ATO ID 2011/47: Car fringe benefits: non-business accessory
Date of decision: 6 April 2011
Year of income: Year ended 31 March 2010
Business line: Superannuation and Employer Obligations

Issue
Are paint protection, fabric protection, rust protection and window tinting which are applied to a car each a non-business accessory as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Decision
Yes. Paint protection, fabric protection, rust protection and window tinting are each a non-business accessory as defined in subsection 136(1) of the FBTAA.

Facts
An employer purchases a new car from a car dealer. The employer also purchases paint protection, fabric protection, rust protection and window tinting as optional extras. On the contract of sale, the car dealer charges a price for the new car and a separate price for each optional extra. The optional extras are applied to the car by the car dealer at its business premises before the employer takes possession of the car. Paint protection is a clear layer of special wax which is applied on top of the existing paint of the car. This protection cannot be removed. Fabric protection is a protective coating which is applied onto the car fabric and forms a protective layer designed to alleviate oil and water-based spills. Rust protection is a protective coating designed to prevent the corrosion of metal. The product is applied to the underside of the car. Window tinting involves a sun resistant membrane being applied to the car windows.

Reasons for decision
Summary: Cost price and non-business accessory are terms which are defined in subsection 136(1) of the FBTAA. The cost price of a car and the cost price of a non-business accessory are two important elements in determining the taxable value of car fringe benefits. Each of these elements can be affected by whether or not an item that is applied to a car is a non-business accessory. Subsection 136(1) of the FBTAA defines the term non-business accessory: in relation to a car, means an accessory fitted to the car, whether at the factory where the car was assembled or at some other place, other than an accessory required to meet the special needs of any business operations in relation to which the car is used. Subsection 136(1) of the FBTAA defines the term fitting to include: in relation to a non-business accessory, includes the acquisition of the accessory. The FBTAA does not define what are accessories or what are accessories fitted to a car. The Macquarie Dictionary , [Multimedia], version 5.0.0, 1/10/01, defines the word accessory as: 1. a subordinate part or object; something added or attached for convenience, attractiveness, etc., such as a spotlight, heater, driving mirror, etc., for a vehicle. 2. (plural) the additional parts of an outfit, as shoes, gloves, hat, handbag, etc. The meaning of the word accessory has been considered in a number of cases relating to sales tax and customs tariff classification. In FC of T v. Polaroid Australia Pty Ltd 71 ATC 4249; (1971) 2 ATR 653, Gibbs J. stated at ATC 4253; ATR 657: The ordinary dictionary meaning of accessory is an adjunct, which itself is defined as something joined to another, but subordinate, as auxiliary, or dependent upon it. In Zendel Australia Ltd & Others v. FC of T 92 ATC 4515; (1992) 24 ATR 101, Hill J. held that an accessory must contribute to the working of some principal item or its general effect and also an accessory must be an adjunct to an item rather than an adjunct to a process. In determining whether aluminium foil was an accessory for an oven, Hill J at ATC 4520; ATR 107 stated: ...As the dictionary definitions demonstrate for an item to be an 'accessory' in the relevant sense that item must contribute to the working of some principal item or its general effect. Thus both a camera lens and light meter are, as Gibbs J observed, accessories to a camera; mag wheels may be an accessory to a car, a crisper may be an accessory to a refrigerator, or perhaps even a baking dish might be an accessory to a stove, at least if custom made for it. In each of these examples the accessory actually contributes to the functioning of the principle item. Paint, fabric, and rust protection and window tinting involve applying a material or chemical onto a car such as by pasting, painting or spraying and may involve other finishing processes. When the process is complete the material which is applied is united with and covers the cars enamel, bodywork, windows or fabric. The material takes the same shape as that to which it is applied and would be difficult, if not impossible to remove. Once the paint protection or the other optional extras are applied to the car it could be argued that they become a component or part of the car itself. In Air International Pty Ltd v. Chief Executive Officer of Customs [2001] FCA 1386; (2001) 48 ATR 173 ( Air International ), Weinberg J. at FCA 51; said: However, an air conditioning system which is installed in a passenger motor vehicle can, in a meaningful sense, be described as being a part, and an accessory, and a component of that vehicle. The Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986 (at Clause 136) says: "non-business accessory" is an item the cost of which will be added to the cost price of a car for the purpose of determining the taxable value of a car fringe benefit. It is an accessory not required for the particular needs of the business operations served by the car. An example would be an air-conditioner. Therefore, what may be regarded as a component of a car such as the air-conditioner described in the Explanatory Memorandum and in Air International can also be an accessory. The definition of non-business accessory in subsection 136(1) of the FBTAA requires that the item be an 'accessory fitted to the car'. The Macquarie Dictionary , [Multimedia], version 5.0.0, 1/10/01, defines the word fitted as: 1. made so as to conform to the shape of something else. 2. (of carpets) extending from wall to wall. 3. provided or equipped with accessories. When paint protection or the other optional extras are applied to the car they conform to the shape of the car. This is consistent with the definition of fitted. Therefore, the paint protection, fabric protection, rust protection and window tinting are accessories fitted to the car. These accessories are not required to meet the special needs of any business operations in relation to which the car is used. Paint protection, fabric protection, rust protection and window tinting are each a non-business accessory as defined in subsection 136(1) of the FBTAA.

Legislative references: Fringe Benefits Tax Assessment Act 1986 subsection 136(1)
Case references: Air International Pty Ltd v. Chief Executive Officer of Customs [2001] FCA 1386 (2001) 48 ATR 173
Other references: Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986 Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01
Subject references: Car fringe benefits FBT cost price Fringe benefits tax