ATO ID 2003/587: Car fringe benefits: base value of the car
Date of decision: 3 April 2003
Year of income: Year ended 31 March 2004
Business line: SEO

Issue
When using the statutory formula method and when a car is manufactured by a foreign car company and subsequently purchased by its Australian subsidiary, can section 13 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to increase the base value of the car?

Decision
No. Section 13 of the FBTAA will not apply to increase the base value of the car.

Facts
The foreign car company manufactures the car outside of Australia. On the day the manufacturing process is completed, the car commences to exist as a 'car' as defined in subsection 136(1) of the FBTAA. On this day, the foreign car company owns the car. The Australian company is a wholly owned subsidiary of the foreign car company. The Australian company purchases the car from the foreign car company and imports the car into Australia. The costs of importing the car into Australia include transport costs, customs duty and import duty. These costs are incurred by the Australian company. The Australian company is the employer of the employee, and during the year it maintains the car and allows its employee to use the car for private and work-related purposes. The Australian company uses the statutory formula method for returning its car fringe benefits.

Reasons for decision
Summary: Where the statutory formula method is used to determine the taxable value of a car fringe benefit, the taxable value of the benefit is calculated by reference to the base value of the car which, pursuant to subsection 9(2) of the FBTAA, includes the 'cost price' of the car. Section 13 of the FBTAA is an anti-avoidance measure that ensures that the base value of a car will always be determined by reference to expenditure under arm's length transactions. In the present case, the base value has firstly been determined by reference to the 'cost price' under subparagraph 136(1)(a)(i) of the FBTAA to the foreign car company, being the arm's length wholesale price (refer ATO ID 2003/586). Therefore, in applying section 13 of the FBTAA, the reference in that section to the 'person' who incurred the expenditure or to 'person' who acquired the property, can only be the foreign car company. That is, whether or not the Australian company incurred expenditure in acquiring the car is irrelevant in determining the base value of the car. Because the 'cost price' is already a price under an arm's length transaction (under subparagraph 136(1)(a)(i) of the FBTAA), then subsection 13(2) of the FBTAA has no application. Subsection 13(4) of the FBTAA requires an acquisition of property or the provision of any benefit. The foreign car company does not acquire the car - it manufactures it (refer Taxation Ruling TR 2001/2 paragraph 52). The foreign car company is not provided with any benefit under subsection 13(4). Therefore subsection 13(4) does not apply. Accordingly, section 13 does not apply to increase the base value of the car.

Legislative references: Fringe Benefits Tax Assessment Act 1986 subsection 9(2) section 13 subsection 13(2) subsection 13(4) subsection 136(1) subparagraph 136(1)(a)(i)
Related public rulings and determinations: Taxation Ruling TR 2001/2
Related ATO interpretative decisions: ATO ID 2003/584 | ATO ID 2003/585 | ATO ID 2003/586
Subject references: Fringe benefits tax Car fringe benefits FBT base value FBT cost price FBT Car FBT statutory formula method