Private ruling: Recipient's Payment
Published: July 2016
Ruling period: 1 April 2016 to 31 March 2017 | 1 April 2017 to 31 March 2018 | 1 April 2018 to 31 March 2019 | 1 April 2019 to 31 March 2020 | 1 April 2020 to 31 March 2021
Date scheme commenced: 1 July 2016

Ruling: Q1: Does the Agreement between you as employer and your employee using your vehicle satisfy an employee's obligation to make a recipient's contribution for the private use of your vehicle? | A1: No. | Q2: Can recording extra hours worked on a timesheet to use as a contribution towards fringe benefits tax satisfy using the method of journal entry as a payment of the recipient's contribution? | A2: No.

Relevant facts and circumstances: There is a contract of employment between you (as employer) and your employees. You have an agreement between yourself and your employees for the use of a vehicle. The salient conditions of the Agreement are listed below. Paragraph 1 • No direct financial contributions for private use, that is, commuter use to and from work and private use beyond work use. • The provision of a vehicle under this arrangement shall be deemed to provide reimbursement for authorised out of hours work arrangement for at least 250 hours per annum. Paragraph 2 • The provision of the vehicle including employee vehicle contributions compensates the employee for all authorised additional hours worked for the organisation. Paragraph 3 • The vehicle is provided to the employee on a fully maintained basis by you subject to the employee's obligations set out in Paragraphs 4 to 10 of the Agreement. Paragraph 4 • The employee shall work all authorised additional hours including call-outs as defined for each category in the vehicle allocation procedure and is entitled to use the vehicle for leave purposes up to four weeks. Paragraph 5.5 • The employee will maintain a log book and record the date, journey purpose, time and kilometre readings at the commencement and end of each journey. The employee is expected to work extra hours for the private use of a vehicle. This must be documented on the employee's timesheet.

Relevant legislative provisions: Section 7 of the Fringe Benefits Tax Assessment Act 1986 | Subsection 9(1) of the Fringe Benefits Tax Assessment Act 1986 | Subparagraph 9(2)(e)(i) of the Fringe Benefits Tax Assessment Act 1986 Section 10 of the Fringe Benefits Tax Assessment Act 1986 | Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision: Summary: Does the Agreement between you as employer and your employee using your vehicle satisfy an employee's obligation to make a recipient's contribution for the private use of your vehicle? A car fringe benefit arises where a car is held by an employer and is made available for the private use of an employee under section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). You can reduce your Fringe Benefit Tax (FBT) liability in various ways including replacing the fringe benefit with cash salary; providing FBT exempt or tax deductible benefits, and using employee contributions. In relation to car fringe benefits, the taxable value of the car fringe benefits provided can be calculated by either the statutory formula method in section 9 of the FBTAA or the operating cost method in section 10 of the FBTAA. In calculating the taxable value of the car fringe benefit, both methods allow for a recipient's payment to reduce the taxable value of the car fringe benefit. The term 'recipient', in relation to a benefit, is defined in subsection 136(1) of the FBTAA to mean 'the person to whom the benefit is provided'. Under the terms of the arrangements, the employee will be the relevant 'recipient' for the purposes of both section 9 and section 10 of the FBTAA. The Commissioner provides guidance on the operation of these provisions in the guide: Fringe benefits tax - a guide for employers. Broadly, it provides that recipient or employee contributions towards the cost of providing a fringe benefit will reduce the taxable value of the fringe benefit. Cash payments by an employee towards the cost of providing the fringe benefit can be made directly to the employer and the amount is included in the employer's assessable income. Alternatively, the employee may contribute towards the use of the car by paying a third party for some of the car's operating costs like fuel. For an employee contribution to reduce the taxable value of the car fringe benefit and therefore reduce the employer's fringe benefit tax liability, it must be paid out of the employee's after tax income. The 'contribution of services as an employee is not considered an employee contribution for FBT purposes'(Fringe benefits tax - a guide for employers at Chapter 7) as it is not provided out of after tax income. In your case, employees are working up to 250 additional unpaid hours. The provision of this untaxed amount is not an employee contribution for the purposes of FBT as it is considered a contribution of service. Therefore, it will not reduce the taxable value of the car fringe benefit and in turn will not reduce your fringe benefit tax liability. As no employee contribution arises from this arrangement, Miscellaneous Taxation Ruling 2050 has no application. Can recording extra hours worked on a timesheet to use as a contribution towards fringe benefits tax satisfy using the method of journal entry as a payment of the recipient's contribution? No. As the answer to question 1 above is 'no', this question does not apply.