Private ruling: Fringe benefits tax
Date of advice: 29 September 2016
Published: November 2016
Ruling period: Year ended 31 March 2017 | Year ended 31 March 2018 | Year ended 31 March 2019 | Year ended 31 March 2020
Date scheme commenced: April 2016

Ruling: Q1: Will the provision of a car by the employer to an employee under an associate lease constitute a car fringe benefit under section 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and be subject to fringe benefits tax (FBT)? | A1: Yes | Q2: (a) Will the payment by the employer of operating costs pursuant to the associate lease constitute a car expense payment benefit, a car property benefit or a car residual benefit under subsection 53(3) of the FBTAA? (b) If so is the benefit an exempt benefit under subsection 53(1) of the FBTAA? | A2: (a) Yes (b) Yes | Q3: Are car expenses paid by the Lessor recipient's payments and available to reduce the taxable value of the car fringe benefit provided to the employee? | A3: No, they are not recipient's payments and they cannot reduce the taxable value of the car fringe benefits. | Q4: If expenses paid for by the Lessor are recipient's payments and if in an FBT year those recipient's payments and any after tax recipient's payments made by the employee exceed the taxable value of the car can the excess recipient's payments be carried forward to future years? | A4: Not necessary | Q5: Will any FBT liability arise for the employer at the termination of the associate lease? | A5: No | Q6: Provided the scheme ruled on is entered into and carried out as described in this ruling application will the anti-avoidance provision section 67 of the FBTAA apply to the employer? | A6: No

Relevant facts and circumstances: The employer proposes to provide motor vehicles to employees for their private use by entering into associate operating leases with associates of those employees. The associate will be the Lessor and the employer the lessee. There is no provision for buyout of the vehicle at the end of the lease term or upon cancellation of the lease or during the term of the lease. There is no novation of obligations under the lease. The typical lease term is three to four years. The regular monthly, fortnightly or weekly payments under the lease have two components, a lease rental and operating costs. The operating costs payable under the lease may or may not be adjusted to take into account the actual operating costs compared to the budgeted operating costs. The Lessor and employer are both required to make any adjustments to the standard operating cost payments. The Lessor bears the risk of overspending operating costs with no guarantee of compensation and also takes the risk in relation to the future market value of the vehicle upon termination of the lease. There is a desire to reduce the taxable value of any car fringe benefits to nil using recipient's payments. A copy of a pro forma operating lease agreement (the lease) has been provided.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 subsection 7(1), | Fringe Benefits Tax Assessment Act 1986 subsection 9(2), | Fringe Benefits Tax Assessment Act 1986 subsection 10(3), | Fringe Benefits Tax Assessment Act 1986 section 53, | Fringe Benefits Tax Assessment Act 1986 section 67 and | Fringe Benefits Tax Assessment Act 1986 subsection 136(1).

Reasons for decision: Summary: The provision of a car to an employee under an associate lease will constitute a car fringe benefit under subsection 136(1) of the FBTAA and will be subject to fringe benefits tax. | Detailed Reasoning - Detailed reasoning: A car fringe benefit as defined in subsection 136(1) of the FBTAA means a fringe benefit that is a car benefit. A car benefit is defined in subsection 136(1) of the FBTAA to mean a benefit referred to in subsection 7(1) of the FBTAA. In accordance with subsection 7(1) of the FBTAA: 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, 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 accordance with subsection 136(1) of the FBTAA a fringe benefit is a benefit that is provided by: • an employer • an associate of an employer or • a third party in an arrangement with an employer to employees or associates of employees. The benefit must also be provided 'in respect of the employment of the employee'. The employer intends to provide cars to its employee's for their private use. This will be done by leasing the car from an associate of the employee. In particular clause 6 of the Motor Vehicle Operating Lease states that: The Lessee is responsible for the delivery, and the control of the vehicle, and may provide the vehicle for use by the associated employee. It is considered therefore, that the provision of a car by the employer to an employee under an associate lease will constitute a car fringe benefit under section 136(1) of the FBTAA and will be subject to fringe benefits tax. | Summary: By making payments under the lease which are intended to cover the operating costs of the car, the employer is providing the recipients with car property benefits or car residual benefits that will be exempt benefits under subsection 53(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: Subsection 53(1) of the FBTAA states that: (a) a car expense payment benefit; (b) a car property benefit; (c) a car residual benefit; in respect of a car, being a benefit that is attributable to a period when a car fringe benefit was provided…is an exempt benefit. The employer will be providing car fringe benefits in relation to the cars it leases from associates of employees. The definitions of car expense payment benefit, car property benefit and car residual benefit applicable to this section are in subsection 53(3) of the FBTAA. They all are benefits arising from expenditure on car expenses. The term car expenses, is defined in subsection 136(1) of the FBTAA to mean: …in relation to a car, means an expense 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. Employees and their associates will be provided with the use of fully maintained cars by the employer. Therefore they will not have to pay for registration, insurance, repairs, maintenance or fuel for the car. This is considered to be the provision of either car property or car residual benefits to the recipients. As the employer will be providing car fringe benefits in relation to the car, these benefits will be exempt benefits under subsection 53(1) of the FBTAA | Summary: Car expenses paid by the Lessor are not recipient's payments and will not reduce the taxable value of the car fringe benefit provided to the employee. | Detailed Reasoning - Detailed reasoning: The employer intends to provide the leased vehicle to the employee and the employee's associate, who happens to be the Lessor, thus potentially making the Lessor also a recipient of car fringe benefits. The taxable value of any car fringe benefits calculated under section 9 and section 10 of the FBTAA may be reduced by the amount (if any) of the recipient's payment. The recipient's payment under paragraphs 9(2)(e) and 10(3)(c) of the FBTAA are: (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 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 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… The Lessor will have two different roles in this arrangement, as Lessor and as a potential recipient of car fringe benefits. The Lessor will be providing to the employer a vehicle that is fully maintained under an operating lease. In order to provide the employer with that fully maintained vehicle, the Lessor will incur and pay for car expenses. The expenses are part of the cost to the Lessor in providing the car for the employer's use. Generally, the Lessor would include the lease payments in his or her assessable income and claim a deduction for any expenses incurred in producing that assessable income. As an associate of the employee and a potential recipient of car fringe benefits, the Lessor is receiving the use of a car leased by the employer of the associated employee on a fully maintained basis. There are no car expenses for associates of the employee to incur or pay. The Lessor will not incur and pay the car expenses because he or she is receiving car fringe benefits, rather the Lessor will be incurring and paying the expenses as a product of leasing the car to the employer. We note that in subparagraphs 9(2)(e)(i) and 10(3)(c)(i) of the FBTAA the amounts paid by the recipient to the provider are by way of consideration for the provision of car fringe benefits. It may be implied therefore that the nature of recipient's payments under subparagraphs 9(2)(e)(ia), (ii) and 10(3)(c)(ia), (ii) of the FBTAA are a result of the provision of the car fringe benefit. This is supported by the fact that in the definition of recipients contribution in subsection 136(1) of the FBTAA, the amount of consideration paid to the provider or employer by the recipient is 'in respect of the provision of' the relevant fringe benefit. Additionally, the following was noted by the ATO in response to a question about recipient's payments at the National Taxation Liaison Group FBT (NTLG) FBT Sub-committee meeting of 8 February 2007: It is also noted that an 'employee contribution', a generic undefined term, is variously referred to in the FBTAA as the 'recipients contribution' (airline transport, property, residual, board and expense payment fringe benefit), the 'recipient's payment' (car fringe benefits) and the 'recipients rent' (housing fringe benefits). While there are technical differences in the various definitions, each expression is defined to mean, broadly, the amount of any consideration paid to the employer by the employee in respect of the provision of the benefit. In this arrangement, car expenses will be incurred and paid by the Lessor on the basis of providing the car to the employer as part of an operating lease for a fully maintained vehicle. They are not related to the potential provision of car fringe benefits to the Lessor as an associate of the employee. Consequently, the car expenses paid by the Lessor are not recipient's payments and will not reduce the taxable value of the car fringe benefit provided to the employee. | Detailed Reasoning - Question 4: As the payments by the Lessor are not recipient's payments there is no requirement to answer this question. | Summary: There will not be a FBT liability at the termination of the associate lease as no fringe benefit has been provided. | Detailed Reasoning - Detailed reasoning: For a FBT liability to arise there must be the provision of a fringe benefit. There is no provision for buy out of the vehicle at the termination of the associate lease. | Summary: Section 67 of the FBTAA will not apply as the employer will not obtain a tax benefit from this arrangement. | Detailed Reasoning - Detailed reasoning: Section 67 is the general anti-avoidance provision in the FBTAA. The section requires: • the identification of an arrangement • a tax benefit obtained by the employer that was the sole or dominant purpose for a person entering into the arrangement and • is activated by the making of a determination by the Commissioner. The Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules , provides guidance on the application of section 67 of the FBTAA. Paragraphs 186-188 state: 186. Subsection 67(1) of the FBTAA is satisfied where a person or one of the persons who entered into or carried out an arrangement or part of an arrangement under which a benefit is or was provided to a person, did so for the sole or dominant purpose of enabling an eligible employer or the eligible employer and another employer(s) to obtain a tax benefit. 187. An objective review of the transaction and the surrounding circumstances should be undertaken in determining a person's sole or dominant purpose in carrying out the arrangement or part of the arrangement. Section 67 of the FBTAA differs from subsection 177D(2) in Part IVA in that it does not explicitly list the factors that should be taken into account in determining a person's sole or dominant purpose. 188. Subsection 67(2) of the FBTAA provides that a tax benefit arises in respect of a year of tax in connection with an arrangement if under the arrangement: (i) a benefit is provided to a person; (ii) an amount is not included in the aggregate fringe benefits amount of the employer; and (iii) that amount would have been included or could reasonably be expected to have been included in the aggregate fringe benefits amount, if the arrangement had not been entered into. The Commissioner will only make a determination under section 67 of the FBTAA if the arrangement resulted in the payment of less FBT than would be payable but for entering into the arrangement. The payments by the Lessor are not considered recipient's payments and the taxable value of the car fringe benefits will not be reduced to nil. Therefore, the employer will not be paying less FBT by entering into this arrangement as the provision of car fringe benefits will be subject to FBT. Accordingly, the Commissioner will not make a determination that section 67 of the FBTAA applies to include an amount in the aggregate fringe benefits amount of the employer.

Reasons for decision: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.