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  • Agenda items

    1. Opening of meeting including any changes to the agenda

    Chair Kevin Wallace opened the meeting and welcomed members.

    2. Confirmation of minutes

    The Minutes for the meeting held on 6 November 2015 have been confirmed with the STIP members and have been published on ato.gov.au. No further comments or changes were raised.

    3. Items carried over from previous meetings

    3.1 Definition of eligible state or territory body in section 135T?

    (Agenda item 4.12 from meeting of 6 March 2013)

    As noted in previous meetings, the ATO has lodged a Tax Issues Entry System (TIES) request to address this issue (TIES issue 0008/2013). Details of TIES issues accepted for consideration and regular updates on how the issues are progressing are provided on the TIES websiteExternal Link.

    As the resolution of this issue is subject to government priorities and STIP members can track the progress of this issue through the TIES website, we recommend this action item be closed.

    Action item: Members requested an administrative solution to address this issue be provided and documented in the minutes, before the closing the action item.

    Update: Since the meeting, the TIES website has been decommissioned and this issue has been listed on the Policy, Analysis and Legislation register in the ATO. This agenda item will remain as a carried over item as the progress of this item can no longer be monitored externally.

    As an administrative measure while appropriate measures required to address this issue are considered, the ATO will take into account the proposed changes mentioned above when applying the definition of eligible state or territory body so as to administer section 135T according to its intent rather than as it is currently written.

    3.2 Living-away-from-home declaration – employees who maintain an Australian home

    (Agenda item 4.1 from meeting of 18 March 2014)

    During the discussion of 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.

    At the meeting the ATO undertook to review the declaration with a view to altering the declaration to cover situations where there is a change in the Australian home which the employee is living away from during the period in which the employee is living away from his or her normal residence.

    The ATO advised members a revised declaration has been drafted, but it is intended to further consult with the member who raised the issue to ensure the revised declaration meets the concern raised at the meeting.

    Update: The ATO discussed the current status of the draft declaration and what remained outstanding to resolve the declaration issue.

    Action item: ATO to review the draft declaration before the next meeting and determine next steps.

    3.3 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 from meeting of 17 September 2014)

    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.

    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. As a result the ATO advised members it will be reviewing the publication and undertook to advise members of the outcome.

    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 and members would be notified 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.

    The ATO will send members details of the changes and a confirmation of the date from which the changes will apply.

    Update: The ATO has drafted revised content for ato.gov.au covering exempt vehicles. The content has shifted from a prescriptive list of vehicles eligible for the exemption to a principle based approach. This revised content will be published in the near future, and the ATO will notify members when this occurs.

    In line with the advice previously provided above, vehicles can be treated in as categorised in the vehicle list up to the year ended 31 March 2017.

    The ATO will notify members when the web content is updated, and recommend this action item is to be closed once the revised content is published on ato.gov.au

    Action item: Members to be notified when updated exempt vehicle web content is published.

    4. News from the ATO

    4.1 Compliance update

    The current ATO FBT specific compliance strategies address the following key risks:

    • lapsed lodgers
    • car fringe benefits
    • correct calculation and reporting of living away from home allowance
    • correct use of the FBT concessions, particularly around the FBT rebate.

    The ATO is also completing pilot strategies reviewing:

    • Housing fringe benefits, where employees are being provided with housing as part of their employment in non-remote areas, but no housing fringe benefits are being reported.
    • Employee reward programs, where employees are provided with points or something similar as a reward or as an incentive (rather than money or a non cash benefit), which can be accumulated and converted into money or another item.

    Our activities also include our communications strategy, to provide relevant information to the FBT community to assist them in meeting their obligations. Our focus is to anticipate what the FBT community needs to know about, such as law changes or key due dates, and provide guidance to prevent mistakes from occurring.

    To increase the effectiveness of our messaging, we are also seeking feedback on the channels used for FBT communications, particularly the ATO’s social media communication channels, being Facebook, Twitter and Linked In.

    Meeting discussion:

    The group was asked whether they were aware of and used the ATO social media channels. The general consensus was that members were not aware of these channels, and these channels would not be greatly used by government agencies given the informal nature of the channels and the various government IT policies in place.

    Action item: Members requested a quarterly update on FBT materials to assist them in staying up to date on FBT matters.

    Action item: Members requested information on how government departments can contact the ATO in relation to different matters.

    4.2 Legislation and regulations

    Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015

    Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015 received assent as Act No. 162 of 2015 on 30 November 2015.

    The Act amends the:

    • Income Tax Assessment Act 1997 to reduce the methods for calculating work-related car expense deductions to include the logbook method and the cents per kilometre method; and provide for a single rate for the calculation of the cents per kilometre method to be determined by the Commissioner of Taxation
    • Income Tax Assessment Act 1936 to restrict the application of the zone tax offset to people whose usual place of residence is within a zone or a prescribed area within a zone
    • Fringe Benefits Tax Assessment Act 1986 to limit the concessional treatment of salary packaged entertainment benefits
    • Taxation Administration Act 1953 to create a new reporting regime which requires third parties to report to the Commissioner on certain transactions which could reasonably be expected to have tax consequences for other entities, and
    • Fringe Benefits Tax Assessment Act 1986, Income Tax Assessment Act 1997, Tax Agent Services Act 2009 and Taxation Administration Act 1953 to make consequential amendments.

    Date of effect: apply to the 2016-17 FBT year and later FBT years.

    Reminder on limits for FBT entertainment benefits

    From 1 April 2016, there will be limits on the use of fringe benefits tax (FBT) salary packaged meal entertainment and entertainment facility leasing expenses (meal and other entertainment benefits). These limits aim to improve fairness in the tax system.

    All salary packaged meal and other entertainment benefits will be subject to a separate single grossed-up cap of $5,000. The elective valuation rules (the 50-50 split method and 12-week register method) cannot be used to calculate the taxable value of these benefits.

    Benefits exceeding the $5,000 grossed-up cap will count towards an employee's existing FBT exemption or rebate cap. Refer to Capping of concessional FBT treatment for certain employers for more information on capping thresholds.

    All salary packaged meal and other entertainment benefits will be reported on an employee's payment summary if their reporting threshold is exceeded.

    See also:

    Methods available to calculate work related car expenses

    There are now only two methods available to calculate work-related car expense deductions, the logbook method and the cents per kilometre method. If taxpayers are using the logbook method, they must record their motor vehicle usage in a logbook for a minimum continuous period of 12 weeks. This means if your clients have not already begun logging, you should suggest they start now.

    Car expenses – cents per km

    The government has made changes to the cents per kilometre method. From 1 July 2015, separate rates based on the size of the engine are no longer available. You use a single rate of 66 cents per kilometre for all motor vehicles for the 2015–16 income year. The Commissioner of Taxation will determine the rate for future income years.

    Special arrangement for 2016
    The ATO acknowledges there has been uncertainty about the correct rate to apply for the 2016 FBT year. Therefore, we will also accept 2016 FBT returns based on the 2014–15 rates (which are 64, 76 or 77 cents per kilometre depending on the engine capacity of the employee's car).

    After 2016
    For future FBT years, which end on 31 March, employers should use the rate determined by the Commissioner for the income year that ends on the following 30 June. For example, for the FBT year ending 31 March 2017, employers should use the basic car rate determined by the Commissioner for the 2016–17 income year.

    4.3 FBT related Taxation Rulings

    No FBT related rulings have issued since the last meeting.

    The following Taxation Rulings have been withdrawn:

    MT 2021W: Fringe benefits tax: response to questions by major rural organisation has been withdrawn with effect from 16 March 2016

    MT 2040W - Fringe benefits tax: living-away-from-home allowance benefits: reasonable food component for expatriate employees

    MT 2043W - Fringe benefits tax: living-away-from-home allowance benefits: reasonable food component for expatriate employees: update of MT 2040

    MT 2045W - Fringe benefits tax: living-away-from-home allowance benefits: reasonable food component for expatriate employees: update of MT 2040

    MT 2047W - Fringe benefits tax: living-away-from-home allowance benefits: reasonable food component for expatriate employees: update of MT 2045

    MT 2051W - Fringe benefits tax: living-away-from-home allowance benefits: reasonable food component for expatriate employees: update of MT 2047

    The following Addendum issued:

    TR 2011/3A1 - Addendum Fringe benefits tax: meaning of “cost price" of a car, for the purpose of calculating the taxable value of car fringe benefits. This addendum amends Taxation Ruling TR 2011/3 to remove references to Miscellaneous Taxation Ruling MT 2021 which has been withdrawn.

    4.4 FBT related Class Rulings

    Class Ruling CR 2015/105 - Fringe benefits tax: employers who use the Telogis GPS system for car log book records and for odometer records

    Class Ruling CR 2015/106 - Income tax and fringe benefits tax: use of the Mobilyser app report to calculate an income tax deduction or fringe benefits tax liability

    Class Ruling CR 2015/111 - Fringe benefits tax: corporate clients of McMillan Shakespeare Limited and its subsidiaries (McMillan Shakespeare) who participate in McMillan Shakespeare’s bus travel benefit scheme

    Class Ruling CR 2016/12 - Fringe benefits tax: employers who are clients of United Airport Parking Pty Ltd and who enter into the Corporate Car Parking Arrangement

    Class Ruling CR 2016/18 - Fringe benefits tax: employer clients of Community CPS Australia Limited trading as Beyond Bank Australia who are subject to the provisions of either section 57A or section 65J of the Fringe Benefits Tax Assessment Act 1986 and make use of the Salary Packaging Card facility

    4.5 FBT related Taxation Determinations

    The following FBT related Taxation Determinations have issued since the last meeting. These Taxation Determinations set out various FBT rates and thresholds for the FBT year commencing 1 April 2016:

    TD 2016/1 - 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 2016?

    TD 2016/2 - 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 2016?

    TD 2016/3 - 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 2016?

    TD 2016/4 - 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 2016

    TD 2016/5 - Fringe benefits tax: what is the benchmark interest rate to be used for the fringe benefits tax year commencing on 1 April 2016?

    The following Addendum to TD’s was issued:

    TD 94/16A1 - Addendum Fringe benefits tax: where an employee is provided with a car by the employer and the car is kept in safe storage (e.g. in a commercial garage) while the employee is travelling, under what circumstances is that car taken to be available for private use under section 7 of the Fringe Benefits Tax Assessment Act 1986? This addendum amends TD 94/16 to remove references to Miscellaneous Taxation Ruling MT 2021 which has been withdrawn.

    The following FBT related Taxation Determinations have been withdrawn with effect from 20 April 2016:

    TD 93/40W - Fringe benefits tax: what are the indexation factors for valuing non remote housing and what are the values for remote area housing for the fringe benefits tax year commencing 1 April 1993

    TD 93/41W - Fringe benefits tax: living away from home allowance benefits: what is the reasonable food component for expatriate employees?

    TD 93/59W - Fringe benefits tax: what are the new 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 year commencing 1 April 1993?

    TD 93/66W - Fringe benefits tax: what is the benchmark interest rate to be used for the fringe benefits tax year commencing 1 April 1993?

    TD 94/21W - Fringe benefits tax: what are the indexation factors for valuing non remote housing and what are the statutory amounts for the purposes of valuing remote area housing for the fringe benefit tax year commencing 1 April 1994?

    TD 94/22W - 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 year commencing 1 April 1994?

    TD 94/23W - Fringe benefits tax: what is the reasonable food component for expatriate employees for the purposes of Division 7 (living away from home allowance fringe benefits) of the Fringe Benefits Tax Assessment Act 1986?

    TD 94/29W - Fringe benefits tax: what is the benchmark interest rate to be used for the fringe benefits tax (FBT) year commencing 1 April 1994?

    4.6 FBT related rulings/determinations on the public rulings program

    Draft Taxation Ruling TR 2014/D1 - Income Tax: employee remuneration trust arrangements

    TR 2014/D1 issued on 5 March 2014. A decision has been made that this will be reissued as a new draft. Under new Public Advice and Guidance requirements, consultation will be undertaken before preparing the new draft ruling. The new draft ruling is scheduled to issue 15 June 2016.

    Review of TR 96/26 - Fringe benefits tax: car parking fringe benefits

    The ATO issued a consultation paper on the review and proposed rewrite of TR 96/26 to the members on 23 March 2016. The paper was also referred to a number of other external stakeholders for consideration. Comments were due by 15 April 2016.  The ATO is currently in the process of considering comments received, and members will be advised of the progress of the re-write at future meetings and given the opportunity to comment and consult on the draft ruling as it is developed.

    Addendum to TR 2001/2 (TR 2001/2A3) - Fringe benefits tax: the operation of the new fringe benefits tax gross-up formula to apply from 1 April 2000.

    This is being progressed to bring it up to date following numerous legislative and rate changes. GSTR 2001/3 is similarly being reviewed by Indirect Tax area of the ATO.

    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.

    There have been significant changes to Part IVA since the original PS LA 2005/24 was drafted. The PS LA is being updated to reflect relevant court decisions and provide guidance on the amended legislation. PS LA 2005/24 (draft) Application of General Anti-Avoidance Rules is temporarily on-hold to allow for additional external consultation to take place.

    4.8 FBT related ATO interpretive decisions

    No ATO interpretive decisions (ATO ID) specifically related to FBT have issued since the last meeting, the following ATO ID’s have been withdrawn:

    ATO ID 2002/926 (Withdrawn) - Fringe benefits tax: minor benefits exemption and interest free loans has been withdrawn with effect from 21 March 2016. TR 2007/12 provides 13 examples to assist taxpayers on minor benefits. It is considered that this ID provides no new information.

    ATO ID 2003/613 (Withdrawn) – Car fringe benefits: car taken to be available for private use under the statutory formula method. This ATO ID is withdrawn as it is a straightforward application of the law and does not contain an interpretative decision. Date of effect 1 April 2016.

    4.9 FBT related ATO decision impact statements

    John Holland Group Pty Ltd & Anor v Commissioner of Taxation [2015] FCAFC 82

    Outlines the ATO's response to this case which concerns the 'otherwise deductible rule' in section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

    The facts of this case were presented in the STIP meeting of 6 November 2015. Briefly, the employers organised and paid for their employees to be flown from Perth airport to Geraldton and back again to work on a project on a rostered basis. The exemption available under subsection 47(7) of the FBTAA did not apply in this instance. The taxable value of the residual fringe benefits would be nil where the costs of the flights, under the statutory hypothesis, would be deductible to the employees under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

    The issue for consideration by the Court was whether, under the statutory hypothesis, the amounts, if they had been incurred by the employees would be allowable deductions or not under section 8-1 of the ITAA 1997.

    ATO’s view of the decision:

    This case involved particular FIFO employment arrangements which meant that the air travel provided by the employer was not exempt under subsection 47(7) of the FBTAA. This was because the usual place of employment was adjacent to an eligible urban area as defined (see section 140 of the FBTAA).

    The decision of the Full Court clarifies the law regarding the deductibility of travel expenses. As concluded by the Full Court, the case under consideration in Lunney was of 'ordinary people' paying fares 'to enable them to go day by day to their regular place of employment or business and back to their homes'; it was not about the specific demands occasioned by employment that required, as part of the employment, travel to a remote place.

    The employees in this case were required by their employer, as part of their employment duties, to travel each way between Perth airport and the project accommodation at a remote location. This travel occurred during working time while the employees were rostered-on, and paid. This travel did not include the private travel between the employee's home and Perth airport.

    This was a case of well settled law being applied to a new factual situation. Such matters can involve questions of fact and degree and different facts may result in different conclusions as to deductibility.

    The ATO will continue to approach travel deduction cases by weighing all the relevant facts and circumstances and applying the relevant tax law and authorities to those facts.

    Where similar factual situations to the John Holland case arise, the decision of the Court would obviously apply.

    This DIS was released for public consultation on 15/12/2015. Comments closed 27/01/2016. No comments were received in relation to the DIS and it is now final.

    4.10 Cases

    There were no cases handed down since the last STIP meeting

    4.11 Cases in public domain where a decision has not been handed down

    There were no cases since the last STIP meeting

    4.12 FBT products

    FBT employers guide

    In discussion last meeting, members advised that they are in favour of a more consolidated approach of publishing the guide for employers by replacing the unprintable version from the public website with a link to the printer friendly legal database version.

    This item is still in progress - we intend to remove the web based content and maintain the printable version in the ATO legal database.

    Not-for-profit FBT calculator

    We are updating the NFP FBT calculator to include $5,000 cap for meal and other entertainment.

    FBT lodgment and deferral processes

    The 2016 FBT return is due by 23 May.

    Members asked where FBT return lodgment deferral requests should be submitted in 2016. The ATO confirmed government departments should send FBT return lodgment deferral requests to LargeDAN@ato.gov.au

    Action item: Communicate to members where they can submit section 135X agreements.

    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 2016 must make the nomination, variation or revocation by 21 May 2016.

    See also:

    These agreements can be submitted electronically to ASProduct@ato.gov.au using the submit now button on the form.

    4.13 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.

    The ATO Consultation Hub coordinates the matters we are consulting on, and all current external consultation matters, including the safe harbour topics are listed at Consultation.

    Monthly updates on the progress of consultation matters are provided on the consultation website, as well as information on how to raise a matter for consultation and how to register to take part in consultations. There is also a short video on ATO TV discussing the ATO consultation arrangements on ATO TVExternal Link.

    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 the latest monthly updates shown on the ATO Consultation Hub website as at the time of the STIP meeting.

    4.13.1 Safe harbours – Fringe benefits tax (FBT) and remuneration

    Registered

    March 2015

    Expected completion

    September 2016

    Status

    Consultation in progress.

    The latest meeting held on 19 November 2015 discussed:

    • potential level of savings from the proposed fleet car log book safe harbour - this will enable the completion of an ATO costing and related submission to the Safe Harbour Steering Group
    • guidance on the application of the minor benefit rule to the provision of food or drink and recreational entertainment
    • guidance on the level of infrequent/minor use that is acceptable for ‘exempt’ vehicles.

    The ATO has prepared costings relating fleet log book proposal and has prepared a report recommending approval of this proposal. The next meeting of the working group is scheduled for May 2016.

    Purpose

    To identify and achieve red tape reductions in the area of FBT and remuneration

    Description

    The consultation will explore various proposals with a view to developing safe harbours that align the tax treatment with commercial realities and provide appropriate risk mitigation.

    Who we are consulting

    Professional bodies, industry representatives and key tax agents.

    Outcomes

    To be advised upon completion.

    4.13.2 Tax deductible travel – travelling allowance or living-away-from-home allowance – ’21 days’ guideline

    Updated from last STIP meeting:

    Registered

    November 2014

    Expected completion

    March 2016

    Status

    Completed March 2016

    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. It is also intended that it will cover the deductibility of transport expenses when an employee is travelling away from home/their regular workplace for work (post John Holland), including transport to a place where they may be living away from home by reason of work.

    Description

    Whether a person is ‘travelling’ or ‘living away from home’ can result in different tax consequences from both the employer and employee perspectives. This distinction has become important following the legislative changes to the living-away-from-home provisions in the FBTAA which came into effect in October 2012. In reviewing this matter, including the '21 day’ rule and the impact that has on deductibility issues, it has been decided to address concerns that have been raised by way of a taxation ruling.

    Who we are consulting

    National Tax and Accountants’ Association (NTAA), The Tax Institute and the Institute of Public Accountants.

    Outcomes

    The need to provide certainty to the community on the taxation implications in relation to the deductibility of travel expenses for current day work practices was recognised during the consultation phase. We consulted with industry to understand the main issues confronting employers and employees in this regard and to assist us to appreciate contemporary working arrangements and ultimately to reach agreement that updated guidance is this area of the law is required.

    Consequently, the ATO has agreed to develop a Taxation Ruling on this topic.

    4.13.3 Domestic travel allowance expenses – reasonable rates and safe harbours for meals, incidentals and accommodation

    Registered

    May 2015

    Expected completion

    June 2016

    Status

    Consultation in progress.

    The consultation is still determining the scope and preferred form of ATO guidance and when finalised will be advised in an annual tax determination.

    Purpose

    To assist the ATO determine reasonable expenditure amounts in specific occupations so an appropriate safe harbour (that is, the threshold when a deduction claimed will not routinely be reviewed) can be set. Consultation will be undertaken with each occupation/industry separately.

    Description

    The Commissioner publishes a tax determination annually (see TD 2014/19 published for the 2014–15 income year) that provides reasonable rates for the travel allowance expense substantiation thresholds. The rates apply broadly and for some occupations may provide anomalous outcomes. For example:

    Rates for accommodation are based on the expenses incurred for short-term stays in motels and hotels (a stay not exceeding five days). In some occupations (for example, construction workers) stays are routinely more than five days and may not be in hotel style accommodation, meaning the rate may not provide appropriate guidance as to the reasonable amount.

    Employee truck drivers required to sleep away from home are provided a reasonable rate based on consuming breakfast, lunch and dinner in country hotel style accommodation (currently $93.40 for lower range salary). We consider that this rate may not reflect current industry and employee practice; given that allowances routinely paid to truck drivers are in the $30 to $40 per diem range.

    Ensuring that the rates reflect contemporary employment practices is important. The reasonable allowance system provides an exemption from substantiation, however, the expense still needs to be incurred (see paragraph 3 of TD 2014/19). The rate is also not the amount that an employer should be paying their employee (see paragraph 2 of TD 2014/19).

    Despite these clear statements, we have identified that in some industries (examples include long-distance truck driving, construction and performing arts) the rates may be being used incorrectly, with some employees treating the rate as the allowable deduction without regard to the actual expenses incurred. These practices may result in the delay of processing of the tax return and, in some cases, compliance activity.

    It is planned that this consultation will help the ATO improve confidence in the reasonable allowance expense amount system rules for some occupations by establishing appropriate safe harbour amounts with simple rules for employees to follow.

    Who we are consulting

    Employer and union representatives from the affected occupations/industries and members of the professional tax and accounting bodies.

    Outcomes

    To be advised upon completion.

    4.13.4 The paper below relating to FBT was available for comment.

    Fringe Benefits Tax: The operation of Division 2 – car fringe benefits of the Fringe Benefits Tax Assessment Act 1986

    The ATO is considering the need to provide further guidance to supplement the current car fringe benefit public advice contained at Car fringe benefits.

    Where necessary, the guidance will provide a more detailed explanation of the issues identified in the guide by outlining the principals involved and illustrating the application of those principles. It will also include other issues that are identified as part of this consultation process and potentially include issues raised in Australian Taxation Office Interpretative Decisions.

    The issues being considered include:

    • the meaning of the 'earliest holding time' for the purposes of paragraph 9(2)(b) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)
    • the meaning of the term ‘applied to own use’ in the context of ‘cost price’ in subsection 9(2) of the FBTAA
    • the meaning of the term ‘private use of the car’ for the purposes of subsection 8(2)(b) of the FBTAA
    • the application of the car fringe benefit carve outs in subsection 7(2A) and section 8 of the FBTAA.

    ATO seeks the community’s views on:

    • Whether the existing chapter seven of the FBT – a guide for employers provides sufficient detail in relation to the issues addressed therein or on car fringe benefits generally.
    • Whether there is a need to provide a coherent principles based explanation to assist taxpayers in understanding the application of Division 2 – car fringe benefits of the FBTAA, to enable taxpayers to determine whether they have a car fringe benefit, and if so how to determine the value of the car fringe benefit – to complement chapter seven of the FBT – a guide for employers?
    • What is the preferred channel through which to deliver this content – having regard to the different levels of protection afforded by the various types of guidance? For example, do you believe that the extra level of protection provided by a public ruling is necessary?
    • What additional circumstances should the new guidance cover in order to complement chapter seven of the FBT – a guide for employers and be relevant?

    Closing date for comments was 15 April 2016.

    Update: As the consultation period ended recently, a full review of the responses received during the consultation period will now need to be completed. Any action arising from the feedback will be discussed at future meetings.

    4.14 Review of public advice

    Academic Review: Many public rulings including MT’s and TD’s have not been updated in over 5 years. The ATO’s Public Advice & Guidance centre (PAG) have begun a systematic process of having these reviewed at a high-level by relevant academics (highly regarded professors in taxation).

    The object of their review is to provide advice on how these rulings should be brought into currency (for example, by recommending that each ruling be withdrawn, rewritten/updated, consolidated/merged with other related ATO materials, or retained as is).

    This will provide a program of work and ‘road-map’ for PAG to progress as other higher priority work ebbs and flows.

    65 FBT public rulings (of a total of 170) are intended to be reviewed through this process.

    Archiving annual TDs:  PAG is also looking at withdrawing annual TDs (including FBT) after a number of years to which they relate. They would still be available to find in archived material, but would then not clog user’s search results by default with outdated material.

    Law Companion Guidelines (LCGs)

    LCG 2015/1 Law Companion Guidelines: purpose, nature and role in ATO’s public advice and guidance was released on 10 March 2016.

    This draft Guideline outlines the purpose, nature and role of LCGs in the Commissioner's administration of the tax system. It explains:

    • the nature of LCGs and their relationship to the legislative process
    • how LCGs fit into the ATO's delivery of public advice and guidance
    • the status and binding effect of an LCG.

    Essentially LCGs are aimed at expressing the Commissioner's view on how recently enacted law applies to a class of taxpayers, or to taxpayers generally. Often, LCGs will apply only to a particular class of persons, being taxpayers who rely on them in good faith.

    The publication is a public ruling for the purposes of the Taxation Administration Act 1953.

    A short video on LCGs and the ATO’s public guidance offeringExternal Link is available.

    Practical compliance guidelines (PCGs)

    PCG 2016/1 Practical Compliance Guidelines: purpose, nature and role in ATO’s public advice and guidance was released on 16 March 2016.

    This draft PCG outlines the nature and role of PCGs within the framework of public advice and guidance provided by the ATO in relation to administration of the tax laws. It explains:

    • the nature of PCGs
    • when and how they are prepared
    • their interaction with other forms of public advice and guidance
    • their status and the reliance that can be placed upon them.

    PCGs enable the ATO to communicate how it will sensibly apply its audit resources or provide practical compliance solutions where tax laws are uncertain in their application or are found to be creating unsustainable administrative or compliance burdens in light of, for example, evolving commercial practices.

    PCGs are consistent with the duty of good management stemming from the Commissioner's general powers of administration of the taxation laws. They will be the identifiable, coherent, principal source of the type of broad compliance guidance in respect of significant law administration issues. An example of this is the creation and administration of ‘safe harbours’.

    Advice in the nature of compliance guidance has previously been provided by the ATO in the form of Law Administration Practice Statements (practice statements). However although published in the interests of open administration, practice statements are for use by ATO staff and they have a main purpose of providing instructions to staff on the manner of performing law administration duties. PCGs will be the appropriate communication product providing broad law administration guidance to taxpayers.

    If taxpayers follow such guidelines in good faith, the Commissioner will administer the law in accordance with the approaches set out.

    4.15 Review of private advice

    Private advice is the tailored technical assistance the ATO provides to clients that request advice on how the law applies to their specific circumstances. This includes private rulings as well as other advice and guidance sought from the ATO from time to time.

    The ATO’s goal is to make the provision of private advice more contemporary and streamlined - while providing certainty through tailored, useful and timely advice.

    From a practical day to day point of view, this goal will be supported by a framework of five guiding principles for a client focussed private advice system:

    • Tailored service – our service offering meets our client’s needs.
    • Practical certainty – we provide practical advice within a user friendly system.
    • Contemporary delivery – our advice services support a contemporary digital experience.
    • Empowering our people – we have a strong client service culture.
    • Continuous improvement – our private advice system learns as it goes.

    During the consultation stage of the review of private advice and guidance the ATO sought input across a range of interested stakeholders including clients, professional bodies, industry representatives, tax agents and others into how we could reshape our private advice system to better meet expectations across all client groups.

    The report summarising the feedback from the consultation process, Review of private advice – Findings reportExternal Link has been published on the ATO’s Let’s Talk webpage.

    See also:

    5. Issues raised by the States and Territories

    5.1 Essential health care service

    Issue

    The definition of 'essential health care service' per Regulation 5(3)(a) of the Fringe Benefits Tax Regulations 1992 (FBTR).

    Background

    A query has been raised regarding hospital charges for pregnancy where there have been complications with the birth. Currently, any pregnancy/birth related expense incurred by an employee or an associate of an employee whose place of employment is overseas is treated as a taxable and reportable fringe benefit, in line with tax treatment of medical consultation and pharmaceutical expenses incurred overseas.  

    Question

    Can the ATO provide a list or guidance as to what constitutes 'essential health care' in terms of the reporting exclusion and in particular how it relates to birth expenses?

    ATO response

    The facts provided above do not provide a sufficient basis for determining whether the services provided to the employee’s spouse are emergency or other essential health care for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

    The ATO is likely to defer to medical reports or professional opinion as to whether the elements of the sub-regulations are satisfied.

    Sub-reg 5(3) states

    ‘A fringe benefit is an excluded fringe benefit if:

    1. the benefit is reimbursement of a payment by an employee, or an associate of an employee, for the cost of an emergency or other essential health care service provided to the employee or associate outside Australia; and
    2. the employee, or associate, to whom the service was provided is an Australian citizen or a permanent resident of Australia; and
    3. the employee's place of employment is outside Australia when the service was provided; and
    4. a Medicare benefit is not payable in respect of the service.’

    The issue raised is the meaning of the phrase “emergency or other essential health care service”.

    Emergency or other essential health care service

    The words of a statute are to be interpreted by reference to their ordinary and natural meaning giving effect to the intention of parliament unless those terms are specifically defined in an Act or are terms of art: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355.

    The terms 'emergency', 'emergency assistance' and 'health care' are each defined in section 136(1) of the FBTAA. However, care must be taken so as to not simply attribute the defined meaning to each applicable word within a separate compound phrase. This is particularly so in this instance because the words as defined are not all used in the context of health care.

    'Emergency' is relevantly defined as involving ‘…(d) an accident; [or] (e) a serious illness [or] (f) any similar matter…’

    'Health care' means ‘…any examination, test or form of care (whether therapeutic, preventative or rehabilitative) that is related to the physiological or psychological health of a person…’.

    Where a compound phrase or expression is used within an Act, the phrase should not be severed into parts and interpreted by reference to the meaning of each such part. Instead, words in a phrase are to be interpreted as a whole and by reference to one another. This is particularly important if words can be ascribed multiple ordinary meanings. However, the word “essential” should be ascribed a meaning consistent with ‘emergency’, particularly as the word “other” is used before the words “essential health care service”.

    Although the explanatory memorandum to the Fringe Benefits Tax Amendment Regulations (No. 1) 2000 (Cth) provides some explanation for the introduction of regulation 5, it does not provide clarification of the meaning of the relevant phrase.

    The Macquarie Dictionary defines the noun 'emergency' by reference to 'an unforeseen occurrence; a sudden and urgent occasion for action' and the adjective 'essential' as meaning 'absolutely necessary or indispensable'.

    On this basis, the following characteristics are likely to indicate a service qualifies as an emergency or other essential health care service for the purposes of sub-reg 5(3):

    • the service is
      • an acute treatment or response where a person requires urgent, intense or immediate attention such that time is of the essence
      • absolutely necessary and not optional, or
      • only in response to the immediate and urgent risk to a person
       
    • delay in providing the service is likely to increase further risk of injury or harm to the person, or
    • if the service is not provided, there is likely to be a rapid decline in a person’s health.

    5.2 Medical exclusion

    Issue

    What constitutes essential healthcare for the purposes of Regulation 5 of the FBTR?

    Background

    The term ‘essential healthcare’ is not defined in the FBTR of the FBTAA, and an examination of ATO guidance material provides no reference on what benefits can be incorporated as ‘essential health care’. In determining the ordinary meaning of the term in the context of the rationale behind the introduction of the legislation, we consider ‘health care’ costs, that would be covered by a Medicare benefit but for the fact it is provided abroad, may be regarded as ‘essential’ for the purposes of Regulation 5 of the FBTR.

    Excluded fringe benefits are provided for in subsection 5E(3) of the FBTAA, and includes those benefits that are prescribed by the regulations. Sub regulation 5(2) and 5(3) of the FBTR provides that ‘emergency and other essential health care services’ will be an excluded benefit, subject to other conditions being met.

    The explanatory statement to the Fringe Benefits Tax Amendment Regulations 2000 (No. 1) provides the rationale behind the introduction of regulation 5 of the FBTR:

    The regulations implement the government’s recent decision to exclude other fringe benefits from the FBT reporting arrangements. One exclusion applies in the case of fringe benefits arising from the payment or reimbursement of emergency and essential health care costs incurred by Australian resident employees, or their associates who are also Australian residents, while the employee is serving overseas. However, this exclusion only applies where the health care services are not already covered by the Australian Medicare system – the rationale being that Australian residents remain liable for the Medicare levy while they are employed overseas, even though Medicare does not cover medical costs incurred abroad.

    Industry view / suggested treatment

    The legislation or regulations do not define the term ‘emergency and other essential health care service’ and the ATO has not provided any guidance via any of its rulings or determinations. However, section 136(1) of the FBTAA defines ‘health care’ to include any examination, test or form of care (whether therapeutic, preventative or rehabilitative) that is related to the physiological or psychological health of a person.

    ‘Essential’ is not defined in the FBTR or FBTAA and therefore the term takes on its ordinary meaning in the context within which it is used. The Macquarie dictionary defines ‘essential’ as absolutely necessary.

    In establishing the meaning of the term in the context of the legislation, guidance is taken from ‘Reciprocal Health Care Agreements’ (RHCA’s) entered into by the Australian Government pursuant to section 78 of the Health Insurance Act 1973 (the HIA). The purpose of RHCA’s is to provide ‘treatment that is medically essential’ to residents of one country when visiting the other.

    For eligible non-residents visiting Australia, this allows them to access Medicare benefits for ‘immediately necessary medical treatment’. The Department of Health (DoH) publication ‘Review of the Eligibility of Retirement VISA holders for Medicare under relevant Reciprocal Health Care Agreements’ states:

    These RHCA’s provide for free public hospital treatment, Medicare benefits for out-of-hospital services and subsidised pharmaceuticals through the Pharmaceutical Benefits Scheme (PBS)… While visitors from reciprocal health care countries are eligible for certain benefits under Medicare, they are not eligible to receive Medicare benefits for hospital services as a private patient because of the terms of the RHCAs.

    Similarly, where an employee is working in a country that has a RHCA with Australia, that employee may be entitled to reduced health care costs. We understand these benefits accessed by an Australian resident under a RHCA will not be eligible for a Medicare benefit and thus may still fall within section 5 of the FBTR.

    A ‘Medicare benefit’ for the purposes of the FBTR refers to definition in the HIA – “a Medicare benefit under Part II of the HIA. A practical summary of hospital, medical and pharmaceutical health care costs that are covered by Medicare is available at What is covered by Medicare?External Link The detailed medical benefits schedule is available for downloadExternal Link.

    When considering the meaning of the term ‘essential health care’ in the context in which the words are being used we consider health care costs covered by a Medicare benefit under a RHCA may be considered ‘essential’ although there is nothing definitive to confirm this interpretation.

    Example

    A medical service is performed by a qualified medical practitioner (costing AU$100), and had it not been for the service being provided overseas, a Medicare refund (of $AU70) would apply in Australia. The benefit being provided by the employer (whether they paid the $70 or covered the full AU$100 cost) would not be reportable in accordance with Regulation 5 of the FBTR.

    Often employees are required to make annual personal contributions towards health costs. The amount (set annually by the DoH) is representative of the Australian average annual expenditure on the difference between actual medical costs and the Medicare rebate. Where paid out of post-tax dollars, these costs would be able to reduce the taxable value of the benefit as an employee contribution.

    Overall, if a health care service (excluding hospital services as a private patient) would otherwise be covered by a Medicare benefit, but for the fact it is provided abroad, our interpretation would imply that the health care service would be covered within Regulation 5 of the FBTR.

    The express inclusion of emergency as separate to essential health care further supports the position that they are two separate types of treatment able to both access the reporting exclusion.

    We note that depending on the circumstances surrounding the essential health care services provided to the employee, there may be an exemption or concession that could be utilised under the FBTAA, however this is outside the scope of our question.

    End of example

    Reference to other states and territory

    This issue is relevant to all government departments where employees are required to live overseas away from their usual residence in order to perform the duties of their employment and are provided with benefits relating to emergency and essential health care.

    Technical references

    • Regulation 5 Fringe Benefits Tax Regulations 1992 (FBTR)
    • Subsection 5E(3) Fringe Benefits Tax Assessment Act 1986 (FBTAA)
    • Explanatory Statement to the Fringe Benefits Tax Amendment Regulations 2000 (No.1)
    • Section 7 Health Insurance Act 1973
    • Review of the Eligibility of Retirement VISA holders for Medicare under relevant Reciprocal Health Care Agreements – Department of Health

    Impact on clients

    Government employees who are required to live overseas away from their usual place of residence for a period of time are often provided with assistance with medical expenses in accordance with the terms and conditions of their deployment.

    Guidance on the definition of what constitutes essential healthcare would provide consistency of treatment and provide certainty for employees who may consider the impact of a reportable fringe benefits amount prior to receiving benefits from their employer.

    Priority

    A high rating is considered appropriate as it is generally accepted that employees who are overseas living away from their usual place of residence will be provided with some level of assistance with medical benefits.

    ATO response

    This is a follow up question from Agenda item 5.1.

    The description of the issue raised in Agenda item 5.2 refers to sub-regs 5(2) and 5(3) of the FBTR as relating to 'emergency and other essential health care services.' We note the phrase used in the regulations is 'emergency or other essential health care service' (emphasis added).

    It is not appropriate to sever the words ‘essential health care’ from the complete phrase ‘emergency or other essential health care’ used in this regulation.

    Otherwise, reference is made to the discussion in Agenda item 5.1 in relation to the phrase 'emergency or other essential health care service' as used in the context of sub-reg 5(2) and 5(3).

    In this context, not every health care service that would be covered by a Medicare benefit (but for the fact it is provided abroad) would constitute an 'emergency or other essential health care service'. This would be the case regardless of whether an 'emergency' was regarded as separate to 'essential health care services' or not. However, the concept of treatments that are 'medically essential' may overlap with emergency or other health care services, and the ATO would be willing to discuss this further.

    5.3 Application of the John Holland Decision

    Issue

    Application of the decision in John Holland Group & Anor v. Commissioner of Taxation to home to work travel

    Background

    The Full Federal Court in John Holland Group & Anor v. Commissioner of Taxation [2015] FCAFC 82 2015; ATC 20-510; 321 ALR 530; (2015) 232 FCR 59 held that the employees would have been able to claim an income tax deduction for the cost of the flights between Perth (where the employees resided) and Geraldton (where their employment duties were performed).

    The relevant facts included:

    • Employees travelled at their own expense to Perth airport.
    • Perth airport was designated by John Holland as the 'point of hire'.
    • Generally, employees worked on the project during their rostered on period which was for a duration of two to four weeks (although some staff employees worked a five day week, Monday to Friday, and were flown in Monday morning and out Friday night).
    • At the end of their rostered on period, the employees would be transported back to Geraldton airport and would catch a flight back to Perth, at the cost of the employer.
    • The employees would make their way home from Perth airport at their own expense for one week of rest and recreation at home.
    • All flights to and from Perth to Geraldton occurred while the employees were rostered on. That is, the flight was undertaken on the time of the employer.
    • The 'workforce' employees commenced their rostered-on employment duties from the time of their arrival at Perth airport and took the flights because they were directed to do so and were required to do so as part of their employment obligations. These employees were remunerated at an applicable hourly rate for travelling time on the flight from Perth airport to Geraldton and the return flight, which occurred during rostered-on work time.
    • In accordance with the standard terms of employment, 'staff' employees travelled to the project location when required by the employer. These employees were provided with a project allowance based on their annual salary for working at the project site.
    • Employees, travelling on the employer's time, were bound to comply with all employer directives and policies, and disciplinary action could result if an employee breached any such requirement during a flight.

    As set out in the Decision Impact Statement:

    The Full Court found that the employees' arrival at Perth airport from their homes was not travel in the employees' derivation of income, and any expenditure incurred by the employees from their homes to Perth airport would not have been deductible, but, the employees were relevantly at work from arrival at Perth airport and were deriving income from that point. Accordingly the employees would be, on the statutory hypothesis put forward, entitled to a deduction for the cost of air travel from Perth airport to Geraldton and return.
    In discussing Lunney v. Commissioner of Taxation of the Commonwealth of Australia; Hayley v. Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166 (Lunney), the Full Court noted that the cost of travel for which Mr Lunney claimed a deduction, and which the court did not allow, was not the travel from the company's office at No. 11 Darling Harbour to the various ports to carry out his work, but from his domestic residence in Narraweena to his employer's office at No. 11 Darling Harbour.
    The employers contended that the equivalent outgoing in this case (which the employees would not be able to deduct) would be the cost of travelling from the employees' individual residences to Perth airport, but that the employees' arrival at Perth airport was equivalent to the arrival of Mr Lunney at the office of his employer at No. 11 Darling Harbour.
    In other words that arrival by the employees at Perth airport was the employees' arrival at work from which they then travelled to Geraldton to undertake other tasks. The employees were 'in' their employment from the time they were required to present themselves at Perth airport to embark on a specified flight. They were not travelling 'to' their employment at Geraldton.
    The Full Court found that the employment necessitated that travel be part of the activities productive of assessable income. It was the remoteness of the project location that caused there to be a need for travel to be part of that for which employees were employed. There is no suggestion of the obligation to travel between Perth and Geraldton being created other than by the demands of the nature of the employment, or as device to clothe what would be a private journey before the derivation of income with the appearance of a journey as part of the employment.
    It was also noted by the Full Court that the distance between an employee's home and place of work is, of course, not sufficient to make deductible the expense of travel from one place to the other. The criteria for deductibility is not that there is a great distance to travel from home to work but that the travel is a part of the employment. A distant or remote location for the performance of employment duties may, however, be a relevant factor in determining whether travel is part of the employment. The location of the place at which work needs to be performed may occasion a need for travel to be part of the employment. The remoteness of the project location in this case provides the explanation for the travel being part of the employment.
    The case under consideration in Lunney was of 'ordinary people' paying fares 'to enable them to go day by day to their regular place of employment or business and back to their homes'; it was not about the specific demands occasioned by employment that required, as part of the employment, travel to a remote place. The employees in this case were required to travel as part of their employment to a remote location.
    The Full Court also found that there is no reason why Perth airport should not be a point at which the employees duties and remuneration for performance of those duties both commenced and ceased. The contract of employment so provided. The fact that Perth airport is not an area or premises owned or leased by John Holland, is irrelevant. In this respect, there is, it was held no difference between Perth airport and No. 11 Darling Harbour in Lunney's case.
    The Full Court found that from the time the employees, both workforce and staff, checked in at Perth airport as directed by their employer they were travelling in the course of their employment, subject to the directions of the employer and being paid for it. That situation subsisted until they disembarked the plane at Perth airport at the end of their rostered-on work time. At no time during that period were they travelling to work; they were travelling on work and the cost of doing so under the statutory hypothesis in subsection 52(1) of the FBTAA would be an allowable deduction to them under section 8-1 of the ITAA 1997.

    Guidance is sought as to whether this decision extends the circumstances in which home to work travel will be deductible.

    For example, consider the following situation:

    • An employee is transferred to work in a country branch located approximately 200 kilometres from the employee’s residence for a 6-month period.
    • During this period, the employee’s family continues to reside in the residence to be close to where the children attend school.
    • Under the terms of the employee’s employment contract, the employer allows the employee to use a fleet car to drive from the country town to the employee’s residence each Friday afternoon so as to spend the weekend with the family.
    • On Monday morning the employee uses the fleet car to drive to the country branch.
    • The travel occurs during work time.
    • As the car is a fleet car, restrictions are placed on the use of the car. For example, the car is not permitted to be used for other private purposes during the weekend, the employee is required to abide by all road rules while travelling in the car and is not permitted to use the car whilst intoxicated.

    The issue raised for consideration is can the journeys between the country town and the employee’s residence be recorded as being business journeys in the logbook?

    Prior to the decision in John Holland the answer would have been ‘No’ as the employee is living away from home (as per paragraph 43 of MT 2030) and the travel is undertaken to get into a position to commence employment duties, or at the conclusion of those duties.

    In applying the decision in John Holland there are many similarities in the facts, including:

    • The employee is required to live away from home to perform employment duties.
    • The employee travels in work time,
    • The employee is bound by policies and directions while travelling.

    However, there is one crucial difference. Namely, the employee in this situation is travelling from home, rather than travelling from a place away from home at which the employment duties commenced.

    Suggested treatment

    The decision in John Holland cannot be applied generally to home to work travel as the travel considered was from the place at which the employment duties commenced. It was not travel from home.

    Therefore, it will not alter the classification of the travel in the given example as the travel is to and from home.

    However, the decision in John Holland would be applicable to the travel between the country and city offices if the employee parked the car at the city office, rather than at home.

    Question

    Does the decision in John Holland alter the classification of travel to and from home for employees such as those who live away from home to perform employment duties, or work from home?

    ATO Response

    The ATO’s position after John Holland is outlined in DIS NSD 1397/2014 and NSD 1398/2014. As stated, this was a case of well settled law being applied to a new factual situation. Such matters can involve questions of fact and degree and different facts may result in different conclusions as to deductibility.

    The decision of the Full Federal Court clarifies that a deduction is available where travel is undertaken as part of, and as necessary incident of, the employment for which an employee is remunerated. That is, the travel must be part of the employment.

    Factors which may add weight to the case for deductibility of employee travel costs include:

    • whether the employee is directed to travel temporarily to an alternative workplace that necessitates the employee work away from home overnight, and
    • whether the travel is necessitated by the work itself – rather than by a choice the employee makes or may make about where they live.

    In order to obtain specific advice, the Commissioner would welcome a request for a private ruling on this issue.

    Members may be aware that the ATO consultation regarding the application of the ‘21 day’ guideline relating to the distinction between ‘travelling’ and ‘living away from home’ (see Consultation Hub matter 201489) has been finalised.

    As a result of the consultation, the ATO has announced it intends to issue a Public Ruling to provide guidance on the factors that should be taken into account in determining whether or not a deduction is available to an employee under section 8-1 of the Income Tax Assessment Act 1997 for work-related travel expenses. See Ruling ID 3756 Topic: Income Tax and fringe benefits tax: when are deductions allowed for work related travel.

    The ruling is expected to cover both the deductibility of transport costs and the cost of accommodation and meals when an employee is working away from home. A focus of the ruling will be to address modern day work practices.

    A draft ruling will issue later this year for comment.

    5.4 Car parking fringe benefit submissions

    The following three submissions relating to car parking fringe benefits have been grouped under item 5.4:

    • Commercial Parking Station 1
    • Commercial Parking Station 2
    • Pooled car

    Commercial parking station 1

    Issue

    The circumstances in which a development site will be accepted as being a commercial parking station

    Background

    Three properties located within a one kilometre radius of the premises on which car parking is provided to employees have been purchased by a property developer who has lodged an application to obtain approval for the development of the properties. While approval is obtained, the developer is seeking expressions of interest in the purchase of the proposed apartments and is providing parking on the properties.

    The details of the three properties are as follows:

    Property 1

    Property containing a cottage was purchased by the developer who lodged an application for development in December 2011.

    The application was the subject of an appeal by the local residents group and approval was not received until 2014.

    While the development application was considered, the cottage was demolished and the developer on its website advertised monthly parking at a rate that is less than half the amount charged for parking at comparable properties in the relevant area. The notice was taken off the website when construction commenced.

    During this period, the property was a vacant block of land which did not have any parking infrastructure. i.e. it was not sealed, did not have any parking signs, pay & display machines or boom gates.

    Property 2

    The property contains an office building and sealed carpark that has marked parking bays. Prior to the purchase of the property by the developer, the carparks had solely been used by the property tenants.

    The developer established a local office in the building and lodged an application for approval to build the city’s tallest residential tower. Following changes to the planning laws, the application was amended to include an additional 17 stories to house a mixture of offices, apartments and a hotel or serviced apartments.

    During this period, the carpark has been leased to a carpark operator who charges a fee for parking that is comparable with the amount charged for parking at nearby commercial parking stations, advertises the location on their website, installs parking signs and a pay & display machine on the property.

    Property 3

    The property contains a multi-level carpark that is leased to a carpark operator. Prior to the purchase of the property by the developer, the previous owner had obtained approval for the construction of a mixed use tower building on the site.

    At the time of sale, the property was marketed on the basis of the secured income provided by the carpark and the future development potential.

    The carpark is advertised on the carpark operator’s website, has boom gates, pay & display machines and signage. The amount charged by the carpark operator is comparable to the amount charged in nearby commercial carparks and did not change after the sale.

    The definition of commercial parking station in subsection 136(1) of the FBTAA provides that the fees charged for parking on these properties will be able to be used to determine the taxable value of the car parking fringe benefits provided to employees if the properties are considered to be ‘a permanent commercial car parking facility’.

    In relation to this requirement the Explanatory Memorandum to Taxation Laws Amendment (Car Parking) Bill 1992 said:

    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.

    The Macquarie Dictionary defines permanent to mean:

    lasting or intended to last indefinitely; remaining unchanged; not temporary; enduring; abiding.

    Taxation Ruling TR 96/26 at paragraph 80 states:

    A vacant lot, utilised commercially as a car park, could be considered to be a permanent commercial car park even where it is intended that a building will be erected on the site in due course.

    While this paragraph indicates a vacant lot purchased for development can be a permanent commercial car park, it does not provide any guidance as to the factors that need to be considered when determining whether the lot is a commercial parking station. Therefore, guidance is sought as to the relevant factors that need to be considered.

    Suggested treatment

    Although the issue is slightly different, many of the factors that are considered when determining whether a business is being carried on would also appear relevant to the situation being considered.

    The factors considered in determining whether a business is being carried on are summarised in paragraph 18 of TR 97/11 which states:

    18. The following table provides a summary of the main indicators of carrying on a business. The last three items shown are factors which support the main indicators.

    Indicators which suggest a business is being carried on

    Indicators which suggest a business is not being carried on

    a significant commercial activity

    not a significant commercial activity

    purpose and intention of the taxpayer in engaging in the activity

    no purpose or intention of the taxpayer to carry on a business activity

    an intention to make a profit from the activity

    no intention to make a profit from the activity

    the activity is or will be profitable

    the activity is inherently unprofitable

    repetition and regularity of activity

    little repetition or regularity of activity

    activity is carried on in a similar manner to that of the ordinary trade

    activity carried on in an ad hoc manner

    activity organised and carried on in a businesslike manner and systematically - records are kept

    activity not organised or carried on in the same manner as the normal ordinary business activity - records are not kept

    size and scale of the activity

    small size and scale

    not a hobby, recreation or sporting activity

    a hobby, recreation or sporting activity

    a business plan exists

    there is no business plan

    commercial sales of product

    sale of products to relatives and friends

    taxpayer has knowledge or skill

    taxpayer lacks knowledge or skill

    In applying this guidance, the relevant factors would seem to be:

    • whether the activities undertaken indicate an intention to operate a car park on an ongoing basis, rather than a temporary basis such as for a special function
    • whether the fee charged is in accordance with the fee that would be charged to receive the standard rate of return from a carpark, rather than a minimal amount charged to cover the property holding costs
    • a repetition or regularity of the activity
    • whether the parking facility is operated in a manner expected of a person looking to provide parking to members of the public, and
    • whether the person providing the parking has an ongoing involvement in the parking industry.

    In applying these factors, the three examples, the situation of property 1 can be distinguished from the other properties as:

    • the activities of the developer of property 1 are not indicative of a person looking to carry on a car parking business at the property on an ongoing basis as none of the usual infrastructure has been installed and unless a potential parker happens to visit the developer’s website, he or she will not know that it is possible to park on the property
    • the fee charged is less than half the amount that would be expected to be charged in order to receive the usual rate of return from a property used to provide parking, and
    • there does not appear to be an intention to have an ongoing involvement in the parking industry. Although none of the developers appear to have this intention, the developers of properties 2 and 3 leased the properties to a carpark operator who has managed the properties in a manner expected of a person operating a commercial parking station.

    Therefore, although all three examples involve a property that is purchased by a developer with the intention of constructing a building on the property, only properties 2 and 3 can be considered to be a permanent commercial car parking facility.

    Question

    What are the relevant factors to consider when determining whether a development site is a commercial parking station?

    Commercial parking station 2

    Issue

    Clarification of the meaning of ‘commercial parking station’ and the relevant fee in the context of a residential apartment complex

    Background

    A number of residential apartment complexes are located within a one kilometre radius of the premises on which car parking is provided to employees.

    Each apartment within the complexes has a separate title which enabled the apartments to be sold separately. Some of the apartments were purchased to become the residence of the purchaser. Other apartments were purchased by investors who lease the apartments on a short or long term basis. Often the lease of these apartments is undertaken by a property manager.

    Each apartment has two allocated car parking spaces which may be managed by the body corporate. Alternatively, the car parking spaces may be on separate titles which are sold with the apartment.

    These car parking spaces can be made available to be used by members of the public for all-day parking under a range of arrangements. Where the complex is located within a one kilometre radius of the premises on which parking is provided to employees, the employer is required to determine whether the apartment parking is a commercial parking station and if it is, which of the fees is the lowest fee charged by the operator of the commercial parking station.

    Example

    The following example is provided for the purpose of clarifying the process to be used in considering these issues:

    • The complex has 250 apartments.
    • Each apartment has 2 car parking spaces which are on a separate title.
    • Some of the owners have sold one of their parking spaces for an average price of $40,000.
    • The apartments that are leased, are leased by a property manager that provides apartments for lease on a national basis.
    • A person leasing an apartment through the property manager receives free parking in the parking space allocated to the apartment.
    • The property manager has entered into an agreement with a car parking operator on behalf of the owners to lease 250 of the parking spaces to the operator for $210 per month ($7 per day).

    The car parking operator advertises the parking on its website for the following rates:

    • Up to 30 minutes: $5
    • 30 mins – 1 hour: $9
    • 1.5 hours – 2 hours: $14
    • 2 hours – 12 hours: $17
    • Early bird rate: $14 (reduced to $11 if pre-booked on-line)

    The car parking operator also provides monthly leases. Although these rates are not advertised on the website, it is understood the rate charged is $360 per month ($12 per day).

    Under separate arrangements some of the apartment owners have advertised the lease of their parking spaces on the internet using services such as Parkhound, Parking made Easy and Gumtree. The rates range between $70 per week ($10 per day) and $255 per month ($8.50 per day).

    End of example

    The issue to be clarified are:

    • Is the apartment complex (or part of the complex) a commercial parking station?

    If the apartment complex is a commercial parking station, what is the lowest fee charged for all-day parking? Is it:

    • nil (the amount paid for a car parking space by the apartment owner on purchasing the apartment);
    • nil (the amount paid for a car parking space by a member of the public who leases an apartment);
    • $7 (the amount paid by the car parking operator)
    • $8.50 (the lowest rate charged by an apartment owner on the internet)
    • $11 (the internet early bird rate)
    • $12 (the monthly lease rate)

    Suggested treatment

    The definition of commercial parking station in subsection 136(1) of the FBTAA provides that the fees charged for parking on these properties will be able to be used to determine the taxable value of the car parking fringe benefits provided to employees if the properties are considered to be ‘a permanent commercial car parking facility’.

    In relation to this requirement the Explanatory Memorandum to Taxation Laws Amendment (Car Parking) Bill 1992 said:

    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.

    The Macquarie Dictionary defines permanent to mean:

    lasting or intended to last indefinitely; remaining unchanged; not temporary; enduring; abiding.

    Taxation Ruling TR 96/26 at paragraph 81 provides the following examples of parking arrangements that are not considered to constitute a commercial parking station:

    • car parking spaces leased to a tenant by a property developer as part of an overall lease agreement for business premises; and
    • arrangements made by a business in an area without a commercial parking station and where street parking is not permitted, for its employees to park during business hours in yards and driveways of surrounding houses.

    Further, as discussed in the agenda item regarding parking provided on development sites, in applying the factors used to determine if a business is being carried on that are listed in paragraph 18 of TR 97/11 it is relevant to consider:

    • whether the activities undertaken indicate an intention to operate a car park on an ongoing basis, rather than a temporary basis such as for a special function;
    • whether the fee charged is in accordance with the fee that would be charged to receive the standard rate of return from a carpark, rather than a minimal amount charged to cover the property holding costs;
    • a repetition or regularity of the activity;
    • whether the parking facility is operated in a manner expected of a person looking to provide parking to members of the public; and
    • whether the person providing the parking has an ongoing involvement in the parking industry.

    In applying these factors, the parking spaces advertised for lease on the internet by the apartment owners are unlikely to be considered as being permanent. However, the parking spaces provided by the car parking operator satisfy the requirements.

    The definition of commercial parking station in subsection 136(1) only requires one of the car parking spaces in the car parking facility to be available in the ordinary course of business to members of the public for all-day parking.

    The question that arises from this definition is whether the apartment car park is the car parking facility, or is each individual space a car parking facility?

    Paragraph 39A(1)(a)(iii) tends to indicate that the car park can be divided into separate car parking facilities as it refers to the lowest fee charged by the ‘operator’ of the commercial parking station. In the example there are multiple operators including the car parking operator, the property manager and the apartment owners.

    Therefore, the apartment car park consists of multiple car parking facilities which results in the following outcomes:

    • the car park spaces that apply to the apartments that are a residence of the owner will not be a commercial parking facility as the owner in purchasing the apartment was not charged a fee for all-day parking;
    • the car park spaces used by the apartment tenants will not be a commercial parking facility as a fee has not been charged for all-day parking (as per paragraph 44 of TR 96/26 and the decision in Case 27/95 95 ATC 275; AAT Case 10128; (1995) 30 ATR 1297. (However, they could be if a nominal fee is charged);
    • the car park spaces leased to the car parking operator are a commercial parking station; and
    • the car park spaces advertised for lease on the internet by the apartment owners are unlikely to be a commercial parking station.

    This outcome highlights the considerable complexities associated with the car parking provisions as it is possible for:

    • multiple commercial parking stations to exist within the same car park; and
    • a commercial parking station to have multiple operators (eg. in the example both the property manager and car parking operator are operators that charge a fee for parking in the parking spaces that are leased by the car parking operator).

    In applying the car parking provisions to the example:

    • although the lowest fee charged by the operator of a commercial parking station on the premises ($7) is less than the car parking threshold ($8.37) a car parking fringe benefit is provided as the lowest fee charged by the car parking operator ($11) is more than the threshold; and
    • the relevant fee to be used for these spaces is $7.

    However, while it is possible to arrive at this conclusion in the context of an example, it may not be possible to do so in practice as the $7 fee is not publicly available.

    Further, if it is possible for a parking space advertised on the internet by an apartment owner to be a commercial parking facility, an employer will be required to keep track of the rates charged throughout the year by the apartment owners and make individual decisions as to whether each arrangement is a commercial parking station. This is not practical.

    The alternative is to use the rates charged by the car parking operator, but there are difficulties in doing so as:

    • car parking operators are reluctant to provide details of monthly car parking rates if you do not intend to use the car park; and
    • the amount charged by the car parking operator to use the car park will only be reflective of the amount that would be charged by a provider who uses leased premises to operate a commercial parking station. The amount bears little relevance to the amount that an employer that owns the land and is not operating a commercial parking station would charge for parking on the property.

    Questions:

    What commercial parking stations (if any) are in the example?

    If a commercial parking station exists, what is the relevant fee for the purposes of the car parking provisions?

    Pool Car

    Circumstances in which a car parking benefit will arise in relation to a pool car

    Background

    The conditions in subsection 39A(1) which must be met for a car parking benefit to arise include requirements for:

    • the car to be parked on the premises for at least 4 hours (paragraph (b));
    • the car to be the employee’s car, or a car for which a car benefit arose on that day (paragraph (c); and
    • the car to be used for travel by the employee between the place of residence of the employee and the primary place of employment on that day.

    It is possible for these conditions to be met where an employee who is on-call, or required to attend an after-hours appointment garages a pool car at their residence.

    However, for a car parking benefit to arise paragraph (d) requires the provision of parking facilities to be in respect of the employment of the employee.

    The application of this requirement where the car is a pool car that is available for the use of employees generally has been considered in 6 private binding rulings.

    The rulings ruled the parking of the pool car would not be in respect of the employment of the employee on the day the pool car is returned if the car is available for use by all employees and:

    • is not driven home by an employee on that day; or
    • is driven home by a different employee on that day.

    However, different answers were given in relation to the situation where the pool car is both returned to the pool car park and driven home on the particular day by the same employee:

    • 2 PBRs ruled a car parking benefit will arise (Authorisation Numbers 1012548089369 and 1011861440854).
    • 2 PBRs ruled a car parking benefit may arise if the employee has an ongoing entitlement to take the car home (Authorisation Numbers 1011799417952 and 1011947009679).
    • 2 PBRs ruled a car parking benefit will not arise if the employee is on-call (Authorisation Numbers 1012607360376 and 1012600362890).

    Given the different answers, clarification is sought as to whether a car parking fringe benefit can arise from the parking of a pool car which is available for the use of employees generally.

    Suggested treatment

    For the requirement in paragraph (d) to be met there needs to be an identified employee whose employment the parking relates to.

    The need to identify a particular employee was highlighted by the decision of the Full Federal Court in FC of T v Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16; 2007 ATC 4236; 65 ATR 369.

    In discussing whether this definition required the identification of a particular employee, Edmonds J at ATC 4253 said:

    … I would incline to the views of Kiefel J in Essenbourne and Hill J in Walstern that the references to "the employee" throughout the definition are references to a particular employee who has been identified as "an employee" of the employer in terms of the opening words of the definition. Once identified as an employee of the employer by reference to the opening words of the definition, the terms of the definition which follow are to be applied by reference to the particular employee so identified.

    A benefit may only be a "fringe benefit" if it is provided by one of four possible "providers" to one of two possible "recipients" - the employee or an "associate" of the employee. Even then, the benefit will only be a fringe benefit if it is in respect of the employment of an employee.

    In applying this decision, it is necessary to be able to identify a particular employee to which the benefit relates and the benefit has to be provided in respect of the employment of that employee.

    In the given situation, the employee is merely returning a pool car which he or she has been using to the Car pool operator car park. The only benefit that can be identified as being provided to the employee is the use of the car to drive to work. This is a separate car benefit.

    The employee ceases to receive a benefit once the car is parked. From that point, it is the employer that receives the benefit of having its car parked in the car park. As such, the situation of a pool car can be distinguished from a situation in which the employee drives a car to and from work and receives the benefit of having a car parking space in which to park the car. In such a situation, the employee can be seen to be receiving a benefit from the use of the car park.

    Further, 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 was phrase was considered by the Federal court in J & G Knowles v Federal Commissioner of Taxation [2000] 96 FCR 402; 2000 ATC 4151; 44 ATR 22 (Knowles) and Starrim Pty Ltd v Federal Commissioner of Taxation [2000] FCA 952; 2000 ATC 4460; 44 ATR 487 (Starrim).

    In applying these decisions, for the car park to be considered to be provided 'in respect of' the employment of the employee there needs to be a sufficient or material connection between the provision of the car park and the employment of the employee. Unless the car park can be seen to be a product or incident of the employment it is unlikely to be a fringe benefit.

    Where the car is a pool car that is parked in the employer’s car park to enable it to be easily accessed by employees, the parking will not have the necessary connection to a particular employee’s employment.

    Therefore, a car parking fringe benefit will only arise from a pool car if it is specifically allocated to a particular employee.

    Question

    In what circumstances will parking of a pool car be considered to be provided in respect of the employment of the employee?

    ATO Response to car parking related queries

    The submissions received on commercial parking stations and pooled cars are significant issues relating to car parking fringe benefits currently under review and consultation [see update at 4.6]. The specific scenarios raised in these submissions will be considered by the ATO as part of that consultation process. 

    5.5 Scheme Materially Different in the Context of CR 2015/111

    Issue

    The circumstances in which a scheme will be considered to be so materially different from the scheme ruled on in a class ruling that the Class Ruling has no binding effect and the documentation required to be kept to apply the exemption in subsection 47(6).

    Background

    Class Ruling CR 2001/1 outlines the system of Class Rulings, which are binding public rulings made under Division 358 of Schedule 1 to the Taxation Administration Act 1953 in relation to the fringe benefits tax law.

    Paragraph 8 of CR 2001/1 states:

    A Class Ruling provides certainty to participants by stating/confirming that the tax consequences set out in the Ruling part of the Class Ruling are available, provided that the schemes are carried out as described in the Scheme part of the Class Ruling. The highest levels of disclosure are expected of the applicant. If the scheme carried out is materially different from that ruled upon, the Ruling has no binding effect on the Commissioner and may be withdrawn or modified.

    The question of the circumstances in will a scheme will be considered to be so materially different that it has no binding effect has arisen in relation to a class ruling CR 2015/111.

    The class of entities to which CR 2015/111 applies is described in paragraph 3 as:

    employers who are clients of McMillan Shakespeare Limited and its subsidiaries that provide their employees with a smart-card enabling them to travel on buses only between their place of residence and place of employment.

    Under the scheme described in paragraphs 7 to 23:

    • A State Provider of bus travel will issue a smart card to McMillan Shakespeare as agent of the employer.
    • The employee uses the smart card as part of a salary sacrifice arrangement.
    • The employee signs a declaration that the card will only be used by the employee to travel between their place of residence and place of employment.
    • The card will only be used for transport by bus (even though the card may be compatible with the ticketing systems used on other modes of transport such as trams, trains and ferries.
    • The smart card remains the property of the employer.
    • Travel undertaken is to be reconciled annually by MacMillan Shakespeare.
    • Random audits of the use of the card will be undertaken.

    Paragraphs 24 and 25 rule that the employee’s use of the card will be a residual benefit that will be an exempt benefit under subsection 47(6).

    Although these facts may be applicable to the particular public transport arrangement in one particular State, the arrangements differ between States. For example:

    • in some States the transport tickets remain the property of the State transport authority;
    • in some States the tickets are issued by a ticketing authority, rather than the provider of the bus travel; and
    • the obligations imposed on the passenger differ between States. For example, some States use a touch-on/touch-off system, but others only have a touch on system; and
    • As a result of the differences between the touch on and touch-on/touch-off systems and the differences in the way in which the bus routes are recorded the information provided in the reports provided by the State transport authority will differ between States. For example, in a State that only has a touch on system, it is not possible to do an audit of the beginning and ending points of each journey.

    Further, if a bus travelling from the western side of the city to the eastern side of the city displays the route number for the eastern suburbs service from its originating point it will not be possible to identify whether the bus was caught from the western suburbs into the city, or from the city to the eastern suburbs.

    Therefore, depending upon the arrangements that apply in the particular State it may not be possible to do a random audit or an annual reconciliation and the application of the 47(6) exemption will solely be based on the undertaking given by the employee at the time the pass is received.

    This raises the question of whether this inability to do an audit or reconciliation is a material difference that affects the employer’s use of the exemption in subsection 47(6)?

    Further, if a declaration given by the employee at the time the smart card is issued is sufficient for a card that is readily transferable to be used by others on different routes, the question arises as to whether a similar declaration is all that is required to apply subsections 8(2) and 47(6) to the use of vehicles in general?

    Questions

    1. Can an employer rely on CR 2015/111 if the employer is located in a State where it is not possible to do the annual reconciliation or random audit referred to in the description of the scheme?
    2. Is a declaration provided by an employee about the intended use of a vehicle considered sufficient to apply subsection 8(2) or 47(6) if the declaration is provided at the time the employee receives the use of the vehicle?

    ATO Response

    Class Rulings provide certainty regarding the application of a relevant provision of the taxation law to a specific class of entities in relation to a particular scheme. Therefore, if the employer is not one of the Class of entities specified in the class ruling, they cannot rely on that particular class ruling. Further, paragraph 8 of CR 2001/1External Link provides that if the scheme carried out is materially different from that ruled upon, the ruling is not binding.

    Law Administration Practice Statement PS LA 2003/3 Precedential ATO viewExternal Link explains the precedential ATO view system. Class rulings, being a public ruling, are a precedential ATO view. The practice statement explains under question 4 that when making a decision about an interpretative issue, ATO officers need to apply the precedential ATO view if they believe the facts of the interpretative issue, and the circumstances outlined in the precedential ATO view document are similar enough that the law will be applied correctly.

    Further, law administration practice statement PS LA 2001/8 ATO Interpretative DecisionsExternal Link provides information about the meaning of ‘material difference’ in paragraphs 8 to 15. Although the practice statement relates to ATO IDs, the information provided in that context is equally as relevant to class rulings. Paragraphs 8 to 11 of PS LA 2001/8 state:

    8. Whether there is ‘material difference’ is a question of fact and degree depending on the issue being considered and will involve the exercise of judgment.
    9. There is ‘no material difference’ where the facts underlying a particular issue and the facts outlined in an existing ATO ID or other precedential ATO view document are similar enough to enable the tax officer to be satisfied that applying the existing precedential ATO view will result in the law being applied correctly to the circumstances of the case. In order to be satisfied, tax officers may need to refer to the facts on which the ATO ID was based – through the case report and other documentation underlying the ATO ID.
    10. While the decision in relation to an issue must be determined on its own particular facts, it may still be covered by the principles set out in a precedential ATO view document, even though the facts are not identical. Care should be taken to identify the key interpretative issue underlying the issue to ensure that an ATO ID can be applied as a precedent to schemes or transactions that have different factual contexts, but which turn on the same interpretative issue. Therefore, it is important to understand how the law administered by the Commissioner applies to an issue, particularly where the matter is complex. This will ensure that issues arising from a particular case are not treated as if there is no existing precedent dealing with those issues merely because of factual differences.
    11. On the other hand, even small factual differences between the issue under consideration and the facts outlined in an existing ATO ID or other precedential ATO view document may be material. Consequently, this will require the preparation of an ATO ID or other precedential ATO view document. This is particularly important for provisions of general application that may have been subject to a significant amount of litigation.

    In Class Ruling CR 2015/111 it was ruled that in the particular circumstances of the scheme, the employee’s use of the card resulted in a residual benefit that was considered to be an exempt benefit under subsection 47(6) of the FBTAA. It should be noted that where the ticketing scheme is not the same, a different benefit may be provided which may not qualify for the exemption under subsection 47(6) of the FBTAA.

    Paragraph 47(6)(b) of the FBTAA requires that in order for the exemption to apply:

    (b) there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than:

    (i) work-related travel of the employee; and

    (ii) other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular;

     

    Relevantly, subsection 136(1) of the FBTAA provides definitions in respect of the following:

    private use , in relation to a motor vehicle, in relation to an employee or an associate of an employee, means any use of the motor vehicle by the employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee.

    work-related travel , in relation to an employee, means:

    • travel by the employee between:
    • the place of residence of the employee; and
    • the place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or
    • travel by the employee that is incidental to travel in the course of performing the duties of his or her employment.

    The audit and reconciliation undertaken annually confirm that the bus travel undertaken is within the parameters required by the legislation for the exemption to apply and the mechanism for the associated policy regarding the bus travel to be consistently enforced.

    Where such a reconciliation and audit are not undertaken, and all the other facts relating to the scheme are the same, the employer cannot rely on CR 2015/111 as the scheme is materially different from that stated in the class ruling. This does not mean that the employer would not be entitled to the exemption.

    A declaration on its own made by the employee at the time of travel, however, is not sufficient to meet the requirements of the exemption for the purposes of subsection 47(6). The employer would need to demonstrate that there are sufficient controls in place to identify breaches of the policy relating to home to work travel.

    Employers should seek a ruling from the ATO as to whether the policies, procedures and controls they have in place would satisfy the requirements of subsection 47(6) of the FBTAA.

    It is noted that paragraph 8(2)(b) provides a similar exemption to paragraph 47(6)(b), in relation to the private use of taxis, panel vans, or any other road vehicles designed to carry a load of less than one tonne. Again, a declaration on its own, although not required, would not be sufficient to meet the requirements of the exemption in 8(2)(b) of the FBTAA. The ATO provides guidance on ato.gov.au concerning the record keeping requirements for the exemption under 8(2) of the FBTAA in FBT – exempt motor vehicles, as follows:

    You are not required to keep special records to be eligible for this exemption. However, you must be able to demonstrate that at all times the use of the vehicle meets the eligibility criteria. This could be done, for example, by comparing at regular periods the opening and closing odometer readings of the vehicle with the total distance you expect the employee to travel between home and work during that particular period. Alternatively, you may require more detailed records of the vehicle usage during the FBT year such as a log book together with opening and closing odometer readings.

    5.6 Use of Employer’s Debit Card

    Issue

    Type of benefit arising from the use of an employer’s debit card.

    Background

    In general terms, the classification of a benefit as an exempt benefit and the method used to value a fringe benefit depends upon which Division of Part III of the FBTAA applies to the benefit as:

    • certain exemptions only apply to particular categories of benefit (e.g. the provision of child care can be an exempt benefit where it is provided as a residual benefit, but will not be exempt where it is provided as an expense payment benefit; and
    • different valuation rules apply to the different categories (e.g. a car parking fringe benefit is valued differently to a car parking expense payment benefit).

    Given these differences, the identification of the Division that applies can be seen as being crucial to the process of determining the amount of fringe benefits tax that applies to the provision of a benefit.

    For some benefits the classification is relatively clear. For example, the use of a car for private purposes. However, as the arrangements become more involved, it can become harder to determine the relevant type of benefit.

    An example of the added complexities that have been added in recent times is an employee’s use of a card provided by a salary packager (on behalf the employer) to pay for the purchase of a good or service.

    In general terms, the benefit provided may be an expense payment benefit, a property benefit or a residual benefit and the relevant category will depend upon whether the use of the card involves the payment of an obligation incurred by the employee.

    If it does, then the benefit will be an expense payment benefit under paragraph 20(a) of the FBTAA.

    An example of the different outcomes that can occur depending upon the way in which the arrangement is structured is provided by Private Binding Ruling Authorisation Number 1012621577984 where:

    • the use of the employer’s credit card to pay for the employee’s monthly lease of a car park was ruled to be an expense payment benefit; but
    • the use of the employer’s credit card to pay for the cost of parking on a daily or shorter basis was ruled to be a car parking benefit.

    The private ruling in considering the second scenario used section 150 which provides that where an employee uses the employer’s credit card to obtain a benefit, the employer is taken to have incurred the expenditure and the benefit becomes a property benefit, or a residual benefit.

    While section 150 provides assistance with arrangements that involve the use of a credit card, it’s application is limited to credit cards.

    The issue raised for consideration is does the classification of the benefit change if the card is not a credit card, but rather is a card where a balance of funds is held in a card account which is used to pay for goods and services purchased by the employee. The funds held in the account are the employer’s funds. An example of such a card is a debit card.

    Another example raised for consideration is the travel smart card described in CR 2015/111 as being a card that has the employer’s money stored on it which is used to pay for the employee’s travel on a bus.

    Paragraph 24 of CR 2015/111 ruled that the benefit provided was a residual benefit. The explanation in explaining the ruling stated at paragraph 27:

    Section 45 of the FBTAA provides that a benefit will be a residual benefit if it is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). Divisions 3 to 10 are not relevant to this scheme. Division 2 and Division 11 may be relevant to this scheme.

    An explanation was not provided as to the reason for Division 5 which deals with expense payment benefits not being relevant.

    Suggested treatment

    In considering the card in CR 2015/111, unless the person boarding the bus is a person who is not required to pay for their travel (e.g. bus company employees), the public transport terms and conditions require the person who boards the bus to pay for their journey. To do this, the passenger swipes a smart card which has the effect of paying for the cost of the journey with the balance of the card account being reduced by the fare.

    As set out above, CR 2015/111 ruled that the benefit provided was a residual benefit. To reach this conclusion, it is necessary for the obligation that is incurred to be the employer’s obligation as if it is the employee’s, the benefit will be an expense payment benefit.

    Given the employer’s only involvement in the arrangement is paying for the cost of the journey, it is unclear how the obligation to pay is the employer’s as the card is not a credit card and the FBTAA does not have a deeming provision for debit cards that is comparable to section 150.

    For the obligation to be the employer’s, the situation would need to be comparable to the situation of the bank employee in National Australia Bank Ltd v. Commissioner of TaxationExternal Link 93 ATC 4914; (1993) 26 ATR 503. The employee in that case used the employer’s Cabcharge voucher to pay for a taxi ride.

    In considering whether the benefit provided was an expense payment benefit or a residual benefit that was exempt under subsection 47(6), Ryan J at ATC 4939 – 4940 said:

    Little assistance is gleaned for the purpose of this analysis by endeavouring to impute to the taxi cab operator or driver a belief as to the person with whom the contract of carriage is made. On the evidence, it can be inferred only that the taxi cab operator is content to accept, as consideration for provision of the service, the right, arising from delivery of the Cabcharge voucher, to claim from Cabcharge the cost of providing the service. If the taxi cab operator thought about it at all, he or she would probably regard the contract of carriage as being made with the party having the contractual right to discharge the cost by means of the Cabcharge voucher; i.e. the Bank.
    What I regard as the preferable view, that the contract is between the taxi cab operator and the Bank, accommodates the arrangement under which the shift supervisor arranges for the attendance of one or more taxi cabs and two or more employees travel in the same cab. The contract which the taxi cab operator then and there makes is to attend at the Bank's premises and convey one or more of its employees as directed, in consideration of the provision by the Bank of a warrant authorizing the cost of the conveyance to be met by Cabcharge on the Bank's account. Even where the employee commissions the taxi cab from his or her home, the analysis which I favour remains available because the employee can be regarded as the agent of the Bank, having actual authority, evidenced by the possession of the Cabcharge voucher, to conclude a contract with the taxi cab operator on behalf of the Bank. This view derives some support from the fact that the Bank was under a legal obligation imported by cl. 20A of the Bank Officials' (Federal) 1963 Award to convey Mr Brewster, on at least some occasions, from and to his home before or after the commencement of a shift.

    The situation of the employee boarding a bus can be distinguished from the situation of the Bank employee as:

    • the employer has no involvement in the employee catching the bus (unlike the Bank supervisor who booked the taxi; and
    • there is nothing to indicate that the employee in travelling on the bus is doing so as an agent of the employer.

    Further, the smart card (unlike the Cabcharge voucher) is not comparable to a credit card.

    Therefore, it would seem that the relevant category of benefit is an expense payment benefit.

    Question

    In what circumstances will the use of an employer’s debit card be a property or residual benefit?

    ATO Response

    The term ‘benefit’ is defined in subsection 136(1) of the FBTAA and has a very broad meaning. It includes any right, privilege, service or facility provided in respect of employment.

    The use of a debit card by the employee to purchase goods or services would provide the employee with a ‘benefit’ as defined in subsection 136 (1) of the FBTAA

    It is noted that this assumes that the employee can’t withdraw the employer’s funds held in the debit account as cash as this would be treated as salary and wages and not a fringe benefit (section 137 of the FBTAA).

    Where an employer provides an employee with a debit card with a balance of employer’s funds held in the card account and the employee uses the debit card to purchase goods or services, it is considered that generally no expense payment benefit would arise because the employee does not incur the expenditure and the obligation that is discharged by payment of the amount charged to the card is the employer's obligation to the merchant.

    An expense payment benefit arises under section 20 of the FBTAA, where either:

    • an employer pays a third party in satisfaction of expenditure incurred by an employee, or
    • an employer reimburses an employee for expenditure incurred by the employee.

    The smart-card provided in CR 2015/111 is provided under a salary sacrifice arrangement under a similar arrangement to many other debit cards provided under salary sacrifice arrangements.

    When an employer makes a payment into the account, the employer is merely meeting its obligations to make such payments under the agreements with the financial institution (or smart-card State Provider in the alternative example given) and the employee. No expense payment benefit arises at this time.

    The fact that some or all of the funds in the account may subsequently be used by the employee does not change this fact. The employer is not making the payment into the account to discharge an obligation of the employee to another person for an expense they may later incur. The employee may potentially not use any or all of the money during the year.

    When a debit card (including bus smart-card) is subsequently used by an employee, the debts to the merchants or to the other suppliers of goods or services are met from the funds then held in the employer's disbursement account and made available (loaded) on to the card.

    The employers are the ones primarily liable for all transactions arising from the use of the debit card. Therefore, when the cardholders use the cards it is, nonetheless, the employers who are incurring the relevant debts to the merchants or to the other suppliers of goods or services.

    As the employers are discharging their own obligations to the merchants or other suppliers of goods or services, the employers are therefore not discharging obligations of other persons to pay third persons nor are they providing reimbursements to other persons in respect of expenditure incurred by those persons. Consequently, when a debit card is used to pay debts to merchants or the other suppliers of goods and services, these will not give rise to expense payment benefits, under section 20, as none of the required conditions of that section are met.

    As the relevant goods or services are firstly acquired by the employers, the subsequent grant to the cardholders of either the possession of the goods or the use of the services will result in a 'benefit' being provided by the employers to each of the employees.

    Assuming the goods become the employer’s property, if they are then provided or transferred to the employee, a property benefit would arise.

    If the card is used, for example, to purchase services and not property, the ‘benefit’ to the employee would be a residual benefit.

    If however the employee were to incur the expenditure, and then use the employer’s debit card in a BPay transaction discharging the employee’s obligation to pay, an expense payment benefit would arise.

    5.7 Relocation Transport

    Issue

    Are relocation transport benefits provided to an employee eligible for exemption under section 58F of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where the travel arrangement is altered or extended for a private purpose?

    Background

    Government department and agencies at the State, Territory and Commonwealth level provide transport to employees who are required to relocate overseas or interstate to perform employment duties.

    Generally, government employees are considered to be living away from home during this period. Postings can last anywhere between one and four years and may be domestic or international.

    The benefits provided to the employees can include the payment/reimbursement of transport, accommodation and on-route meal costs. These benefits are provided to enable the employee to take up residence at the new location, or return to their usual place of residence.

    Occasionally, where an employee travels to or returns from a posting (either domestically or internationally), the employee (and/or their family) will request to alter (or delay) the relocation transport travel arrangements for private purposes.

    Examples include:

    An employee was temporarily posted to London for two years. The employers had arranged a return flight for the employee direct to Sydney on the day after the last day of the posting. Prior to returning from the posting, the employee requested to:

    1. Defer the date of the return trip by
      1. four weeks, and applied for four weeks annual leave to travel around Europe; or
      2. one week, and applied for one weeks annual leave to travel around Europe.
       
    2. Vary the flight details through adding
      1. a weekend stop-over in Hong Kong for sight-seeing; or
      2. a week stop-over in Hong Kong for sight-seeing.
       
    3. Extend the posting by 2 weeks, and applied for 2 weeks annual leave.
    4. Defer the date of the return trip by 5 days to finalise their affairs in London.
    5. Vary the flight details by travelling to Brisbane instead of Sydney for
      1. a weekend stop-over to visit family
      2. two weeks annual leave.
       
    6. The employee would then make their own arrangements to travel back to Sydney.

    An overnight stop on the most direct route to allow for the family to rest between long flights.

    The employee had requested the following alternations prior to leaving on posting:

    1. Arrival in London three days prior to the beginning of the posting to allow for recuperation from jetlag and to settle into their new residence. They visited relatives who live 3 hours away from London the day before the employment duties in London started.
    2. A stop over on route with the flight to London leaving from the stop over location
      1. A one week stay in Brisbane after leaving Sydney to visit family; or
      2. A one week stay in Melbourne after driving from Sydney to drop a vehicle off to a family member.
       

    Industry view/suggested treatment

    Benefits relating to relocation may be provided as either residual fringe benefits (section 45 of the FBTAA) or expense payment fringe benefits (section 20 of the FBTAA).

    To qualify for the FBT exemption under section 58F of the FBTAA, the travel must be ‘relocation transport’ as defined in section 143A of the FBTAA.

    Among other conditions, section 143A of the FBTAA provides the transport must be ‘required solely’ because the employee is required to live away from (or change, or return to) their usual place of residence.

    The term ‘required solely’, or the words separately, are not defined in the FBTAA. In examining the ordinary meaning of the phrase ‘required solely’ in the context in which it is used, regard has been given to:

    • the Macquarie Dictionary definition;
    • case law;
    • the Explanatory Memorandum to the introduction of sections 58F and 143A of the FBTAA; and
    • Existing ATO guidance on the same phrase contained within other sections of the FBTAA.

    Definition

    The Macquarie Dictionary defines the word ‘required’ to mean amongst other things: ‘to have need of; need’. This meaning corresponds to the decision in Compass Group (Vic) Pty Ltd (as Trustee for White Roche & Associates Hybrid Trust) v. FC of T [2008] AATA 845, where the Administrative Appeals Tribunal held ‘the word ‘require’ does not contemplate choice’.

    The Macquarie Dictionary defines the word ‘solely’ to mean amongst other things ‘exclusive or only’. In Randwick Corporation v. Rutledge (1959) 102 CLR 54, Justice Windeyer held:

    “Where such words ‘[as exclusively’ or ‘solely’]’ are present, it is a question of fact whether the land is being used for any purpose outside the stipulated purpose… As Kitto J. said in Lloyd v. Federal Commissioner of Taxation (1955) 93 CLR 645, at p671, such words confine the use of the property to the purpose stipulated and prevent any use of it for any purpose, however minor in importance, which is collateral or independent, as distinguished from incidental to the stipulated use.”

    Context

    In considering the context of the term, sections 58F and 143A were introduced by the Taxation Laws Amendment (Fringe Benefits and Substantiation) Bill 1987 to exempt a range of ‘benefits in respect of relocation transport’.

    The Explanatory Memorandum to the Taxation Laws Amendment (Fringe Benefits and Substantiation) Bill 1987 provides that ‘Broadly, such a benefit is one that is provided to an employee who moves from one locality to another in the course of employment or in order to commence new employment where the benefit meets travel costs (ie, transport costs, accommodation and meals en route) incurred by the employee’.

    Required Solely

    Combining the definition of ‘required solely’ in the context of section 143A of the FBTAA, the ‘relocation transport’ must be provided for the only reason to enable the employee to change residence and take up the employment duties or return home from the assignment.

    In considering ‘required solely’ as a purpose test, where a secondary purpose (however minor in importance) arises, the test would not be satisfied.

    Incidental

    However, an incidental purpose is distinguishable from a secondary purpose. An incidental purpose arises where the purpose (or use) is aligned with the stipulated purpose. In this case, an incidental purpose would be permissible provided it is as a result of the stipulated purpose – being a change of residence and take up the employment duties or return home from the assignment.

    In accordance with section 143A of the FBTAA, the transport must be ‘required solely’ because of a change of residence and take up the employment duties or return home from the assignment.

    Suggested Treatment

    In examining the examples in the background section, it is considered that an adjustment to relocation travel for the purpose of ‘personal travel’ is a secondary purpose. As such, the following view has been taken:

    1 a) - A secondary purpose – not relocation transport

    1 b) - A secondary purpose – not relocation transport

    2 a) - A secondary purpose – not relocation transport

    2 b) - A secondary purpose – not relocation transport

    3 - Incidental Purpose – satisfies 143A definition of relocation transport

    4 - Incidental Purpose – satisfies 143A definition of relocation transport

    5 a) - A secondary purpose – not relocation transport

    5 b) - A secondary purpose – not relocation transport

    6 - Incidental Purpose – satisfies 143A definition of relocation transport

    7 - Incidental Purpose – satisfies 143A definition of relocation transport

    8 a) - A secondary purpose – not relocation transport

    8 b) - A secondary purpose – not relocation transport

    Reference to other States and Territory

    This issue is relevant to all organisations where employees are required to live away from their usual residence in order to perform the duties of their employment and are provided with relocation transport benefits (whether domestic or international).

    Technical references

    Section 58F Fringe Benefits Tax Assessment Act 1986 (FBTAA)

    Section 143A Fringe Benefits Tax Assessment Act 1986 (FBTAA)

    Explanatory Memorandum to the Taxation Laws Amendment (Fringe Benefits and Substantation) Bill 1987

    Class Ruling CR 2009/29 Tyack Corporate Health Program

    Compass Group Compass Group (Vic) Pty Ltd (as Trustee for White Roche & Associates Hybrid Trust) v. FC of T [2008] AATA 845

    Randwick Corporation v. Rutledge (1959) 102 CLR 54

    Impact on clients

    Government employees who are required to live away from their usual place of residence for a period of time are generally provided with relocation transport in accordance with the terms and conditions of their deployment.

    It is not uncommon for employees to defer or alter their relocation transport trip for private purposes. Whilst many employers would not allow any alterations that resulted in an increased cost, it is unclear whether such alteration would disqualify the trip from being classified as ’relocation transport’ for FBT purposes.

    Guidance on whether altering of a posting/returning ‘relocation transport’ trip for private purposes would provide consistency of treatment of such arrangements across government and provide certainty for employees seeking to recover any FBT liability back from the employee. Guidance specifically relating to the period of time and/or other factors to be considered (such as family composition, length of flight, extension versus stop-over) would be useful. Clear parameters are also necessary around the ability to alter destinations and dates.

    ATO Response

    Transport benefits provided to an employee and their family members as a consequence of the employee being required to relocate his/her usual place of residence to perform employment duties are an exempt benefit under section 58F of the FBTAA.

    The circumstances in which a benefit will be treated as a benefit 'in respect of relocation transport’ are specified in section 143A of the FBTAA. Broadly, such benefits are transport, meals or accommodation provided to an employee who is required to live away from, or change, their usual place of residence in order to perform the duties of their employment.

    Section 143A of the FBTAA stipulates the transport is ‘required solely’ because the employee is required to live away from his or her usual place of residence to perform employment duties.

    The Macquarie Dictionary defines the word ‘solely’ to mean amongst other things ‘exclusive or only’. In Randwick Corporation v. Rutledge (1959) 102 CLR 54, Justice Windeyer held:

    “Where such words ‘[as exclusively’ or ‘solely’]’ are present, it is a question of fact whether the land is being used for any purpose outside the stipulated purpose… As Kitto J. said in Lloyd v. Federal Commissioner of Taxation (1955) 93 CLR 645, at p671, such words confine the use of the property to the purpose stipulated and prevent any use of it for any purpose, however minor in importance, which is collateral or independent, as distinguished from incidental to the stipulated use.”

    The Explanatory Memorandum to the Tax Laws Amendment (Fringe Benefits and Substantiation) Bill 1987 (“the EM”) which introduced section 143A of the FBTAA discusses the intended meaning of “benefit in respect of relocation transport”:

    The circumstances in which a benefit will be treated as a “benefit in respect of relocation transport” are specified in proposed section 143A. Broadly, such a benefit is one that is provided to an employee who moves from one locality to another in the course of employment or in order to commence new employment where the benefit meets travel costs (i.e., transport costs and accommodation and meals en route) incurred by the employee (or a family member) for the purpose of taking up residence in the locality of the new work place.

    The Explanatory Memorandum makes it clear that a benefit in respect of relocation transport is intended to cover costs incurred for the purpose of an employee taking up residence in the locality of a new work place.

    The scope of section 58F of the FBTAA was considered at the NTLG FBT Sub-committee meeting on 14 February 2013. The issue considered was whether temporary accommodation provided to an employee for 6 weeks upon their arrival in Australia was within the scope of section 143A FBTAA.

    The NTLG sub-committee concluded such temporary accommodation did not satisfy the requirements of section 143A of the FBTAA. Any subsequent expenditure on transport or accommodation after the employee had arrived in the new location was not ‘required solely’ to enable the employee to change residence and take up employment duties in the new location.

    The scenario considered in ATO ID 2004/293 Exempt benefits: relocation transport benefits provided to an employee prior to actual relocation taking place does satisfy the requirement the travel is required solely because the employee is required to relocate. The employee and their family undertook a journey to arrange suitable accommodation prior to their actual employment relocation. The employee had already accepted the offer to transfer. The ATO view established in ATO ID 2004/293 is that a journey undertaken prior to relocation in order to seek accommodation which enables the employee to take up residence in the new locality satisfies the section 143A FBTAA definition of relocation transport.

    Given the ‘required solely’ element of section 143A of the FBTAA, the relocation transport must be provided only to enable the employee to change residence and take up their employment duties in a new location, or return to their usual place of residence from an assignment.

    Where travel is deferred or extended for a private purpose such as sight-seeing or visiting relatives or friends, a secondary purpose arises and the travel cannot satisfy the requirements of section 143A of the FBTAA.

    However, an incidental purpose is distinguishable from a secondary purpose. The NTLG Sub-committee minutes of 14 February 2013 accepted temporary accommodation at a serviced apartment for two nights after household effects had been packed but prior to the international flight does satisfy the section 143A FBTAA definition of relocation transport. The accommodation is incidental to the relocation transport.

    In applying this analysis to the scenarios provided, it is considered examples 1, 2, 3, 5, and 8 do not satisfy the section 143A FBTAA definition of relocation transport as the travel variation involves a secondary private purpose.

    Example 3 considered the scenario of an employee extending the posting by 2 weeks and applying for 2 weeks annual leave. No further details were provided regarding the nature of the relocation transport expenditure therefore the response is based on very limited information. It is considered that 2 weeks is an excessive period of time to organise personal affairs in preparation for relocation therefore the extended stay is more than incidental to the relocation transport. It is considered more likely than not that the posting was extended for a private purpose and the annual leave utilised for travel or other activities of a private nature which would not satisfy the solely required element of section 143A FBTAA.

    Examples 4, 6 and 7 do satisfy the section 143A FBTAA definition of relocation transport as the variation to the travel arrangements are merely incidental to the primary purpose of the employee relocating from their usual residence in order to perform the duties of their employment.

    5.8 Grandfathering Provisions of TD 2015/12

    Background

    The release of TD 2015/12 has led to a revision of the processes for determining ongoing eligibility for the public hospital FBT concessions contained in sec 57A of the FBT Act.

    As part of this process ACT Government recently received confirmation of the grandfathering provisions of TD 2015/12 (paragraph 36).

    Part of the confirmation was a restating of a portion of the determination that while the commissioner won’t take active compliance action to undo arrangements that would have been considered exempt under ATO ID 2003/40, where existing salary packaging arrangements are varied in a material way, the provisions of TD 2015/12 will apply.  

    Issue

    We have approached the ATO for clarification on what constitutes a material change, but have not yet received a reply. Without clarification we are unable to develop assessment criteria and processes for assessing current employee eligibility. We would be limited in our ability to maintain compliance, and incorrect assessment of employees eligibility may contribute to an FBT liability for the affected agencies.

    ATO Response

    On 17 March 2016, the ATO provided a letter of advice to ACT Health Services (ACTHS) to clarify the way the Commissioner would apply the grandfathering provisions as set out in paragraphs 35 and 36 of Taxation Determination TD 2015/12 - Fringe benefits tax: when are the duties of the employment of an employee of an employer who is a government body exclusively performed in, or in connection with, a public hospital or a hospital carried on by a society or association that is a rebatable employer? Clarification was provided in particular, on whether the grandfathering provisions cease to apply from 1 April 2016.

    Paragraphs 35 and 36 of the TD state:

    35. This Determination applies to years of income commencing both before and after its date of issue. However, this Determination will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).
    36. It is recognised that this Determination takes a slightly different approach to the criteria in subsection 57A(2) to ATO Interpretative Decision ATO ID 2003/40 (withdrawn 29 October 2014). It is not expected that this difference will have a widespread practical impact. Nevertheless, in respect of arrangements entered into before the date of this Determination, the Commissioner does not intend to take active compliance action to treat a benefit as not exempt from fringe benefits tax if it would have been treated as exempt under the approach in ATO ID 2003/40. This would include not taking active compliance action on affected salary sacrifice arrangements in place before the date of this Determination.

    ATO confirmed in the letter that, in respect of arrangements entered into before the date of TD 2015/12 (being 24 June 2015), the Commissioner does not intend to take active compliance action to treat a benefit as not exempt from fringe benefits tax if it would have been treated as exempt under the approach in ATO ID 2003/40. This includes not taking active compliance action on affected salary sacrifice arrangements (SSA) in place before 24 June 2015. There is no defined end date to these grandfathering provisions, however where an existing salary sacrifice arrangement is varied in a material way on or after 24 June 2015, the revised approach in TD 2015/12 will apply from the time of such change.

    In this context, a follow up question has been asked by ACTHS on what constitutes a material change in existing salary sacrifice arrangement.

    Further discussion with ACTHS reveals that there are no specific end dates for its employees’ SSA other than when the employees leave employment. Subject to established criteria and ACTHS consent, these arrangements are varied at employees’ request from time to time to suit their circumstances.

    ATO’s view is that the only changes considered not to be material are those relating to administrative aspects of the SSA e.g. personal details, bank accounts, payment dates, frequencies, method of correspondence etc. where the types and values of benefits are unaffected.

    In keeping with the spirit of the grandfathering provisions, whenever a package is renegotiated or restructured it constitutes a material change. This would include all instances where one or more of the subject matters, composition, components or values of benefits are varied. Alternatively, a new SSA is considered to be in place when such changes happen, in which case the grandfathering provisions cannot be relied upon.

    5.9 Type of Car Parking Fringe Benefit

    Issue

    Do input tax credit entitlements for ongoing costs for repairs, maintenance and cleaning of a building, including a car parking area, result in the car parks being Type 1 benefits?

    Background

    Item 5.5 of agenda item of the last STIP meeting on 6 November 2015 was in respect of the classification of car parking fringe benefits. Several situations were listed but situation 3 concerned car parking provided on business premises owned by the employer.

    Parking is provided in secure parking located in the basement of a building which was acquired some years prior to year 2000 when GST commenced. As such, there was no entitlement to an input tax credit in acquiring the property. The property is vested in the agency that occupies the building and provides car parking to eligible employees who home garage the cars.

    Whilst there in no input tax credit entitlement directly relating to the acquisition of the property, the agency is entitled to input tax credits for repairs, maintenance and cleaning services pertaining to the property, including the car parking area.

    Paragraph 52 of TR 2001/2 states:

    52. The 'thing' referred to in subparagraphs 149A(2)(a)(i) to (vi) inclusive must have been acquired or imported. The 'test' for determining which gross-up rate to use is whether the acquisition, or importation, of the 'thing' used to provide the benefit resulted in an entitlement to an input tax credit to the provider. If the relevant 'thing' has neither been acquired nor imported (e.g., manufactured) it cannot be a type 1 benefit and will be a type 2 benefit.

    Industry view/suggested treatment

    This would be a Type 2 benefit because repairs, maintenance and cleaning services do not relate to the acquisition of the property that provides the benefit.

    ATO Response

    The following clarification was provided by STIP member after the initial agenda item was received.

    • Relating to the words “the property is vested in the Agency that occupies the building”:
    • The “Agency that occupies the building” is the same employer who owns the building (property) and is a Government department.
    • The building (property) was and is vested in the Agency that occupies the building, being the same employer who owns the building (property) at the time of acquisition of the property.
    • The building (property) was not vested in the agency (employer) under an order, legal instrument, lease or arrangement, in any year of tax beginning 1 April 2000 or a later year of tax.
    • The question relates to the Agency (the employer) being responsible for repairs, maintenance and cleaning services to the property including the car-parking area, and entitlement to input tax credit for such expenditure.

    On the basis of the information provided and circumstances relating to the provision of the car-parking fringe benefit to employees, the following is concluded:

    The car-parking fringe benefit is a Type 2 benefit for the following reasons.

    The car-parking area which is part of the Building (property) was acquired prior to 1 April 2000.

    The employer at the time of acquisition of the property was not entitled to an input tax credit in respect of the Building (property).

    The car-parking fringe benefit in this case, is not a GST -creditable benefit as defined in section 149A of the Fringe Benefits Tax Assessment Act 1986 ( FBTAA 1986), because the person ( employer) who provided the benefit was not entitled to an input tax credit under Division 111of the A New Tax System ( Goods and Services Tax) Act 1999.

    The incurring of costs and expenses for repairs, maintenance and cleaning services to the property including the car-parking area post 1 April 200; and subsequent entitlement to input tax credit for such expenditure because they are subject to GST, do not alter the nature of the benefit to be categorised as Type 1.

    In this instance , the application of sub-sections 149A(1) (a)(b) and 149A(2) (a)((i)(ii)(iii)(iv)(v)(Vi) and (b)(i)(ii) is limited to the point of acquisition of the Building (property) and the entitlement for the stated input tax credit at that time. It does not extend to apply to maintenance and running expenses incurred post acquisition date.

    A parallel conclusion to the provision of the fringe benefit in this instance as a Type 2, can be seen in the scenario under paragraphs 122 and 123 and Example 19 under paragraph 124 in TR 2001/2 under the heading “Which gross-up rate do you use for a car bought before 23 May 2001 but its running and maintenance costs after that date had input tax credit entitlement?”

    Paragraphs 122, 123 and 124 state:

    122. Most employers, or other providers, will not be entitled to a GST input tax credit for cars bought before 23 May 2001. This means they will need to use the lower gross-up rate of 1.9417.
    123. The determining factor for which gross-up rate you use for a car fringe benefit is whether the provider was entitled to an input tax credit at the time the car was acquired. Under those circumstances, the relevant matter is the original purchase of the car even though running and maintenance costs, on which GST has been paid and which may give rise to an entitlement to an input tax credit, may subsequently have been paid. Despite the subsequent payment of such costs the lower gross-up rate of 1.9417 will still be used where the car was purchased before 23 May 2001.

    Example 19

    124. Castor Ltd is a company registered for GST that purchased a car on 1 May 2001. The company provides the car to its company secretary in the FBT year ended 31 March 2002. When Castor Ltd calculates its FBT liability in respect of the car fringe benefits for the 2002 FBT year it will use the lower gross-up rate of 1.9417 as it is not entitled to an input tax credit for the GST it paid on the car's purchase. If Castor Ltd is entitled to input tax credits for the car's running and maintenance costs it incurred after 1 July 2000 it would still use the lower gross-up rate to calculate the fringe benefits taxable amount for the car fringe benefits

    Date and location of next meeting

    The next meeting is to be held in Darwin, date to be advised.

      Last modified: 06 Sep 2016QC 50050