ATO ID 2003/585: Car fringe benefits: cost price for manufacturer - 'application to the person's own use'
Date of decision: 3 April 2004
Year of income: Year ended 31 March 2004
Business line: Superannuation and Employer Obligations

Issue
When using the statutory formula method and determining the 'cost price' of a car, for the purposes of the definition in subparagraph 136(1)(a)(i) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), in relation to a car owned and manufactured by a foreign car company, will the car be 'applied to the person's (foreign car company's) own use' because the person sells the car?

Decision
Yes. Under the definition of 'cost price', selling the car would be an application to the person's own use.

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. These facts are common in the 'Related ATO IDs' below.

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. 'Cost price' is defined in subsection 136(1) of the FBTAA. Where a car is owned by the person and manufactured by the person, subparagraph 136(1)(a)(i) applies as follows: the amount for which the car could reasonably have been expected to have been sold by the person by wholesale under an arm's length transaction at or about the time when the car was applied to the person's own use [emphasis added] Thus, the 'cost price' of the car is an amount determined at a particular point in time, being the time the car was applied to the person's own use. | Detailed Reasoning - Applied to the person's own use: The expression 'applied to own use' and similar expressions, have been held by the Courts to have a broad meaning when used in relation to goods manufactured and used by the manufacturer in the course of carrying on a business ( Max Factor & Co. Inc v Federal Commissioner of Taxation (1971), 124 CLR 353; 71 ATC 4136; (1971) 2 ATR 420, Deputy Federal Commissioner of Taxation v Taubmans (NSW) Pty Ltd (1966), 115 CLR 570; (1966) 14 ATD 188). In the Max Factor case above, Justice Gibbs referred to the House of Lords decision in Shell-Mex and BP Ltd v. Clayton [1956] 3All ER 185. In that case Viscount Simmonds said at pp 191-192: It would in my opinion, be in its context placing too narrow a meaning on "use" to confine it to use by consumption. It may, and, I think, does, include such use as a trader makes of his stock in trade, that is by selling it. Thus, where a foreign car company sells a car that it has manufactured, to its Australian subsidiary company, the sale of the car is considered to be an application of the car to the foreign company's own use, and this 'application to the person's own use' occurs at the time of sale.

Legislative references: Fringe Benefits Tax Assessment Act 1986 subsection 9(2) subsection 136(1) subparagraph 136(1)(a)(i)
Case references: Max Factor & Co. Inc v. Federal Commissioner of Taxation (1971) 124 CLR 353 71 ATC 4136 (1971) 2 ATR 420
Related ATO interpretative decisions: ATO ID 2003/584 | ATO ID 2003/586 | ATO ID 2003/587
Subject references: Fringe benefits tax Car fringe benefits FBT base value FBT cost price FBT car FBT statutory formula