Private ruling: Operating cost method - home to work travel
Published: December 2013
Ruling period: Year ended 31 March 2014 | 1 April 2013

Ruling: A2: 

Relevant facts and circumstances: The Trustee runs a business. The Trustee wishes to know if travel between home and work by employees is for business use for the purpose of calculating the taxable value of a car fringe benefit using the operating cost method. Employees of the business may, on occasion, commence work on a job before going home with files and records relating to a particular job. The files and records may fill one to two 30-litre plastic tubs weighing in excess of 20 kilograms. The employee commences working on the files when arriving home and may re-commence work the following morning, prior to leaving for the office with the files and records. The following was also advised: · There are no employment contracts in place. The terms and conditions of employment were stated as: There are no employment contracts. Employees are required to complete their allocated work with the option of performing overtime. The office hours vary depending on time of year. The employees are provided with Company owned computers to allow them to perform work from home. · The purpose for taking files and records home is that the office is closed. The files contain multiple year records.The records are made up of folders containing bank statements, folders of invoices and receipts for the period, contracts and finance agreements. · There are two cars in question. Both are owned by the employer with expenses paid by the employer. The employee makes a contribution on 31 March each year for private use. · The work is formed at home.

Relevant legislative provisions: Section 8-1 of the Income Tax Assessment Act 1997 | subsection 10(2) of the Fringe Benefits Tax Assessment Act 1986 | subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision: Summary: Summary Since their homes do not constitute places of work in this instance, the travel between home and work by the Trustee's employees is not business travel for the purpose of calculating the taxable value of a car fringe benefit using the operating cost method. The transportation of files and records by employees does not alter the view that the travel remains private. The transport is done out of convenience and not necessity. Detailed reasoning The taxable value of a car fringe benefit using the operating cost method is calculated in accordance with the formula contained in subsection 10(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Subsection 10(2) of the FBTAA states: Subject to this Part, where an election is made under subsection (1), the taxable value, or the aggregate of the taxable values, as the case requires, of the car fringe benefits in relation to the employer in relation to the year of tax that relate to the car while it was held by a particular person (in this section referred to as the "provider" ) during a particular period (in this section referred to as the holding period ) in the year of tax is the amount calculated in accordance with the formula: ( C x (100% - BP )) - R where: C is the operating cost of the car during the holding period; BP is: (a) if, under section 10A or 10B, the employer is not entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period - nil; or (b) ... (c) in any other case - the business use percentage applicable to the car for the holding period; and R is the amount (if any) of the recipients payment. The term business use percentage is defined in subsection 136(1) of the FBTAA to mean: 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 The term business kilometre is defined in subsection 136(1) of the FBTAA as follows: in relation to a car, means a kilometre travelled by the car in the course of a business journey. The term business journey is defined in subsection 136(1) of the FBTAA to mean: (a) for the purposes of the application of Division 2 of Part III in relation to a car fringe benefit in relation to an employer in relation to a car 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 The term private use is defined in subsection 136(1) of the FBTAA: in relation to a motor vehicle, in relation to an employee or an associate of an employee, means 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 determine whether the travel between your employees' homes and the office is considered to be business travel for the purposes of calculating the taxable value of car fringe benefits in accordance with the operating cost method, it is necessary to consider whether the travel is exclusively in the course of gaining or producing assessable income. Miscellaneous Taxation Ruling MT 2027 Fringe Benefits Tax : private use of cars : home to work travel provides guidance on the distinction between business and private use of cars in relation to home to work travel. MT 2027 states at paragraphs 11 and 12: 11. In essence the test for determining business use for FBT purposes is the same as that asked under the income tax law in deciding whether expenses incurred in operating a car are deductible under section 51 of the Income Tax Assessment Act. There the result turns on whether the expenditure is incurred in gaining or producing assessable income or in carrying on a business for that purpose 12. Determining the distinction between private and business use for FBT purposes, therefore, can be approached by asking the question whether, if the employee had incurred expenditure on that use of the car, the expenditure would have been wholly deductible for income tax purposes. In short, paragraphs 11 and 12 are saying that the same principles as contained in section 8-1 of the Income Tax Assessment Act 1997 (the general deductions provision, formerly contained at section 51 of the Income Tax Assessment Act 1936 ) are applicable in determining the private or business use for FBT purposes. A deduction is generally not allowable for the cost of travel between home and work because the expenses are not considered to be incurred in producing assessable income. These expenses are incurred as a consequence of living in one place and working in another and any expenses incurred to enable a taxpayer to commence their income earning activities are therefore considered private in nature. Paragraph 14 of MT 2027 under the heading The General Rule states: As discussed in Taxation Ruling IT 112, the decision in Lunney and Hayley v FCT (1958) 100 CLR affirmed the position that travel between home and a person's regular place of employment or business is ordinarily private travel. While travel to work is a necessary pre-requisite to earning income it is not undertaken in the course of earning that income. Put at its simplest, travel to work is private travel; travel on work is business. Taxation Ruling IT 2199 Income Tax : Allowable Deductions : Travelling Expenses Between Place(s) of Employment and/or Place(s) Of Business states that claims incurred in travelling directly between two places of employment should be allowed where the taxpayer does not live at either of the places and the travel has been undertaken for the purpose of enabling the taxpayer to engage in income producing activities. The fact that a room in the employee's home is used in association with employment conducted elsewhere will not be sufficient to establish entitlement to a deduction for travel between two places of work. In Case M2 8 80 ATC 187, a travel claim was made by a part-time lecturer who was also employed in an administrative capacity by a university students' union. On one day a week he worked at home on academic work associated with his lecturing. On 50% of those days he had to interrupt work at home to drive to the university to take classes. He claimed the cost of those journeys. He also claimed the cost of travel to the university from home on days when he had returned home from his regular job for a meal and then returned to deliver lectures. Held, by the majority, the travel expenses were not deductible. Even though the taxpayer worked at home, his home did not constitute a place of work in the sense that travel between it and the university was essentially travelling between two places of work. In Case Q55 , 83 ATC 296 the taxpayer who did some work at home by choice was disallowed his claim for travel between home and work. Working at home was not a condition of the taxpayer's employment and suitable working facilities were made available for him by the company. The taxpayer elected to carry out some of his duties at home because it was more convenient for him. Similarly in the Trustee's case, the employees perform some duties at home outside of normal business hours. There is no employment contract stipulating where or when the employees are required to carry out their employment duties. The fact that their home is used in association with employment is not sufficient to establish that their travel between home and work is for business purposes. That is, their homes do not constitute places of work. As a result, the travel between home and work by the Trustee's employees is not business travel for the purpose of calculating the taxable value of a car fringe benefit using the operating cost method. MT 2027 also discusses several situations where an exception to the general rule may be considered. Of relevance to the Trustee is the discussion at paragraphs 37 and 38 relating to Travel Incorporating the Transport of Equipment etc. 37. In certain limited ranges of circumstances the use of a car may be attributed to the necessary carriage of equipment rather than travel to and from work and, as such, accepted as business travel. Guidelines for the application of this principle are discussed in paragraph 21(b) of Ruling IT 112 in the context of the decision in FCT v Vogt, 75 ATC 4073. Broadly, however, the approach should be followed where the employee performs duties at a number of places requiring the transport and use of equipment of substantial bulk such as to justify the need for a motor vehicle to transport it and where there are sound reasons for keeping the equipment at home. 38. This rule would not apply where, as a matter of convenience, the employee performs some work at home and transports papers, materials, etc., (whether bulky or not) between home and work for that purpose (see for example Case Q1 83 ATC 1; Case 65 26 CTBR (NS) 469, where the use of a car by a school principal in such circumstances was treated as private use). Paragraph 38 neatly encapsulates the circumstances of this ruling. The Trustee's employees transport papers and materials between home and work as a matter of convenience to allow them to perform some work at home. The travel is not "the necessary carriage of equipment". This view is reiterated in Taxation Ruling TR 95/9 Income tax: employee lawyers - allowances, reimbursements and work-related deductions. Although the Ruling refers to lawyers specifically, the underlying principles are applicable. At paragraphs 193 it states: A deduction is not allowable where, as a matter of convenience, the employee lawyer performs some work at home and transports papers, materials, etc. (whether bulky or not), between home and work for that purpose (see Case Q1 83 ATC 1: Case 65 26 CTBR (NS) 469 and see also paragraph 38 of Taxation Ruling MT 2027). An example is then provided at paragraph 195: Example: Geoffrey, an employee lawyer, chooses to do some work at home and carries 50 kg of working papers and a notebook computer in his car when travelling to and from work. Geoffrey's car expenses are private, as his travel between home and work is not attributable to necessarily carrying bulky articles or items of equipment. As with this example, the Trustee's employees are choosing to perform work at home. Regardless of transporting files and records, the travel remains private. Consequently, the use of a car in this circumstance is not business travel for the purpose of calculating the taxable value of a car fringe benefit using the operating cost method.

Question 1: Is the travel by employees between their homes and the office considered to be business travel for the purposes of calculating the taxable value of car fringe benefits in accordance with the operating cost method? | Question 2: Is the travel by employees between their homes and the office, whilst transporting files and records, considered to be business travel for the purposes of calculating the taxable value of car fringe benefits in accordance with the operating cost method?