Private ruling: Car fringe benefits: statutory fraction
Published: June 2012
Ruling period: Year ended 31 March 2012 | Year ended 31 March 2013 | Year ended 31 March 2014

Ruling: Q1: If an employee of the State or Territory who undertakes his or her duties in a nominated State or Territory body transfers his or her employment (or is transferred as part of a machinery of government change) to another nominated State or Territory body, will the new employer use the new statutory rates to calculate the taxable value of the car fringe benefits that arise from the use of a car provided to the employee under a novated lease? | A1: Yes | Q2: If an employee of the State or Territory who undertakes his or her duties in an agency that is not a nominated State or Territory body transfers his or her employment (or is transferred as part of a machinery of government change) to another agency that is not a nominated State or Territory body will the new statutory rates apply to the calculation of the taxable value of the car fringe benefits that arise from the use of a car provided to the employee under a novated lease? | A2: No | Q3: If the new rates apply as a result of the transfer of the employee to another nominated State or Territory body, will the new rates apply from the date of transfer? | A3: Yes

Relevant facts and circumstances: Subsection 135T(1) of the FBTAA contains a list of the bodies that are an eligible State or Territory body. In accordance with subsection 135S(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) you nominated several eligible State or Territory bodies as nominated State or Territory bodies. As a result of this nomination, the bodies have become the employer of the State or Territory employees that have a 'sufficient connection' with the nominated bodies. The State or Territory has remained the employer of the other State or Territory employees who perform employment duties in an agency that has not been nominated. From time to time employees will transfer: · between nominated State or Territory bodies; or · from an agency that is part of the State or Territory Government return to a nominated State or Territory body; or · between agencies that are part of the State or Territory Government return. The transfer may occur as a result of the employee applying for a transfer. Alternatively, the transfer may occur as part of a machinery of government change. For the purpose of this ruling the transfers occurred after 10 May 2011. Where a machinery of government change occurs, the functions of an agency that is part of the State or Territory Government return or a nominated State or Territory body are transferred to another nominated State or Territory body or another agency. As part of the transfer of functions, employees undertaking duties in relation to the functions are transferred to the other nominated State or Territory body or agency where they continue to do the same job. Where the transfer is either from an agency to a nominated State or Territory body or between nominated State or Territory bodies the employee will be taken to have a new employer for the purposes of the FBTAA. In accordance with the policy statement issued by the Treasurer agencies and nominated State or Territory bodies are subject to clear and definite accountability requirements. Agencies and nominated State or Territory bodies have responsibility for salary payments to employees who perform their duties of employment within the agency or nominated State or Territory body. Novated lease payments are part of the salary payments for which the agency or nominated State or Territory body is responsible. All of your payroll services and administration of salary packaging arrangements are administered by an agency that is not a nominated State or territory body. The Manager of the salary packaging unit is the only employee authorised to enter into a novated lease agreement on behalf of the State or Territory Government. The agency or nominated State or Territory body in which the employee performs his or her duties is not required to recommend, approve or otherwise support an application made to the salary packaging unit by an employee to enter into a novated lease agreement. There is no change to the novated lease agreement where an employee with a novated lease agreement transfers between agencies or nominated State or Territory bodies. The same novated lease agreement continues to apply on the same basis after the transfer as it did prior to the transfer.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Subsection 9(2)(c) | Fringe Benefits Tax Assessment Act 1986 Section 135S | Fringe Benefits Tax Assessment Act 1986 Section 13T | Fringe Benefits Tax Assessment Act 1986 Section 135X | Tax Laws Amendment (2011 Measures No. 5) Act 2011 Subsection 8(2)(b)

Reasons for decision: Summary: Will the new statutory rates be used to calculate the taxable value of the car fringe benefits that arise from the use of a car provided to the employee under a novated lease if the employee transfers his or her employment (or is transferred as part of a machinery of government change)? In general terms if the statutory formula method is used to calculate the taxable value of a car fringe benefit, the taxable value of the fringe benefit will be a percentage of the car's value. Prior to 10 May 2011 the percentage used in the calculation depended upon the annualised number of kilometres travelled by the car during the year. The percentages were as follows: Total kilometres travelled during the year Statutory percentage Less than 15,000 26 15,000 to 24,999 20 25,000 to 40,000 11 Over 40,000 7 However, these rates were amended by Tax Laws Amendment (2011 Measures No. 5) Act 2011. The amendments restricted the use of these rates to cars for which there is a pre-existing commitment in place for the car to be provided to a particular employee. The application of the changed rates is contained in item 8 of schedule 5 of Tax Laws Amendment (2011 Measures No. 5) Act 2011 which states: 8 Application provision The amendments made by this Part apply to a car fringe benefit in relation to a year of tax beginning on or after 1 April 2011, whether the car fringe benefit is provided before, on or after the commencement of this item. Despite subitem (1), the amendments do not apply to a car fringe benefit, in relation to an employer in relation to a year of tax, that relates to a car, if: any car fringe benefit, in relation to the employer in relation to the year of tax in respect of employment of an employee by the employer, that relates to the car is constituted by the application or availability of the car for a period; and (b) the last time at which: (i) the employer, or an associate of the employer; or (ii) the employee, or an associate of the employee; committed to the application or availability of the car for that period, in respect of the employment, occurred before 7.30pm Australian Eastern Standard Time on 10 May 2011. Note: The effect of subitem (2) is that the amendments will not apply until the first year of tax starting after the employer, employee or associate first commits, after 7.30 pm Australian Eastern Standard Time on 10 May 2011, to the application or availability of the car. Therefore, in considering whether the new rates will apply to the calculation of the taxable value of a car fringe benefit it is necessary to determine the last time at which: · the employer or an associate of the employer; and · the employee or an associate of the employee · committed to the application of the car. As set out in the note to item 8, for the new rates to apply, the employer, or the employee or their associates needs to have made a commitment after 7.30 pm Australian Eastern Standard Time (AEST) on 10 May 2011. The term 'commitment' is not defined in either Tax Laws Amendment (2011 Measures No. 5) Act 2011 or the Fringe Benefits Tax Assessment Act 1986 (FBTAA). However, the meaning to be applied was discussed in paragraphs 5.51 and 5.52 of the Explanatory Memorandum to Tax Laws Amendment (2011 Measures No. 5) Act 2011. | Detailed Reasoning - Paragraphs 5.51 and 5.52 state:: 5.51 A commitment is considered entered into at the point that there is commitment to the transaction, and it cannot be backed out of. The commitment needs to be financially binding on one or more of the parties. 5.52 Changes made after 7:30 pm, AEST on 10 May 2011 to commitments made prior to 7:30 pm, AEST on 10 May 2011, such as re-financing a car, altering the duration of an existing contract or changing employers, are new commitments and will therefore be subject to the new arrangements. Further discussion of the meaning of the term 'commitment' is contained within chapter 7 of the publication Fringe benefits tax: a guide for employers which states: | Detailed Reasoning - Meaning of the term commitment: A 'commitment' is entered into at the point there is a financially binding commitment to a transaction on one or more of the parties and it cannot be backed out of. The commitment needs to be one that relates to the application or availability of the car to an employee or associate. For example, there are a number of steps involved where you negotiate with an employee and a salary packaging provider to put in place a novated lease arrangement in relation to a car. A commitment would generally be entered into, and would be financially binding, when you or the employee orders the car that is to be provided by way of a novated lease arrangement and there is a financial penalty if the order is cancelled. Chapter 7 then provides examples of how this principle is to be applied. In relation to the situation where there is a change of employer chapter 7 states: Change of employer or change of car FBT applies to you as an employer. Any change of the employer, even, within the same group of companies, will constitute a new commitment to the application or availability of the car by the new employer. This means the statutory rate of 20% (or applicable transitional rate) will be used by the new employer immediately. Likewise, any change of car (after 7.30pm AEST on 10 May 2011) will always be a new commitment to which the 20% flat rate (or applicable transitional rate) will apply immediately, even where the employer stays the same. | Detailed Reasoning - Example: Change in employer: Anna works for X Co and entered into a three year novated lease arrangement with her employer in January 2010. The car fringe benefits are valued by her employer using the statutory formula method. On 12 November 2011, Y Co officially takes over X Co and Anna is now an employee of Y Co. As Anna's employer has changed, car fringe benefits provided by the new employer from 12 November 2011 will come under the new statutory rates immediately. In your application you used the time at which the lease was signed as the time at which the commitment was made. We consider that the term 'commitment' is to be viewed in a broader context than just the point at which the lease agreement is entered into. As set out in Fringe benefits tax: a guide for employers a 'commitment' is entered into at the point there is a financially binding commitment. This is not restricted to the signing of the lease. It includes the commitment that arises when the employer becomes obliged to make the lease payments as part of the remuneration for the employee's services. Where an employee transfers between different employers the new employer becomes responsible for making the salary and lease payments. That is, the new employer becomes committed to make the lease payments as part of the remuneration that is paid to the employee for the performance of his or her duties. | Detailed Reasoning - There are two situations to consider; namely:: · where there is a change of employers as a result of the employee transferring to another nominated State or Territory body or transferring between an agency and a nominated State or Territory body; and · where there is not a change of employer as the employee only transfers between agencies that are part of the State or Territory Government return. | Detailed Reasoning - The rates that will apply where there is a change of employers as a result of the transfer: In both situations, it is agreed that the last time at which the employee makes a commitment is when the lease was signed. In your application you contend that this is also the last time at which the employer made a commitment. While this may be the last time at which the employer made a commitment if the change of agencies does not involve a change of employers, we do not agree that this will be the last time at which the employer made a commitment if there is a change of employers. Where a transfer occurs, the agency or nominated State or Territory body to which the employee transfers assumes the financial responsibility for making the lease payments from the date of effect nominated by the Treasurer's determination. In so doing, the agency or nominated State or Territory body to which the employee transfers makes a commitment in relation to the availability of the car. Therefore, where the transfer involves a change of employers, the date on which the new employer assumes the financial responsibility for making the lease payments will be the last time at which the employer committed to the application or availability of the car. The date on which the employer's associate (the original employer) made a commitment will not be relevant as the date on which the new employer assumes the financial responsibility for the lease payments is a later date. As the transfer that caused the change of employers occurred after 10 May 2011, the last time at which the employer or an associate of the employer committed to the application or availability of the car was after 10 May 2011. Therefore, the new employer will use the new rates. However, the old employer will use the old rates (assuming the last time at which the commitment was made was before 7.30 pm Australian Eastern Standard Time on 10 May 2011). | Detailed Reasoning - The rates that will apply where the transfer does not result in a change of employer (for FBT purposes): A transfer will not result in the new rates applying where there is only a transfer between agencies that are part of the State or Territory Government return (assuming the last time at which the commitment was made was before 7.30 pm Australian Eastern Standard Time on 10 May 2011). This is because the last time at which the employer made a commitment was prior to 10 May 2011. | Detailed Reasoning - Does section 135X of the FBTAA provide a discretion for the old rates to apply?: In your application you suggested that section 135X may provide discretion to the Commissioner to enable the new employer to continue to use the old rates. We do not agree with this suggestion. As set out in the Explanatory memorandum to Taxation Laws Amendment Bill (No. 2) 2001: Section 135X provides that the Commissioner may enter into a written agreement with a State or Territory regarding the application of certain provisions in certain circumstances. … Under these circumstances only, a written agreement may be entered into in relation to the application of the following provisions: Section 10 Whether a year of tax is to be treated as a log book year of tax for the purposes of calculating the taxable value of car fringe benefits using the cost basis. Subdivision D of Division 10A of Part III Whether a register kept in relation to the value of car parking fringe benefits is a valid register. Sections 58B to 58D Whether a benefit is an exempt benefit as a result of the relocation of an employee. Section 58S Whether a benefit is an exempt benefit in relation to trainees engaged under the Australian Traineeship System. Section 65CA Whether a fringe benefit is an amortised fringe benefit relating to remote area home ownership schemes. Section 152A Whether a benefit is covered by a recurring fringe benefit declaration. In 2004 section 135X was amended to also include 'whether a year of tax that is a base year of tax for the purposes of section 26 is to continue to be treated as a base year of tax'. The relevant statutory fraction is not one of the listed circumstances in which an agreement can be entered into. Consequently, we do not accept your suggestion that it is possible for the Commissioner to enter into an agreement under section 135X in relation to the statutory fraction If the new rates apply as a result of the transfer of the employee to another nominated State or Territory body, will the new rates apply from the date of transfer? As set out in your application the new rates will apply from the date of transfer of the employee. This is the date of effect nominated in the Treasurer's Determination. The relevant rate that will apply will depend upon whether an election is made to skip the transitional arrangements and if an election is not made, the distance travelled by the car. In discussing the possibility of making an election to skip the transitional arrangements chapter 7 of Fringe benefits tax: a guide for employers states: For any new commitments entered into during this period, you can choose to skip the transitional arrangements and apply the 20% statutory rate; however, this choice is subject to certain conditions mentioned below. You cannot skip the transitional arrangements where an employee would be worse off as a result of this choice. That is, the employee cannot be placed at a direct financial disadvantage as a result of this choice, unless you have obtained the consent of the employee. For example, you cannot require an employee to bear the financial impact of skipping the transitional arrangements by charging the employee a higher salary packaging amount as a result of an increase in FBT payable merely to save on compliance costs, unless you have obtained the consent of the employee to do so. The choice to skip the transitional arrangements is on a car-by-car basis. You do not need to notify us of your choice, as your business records are sufficient evidence of this. If an election is not made, the relevant percentage will be determined by the number of kilometres travelled by the car during the period in the FBT year when the car was held by the provider of the car fringe benefit. The rates are as follows: Statutory rate From 10 May 2011 From 1 Apr 2012 From 1 Apr 2013 From 1 Apr 2014 Less than 15,000 0.20 0.20 0.20 0.20 15,000 to 25,000 0.20 0.20 0.20 0.20 25,000 to 40,000 0.14 0.17 0.20 0.20 More than 40,000 0.10 0.13 0.17 0.20

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