ATO ID 2007/140: Car Fringe Benefits: operating cost method - calculating taxable value when minor benefits that are exempt benefits are provided
Date of decision: 10 May 2007
Year of income: Year ended 31 March 2008
Business line: Superannuation and Employer Obligations

Issue
When calculating the 'business use percentage' of a particular car for the purposes of the operating cost method under subsection 10(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), will journeys that result in minor benefits that are exempt benefits, be treated as business journeys?

Decision
Yes. Such journeys are treated as business journeys and will therefore increase the business use percentage of a car for the purposes of the operating cost method under subsection 10(2) of the FBTAA.

Facts
An employer has a pool of cars each of which are held for the full year and for the purposes of subsections 162(1) and 162(2) of the FBTAA. Log book and odometer records are maintained for each of the cars. A particular car is regularly used during the year by employees for both work related and for private purposes. The log book records show that during the year one employee used this car to undertake a short private journey. This use of the car was a car benefit under section 7 of the FBTAA. It was determined at the end of the year that this car benefit satisfied the requirements of section 58P of the FBTAA and was an exempt benefit. The employer elects and uses the operating cost method in section 10 of the FBTAA to calculate the aggregate of the taxable value of car fringe benefits in relation to the car.

Reasons for decision
Summary: In calculating the aggregate taxable values of the car fringe benefits under the operating cost method subsection 10(2) of the FBTAA provides the following formula: ( C x (100% - BP )) - R where: C is the operating cost of the car during the holding period; BP is: R is the amount (if any) of the recipient's payment. The term 'business use percentage' is defined in subsection 136(1) of the FBTAA: business use percentage , for a car held by a person during a period ( the holding period ) in an FBT year, means the percentage worked out using the formula: Number of business kilometres travelled by the car during the holding period / Total number of kilometres travelled by the car during the holding period X 100% The term 'business kilometre' is defined in subsection 136(1) of the FBTAA: " business kilometre ", in relation to a car, means a kilometre travelled by the car in the course of a business journey. The term 'business journey', is defined in subsection 136(1) of the FBTAA: " business journey " means: (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 a private use, being an application that results in the provision of a fringe benefit in relation to the employer; or (b) ....... The car is described in the facts as being held for the full year under subsections 162(1) and 162(2) of the FBTAA. As a result, components C and BP of the formula are also based upon the full year. The formula in subsection 10(2) of the FBTAA does not allow for any direct reduction for the notional value of a minor benefit that is an exempt benefit so the aggregate of the taxable values of any car fringe benefits is unaffected by such a value. When calculating the aggregate of the taxable values of car fringe benefits under subsection 10(2) of the FBTAA, the 'business use percentage' applicable to the car needs to be determined. As the definitions show, the amount of the 'business use percentage' is dependant on the ratio of the number of business kilometres to total kilometres. The number of business kilometres is dependant on what is a 'business journey' The definition of 'business journey' above requires, a journey undertaken in a car otherwise than in the application of the car to a private use, being an application that results in the provision of a fringe benefit in relation to the employer.... (emphasis added). Where a journey is concluded to be a minor benefit that is an exempt benefit, it meets the definition of a 'business journey' as it is not private use that results in the provision of a fringe benefit, but rather it is private use that results in the provision of an exempt benefit. The employer should therefore record any journeys that are determined to be minor benefits that are exempt benefits, as business journeys. The inclusion of a minor benefit that is an exempt benefit as a 'business journey' and therefore as 'business kilometres' will result in an increase in the ratio of number of business kilometres to total kilometres which will increase the 'business use percentage'. The end result of the inclusion of the number of kilometres travelled on the short private journey (which was a minor benefit that is an exempt benefit) will be a reduction in the aggregate taxable value of the car fringe benefits as determined under subsection 10(2) of the FBTAA.

Legislative references: Fringe Benefits Tax Assessment Act 1986 section 7 section 10 subsection 10(2) section 58P subsection 136(1) subsection 162(1) subsection 162(2)
Subject references: Car fringe benefits Exempt benefits FBT operating cost Fringe benefits Fringe benefits tax Minor benefits