FBT States and Territories Industry Partnership Minutes - 25 March 2015
25 March 2015
03 9275 4849
03 9275 4469
Tania Pellegrini - Secretariat
The FBT States/Territories Industry Partnership meeting agendas, minutes and related papers are not binding on the Tax Office or any of the other bodies referred to in these papers. While every effort is made to accurately The FBT States/Territories Industry Partnership meeting agendas, minutes and related papers are not binding on the Tax Office or any of the states or territories referred to in these papers. While every effort is made to accurately record the views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change
1. Opening of meeting including any changes to the agenda
Chair Glenn Smith welcomed members and visitors.
Di Tong, Mini Balasingham, Tan Pham (Victoria) and Shaun Milner (ATO) were welcomed to their first meeting. Apologies were received from Henriette Prego and Peter Stibbard.
2. Confirmation of minutes
The Minutes for the meeting held on 17 September 2014 have been confirmed and were published on ato.gov.au in January 2015.
3. Items carried over from previous meetings
3.1 Meeting of 13 September 2012
Agenda item 4.13 Hospital definition and operation of subsection 57A(2)
Draft Taxation Draft Taxation Determination TD 2014/D17External Link Fringe benefits tax: when are the duties of the employment of an employee of a government body exclusively performed in, or in connection with, a public hospital or 'non-profit hospital' for the purposes of paragraph 57A(2)(b) of the Fringe Benefits Tax Assessment Act 1986 issued on 29 October 2014.
Several comments were received in relation to the draft. These comments are being considered by the ATO.
The Public Rulings Program of 11 March advised the planned issue date for the Taxation Determination is 29 April.
Action item 3.1
Description: The ATO will forward a copy of the Taxation Determination to Members when it issues. Alternatively, the ATO will provide an update to Members if the Taxation determination does not issue on 29 April 2015. Update:
Due date: 29 April 2015
Update: The Taxation Determination due date is now 30 June 2015.
3.2 Meeting of 6 March 2013
Agenda item 4.12 Definition of eligible State or Territory body in section 135T
At the meeting held on 6 March 2013, several members noted that an amendment was required to the definition of eligible State or Territory body in section 135T due to changes in the relevant State or Territory Acts.
At the Meeting held on 16 September 2013, the ATO advised Members that it had lodged a Tax Issues Entry System (TIES) request on behalf of the State and Territory STIP members.
The ATO advised Members no further action had been taken in relation to the TIES request as any legislative changes or Regulations are subject to the Government’s legislative priorities. As there are other issues which have a higher priority, no further action has been taken in relation to the TIES issue.
The ATO will continue to monitor the TIES request and keep Members informed as to its progress.
Action item: 3.2
Description: The ATO will continue to monitor the TIES request and keep Members informed as to its progress.
Due date: Ongoing
3.3 Meeting of 16 September 2013
Agenda item 6.4 Training/retraining expenses for excess employees
ATO ID 2015/1External Link FBT: exempt benefits: work-related counselling - training courses or activities for employees being made redundant issued on 23 January 2015.
3.4 Meeting of 18 March 2014
Agenda item 4.1 Living-away-from-home declaration – employees who maintain an Australian home
During the discussion of agenda item 4.1 of the meeting held on 18 March 2014 a concern was raised in relation to the Living-away-from-home declaration – employees who maintain an Australian home declaration. The concern was that the declaration does not cater for instances where an employee changes the Australian home which he or she is living away from part way through the year, or only maintains an Australian home for part of the year.
To resolve this concern, a suggestion was made that the declaration should require the employee to specify the period for which he or she has an ownership interest in an Australian home that he or she is living away from.
In response, the ATO advised Members that it will review the declaration.
The ATO advised Members it is continuing to consult with the Member who raised the issue about the declaration.
Action item: 3.4
Description: The ATO will contact the Member to discuss the living-away-from-home declaration.
Due date: before the end of the 2014/15 FBT year.
3.5 Meeting of 17 September 2014
Agenda item 6.4 Application of the exemption in subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to a four wheel drive vehicle
Agenda item 6.4 of the meeting held on 17 September 2014 concerned the list of vehicles listed in the ATO publication FBT – exempt motor vehicles as being eligible for the exemption that applies to certain cars where there is restricted private use.
The agenda item noted that the lists were confusing and appeared to be incorrect in relation to several four wheel drive vehicles. In discussion, Members raised concerns regarding the possible problems that could arise for employers who have relied upon the lists.
The ATO in response agreed that a number of vehicles which do not appear to satisfy the tests for eligibility contained in TD 94/19 had incorrectly been listed as being eligible. The ATO also acknowledged the concerns raised by Members as to the problems that could arise if the lists were changed without considering the effect on employers who had relied on the lists.
The ATO advised Members that the lists have been reviewed and are being revised to move the vehicles incorrectly shown on the eligible list to the ineligible list.
The ATO advised Members that it will advise them of the changes.
The ATO also advised Members that if they have used the published lists they can continue to treat the vehicles in the manner indicated in the lists until the end of the FBT year in which the changes are made. For example, if the lists are updated before 31 March 2015, the vehicles can be treated in accordance with the list for the year ended 31 March 2015.
However, once the lists are updated employers will need to apply the revised lists from the start of the FBT year following the update. For example, if the lists are updated before 31 March 2015, the vehicles will need to be treated in accordance with the revised list from 1 April 2015. This may require odometer readings to be recorded for cars that previously were considered to be exempt.
Action item: 3.5
Description: The ATO will send Members details of the changes and a confirmation of the date from which the changes will apply.
Due date: before the end of the 2014/15 FBT year
4. News from the Tax Office
4.1 Compliance update
The compliance activities to be conducted in the coming months will include:
- contacting employers to obtain lodgment of overdue FBT returns;
- undertaking reviews of employers who have purchased cars, but not disclosed car fringe benefits in an FBT return, or appropriate employee contributions in their income tax return; and
- reviewing living away from home benefits to ensure employers are complying with the changes that apply from 1 October 2012.
4.2 Legislation and regulations
Treasury Legislation Amendment (Repeal Day) Act 2015 – Act No 2 of 2015
Includes amendments to the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to:
- consolidate duplicated taxation administration provisions contained in various taxation Acts into a single set of provisions in Schedule 1 to the Taxation Administration Act 1953 (TAA). This includes the application of the rules around the Commissioner’s power to obtain information. This consolidation included the repeal of sections 125 to 128 of the FBTAA.
- repealing spent or redundant taxation laws. This includes the penalty tax provisions contained in Part VIII of the FBTAA that applied prior to 1 April 2001; and
- rewrite provisions defining "Australia" for income tax purposes from the Income Tax Assessment Act 1936 (ITAA 1936) into the Income Tax Assessment Act 1997 (ITAA 1997) and the TAA. This includes amendments to the FBTAA in relation to the application of the FBTAA and replaces the definition of Australia in subsection 136(1) with a definition that uses the definition inserted into the ITAA 1997.
4.3 FBT related Taxation Rulings
No FBT related rulings have issued since the last meeting.
4.4 FBT related Class Rulings
The following FBT Class Rulings have issued since the last meeting:
- CR 2014/73 External Link FBT employer clients of Toyota Finance Australia Limited who provide car fringe benefits under novated lease arrangements incorporating the payment of insurance premiums.
- CR 2014/74External Link Employer clients of Emerchants Payment Solutions Limited (Emerchants) who are subject to the provisions of either s 57A or s 65J of the FBTAA and make use of the Emerchants' Meals and Entertainment Card facility.
- CR 2014/75External Link Employer clients of Emerchants Payment Solutions Limited (Emerchants) who are subject to the provisions of either s 57A or s 65J of the FBTAA and make use of the Emerchants' Living Expenses Card facility.
- CR 2014/94External Link FBT: employers of employees who take out a health insurance policy under a Health Link Consultants Employee Health Plan.
- CR 2015/1: Income tax and fringe benefits tax: customers of Fleet Partners Pty Ltd who use the FleetPartners Vehicle Log Book (Privacy Protected) report for their log book records.
- CR 2015/2: Fringe benefits tax: clients of LogbookMe Pty Ltd who use the LogbookMe In-Car Logbook Solution to calculate the total number of car parking benefits.
- CR 2015/9: Fringe benefits tax: health and fitness equipment services provided by EFM Corporate Pty Ltd.
- CR 2015/10External Link (Provision of accommodation by Shell Korea Ltd to employees who are residents of Australia for tax purposes). Errata to CR 2015/10External Link : Provision of accommodation by Shell Korea Ltd to employees who are residents of Australia for tax purposes.
The following class ruling has been withdrawn:
- CR 2010/66 FBTExternal Link: employers who participate in the Local Government Employees Health Plan. The withdrawal notice advises this class ruling is now covered by CR 2014/94.
4.5 FBT related Taxation Determinations
The following FBT related Taxation Determinations have issued since the last meeting:
- TD 2015/4External Link Fringe benefits tax: for the purposes of section 28 of the Fringe Benefits Tax Assessment Act 1986 what are the indexation factors for valuing non remote housing for the fringe benefits tax year commencing on 1 April 2015?
- TD 2015/5External Link Fringe benefits tax: for the purposes of section 135C of the Fringe Benefits Tax Assessment Act 1986 what is the exemption threshold for the fringe benefits tax year commencing on 1 April 2015?
- TD 2015/6External Link Fringe benefits tax: what are the rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car for the fringe benefits tax year commencing on 1 April 2015?
- TD 2015/7External Link Fringe benefits tax: reasonable amounts under section 31G of the Fringe Benefits Tax Assessment Act 1986 for food and drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit for the fringe benefits tax year commencing on 1 April 2015
- TD 2015/8External Link Fringe benefits tax: what is the benchmark interest rate to be used for the fringe benefits tax year commencing on 1 April 2015?
- TD 2014/28External Link Fringe benefits tax: is the provision of bitcoin by an employer to an employee in respect of their employment a property fringe benefit for the purposes of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986? (Previously issued as TD 2014/D14)
A guidance paper Tax treatment of crypto-currencies in Australia which provides an overview of the tax treatment for transactions associated with crypto-currencies issued in conjunction with TD 2014/28.
The following Taxation Determinations and GST ruling were also issued in conjunction with this guidance paper:
The following FBT related draft taxation determination has issued since the last meeting:
Draft Taxation Determination TD 2014/D17External Link Fringe benefits tax: when are the duties of the employment of an employee of a government body exclusively performed in, or in connection with, a public hospital or 'non-profit hospital' for the purposes of paragraph 57A(2)(b) of the Fringe Benefits Tax Assessment Act 1986?
4.6 FBT related rulings/determinations on the public rulings program
The following FBT related Taxation Ruling was listed on the Public Rulings Program of 11 March 2015:
- Income tax: employee remuneration trust arrangements
The following Taxation Determination was listed on the Public Rulings Program of 11 March 2015:
- Fringe benefits tax: when are the duties of the employment of an employee of a government body exclusively performed in, or in connection with, a public hospital or 'non-profit hospital' for the purposes of paragraph 57A(2)(b) of the Fringe Benefits Tax Assessment Act 1986
4.7 FBT related law administration practice statements
No practice statements specifically related to FBT have issued since the last meeting. However, the following may be of interest:
- PS LA 2007/5 (Settlements) withdrawn and replaced by revised Code of Settlement
The refreshed Code of Settlement includes factors that should be considered in deciding whether or not to settle, the responsibilities of the parties, requirements of a settlement deed and the context of our related approach to litigation. The refreshed Code also highlights that either party to a dispute can initiate settlement discussions.
- PS LA 2014/4External Link Administration of the penalty imposed under subsection 284 75(3) of Schedule 1 to the Taxation Administration Act 1953. This practice statement explains: the circumstances in which an entity becomes liable to a subsection 284 75(3) penalty, and how the penalty is assessed, including remission.
4.8 FBT related ATO interpretive decisions
The following FBT ATO Interpretative Decision (ATOID) has issued since the last meeting:
- ATO ID 2015/1External Link FBT: exempt benefits: work-related counselling - training courses or activities for employees being made redundant
- The following ATO IDs have been withdrawn since the last meeting:
- ATO ID 2003/40 FBT: exempt benefits - duties of employee relating to a public hospital was withdrawn with the issue of TD 2014/D17.
- ATO ID 2010/182 was withdrawn on 19 December 2014 as the principles are discussed in ATO ID 2010/183.
- ATO ID 2003/1 Fringe benefits tax: In-house residual fringe benefit – investment related service was withdrawn on 16 January 2015 as it does not provide an interpretation of the relevant provision of the Fringe Benefits Tax Assessment Act 1986.
- ATO ID 2002/614External Link: FBT: Expense payment fringe benefit - payments made to a home mortgage offset facility account as Guidance on the issue contained in this ATO ID can be found at the ATO publication Fringe benefits tax - a guide for employers at chapter 9.9. Expense payment fringe benefits.
- ATO ID 2008/20External Link : Reportable fringe benefits: pooled or shared cars - use of a motor vehicle that is not a car has been withdrawn as Guidance on the issue contained in this ATO ID can be found at the ATO publication Fringe benefits tax - a guide for employers at chapter 5.2 Reportable fringe benefits.
In discussion the withdrawal of ATI ID 2008/20 was questioned by a Member who considered that part 5.2 of Fringe benefits tax: a guide for employers did not provide the explanation provided in ATO ID 2008/20.
In response, the ATO noted that ATO ID2008/20 in providing the principle that regulation 3F of the Fringe Benefits Tax Regulations 1992 does not apply to benefits that arise from the use of vehicles that are not a car included an explanation as to why a utility truck designed to carry a load of more than one tonne is not a car.
The ATO agreed that this additional explanation is not included in part 5.2. However, it is provided in part 7.1 of Fringe benefits tax: a guide for employers.
End of example
FCT v Qantas Airways Ltd  FCAFC 168
The Full Federal Court allowed the Commissioner's appeal and found that the taxpayer was liable for FBT in relation to parking provided to employees at Canberra airport. At the same time, it dismissed the taxpayer's appeal in regards to FBT liabilities with regards to car parking provided to employees at other airport locations.
Previously in  AATA 316 Re Qantas Airways Ltd and FCT , the AAT affirmed the Commissioner's objection decision and held that the taxpayer was liable for FBT associated with parking provided to employees at all airports other than the Canberra airport. In relation to the Canberra airport, the AAT found that because there were no parking spaces available to members of the public and there was no commercial parking station within 1km of the premises, s 39A(1)(a)(ii) of the FBTAA was not satisfied, hence the taxpayer was not liable for FBT for parking provided to employees. Both the taxpayer and the Commissioner appealed the decision.
Decision Impact Statement
A Decision Impact Statements has been released in relation to the decision in FCT v Qantas Airways Ltd  FCAFC 168 – The Decision Impact Statement advised the views expressed by the Full Court in interpreting the word "public" are consistent with the Commissioner's view and current practices. It added that the Commissioner will update Taxation Ruling TR 96/26External Link
John Holland Group Pty Ltd v Commissioner of Taxation  FCA 1332
The Federal Court held that costs incurred in flying employees from Perth to Geraldton and back for a rail upgrade construction project were not deductible.
The Commissioner contended that "fly-in fly-out" (FIFO) employees are undertaking another form of journey to and from work, it having long been established that such journeys are not deductible ( Lunney v FCT (1958) 100 CLR 478;  HCA 5). According to the Commissioner, it would be wrong for the Court to attempt to resolve the matter "by logic alone", the course of authority having been set long ago.
The taxpayers argued that Lunney had never been considered to be an exhaustive statement about the deductibility of travel expenses and did not yield an answer to the present matter given the different facts. On the facts, they said the costs of the flights were deductible, consistent with the meaning which had been given to the concept of "incurred in gaining or producing your assessable income" in s 8-1 of the ITAA 1997.
The Federal Court said the important distinguishing features from Lunney case were that the travel was undertaken at the employer's direction and the employee is paid for the period of travel. But the character of the outgoing, assuming that the employees had paid for their own flights, remains the same. To the employee, the cost of the flights would be incurred because they had chosen to live away from their place of work, the Court said. Costs of travelling from home to work and back are not deductible.
An appeal has been lodged against this decision.
4.10 Cases in public domain where a decision has not been handed down
At the last meeting the ATO advised there were six cases under litigation. These included the Qantas Airways and John Holland cases noted above.
The other cases referred to at that meeting have since been settled on the basis of the specific facts of the cases.
Since the last meeting an appeal has been lodged at the Tribunal in relation to assessments raised as a result of an audit of an employer’s car fringe benefits. The issue in dispute is whether the documentation kept is sufficient to enable the operating costs of the cars to be reduced on account of the business use of the car.
4.11 FBT Products
- Fringe benefits tax - rates and thresholds update
The publication Fringe benefits tax – rates and thresholds has been updated. It contains:
- the FBT rates and thresholds for the year ended 2014 to the year ending 31 March 2018;
- the instalments threshold;
- gross-up rates for the year ended 2014 to the year ending 31 March 2018;
- car fringe benefit statutory formula rates;
- motor vehicle (other than a car) cents per kilometre rate;
- car parking threshold;
- statutory/benchmark interest rate;
- record keeping exemption threshold;
- housing indexation figures;
- deemed depreciation rate for cars;
- reportable fringe benefit thresholds;
- capping thresholds for the years ending 31 March 2015, 2016, 2017 and 2018;
- Commissioner’s reasonable food and drink amounts for employees living away from home in Australia; and
- Commissioner’s reasonable food and drink amounts for employees living away from home – overseas.
Updated FBT home page on ato.gov.au
The FBT home page on ato.gov.au (Fringe benefits tax (FBT)) has been updated.
Members were asked to view the page prior to the meeting so as to provide feedback on the content.
Members asked whether it was possible to provide a quick path that could be used to access relevant information. Comment was made that it currently takes several screens to get to the information and it is not always clear which search term should be used.
- PBI, HPC and rebatable employers calculator update
The calculator provided to help PBIs, HPCs and rebatable employers calculate their FBT liability is being updated to reflect the new rates. As part of the update calculators are being included for hospitals and public ambulance services.
The ATO asked Members to access the calculator once it was on the website and to provide feedback.
End of example
Action item 4.11
Description The ATO will advise Members once the calculators have been updated.
Members will test the calculator and provide feedback to the secretariat.
Responsibility ATO to advise Members when the update occurs
Members to provide feedback
Due date when the update occurs
- FBT NTLG minutes no longer available on ato.gov.au
The Minutes of various closed consultation forums including the FBT subcommittee of the NTLG have been removed from ato.gov.au.
The following is an extract from ato.gov.au.
Consultation forums that have closed within the past three years are listed here, together with the minutes of their last meetings.
To get additional information for these forums, or for forums that closed more than three years ago, email email@example.com and specify what you require. We will acknowledge your request within one working day and provide the requested information within five working days.
- Review of Better Practices for the administration of FBT and Better Practices for managing specific fringe benefit types
These two publications were originally produced by the Australian National Audit Office following the ANAO’s Audit Report No. 49 2004-05 Administration of Fringe Benefits Tax.
Better Practices for the administration of FBT is designed to meet the needs of Chief Executives, Chief Financial Officers (CFOs) and FBT Risk Managers who are responsible for governance and control arrangements (including implementing appropriate risk and control arrangements), and managing resource requirements. It outlines five better practices to help entities better administer their FBT obligations
Better Practices for managing specific benefit types is designed to help FBT Managers and other staff who have specific FBT responsibilities such as human resources staff, fleet managers and others involved in the day-to-day administration of FBT, to effectively meet an entity's FBT obligations.
The ATO advised that these two publications were being reviewed as part of the process of reviewing the web site and associated publications. Members were asked whether their agencies still used these publications and whether the information could be provided in an alternative format. For example, the technical information contained in Better Practices for managing specific benefit types is also contained in Fringe benefits tax: a guide for employers.
Several Members advised their agencies as part of their end of year reporting requirements are required to state they have met checklist requirements. Therefore, they would like the checklists to remain.
However, it was accepted that there was no need to duplicate information contained in Fringe benefits tax: a guide for employers.
End of example
4.12 FBT Consultation Matters
The ATO has established a consultation framework to consider matters raised for consultation as a means of improving the administration of Australia’s tax and superannuation systems in ways that benefit the national interest.
There are currently two FBT consultation matters:
- Tax deductible travel – travelling allowance or living-away-from-home allowance – ’21 days’ guideline
- FBT and remuneration safe harbour
The following details are shown on the website:
Tax deductible travel – travelling allowance or living-away-from-home allowance – ’21 days’ guideline
Status: Consultation commenced in February 2015. An initial meeting to determine the scope of this review will be held mid-March with external participants
Purpose: To clarify whether the general practical guidance provided in MT 2030 relating to the distinction between ‘travelling’ or ‘living-away-from-home’, particularly the '21 day rule' is, today, still appropriate.
Description: Whether a person is ‘travelling’ or ‘living away from home’ can result in different tax consequences from both the employer and employee perspectives.
The ATO’s general guidance based upon a ‘practical general rule’ that where the period away does not exceed 21 days an allowance will be treated as a travelling allowance rather than a living-away-from-home allowance has been put forward as being insufficient in today’s employment arrangements. For example, whether there is sufficient guidance in circumstances involving short term postings on secondment within Australia, or to and from Australia, where the period significantly exceeds 21 days.
In reviewing the '21 day’ rule and the impact that has on deductibility issues, we also plan to address concerns that have been raised about its application particularly following the legislative changes to the living-away-from-home provisions in the FBTAA which came into effect in October 2012.
Who we are consulting: Members of the professional bodies, including representatives of tax and accounting professional associations.
Outcomes: To be advised upon completion.
FBT and remuneration safe harbour
Status: Consultation in progress.
A consultation group has been established and met on 23 March 2015.
Purpose: To identify and achieve red tape reductions in the area of FBT and remuneration
Description: The consultation will:
- explore various proposals put forward in the NTLG working group’s discussion paper on safe harbours with a view to developing safe harbours that align tax treatment with commercial realities and provide appropriate risk mitigation
- explore the capacity for additional tax treatment simplification in this area, including in the area of employee share schemes (as part of remuneration)
- consider technology solutions as part of any safe harbours developed for FBT
Who we are consulting: Professional bodies, industry representatives and key tax agents.
Outcomes: To be advised upon completion.
4.13 FBT Return
The 2015 FBT return and instructions will be able to be downloaded from ato.gov.au.
FBT lodgment dates:
- self-preparers – lodge and pay by 21 May
- clients of tax agents:
- payment due by 28 May
- return due by 25 June if lodged electronically
- return due by 21 May if paper return lodged
Request deferral in advance through either the business or tax agent portal if unable to meet the due date
FBT tax rates – 2015 year
- FBT rate is 47%
- Type 1 gross-up factor is 2.0802
- Type 2 gross-up factor is 1.8868
End of recent law changes – transitional rules:
- car fringe benefits statutory formula use 20% flat rate unless eligible for the pre-May 2011 rates
- Living away from home allowances and benefits
- Transitional rules ceased on 30 June 2014
- Salary packaged in-house benefits
- Transitional rules ceased on 31 March 2014
Nomination or revocation of eligible state or territory bodies
States and Territories who want to nominate an eligible State or Territory body as an employer, or vary, or revoke a previous nomination from April 2013 must make the nomination, variation or revocation by 21 May 2015.
The form to be used when nominating an eligible state or territory body as an employer for FBT purposes or for varying, or revoking a nomination is available from the government home page of www.ato.gov.au together with instructions for completing the form and the associated requirements.
Reminders if making a nomination:
- To nominate an eligible body as an employer for the first time for the year beginning 1 April 2015 the nomination must be made by 21 May 2015.
- Nominations must be made on the approved form.
- Each body being nominated should have been registered for FBT from 1 April 2015.
- The prior year FBT return for the previous employer should be lodged. If this is the last return being lodged by the body it must answer No at question 12.
- Consider if an agreement under section 135X of the FBTAA is required.
Action item: 4.13
Description: The ATO will advise Members when the FBT return is available on ato.gov.au.
Due date: when the return is available
5 Issues raised by States and Territories
5.1 Car parking
Agenda items 5.1 to 5.6 are a series of agenda items that were asked to clarify the circumstances in which a car parking fringe benefit will arise and the valuation of car parking fringe benefits.
This clarification was sought as a result of a concern about the possible risks that agencies will be exposed to if they use information that is being offered by an external organisation to calculate their car parking fringe benefits tax liability.
In discussion, several Members noted agencies in their jurisdiction had been approached by an organisation that was offering to sell the agencies information about the car parking fees being charged by commercial parking stations in their area.
The Members who had reviewed the information purchased by the agencies expressed a concern about the reliability of the information being offered as the information included:
- fees that were substantially less than the cheapest known fees for the area
- a fee for a car park that had closed several years earlier
- fees for car parks that were not shown on the signs at the entrances to the car parks, or on the web site of the car park operators on the relevant day
- a fee shown on the car park operator’s website as being a night and weekend rate
- a fee for parking at a property that no one knew was a commercial parking station as the property did not have the signage and associated facilities normally associated with a commercial parking station (for example a payment booth or pay and display machine). In addition, the purported operator did not have a website offering the fees and there was no contact details
- a fee that certain customers were paying under an agreement entered into with a previous operator of the car park
The discussion regarding these concerns can be summarised into the following areas:
the possible liability where an employer relies on information provided by a third party;
identifying the premises on which the car is parked
- commercial parking station
- the measurement of the one kilometre radius of the premises on which the car is parked
- the relevant day
- the operator of the parking station on the relevant day
- fee charged in the ordinary course of business to members of the public
- the lowest fee
- all-day parking
The possible liability where an employer relies on information provided by a third party in lodging their FBT return an employer has an obligation to correctly disclose the taxable value of the car parking fringe benefits provided to its employees. This obligation exists even where the information used to prepare the return is purchased from an external organisation.
If the information purchased results in the taxable value being understated, it is the employer (the agency and/or the State or Territory) that is liable to pay the understated tax.
In addition, depending upon the circumstances, the employer may be liable to pay penalties for making a false or misleading statement. The application of penalties where a false or misleading statement is made on the basis of information provided by a third party is discussed in paragraphs 80 to 82 of Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard.
Paragraphs 80 to 82 of MT 2008/1 state:
Relying on information provided by a third party
80. A statement may be false or misleading because it relies on incorrect information obtained from a third party. Whether this reliance indicates a failure by the statement maker to exercise reasonable care will depend on an examination of all the circumstances. Where, for example, an entity returns interest income based on incorrect information provided by the particular financial institution, there will not be a failure to take reasonable care unless the entity knew or could reasonably be expected to know that the statement was wrong.
Example 6 - relying on third party information - failure to take reasonable care
81. Felicity owns a rental property that she lets permanently through a real estate agency. The agency provides monthly statements of rent and outgoings and deposits the net proceeds into Felicity's bank account. One statement has a typographical error which shows a net amount of $ 100 instead of the correct amount of $ 1, 000. The correct amount has been deposited into the account.
82. Felicity did not check the statement and includes the incorrect monthly amount when she works out her rental income. A reasonable person would have had grounds to suspect that the amount recorded on the statement was wrong because it was significantly less than the other monthly statements. This could have been verified by cross checking the statement against the bank statement. A reasonable person in the same circumstances would have been more diligent than Felicity in ensuring that the correct amount of rental income was returned. Felicity has failed to exercise reasonable care.
In the context of car parking fees provided by a third party this test does not require an employer to independently verify every item of information provided. However, there is an expectation that reasonable enquires will be made where the employer’s knowledge of the local area raises doubts as to whether the property is a commercial parking station or whether the fee is a fee that is available to members of the public for all-day parking. For example, a reasonable person would be expected to seek more information where the fee provided in the report is substantially less than the known fees charged in the area, or where the fee is for a property which is not known to be available for parking by members of the public.
Some guidance in relation to the management of the risks that arise from the use of information provided by a third party is provided in the publications Better Practices for the administration of FBT and Better Practices for managing specific fringe benefit types.
Better Practices for managing specific fringe benefit types includes a list of better practices that should be applied to the management of the risks that arise in relation to the specific benefits. One of the practices listed for car fringe benefits is:
Has the entity reviewed the processes used by fleet management companies and salary packaging providers to gain assurance that the information they provide is correct?
This practice applies equally to the information regarding car parking fees provided by a third party.
Further, Better Practices for managing specific fringe benefit types in the section dealing with the risks that arise in relation to car parking states:
There are commercial websites that contain details of car parks around Australia. Entities may be able to use such sites to identify the location of commercial car parks. Such websites should be used with caution, as they may contain information that is out of date. All details should be confirmed by contacting the car park operator direct.
Identifying the premises on which the car is parked
In determining whether a car parking benefit has been provided paragraph 39A (1) (a) requires the premises on which the car is parked to:
- be business premises or associated premises of the provider; and
- be located within a one kilometre radius of a commercial parking station.
In setting out the method to be used to determine whether a commercial parking station is located within a one kilometre radius of the premises on which the car parking is provided section 39B uses ‘a car entrance’ to the particular business premises or associated premises on which the car is parked.
Subsection 136(1) of the FBTAA contains the definitions of ‘business premises’ and ‘associated premises’.
The definition of ‘business premises’ states:
business premises, in relation to a person, means premises, or a part of premises, of the person used, in whole or in part, for the purposes of business operations of the person, but does not include:
The definition of ‘associated premises’ states:
associated premises, in relation to a person, means premises, or a part of premises:
- owned by the person; or
- leased by the person; or
- otherwise under the control of the person;
but does not include:
The phrase ‘premises of the person’ in the context of the definition of business premises is discussed in paragraphs 25 to 36 of Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of ‘business premises’.
Paragraphs 25 and 26 of TR 2000/4 indicate that in identifying whether the premises are premises of the person it is necessary to consider the nature of the person’s interest in the premises.
TR 2000/4 at paragraph 32 refers to the decision of Merkel J in Esso Australia Ltd v. FC of T 98 ATC 4953; (1998) 40 ATR 76; 157 ALR 652. At ATC 4958 Merkel J said:
In other contexts it has been accepted that the word "of" is not a word of precision in defining a relationship between a person and a thing and generally, is apt to embrace a connection, association or relationship which may fall short of a proprietorial relationship or one involving ownership: see Bailey v Worsley (1969) VR 79 at 83 per Lush J and Re Simersall; Blackwell v Bray (1992) 35 FCR 584 at 591 per Gummow J.'
'The Macquarie Dictionary relevantly defines "of" as: "Belonging or possession, connection, or association." '
'It seems to me that, under s 47(2), for the relevant business premises to be those of an employer, the employer must have a right to possession of the premises, at least to the extent necessary to enable the conduct thereon of the relevant recreational or child care facility. If the employer has the requisite possessory entitlement in respect of the premises it does not appear to matter whether that entitlement is one of ownership, exclusive possession or non-exclusive possession.'
At paragraph 48 to 50, TR 2000/4 states:
48. The employer must have a right of possession and control over the use of the premises during the course of its business operations. The absence of a right of possession and control may indicate the premises are not 'of the person', or the activities being carried out on the premises are not truly 'business operations' of the person.
49. In most situations where premises are owned or held under a normal commercial lease, both possession and control exist. Conversely, for example, the ad hoc hire of squash courts by an employer does not make the squash courts 'business premises' of the employer. This is because any rights the employer has are subject to the overriding control of the operator. In a practical sense, the premises are not those of the employer.
50. It should be noted that situations do arise where a person has ownership of premises, while at the same time another person has exclusive occupancy rights as lessee of the premises, and so the premises could be described as premises of each of those persons. In other words, the premises could, in a particular period, be described as the premises of the owner and the premises of the lessee.
In applying this discussion to paragraph 39A(1)(a), for the premises on which the car is parked to be business premises of the provider it is necessary for the provider to have a right of control or possession over the premises.
Alternatively, for the premises on which the car is parked to be associated premises of the provider the premises must be owned, leased or otherwise under the control of the person.
The right of control or possession will usually be set out in a document (e.g. a land title or a lease agreement) which will describe the boundary of the premises. This document can be used to identify the relevant premises on which the car is parked.
Depending upon the particular arrangement this may be all or part of premises. This was illustrated in the response to agenda item 9 of the meeting of the FBT subcommittee of the National Taxation Liaison Group held on 10 December 1998. The ATO response stated (in part):
Where the carpark owners do not grant exclusive occupancy rights over the designated spot to the employer (e.g. there is a grant of a licence rather than a lease) the relevant spot remains as the 'business premises' of the carpark owners who retain the necessary control over the spot to be the 'provider' of the benefit.
Where the carpark owners grant exclusive occupancy rights over the designated spot to the employer (e.g. there is a grant of a lease) the relevant spot becomes the 'associated premises' of the employer who has the necessary control over the spot to be the 'provider' of the benefit.
In the first situation, the relevant premises would be the car park as the provider is the carpark owner. By contrast, in the second situation the relevant premises would be the relevant spot.
Commercial parking station
Subsection 136(1) defines commercial parking station to mean:
a permanent commercial car parking facility where any or all of the car parking spaces are available in the ordinary course of business to members of the public for all-day parking on that day on payment of a fee, but does not include a parking facility on a public street, road, lane, thoroughfare or footpath paid for by inserting money in a meter or by obtaining a voucher.
The Explanatory Memorandum to Taxation Laws Amendment (Car Parking) Bill 1992 provided the following guidance in relation to this definition:
In relation to the definition of “commercial parking station”, the words “permanent” and “commercial” have their normal dictionary meanings. For example, a car park setup to cater for a special function (like an Easter Show) would not be permanent. A carpark which was not run with a view to making a profit (usually reflected in significantly lower car parking rates compared with the normal market value for that facility) would not be commercial.
Some car parking facilities have a primary purpose to provide short-term shopper parking. To discourage all-day parking, the operators of these facilities charge penalty rates for all-day parking. These rates are significantly greater than the rates that would be charged by a facility which encouraged all-day parking. For the purposes of these provisions, short-term shopper parking facilities using penalty rates for all-day parking will not be treated as a “commercial parking station”.
Further guidance is provided in Taxation Ruling TR 96/26 Fringe benefits tax: car parking fringe benefits which in paragraph 81 provides the following examples of parking arrangements that are not regarded as constituting commercial parking stations:
- car parking facilities, with a primary purpose other than providing all-day parking, that usually charge penalty rates significantly higher than the rates chargeable for all-day parking at commercial all-day parking facilities (such as parking provided for short term shoppers or hotel guests);
- a car park that is not run with a view to making a profit or which charges a nominal fee (usually a significantly lower rate than the current market value), e.g., an all-day parking fee of less than $2.00 is likely to be a nominal fee;
- car parking that is established for a short period to cater for a special function;
- car parking spaces leased to a tenant by a property developer as part of an overall lease agreement for business premises;
- parking facilities provided by a sporting venue to persons associated with the venue where:
- parking facilities are usually available only after 5 pm to coincide with night events; or
- parking is available only for a specific event, and the event is a daytime event; or
- parking is available to all members of the public only during sporting events; and
provided that, when there is no such event, the parking facilities are not usually available to members of the public;
- parking provided by a business for its own employees and those of a nearby business, but to no other person, if there is no commercial car park within 1 km;
- in an area without a commercial parking station and where street parking is not permitted, arrangements made by a business for its employees to park during business hours in yards and driveways of surrounding houses;
- a kerb side parking meter, from the FBT year commencing 1 April 1994, even where it is possible to purchase all-day parking at the meter in a single transaction.
The meaning has since been discussed in several meetings of the FBT subcommittee of the National Tax Liaison Group (FBT NTLG) and this forum.
At agenda item 7 of the FBT NTLG meeting held on 15 September 1994 the ATO response advised that none of the following parking arrangements fell into the definition of a ‘commercial parking station’ as either the parking station was not permanent, or the parking was not available in the ordinary course of business to members of the public for all day parking on payment of a fee:
- Where a property developer leases car parking spaces to a tenant as part of an overall lease agreement for business premises;
- A sporting venue provides parking facilities to persons associated with the sporting venue (eg corporate box holders). Most events are provided after 5 pm so parking facilities are usually only available after 5 pm. For day events parking is available for the duration of the event. At no other times are the parking facilities open to persons other than employees of the venues.
- Same facts as above but the parking facilities are provided to all members of the public during sporting events only.
- A business provides parking to its employees and to the business next door during business hours. The parking provided to the business next door is provided at a commercial rate. There is no commercial parking station within 1 kilometre. Parking is not available to any other persons.
- A business pays for its employees to park in driveways and yards of surrounding houses during business hours. There is no commercial parking station within one kilometre and street parking is not permitted in the area. The owners of the houses provide this parking at an estimated prevailing market rate for a similar facility
The meaning of commercial parking station in the context of two shopping centre carparks was discussed at agenda item 5.11 of the FBT STIP meeting held on 8 September 2009. The first car park had the following fee structure:
- up to 2 hours free
- 2 – 3 hours $2
- 3 – 4 hours $4
- more than 4 hours $8
The second carpark had the following fee structure:
- up to 3 hours $1
- 3-4 hours $2.50
- 4 – 5 hours $7.70
- 5 – 6 hours $18.70
- each additional hour $11.
The ATO response in discussing the two carparks stated in part:
Further guidance is provided in the Minutes of the meetings of the FBT subcommittee of the National Tax Liaison Group held on 16 February 2006 and 16 November 2006. Agenda item 7 of the 16 February meeting concerned a shopping centre car park and agenda item 7 of the 16 November meeting concerned parking facilities located near an airport.
The Minutes of the meeting held on 16 February state in part:
The Tax Office indicated that TR 96/26 provides significant guidance in relation to the car parking provisions of Division 10A of Part 111 of the FBTAA. Whether a car parking facility is a commercial car parking station is a question of fact. In some situations, the outcome is clear. In other situations, particularly outside CBD areas, the outcome may not be as clear and/or the resulting view that the facility is in fact a commercial car park, may be an unexpected outcome.
However, an employer should apply the principles contained in TR 96/26 to their particular factual situation to determine if an FBT liability is triggered.
The Tax Office also noted that the policy intent behind Division 10A ensures that FBT will be confined to car parking in areas where such benefits have significant values, such as CBDs. This does not mean that Division 10A cannot apply to areas outside a CBD. If a commercial parking station, that charges more than the car parking threshold, is located in an area outside a CBD, employers should be aware that if the employer provided car parking is within 1 kilometre of same, an FBT liability may arise.
Although the question of whether a car parking facility is a commercial parking station is a question of fact the information provided indicates there was a distinct difference between the rates charged by the two car parks described in the agenda item. In the first scenario there does not appear to be a penalty for all day parking as the all day rate is comparable to the rate for shorter periods. By contrast in the second scenario the hourly rate increases significantly for each hour above a four hour period. As the car park in the first scenario is a permanent facility that appears to be run with a view to making a profit which offers car parking spaces for all-day parking and does not charge a penalty rate it would appear to be a commercial parking station.
This response was referred to in the response to agenda item 5.5 of the FBT STIP meeting held on 8 March 2011. This agenda item concerned a hospital carpark. The ATO response after referring to the response given at the meeting held on 8 September 2009 stated:
Consistent with this approach, the fact that the car park is a hospital car park will not prevent it being a ‘commercial parking station’.
If as indicated in the agenda item, the car park is a permanent commercial parking facility which provides all-day parking to patients and visitors it will be a commercial parking station as defined in subsection 136(1).
As set out in agenda item 5.6, the meaning of commercial parking station was considered by the Full Federal Court in FC of T v Qantas Airways Ltd  FCAFC 168. The Decision Impact Statement that issued in relation to this decision indicated the Commissioner will update Taxation Ruling TR 96/26. In order to update TR96/26 the ATO proposes to consult with taxpayers, advisors and other interested stakeholders. Topics for discussion may include whether TR 96/26 requires further clarification and/or whether additional examples are required.
In the meantime, TR96/26 continues to represent the ATO view on car parking fringe benefits.
The measurement of the one kilometre radius of the premises on which the car is parked
Section 39B sets out the method to be used to measure the one kilometre radius between a commercial parking station and car parking premises. This measurement is summarised in paragraphs 82 to 84 of TR 96/26 which state:
82. A commercial car parking station is taken to be located within a 1 km radius of business or associated premises, if and only if, a car entrance to the commercial parking station is situated less than 1 km, by the shortest practicable route, from a car entrance to those premises. This route can be travelled by foot, car, train, boat, etc., whichever produces the shortest practicable route.
83. Where the shortest route can be travelled on foot, we expect that public thoroughfares such as arcades through shopping centres will be utilised in determining the distance. However, illegal or impractical shortcuts through, e.g., private property, will not be considered to be part of a practicable route.
84. The 1 km radius may be measured by using an odometer reading, a street directory, information available from a public transport authority or by measurement on a scale map or any other method that will give a correct indication.
Where a premises has multiple car entrances, a commercial parking station will be taken to be within one kilometre of the premises if one of the entrances is within one kilometre. The fact that other car entrances are more than one kilometre from the commercial parking station will not alter this outcome.
Given the different outcomes that can arise, an employer relying on third party information should ensure the third party is using the relevant entrance to the premises to measure the one kilometre radius.
The relevant day
It considering the car parking provisions it is necessary to identify the relevant day for the provision being considered as the relevant day can differ and will not always be 31 March and 1 April. For example:
- subsection 39A(1) uses the lowest fee charged by the operator on the first business day of the FBT year;
- section 39C uses the lowest fee charged on the day the parking is provided;
- section 39DA uses the lowest fee charged on the days on which a car parking benefit is first provided and last provided in the FBT year.
As an example of the different days, in 2013 the 31st March and 1st April were in the Easter break. Consequently, the last business day in the 2013 FBT year was 28 March and the first business day in the 2014 FBT year was 2 April.
The operator of the parking station on the relevant day
The provisions require the fee that is used to be a fee charged by the operator of the parking station on the relevant day.
In relation to the situations discussed at the meeting, a fee charged by a previous operator is unlikely to satisfy this condition. Similarly, a fee charged by an organisation that has acquired a car parking space in a commercial parking station from the car park operator may not be a fee charged by the operator on the relevant day.
Fee charged in the ordinary course of business to members of the public
For a fee to be used it must be available in the ordinary course of business to members of the public.
The Full Federal Court in FC of T v Qantas Airways Ltd  FCAFC 168 stated:
… the word ‘public should be given its ordinary meaning …
This meaning is discussed in paragraphs 19 to 21 of Taxation Ruling TR 2000/10 Income tax: public libraries, public museums and public art galleries. At paragraphs 19 and 20 TR 2000/10 refers to the decision In re Income Tax Acts ( No 1 )  VLR 211.
Paragraphs 19 and 20 of TR 2000/10 state:
19. In deciding whether other institutions make their collections available to the public, some guidance is given by the principles In re Income Tax Acts ( No 1 )  VLR 211. This case considered whether a benevolent asylum was 'public'. The asylum had been founded and controlled by Freemasons for the benefit of Freemasons and their wives and widows. The Court held that the institution was not carried on for the benefit of the public. The word 'public' in relation to institutions connotes 'the carrying on of the institution for the benefit of the public generally, or at least of a definitely ascertainable section of the public, where the benefit of the institution is available without discrimination to every member of the public or of that section of it' (per Lowe J at  VLR 222).
20. By example, Lowe J went on to suggest that a club, literary society or trade union would not be construed as public. He distinguished these associations by the power they had to admit or exclude members of the public. The provision of rules and regulations, which accorded some arbitrary test before membership, distinguished these bodies. Public character was missing due to selective membership. Where admission to membership of a body or inclusion in a class depends on the consent of members or of a committee of members, it is not provided for 'a section of the public'. Such associations exist for the benefit of their members, not the public or a section of the public.
In applying this guidance a fee charged for the lease of a car parking spot is unlikely to be a fee charged to a member of the public for all-day parking. Support for this position is provided by paragraph 41 of TR 96/26 which states:
41. Example 5
A company leases the third floor of the nearby ABC Carpark mentioned in Example 4 for use by its employees to park when at work. The lease value equates to $4.00 per day per car parking space (daily rate equivalent), but as this rate is not generally available to members of the public, it cannot be used for valuation purposes under this method.
The lowest fee
Guidance as to the calculation of the lowest fee where parking is provided on a periodic basis is provided in paragraphs 40 and 43 to 46 of TR 96/26 state:
40. If all-day parking is provided by a commercial car park on a weekly, monthly, yearly or other periodic basis, the operator is taken to charge, on any particular day, a daily rate equivalent. This is calculated by use of the formula:
(Total fee / Number of business days in period)
Total fee is the total fee charged by the operator in respect of all-day parking for the total days in that period.
A business day is a day other than a Saturday, Sunday or a public holiday in the place concerned.
43. The lowest all-day fee may include a fee which a commercial parking station charges for bona fide early bird parking or 'car pooling' arrangements where a reasonable number of parking spaces are set aside for those purposes.
44. A nil fee is not a fee charged and therefore cannot be used as the lowest all-day fee - see Case 27/95 95 ATC 275; AAT Case 10128 (1995) 30 ATR 1297.
45. Example 6
Apex Parking is a 24 hour commercial car-park. It charges $3.00 a day for early-bird parking (for cars parked before 7.30 am), $1.50 hourly from 6.30 am to 6 pm with a maximum fee of $6.00 for all day parking and 20 cents per hour for cars parked between 6 pm and midnight.
The fee to be used for valuation purposes is $3.00, which is the lowest fee charged for all-day parking.
Further guidance is provided in ATO ID 2006/93 in the context of a parking station that charges a parking fee for all-day parking which becomes progressively lower after a number of days of parking. In the situation being considered a customer who parked their car for 365 days would incur a $1,909 parking fee.
In considering this situation, ATO ID 2006/93 states:
When a customer parks their car for more than one day, the parking station is providing all-day parking on a periodic basis under section 39E of the FBTAA.
The facts show that the parking station has no limit to the number of days of continuous parking. Under this arrangement, it is accepted that customers could park their car on a longer term periodic basis and as a practical general rule for a continuous period of up to one year. In order to determine the lowest rate charged for all-day parking by the car park, on a particular day, the formula in section 39E of the FBTAA would be applied on the basis that a car had been parked for a continuous period of one year (365 days).
The parking station is taken to charge, on any particular day, a daily rate equivalent. This is calculated by use of the formula:
Total Fee/Number of business days in period
Total fee is the total fee charged by the operator in respect of all-day parking for the total days in that period.
A Business day is a day other than a Saturday, Sunday or a public holiday in the place concerned.
Total Fee/Number of business days in period = 1909/246 = $7.70
The lowest rate charged for all-day parking on a particular day would therefore be $7.70.
In determining the amount of that lowest fee, it has been accepted that a customer has parked their car on a yearly periodic basis in these circumstances.
Where the average cost method is used, subsection 39DA(4) requires the fees used for the first and last days on which parking is provided to be representative.
In determining whether a fee is representative, section 39AB provides that a fee charged on a particular day will not be representative if it is substantially greater or less than the average of the lowest fee charged by the operator in the ordinary course of business to members of the public for all-day parking during either the 4 week period beginning on the day, or the 4 week period ending on the day.
Guidance as to when a fee will be a fee for all-day parking is provided in ATO Interpretative Decision ATO ID 2014/12. In considering whether a fee charged for parking after 1 pm is a fee charged for all-day parking, ATO ID 2014/12 states:
'All-day parking' is defined in subsection 136(1) to mean, in relation to a particular day:
... parking of a single car for a continuous period of 6 hours or more during a daylight period on that day.
'Daylight period' is defined in subsection 136(1) to mean, in relation to a day:
so much of a period on that day as occurs:
(a) after 7 a.m. on that day
(b) before 7 p.m. on that day.
The application of these definitions was considered by the Administrative Appeals Tribunal in Case 27/95 95 ATC 275; AAT Case 10 , 128 (1995) 30 ATR 1297. The Tribunal considered a submission that the lowest fee charged for all-day parking would be 10 cents where that was the charge for a car parked for a period of at least six hours from just before 6.00 p.m. Senior Member Fayle said at ATC 278:
16. ... All-day parking, as mentioned, is a continuous period of at least 6 hours during a daylight period on that day. 'Daylight period' is defined above as being a twelve hour period from 7.00 a.m. to 7.00 p.m., a definition, it is observed, which conforms with the lexical definition of 'day'.
17. It is impossible for the applicant to satisfy this condition if the parking commences just before 6.00 p.m., only one hour before 7.00 p.m. Even if the fee of 10 cents was a charge to park from 6.00 p.m. for a continuous period of at least 6 hours, that would not be for 'all-day parking' as defined in the Act.
Similarly, the fee charged for vehicles entering the parking station from 1 p.m. is not a fee paid for 'all-day parking' as defined in subsection 136(1). After 1 p.m. it is impossible to park for a continuous period of six hours of more during a 'daylight period' on that day. Under the definition in subsection 136(1) a 'daylight period' ends before 7.00 p.m. on that same day.
5.1.1 Commercial parking station used to calculate the taxable value of car parking fringe benefits
When using the average cost method in section 39DA of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) can the rates charged by different commercial parking stations be used for the first and the last days on which parking was provided?
Subsection 39DA states:
sec 39DA. Method of working out average cost
(3) The average cost is:
"A" is the lowest fee charged in the ordinary course of business to members of the public for all-day parking by any operator of a commercial parking station located within a 1 km radius of any of the relevant parking premises on the day on which a car parking benefit is first provided in that FBT year in relation to the employer in connection with any of those premises.
"B" is the lowest fee charged in the ordinary course of business to members of the public for all-day parking by any operator of a commercial parking station located within a 1 km radius of any of the relevant parking premises on the day on which a car parking benefit is last provided in that FBT year in relation to the employer in connection with any of those premises.
(by any operator has been bolded for emphasis)
The use of the phrase ‘by any operator’ indicates different car parks can be used.
This is supported by paragraph 59 of TR 96/26 which states:
Average cost method
58. Under this method, an employer calculates an average of the lowest fees charged to members of the public for all-day parking by a commercial car parking station within 1 km radius of parking facilities, on the first and last day in an FBT year. The taxable value is reduced by any recipient's contributions towards the benefit.
59. The fee used is the same as that used for the commercial parking station method. Because the value is an average of the lowest fees charged on the first and last days on which parking benefits are provided, it follows that different commercial parking stations may be used for valuations.
60. This method cannot be used if the lowest fee charged is not representative.
(part of sec 59 bolded for emphasis)
The Tax Office agreed that where more than one commercial parking station is located within one kilometre of the premises on which the car is parked, a fee from one of the car parks can be used for the fee charged on the first day of the year and a fee from a different carpark can be used for the fee charged on the last day of the year.
5.1.2 Number of business days in period
When using a monthly rate to determine the lowest fee charged for all-day parking on the first and last days on which car parking was provided during the year, is it necessary to use the actual number of business days in April of the particular year to determine the rate on the first day (i.e. 1 April) and the actual number of business in March of the particular year to determine the rate on the last day (i.e. 31 March)?
Section 39E of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) sets out the method used to determine the daily rate equivalent for periodic parking arrangements.
This section is reproduced in paragraph 40 of TR 96/26 which states:
40. If all-day parking is provided by a commercial car park on a weekly, monthly, yearly or other periodic basis, the operator is taken to charge, on any particular day, a daily rate equivalent. This is calculated by use of the formula:
(Total fee / Number of business days in period)
- Total fee is the total fee charged by the operator in respect of all-day parking for the total days in that period.
- A business day is a day other than a Saturday, Sunday or a public holiday in the place concerned.
Where the average cost method is used, the daily rate equivalent will generally need to be determined for 1 April of year 1 and 31 March of year 2.
The number of business days in these months can differ depending upon the year as Easter may be in April one year and March the next. Alternatively, depending upon the particular year, there may be 5 weekends in March.
Advice has been received that where the rate is obtained on 31 March, it is necessary to use the number of business days for the period beginning on 31 March as the rate applies to the provision of parking prospectively. This is because it is not possible to attain a quoted rate at the end of the month in relation to a rental period for the 31 days prior as this would have lapsed. Further, as rates are often volatile it would not be correct to assume the same rate applied for the whole month (i.e. of March). Accordingly the advice provided was that the number of business days (i.e. 31 March closing daily rates), is for the period that the rate applies (i.e. April and not March).
Using this approach both closing and opening daily rates are calculated using the business days in April. Is this approach acceptable to the ATO?
As set out in the agenda item, section 39E provides that where parking is provided on a periodic basis the operator is taken to charge a fee for a particular day in the period which is equal to the amount worked out by dividing the total fee charged by the operator in respect of all-day parking in the period by the number of business days in the relevant period.
The relevant period is a period which includes the relevant day. This will depend upon the terms and conditions under which parking is offered by the carpark. For example, if the monthly rate is for a calendar month, the relevant period for the last day on which parking was provided in the year will be the month of March. However, if the carpark offers a 4 weekly rate, there will be multiple periods that include the relevant day.
In either scenario, a fee calculated using only business days in April will not be able to be used to determine the fee for the last day of the FBT year on which parking was provided unless parking was only provided in April.
Further, as mentioned above, where the average cost method in section 39DA is used to calculate the taxable value of the car parking fringe benefits, subsection 39DA(4) requires the fees used in the calculation to be representative.
5.1.3 The meaning of the term ‘in the ordinary course of business, to members of the public for all day parking’.
Is a fee considered to be a fee charged in the ordinary course of business to members of the public by an operator of a commercial parking station if it is not publically displayed on the operator’s website (which is available for bookings in advance) or on the entrance board to the car park?
The lowest all-day fee is discussed in paragraphs 37 and 38 of TR 96/26 which state:
37. The taxable value is the lowest fee charged in the ordinary course of business, to members of the public, for all-day parking by any commercial parking station that is located within a 1 km radius of the premises on which the vehicle is parked.
38. For the FBT year ended 31 March 1994, 'all-day parking' was defined as the parking of a single car for a continuous period of six hours or more. Therefore, the lowest fee charged for any 6 hours of continuous parking on a particular day was acceptable. The definition of 'all-day parking' was changed from the FBT year ended 31 March 1995. The 6 hours of continuous parking must now fall within the daylight period hours of 7 am to 7 pm.
Our understanding, in the past, has been that for a car parking rate to be ‘available to the public’ it is to be advertised to the public via car park operator’s website; or on signboards outside the carpark or side streets leading to the car park etc.
In addition, in relation to say monthly or weekly carparks, it has been our understanding that as at 31 March and/or 1 April that the carpark operator needed to have spaces available for members of the public to use i.e. all carparks cannot be ‘reserved’.
However, alternative advice has been provided to an agency that the following fees are fees charged in the ordinary course of business to members of the public:
- a fee for an ‘evening style product (noon to 10pm) where this rate is not advertised on the carpark operators website, but is advertised for other car parks operated by the operator for parking after 5pm.
- legacy products that are carried forward from previous operators rate cards when operations were taken over.
- parking which the parkee needs to receive a pass to park in any casual or unreserved space.
As discussed above, the fact that a fee has not been publically displayed on the operator’s website or on the entrance board to the car park provides an indication that the fee is more likely to be a fee that has been negotiated with a particular customer than a fee that is offered to members of the public. As such, there is a risk associated with the use of such a fee without further enquiry.
Where a car park only offers monthly or weekly carparks it will be a question of fact as to whether any of the spaces are available for use by members of the public on a particular day.
Depending upon the circumstances the carpark could be one that does not have any spaces available to members of the public. For example, if the owner of a carpark leases all of the parking spaces to three nearby employers the arrangement is unlikely to be one that involves parking being available to members of the public.
However, by contrast, if the car park has a monthly rate that is offered on a first come, first served basis to the world at large, the fact that all of the available spaces are booked on the first day of the month will not mean parking was not available to a member of the public on the last day of the month.
In relation to the three examples given:
- the fact that a fee is only advertised as an afterhours fee is an indication that the fee may not be a fee that is available to members of the public for all-day parking;
- a legacy product is unlikely to be a fee charged by the operator;
- the use of a pass to operate a boom gate will not prevent the fee from being a fee charged in the ordinary course of business to members of the public.
5.1.4 Evidence required to substantiate car parking fees
Will a report received from a car parking consultant which lists rates for various commercial parking station satisfy the record keeping requirements in subsection 132(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Subsection 132(1) of the FBTAA requires an employer to keep records that record and explain all transactions and acts that are relevant for the purposes of determining the employer’s liability.
In the context of the car parking provisions this requires employers to have a record of the method used to determine the total number of benefits and the value of each benefit.
There are a number of car parking consultants that provide reports listing fees for various commercial parking stations. If the agency uses a fee quoted in the report without obtaining any further details will this report be considered to be sufficient evidence of the lowest fee without any further documentation being required, or is it necessary for the agency to obtain the underlying documentation used to prepare the report?
The records that are required for a car parking fringe benefit will vary depending upon the method(s) used to determine the number of benefits and the value of each benefit.
The records that are required to determine the number of benefits that have been provided are discussed in paragraphs 62 to 76 of TR 96/26.
Paragraph 62 provides the following general rule that applies to both the determination of the number of benefits and the value of each benefit.
Paragraph 62 states:
Employers are required by subsection 132(1) of the FBTAA to keep appropriate records which form the basis upon which FBT liability is determined. This general record-keeping requirement applies equally to records which explain the calculation of car parking fringe benefits.
In relation to the valuation of each benefit, paragraph 57 of TR 96/26 states that where the market value basis in section 39D is used:
It is also necessary for the employer to be able to produce, when required, details of the basis on which the valuation was determined.
Although not stated in the relation to the other two valuation methods (the commercial parking station method and average lowest fee), a similar requirement exists in relation to these methods. That is, it is necessary for the employer to be able to substantiate that the fee used in the return is a fee that the operator of the parking station charged members of the public for all-day parking on the relevant day.
This substantiation requires more than a figure provided by a car parking consultant. It requires documentation that shows each of the requirements were met. Examples of acceptable documentation may include a newspaper advertisement or a copy of the operator’s website for the relevant day showing the fees charged for the day and any conditions that related to the relevant fee. For example, the hours in which the fee was available. Alternatively, a record of the sign displayed at the entrance to the carpark will be acceptable where it shows any conditions attached to the fees.
5.1.5 Car Parking – use of reserved car parking rates
Where a car park charges a rate per quarter or half yearly for reserved or unreserved car parking – is this considered a rate for ‘all day parking’ or a ‘lease arrangement’ and hence not considered a rate for all day parking?
TR 96/26 outlines the taxable value is the lowest all-day fee charged by any commercial car park in the ordinary course of business to members of the public
It is observed that some car parking stations are charging for the provision of reserved and unreserved carparks by the quarter or half yearly.
Example 4 in TR 96/26 discusses all day parking provided on a weekly, monthly, yearly or other basis, and that a daily rate can be calculated.
Example 4 implies that if a car park charges a car parking rate per quarter or half yearly that this rate can be used to obtain the lowest all day fee charged. However, given the significant length of time over which the carpark is acquired, confirmation is being sought that this is a rate that can be considered for all day parking and is not a lease arrangement.
Would the answer be different if the quarterly or half yearly rate was not advertised on their website? Would it them not be available to members of the public, having regard to Example 5.
As discussed above, it is possible for all-day parking to be offered to members of the public on a periodic basis. Therefore, the fact that a rate is offered for a period will not affect it being an acceptable rate.
However, this will depend upon the terms and conditions under which the rate is offered. If it is offered as part of a lease agreement it will not be a rate that is offered to members of the public.
In deciding whether to use a particular periodic rate, the fact that it is not advertised on the website may be an indication it is a rate that is not available to members of the public.
5.1.6 Are parking facilities operated for the use of customers, etc. commercial parking stations?
Sub-paragraph 39A(1)(a)(ii) of the FBTAA requires that there is a commercial car park within a 1 kilometre radius of the premises on which the car is parked. The term ' commercial parking station ' is defined in subsection 136(1) as:
'in relation to a particular day, means a permanent commercial car parking facility where any or all of the car parking spaces are available in the ordinary course of business to members of the public for all-day parking on that day on payment of a fee, but does not include a parking facility on a public street, road, lane, thoroughfare or footpath paid for by inserting money in a meter or by obtaining a voucher.'
At paragraph 81 of TR96/26 the Commissioner takes the view that certain parking arrangements are not regarded as commercial parking stations, including:-
car parking facilities, with a primary purpose other than providing all-day parking, that usually charge penalty rates significantly higher than the rates chargeable for all-day parking at commercial all-day parking facilities (such as parking provided for short term shoppers or hotel guests);
For some time there has been some confusion as to the application of this paragraph in relation to car parks operated by shopping centres, hospitals and hotels for the use of customers, etc. As an example agenda item 5.5 of the FBT STIP meeting held on 8 March 2011 concerned a car park operated by a hospital for the convenience of patients, visitors and staff.
The ATO in response to the agenda item referred to the response given to a question asked about a shopping centre car park at the STIP meeting of 8 September 2009 and stated:
Consistent with this approach, the fact that the car park is a hospital car park will not prevent it being a ‘commercial parking station’.
If as indicated in the agenda item, the car park is a permanent commercial parking facility which provides all-day parking to patients and visitors it will be a commercial parking station as defined in subsection 136(1).
The definition of commercial parking station was recently considered by the Federal Court in FCT v Qantas Airways Ltd  FCAFC 168 in relation to carparks provided at an airport for passengers.
In rejecting the submissions of Qantas the Court said:
These arguments should be rejected for three reasons. First, the subject matter of the tax is the 'taxable value' of the car parking facilities provided by the employer to employees, not the value to an employee of the provision of car parking by the employer: Queensland v Commonwealth (1987) 162 CLR 74 at 83 per Gibbs CJ and 102 per Dawson J. The statute does not operate on the basis that the commercial parking station has to be something which the employee might or could use. This is made clear by s 148(1)(c) of the Assessment Act, which provides that a benefit to the employee within the meaning of the Assessment Act will have been provided, whether or not the benefit is surplus to the needs or wants of that employee. The condition that there be a commercial car parking station within a one kilometre radius of the employer's business premises to constitute a car parking fringe benefit is not a proxy for the value of the benefit to the employee of receiving an actual parking space at the employer's business premises, but a proxy for determining the taxable value of a benefit provided by the employer to an employee on which tax on the employer is imposed. This is confirmed in the reference in the definition to any of the car parking spaces being available in the ordinary course of business to members of the public for all-day parking on that day on payment of a fee. So understood, it is apparent that the word 'public' should be given its ordinary meaning and there is no rationale for imputing into the definition a requirement that the commercial parking station be one that employees of the employer commuting to work by car would or could in fact use. It made sense in Virgin Blue to seek to ascertain which car spaces were 'in the vicinity' of Terminal 3 by reference to the fact that the car spaces were being used by people who were driving to work from home. However, it makes no sense in assessing whether a parking station is proffered to the public to ask, on the other hand, whether that parking station is used by commuters because the tax which is imposed on the employer is on the value of the car parking that the employer has made available to employees at or in the vicinity of its business premises.
Secondly, the necessity that there be a commercial parking station within a kilometre of the employer's premises is therefore a trigger for liability to the tax but it is not the concept which is taxed. Rather, it is the statute's way of working out which car spaces are likely to be sufficiently valuable to bother either the taxpayer (or the Commissioner) in going down the path of assessment. If there is a commercial parking station within a kilometre then assessing the value of a car space provided by an employer to an employee is likely to be worthwhile, but not otherwise.
Thirdly, there is therefore no ambiguity about the word 'public', which means what it says. Consequently there is no reason to resort either to the second reading speech or the explanatory memorandum: Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252 at 265 . The current case may be contrasted with Virgin Blue where the words 'in the vicinity of' were ambiguous and the second reading speech was useful extrinsic material in resolving that ambiguity. Here the meaning of 'commercial parking station' is, with respect, quite clear.
In view of these comments, will the examples provided in paragraph 81 of TR 96/26 be reviewed so as to clarify whether car parks provided by organisations for the use of customers, etc. are considered to be commercial parking stations?
In his Decision Impact Statement for the Full Federal Court’s judgment in Commissioner of Taxation v Qantas, the Commissioner indicated that:
- The views expressed by the Court in interpreting the word ‘public’ are consistent with the Commissioner’s view and current practices; and
- The Commissioner will update Taxation Ruling TR 96/26 Fringe benefits tax: car parking fringe benefits.
In order to update TR 96/26, the ATO proposes to consult with taxpayers, advisors and other interested stakeholders. Topics for discussion may include whether TR96/26 requires further clarification and/or whether additional examples are required.
In the meantime TR 96/26 continues to represent the ATO view on car parking fringe benefits.
5.2 Business travel more than 21 days versus Living Away From Home
What is the difference between living away from home and travelling on business if someone is away for more than 21 days?
Clarification is sought as to the criteria used to distinguish between long term business travel and a living away from home benefit.
For example, an employee is on sabbatical leave in the United Kingdom where he performs duties for the British equivalent of the employer and attends several conferences in Europe and America.
The employer pays:
- the airfare to get to the United Kingdom; and
- accommodation costs in the United Kingdom.
The employer also:
- reimburses any airfares and related costs incurred in attending conferences at various venues in Europe and America; and
- pays an allowance to cover food and incidental costs.
- What is the FBT basis of the airfare?
- What is the FBT basis of the accommodation?
Industry view/suggested treatment
The expenses paid should be otherwise deductible on the basis the employee is travelling. The fact the period away is more than 21 days should not affect this outcome.
The 21 day rule referred to in the agenda item is provided in paragraph 41 of Miscellaneous Taxation Ruling MT 2030 as a practical general rule that can be used where it is not possible to determine from the factors discussed in paragraphs 35 to 43 of MT 2030 whether the employee is living away from home or travelling.
As discussed at agenda item 4.12, the applicability of this general rule is the subject of a consultation that is occurring between the ATO and Tax Professionals. Although this consultation may affect the use of the 21 day rule in the future, this may not alter the treatment of the benefits in the situation described.
In the situation described, the employer is:
- paying for the airfares to get to and from the United Kingdom;
- paying the accommodation costs while in the United Kingdom;
- reimbursing the costs incurred in attending various conferences in Europe and America; and
- paying an allowance to cover food and incidental costs.
Guidance on the treatment of the airfares and accommodation costs for an employee on sabbatical leave is provided in Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business.
Paragraph 23 of TR 98/9 states that subject to the general tests under section 8-1 being met, the following types of self-education expenses are allowable:
(c) airfares incurred on overseas study tours or sabbatical, on work-related conferences or seminars, or attending an educational institution. They are part of the necessary cost of participating in the tour, etc.;
Paragraph 111 states:
Airfares incurred on overseas study tours or sabbatical, on work related conferences or seminars or attending an educational institution are deductible under section 8-1. They are part of the necessary cost of participating in the tour or attending the conference or seminar or the educational institution.
Where an income tax deduction could have been claimed for the cost of the flights, the otherwise deductible rule will apply to reduce the taxable value of the residual benefit (subject to the substantiation requirements being met).
The extent of the reduction will depend upon whether there was more than one purpose for undertaking the flights. Guidance as to the circumstances in which apportionment will be necessary is provided in paragraphs 63 to 70 of TR 98/9.
Paragraph 23 of TR 98/9 states that subject to the general tests under section 8-1 being met, accommodation expenses will be deductible where:
… a taxpayer is away from home overnight, accommodation and meals expenses incurred on overseas study tours, on work-related conferences or seminars, or attending an educational institution
However, this is subject to paragraph 24 which states the expenditure will not be deductible where:
… a taxpayer who has travelled to another location for self-education purposes has established a new home.
Guidance as to when a new home is established is provided in paragraphs 93 of TR 98/9 which states:
93. The key factors to be taken into account in determining whether a new home has been established include:
- the total duration of the travel;
- whether the taxpayer stays in one place or moves frequently from place to place;
- the nature of the accommodation, e.g., hotel, motel, long term accommodation;
- whether the taxpayer is accompanied by his or her family;
- whether the taxpayer is maintaining a home at the previous location while away. The fact that the taxpayer did not maintain a home while away for an extended period was the decisive factor in characterising expenditure on accommodation and meals as private 'living expenses' in a series of Board of Review decisions: Case N13 13 TBRD (NS) 45; 10 CTBR (NS) Case 98; Case N16 13 TBRD (NS) 65; 10 CTBR (NS) Case 99; Case N19 13 TBRD (NS) 76; Case N20 13 TBRD (NS) 79; and
- the frequency and duration of return trips to the previous location.
Paragraphs 94 to 109 of TR 98/9 provide six examples to illustrate the application of these factors. The examples include situations where it is concluded a new home has not been established even though the taxpayer is away for more than 21 days.
The principles discussed above also apply to the reimbursements paid in relation to the conferences attended in Europe and America.
Allowance for food and incidentals
The treatment of the allowance will depend upon whether it is a living-away-from-home allowance (LAFHA).
To be a LAFHA the allowance will need to come within section 30 of the FBTAA. Subsection 30(1) of the FBTAA states:
- at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and
- it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for:
- additional expenses (not being deductible expenses) incurred by the employee during a period; or
- additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period;
by reason that the duties of that employment require the employee to live away from his or her normal residence;
the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.
In the situation being considered, the crucial factor to be considered is whether the expenses for which the allowance is paid are expenses for which the employee can claim an income tax deduction under section 8-1 of the Income Tax Assessment Act 1997.
In considering whether the employee is able to claim an income tax deduction for the expenses for which the allowance is paid, the relevant principles to consider are those discussed above.
5.3 Provision of accommodation
What is the situation if accommodation is provided to staff free of charge if they prefer not to travel from their home for shifts two days running?
What is the situation if accommodation is provided to staff free of charge if they prefer not to travel from their home if they are on-call overnight?
This agenda item concerns a situation where the accommodation provided is not the employee’s usual or normal place of residence.
The provision of the accommodation in such a situation will be an exempt benefit where the conditions in subsection 47(5) are met.
One of the conditions in paragraph (b) is for the accommodation to be provided:
… solely because the duties of that employment require the employee to live away from his or her normal residence
The use of the word ‘solely’ restricts the circumstances in which the exemption can apply to those in which the duties of employment require the employee to live away from the normal residence.
The meaning of the word require was considered by the Administrative Appeals Tribunal in Compass Group (Vic) Pty Ltd as trustee for White Roache and Associates Hybrid Trust  AATA 845; 2008 ATC 10-051; 71 ATR 720. At paragraphs 64 and 65 the Tribunal said:
The ordinary meanings of the word "require" include:
"... 1a to need something; b to wish to have something. 2 to demand, exact or command by authority. 3 to have as a necessary or essential condition for success, fulfilment etc ..."
65. The word "require" does not contemplate choice. The distinction is apparent from the passage from Hill J's judgment in Roads and Traffic Authority of New South Wales v Commissioner of Taxation when he said:
"... For the reasons already given, an employee who is required as part of his employment to reside at the work site for periods of time and to bear the cost of his own accommodation, in the circumstances where he has his own private house, will be entitled to a deduction for the cost of that expenditure. ...
... An employee who had no private home and was employed indefinitely to work at a particular site and did in fact work for the whole of his employment at that site, might be said to have chosen to live at the site so that the cost of his accommodation would be private. ..."
The facts as given are that the use of the accommodation is the employee’s choice. This indicates the duties of employment may not be the only reason for the accommodation being provided.
This fact will also affect the application of the otherwise deductible rule where a residual fringe benefit arises from the use of the accommodation.
As set out in paragraph 88 of Taxation Ruling TR 98/9, expenditure on accommodation ordinarily has the character of a private or domestic expense. However, there are some occasions in which the occasion of the outgoing may operate to give the expenditure the essential character of an income-producing expense. An example is where the expenditure is incurred while away from home overnight on a work-related activity as in Roads and Traffic Authority of NSW v. FC of T 93 ATC 4508; (1993) 26 ATR 76 (RTA).
Hill J in RTA used the lack of choice to distinguish the situation being considered from the situation considered in FC of T v. Toms (1989) 20 ATR 466; 89 ATC 4373. At ATC 4522 Hill J said:
The case of FC of T v Toms, to which reference has been made, clearly depended upon its own particular facts. The taxpayer in that case was a self-employed forest worker. During his working week he lived in a caravan in a bush camp approximately 108 kilometres from his family home. The caravan was also used by him for storing logging equipment and as a temporary shelter when work was interrupted by bad weather. One of the questions before the Administrative Appeals Tribunal and, on appeal, this Court was whether the taxpayer was entitled to a deduction for the cost of maintaining the caravan and other living expenses, such as additional costs involved in providing food at the camp site. The principal issue, however, was the deductibility of expenditure of travel between the home and the caravan. In holding that the taxpayer was not entitled to the deduction, Burchett J (at 4376) placed emphasis upon the fact that the caravan was rendered necessary:
``... as much by the taxpayer's choice of the place of his residence in Grafton as by his choice of employment in the State forest, and its purpose was to enable him to retain his residence at Grafton although employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary.''
The facts of the present case are quite different. ....
The Federal Court in Toms had applied the decision of FCT v Charlton (1984) 15 ATR 711; 84 ATC 4415 (Charlton). Charlton concerned the deductibility of rent paid by a pathologist whose home was in Melbourne for a flat in Bendigo during a five month period. For four of the five months the pathologist used the flat while performing autopsies in Bendigo. In the fifth month the pathologist also worked at Wangaratta.
Crocket J distinguished the four months in which the pathologist performed duties only in Bendigo from the month in which duties were performed at Wangaratta and Bendigo. At ATR 717 – 718 Crocket J said:
The contention of the Commissioner was that, if the taxpayer chose to live so far from the place where he was required to be in order to gain or produce his assessable income so that it was necessary to incur expense in order to reach that place, that was an expense personal to himself or the result of his own volition in choosing to live where he did. It was thus not one incurred in earning his income. The general proposition upon which this submission is sought to be founded is, of course, well established. See, for example, Lunney v FCT; Hayley v FCT (1958) 7 AITR 166; 100 CLR478 and Newson v Robertson (Insp of Taxes)  1 Ch 7. The Commissioner contends (correctly in my view) that, if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he, not only needs to incur expense in travelling to that place but, also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplemental of his actual home, then that expense, too, is for the same reason non-deductible.
It appears to me that in seeking the answer to the question whether an outgoing has been incurred in gaining or producing income it is necessary first to determine the essential character of the expenditure so that it will appear that it has either been dictated by the income-producing activity or, on the other hand, has been incurred for private purposes.
The taxpayer’s election to live in Melbourne and not in Bendigo meant that the rental expended on the flat in order to enable him to secure accommodation in which to recuperate from the rigours of travel and the nature of his work was an expenditure dictated not by his work but by private considerations. There was an exception to this in the month of May. He was then required by his employment to work in both Wangaratta and Bendigo. The nature and circumstances of that work made the taking of rest at Bendigo necessary. The keeping of a flat during that month was dictated by his income-producing activity and was incidental to his work.
5.4 Provision of scholarship
We would like to confirm the FBT treatment of the following awards:
Prizes include the following:
$20,000 towards their Project / Post Graduate Study (scholarship)
To support commencement of tertiary studies.
Submit a report to the Executive Director and other related parties outlining how the information and skills accrued during the project have assisted in the recipient’s career and improved patient care.
Present the findings at a staff forum and/or relevant professional meeting.
$10,000 towards National or International Travel (travelling fellowship)
Submit a report to the Executive Director and other related parties outlining how the information and skills accrued during the travelling scholarship will be disseminated throughout the health service.
Present the findings at a staff forum and/or relevant professional meeting.
Prepare a report outlining the outcome of the study.
Subject to substantiation of the expenditures and a No-private-use Declaration being completed by the employee, we treat the scholarship and travelling fellowship as not being subject to FBT because of the application of the otherwise deductible rule.
Could you please confirm the above treatment? Furthermore, please confirm whether the above items need to be included as Exempt Benefit on the FBT Return.
In discussion, it was noted that there is a range of terms and conditions that can apply to a scholarship.
For example, the scholarship may require the recipient to work for the awarding organisation during vacations. Alternatively, the scholarship agreement may include a bonding agreement under which the recipient agrees to work for the awarding organisation for a period of time at the completion of their studies.
Similarly, there is a variation in the awards that can be given under a scholarship. For example, some only involve a cash payment, whereas other awards include a payment or reimbursement of certain expenses.
Given this range of possible scenarios it is not possible to provide confirmation that the suggested outcome will apply to every situation. Rather, it is necessary to consider the terms and conditions of the particular scholarship.
During discussion, reference was made to the edited version of a private ruling that concerned the FBT obligation that arose from the reimbursement or payment of HECS-HELP fees under a scholarship. The ATO advised Members that this ruling only applied to the scholarship arrangement for which it had been given and could not be applied generally to other scholarships.
End of example
The agenda item seeks confirmation that the otherwise deductible rule will apply to benefits provided under a scholarship. As set out in the discussion, it is not possible to provide this confirmation for every scholarship as the terms and conditions under which a prize is given vary between scholarships. Consequently:
- the prize may be a cash payment that does not come within the Fringe Benefits Tax Assessment Act 1986 (FBTAA) or it may be a reimbursement or payment of expenses that does come within the FBTAA;
- the recipient may or may not be an employee;
- the scholarship may or may not be awarded in respect of the employee’s employment; and
- the recipient may or may not have been able to claim an income tax deduction for the expenditure if it had not been paid or reimbursed.
However, the following general advice can be provided.
For the purpose of providing this advice it is assumed:
- the scholarship consists of a payment or reimbursement that is an expense payment benefit under section 20 of the FBTAA;
- the scholarship is provided to a person who is studying at a school, college or university;
- the scholarship is principally for educational purposes; and
- the recipient would have been able to claim an income tax deduction for the expenditure if it had not been paid or reimbursed.
In considering whether the otherwise deductible rule is applicable it is necessary to determine whether the recipient is an employee (or an associate of an employee) and whether the scholarship is provided in respect of the employment of the employee.
Is the recipient an employee?
The definition of employee in subsection 136(1) of the FBTAA includes both current and future employees.
In general terms, a current employee is a person who receives salary or wages. In applying the definition of salary or wages, a current employee is a person who receives a payment from which an amount must be withheld (even if it is not withheld) under one of the relevant provisions of Schedule 1 to the Taxation Administration Act 1953. For the purposes of this response, the relevant provision is section 12-35 which applies to payments made to a common law employee.
A future employee is a person who will become a current employee at a future point in time.
Guidance for determining whether the recipient is a common law employee is provided in Taxation Ruling TR 2005/16 Income tax: Pay As You Go – withholding from payments to employees.
Depending upon the arrangement, it is possible that an employment relationship will not exist. For example, if the terms and conditions of the scholarship do not require the recipient to perform any duties.
If an employment arrangement does not exist, the benefit will not be a fringe benefit and it will not be necessary to consider the application of the otherwise deductible rule.
Alternatively, the terms and conditions may require the recipient to undertake employment duties. This could be while the recipient is studying, during vacation periods, or for a certain period of time when the course has been completed. Where these conditions exist, the recipient is likely to be an employee on the basis of being either a current or a future employee.
Where the recipient is an employee it is necessary to consider whether the benefit is provided in respect of the employment of the employee.
Is the benefit provided in respect of the employment of the employee?
The phrase in respect of in relation to the employment of an employee is defined in subsection 136(1) of the FBTAA to include by reason of, by virtue of, for or in relation directly or indirectly to, that employment.
The meaning of this phrase was considered by the Federal Court in J & G Knowles v. Federal Commissioner of Taxation  96 FCR 402; 2000 ATC 4151; 44 ATR 22 (Knowles). In its decision, the Full Federal Court referred to the judgements in Smith v. FCT (1987) 164 CLR 513; 19 ATR 274; 87 ATC 4883 and Federal Commissioner of Taxation v. Rowe (1995) 60 FCR 99; 31 ATR 392; 95 ATC 4691 before concluding that it is not sufficient for the purposes of the FBTAA to conclude that there is a causal connection between the benefit and the employment.
At paragraph 26 the Court said:
… what must be established is whether there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment.
At paragraph 28 the Court said:
While the width of the definition of fringe benefit was designed to capture benefits that, in truth, were other than remuneration, the stated purpose suggests that asking whether the benefit is a product or incident of the employment will be helpful. If it is not then the benefit is likely to be extraneous to the employment and will not bear FBT, notwithstanding that the employment might have been a causal factor in the provision of the benefit.
In applying this decision, for the benefit to be provided in respect of the employment of the employee, the employment needs to be a reason for the benefit being provided.
Depending upon the arrangement, this requirement may not exist where the employee is a future employee. For example, where the employment is offered subsequent to the scholarship, or where the scholarship is awarded on the basis of factors unrelated to the employment duties.
Similarly, the performance of employment duties during vacation periods may not cause this requirement to exist if the employment is unrelated to the periods of time when the recipient is an employee.
However, the necessary connection may exist where the recipient undertakes employment duties on an ongoing basis or where there is a material connection between the scholarship and the future employment duties. For example, where the scholarship is only awarded to an individual who will become an employee at the conclusion of the course.
The agenda item also refers to the employee completing a No-private-use declaration. A No-private-use declaration is an annual declaration completed by the employer stating the benefits were only provided for employment related purposes and there was no private portion.
If the benefit is not a fringe benefit or is an exempt benefit, it does not need to be shown on the return.
5.5 Duties in or in connection with a hospital
Will subsection 57A(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to State or Territory Government employees whose duties are performed for the organisation?
The organisation for which the employees are performing their duties is a federally funded organisation that comes under the administration of a State or Territory department and has links to several universities and a Federal Government department.
The organisation has a number of roles including the provision of:
- a trauma service
- disaster management services
- research centred on disaster preparedness, planning and response
- education and training
The trauma service operates an extended hours trauma nursing service within the local major hospital. It also fosters and develops links with aero medical retrieval services, the ambulance service, regional hospitals and remote clinics.
The disaster management service is a comprehensive trauma management system that responds to disasters. Its role includes constantly working to ensure that health services and the local major hospital are equipped, prepared and ready to respond to emergency events. This includes the development of multi-disciplinary health teams incorporating doctors, nurses, paramedics, fire-fighters and allied health staff such as environmental health staff, radiographers and pharmacists that can respond to nation and international disasters.
The response to a disaster may include setting up a mobile hospital in the disaster area to treat patients and refer serious cases to a permanent hospital. At the end of the emergency period, the mobile hospital is dismantled.
The disaster medical research program has three primary themes:
- maximising the performance of disaster responders in tropical climates;
- disaster response capability; and
- disaster information management.
The education and training program offers a range of trauma and disaster training for clinicians across Australia, South East Asia and Pacific countries. This includes the provision of education places across a range of nationally and internationally recognised courses.
Employees can be based at the organisation for varying periods of time. There is core staff that work at the organisation on a permanent basis. However, when a disaster occurs other jurisdictions will provide medical staff to work for the organisation on a temporary basis. The benefits provided to these employees by their home employer will generally come within section 57A.
Industry view/suggested treatment
The FBT Act does not provide a definition of a hospital or a public hospital and the ATO has not been able to provide a ruling on what constitutes a hospital.
The question is whether a mobile hospital is a public hospital for FBT purposes.
The Macquarie Concise Dictionary (4th Ed) defines ‘public hospital’ as a hospital owned and run by the government. It defines ‘hospital’ as an institution in which sick or injured persons are given medical or surgical treatment. An institution is defined as an organisation or establishment for the promotion of a particular object, usually one for some public, educational, charitable, or similar purpose.
There is no requirement for a public hospital to be a permanent establishment fixed at a particular location.
The mobile hospital would be a public hospital.
Paragraph 3 of TD 2014/D17 points out that, where an employee is engaged in more than one job, each job must be considered separately. This is illustrated by Example 7 and supported by Example 8 which concerns a short temporary period in a different position.
Example 1 is an example of performing duties at 2 hospitals but does not indicate if the 2 hospitals are separate employers or if the employee would qualify for the FBT exemption at each hospital.
It is considered that employees who work in the Centre would qualify for the FBT exemption on the basis that their duties of employment are performed exclusively in, or in connection with, a public hospital.
Employees from other jurisdictions would also qualify for the exemption during their secondment to the Centre.
Furthermore, an employee from another jurisdiction who qualifies for an exemption in their own jurisdiction would qualify for an additional exemption during the period of their secondment.
The employees can be divided into two broad categories:
- employees of the State or Territory in which the organisation is based; and
- employees of other jurisdictions.
Employees of the State or Territory in which the organisation is based
In general terms, subsection 57A(2) provides that a benefit will be an exempt benefit where the employer of the employee is a government body and the duties of the employment of the employee are exclusively performed in or in connection with a public hospital.
For this exemption to apply to the State or Territory employees referred to in the agenda item, the employees must perform all their duties in, or in connection with a public hospital. The agenda item is premised on the mobile hospital being the relevant hospital. In relation to this premise, the ATO publication GiftPack contains the following definition of a hospital:
A hospital is an institution in which patients are received for continuous medical care and treatment for sickness, disease or injury. Providing accommodation is integral to a hospital's care and treatment. Clinics that mainly treat ambulatory patients who return to their homes after each visit are not hospitals. However, day surgeries that provide beds for patients to recover after surgery may be hospitals. Homes providing nursing care in respect of feeding, cleanliness and the like are not hospitals. However, nursing homes for people suffering from illness are accepted as hospitals. Hospices for the terminally ill will generally be hospitals. Minor outpatient and nursing care will not prevent an institution from being a hospital.
The first requirement of the definition is for the body being considered to be an institution. There are a number of forms an institution can take, including a corporation, unincorporated association or trust.
On the basis of the information provided in the agenda item, it appears the temporary facility that is set up when a disaster occurs is not an institution. Rather, the organisation is the institution.
Therefore, in considering whether subsection 57A(2) will apply to the employees it is necessary to determine whether the organisation is a hospital. To do this, it is necessary to consider the reason for which the organisation was established and the activities that it undertakes.
To be a hospital an institution must be predominantly for the provision of medical care and treatment where accommodation is integral to the care and treatment. Other purposes or activities must be incidental to the main purpose or minor in extent and importance.
In determining whether the predominant activity is the provision of medical care and treatment where accommodation is integral to the care and treatment, the overall activities of the institution need to be considered including:
- the allocation of funds to various activities;
- the distribution of staff; and
- the allocation of beds.
In providing a response to this agenda item it is not possible to address these factors. Rather, it is recommended that an application for a private binding ruling be lodged with the relevant information to enable the factors to be considered in detail.
However, even if the organisation is not a hospital, it is possible that subsection 57A(2) may apply to the employees who provide trauma care in the local major hospital and at a disaster. Depending upon their position and the arrangement between the organisation and the local hospital, it is possible that these employees could be performing their duties in or in connection with a hospital.
Further, depending upon the services provided by the organisation when an emergency occurs, it is possible that 57A(3) could apply to any employees predominantly involved in the provision of public ambulance services.
Employees of other jurisdictions
To provide a response in relation to the employees of other jurisdictions it is necessary to have additional information to clarify who the employer is while they are performing duties at the disaster location and the duties which they are performing.
5.6 Employee contributions to novated leases for a salary packaging arrangements
The issue is whether a bona fide lease and therefore an effective salary packaging arrangement exists when an employee makes an upfront contribution to a novated lease in order to reduce the vehicle amount required to be financed.
Can the ATO confirm to what extent an employee upfront contribution to novated leases will impact an effective salary packaging arrangement?
A recent practice of salary packaging providers has come to light where employees are making contributions towards a salary packaged novated lease vehicle. Employees wishing to purchase demonstrator/second hand vehicles where the price exceeds the market value that the leasing company is comfortable with financing, are required to make an upfront contribution towards the vehicle to reduce the value of the vehicle to an acceptable level. The employee then finances the remaining portion of the vehicle and enters into a novated lease salary packaging arrangement.
The upfront employee contribution also reduces the residual value of the lease as this is calculated as a percentage of the financed amount (i.e. residual value = (value of the vehicle less employee contribution) x residual percentage). For leases with a 3 year term, the residual value is determined to be 46.88% of the total amount financed (net of the employee contribution).
A recent example of a three year novated lease is as follows:
Vehicle price $36,301.37
Employee contribution $(6,909.09)
Net price (ex-GST) $29,692.28
Lease Residual $13,920.00 (Ex GST)
($29,692.28 x 46.88%)
Industry view/suggested treatment
Issue number 2 in the compendium to TR 2011/3 informs tax payers that they should consider arrangements where an upfront contribution is made by an employee and the affect this contribution will have on the characterisation of the arrangement as a bona fide lease.
The Tax Office response advises IT 28, TR 98/15 and TD 95/63 will apply in these situations.
TR 98/15 paragraph 7 provides that a lease is:
a lease that satisfies the requirements of Taxation Ruling IT 28 and other related Taxation Rulings and Tax Determinations but does not include a hire purchase agreement.
In considering whether the upfront employee contribution will alter the characterisation of the arrangement as a bona fide lease, paragraph 19 of IT 28 states:
An unreal or nominal residual value in leases of relatively short term e.g. up to 5 years, would, I consider, raise a strong presumption that the transaction was something more than ordinary commercial lease. By this it is not intended to convey that the residual value must necessarily correspond with the depreciated value of the goods for income tax purposes but it should, in my view, be in conforming with some generally accepted basis of commercial or industrial valuation.
The ATO imposes a set of minimum residual payment guidelines which must be adhered to for all leases. For a 3 year lease, the minimum residual value is 46.88% of the cost of the car.
The example lease has a residual value of 46.88% of the total amount financed but not of the purchase price of the vehicle. However, the argument is that the purchase price of the vehicle does not reflect the market value of the vehicle and thus while the residual is below the minimum lease amount in respect of the purchase price it is acceptable when compared to the market value of the vehicle. In this regard we believe it would be acceptable to make a contribution towards the value of the lease, as long as the amount financed is equal to the market value. That is, the contribution is not excessive and does not reduce the financing amount below what is considered the vehicle’s market value.
Taxation Ruling TR 2011/3
Taxation Ruling TR98/15
Taxation Determination TD 95/63
Taxation Ruling IT 28
Impact on clients
Issue number 2 of the compendium to Taxation Ruling TR 2011/3 was a response to an issue raised by an external party to draft TR 2011/D1. The issue raised was:
The Ruling does not address the issue of what impact an up-front contribution by an employee will have on the characterisation of an arrangement as a ‘bona fide lease’.
The Tax Office Response states:
The Ruling deals with the meaning of 'cost price' of a car for the purpose of calculating the taxable value of car fringe benefits. The Ruling does not deal with other issues, such as whether an arrangement is a bona fide lease.
A footnote has been added to paragraph 9 to inform a reader that where an employee makes a contribution to a car that is subject to a novated lease arrangement, consideration must be given to whether a bona fide lease exists. In this regard, Taxation Ruling IT 28, Taxation Ruling TR 98/15 and Taxation Determination TD 95/63 will apply.
As set out in the agenda item, Taxation Ruling IT 28 provides that a lease will not be considered to be a bona fide lease if the residual value is less than the relevant percentage of the cost of the item. This requirement would not be met in the example provided in the agenda item.
Support for this conclusion is provided by the discussion of the effect of a deposit or down payment in paragraphs 61 to 67 of Taxation Ruling TR 98/15 Income tax: taxation consequences of trading-in a previously leased asset for a replacement leased asset.
Paragraphs 61 to 67 of TR 98/15 state:
61. If the payments to the lessor on the replacement asset are calculated by reference to the cost of the replacement asset minus the trade-in credit, the credit constitutes a deposit, instalment or down payment of a capital nature to acquire the asset.
62. In addition, the payments under the lease would constitute instalments of a capital nature because they are not payments for hire of the asset but payments to discharge the amount advanced by the lessor under the arrangement to acquire the asset.
63. In any event the arrangement may not constitute a 'lease' as defined in paragraph 7 above for two reasons:
i. the residual value determined under the lease is based on the net cost of the asset, and this does not conform with Taxation Ruling IT 28 or Taxation Determination TD 93/142; and
ii. (the lessee, in essence, has an 'equity' in the asset.
64. This latter concept is best explained by way of example. If the replacement leased asset was worth $80,000 (after allowance of any discount or 'disguised discount') and the trade-in credit was $40,000, the lessee could be paid a cash amount of $40,000, and then lease the replacement asset at its full value of $80,000. In these circumstances, the lease payments would be the same as if no trade-in had occurred and would not affect the validity of the lease.
65. Alternatively, the $40,000 trade-in credit might be used to reduce the 'cost' of the replacement asset, with lease payments calculated as if the newly leased asset were worth only $40,000. Normally, this would mean the lease payments would be calculated so that, over the term of the lease, they equated to $40,000 minus the residual value of the asset at the end of the lease plus interest on the difference.
66. In these circumstances, the arrangement would not constitute a lease. The lease payments would be less than would normally be payable in a commercial lease of the asset. Looked at another way, the lessee has already paid for part of the cost of the asset. In commercial terms, the lessee has acquired some 'equity' in the asset.
67. In this situation, the trade-in credit has been used to pay for part of the cost of the asset, and the lease payments are calculated by working out the interest payable on the difference between that reduced amount and the residual value of the asset at the end of the lease.
Although the arrangement will not be a bona fide lease if the residual value is based on the net cost of the asset, it can be part of an effective salary packaging arrangement.
However, the calculation of the taxable value of the fringe benefits that arise from the arrangement is likely to be different to the calculation where the arrangement involves a bona fide lease. For example, there may be additional benefits such as an expense payment or residual benefit. Further, if the residual value is based on the net cost of the car, a taxable property fringe benefit may arise if the employee acquires the car at the residual value at the end of the lease.
5.7 Meal entertainment expenses
What are the expenses incurred by the employer in relation to an in house dining facility for the purposes of section 37BA of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Where a tax exempt employer operates an in-house dining facility and provides entertainment by way of food and drink, what is considered the “expenses incurred” for the purposes of the 50/50 split method for meal entertainment.
A tax exempt employer operates a training facility which provides courses to employees and a limited number of non-employees.
A number of the courses are residential courses with accommodation provided on site.
Many of the courses involve a welcome dinner and networking functions which are considered to be entertainment for FBT purposes.
The meals and networking functions are held on the employer’s premises at an in-house dining facility.
The employer elects to use the 50/50 method for calculating meal entertainment fringe benefits.
The in-house dining facility is partly operated through employees of the employer and contracted catering staff.
The employer operates on an overall cost recovery basis. However, not all courses or components of each course necessarily break even. Course participants outside of the employer are charged an amount for the meals which may exceed the cost of providing the meal.
Industry view/suggested treatment
Section 37BA states
total taxable value of meal entertainment fringe benefits of the employer for the FBT year is 50% of the expenses incurred by the employer in providing meal entertainment for the FBT year.
The issue is the definition of “expenses incurred by the employer”. The term expense is not defined in the FBTAA and therefore would take its ordinary meaning.
The employer incurs a number of expenses in providing the entertainment, such as:
- Staff costs
- Contractor costs
- Inventory costs
- Accommodation overhead costs
- Administration overhead costs.
The issue regards which amounts to be included in the meal entertainment calculations. We believe that only the direct costs attributable to the provision of the entertainment by way of food or drink should be included in the calculation. That is, the cost of the food and drinks provided at the function and the salary cost of the chefs and wait-staff.
We do not believe there is a sufficient nexus between the expenses incurred in operating the facility, such as accommodation expenses and corporate overheads, and the provision of meal entertainment to warrant the inclusion of these amounts.
Division 9A FBTAA
In discussion, it was noted the agenda item had been raised by a training college that provides residential courses. These courses include the provision of overnight accommodation to course participants. The college is part of an employer that has made an election to use the 50/50 split method.
End of example
If an employer elects to use the 50/50 method to calculate the taxable value of the meal entertainment fringe benefits, the taxable value of the fringe benefits under section 37BA of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) will be:
50% of the expenses incurred by the employer in providing meal entertainment for the FBT year.
Meal entertainment is defined in section 37AD of the FBTAA to mean:
- entertainment by way of food or drink; or
- accommodation or travel in connection with, or for the purpose of facilitating, entertainment to which paragraph (a) applies; or
- the payment or reimbursement of expenses incurred in providing something covered by paragraph (a) or (b);
The agenda item states as a fact that some of the meals that are provided constitute the provision of meal entertainment. The issue raised is which expenses are considered to be incurred in providing this meal entertainment?
Guidance for considering this question was provided by the decision of the Full Federal Court in FC of T v Amway Australia Ltd  FCFCA 273; 2004 ATC 4893; 57 ATR 339 (Amway).
The Court in Amway was required to consider whether a range of expenses incurred in hosting a seminar for invited distributors at a good quality venue located at a holiday destination were in respect of the provision of entertainment. Invitees travelled and stayed at Amway’s expense and attended various business sessions at the venue. They also had the opportunity to enjoy other activities such as golf, tennis, swimming and gala dinners.
The definition of the expression ‘provision of entertainment’ considered by the Court was the definition contained in the former subsection 51AE(3) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition said (in part):
A reference to the provision of entertainment is a reference to the provision … of:
- entertainment by way of food, drink or recreation; or
- accommodation or travel in connection with, or for the purpose of facilitating entertainment to which paragraph (a) applies …
The Full Court in summarising the decision of the earlier decision of Gyles J in Amway of Australia v FC of T  FCA 1533; 2003 ATC 5153; (2003) 54 ATR 480 said at ATC 4908 – 4909:
54. His Honour reached the following conclusions:-
55. (1) All expenditure by Amway on food, drink and recreation in the course of an ALS came within the meaning of the words ``provision of entertainment'' and therefore was not an allowable deduction but subject to any applicable exceptions in subsection 51AE(5).
(2) Section 51AE(3) required a purposive link between accommodation and travel on the one hand and entertainment by way of food, drink or recreation on the other. Having regard to his Honour's finding that an ALS was a serious business occasion for all concerned, notwithstanding that it was held in an exotic location in a quality hotel and provided an opportunity for combining business with pleasure and having regard also to the fact that hospitality to distributors was ancillary to the business purposes of Amway who paid for the fares and accommodation to bring distributors to the seminar but not in order to provide them with food, drink or recreation, it followed that the cost of travel and accommodation was not excluded from deductibility pursuant to s 51(1).
In considering the question of the deductibility of the accommodation and travel expenses, the Full Court at ATC 4909 – 4910 said:
62. Clause (b) of s 51AE(3) has two limbs. The first requires consideration of whether the provision of accommodation or travel is ``in connection with'' the entertainment or perhaps the provision of entertainment by way of food, drink or recreation. Only the second limb requires consideration of purpose. The relevant purpose is the facilitation of such entertainment.
63. The first limb requires, as already noted, a connection.
65. In its broadest sense connection signifies any relationship between two subject matters no matter how remote. If the word connection is used in a very broad sense there would seem little point in the alternative limb of paragraph (b) as accommodation or travel for the purpose of facilitating the entertainment, could be seen to have at least a remote connection with that entertainment. It may be accepted, as the Commissioner submits, that the connection must be proximate. A remote connection will not suffice. Rather what is required is a substantial connection between the provision of accommodation or travel on the one hand and entertainment on the other.
66. It may be noted here that the legislature has made it clear that the provision of accommodation or travel may fall within the definition whether or not the travel is at or in connection with a seminar. Clearly, however, not all travel or accommodation which is at or in connection with a seminar was intended to be excluded from deductibility. Were it otherwise the subsection would be differently drafted. What is required is that there be a real relationship between the provision of accommodation or travel on the one hand, and the entertainment by way of food, drink or recreation which is provided to the recipient of the accommodation or travel to a seminar on the other hand.
67. The second limb is concerned with the purpose of the provision of accommodation or travel. With respect to the learned Primary Judge, we do not see that purpose is relevant to the first limb. It is only relevant to the second limb. We think the better view is that the purpose referred to in paragraph (b) is to be ascribed objectively rather than subjectively, that is to say that the relevant purpose is to be inferred from the objective circumstances. It is not necessary for the Commissioner to reach into the mind of the provider to ascertain purpose.
68. Prima facie, a reading of paragraph (b) suggests that the enquiry is to be directed at ascertaining the sole purpose of the provision of accommodation or travel. However, the fact that the subsection continues to provide that expenditure may fall within the definition whether or not it is ``for the purposes of promotion or advertising'' would suggest that the words ``the purpose'' do not signify sole purpose but rather something less than that, unless paragraph (e) was not intended to apply to a case falling within paragraph (b). In the present case, there is much to be said for the view which his Honour took that Amway's provision to distributors of accommodation or travel was not for the purpose of facilitating either the entertainment by way of food or drink or entertainment which was by way of recreation.
In applying this decision to the expenses listed in the agenda item, the agenda item indicates the entertainment components of the courses are a welcome dinner and networking functions.
The relevant expenses that will be included in the calculation of the taxable value of the meal entertainment fringe benefits are those incurred in providing:
- entertainment by way of food or drink; or
- accommodation or travel that has a substantial connection with the food or drink entertainment, or is for the purpose of providing the food or drink entertainment
Expenditure that would arise if the training course was conducted without the provision of meal entertainment will not come within either of these categories as the expenses will not have the necessary connection with the meal entertainment and is incurred for the purpose of providing a training course, rather than the purpose of facilitating the provision of entertainment by way of food and drink
5.8 Medical Insurance costs for expatriate staff
Employees posted overseas are not eligible for Medicare coverage whilst overseas. In this regard, it is customary for employers to either self-insure or take out specific overseas medical insurance. The issue is whether the insurance premium and the excess payable on each claim are subject to Fringe Benefits Tax (FBT).
As the day to day medical expenses (excluding compensable workers compensation injuries) of employees posted overseas are not eligible for Medicare the employer has agreed to cover the medical expenses that would be met by Medicare if the employee was in Australia.
To cover the potential liability, the employer has taken out an insurance policy. The insurance has a fixed premium per employee or dependent and there is a excess payable per claim.
The sole reason the cover is required is because the employee is required to live away from his or her usual place of residence and during this time is not entitled to receive benefits under Medicare.
Industry view/suggested treatment
The insurance is only necessary due to the work related requirement to deploy the employee overseas. The insurance would not be necessary where the employee could access Medicare benefits. The insurance is therefore akin to a workers compensation insurance, being an expense of the employer in the capacity of employing individuals. In addition, the insurance coverage may not result in any medical benefits being paid in respect of the employee or their dependents.
The excess amount per claim would be a taxable expense payment fringe benefit as this is paid in respect of a benefit for the employee.
Any medical services provided under the insurance contract are not fringe benefits for the employer as these benefits are provided by a third party pursuant to the contact with the insurer.
Guidance as to the FBT liabilities that will arise from the arrangement is provided by the approach adopted in Class Ruling CR 2014/94 Fringe benefits tax: employers of employees who take out a health insurance policy under a Health Link Consultants Employee Health Plan.
Paragraphs 33 to 37 of CR 2014/94 identify four possible benefits that can be provided to the employee. Paragraphs 33 to 37 of CR 2014/94 state:
33. Subsection 136(1) contains an inclusive definition of ‘benefit’ which states:
benefit includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:
a. an arrangement for or in relation to:
- the performance of work (including work of a professional nature), whether with or without the provision of property;
- the provision of, or of the use of facilities for, entertainment, recreation or instruction; or
- the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;
b. a contract of insurance; or
c. an arrangement for or in relation to the lending of money.
34. An employee of a participating employer who takes out a health insurance policy with the health insurer under an Employee Health Plan will receive:
- a right to have the health insurer pay certain medical expenses incurred by an employee or eligible family member, and
- a right to receive a reimbursement from the ERP Operator of a hospital excess incurred by an employee or eligible family member who is hospitalised.
As these rights are provided under a contract of insurance, they are a benefit under paragraph (b) of the fringe benefit definition in subsection 136(1).
35. In addition to the general definition of benefit contained within subsection 136(1), Subdivision A of Divisions 2 to 11 of Part III (inclusive) deem that a benefit will arise in certain specified circumstances. Section 20 which is in Subdivision A of Division 5 states:
Where a person (in this section referred to as the ‘provider’’):
- makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the ‘recipient’’) to pay an amount to a third person in respect of expenditure incurred by the recipient
- reimburses another person (in this section also referred to as the ‘recipient’’), in whole or in part, in respect of an amount of expenditure incurred by the recipient
the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.
36. In applying this section, a payment by the health insurer of a medical expense incurred by an eligible employee or eligible family member will be a benefit under paragraph 20(a) and a reimbursement by the ERP Operator of a hospital excess will be a benefit under paragraph 20(b).
37. Therefore, an eligible employee or eligible family member may receive four benefits under an Employee Health Plan. They are:
- the right to have certain medical expenses paid by the health insurer
- the right to receive a reimbursement of a hospital excess from the ERP Operator
- the payment by the health insurer of a medical expense incurred by an eligible employee or eligible family member, and
- a reimbursement from the ERP Operator of a hospital excess paid by an eligible employee or eligible family member.
In applying this methodology to the health insurance cover being provided to the employees posted oversees, the employees may receive two benefits under the arrangement; namely:
- a right to have the medical expenses that would be paid by Medicare in Australia paid; and
- if medical treatment is obtained, the payment of the medical expense incurred by the employee. This will include the excess paid by the employer.
In considering whether a fringe benefit arose from the four identified benefits, CR 2014/94 concluded a residual fringe benefit would arise from the provision of the right to receive a reimbursement of a hospital excess if the notional value of the right was at least $300. Where the notional value was less than $300, CR2014/94 ruled the residual benefit would be an exempt minor benefit under section 58P of the FBTAA.
The same answer will apply in relation to the right to have medical expenses that would by Medicare in Australia. This right is a residual benefit provided by the employer in respect of the employee’s employment.
The taxable value of this benefit will be the amount the employee could reasonably be expected to have been required to pay to obtain insurance cover for the medical costs under an arm’s length transaction.
Guidance for considering whether this value could be reduced under the otherwise deductible rule is provided by the decision in Case 51/93 93 ATC 542; (1993) 27 ATR 1102 and Taxation Determination TD 93/22.
Case 51/93 concerned the deductibility of the cost of medical insurance and medical fees paid by a professional football player. In reaching its decision the Administrative Appeals Tribunal applied the decisions in FCT v Cooper (1991) 21 ATR 1616; 91 ATC4396 and Lunney v FCT (1958) 100 CLR 478; 7 AITR 166 to decide:
- the expenditure on health insurance was incurred in consequence of the income earning activity rather than in gaining assessable income and therefore it lacked the necessary connection with the income earning activity; and
- the expenditure on medical fees lacked the necessary connection with the income-producing activities and was of a private nature.
In answer to the question of whether a professional sportsperson who is required to take out private health insurance is entitled to a deduction for related contributions under subsection 51(1) TD 93/22 states:
The contributions paid to a private health fund by a sportsperson are not deductible under subsection 51(1) of the Income Tax Assessment Act 1936 because:
- the expense is of a private nature;
- the expense is not sufficiently connected to the sporting activity that produces that income; and
- the expense is a precondition to earning income. Lockhart J said in FC of T v Cooper 91 ATC 4396, (1991) 21 ATR 1616, "the deductibility of... [an expense]... depends upon determining the essential character of the expenditure itself and not upon the fact that, unless it is incurred, the taxpayer will not be able to engage in the activity from which his income is derived."
These principles apply to the situation being considered as the cost of obtaining insurance to cover any overseas medical expenses that arise is a private expense that is not sufficiently connected to the income earning activities.
If the cost of obtaining insurance to cover the health costs for the period the employee is overseas is less than $300, the benefit may be an exempt minor benefit in accordance with CR 2014/94.
The other three benefits identified in CR2014/94 were not fringe benefits as they were provided as a result of the employee becoming a member of the Employee Health Plan rather than the employment of the employee. The same conclusion can be reached in relation to the payment of the medical expenses (including the excess) as the payment of the medical expenses occurs as a result of the right granted to the employee.
The other possible benefit identified in the agenda item (the payment of the insurance premium) will not be a fringe benefit as it is a payment made by the employer to cover the risk that arises for the employer from the agreement to pay for the medical expenses incurred by the employee. As such, the payment of the insurance premium will not involve a benefit being provided to the employee or an associate of an employee.
5.9 Home to work travel
Is the home to work travel considered to be a business journey on the basis that it involves the carriage of bulky equipment.
Certain employees are required to carry kits containing personal protective equipment including overalls, safety vests and helmets, raincoats, gum boots, ear muffs/plus, safety glasses, safety boots and shoes and gloves. They are also required to carry equipment including digital tape recorders, digital cameras and voice recorders, assessment record books, optical rangefinders, handheld anemometers, barrier tapes, traffic cones, safety flags, safety beacons, flash lights, knifes and pliers.
Other employees are required to carry gas detectors, voltage testers, pipe wrenches, flaring tools, plug spears, pressure test kits, basic tool kits, gas tapes and leak detection solutions.
Such equipment is required to remain in vehicles as the employees generally travel directly between home and a work site and can be called out at any time to attend to matters where this equipment is required.
The approximate weight of the equipment is between 50kg and 80kg and can cost up to $14,000.00. Vehicles have been modified in some instances to carry the equipment or storage tubs are used in the vehicles.
Miscellaneous Taxation Ruling MT 2027 and Taxation Ruling IT 112 provide that the journey between home and work can be treated as a business journey where the relevant aspects of the duties carried on by the employee are closely comparable with those that existed in FC of T v Vogt 75 ATC 4073; 5 ATR 274; namely:
- income is earned by performing duties at several places using equipment which the employee brings to the place of performance;
- the equipment is of substantial value and of such bulk that it can only be conveniently transported by the use of a motor vehicle;
- there are justifiable reasons for the employee to keep the equipment at home;
- the essential character of the expenditure itself is such that the expenditure is incurred as part of the operations by which the employee earns his or her income;
- there is no other practicable way of getting the equipment to the places where the employee undertakes their duties; and
- the expenditure may be attributed to the carriage of the equipment rather than to the employee’s travel to the place at which duties are undertaken.
Industry view/suggested treatment
That due to the equipment that is required to be carried from work to home and from home to work, journeys are to be considered business travel.
MT 2027, IT112 and FC of T v Vogt 75 ATC 4073
As set out in the agenda item, guidance as to the circumstances in which the journey between home and work will be a business journey is provided in Miscellaneous Taxation Ruling MT 2027, and IT 112.
As set out in both rulings, the decision in Lunney and Hayley v FCT (1958) 100CLR affirmed the position that travel between home and a person’s regular place of employment or business is ordinarily private travel. However, since that decision there have been several decisions which have provided exceptions to the general rule.
The exceptions include situations where:
- the travel incorporates the transport of equipment; or
- the employment duties are of an itinerant nature.
The information provided in the agenda item indicates either of these exceptions could apply to the situation being considered.
Travel incorporating the transport of equipment
In certain situations the use of a car may be attributed to the necessary carriage of equipment, rather than travel to and from work. Guidelines for the application of this principle are discussed in paragraph 21(b) of IT 112.
Paragraph 21(b) of IT 112 states:
Expenditure on travelling may be accepted as having the essential character of expenditure incurred in gaining or producing the assessable income of a taxpayer in the relevant sense where:-
- the relevant aspects of the operations carried on by the taxpayer for the production of his income are closely comparable with those in Vogt, namely, income is earned by performing his duties at several places by using his own equipment which he brings to the place of performance; the equipment is of substantial value and of such bulk that it can only be conveniently transported by the use of a motor vehicle; and, there are justifiable reasons for the taxpayer to keep the equipment at home; and
- the essential character of the expenditure itself is such that the expenditure is incurred as part of the operations by which the taxpayer earns his income; there is no other practicable way of getting his equipment to the places where he is to perform; and, the expenditure may be attributed to the carriage of the equipment rather than to his travel to the place of performance.
Employment duties are of an itinerant nature
Guidelines for determining whether an employee is carrying out itinerant work are provided in Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work – deductions, allowances and reimbursements for transport expenses.
Paragraph 7 of TR 95/34 provides the following characteristics as being indicators of itinerancy:
- travel is a fundamental part of the employee's work;
- the existence of a 'web' of work places in the employee's regular employment, that is, the employee has no fixed place of work;
- the employee continually travels from one work site to another. An employee must regularly work at more than one work site before returning to his or her usual place of residence;
- other factors that may indicate itinerancy (to a lesser degree) include:
- the employee has a degree of uncertainty of location in his or her employment (that is, no long term plan and no regular pattern exists);
- the employee's home constitutes a base of operations;
- the employee has to carry bulky equipment from home to different work sites;
- the employer provides an allowance in recognition of the employee's need to travel continually between different work sites.
6 Date and location of next meeting
The next Meeting will be held in Queensland, October 2015 day to be confirmed.