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ATO Interpretative Decision

ATO ID 2006/253

Fringe Benefits Tax
Car Fringe Benefits: cost price of a car - extended car warranty

FOI status: may be released

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Does the expenditure incurred on the purchase of an extended car warranty form part of the 'cost price' of a car for the purposes of Division 2 of Part III of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision

No. The expenditure incurred on the purchase of an extended car warranty does not form part of the 'cost price' of a car for the purposes of Division 2 of Part IIII of the FBTAA, as the expenditure is not directly attributable to the acquisition or delivery of the car.

Facts

An employer purchased a new car.

The cost of the car included the manufacturer's normal new car warranty.

The employer purchased, at an additional cost, an extended car warranty offered by the manufacturer.

The employer provided the car to an employee as a car fringe benefit.

Reasons for Decision

The 'cost price' of a car is referred to for the purposes of calculating the taxable value of car fringe benefits under both the statutory formula and cost basis methods under Division 2 of Part III of the FBTAA.

The term 'cost price' is defined in subsection 136(1) of the FBTAA. Sub-subparagraph (a)(ii)(A) of the definition states that 'cost price' in relation to a car owned by a person, means:

   the expenditure incurred by the person (other than expenditure in respect of registration or in respect of a tax on, or on a transfer of, registration) that is directly attributable to the acquisition or delivery of the car or, if subsection 7(6) applies in relation to the car, the leased car value of the car when the person first took the car on hire;

The purchase price of the employer's car includes the normal new car warranty provided by the manufacturer. This expenditure is directly attributable to the acquisition or delivery of the car and as such forms part of the 'cost price' of a car as defined in subsection 136(1) of the FBTAA. In contrast to a new car warranty, it is considered that the purchase of an extended car warranty is a separate contract from the contract for the sale of the car and is a form of insurance which is not directly attributable to the acquisition or delivery of the car.

Accordingly, the separate purchase of an extended car warranty does not form part of the 'cost price' of the car as defined in subsection 136(1) of the FBTAA.

If the cost basis method is used to value any car fringe benefits, the expenditure incurred on the separate purchase of an extended car warranty would form part of the operating cost of the car under subparagraph 10(3)(a)(ii) of the FBTAA. Further the separate purchase of an extended warranty does not form part of the 'cost price' of the car and thus the depreciated value of the car as specified in section 12 of the FBTAA for the purpose of determining deemed depreciation and deemed interest under section 11 of the FBTAA.

If the statutory formula method is used to value any car fringe benefits, the expenditure incurred on the separate purchase of an extended car warranty does not form part of the base value of the car.

Date of decision: 28 August 2006

Year of income:Year ended 31 March 2007

Legislative References:
Fringe Benefits Tax Assessment Act 1986
   Division 2
   subsection 9(2)
   subparagraph 10(3)(a)(ii)
   section 11
   section 12
   subsection 136(1)

Related ATO Interpretative Decisions
ATO ID 2003/585
ATO ID 2003/586
ATO ID 2003/587

Keywords
Car fringe benefits
FBT car
FBT cost price
FBT operating cost
FBT statutory formula
Fringe benefits tax

Date of publication: 8 September 2006

ISSN: 1445-2782

 


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