capacity of 1457kg.

Applying the facts, the Nissan Patrol has less than 9 seats but is designed to carry a load of more than 1 tonne and therefore does not meet the definition of a car and is not a car benefit for the purposes of the FBTAA.

Question 2

Is the supply of the Nissan Patrol to an employee an exempt residual benefit as per section 47 of the FBTAA?

Summary

Yes, the vehicle is eligible for the fringe benefit exemption available under subsection 47 of the FBTAA but only where the employee's private use is limited to work-related travel and to other private use that is minor, infrequent and irregular.

Detailed reasoning

A fringe benefit generally arises where an employer makes a vehicle, they hold available for the private use of an employee.

The type of benefit being provided is either a car fringe benefit (when the vehicle being provided meets the legislative definition of 'car') or a residual fringe benefit (when the vehicle being provided does not meet the definition of 'car').

However, a fringe benefit exemption is available for certain types of vehicles when the employee's private use is limited to work-related travel and to other private use that is 'minor, infrequent and irregular'.

The legislative definition of 'car' for FBT purposes is the same as the income tax definition (see section 136(1) of the FBTAA).

Therefore, as outlined in the response to Q1, the vehicle that is being provided to the employee in this situation does not meet the definition of 'car' because at the time of its purchase the payload capacity exceeded one tonne and the cost of carrying out alterations to increase the payload capacity prior to the ownership.

Therefore, any private use of this vehicle would be treated as a residual fringe benefit pursuant to section 45 of the FBTAA, unless an exemption applies.

Subsection 47(6) of the FBTAA provides, where:

1.            a residual benefit consisting of the provision of 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 vehicle used for taxi travel (other than limousine) 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

2.            there was no private use of the motor vehicle 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 of the motor vehicle 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.

In your situation, a residual benefit consisting of the provision or use of a motor vehicle is being provided in respect of the employment of a current employee and the motor vehicle that is being provided to that employee is not used for taxi travel or is a car, therefore the first requirement of the subsection of 47(6) exemption is satisfied.

The ATO's view on 'minor, infrequent and irregular' use is contained in paragraphs 6(f) and 6(g) of Practical Compliance Guideline PCG 2018/3.

This guideline states that in order for private use to be considered minor, infrequent and irregular, employees:

               can only use the vehicle to travel between their home and their place of work and any diversion cannot add more than two kilometres to the ordinary length of that trip; and

               for journeys undertaken for a wholly private purpose (other than travel between home and place of work), the employee cannot use the vehicle:

o        to travel more than 1,000 kilometres in total during the FBT year; or

o        for a return journey that exceeds 200 kilometres during the FBT year.

In your situation, you stated there is no private use of the vehicle by the employee other than work-related travel and other minor, infrequent and irregular private use.

You will also need to ensure that the employee does not divert more than two kilometres from their ordinary home to work travel, travels more than 1,000 kms in total for private purpose during the FBT year or makes a private return journey that exceeds 200 kilometres during the FBT.

Therefore, the second requirement of the subsection 47(6) exemption is satisfied only when the employee meets the 'minor, infrequent and irregular' requirements that are outlined in PCG 2018/3 for the full FBT year.

Where both requirements (subsections 47(6) (1) and 47(6)(2) are satisfied for the entire FBT year, you will be eligible for the subsection 47(6) FBT exemption.

Record keeping reminder

You are reminded that you must keep records about your employee's use of the vehicle that demonstrate that the private use of the vehicle is 'minor, infrequent and irregular' and you must be able to demonstrate that the employee's use of the vehicle at all times meets the limited private use conditions.

For example, you could require the employee to keep a logbook indicating which trips are business-related and which trips are private, have a policy in place that limits private use of the vehicle, ensure employee compliance of this policy and regularly compare the opening and closing odometer readings of the vehicle with the total distance you expect the employee to travel between home and work.

If an employee's use of your eligible vehicle doesn't meet the conditions for limited private use, it is a residual fringe benefit and you will need to work out the taxable value of the private use of the vehicle, calculate how much FBT to pay, lodge your FBT return, pay the FBT amount and check if you should report the fringe benefit through Single Touch Payroll (or on your employee's payment summary).

You will need to know the amount of private use versus business use. You don't have to keep a logbook, but if you have one it will be easier for you to work out the extent of private use of the vehicle. If you don't have a logbook, you can make a reasonable estimate (for example, if your employee drives the vehicle between home and work, you could determine this component of private use by multiplying the number of journeys during the year by the distance between the employee's home and place of employment).