ATO ID 2004/527: Car fringe benefits: 1/3 reduction in the base value of a car under the statutory formula method
Date of decision: 17 June 2004
Year of income: Year ending 31 March 2005
Business line: Superannuation and Employer Obligations

Issue
Does an employer need to hold a car continuously for 4 years before the base value can be reduced by 1/3, under paragraph 9(2)(a) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
No. A 1/3 reduction in the base value can be made under paragraph 9(2)(a) of the FBTAA in the fringe benefits tax (FBT) year following the fourth anniversary of the date the car was first owned or leased by the employer. The car does not have to be held continuously by the provider for the entire 4year period.

Facts
The employee entered into an effective salary sacrifice arrangement with his employer who provided him with the use of a car through a novated lease agreement. At the end of a threeyear lease period the employee purchased the car from the lease company. A year later, the employee entered into a second lease agreement with the employer involving this same car. Under the second lease agreement the employee sold the car to a new leasing company and is then provided with the same car through a novated lease agreement between the employer and that company. The employer elects to use the statutory formula method to value any car fringe benefits for this particular car.

Reasons for decision
Summary: Subsection 9(1) of the FBTAA sets out the formula for calculating the taxable value for one or more car fringe benefits for a particular car held by the employer, where the employer uses the statutory formula method. Under subsection 162(1) of the FBTAA a car is 'held' where it is owned, leased or otherwise made available to the employer by another person. Subsection 9(2) of the FBTAA explains how to calculate the base value of a car. Under paragraph 9(2)(a) there is provision to reduce the base value component where a car is owned (subparagraph 9(2)(a)(i)) or leased (subparagraph 9(2)(a)(ii)). Whether the car is owned or leased is not relevant, it merely needs to be 'held'. The 1/3 reduction in base value is allowed 'where the commencement of the year of tax is later than the fourth anniversary of the earliest holding time'. Therefore, the reduction is determined on the length of time between the first time the car is held and the current time. If this difference is 4 years, then a 1/3 reduction in the base value may be made at the commencement of the next FBT year. The car does not need to be held continuously for the entire 4year period for the reduction to be made.

Legislative references: Fringe Benefits Tax Assessment Act 1986 section 9 paragraph 9(2)(a) subparagraph 9(2)(a)(i) subparagraph 9(2)(a)(ii) subsection 162(1)
Related public rulings and determinations: Taxation Determination TD 94/28
Related ATO interpretative decisions: ATO ID 2003/584 | ATO ID 2004/528
Subject references: Fringe benefits tax Car fringe benefits FBT base value FBT statutory formula