ATO ID 2004/528: Car fringe benefits: base value of a car where the car has been previously leased by the employer
Date of decision: 22 June 2004
Year of income: 31 March 2005
Business line: Superannuation and Employer Obligations

Issue
If an employer provides the use of a car to an employee, where the car has been previously provided to the employee under an earlier lease agreement that involved a different lease company, will the base value of the car that is calculated under subsection 9(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) be the cost price of the car to the second lessor?

Decision
No. The base value of the car, for the purpose of subsection 9(2) of the FBTAA, is determined by reference to the earliest time that the employer first held the car.

Facts
The employee entered into an effective salary sacrifice arrangement with his employer who provided him with a car through a novated lease agreement. At the end of the lease period the employee purchased the car from the lease company. Shortly after, the employee entered into a second lease agreement with the employer involving the same car. Under the second lease arrangement 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 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. Where the car is leased by the employer, subparagraph 9(2)(a)(ii) of the FBTAA provides that the base value of the car is the 'leased car value of the car at the earliest holding time'. 'Leased car value' is defined in subsection 136(1) of the FBTAA to mean, where a car is 'held but not owned by a person', the cost price of the car to the lessor. 'Earliest holding time' is explained at paragraph 9(2)(b) of the FBTAA to be the earliest time before the current time when the car was held by the provider or an associate of the provider. Therefore, the base value will be the cost price to the lessor under the first lease arrangement, being the earliest time that the car was held.

Legislative references: Fringe Benefits Tax Assessment Act 1986 subsection 9(1) subsection 9(2) subsection 136(1) subsection 162(1)
Related ATO interpretative decisions: 2004/527 | 2003/584
Subject references: Car fringe benefits FBT base value FBT cost price FBT leased car value FBT statutory formula Fringe benefits tax