Edited version of private advice

Authorisation Number: 1052306727893

Date of advice: 22 November 2024

Ruling

Subject: FBT - car benefits

Question

Does a fringe benefit arise under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) in relation to the car that was held by you and was used for private purposes by your director?

Answer

No.

This ruling applies for the following periods:

FBT year ending 31 March 2020

FBT year ending 31 March 2021

FBT year ending 31 March 2022

FBT year ending 31 March 2023

FBT year ending 31 March 2024

The scheme commenced on:

1 April 2019

Relevant facts and circumstances

You purchased a X car (the car) for $Y in 20XX with finance.

From the date of its purchase, the sole director, who is also a shareholder of your company (Mr Z) used the car exclusively for private purposes.

You claim the car was mistakenly purchased and registered in your name rather than in Mr Z's name and this was an honest mistake.

Mr Z paid all of the car loan repayments as well as all the car's operating costs, including fuel, repairs and maintenance, registration, insurance, etc.

You did not claim any expenses in relation to the car provided to Mr Z in any of your income tax returns for the period.

The car was not recorded as an asset in your balance sheet for any period.

Mr Z did not pay you any lease fees for the right to use the car for private purposes.

You have never paid nor do you intend paying Mr Z any payments, director's fees, remuneration or salary or wages.

Mr Z was not involved in the day-to-day management of your company during the period; he dedicated very limited hours per week to carry out his director's obligations.

In 2024, legal ownership of the car was transferred from you to Mr Z.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Taxation Administration Act 1953 Schedule 1 section 12-40

Fringe Benefits Tax Assessment Act 1986 subsection 137

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidancerule for income tax'.

Reasons for decision

Allowing Mr Z the right to use a car you held for private purposes without paying a leasing fee is a benefit.[1]

However, it is not a car benefit[2], a car fringe benefit[3] or any other type of fringe benefit[4] because it wasn't being provided to Mr Z as an employee in respect of his employment.

A benefit arises when a right (including a right in relation to, and an interest in, real or personal property), a privilege, a service or a facility is provided to a person.

As the car you provided to Mr Z was purchased and registered in your name rather than in his, it was held[5] by you.

Providing him with the right to use the car for private purposes and for no consideration is therefore a benefit.

However, for a car benefit to arise, an employer must provide a car they hold to an employee in respect of their employment and allow it to be used for private purposes.

For fringe benefits tax purposes, an employee is a current, former or future employee.[6]

A current employee is a person who receives, or is entitled to receive, salary or wages, a former employee is a person who has been a current employee and a future employee is a person who will become a current employee.[7]

Salary or wages are payments from which an amount must be withheld to the extent that the payment is assessable income.[8] This includes payments of remuneration or directors' fees to company directors.

Section 137 of the FBTAA extends the meaning of salary or wages to create an employment relationship for the purposes of the FBTAA where a benefit is provided that would have been classified as salary or wages if it had been a cash payment. That is, had the benefit been provided by way of a cash payment, the payment would be a payment from which an amount must be withheld under one of the provisions of the TAA listed in the definition of salary or wages.

Section 137 of the FBTAA provides the following:

For the purpose only of ascertaining whether a person is an employee or an employer within the meaning of this Act, where:

a) a benefit is provided by a person (in this subsection referred to as the first person) to, or to an associate of, another person (in this subsection referred to as the second person);

b) but for this subsection, the benefit would not be regarded as having been provided in respect of the employment of the second person; and

c) either of the following conditions is satisfied:

i. if the benefit were provided by the first person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the first person to the second person;

ii. all of the following conditions are satisfied:

(A) subparagraph (i) does not apply in relation to the benefit;

(B) the first person is an associate of a third person or the benefit is provided under an arrangement between the first person and a third person;

(C) if the benefit were provided by the third person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the third person to the second person; a definition in subsection 136(1) applies as if the benefit were salary or wages paid to the second person by:

d) in a case to which subparagraph (c)(i) applies--the first person; or

e) in a case to which subparagraph (c)(ii) applies--the third person.

Section 137 of the FBTAA can only be triggered if the benefit is intended to be remuneration for the Director's performance of duties. Therefore, in this case section 137 will not apply.

Furthermore, Mr Z was not involved in the day-to-day management of your company during the period; he dedicated very limited hours per week to carry out his director's obligations.

As Mr Z makes all the car loan repayments and pays for all the operating costs, including fuel, repairs and maintenance, registration, insurance, etc., the benefit provided to him, if it was paid in cash, would amount to nil.

The question whether a benefit is provided for employment-related reasons is one that also arises under the income tax law. The income tax position is that expenses incurred in respect of benefits provided for employment-related reasons are generally deductible to the company even where the recipient is also a shareholder.[9]

Miscellaneous Taxation Ruling MT 2019 Fringe benefits tax: shareholder employees of family private companies and directors of corporate trustees (MT 2019) at paragraph 12 gives an example where a family home is owned by a company which has not carried on a business and the dwelling is occupied rent free by shareholder directors who have performed only nominal duties for the company. The strong inference would be that the benefit was granted because of something other than employment. If, in these circumstances the company has not claimed deductions relating to the dwelling, it would be accepted that the free occupancy was not provided in respect of employment.

As you did not claim any expenses in relation to the car in any of your income tax returns, and Mr Z is not considered to be a current, former or future employee, there is no evidence that the benefit is being provided to Mr Z for employment-related reasons.

It follows that the provision of the benefit, being the use of a car you own for no consideration to Mr Z, is not subject to fringe benefits tax.

However, as Mr Z is a shareholder of yours, providing the car to him (which is a company asset) could be deemed a dividend.[10]

[1] 'Benefit' definition from Section 136(1) of the FBTAA.

[2] 'Car benefit' definition from Sections 136(1) & 7(1) of the FBTAA.

[3] 'Car fringe benefit' definition from Section 136(1) of the FBTAA

[4] 'Fringe benefit' definition from Section 136(1) of the FBTAA.

[5] A car held by a person is defined at Section 162 of the FBTAA.

[6] 'Employee' definition from Section 136(1) of the FBTAA.

[7] 'Current, former and future employee' definitions from Section 136(1) of the FBTAA.

[8] 'Salary or wages' definition from Section 136(1) of the FBTAA.

[9] Paragraph 7 of Miscellaneous Taxation Ruling MT 2019: Fringe benefits tax: shareholder employees of family private companies and directors of corporate trustees.

[10] See Division 7A of the Income Tax Assessment Act 1936 and seek further advice if necessary.