FBT ‘ Can cars provided under novated lease financing be pooled cars for FBT reporting purposes?
Where an employee is provided with a car as part of their salary package, and the car is provided by way of novated lease financing, can the car be provided to another employer for private use at the employer’s direction so as to be a ‘pooled’ car?
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Regulation 8 of the FBT Regulations prescribes benefits relating to pooled or shared cars as being excluded fringe benefits.
Fringe benefits which are excluded fringe benefits are not included in the employee’s reportable fringe benefits amount. Where such a pooled or shared use exists during the year the benefit is an excluded fringe benefit in relation to each employee provided with the car benefit.
A common query that came up at the recent TaxEd FBT roadshows was whether an employee with a car provided by way of a novated lease arrangement could swap their car with another employee, at the employer’s direction, so as the pooling requirements are met.
In the most recent FBT States and Territories Industry Partnership meeting held on 4 October 2016, the ATO indicated that 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 any other employee. Accordingly the car is not considered a shared/pooled car.
This is an interesting interpretation as it goes to one of the core requirements of the FBT provisions, that being that a benefit must be provided in respect of the employment of the particular employee.
The ATO are obviously relying on the use by the second employee of the car as not being in respect of that particular employee’s employment and so a car fringe benefit doesn’t arise in regards to that usage.
Does this mean no car benefit arises on that day because the employee with the novated lease arrangement has not used the car for private purposes (nor is the car available for their private use as it is not garaged at their residence overnight nor do they have custody or control)?
So the car may not be a pooled car but does the employer now have a reduced fringe benefits tax exposure for the period of use by the second employee?
This might be a case of having to ‘watch this space’, as we are sure this issue will come to the public domain via a draft taxation ruling or determination – in which case the normal feedback process from interested parties applies.
Disclaimer: This article is based upon information available as at the time of publishing and may be subject to change.