Private ruling: FBT - motor vehicles
Date of advice: 18 December 2023
Published: 12 February 2024
Ruling period: FBT year ending 31 March 2025 | FBT year ending 31 March 2026 | FBT year ending 31 March 2027 | FBT year ending 31 March 2028
Date scheme commenced: 1 April 2024

Ruling: Q1: Where the Employer and an associate of an employee of the Employer enter into a fully maintained operating car lease, will any car expenses incurred by the associate constitute a 'recipient's payment' under sections 9 and/or 10 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) if the car subject to the associate lease is provided by the Employer: A. solely for the private use of the employee? B. solely for the private use of the associate? C. for the private use of the employee and the associate? | A1: A. Yes. B. Yes. C. Yes.

Relevant facts and circumstances: The Employer has a motor vehicle associate operating lease program that is available to executives, managers and senior officers. The program provides employees, who have entered into a salary sacrifice packaging agreement, with an option to salary sacrifice a motor vehicle lease as a part of their salary package. Eligibility All executives, managers and senior officers who enter into a salary sacrifice packaging agreement to apply for an associate motor vehicle lease for the replacement of a company vehicle and/or a second motor vehicle for the use by employee's associate(s). Characteristics of the lease Under the arrangements of the lease: • The associate of an employee (partner, family member or family company) acquires a motor vehicle (within the definition of a 'car' per subsection 136(1) of the FBTAA; • The associate leases the vehicle to the Employer through an operating lease and in return receives lease payments; • The vehicle will be garaged at the residence of the employee and associate; • The lease is a fully maintained operative lease - the associate will bear the risk of fluctuation of running costs, which includes but is not limited to payments for fuel, repairs and maintenance, registration and insurance costs; • The Employer provides the vehicle to the employee through a salary sacrifice arrangement; • The vehicle must be owned, leased or financed by the associate of the employee and registered in the associate's name; and • The vehicle must be either a replacement for the Employer's company vehicle or a second salary packaged vehicle which is exclusively used by the employee's associate. Employees are responsible for: • Obtaining independent financial and taxation advice in respect of associate vehicle leasing; • For any losses, damages or claims that may result from an associate lease arrangement; • The net cost to the Employer of leasing the vehicle from the associate inclusive of any FBT or GST liability payable to the Australian Taxation Office (ATO). The net cost will be charged to the employee's salary package as a salary sacrifice deduction from pre-tax salary; • Making contributions (if required) from after-tax salary via the payroll system equivalent to the FBT liability incurred by the Employer on the provision of the associate lease vehicle to the employee; • Providing the Employer with all information to determine the FBT liability in respect of the associate lease vehicle, including receipts for running costs, FBT declarations and odometer readings as at 31 March each year or earlier if requested by the Employer; • The payment of any FBT or GST liability incurred by the Employer after allowing for the after-tax contributions made by the employee during the FBT year. This amount will be recovered from the employee's salary package on a pre-tax basis; and • Ensuring that the motor vehicle is owned, leased or financed by the employee's associate and registered in the associate's name. Associates are responsible for: • Obtaining independent financial and taxation advice in respect of associate vehicle leasing; • For any losses, damages or claims that may result from an associate lease arrangement; • Selection and purchase of the vehicle required, arranging all financing requirements, fuel purchases, vehicle maintenance and repairs, insurance coverage, vehicle registration etc; • The payment of all costs such as loan or finance lease payments, petrol, maintenance, repairs, registration, insurance and other running coasts in respect of the associate lease vehicle; • Provide the Employer with required documentary evidence, or relevant declaration(s) for fuel and oil by the declaration date; • Entering into an Associate Lease Agreement with the Employer for a minimum period of 2 years but not more than 4 years; • Obtaining an Australian Business Number (ABN) from the ATO; • Maintaining appropriate financial records for taxation purposes including preparation and submission of all tax returns to the ATO; • The payment of any tax liability incurred as a result of an associate lease arrangement; • The payment of any residual amount including GST payable to any finance company at or before the end of the associate lease agreement; and • The payment of all loan or lease payments, running costs and other operating costs from the date of termination of employment of the employee from the Employer as a result of resignation, retirement, redundancy, dismissal or for any other reason.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Section 7 | Fringe Benefits Tax Assessment Act 1986 Section 9 | Fringe Benefits Tax Assessment Act 1986 Section 10 | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1) | Fringe Benefits Tax Assessment Act 1986 Section 162

Reasons for decision: Summary: In each of the three scenarios above, where the employee or associate, or both the employee or associate are taken to have been provided with a car benefit, the 'car expenses' (as defined in the FBTAA) incurred by the employee or associate will constitute a 'recipient's payment', and the taxable value of the car fringe benefit will be reduced by the amount of car expenses incurred during the holding period of the car. | Detailed Reasoning - Detailed reasoning: In order to determine whether 'car expenses' incurred by the associate will be a recipient payment under sections 9 and/or 10 of the FBTAA, it is necessary to firstly consider whether a car fringe benefit arises under subsection 7(1) of the FBTAA. Subsection 7(1) of the FBTAA states: Where: (a) at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as the provider ): (i) is applied to a private use by the employee or an associate of the employee; or (ii) is taken to be available for the private use of the employee or an associate of the employee; and (b) either of the following conditions is satisfied; (i) the provider is the employer, or an associate of the employer, of the employee; (ii) the car is so applied or available, as the case may be, under an arrangement between: (A) the provider or another person; and (B) the employer, or an associate of the employer, of the employee; that application or availability of the car shall be taken to constitute a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee. In order to determine if a car fringe benefit arises pursuant to subsection 7(1) of the FBTAA in respect of arrangements detailed in the program, the following must be considered: • Is the car 'held' by the Employer? • Will the car be 'applied to private use' by the employee or associate? • Is the car 'available for private use' by an employee or associate under subsections 7(2) or 7(3) of the FBTAA? | Detailed Reasoning - Is the car 'held' by the Employer?: Paragraph 162(1)(b) of the FBTAA provides that a car leased to a person is considered to be 'held' by that person. It states: In this Act, unless the contrary intention appears, a reference to a car held by a person is a reference to: (a) A car owned by the person; (b) A car leased to the person; or (c) A car otherwise made available to the person by another person. Therefore, the Employer (as the lessee) is taken to have held a car when it enters into an operating lease with the associate. In addition, paragraph 30 of Taxation Ruling IT 2509 Income tax and fringe benefits tax consequences of an employee leasing a car to an employer which is subsequently provided back to the employee states: The fact that an associate enters into the leasing arrangement does not alter any of the fringe benefits tax consequences for the employer. The employer remains liable to pay fringe benefits tax on the car fringe benefits... Under the fringe benefits tax provisions benefits provided to associates are treated the same as benefits provided directly to the employee. The provision of the car by the Employer under an operating lease for use by an employee or associate therefore meets the requirement that the car be 'held' by the Employer. | Detailed Reasoning - Will the car be applied to private use by the employee or associate?: Cars provided will be applied to private use by either, or both, the employee and associate. | Detailed Reasoning - Will the car be available for private use by an employee or associate under either subsection 7(2) or 7(3) of the FBTAA?: Subsections 7(2) and 7(3) of the FBTAA outline the situations where a car held by the employer is taken to be available for private use of the employee and/or the associate, for the purposes of determining whether a car fringe benefit arises under section 7 of the FBTAA. Subsection 7(2) of the FBTAA states: Where, at a particular time, the following conditions are satisfied in relation to an employee of an employer: (a) a car is held by a person, being: (i) the employer; (ii) an associate of the employer; or (iii) a person (other than the employer or an associate of the employer) with whom, or in respect of whom, the employer or as associate of the employer has an arrangement relating to the use or availability of the car; (b) the car is garaged or kept at or near a place of residence of the employee or of an associate of the employee; the car shall be taken, for the purposes of this Act, to be available at that time for the private use of the employee or associate, as the case may be. As the car is garaged at the residence of the employee and associate, subsection 7(2) of the FBTAA is satisfied. Subsection 7(3) of the FBTAA also provides an alternative situation where a car held by the employer shall be taken to be 'available for the private use' of an employee or associate: Subsection 7(3) of the FBTAA states: Where, at a particular time, the following conditions are satisfied in relation to an employee of an employer: (a) a car is held by a person, being: (i) the employer; (ii) an associate of the employer; or (iii) a person (other than the employer or an associate of the employer) with whom, or in respect of whom, the employer or an associate of the employer has an arrangement relating to the use or availability of the car; (b) the car is not at business premises of: (i) the employer; (ii) an associate of the employer; or (iii) a person (other than the employer or an associate of the employer) with whom, or in respect of whom, the employer or as associate of the employer has an arrangement relating to the use or availability of the car; (c) any of the following conditions is satisfied: (i) the employee is entitled to apply the car to a private use; (ii) the employee is not performing the duties of his or her employment and has custody or control of the car; (iii) an associate of the employee is entitled to use, or has custody or control of, the car; the car shall be taken, for the purposes of this Act, to be available at that time for the private use of the employee or associate, as the case may be. The following scenarios describe the application of the subsection in each of the scenarios in which a car would be provided to the employee, associate or both. | Detailed Reasoning - Scenario 1: Where a car is used by the Employer's employee only, a car benefit will be provided to the employee under subparagraph 7(1)(a)(i) of the FBTAA on days where the car is applied to a private use by the employee and under subparagraph 7(1)(a)(ii) as a result of the car being garaged at the employee's residence and the employee is entitled to apply the car to private use. | Detailed Reasoning - Scenario 2: Where the car is used by both an associate only, a care benefit will be provide to the associate under subparagraph 7(1)(a)(i) on days where the car is applied to a private use by the associate and under subparagraph 7(1)(a)(ii) as a result of the car being garaged at the associate's residence or the associate is entitled to use, or have custody or control of, the car. | Detailed Reasoning - Scenario 3: Where a car is used by both an employee and associate, car benefits are provided to both the employee and associate as follows: 1. A car benefit will be provided to the employee under: • subparagraph 7(1)(a)(i) on those days the car is applied to a private use by the employee; and • subparagraph 7(1)(a)(ii) as a result of the car being garaged at the employee's residence during a period in which the employee is entitled to private use of the car. 2. A car benefit will be provided to the associate under: • subparagraph 7(1)(a)(i) on those days the car is applied to a private use by the associate; and • subparagraph 7(1)(a)(ii) as a result of the car being garaged at the associate's residence or the associate is entitled to use, or have custody or control, of the car. | Detailed Reasoning - Taxable value of a car fringe benefit: Sections 9 and 10 of the FBTAA provide alternative methods for calculating the taxable value of a car fringe benefit: the statutory formula method (section 9) and the cost basis method (section 10). In both sections, the taxable value will be reduced by the amount (if any) of the 'recipient's payment'. Paragraphs 9(2)(e) and 10(3)(c) state that the amount of the recipient's payment is the sum of: (i) In a case where expenses were incurred to the provider or employer during the holding period by recipients of the car fringe benefits by way of consideration for the provision of the car fringe benefits - the amount of those expenses paid by the recipients less any amount paid or payable to the recipients by way of reimbursement of those expenses; and (ia) in a case where car expenses in respect of fuel or oil for the car were incurred during the holding period by recipients of the car fringe benefits and: (A) the persons incurring those expenses give to the employer, before the declaration date, declarations, in a form approved by the Commissioner, in respect of those expenses; or (B) documentary evidence of those expenses is obtained by the persons incurring the expenses and given to the employer before the declaration date; the amount of those expenses paid by the recipients less any amount paid or payable to the recipients by way of reimbursement of those expenses; and (ii) in a case where: (A) car expenses in respect of the car (other than car expenses in respect of fuel or oil for the car) were incurred during the holding period by recipients of the car fringe benefits; and (B) documentary evidence of those expenses is obtained by the persons incurring the expense and given to the employer before the declaration date; the amount of those expenses paid by the recipients less any amount of paid or payable to the recipients by way of reimbursement of those expenses. In the program by the Employer, the associate/lessor is receiving the use of the car leased by the Employer on a fully maintained basis. Expenses paid by the associate are for the purposes of facilitating a fully maintained operating lease to the Employer rather than for the provision of the car fringe benefit. Consequently, subparagraph (i) of paragraphs 9(2)(e) and 10(3)(c) of the FBTAA does not apply, however subparagraphs (ia) and (ii) are appliable. | Detailed Reasoning - Car expense: 'Car expense' is defined within subsection 136(1) of the FBTAA to include expenses incurred in respect of: (a) the registration of, or insurance in respect of, the car; (b) repairs to or maintenance of the car; or (c) fuel for the car. Where the associate incurs any of these expenses and necessary documentation has been provided by the employee or associate of the employee of the Employer, subparagraphs (ia) and (ii) apply. The employee, the associate or both will provide the necessary documentation to the Employer by the declaration date set out in subparagraphs (ia) and (ii). | Detailed Reasoning - Recipient's payment: The program provides the usage of a car to an employee of the Employer as well as to the associate of the employee. An associate needs to then be determined to be a 'recipient' in the context of the provision of a car benefit. The term 'recipient' is defined in subsection 136(1) of the FBTAA to mean, in relation to a benefit, 'the person to whom the benefit is provided'. The term 'person' is defined in subsection 136(1) of the FBTAA to apply to a wide range of persons and extends to the associates of the Employer's employee. The term 'provided' in the context of a recipient is sourced to the definition of 'provide', which is defined in subsection 136(1) of the FBTAA to include 'allow, confer, give, grant or perform' in relation to a benefit. Accordingly, the definition of an employee or associate to whom a car is provided for use comes within the definition of a 'recipient' in subsection 136(1) of the FBTAA. Finally, the inclusion of an employee or associate within the definition of a 'recipient' in the context of an associate lease is supported by the ATO in the minutes of the National Taxation Liaison Group FBT Sub-committee Meeting of 17 August 2006: It is accepted that the 'associate' is an associate of the employee as defined for the purposes of the FBTAA. In determining whether the associate is a recipient, 'recipient' is defined in subsection 136(1) to mean "the person to whom the benefit is provided". In the context of the car benefits provided in an associate lease arrangement, car benefits may be provided to both the employee and the associate. Therefore, the 'associate' will be a 'recipient' and the taxable value of the car benefits that arise will be able to be reduced by the car expenses incurred during the holding period by the associate which are included by reason of subparagraph 9(2)(e)(ia) or (ii). In each of the 3 scenarios described above, the employee or associate, or where both the employee or associate are taken to have been provided with a car benefit, both will constitute the 'recipient' and the taxable value of the car fringe benefit will be reduced by the amount of 'car expenses' (as defined in the FBTAA) incurred during the holding period of the car.