ATO ID 2006/253: Car Fringe Benefits: cost price of a car - extended car warranty
Date of decision: 28 August 2006
Business line: Superannuation and Employer Obligations

Issue
Does the expenditure incurred on the purchase of an extended car warranty form part of the 'cost price' of a car for the purposes of Division 2 of Part III of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
No. The expenditure incurred on the purchase of an extended car warranty does not form part of the 'cost price' of a car for the purposes of Division 2 of Part IIII of the FBTAA, as the expenditure is not directly attributable to the acquisition or delivery of the car.

Facts
An employer purchased a new car. The cost of the car included the manufacturer's normal new car warranty. The employer purchased, at an additional cost, an extended car warranty offered by the manufacturer. The employer provided the car to an employee as a car fringe benefit.

Reasons for decision
Summary: The 'cost price' of a car is referred to for the purposes of calculating the taxable value of car fringe benefits under both the statutory formula and cost basis methods under Division 2 of Part III of the FBTAA. The term 'cost price' is defined in subsection 136(1) of the FBTAA. Sub-subparagraph (a)(ii)(A) of the definition states that 'cost price' in relation to a car owned by a person, means: the expenditure incurred by the person (other than expenditure in respect of registration or in respect of a tax on, or on a transfer of, registration) that is directly attributable to the acquisition or delivery of the car or, if subsection 7(6) applies in relation to the car, the leased car value of the car when the person first took the car on hire. The purchase price of the employer's car includes the normal new car warranty provided by the manufacturer. This expenditure is directly attributable to the acquisition or delivery of the car and as such forms part of the 'cost price' of a car as defined in subsection 136(1) of the FBTAA. In contrast to a new car warranty, it is considered that the purchase of an extended car warranty is a separate contract from the contract for the sale of the car and is a form of insurance which is not directly attributable to the acquisition or delivery of the car. Accordingly, the separate purchase of an extended car warranty does not form part of the 'cost price' of the car as defined in subsection 136(1) of the FBTAA. If the cost basis method is used to value any car fringe benefits, the expenditure incurred on the separate purchase of an extended car warranty would form part of the operating cost of the car under subparagraph 10(3)(a)(ii) of the FBTAA. Further the separate purchase of an extended warranty does not form part of the 'cost price' of the car and thus the depreciated value of the car as specified in section 12 of the FBTAA for the purpose of determining deemed depreciation and deemed interest under section 11 of the FBTAA. If the statutory formula method is used to value any car fringe benefits, the expenditure incurred on the separate purchase of an extended car warranty does not form part of the base value of the car.

Legislative references: Fringe Benefits Tax Assessment Act 1986 Division 2 subsection 9(2) subparagraph 10(3)(a)(ii) section 11 section 12 subsection 136(1)
Related public rulings and determinations: Taxation Ruling TR 2011/3
Related ATO interpretative decisions: ATO ID 2003/585 | ATO ID 2003/586 | ATO ID 2003/587
Subject references: Car fringe benefits FBT car FBT cost price FBT operating cost FBT statutory formula Fringe benefits tax