Jetto Industrial Pty Ltd and Commissioner of Taxation

[2009] AATA 374

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 374

ADMINISTRATIVE APPEALS TRIBUNAL      )   

)    No: 2008/4557 to 4559

TAXATION APPEALS DIVISION  )   

ReJetto Industrial Pty Ltd

Applicant

And    Commissioner of Taxation

Respondent

DECISION

TribunalProfessor GD Walker, Deputy President

Date22 May 2009

PlaceSydney

DecisionThe decision under review is affirmed.

..................[sgd]........................

Professor GD Walker
  Deputy President

CATCHWORDS

FRINGE BENEFITS TAX - whether assessment excessive -  car used for business purposes - cost basis of taxable value of car fringe benefit - statutory formula applied to determine taxable value of benefit - that car is used exclusively for business purposes not relevant - car garaged or kept at or near place of business and residence - deemed availability of car for private use - burden of proof on applicant to show assessment is excessive - circumstantial evidence of pattern of usage of car - evidence not sufficiently regular and uniform - decision affirmed

…

RELEVANT ACTS

Taxation Administration Act 1953 (Cth) (the TAA): ss 14ZZ, 14ZZK

Fringe Benefits Tax Assessment Act 1986 (Cth) (the FBTA Act): ss 5B, 7, 8, 9, 10, 66, 68, 73, 136, 162G, Division 2 of Part III

…

CITATIONS

Re TT93/23 and Commissioner of Taxation [1994] AATA 661

Federal Commissioner of Taxation v Dalco (1919) 168 CLR 614

Commissioner of Taxation v Munro [1997] FCA 1098

Nozzi Pty Ltd v Commissioner of Taxation [2003] FCA 356

Connor v Blacktown District Hospital [1971] 1 NSWLR 713

…

REASONS FOR DECISION

22 May 2009	Professor GD Walker, Deputy President
Basic facts

1. The applicant has applied under s 14ZZ of the Taxation Administration Act 1953 (Cth) (the TAA) for a review of the respondent’s decision of 3 April 2008 (T pp4-9) to disallow in full the applicant’s objections to assessments of the fringe benefits taxable amount and the amount of tax payable by the applicant as an employer, which was issued on 31 October 2007.

2.      The facts are not in dispute between the parties.  The applicant purchased a new Lexus LX470 sedan (the car) on 7 June 2004, paying a total price of $119,000.  The car has at all material times been garaged or kept at or near 22 Bungoona Avenue, Elanora Heights, New South Wales (22 Bungoona Avenue), the applicant’s principal place of business.

3.      The residential address of Mr Ian Hunter, who has been the sole director of the applicant since its registration, has also at all material times been 22 Bungoona Avenue, Elanora Heights.

4. By s 68 of the Fringe Benefits Tax Assessment Act 1986 (Cth) (the FBTA Act), an employer is required to give to the respondent a return, where there is a “fringe benefits taxable amount” (as defined in s 5B of the FBTA Act) in a year of fringe benefits tax (FBT) ending 30 March, not later than 21 May in the next year of tax.

5. Where that is not done, the respondent is empowered by s 73 of the FBTA Act to make an assessment of the fringe benefits taxable amount that the employer is liable to pay if the respondent is of the opinion that the employer is liable to pay tax in respect of a year of tax.

6.      The applicant did not lodge an annual return for any fringe benefits taxable amounts in relation to the car for the FBT years of tax ending 30 March 2005, 30 March 2006 and 30 March 2007.

7.      Following an audit, the respondent issued assessments for the three relevant years.  At the hearing the respondent acknowledged that there were some minor arithmetical errors in the calculations in respect of the 2005 year, and now states that the relevant figures are as follows:

…

Year ending 31 March	Fringe benefits taxable amount	Tax payable
2005	$53,782.00	$26,084.25
2006	$65,877.00	$31,950.34
2007	$63,881.00	$29,704.66

…

8. At the hearing, the applicant’s tax agent Mr Jeff Banks appeared for the applicant assisted by the applicant’s director Mr Ian Hunter, while Mr Ed Chiaw of the ATO Legal Services Branch appeared for the respondent. The documents before the tribunal comprised the documents produced pursuant to s 37 of the Administrative Appeals Tribunal Act1975 (the T documents), taken into evidence as Exhibit R1, together with the other documents tendered by the parties at the hearing.  No oral evidence was given at the hearing.

The legislative scheme

9.      The fringe benefits legislation is a comprehensive structure that makes a wide range of fringe benefits provided to employees liable to tax.  Fringe benefits tax is not an income tax, but a tax levied on employers for the fringe benefits provided to employees.

10. Section 66 of the FBTA Act imposes a liability on the employer to pay tax on the fringe benefits taxable amount. A number of terms used in the FBTA Act are defined in s 136, which inter alia gives the term “benefits” a wide meaning:

…

benefit includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility ….

…

11. Car fringe benefits are governed by the provisions of Division 2 of Part III of the FBTA Act. The car fringe benefits tax is levied on the value of the private use of the car by the employee or on the value of the availability for private use of the car. It is assessed on the value of the benefit provided by an employer to an employee in connection with his or her employment. Section 7 of the FBTA Act relevantly provides as follows:

…

Car benefits

(1)[Car applied to, available for employee’s private use] Where:

(a)at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as the provider):

(i)    is applied to a private use by the employee or an associate of the employee; or

(ii)   is taken to be available for the private use of the employee or an associate of the employee; and

(b)either of the following conditions is satisfied:

(i)    the provider is the employer, or an associate of the employer, of the employee;

(ii)   the car is so applied or available, as the case may be, under an arrangement between:

(A)the provider or another person; and

(B)the employer, or an associate of the employer, of the employee;

that application or availability of the car shall be taken to constitute a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee.

(2)[Car garaged at employee’s residence] Where, at a particular time, the following conditions are satisfied in relation to an employee of an employer:

(a)a car is held by a person, being:

(i)    the employer;

(ii)   an associate of the employer; or

(iii)   a person (other than the employer or an associate of the employer) with whom, or in respect of whom, the employer or an associate of the employer has an arrangement relating to the use or availability of the car;

(b)the car is garaged or kept at or near a place of residence of the employee or of an associate of the employee;

the car shall be taken, for the purposes of this Act, to be available at that time for the private use of the employee or associate, as the case may be.

…

12. If the ingredients of s 7 of the FBTA Act are met, then as a consequence of the definitions of “car benefit” and “car fringe benefit” in s 136 of the FBTA Act, there will be a car fringe benefit, unless an exemption applies under s 8 of the FBTA Act. The applicant in this case does not contend that any exemption applies.

Issue

13. The issue in this application is whether the applicant is liable to pay fringe benefits tax in accordance with the assessments (as corrected) listed above in respect of the three relevant years. Specifically, the issue is whether or not those assessments are excessive in light of s 14ZZK of the TAA.

Applicant’s submissions

14.     In its statements of facts and contentions (Exhibit A1), its letter of 15 December 2008 (Exhibit A2) and in oral submissions at the hearing, the applicant conceded that it had not lodged FBT returns on time, explaining that the taxpayer had been under the incorrect impression that because in its submission the car was 100 percent used for business purposes, there was no FBT liability and therefore no need to lodge a return.  When directed by the respondent, the applicant had lodged returns, showing nil amounts payable.

15. The applicant also conceded that although it had previously submitted that the statutory formula in s 9 of the FBTA Act did not apply and the appropriate formula was the taxable value formula in s 10, the applicant conceded at the hearing that the statutory formula in s 9 probably did apply, as no returns had been lodged.

16.     Nevertheless, it submitted that either formula resulted in the car’s usage being assessed at 100 percent business.  The evidence, including the photographs in Exhibit A2, showed that while 22 Bungoona Avenue happened to be the director’s residential address as well as that of the applicant’s principal place of business, the properties were completely separate, with separate entrances and separate garages.  They shared only a common wall.  The company’s offices were in suite 1, although the applicant had originally omitted to draw the difference in address (the private address does not include a suite number) to the respondent’s attention.

17. Further, the applicant submitted, no tax would be payable whether the calculation method was that provided in s 9 or in s 10 of the FBTA Act, because the log book and the photographic evidence provided showed that business usage of the vehicles amounted to 100 percent and accordingly there was no taxable value of any car fringe benefits.

18.     While no log book specifically covered the years in question, a log book was not required for those years as none was a “log book year” as defined in the respondent’s guide, Fringe Benefits Tax: A Guide for Employers, which seeks to explain s 162G of the FBTA Act. As explained by paragraph 7.8 of that guide, none of the years in issue was a log book year. It was not until the respondent demanded a log book that a log book year came into existence. The taxpayer complied by producing the log book showing business usage of the vehicle.

19.     The log book provided by the applicant, although not contemporaneous, was indicative of the use of the vehicle during the years to which the appeal related.  Mr Hunter and his family had at times used several privately registered vehicles during the relevant years solely for private purposes, but none of them was used for business, nor was any deduction claimed in relation to them.

20.     The photographs showed that the company offices were separate from Mr Hunter’s residence and the signage, letterhead and business cards confirmed that proposition.  The deeming provision had no application in this case.

Consideration

21. At the hearing the applicant withdrew the submission that the cost basis for calculation of the taxable value of a car benefit in s 10 of the FBTA Act was the proper basis in this case, assuming that a car benefit existed. The statutory formula in s 9 therefore applied.

22. That concession appears to have been a very proper one, as s 10 applies only where the employer has made an election that s 10 should apply in relation to all car fringe benefits in relation to the employer in respect of a year of tax relating to that car: s 10(1).

23. Such an election is required by s 10(4) to be made by notice in writing to the commissioner on or before the “declaration date”, which is defined in s 136 of the FBTA Act to mean the date of lodgement of the return of the fringe benefits taxable amount of the employer in the FBT year, which is 21 May in the following FBT year.

24. The applicant made no such election, as it did not lodge an annual return, or any such election, for the relevant FBT years. The proper basis for calculation of the benefit’s taxable value is thus the statutory formula in s 9.

25. The fringe benefit identified in this case was the provision of the car in respect of Mr Hunter’s employment by the applicant as an employer. It is not an exempt benefit within the meaning of s 8 of the FBTA Act.

26. The availability of a car for private use of the employee is taken by s 7(1) of the FBTA Act to constitute a benefit.

27. Where a car is “garaged or kept at or near a place of residence of the employee”, s 7(2) deems the car to be available at that time for the private use of the employee.

28.     It is not disputed that 22 Bungoona Avenue was at all relevant times Mr Hunter’s place of residence and that the car was garaged at that address.  The applicant submitted that it was garaged or kept in a garage attached to suite 1, which is separate from Mr Hunter’s place of residence and shares only a dividing wall with it.

29. On that basis, it might be concluded that the car was not kept “at” the place of residence. Nevertheless, it is equally plain that it was garaged “near” Mr Hunter’s residence. The requirements for the activation of the deeming provision in s 7(2) are therefore satisfied and the deemed availability of the car for Mr Hunter’s private use is taken to constitute a benefit within the meaning of s 7(1).

30. For the purposes of s 7, it is not relevant whether the car was used exclusively for business purposes or not. As Deputy President Forrest explained in Re TT93/23 and Commissioner of Taxation [1994] AATA 661:

…

The difficulty with the first submission is that the test of whether a vehicle may be the subject of fringe benefit is not only whether it is applied to private use but also whether it is taken to be available for private use by the employee.  Because the vehicle is garaged at the residence of the applicant’s employees it will be taken to be available for their private use.  In such circumstances a fringe benefit arises whether or not the vehicle is actually applied to private use by the employee.  The garaging of the car at the employees’ place of residence and its availability for their private use are determinative factors.

…

31.     Consequently, a car fringe benefit arises in respect of the subject motor vehicle.

32. Once a car benefit exists, and no s 10 election has been made, s 9 of the FBTA Act provides for the calculation of its taxable value to enable the calculation of the taxable amount, which in turn is used to compute the tax payable on the fringe benefit. The applicant argued that applying the s 9 formula would yield a zero taxable value because business usage was 100 percent. Consequently, the assessment was excessive.

33. Under s 14ZZK of the TAA, the applicant bears the onus of proving in each case that the assessments are excessive. As Brennan J observed in Federal Commissioner of Taxation v Dalco (1919) 168 CLR 614 at 621:

…

The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.

…

34.     Thus the applicant must not only show that the assessments are excessive, but also what the correct amount is: Dalco, supra; Commissioner of Taxation v Munro [1997] FCA 1098; Nozzi Pty Ltd v Commissioner of Taxation [2003] FCA 356.

35. The applicant must therefore establish that no car fringe benefits existed in relation to Mr Hunter in any of the years of tax or that the statutory formula in s 9 of the FBTA Act was incorrectly applied as it resulted in the assessments being excessive.

36. The applicant relied on the log book for the 2008 FBT year produced at the audit stage when required by the respondent, and which showed exclusively business use. The applicant acknowledged that log books had not been kept for the years in issue but submitted that s 162G of the FBTA Act relieved it of the obligation to maintain a log book for those years.

37. But as is made plain by the opening words of s 162G(1), that provision applies only in respect of the s 10 method of calculation. For the reasons set out above, however, s 10 does not apply in this case and s 9 is the appropriate formula. In any event, nothing in s 162G provides that a log book can be used retrospectively for previous FBT years for the purposes of s 10.

38. For the purposes of s 9 the log book produced covering the periods from 1 August 2007 to 30 September 2007 may be regarded as some circumstantial evidence of the pattern of usage of the car in the previous four years. As the New South Wales Court of Appeal pointed out in Connor v Blacktown District Hospital [1971] 1 NSWLR 713:

…  To prove that an act has been done, it is admissible to prove any general course of business or office, whether public or private, according to which it would ordinarily have been done, there being a probability that the general course will be followed in the particular case (see Phipson, Law of Evidence, 10^th ed., par. 297).  In Professor McCormick’s textbook on Evidence (1954), after defining “habit” as a regular response to a repeated situation, he observes, at pp 341-342, that expediency and sound reason lead to the conclusion “that evidence that an act was habitually done by X under like circumstances will be received as evidence that it was done by X on the particular occasion”, and went on to point out that “nevertheless the judge should possess the discretion usual in this field of circumstantial evidence to exclude if the habit is not sufficiently regular and uniform, or the circumstances sufficiently similar, to outweigh the danger, if any, of prejudice or confusion” … (at 721 per Asprey JA, Mason JA concurring).

39. This case, however, falls within the qualification expressed in that passage. The log book was kept over a period of only two months, in August-September 2007. That is an insufficient basis for an inference that the same practice prevailed uniformly over the previous four years. Nor was there any direct evidence that the log book exemplified such a uniform practice. Mr Hunter did not give oral evidence and no affidavit or witness statement by him was in existence. The evidence falls far short of establishing exclusively business use in the relevant years on the preponderance of probabilities and thus that the assessments are excessive, as required by s 14ZZK of the TAA.

40.     The applicant has thus failed to discharge the onus of proving that the assessments were excessive and the decision under review should be affirmed.

I certify that the 40 preceding paragraphs are a true copy of the reasons for the decision herein of Professor GD Walker, Deputy President

Signed:   ...................[sgd].......................................................
               Adele Veness, Associate

Date of Hearing:  11 May 2009
Date of Decision:  22 May 2009
Representative for the Applicant:     Mr J Banks, tax agent
Solicitor for the Respondent:             Mr E Chiaw, ATO Legal Services Branch