Private ruling: Car fringe benefit – the car is not registered, not driven, garaged at business premises
Date of advice: 9 July 2018
Published: September 2018
Ruling period: FBT year ending 31 March 20xx | FBT year ending 31 March 20xx
Date scheme commenced: 7 July 20xx

Ruling: Q1: Was at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as provider), applied to a private use by the employee or an associate of the employee? Subparagraph 7(1)(a)(i) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) | A1: No | Q2: Was at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as provider), taken to be available for the private use of the employee or an associate of the employee? Subparagraph 7(1)(a)(ii) of the FBTAA | A2: No | Q3: Was the provider the employer of the employee? Subparagraph 7(1)(b)(i) of the FBTAA | A3: Yes

Relevant facts and circumstances: The taxpayer (the Company) purchased a motor vehicle on 7 July 20xx as an investment, with the view of the vehicle appreciating in value over time. The CEO, who is also the sole shareholder and director of the company, was the “employee responsible for the vehicle” (Employee). The car was not registered for the entire FBT year and was never driven for either business or private purposes. It was garaged in a locked up space on the business premises. The Employee did not reside at the business premises. The keys to the vehicle were locked up in the company safe. The car was never taken to any car shows or events. On 5 March 20xx the vehicle was sold to an unrelated party. The applicant has provided a copy of the Company’s Motor Vehicles Policy, which outlines different options available to employees who either require a motor vehicle as a tool of trade; or use their motor vehicle for occasional work-related travel and need to claim back business travel expenses. All staff members driving Pool Vehicles for business use are required to park the Company vehicles on the Company premises when not in use and to garage them on site outside business hours. Private use of such vehicles is not permitted unless authorised by the Managing Director. Certain employees who are required to travel a minimum of 17,500 business kilometres per annum, may be provided with a Company Car. The Company Cars may be garaged at employees’ private premises and may be occasionally used for private purposes by either the employees or their family members. The employees using Company Cars are required to keep log books. The applicant submits that the motor vehicle was never used either as a Pool Vehicle or a Company Car, as it was not registered and was never driven during the period of ownership by the Company.

Relevant legislative provisions: Subsection 7(1) of the Fringe Benefits Tax Assessment Act 1986 | Subsection 7(2) of the Fringe Benefits Tax Assessment Act 1986 | Subsection 7(3) of the Fringe Benefits Tax Assessment Act 1986 | Subsection 7(4) of the Fringe Benefits Tax Assessment Act 1986 | Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision: Detailed Reasoning - Question 1: Was at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as provider), applied to a private use by the employee or an associate of the employee? Subparagraph 7(1)(a)(i) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) | Detailed Reasoning - Detailed reasoning: Under subparagraph 7(1)(a)(i) of the FBTAA, a fringe benefit provided on a particular day by the provider to the employee or associate in respect of the employment of the employee, arises from the application of the employer’s car to a private use at any time on that day. According to subsection 136(1) of FBTAA, “car” has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 (Itaa1997). Subsection 995-1(1) defines “car” as follows: "car" means a * motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers. The motor vehicle purchased by the Company matches this definition of a “car”. Subsection 136(1) of FBTAA defines “private use” as follows: 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 According to the facts of the case, the car in question was never used by any of the taxpayer’s employees, as it was unregistered and was locked up in a securely stored facility at the employer’s business premises. The car was never driven, nor taken to any car shows or events during the period of ownership by the employer. The odometer readings of the car show 0 kilometres during the entire ownership period. Therefore, the car was never applied to a private use by an employee or an associate of an employee of the taxpayer. | Detailed Reasoning - Question 2: Was at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as provider), taken to be available for the private use of the employee or an associate of the employee? Subparagraph 7(1)(a)(ii) of the FBTAA | Detailed Reasoning - Detailed reasoning: Under subparagraph 7(1)(a)(ii) of the FBTAA, a fringe benefit provided on a particular day by the provider to the employee or associate in respect of the employment of the employee, arises when a car is taken to be available for the private use of the employee or an associate of the employee. Subsections 7(3) and 7(4) of FBTAA contain further explanation of when the car is taken to be available for the private use of the employee. Accordingly, the car will be deemed available for private use if: ● It is not at the business premises of the employer, and ● The employee is entitled to apply the car to a private use, or ● The employee is not performing the duties of their employment and has custody and control of the car; ● Where the prohibition to apply the car to a private use of an employee is not “consistently enforced” Taxation determination TD 94/16 provides further explanation to this: 1. Where an employer's car is kept in safe storage at or near the employee's place of residence it will be taken to be available for the employee's private use regardless of any prohibition on the use of the car (subsection 7(2)). Further, the employer's car will also be taken to be available for the employee's private use where it is kept in safe storage away from the employee's place of residence but not at the employer's business premises, and the employee or an associate of the employee remains entitled to apply the car to a private use. 2. Where, however: a. the employer's car is kept in safe storage away from the employee's place of residence; and b. the employer's car is not at the employer's business premises; and c. the custody and control of the car has been removed from the employee and from the associates of the employee; and d. the employee is not entitled to use the car for private purposes and an associate of the employee is not entitled to use the car, the car will not be taken to be available for the employee's private use, unless the condition in paragraph 2d. is not consistently enforced (subsections 7(3) & (4)). 3. A prohibition against the private use of a car must be made in clear and unequivocal terms. A general instruction or understanding between an employer and employee would not be sufficient. Employees would need to be made aware that the prohibition is genuine and will be reinforced, for example with disciplinary measures if breached. Consistent enforcement is also required and may comprise of regular checks of odometer readings against business kilometres claimed to have been travelled by employees. According to the facts of the case, the car is garaged in a secure locked up space on the business premises. The employee (the director and CEO) of the company doesn’t live at or near the business premises. The car is not registered and the odometer readings remain at 0 kilometres for the duration of the ownership of the car. Therefore, the car can’t be taken to be available for private use. | Detailed Reasoning - Question 3: Was the provider the employer of the employee? Subparagraph 7(1)(b)(i) of the FBTAA | Detailed Reasoning - Detailed reasoning: According to the facts of the case, the provider of the car is the Company. The Employee is employed by the Company as Chief Executive Officer. Subsection 136(1) of FBTAA provides the following definition of “employer”: (a) a current employer; (b) a future employer; or (c) a former employer; "current employer" means a person (including a government body) who pays, or is liable to pay, salary or wages… Our records show the Company paying the Employee salary in his capacity of Managing Director. Therefore, the Company (in this case, the provider of the car) is the employer of the employee.