FBT – Reportable Fringe Benefits and the pooled or shared car exclusion

Certain FBT benefits in relation to pooled cars are excluded from an employee’s payment summary or income statement under STP.

As the 2020 FBT return preparation process is completed, one of the tasks is to identify whether benefits are required to be disclosed as Reportable Fringe Benefits. A common issue that arises is whether the taxable value of car fringe benefits is excluded from reporting under the ‘ pooled or shared car’ exclusion.

In this article we explore the pooled or shared car exclusion.

The Basics

The Reportable Fringe Benefit regime requires an employer to allocate the taxable value of benefits to individual employees for the purposes of determining whether an employee has received benefits (other than excluded benefits) with  taxable value (pre-gross up) exceeding $2,000 in taxable value.

Where benefits received by an employee exceed $2,000 in taxable value, the taxable value is grossed up at the Type 2 gross up rate (currently 1.8868) and the value of the benefits must be reported on the employees Payment Summary or income statement under STP (as applicable).

Certain benefits are excluded when determining whether the $2,000 taxable value amount is reached.

Section 135P of the Fringe Benefits Tax Assessment Act 1986 (FBT Act) states that:

‘An employee has a reportable fringe benefits amount for a year of income in respect of the employee’s employment by an employer if the employee’s individual fringe benefits amount for the year of tax ending on 31 March in the year of income in respect of the employee’s employment by the employer is more than $2,000.’

Section 5E of the FBT Act explains how to work out an employee’s individual fringe benefits amount. Section 5E(2) states:

‘The individual fringe benefits amount is the sum of the employee’s share of the taxable value of each fringe benefit that relates to the year of tax and is provided in respect of the employment other than an excluded fringe benefit”‘.

Section 5E(3) defines what is an  ‘excluded fringe benefit’. Section 5E(3)(i) provides that a benefit prescribed by the fringe benefits tax regulations is an excluded benefit and therefore not included in determining an employee’s individual fringe benefits amount.

The Fringe Benefits Tax Assessment Regulations  2018 at s. 10 provides:

’10  Excluded fringe benefit—pooled or shared cars

      (1)  A fringe benefit is prescribed for the purposes of paragraph 5E(3)(i) of the Act if:

(a)  the benefit is a car fringe benefit; and

(b)  the car to which the benefit relates is applied to or available for the private use of more than one employee under subsection 7(1) of the Act.

(2)  The fringe benefit is so prescribed for each employee to whom the benefit is provided.’

The following points are made in relation to the scope of the pooled or shared car exclusion.

1. The exclusion only applies where the vehicle is a car for FBT purposes. Accordingly, the exclusion will not apply where the vehicle is a more than a one tonne load carrying vehicle or a vehicle designed to carry 9 or more passengers. Where use of such a vehicle gives rise to a taxable value, the value must be allocated to employees to determine whether the$2,000 taxable value limit is exceeded.
2. The exclusion is capable of applying even where the private use by a second employee is minimal. There is no statutory test as to the extent of the private use required by a second employee before the exclusion can apply. On that basis, any application to or availability for private use by a second employee will trigger the exclusion.
3. The exclusion is capable of applying even where the private use by a second employee does not give rise to a taxable fringe benefit. For example, where the private use by a second employee is exempt from FBT under section 58LA (compassionate travel), section 58N (emergency assistance) or section 58P (minor benefit) the exclusion may apply.

The ATO website examples reproduced below confirm the above in relation point 1, 2 and 3. (our underlining added).

Example 1

Ted owns a ute that is designed to carry a load of more than one tonne. His employees, Gloria and Annabelle, use the ute for private purposes on alternate weekends.

Cars do not include motor vehicles designed to carry a load of one tonne or more.

The benefit is not an excluded benefit because the ute is not a car. Being a car is a condition of the reporting exclusion. So, the reporting exclusion does not apply.

Example 2

Nalina, an employer, owns a car. She has two employees, Con and Kellie. Con uses the car to travel to and from work and for other private purposes, so Nalina provides Con with car fringe benefits.

Kellie uses the same car during the FBT year. She uses the car for private purposes on one day only. On that day, she travels from work to home for a family emergency and then returns to work. Kellie’s use of the car is:

• • exempt from FBT under the minor benefits exemption
  • an exempt car benefit.

In this example, the car is a pooled or shared car during the FBT year and Nalina does not have to report her employees’ use of that car as the FBT reporting exclusion applies.

As a low threshold is set as to what degree of use is required to satisfy the exclusion, it is not unexpected an employee may be agreeable where private use of a car otherwise allocated to him/her is provided to a second employee.

The ATO has attempted to counter unintended application of the exclusion by the following pronouncements.

In relation to the private use by a second employee, the ATO express the view (on the ATO website and in the document Fringe Benefits Tax -A guide for employers) that the employer:

‘…must direct each of these employees to use the car or consent to each employee using the car’.

On this basis, unauthorised or unapproved private use by a second employee would not, based on the ATO’s position, satisfy the exclusion.

In minutes to the ATO State and Territory Industry Partnership of 4 October 2016, the ATO commented in relation to the above issue and also in relation to a car subject of a novated lease agreement (albeit commenting on the equivalent exclusion in the FBT regulations then in force)

‘Consistent with the ATO’s comments in NTLG FBT Subcommittee minutes – 15 November 2007 and FBT STIP minutes –13 September 2007, where an employer provides a car for an employee’s private use, it is not a shared car solely because the employee allows another employee to use the car for a private purpose. The car benefit would not be considered an excluded benefit for the purposes of Regulation 8 FBTR if the benefit is provided to one employee who, without the direction or consent of the employer, allows another employee to share the vehicle. The car benefit is only provided “in respect of the employment” of the first employee and therefore the exclusion cannot apply. In a situation where a vehicle is part of a novated lease, the terms of the lease would require the employer to provide the specific car to a specific employee for private use. Where another employee is given personal use of the car e.g. through car swapping, the employer is nonetheless only providing the benefit to the employee who is party to the novated lease. The fringe benefit would only count against that employee and not the others, accordingly the car is not considered a shared car.’

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