ATO Interpretative Decision
ATO ID 2004/527
Fringe Benefits Tax
Car fringe benefits: 1/3 reduction in the base value of a car under the statutory formula methodFOI status: may be released
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does an employer need to hold a car continuously for 4 years before the base value can be reduced by 1/3, under paragraph 9(2)(a) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Decision
No. A 1/3 reduction in the base value can be made under paragraph 9(2)(a) of the FBTAA in the fringe benefits tax (FBT) year following the fourth anniversary of the date the car was first owned or leased by the employer. The car does not have to be held continuously by the provider for the entire 4 year period.
Facts
The employee entered into an effective salary sacrifice arrangement with his employer who provided him with the use of a car through a novated lease agreement. At the end of a three year lease period the employee purchased the car from the lease company.
A year later, the employee entered into a second lease agreement with the employer involving this same car.
Under the second lease agreement the employee sold the car to a new leasing company and is then provided with the same car through a novated lease agreement between the employer and that company.
The employer elects to use the statutory formula method to value any car fringe benefits for this particular car.
Reasons for Decision
Subsection 9(1) of the FBTAA sets out the formula for calculating the taxable value for one or more car fringe benefits for a particular car held by the employer, where the employer uses the statutory formula method. Under subsection 162(1) of the FBTAA a car is 'held' where it is owned, leased or otherwise made available to the employer by another person.
Subsection 9(2) of the FBTAA explains how to calculate the base value of a car. Under paragraph 9(2)(a) there is provision to reduce the base value component where a car is owned (subparagraph 9(2)(a)(i)) or leased (subparagraph 9(2)(a)(ii)). Whether the car is owned or leased is not relevant, it merely needs to be 'held'.
The 1/3 reduction in base value is allowed 'where the commencement of the year of tax is later than the fourth anniversary of the earliest holding time'. Therefore, the reduction is determined on the length of time between the first time the car is held and the current time. If this difference is 4 years, then a 1/3 reduction in the base value may be made at the commencement of the next FBT year. The car does not need to be held continuously for the entire 4 year period for the reduction to be made.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 12 December 2014 | Reasons for Decision | Amend 'tax year' to 'year of tax' to reflect legislative provision. |
| Related ATO Interpretative Decisions | Amend ATO ID 2003/528 to ATO ID 2004/528 to correct error. |
Year of income: Year ending 31 March 2005
Legislative References:
Fringe Benefits Tax Assessment Act 1986
section 9
paragraph 9(2)(a)
subparagraph 9(2)(a)(i)
subparagraph 9(2)(a)(ii)
subsection 162(1)
Related Public Rulings (including Determinations)
Taxation Determination TD 94/28
ATO ID 2003/584
ATO ID 2004/528
Keywords
Fringe benefits tax
Car fringe benefits
FBT base value
FBT statutory formula
Date reviewed: 22 January 2018
ISSN: 1445-2782
| Date: | Version: | |
| 17 June 2004 | Original statement | |
| You are here | 12 December 2014 | Updated statement |
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