Private ruling: Fringe benefits tax: cost price of car
Published: February 2015
Ruling period: 1 April 2013 to 31 March 2014
Date scheme commenced: 1 April 2013

Ruling: Q1: For the purposes of subsection 9(1) of the Fringe Benefits Tax Assessment Act 1986 , is the service fee charged under a Service Agreement between the manufacturer and an associate of the employer included in the 'base value' of the cars purchased by the associate that are provided to the employer's employees for their private use ? | A1: No

Relevant facts and circumstances: The employer provides its employees with the private use of a car. The employer acquires the cars from an associate that is in the business of selling cars. The associate purchases the cars from the manufacturer. At or around the time the associate places an order for the vehicles with the manufacturer, the manufacturer will issue an invoice to the associate for the purchase price of the cars ordered. Under a Service Agreement between the manufacturer and the associate the manufacturer charges the associate a service fee for technical assistance and commercial support. This fee is charged on a monthly basis based on the number of cars sold by the associate. In the relevant fringe benefits tax year the employer used the statutory formula method to calculate the taxable value of car fringe benefits arising from the provision of the private use of the cars provided to its employees.

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 158 | Fringe Benefits Tax Assessment Act 1986 Section 159 | Fringe Benefits Tax Assessment Act 1986 Section 162 | Income Tax Assessment Act 1936 Section 318

Reasons for decision: Summary: For the purposes of subsection 9(1) of the Fringe Benefits Tax Assessment Act 1986 , is the service fee charged under a Service Agreement between the manufacturer and an associate of the employer included in the 'base value' of the cars purchased by the associate that are provided to the employer's employees for their private use ? Under the arrangement that is the subject of this Ruling, the employer provides its employees with the private use of cars which it acquires from an associate that purchases the cars from the manufacturer. | Detailed Reasoning - Does a car fringe benefit arise?: In accordance with section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) a car fringe benefit arises in respect of the employment of an employee on a day where a car held by a provider 1 is applied to a private use by the employee (or an associate) or is taken to be available for the private use of the employee (or an associate). It is not in dispute that the employer provides its employees with the private use of cars that are held 2 by the employer and, therefore, a car fringe benefit will arise in relation to each of the cars. | Detailed Reasoning - Taxable value of car fringe benefits: The taxable value of a car fringe benefit is calculated using either of the following methods: a. the statutory formula method in accordance with section 9 of the FBTAA, or b. the cost basis method (operating cost method) in accordance with section 10 of the FBTAA. In the relevant fringe benefits tax the employer used the statutory formula method to calculate the taxable value of the car fringe benefits. In general terms, subsection 9(1) of the FBTAA provides that the taxable value of the car fringe benefits using the statutory formula method is the statutory rate multiplied by the car's 'base value' (less any employee contribution). | Detailed Reasoning - Base value: Paragraph 9(2)(a) of the FBTAA provides that the 'base value' of a car is the sum of: (i) where, at the earliest holding time , the car was owned by the provider, or an associate of the provider , the amount calculated in accordance with the formula AB, where: A is the cost price of the car to the provider or associate, as the case may be; and … (iii) the cost price of each non-business accessory … [emphasis added] Therefore, the base value of the cars that are the subject of this Ruling will depend upon the 'cost price' of the cars to the employer, or an 'associate' of the employer, at the 'earliest holding time'. The cars that are the subject of this Ruling were purchased by the associate from the manufacturer. Therefore, the base value of the cars that are the subject of this Ruling will depend upon the cost price of the cars to the associate at the earliest holding time. | Detailed Reasoning - What is the earliest holding time?: The 'earliest holding time' is defined at paragraph 9(2)(b) of the FBTAA as 'the earliest time before the current time when the car was held by the provider or an associate of the provider'. The 'earliest holding time' in relation to the cars that are the subject of this Ruling is the earliest time before the current time when the cars were owned by the associate. The associate purchases the cars from the manufacturer. At or around the time the associate places an order for the cars, the manufacturer will issue an invoice to the associate. It is at this time that the associate is considered to 'own' the cars. As such, the earliest holding time in relation to the cars is the date the invoice is issued by the manufacturer. Therefore, the base value of the cars that are the subject of this Ruling will depend upon the cost price of the cars to the associate on the date the manufacturer issues the invoice to the associate for the cars. | Detailed Reasoning - What is the cost price of the cars?: Cost price is defined in subsection 136(1) of the FBTAA. Where the car is owned by a person who is not the manufacturer and was not entitled to privileges or exemptions in relation to customs duty in respect of a transaction by which the person acquired the car subparagraph (a)(ii) defines the cost price to mean: … an amount equal to the sum of: (A) the expenditure incurred by the person (other than expenditure in respect of registration or in respect of a tax on, or on a transfer of, registration) that is directly attributable to the acquisition or delivery of the car or, if subsection 7(6) applies in relation to the car, the leased car value of the car when the person first took the car on hire; and (B) the amount of any additional expenditure incurred by the person for or in relation to the fitting of non-business accessories to the car at or about the time when the car was acquired by the person, reduced by the amount of any reimbursement of the whole or a part of that expenditure paid, at or about the time when the expenditure was incurred, by a recipient of a car benefit in relation to the car Therefore, the cost price of the cars provided to the employees will be the sum of the expenditure incurred by the associate (other than registration) that is directly attributable to the acquisition or delivery of the car. Under the arrangement that is the subject of this Ruling, the manufacturer charges the associate a service fee in relation to the cars under a Service Agreement between the manufacturer and the associate. | Detailed Reasoning - Is the service an expenditure that is directly attributable to the acquisition or delivery of the car?: The service fee is charged on a monthly basis based on the number of vehicles the associate has sold in the month. It is clear that the service fee is charged at a time after the date that the manufacturer issues the invoice for the cars and not on the date that the manufacturer issues the invoice. Therefore, the service fee cannot form part of the cost price of the cars on the date the manufacturer issues the invoice for the cars. Further, the fee is paid for technical services and commercial support provided by the manufacturer to the associate. As such, it is not considered to be expenditure that is directly attributable to the acquisition or delivery of the car. | Summary: The service fee does not form part of the cost price of the cars at the earliest holding time as it is charged at a time later than the time the cars were held by an associate of the employer. Further, it is not considered to be expenditure that is directly attributable to the acquisition or delivery of the car. Therefore, for the purposes of subsection 9(1) of the FBTAA, the service fee is not included in the base value of the cars that the employer provides to its employee for their private use. 1 Subsection 136(1) of the FBTAA defines 'provider' in relation to a benefit to mean 'the person who provides the benefit'. In this case the provider is the employer. 2 Subsection 162(1) of the FBTAA provides that a reference to a car 'held' by a person is a reference to a car owned or leased by the person or otherwise made available to the person by another person. In this case the cars are considered to be 'otherwise made available' to the employer and are, therefore, 'held' by the employer.