FBT ‘ Corporate bailment agreement; availability for private use
It is a requirement for a car fringe benefit to arise that the car be used for a private purpose or be available for the private use of the employee. This article considers circumstances in which this condition is not met.
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A car fringe benefit is provided if, at any time on a day, a car owned or leased by the employer (or associate or arranger) is used for a private purpose, or is available to the employee or associate for private use.
A car will be taken to be available for private use (irrespective of whether it is actually used) if:
- the car is garaged or kept at or near a place of residence of the employee or their associate; or
- the car is not at business premises of the employer and either:
(a) the employee is entitled to apply the car to a private use;
(b) the employee is not performing the duties of his or her employment and has custody or control of the car; or
(c) the employee’s associate is entitled to use or has custody or control of the car.
Item 1 above is quite straightforward. If the car is garaged at or near the employee’s residence it is deemed to be taken to be available for private use regardless of the purpose for which it was taken home by the employee.
Item 2 was addressed in Taxation Determination TD 94/16 where the car is kept in safe storage while the employee is travelling. In his determination, the Commissioner considers that where:
(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 d. is not consistently enforced
The first example in the determination is as follows:
‘An employee who is provided with a car by her employer leaves the car in a commercial storage facility (e.g. an airport parking station) while on an interstate business trip. The employee cannot leave the car on the employer’s premises because there are no car parking facilities available. The commercial storage facility is not in the vicinity of the employee’s residence. The car will not be taken as being available for the employee’s private use if the employer removes the control and custody of the car from the employee (e.g. takes the car keys) and enforces a prohibition on the private use of the car by the employee or any associate of the employee.’
If the employee is travelling to the airport with his or her family for the purpose of a two week holiday, the million dollar question is: how they are expected to get the car keys to their employer so as to remove custody and control of the car from them?
A recently issued ATO class ruling may provide a solution. The ruling examines the consequences of an employer entering into a corporate bailment agreement (CBA) with an airport carpark operator (ACO).
ACO will enter into a CBA with employers whereby ACO will take possession, but not ownership, of a car provided for the private use of an employee, or an associate of an employee, while it is parked in the ACO parking facility. ACO’s facility is not located at or near the employee’s place of residence.
Under the terms of the agreement a person who has authority to act for the employer is able to make a booking, using the ACO website telephone or email, to park the car in the ACO parking facility for a nominated period.
When a booking is made the employer must specify the registration number of the car. The booking will only be valid for the car that has that registration number. The booking is confirmed when ACO emails or telephones, a booking confirmation to the employer or representative of the employer.
The bailment period commences when the employee or associate of the employee or nominated representative delivers the car to the parking facility and the keys are surrendered to ACO. ACO will provide a tax invoice/receipt to the employee or associate of the employee.
The bailment period ends when ACO delivers the car and its keys back to the employee or associate of the employee or nominated representative. To obtain the car the employee or associate of the employee or nominated representative must provide:
- the docket issued when the car was parked at the car park;
- photo identification or drivers licence;
- receipt issued by ACO; or
- any other evidence of ownership authority or ACO deems satisfactory.
During the bailment period:
- ACO will have exclusive use and possession of the car;
- ACO will not be subject to any instructions or directions by the employer or employee, except those requiring observance of the terms of the agreement;
- the employee, or associate of the employee, is prohibited from using the car for any purpose; and
- the car will only be moved or driven to enable ACO to perform parking services.
During the bailment period both the employee and the associate of the employee are not entitled to use the car for any purpose and do not have custody or control of the car.
During the bailment period, the car is not taken to be available for the private use of the employee or an associate of the employee.
During the bailment period, there is not any availability of the car which constitutes a benefit and consequently, there is not a car benefit for FBT purposes.
The ruling provides employers with an opportunity to seek out airport parking providers that provide such bailment agreements. This is particularly relevant for employers where staff provided with employer held cars take extended travel periods.
Disclaimer: Information provided in this article, while correct at time of publishing, is subject to change.