We were recently requested to consider the case of a TaxEd member organisation who had acquired a car by way of gift. That is, no payment was made for the car (including stamp duty on transfer which was paid by the donor).
The car was subsequently allocated to an employee who had full commuter use of the vehicle for the FBT year and garaged the vehicle at their residence overnight for the full FBT year. No log book was kept as there was no work-related travel undertaken by the employee.
Under normal circumstances this is a clear car fringe benefit, however, as no cost was incurred in acquiring the car and can it be argued that the FBT base value is nil to the employer?
In analysing this question the starting point is to determine whether the car is ‘held’ by the provider for FBT purposes. The provider in this case is the employer and based on the facts provided, as the car was gifted to the employer the employer is the owner of the car and is therefore taken to ‘hold’ the vehicle.
The next step is to ask whether the car is used, or is taken to be available for private use of an employee. The car was used for private purposes by the employee and in addition, is taken to be available for private use due to the home garaging of the vehicle. As such, this criterion is met.
So what is the base value then?
The definition of cost price for base value purposes clearly refers to expenditure incurred by the provider of the car, i.e. expenditure incurred by the employer. So, strictly speaking, the cost price is zero as the car was gifted to the employer.
However, this sounds too good to be true, doesn’t it? For those of you reading this article nodding your head in agreement you are correct.
Section 13 of the FBT Act overcomes this deficiency. The purpose of s. 13 is to ensure that the value of a car fringe benefit is determined on the basis of expenditure under arm’s length transactions. It also requires a market value to be attributed to property or services which may have been obtained at arm’s length but for which no expenditure was incurred.
Given the operational effect of s. 13, the base value of the car will be based on the employer being deemed to have incurred expenditure in acquiring it equal to its market value at the time of transfer.
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