Private ruling: FBT - Car fringe benefits
Published: April 2015
Ruling period: Fringe benefits tax year ended 31 March 2015
Date scheme commenced: The scheme has commenced

Ruling: Q1: Will a car provided an employer for use by an employee who has entered into a working-from-home agreement with the employer be a taxable car fringe benefit pursuant to section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes. However, the taxable value of the car fringe benefit may potentially be reduced to nil where the employer elects to adopt the operating cost method for valuing the car fringe benefit provided to the employee and the employee maintains appropriate log book records as required.

Relevant facts and circumstances: The employer has a main office in Region X. The employer employs staff members (the staff) who live and work in Region Y and Region Z respectively. The employer does not have offices in either Region Y or Region Z therefore the staff have been approved to work from their homes. The employer provides staff with a motor vehicle. The employer provided vehicles are expected to be used exclusively by the staff for work related travel. The employer has provided staff with a laptop, mobile phone, and modem for working from home.

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)

Reasons for decision: Detailed Reasoning - Car Fringe Benefit - General Rule: Pursuant to subsection 7(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), a car fringe benefit arises where an employer makes a car available for the private use of an employee. Subsection 7(2) of the FBTAA deems a car to be available for private use where it is garaged at or near the employee's place of residence. Chapter 7.1 of the Fringe benefits tax: a guide for employers states: A car is treated as being available for private use by an employee on any day that either: • the car is not at [the employer's] premises, and the employee is allowed to use it for private purposes • the car is garaged at the employee's home. A car that is garaged at an employee's home is treated as being available for the private use of the employee regardless of whether they have permission to use it for private purposes. Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee. Under subsection 136(1) FBTAA, any use of a car by an employee or an associate that is not exclusively in the course of producing the employee's assessable income will constitute "private use". In these circumstances the staff will 'garage' the employer provided cars at or near their homes. Therefore, the cars will be taken to be available for the private use of the staff. | Detailed Reasoning - Taxable value of a car fringe benefit: When a car fringe benefit is provided, the taxable value of that benefit can be calculated under either the statutory formula method or the operating cost method. Section 9 of the FBTAA provides that under the statutory formula method, the taxable value of a car fringe benefit will be a percentage of the car's value. This percentage varies with the total distance travelled by the car during the FBT year, regardless of whether or not it is private travel. The greater the distance travelled, the lower will be the taxable value. It should be noted, however, that where the statutory formula approach is adopted, a fringe benefits tax liability will arise on any day on which the car is available for private use of an employee, irrespective of the fact that there may have been no actual private use of the car on that day. Under the operating cost method (section 10 of the FBTAA), the taxable value of the car fringe benefit is a percentage of the total costs of operating the car during the FBT year. The percentage varies with the extent of actual private use. The lower the incidence of actual private use, the lower will be the taxable value. The statutory formula method must be used unless the employer elects to use the operating cost method. The employer may elect to use the operating cost method for any or all of the employer's cars and the fact that a particular method was used in a previous year does not affect the choice of methods in subsequent years. The decision to use the operating cost method must be made no later than the day on which the FBT return is due to be lodged with the Australian Taxation Office for an FBT year. If the operating cost method is used, the formula applies what is essentially the 'private use' percentage to the total operating costs of the car. The private use percentage is 100% minus the 'business use percentage', defined in subsection 136(1) FBTAA as: the percentage worked out using the formula: Number of business kilometres travelled by the car during the holding period x 100% Total number of kilometres travelled by the car during the holding period 'Business kilometre' is defined as 'a kilometre travelled by the car in the course of a business journey', and 'business journey' means: (a) a journey undertaken in a car otherwise than in the application of the car to a private use, being an application that results in the provision of a fringe benefit in relation to the employer; 'Private use' is further defined as: any use of the motor vehicle by the employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee. Therefore, in order to potentially reduce the private use percentage to nil for an employer provided car, the employer would need to elect to adopt the operating cost method for valuing the car fringe benefit provided to the staff, and the staff must maintain appropriate log book records as required to reflect the business use of the vehicle is 100% business use. It must be noted that in order to take advantage of the operating cost method, log books recording details of the business journeys undertaken in the vehicle must be kept for a continuous period of at least 12 weeks. If a log book has not been maintained during previous years, an employer cannot elect to backdate the business percentage established after a log book has been maintained for the first time. | Detailed Reasoning - Employment duties of an itinerant nature: Paragraphs 25 to 27 of Miscellaneous Taxation Ruling MT 2027 Fringe benefits tax: private use of cars: home to work travel (MT 2027) state the following: 25. It has long been acknowledged that travel from an employee's home may constitute business travel where the nature of the office or employment is inherently itinerant (see, for example, the comments of Lords Wilberforce and Simon in Taylor v. Provan (1975) AC 194 at pages 1213 and 1219 respectively). More recently, this issue was addressed in Australia in FCT v. Wiener , 78 ATC 4006; 8 ATR 335, from which the following guidelines for the application of the principle have been adopted (see Taxation Ruling IT 2122). These are that travel will be indicated as business travel where the nature of the office or employment is such that- (a) it is inherently itinerant; (b) travel is a fundamental part of the employee's work; (c) it is impractical for the employee to perform the duties without the use of a car; (d) the terms of employment require the employee to perform duties at more than one place of employment; (e) the nature of the job itself makes travel in the performance of duties essential; and (f) it can be said of the employee that he or she is travelling in the performance of the employment duties from the time of leaving home. 26. Wiener's case dealt with a teacher who, under a trial scheme, was allocated as part of her normal teaching duties the task of instructing pupils at five different schools. On the facts of the particular case, it was concluded that the duties were inherently itinerant. More common examples of the application of this principle would include commercial travellers and government inspectors whose homes can be seen to be a base of operations from which they travel to one of a number of locations throughout the day, over a continuing period. 27. Commonly, in these cases, the employee will attend at the employer's office periodically (e.g., once a week) to complete or file reports, pick up supplies or organise future trips. Travel from home to the office and back made in these limited circumstances will be accepted as an ordinary incident of the business travel and, as such, will also be treated as business travel. The details provided indicate that the staff will carry out duties on behalf of their employer at their place of residence because there are no available office facilities provided by the employer in the regions where the staff, are expected to perform the majority of their duties. Taxation Ruling TR 93/30 Income tax: deductions for home office expenses (TR 93/30) deals with allowable deductions in respect of 'home office' expenses. This ruling provides the following guidelines on whether a 'home office' constitutes a 'place of business'. Paragraph four states: 4. Whether an area of the home has the character of a place of business is a question of fact which depends on the particular circumstances of each case. This is likely to be the case where a part of a residence is set aside exclusively for the carrying on of a business by a self-employed person (e.g. a doctor's surgery). Another example is where part of the home is used as a taxpayer's sole base of operations for income producing activities (e.g. where no other work location is provided to an employee by an employer). TR 93/30 further states in paragraphs 12 and 13: 12. The absence of an alternative place for conducting income producing activities has also influenced a court or tribunal to accept a part of a taxpayer's residence as a place of business. Examples include: * a self employed script writer using one room of a flat for writing purposes and for meetings with television station staff ( Swinford's case ); * an employee architect conducting a small private practice from home ( Case F53 ; Case 65 ); * a country sales manager for an oil company whose employer did not provide him with a place to work ( Case T48 ; Case 47 ). In each of these cases the taxpayer was able to show that, as a matter of fact, there was no alternative place of business, it was necessary to work from home, and that the room in question was used exclusively or almost exclusively for income producing purposes. 13. In circumstances such as those referred to in paragraph 12, a place of business will exist only if: * it is a requirement inherent in the nature of the taxpayer's activities that the taxpayer needs a place of business; * the taxpayer's circumstances are such that there is no alternative place of business and it was necessary to work from home; and * the area of the home is used exclusively or almost exclusively for income producing purposes. The employer will set up the staff at their place of residence with a computer, phone, modem etc. to enable the staff to officially perform their duties from home. Thus, it appears that the requirements of paragraph 13 of TR 93/30 have been met. | Detailed Reasoning - Conclusion:: On the basis of the information provided, the staff's homes can be construed as a 'place of business'. Hence, travel by the staff to and from their homes to conduct their duties on behalf of the employer in employer provided cars, will be categorised as 'business journeys' in circumstances where the employer elects to adopt the operating cost method for valuing the car fringe benefit provided to the staff, and the staff maintain appropriate log book records as required. [Note: The details provided in this case have been used only for the purpose of providing technical advice on the FBT implications of the staff using an employer provided vehicle. The conclusion reached in relation to this issue should not be taken as acceptance that the staff have established a 'home office' for their private income tax purposes.]