A long serving employee is retiring and upon his departure we decided to provide him with ownership of their employer provided car. The provision of the car was (previously part of a salary sacrifice arrangement with the employee.
What are the FBT implications of this arrangement? Has a property fringe benefit arisen? If so, how is the value of this benefit determined?
Typically the transfer to an employee of an asset of the employer for less than market value will result in a taxable property benefit arising for FBT purposes. The taxable value will be the market value less any relevant employee contribution towards the transfer.
However, where the transfer occurs as part of the employees termination arrangements, the transfer is generally considered to be an employment termination payment (ETP) by the ATO.
An ETP is essentially a payment received by a person in consequence of the termination of their employment.
Subsection 27A(8) of the ITAA 1936 provides that where a transfer of property has been made to a person for the purposes of making an ETP, the transfer is deemed to be payment of an amount equal to the value of the property immediately before the transfer. The market value of the property immediately before the transfer is generally accepted as the value for the purposes of this provision.
Subsection 136(1) of the FBTAA defines the term ‘fringe benefit’. Paragraph (k) of that definition specifically excludes payments that are ETPs. Consequently, the transfer of the car to be made to the individual would not be considered a fringe benefit as it represents an ETP.
It should be noted that relevant PAYGW will be required from the ‘payment’.