Private ruling: Fringe benefits tax ~~ Types of benefits ~~ Car benefits
Published: December 2014
Ruling period: FBT years ending | 31 March 2012 | 31 March 2013 | 31 March 2014 | 31 March 2015
Date scheme commenced: 1 April 2011

Ruling: Q1: Should the cost price of a car to an associate of the employer exclude transport costs, customs duty and import duty, where the employer has acquired the car from that associate, being its foreign parent company and the foreign parent company also manufactured the car? | A1: Yes.

Relevant facts and circumstances: The employer is the Australian importer of cars and is a wholly owned subsidiary of Party X. Party X manufactures cars outside of Australia and the employer purchases and imports cars from Party X as completely built unit (CBU) vehicles. The manufacturing process for CBU vehicles is completed by Party X outside of Australia and the cars are shipped to Australia by sea. The costs of importing the car, such as delivery and freight, customs duty and import duty, is incurred by the employer and paid by the employer to the relevant Australian Government authority. A number of the cars purchased by the employer are retained and made available for use by its employees for private and business purposes. The employer uses the statutory formula method for returning its car fringe benefits.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Subsection 9(1), | Fringe Benefits Tax Assessment Act 1986 Subsection 9(2), | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1), | Fringe Benefits Tax Assessment Act 1986 Subparagraph 136(1)(a)(i), | Fringe Benefits Tax Assessment Act 1986 Subsection 158(1) and | Fringe Benefits Tax Assessment Act 1986 Paragraph 159(2)(a).

Reasons for decision: Summary: When using the statutory formula method to determine the taxable value of a car fringe benefit, the taxable value is calculated by reference to the base value of the car pursuant to subsection 9(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986). If the car was owned by either the employer or an associate of the employer at the 'earliest holding time', then the base value of the car is calculated in accordance with subparagraph 9(2)(a)(i) of the FBTAA 1986. Paragraph 9(2)(b) of the FBTAA 1986 provides that the 'earliest holding time' in relation to a car held by the provider, is the earliest time before the current time when the car was held by the provider or an associate of the provider. Subsection 158(1) of the FBTAA 1986 provides an interpretation of 'related companies' and subsection 159(2)(a) of the FBTAA 1986 provides an interpretation of associates and relatives. Both sections apply to show that the parent and subsidiary companies will be 'associates' of each other for the purposes of the FBTAA 1986. Thus, Party X is an associate of the employer. In accordance with ATO ID 2003/584, when a car is manufactured by a foreign associate company, the earliest time before the current time, is the time the car was first held by the foreign car company. As Party X is an associate of the employer for the purposes of the FBTAA 1986, the earliest holding time is when Party X completed the manufacturing process and the car came into existence. Accordingly, the base value of the car is calculated pursuant to subparagraph 9(2)(a)(i) of the FBTAA 1986. Under this subparagraph, the base value is calculated by reference to the 'cost price' of the car. As the car was manufactured by Party X, subparagraph 136(1)(a)(i) of the FBTAA 1986 is relevant in determining the cost price of the car. Under this subparagraph, 'cost price' means: 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. In accordance with ATO ID 2003/585, the expression 'applied to own use' includes the sale of goods. As such, the cost price of the car will be the amount Party X could reasonably expect to receive if they had sold the car by wholesale under an arm's length transaction, at or about the time Party X sells the car to the employer. The definition of 'cost price' does not require acquisition costs incurred by the provider to be included in calculating the cost price to the manufacturer. ATO ID 2003/585 states that when costs of transport, customs duty and import duty are not incurred by the foreign car company, they do not form part of the wholesale price of the car. As the costs of transport, customs duty and import duty is incurred by the employer, and not Party X, these costs will be excluded from the cost price of a car to Party X.