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  • Agenda items

    1. Opening of meeting including any changes to the agenda

    The Chair opened the meeting and welcomed Members.

    The Chair introduced the guests attending from the ATO. In introducing the guests the Chair advised Members of the changes in ATO representatives that will occur in 2016 as:

    • this meeting is the last meeting to be attended by Stephen Bray as an ATO representative; and
    • the March 2016 meeting will be the last meeting that Glenn Smith will be able to attend as an ATO representative.

    It was noted that both have been ATO representatives for an extended period with Stephen Bray attending for 16 years (2000 – 2015) and Glenn Smith attending for 9 years (1996 – 1999 and 2011 – 2015).

    Apologies were received from Henriette Prego (NSW) and Rachel Johnstone (Tas).

    Joan Cram (NSW) and Sarah Woods (Tas) attended the meeting by telephone.

    Colin Lounder (ATO) joined the meeting by telephone for agenda items 4.2 and 5.2.

    2. Confirmation of minutes of the 25 March 2015 meeting

    The Minutes for the meeting held on 25 March 2015 have been confirmed, and published on ato.gov.au.

    3. Items carried over from previous meetings

    3.1 Meeting of 13 September 2012

    Agenda item 4.13 Hospital definition and operation of subsection 57A(2)

    Taxation Determination TD 2015/12 Fringe benefits tax: when are the duties of the employment of an employee 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? issued on 24 June 2015.

    3.2 Meeting of 6 March 2013

    Agenda item 4.12 Definition of eligible State or Territory body in section 135T

    At the meeting held on 6 March 2013, several members noted that an amendment was required to the definition of eligible State or Territory body in section 135T due to changes in the relevant State or Territory Acts.

    At the Meeting held on 16 September 2013, the ATO advised Members that it had lodged a Tax Issues Entry System (TIES) request on behalf of the State and Territory STIP members.

    In August 2015, the ATO contacted Members to confirm the details of the State and Territory Acts that had changed and to determine whether any further changes had occurred.

    The responses received indicate the following changes are required to subsection 135T(1):

    • Replace paragraph 135T(1)(a) of the FBTAA with a department within the meaning of subsection 3(1) of the Government Sector Employment Act 2013 of New South Wales
    • Replace paragraph 135T(1)(b) of the FBTAA with a 'department' within the meaning of subsection 4(1) of the Public Administration Act 2004 of Victoria
    • Replace paragraph 135T(1)(c) of the FBTAA with an 'Administrative Office' within the meaning of subsection 4(1) of the Public Administration Act 2004 of Victoria
    • Replace paragraph 135T(1)(d) of the FBTAA with a department within the meaning of section 7 of the Public Service Act 2008 of Queensland
    • Replace paragraph 135(1)(e) of the FBTAA with a department within the meaning of section 3 of the Public Sector Management Act 1994 of Western Australia, as extended by section 5 of the Financial Management Act 2006 of Western Australia.
    • Replace paragraph 135T(1)(f) of the FBTAA with a subsidiary body as defined in paragraphs (b) and (c) of the definition of that term in section 60 of the Financial Management Act 2006 of Western Australia.
    • Replace paragraph 135T(1)(g) of the FBTAA with an administrative unit within the meaning of section 3 of the Public Sector Act 2009 of South Australia
    • Replace paragraph 135T(1)(i) of the FBTAA with a directorate within the meaning of section 3 of the Financial management Act 1996 of the Australian Capital Territory
    • Replace paragraph 135T(1)(j) of the FBTAA with an agency within the meaning of section 3 of the Financial Management Act of the Northern Territory
    • Replace paragraph 135T(1)(k) of the FBTAA with a government business division within the meaning of section 3 of the Financial Management Act of the Northern Territory

    No changes are required to paragraphs 135T(1)(h), 135T(1)(l) and 135T(1)(m).

    The ATO noted the changes are subject to the Government’s legislative priorities and that as there are other issues which have a higher priority, no further action has been taken.

    The ATO invited Members to forward details of any problems being caused by the delay so as to try to increase the priority of the legislative change.

    The ATO will continue to monitor the TIES request and keep Members informed as to its progress.

    3.3 Meeting of 18 March 2014

    Agenda item 4.1 Living-away-from-home declaration – employees who maintain an Australian home

    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.

    3.4 Meeting of 17 September 2014

    Agenda item 6.4 Application of the exemption in subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to a four wheel drive vehicle

    Agenda item 6.4 of the meeting held on 17 September 2014, concerned the list of vehicles listed in the ATO publication FBT – exempt motor vehicles as being eligible for the exemption that applies to certain cars where there is restricted private use.

    The agenda item noted that the lists were confusing and appeared to be incorrect in relation to several four wheel drive vehicles.

    The ATO in response agreed the current listing was confusing and difficult to use. It also listed several vehicles which do not satisfy the tests for eligibility contained in TD 94/19 as being eligible. Consequently, the ATO undertook to review the listing.

    At the meeting held on 25 March 2015, the ATO advised Members who had relied on the published lists when entering into agreements and lodging their FBT returns that 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.

    The ATO provided Members with an update of the review which is occurring in consultation with the Federal Chamber of Automobile Industries. An alternative formatting of the current product was outlined with Members indicating a preference for a more design-descriptive approach.

    4. News from the Tax Office

    4.1 Compliance update

    The ATO provided an update at the meeting. The current compliance focus is on increasing the on-time lodgment.

    4.2 Legislation and regulations

    Tax Laws Amendment (Small Business Measures No 3) Act 2015

    Tax Laws Amendment (Small Business Measures No 3) Act 2015 received assent as Act No 114 of 2015 on 26 August 2015.

    The Act includes amendments to extend the FBT exemption that may apply to the provision of work-related portable electronic devices, such as mobile phones, laptops and tablets for small businesses.

    DATE OF EFFECT: will apply for the 2016-17 FBT year and later FBT years.

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

    The Bill includes amendments to the:

    • Income Tax Assessment Act 1997 (ITAA 1997) relating to the calculation of the income tax deduction for work-related car expenses;
    • consequential amendments to the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to remove reference to the repealed methods from the provisions relating to the application of the otherwise deductible rule for benefits related to operating a car owned or leased by an employee; and
    • the FBTAA to limit the concessional treatment of salary packaged entertainment benefits.

    Work-related car expenses 

    The Bill will change the methods for calculating work-related car expense deductions. Currently, taxpayers have an option of using one of four methods to determine their work-related car expense deductions. These methods, each with differing compliance obligations, are:

    • 12% of original value method
    • one-third of actual expenses method
    • cents per kilometre, and
    • logbook method.

    The Bill will repeal the 12% of original value method and the one-third of actual expenses method.

    The Bill will also provide a streamlined process for calculating the cents per kilometre method by providing a single rate of deduction which more accurately reflects the actual running expenses of a vehicle. In the 2015-16 income year, the cents per kilometre rate will be set at 66 cents per kilometre. The Commissioner will be provided with the power to set the cents per kilometre rate for later years via legislative instrument.

    Consequential amendments will be made to the Income Tax Assessment Act 1997 and the Fringe Benefits Tax Assessment Act 1986.

    Changes to income tax law will generally apply in relation to the 2015-16 income year and later income years. Changes to FBT law will operate from 1 April 2016 and later fringe benefits tax years.

    Refer to item 5.2 for further discussion on the application of the cents per kilometre amendments.

    FBT concessions on salary packaged entertainment benefits 

    The Bill will amend the Fringe Benefits Tax Assessment Act 1986 to limit the concessional treatment of salary packaged entertainment benefits by:

    • removing the reporting exclusion in respect of salary packaged entertainment benefits;
    • removing access to elective valuation rules when valuing salary packaged entertainment benefits to prevent unintended and excessively concessional values being applied to those benefits; and
    • introducing a cap on the total amount of salary packaged entertainment benefits that certain employees can be provided that are exempt from or subject to fringe benefits tax at concessional rates.

    This measure will apply to the 2016-17 FBT year and later FBT years.

    4.3 FBT related Taxation Rulings

    No FBT related rulings have issued since the last meeting.

    4.4 FBT related Class Rulings

    The following FBT Class Rulings have issued since the last meeting:

    • Class Ruling CR 2015/53: Income tax and FBT: Customers of Securatrak Pty Ltd who use the Soteria Trip Detail Report and the Soteria Trip Summary Report for their log book records
    • Class Ruling CR 2015/60: Income tax and fringe benefits tax: Customers of GPSI Group Pty Ltd who use the GPSI 'Vehicle Logbook Report' for their log book records
    • Class Ruling CR 2015/80: Fringe benefits tax: Use of an E-stralian electric bicycle (e-bike) by an employee

    4.5 FBT related Taxation Determinations

    The following FBT related Taxation Determinations have issued since the last meeting:

    • TD 2015/11: Fringe benefits tax: for the purposes of section 39A of the Fringe Benefits Tax Assessment Act 1986 what is the car parking threshold for the fringe benefits tax year commencing on 1 April 2015
    • 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?

    4.6 FBT related rulings/determinations on the public rulings program

    The public rulings program of 7 October 2015 only contains one ruling that may relate to FBT; namely Income tax: employee remuneration trust arrangements.

    In addition the ATO has commenced the preparatory work associated with a rewrite of Taxation Ruling TR 96/26 Fringe benefits tax: car parking fringe benefits.

    4.7 FBT related law administration practice statements

    No practice statements specifically related to FBT have issued since the last meeting. However, the following may be of interest:

    • PS LA 2014/4 Administration of the penalty imposed under subsection 284 75(3) of Schedule 1 to the Taxation Administration Act 1953. This practice statement explains: the circumstances in which an entity becomes liable to a subsection 284 75(3) penalty, and how the penalty is assessed, including remission.
    • PS LA 2005/24 (draft) Application of General Anti-Avoidance Rules has since been updated reflecting the legislative changes.

    The following Practice Statement has been withdrawn since the last meeting:

    • PS LA 2002/7 (Amendment of an employer's fringe benefits tax assessment which requires an adjustment to a previously advised reportable fringe benefits amount) was withdrawn as it has been included in Chapter 5.9 of Fringe benefits tax: a guide for employers.

    4.8 FBT related ATO interpretive decisions

    The following FBT ATO Interpretative Decision (ATOID) has issued since the last meeting:

    • ATO ID 2015/25 exempt residual benefits – the provision, or use of a recreational facility

    Although not specifically an FBT ATO ID, the following ATO ID is relevant when considering the provisions of the Fringe Benefits Tax Assessment Act 1986 that refer to a legally qualified medical practitioner. For example, work-related medical examination, work-related medical screening and work-related preventative health care.

    • ATO ID 2015/11 which discusses the term "legally qualified medical practitioners" within the definition of "disability superannuation benefit" in s995-1(1) of the ITAA 1997.

    The following ATO ID has been withdrawn since the last meeting:

    • ATO ID 2002/962 Fringe Benefits Tax - provision of a share or right to an employee by an entity that administers the employee share scheme is not a fringe benefit

    4.9 Cases

    John Holland Group Pty Ltd & Anor v FCT [2015] FCAFC 82  

    The Full Federal Court allowed the appeal against the decision of Jagot J in John Holland Group Pty Ltd & Anor v FCT [2014] FCA 1332.

    The issue considered was whether the employees would have been able to claim an income tax deduction for the cost of the flights between Perth and Geraldton if they had not been provided by the employer.

    The relevant facts were as follows:

    Between May 2011 and September 2012 the employer paid for employees to be flown from Perth to Geraldton which was near to where they were working on a rail construction project.

    Generally the employees worked 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).

    During the project, accommodation was provided in apartment style group accommodation in Geraldton. Partners and family were not generally permitted to stay at the employee accommodation.

    Employees travelled at their own expense between their home and Perth airport. Perth airport was designated by John Holland as the point of hire.

    John Holland would pay for the employees’ flights from Perth to Geraldton. Most flights were chartered by the employer.

    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 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.

    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’s case, 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 submitted to be ‘in’ their employment from the moment of their arrival at Perth airport and 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.

    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.

    An appeal against the decision has not been lodged and the ATO is preparing a Decision Impact Statement which will set out the ATO view of the decision.

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

    At the March 2015 meeting the ATO advised there were two cases under litigation. One of these was the John Holland case discussed in the previous agenda item.

    The other case concerned an assessment raised as a result of an audit of an employer’s car fringe benefits. The issue was whether the documentation kept was sufficient to enable the operating costs of the car to be reduced on account of the business use of the car. This case was settled on the basis of the specific facts of the case.

    Since the last meeting a further two appeals have been lodged to the taxable value of car fringe benefits included in assessments raised as a result of an audit. As with the case referred to above, both are factual matters concerning the quality of the documentation that was kept and whether a recipient’s payment has been made.

    4.11 FBT products

    The ATO sought feedback from members regarding:

    • the products being developed in relation to the changes to the cap applying to salary packaged entertainment benefits; and
    • possible changes to the location of Fringe benefits tax: a guide for employers on ato.gov.au.

    In discussion 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.

    Other updates that have occurred since the last meeting

    Not-for-profit FBT calculator

    The PBI, HPC and rebatable employers calculator has been redesigned and renamed the Not-for-profit FBT calculator.

    Consolidated listing of ATO approved forms

    A consolidated listing of ATO approved forms, arranged by tax topic has been released on ato.gov.au.

    A return, notice, statement, application or other document is in the approved form if it meets all the requirements of subsection 388-50(1) of Schedule 1 to the Taxation Administration Act 1953.

    The listing includes the following approved forms relating to FBT:

    Title

    Approved form legislative reference

    NAT number

     

    Application to register for fringe benefits tax

    Section 355-25(2)(g) in schedule 1 to the Taxation Administration Act 1953.

    1055

     

    Declarations; Airline transport benefit declaration

    Under section 34 of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 of schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Declaration of car travel to work-related medical examination, medical screening, preventative health care, counselling or migrant language training

    Under section 61F of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 in schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Employee's car declaration

    Under sections 19, 24, 44 and 52 of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 of schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Expense payment benefit declaration

    Under section 24 of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 of schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Fringe benefits tax (FBT) return

    Section 70 of the Fringe Benefits Tax Assessment Act 1986.

    Form approved under section 388-50 of schedule 1 to the Taxation Administration Act 1953 and those relevant claims or returns that are required to be given to the Commissioner in making relevant claims (or approved in lieu) or to be given to the Commissioner in connection with returns that are required under section 161 or other provision of the Income Tax Assessment Act 1936.

    1067

     

    Fringe benefits tax - nominated state or territory bodies; nominate or revoke an eligible state or territory body

    Under sections 135S and 135V of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 in schedule 1 to the Taxation Administration Act 1953.

    72133

     

    Fuel expenses declaration

    Under sections 9 and 10 of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 of schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Living away from home declaration

    Under sections 47 and 63 of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 of schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Loan fringe benefit declaration

    Under section 19 of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 of schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    No private use declaration - expense payment benefits

    Under section 20A of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 of schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    No-private-use declaration - residual benefit

    Under section 47A of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 of schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Property benefit declaration

    Under section 44 of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 in schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Recurring expense payment fringe benefit declaration

    Under section 152A of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 in schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Recurring property benefit declaration

    Under section 152A of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 in schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Recurring residual fringe benefit declaration

    Under section 152A of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 in schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Relocation transport declaration

    Under section 61B of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 in schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Remote area holiday transport declaration

    Under sections 60A and 61 of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 in schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Residual benefit declaration

    Under section 52 of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 in schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Residual benefit declaration - vehicles other than cars

    Under section 52 of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 in schedule 1 to the Taxation Administration Act 1953.

    No NAT number

     

    Temporary accommodation relating to relocation declaration

    Under section 61C of the Fringe Benefits Tax Assessment Act 1986 and/or section 388-50 in schedule 1 to the Taxation Administration Act 1953.

    No NAT number

    4.12 Machinery of Government (MOG) Changes

    4.12.1 FBT requirements applying to State and Territories where an entity is abolished, but the tax identifiers are not changed

    Part XIC of the Fringe benefits Tax Assessment Act 1986 (FBTAA) enables States and Territories to devolve the administration and payment of FBT to a departmental level. To devolve its FBT responsibility, a State or Territory must nominate the relevant body and provide certain information to the ATO to facilitate the process.

    The actions to be taken when making a nomination, or when a nominated State or Territory body ceases to exist are set out in Fringe benefits tax – nominated state or territory bodies.

    Under Part XIC of the FBTAA:

    • a nomination must be given to the Commissioner on or before 21 May in the first year of tax for which the body is nominated to be an employer (subsection 135S(2)); and
    • if a nominated State or Territory body ceases to exist during a year of tax:
      • the State or Territory is taken, from the time the body ceases to exist, to be the employer of all employees who had a sufficient connection with the body immediately before it ceased to exist;
      • the State or Territory is taken to have revoked the nomination of the body, with effect from the start of the next year of tax (subsection 135U(6)); and
      • the State or Territory becomes liable to pay the notional tax of the nominated State or Territory body that ceased to exist (section 135W).
       

    Where a MOG occurs after 21 May (e.g. 30 June) that involves the abolition of a nominated State or Territory body and the establishment of a new eligible State or Territory body:

    • the nominated State or Territory body ceases to be the employer of the relevant employees on 30 June;
    • the newly created eligible State or Territory body is not able to be nominated to be an employer until 1 April of the following year; and
    • the State or Territory is taken to be the employer of the employees that transfer to the newly created eligible State or Territory body for the period from 1 July to 31 March.

    To comply with the obligations in the FBTAA:

    • the nominated State or Territory body is required to lodge a final return that includes the fringe benefits provided during the period from 1 April to 30 June;
    • the nominated State or Territory body is required to calculate the reportable fringe benefits amounts for the period from 1 April to 30 June;
    • the State or Territory is required to pay the instalments for the period from 1 July to 31 March;
    • the State or Territory is required to lodge a return that includes the fringe benefits provided during the period from 1 July to 31 March; and
    • the State or Territory is required to calculate the reportable fringe benefits amounts for the period from 1 July to 31 March.

    An issue has arisen in relation to the way in which these provisions operate where it is not necessary for the new eligible State or Territory body to obtain new identifiers such as a TFN or ABN. The circumstances in which this can occur are set out in Practice Statement Law Administration PS LA 2011/8. Paragraphs 109 to 114 of PS LA 2011/8 state:

    Registration requirements where an entity or person restructures

    Government entities

    109. Government entities at the Commonwealth, State, Territory and local level may undergo a variety of structural changes that include but are not limited to: 

    the merging of two bodies 

    a change in the type of entity (for example, a change from a body corporate government-related entity to a government entity) 

    the whole or part of an entity being absorbed by another entity. 

    110. Such restructures are commonly referred to as 'machinery of government changes'. 

    111. Machinery of government changes give rise to questions as to whether the entity or entities emerging from a restructure need to apply for new registrations and/or roles, such as TFN, ABN, GST, PAYG withholding, fringe benefits tax (FBT) and fuel tax credits, or may instead continue the registrations and roles of the pre-change entity. 

    112. Where it is evident that an entity emerging from a machinery of government change is to be treated at law, as a continuation of the pre-change entity, the TFN, ABN and other roles of the pre-change entity continue unaltered with only a change to the entity name. Relevant evidence is found in the primary or delegated legislation, including orders and determinations through which the restructure is effected. These will be in the form of specific transition, transfer and savings provisions which provide that the new entity is to be treated as if it were the former entity such that the new entity has all the rights, entitlements, liabilities and obligations of the former entity. 

    113. Where there is no such evidence, an entity emerging from a machinery of government change must apply for new registrations. 

    114. Where it is evident that a government entity continues, in fact, after the machinery of government change, there is no new and former entity for which there is a need to establish continuity. Such cases do not need to be treated in accordance with this policy and the entity may continue to use their existing registrations. An example of the continuation of an entity in fact is where a State Governor gives notice in the State Government Gazette that an existing Department has been re-named and had some functions added or taken away - sometimes referred to as having its 'designation altered' - under the relevant State Public Sector Management Act (or equivalent). In this example, no new primary or delegated legislation has been passed. Rather, powers under the existing statute have been used to restructure a Department without abolishing it. 

    The issue recently arose when PS LA 2011/8 was applied to enable an eligible State or Territory body established under an Administrative Order to use the TFN and ABN of a nominated State or Territory body abolished by the Administrative Order.

    In resolving the practical problems in applying the requirements of Part XIC of the FBTAA that arose from the decision to allow the newly created body to use the identifiers of the abolished body, the ATO agreed that:

    • it was not necessary for the notional tax for the remainder of the year to be transferred to the State or Territory; and
    • it was not necessary for the State or Territory to lodge a return that included the fringe benefits provided during the period from 1 July to 31 March.

    However, as there had been a change of employers it was necessary for the body to separately calculate the FBT liability and reportable benefits amounts that related to:

    • the period from 1 April to 30 June; and
    • the period from 1 July to 31 March.

    4.12.2 Machinery of Government (MOG) checklists

    Two checklists are being developed to provide guidance on tax related matters that need consideration and the information that is required to be provided to the ATO when MOG changes come into effect.

    One of the checklists is designed to be used by Commonwealth Government entities.

    The other checklist is designed to be used by State and Territory Government entities.

    Prior to their release, the ATO will forward the draft checklists to Members for comment.

    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.

    There are currently two FBT consultation matters:

    • Tax deductible travel – travelling allowance or living-away-from-home allowance – ’21 days’ guideline
    • FBT and remuneration safe harbour

    The following details are shown on the ATO website:

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

    Registered

    November 2014

    Expected completion

    March 2016

    Status

    Consultation in progress.

    Consultation commenced in February 2015. An initial meeting to determine the scope of this review was held on 11 March 2015 with external participants.

    Further meetings were held on 9 and 27 April 2015 and 4 August 2015 to progress this review and understand the underlying issues that may require clarification.

    It was agreed at the meeting on 4 August 2015 that the ATO will continue to undertake initial research given the parameters agreed upon. Once completed the initial findings will be provided to participants for further consideration and input.

    The Full Federal Court decision in John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82 (11 June 2015) was also recognised as being relevant to this review.

    Research on this matter is continuing.

    It was agreed that the next meeting will be 22 October 2015

    Purpose

    To clarify whether the general practical guidance provided in MT 2030 relating to the distinction between ‘travelling’ or ‘living-away-from-home’, particularly the '21 day rule' is, today, still appropriate.

    Description

    Whether a person is ‘travelling’ or ‘living away from home’ can result in different tax consequences from both the employer and employee perspectives.

    The ATO’s general guidance based upon a ‘practical general rule’ that where the period away does not exceed 21 days an allowance will be treated as a travelling allowance rather than a living-away-from-home allowance has been put forward as being insufficient in today’s employment arrangements. For example, whether there is sufficient guidance in circumstances involving short term postings on secondment within Australia, or to and from Australia, where the period significantly exceeds 21 days.

    In reviewing the '21 day’ rule and the impact that has on deductibility issues, we also plan to address concerns that have been raised about its application particularly following the legislative changes to the living-away-from-home provisions in the FBTAA which came into effect in October 2012.

    Who we are consulting

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

    Outcomes

    To be advised upon completion.

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

    Registered

    March 2015

    Expected completion

    December 2015

    Status

    Consultation in progress.

    The consultation group met on 10 August 2015. Since this meeting, external members have provided empirical data to test one of the key parameters of the fleet cars logbook proposal, and this data was presented at the Safe Harbour Steering Group meeting held on 27 August 2015, along with preliminary compliance cost savings. An external Steering Group member is seeking feedback on the compliance cost savings amounts with peers and clients, and will provide findings before the next working group meeting. An additional potential safe harbour addressing car parking fringe benefit issues was discussed but not added to the issues register. The demand for a safe harbour on this topic will be assessed as part of the community consultation process that will take place as part of the rewrite of TR 96/26.

    The meeting held on 23 September 2015 discussed:

    guidance on the minor benefits exemption

    guidance on the level of infrequent/minor use that is acceptable for ‘exempt’ vehicles.

    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.

    4.14 FBT and the sharing economy

    4.14.1 Car parking

    Agenda items 5.1 to 5.6 of the meeting held on 25 March 2015 sought clarification of the circumstances in which a car parking fringe benefit will arise and the valuation of car parking fringe benefits.

    The clarification was sought as a result of a concern about the possible risks that agencies could be exposed to if they used information provided by an external organisation to calculate their car parking fringe benefits tax liability.

    In reviewing the concerns raised by Members about particular arrangements the ATO has determined that many of the arrangements discussed are arrangements that are part of the sharing economy.

    The sharing economy (also referred to as collaborative consumption, peer-to-peer or similar terms) is a new way of connecting buyers and sellers for economic activity.

    In simple terms, it involves individuals making money by selling or hiring underused assets through the use of a website or smart phone app provided by a facilitator.

    Common examples include:

    • Renting out or letting a room or other property for accommodation;
    • Renting out or letting a car parking space;
    • Providing odd jobs, errands, deliveries or more skilled services on an ad hoc basis; and
    • Using a car to transport members of the public for a fare (otherwise known as ride-sourcing).

    In May the ATO issued the following two web based products to provide guidance regarding the income tax and GST obligations that arise for people who provide a sharing economy service:

    • The sharing economy and tax 
    • Providing taxi travel services through ride-sourcing and your tax obligations 

    The sharing economy and tax provides the following advice in relation to the income tax implications for providers:

    In some instances letting out a room, letting out a parking space, doing odd jobs or other activities for payment or driving passengers in a car for a fare will mean you are earning assessable income regardless of whether you are carrying on a business.

    In relation to the GST obligations for providers, The sharing economy and tax states:

    If you are engaged in sharing economy activities where you let a room, let a car parking space, do odd jobs or other activities for payment or drive passengers in a car for a fare, you may have a GST obligation where you have an enterprise. If you rent out property (for example, a car parking space) on a regular basis to make money, this will be an enterprise (even if it is not a business).

    In providing guidance, the following example is included in relation to renting out a car parking space:

    Example 2

    Renting out a car parking space subject to GST

    John is a painter and is registered for GST. He owns a residential unit in a CBD location with a car parking space in the same building. John decides to rent the car parking space out for $330 a week through a facilitator who arranges for people to rent the space periodically. The supply of the car parking space is subject to GST. John will need to include the GST on this rent in his BAS.

    John receives $297 after the facilitator charges John an $33 commission. John must pay GST on the full $330 (that is, $30 GST). If the facilitator is registered for GST, John may claim an input tax credit of $3 for the GST included in the facilitator’s commission.

    John also includes the income from renting out the car parking space in his income tax return. He can claim a deduction for the fee charged by the facilitator and may have other deductions such as a percentage of his mortgage.

    Several technical and practical questions have been raised in relation to the situation described in this example.

    The technical questions include:

    • Is the car parking space provided by John a commercial parking station as defined in subsection 136(1) of the FBTAA?
    • Alternatively, is the facilitator operating a commercial parking station which has parking spaces at a range of locations, where John’s apartment is one of the locations?
    • If there is a commercial parking station, what is the lowest fee charged by the operator of the commercial parking station? Is it the lowest amount received by the facilitator from all of the locations, or is it the amount received by John?
    • Can the amount received by John be used as the market value of the parking provided by employers in the area for the purposes of section 39D of the FBTAA?

    The practical questions include:

    • How does an employer who provides parking to employees within one kilometre of John’s unit identify that the car parking space at John’s unit is a commercial parking station?
    • How does an employer identify the commercial parking station if it consists of parking spaces at several locations?
    • How does an employer who provides parking to employees within one kilometre of John’s unit obtain details of the lowest fee charged by the operator?

    As advised at the last meeting, the ATO is updating Taxation Ruling TR 96/26 Fringe benefits tax: car parking fringe benefits. As part of that update the ATO will be consulting with taxpayers, advisors and other interested stakeholders.

    The technical questions raised in relation to the application of car parking provided in the sharing economy to the car parking provisions will be considered as part of the consultation.

    Depending upon the conclusions reached, it may then be necessary for further consultation to occur in relation to ways to resolve the practical issues caused by the conclusions. For example, one method may be to provide a safe harbour rate.

    4.14.2 The application of section 58Z of the FBTAA to travel provided in a ride sourcing vehicle

    Section 58Z of the FBTAA provides an exemption for:

    • Single taxi trips beginning or ending at employee’s place of work; and
    • Taxi travel by a sick or injured employee between the work place and home or to any other place where care can be obtained.

    The application of this exemption to travel provided in a ride sourcing vehicle was raised as an issue following the issue of the ATO publication Providing taxi travel services through ride-sourcing and your tax obligations. This publication describes ride-sourcing as being:

    … an ongoing arrangement where:

    • you (a driver) make a car available for public hire
    • a passenger uses, for example, a website or smart phone app provided by a third party (facilitator) to request a ride, and
    • you use the car to transport the passenger for payment (a fare) with a view to profit.

    In relation to the GST consequences, Providing taxi travel services through ride-sourcing and your tax obligations states:

    If you provide ride-sourcing services, you are providing ‘taxi-travel’ services. This is because you make a car available for public hire and use it to transport passengers for a fare.

    Under GST law, if you carry on an enterprise and provide taxi travel services in that enterprise, you are required to be registered for GST regardless of your turnover.

    In providing this advice, the publication states:

    The views in this product relate to the meaning of the word ‘taxi’ as it appears in the GST law. For GST purposes, the word taxi takes on its broad ordinary meaning of a car (vehicle) made available for public hire that is used to transport passengers for fares.

    State and Territory laws regulating transportation of passengers contain specific definitions of the term ‘taxi’. As such, it is possible a vehicle may be a taxi for GST purposes, but not for State and Territory regulatory purposes.

    In considering the meaning of the word ‘taxi’ for the purposes of the FBTAA, subsection 136(1) of the FBTAA defines taxi to mean:

    A motor vehicle that is licensed to operate as a taxi

    The licensing of a motor vehicle to operate as a taxi within a particular State or Territory occurs under the statute of that State or Territory that regulates the transport of passengers. Generally, these statutes draw a distinction between vehicles that ply or stand for hire (whether or not they also take pre-bookings) which are defined to be ‘taxis’ and vehicles that take pre-bookings only to procure passengers.

    In applying this legislation to the definition of ‘taxi’ in subsection 136(1) of the FBTAA, the exemption in section 58Z is restricted to travel in a vehicle licensed by the relevant State or Territory statute to ply or stand for hire. It does not extend to ride-sharing services provided in a vehicle that is not licensed to operate as a taxi.

    The ATO advised Members that it will update Fringe benefits tax: a guide for employers to include this advice.

    4.15 Review of Public Advice

    Following a review of the public advice and guidance provided by the ATO there will be changes to how public advice and guidance is produced and communicated as part of the ATO reinvention. The changes are summarised as follows on the ATO website:

    Change highlights

    How we manage advice and guidance

    We will improve accountability and responsibility for providing advice and guidance through a new business structure.

    The rulings process

    We will overhaul and improve the way rulings are produced, managed and maintained.

    Consultation and engagement

    As part of this overhaul we will consult the public earlier to ensure that our advice is more tailored and effective.

    Intelligence

    We’ll use new ways to gather intelligence. We'll also work more closely with our stakeholders to identify areas where advice and guidance is needed and ensure it is tailored appropriately.

    We will use data on how our advice and guidance is used to continually improve our offering.

    Improved certainty

    We will improve the certainty of our advice and guidance by using more real world examples.

    We will also increase certainty for you by publishing more of our guidance in a form we are legally bound by. For example, we will convert specific ATO Interpretive Decisions into forms of legally binding advice.

    Complementing this process, we will revise our policies on levels of protection, our commitment statements, and introduce a maintenance program to keep our guidance current and up to date with ongoing changes.

    A new approach to communication

    We will test a new way of presenting advice and guidance on our website that will enable users to intuitively navigate from the simple website explanation, to the legislation and rulings underpinning it.

    Readers will be able to access simple explanations of our advice or guidance with the ability to click through to more technically detailed or specific material if desired.

    In the future, we aim to integrate our calculators and self-help decision tools as part of our website guidance.

    We will announce any further consultation or co-design activities via our Consultation Hub site. If you would like to be involved, we encourage you to monitor our Consultation Hub website.

    4.16 Review of Private Advice

    The ATO is undertaking a review of how private advice is provided so as to be able to deliver a system that provides sufficient certainty through tailored, useful and timely advice with a contemporary service.

    As part of the review the ATO has released discussion paper for comment and is hosting a supporting webinar on 4 November 2015.

    The consultation questions include:

    1. Under what circumstances would you seek advice from the ATO?
    2. What private advice product(s) do you/would you request and why?
    3. What opportunities are there to improve the existing private advice system?

    Comments can be provided using the feedback questionnaireExternal Link or by emailing PrivateAdviceReview@ato.gov.au.

    The closing date for comments is Friday, 20 November 2015.

    5 Issues raised by States and Territories

    5.1 Date of effect of Taxation Determination TD 2015/12

    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? issued on 24 June 2015.

    Paragraphs 35 and 36 in setting out the date of effect 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.

    Question:

    Does the Taxation Determination apply to salary packaging arrangements in place on the date of issue? That is, are these paragraphs an effective grandfathering of salary packaging arrangements in place prior to the issuance of TD 2015/12, or are all existing arrangements now subject to the new determination?

    ATO response

    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 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.

    5.2 Effect of change to cents per kilometre rates

    Issue:

    Employers who rely on the ATO website will overpay mileage reimbursements as they refer to the old rates in 2014-2015 that are posted on the ATO’s website.

    Background:

    Up to 2014-2015 financial year, under set per kilometre method, taxpayers can claim motor vehicle deduction on one of the three rates: 65c, 76c or 77c depending on their vehicle engine capacity.

    Based on the recent Budget, cents per kilometre rates will be a single rate at 66cents per kilometre in 2015-2016.

    Industry view/suggested treatment:

    As the Regulation often updated in March of the following year and the new rate(s) is published on the ATO website for taxpayers to prepare year income tax return in respective year.

    Questions

    1. When the new rate is introduced, if the overpayment amount is not recouped from the claimant will the gap constitute a Fringe Benefit?
    2. Can the ATO publish new rate(s) after the Treasurer’s announcement rather than in the last quarter of a financial year? This will give taxpayers (both employers and employees) an authority source of reference at a beginning of a financial year, especially when rates are dropped or varied.

    ATO response

    Generally where an employer uses a cents per kilometre method to calculate the amount of the reimbursement paid to an employee for car expenses, the reimbursement is an exempt benefit which is assessable income of the employee.

    However, there are some exceptions listed in section 22 of the FBTAA. These include:

    • relocation transport;
    • employment interview or selection tests;
    • work-related medical examination; and
    • transport provided to enable the employee to have a holiday.

    Where a cents per kilometre basis is used to calculate the amount of the reimbursement paid in one of the listed situations, the benefit is an expense payment fringe benefit.

    There are a number of sections that enable the taxable value of these expense payment fringe benefits to be reduced including:

    • subsection 61(1) (remote area holiday transport);
    • section 61B (relocation transport);
    • section 61E (employment interviews or selection tests); and
    • section 61F (work-related medical examinations, etc).

    In general terms, the reduction is calculated by reference to the basic car rate which is the rate per kilometre that is used for income tax purposes.

    The cents per kilometre basis was introduced in the 1980s as an arbitrary method to determine the income tax deduction that could be claimed for car expenses. It provided 3 rates which were based on the private motor vehicle allowances paid to Australian public servant officers as determined by the Public Service Board.

    Since its introduction, the rates have been indexed by movements in the private motoring sub group of the consumer price index and the rates have generally been released towards the end of the relevant income tax year (after the conclusion of the relevant FBT year).

    In previous years, this delay in releasing the rates was not a problem as the rate had not decreased from the previous year. Therefore, employers who calculated the amount of the reimbursement using the rates for the previous year were not subject to FBT on the reimbursements as the reduction in taxable value (using the current year rates) was not less than the amount paid (using the rates for the previous year).

    However, for the current FBT year, Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015 replaced the 3 rates (which were 65 cents, 76 cents and 77 cents last year) with a single rate of 66 cents.

    At the meeting the ATO advised of its view that for the FBT year 1 April 2015 to 31 March 2016 that the single 66 cent rate would apply.

    The effect of this application of the law would be, for example, that an employer who provided an employee reimbursement for section 61 remote area holiday transport car expenses at the rate of 76 cents for a medium car would be liable to the full amount of tax on the excess 10 cents (the part over the 66 cent concession), and 50% of the tax on the remainder. Note: assuming there were no other family members in the car and the 63 cent supplementary car rate did not apply.

    Following the 6 November 2015 meeting the ATO took the opportunity to further consider the matter.

    Additional ATO guidance post 6 November 2015

    As indicated above, the ATO considers that in determining the basic car rate for the current FBT year (FBT year ending 31 March 2016), the single rate of 66 cents will apply.

    However, the ATO acknowledges that there may be some confusion and uncertainty in relation to the application of the single rate of 66 cents in the current FBT year given previous calculations of the basic car rate and the recent amendments contained in the Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015.

    While employers would be correct in applying the single rate of 66 cents when determining the basic car rate for the current FBT year, the ATO will also accept FBT returns based on the 2014-15 income tax rates by specifying engine capacity, viz: using 64, 76 or 77 cents as appropriate.

    For the following FBT year which ends on 31 March 2017 the basic car rate will be determined using rate determined by the Commissioner under subsection 28-25(4) of the ITAA 1997 for the following 2016-17 income year. The Commissioner will not accept any other rate for this year.

    For future FBT years ending on 31 March, employers should use the rate determined by the Commissioner under subsection 28-25(4) of the ITAA 1997 for the following income year. The Commissioner will determine and publish this rate (by Legislative Instrument) at the beginning of each income year.

    Note also that for some of the FBT concessions, eg. remote area holiday transport, the additional Supplementary car rate (63 cents per kilometre) is available, for where there is more than one family member in the car.

    The ATO will review FBT: a guide for employers and its approved forms in relation to this matter.

    5.3 Debt waiver benefits and unrecoupable salary payment in error

    Issues

    Due to ineffective communication, Payroll often pays salary to staff who should not be paid.

    Once salary overpayments are detected, the department actively tries to recoup the salary overpayment via repayment schedules, taking employees to the Tribunal Court for appropriate rulings.

    In some instances, the Department has to give up the debts as debtors (ex-employees) are not contactable and no longer work for the Department.

    In summary, the Department is not in a position to waive the debts without effort in recovering them.

    Background

    To date, the department has paid FBT on the debt waiver benefits on outstanding debts that the Department cannot collect them after exhausting recovery effort. The Debt Waiver benefits have been paid on the basis that employees have benefits that equal the unrecovered amount. However, the salary overpayments have never been waived. They are bad debts.

    Industry view/suggested treatment:

    Non recoupable salary overpayments are not debt waiver benefits as the department actively tries to recoup the debts and eventually write them off as bad debts.

    Technical references

    Part 8.1 of Fringe benefits tax: a guide for employer's states:

    • A debt waiver fringe benefit arises where you (the employer) waive or forgive the whole or part of an employee's debt. For example, if you sold goods to an employee and later tell them not to bother about paying the invoiced amount, you have provided a debt waiver fringe benefit
    • A debt owed by an employee that is written off as a genuine bad debt is not a debt waiver fringe benefit

    Standing Directions of the Minister for Finance - Clause 3.4.12 Administration of discretionary financial benefits: Accountable Officer cannot waive loans at their discretion. Financial Management Act 1994 – Section 56 Recovery of overpayments

    Impact on clients

    Eliminate Fringe Benefits Tax on Debt Waiver that the Department has never waived.

    Question  

    Does a fringe benefit arise if the Department decides not to pursue a salary overpayment?

    ATO response  

    The circumstances in which a fringe benefit will arise when a salary overpayment occurs has previously been discussed at several FBT STIP meetings including the meetings held on 13 September 2012, 9 September 2005, 12 March 2004, and 20 March 2003.

    Guidance has also been provided in:

    • Taxation Determination TD 2008/10 Fringe benefits tax: where an employer recognises they mistakenly paid to their employee an amount that the employee is not legally entitled to, but is obliged to repay, and afterwards allows the employee time to repay the amount, is there a ‘loan benefit’ under subsection 16(1) of the Fringe Benefits Tax Assessment Act 1986?
    • Taxation Determination TD 2008/11: where an employer mistakenly pays to their employee an amount that the employee is not legally entitled to, but is obliged to repay, does the employer’s subsequent waiver of that obligation constitute a ‘debt waiver benefit’ under section 14 of the Fringe Benefits Tax Assessment Act 1986?
    • The fact sheet PAYG withholding – repayment of overpaid amounts
    • The fact sheet Repayment of income – overpayment of salary or a benefit.

    These publications make a distinction between a situation in which the employee is legally entitled to the income and a situation in which the employee is not entitled to the income.

    In general terms an employee is legally entitled to receive the income if the employee correctly received an amount, but later events meant the amount had to be repaid. The fact sheet Repayment of income – overpayment of salary or a benefit provides the following example of such a situation:

    Charlotte was a member of the Australian Defence Force (ADF). On 1 March 2003, she was offered $50,000 (referred to as a retention bonus) to sign on for another five years of service. Under the terms of the contract, she was required to repay the bonus, on a pro rata basis if she failed to serve for five years. She signed up for the retention bonus on 20 March 2003 and included the $50,000 as part of her assessable income in her 2003 tax return.

    Three years into the contract she resigned from the ADF, and was required to repay two-fifths of the retention bonus. She has now repaid the amount required. As Charlotte has repaid the $20,000 she can amend her assessment for the 2003 income year. In her amendment she would request that her income be decreased by $20,000 for the 2003 year.

    By contrast an employee is not entitled to receive the income if the employee received the payment due to an error or mistake. The fact sheet Repayment of income – overpayment of salary or a benefit provides the following example of such a situation:

    Hannah is in receipt of a social security payment. A review of her circumstances established that she had been mistakenly paid amounts totalling $825 during the 2006-07 income year, due to an incorrect income declaration by Hannah. The circumstances are such that Hannah has an obligation to repay the amounts paid by mistake. As Hannah was not entitled to the $825, her assessment can be amended to reduce her assessable income.

    This difference in classification affects both the actions that an employee can take to reduce their taxable income in the year the payment was received and whether a fringe benefits tax liability will arise if the amount is not repaid.

    If the employee was entitled to the income, he or she can request an amendment to their income tax assessment for the year in which the income was included when the amount is repaid.

    Alternatively, if the employee was not entitled to receive the amount and the employer decides that the employee is required to repay the overpaid amount, the employer will issue an amended payment summary to the employee which the employee can use to request an amendment to their income tax assessment for the year in which the income was included. In this second situation, the employee does not need to wait until the amount has been repaid to request the amendment of their income tax assessment.

    The fringe benefits tax consequences that can arise in this second situation where an employer mistakenly pays an amount to an employee that the employee is not entitled to, but is obliged to repay are discussed in TD 2008/10 (in the context of whether a loan benefit arises) and TD 2008/11 (in the context of whether a debt waiver benefit arises).

    In answer to the question of whether a debt waiver will arise where an employer waives an obligation that arose from an employee mistakenly being paid the employee is not legally entitled to receive, paragraph 1 of TD 2008/11 states:

    Yes. Where an employer mistakenly pays to their employee an amount that the employee is not legally entitled to, but is obliged to repay, the employer's subsequent waiver of that obligation constitutes a 'debt waiver benefit' under section 14 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)1 provided by the employer to the employee at the time of the waiver.

    Paragraphs 2 and 3 of TD 2008/11 provide the following example:

    2. Sam works as a public servant in a government department (the employer). Sam is paid her salary on a fortnightly basis by direct credit into her bank account. During the period July 2007 through to February 2008 (2007-08 FBT Year) Sam temporarily performed duties at a higher pay scale level. A review during March 2008 of the higher duty payments made to Sam was undertaken by the employer's human resources section. The review established that Sam had, in error, been mistakenly paid three amounts of $500 to which she was not legally entitled. The circumstances are such that Sam has an obligation to repay the three amounts paid by mistake. In April 2008, the following FBT year, Sam's employer waives her obligation to repay the three mistakenly paid amounts of $500.
    3. Each waiver gives rise to a ' debt waiver benefit' under section 14 provided by Sam's employer to Sam at the time of the waiver.

    In applying this guidance to the situation outlined in the agenda item, an amount has been paid to an employee which the employee was not legally entitled to receive. A decision has been made to require the employee to repay the overpaid amount.

    At the time the decision is made to require the employee to repay the overpaid amount, the employee is able to request an amendment of his or her income tax return. If the employer allows the employee time to repay the amount there will be a loan benefit in accordance with TD 2008/10.

    Subsequently, if a decision is made to not pursue the debt, a debt waiver fringe benefit may arise if the decision is made in respect of the employee’s employment.

    Guidance for considering whether a debt waiver is in respect of employment is provided in paragraphs 10 to 12 of TD 2008/11 which state:

    10. Unless there are facts indicating a contrary conclusion (such as some capacity other than as employee in respect of which the benefit was provided by the employer to their employee), the debt waiver benefit taken under section 14 to be provided by the employer to the employee in the circumstances that are the subject of this ruling is likely to possess a 'sufficient or material' connection with the employee's employment and is therefore considered to be a benefit provided by the employer to the employee 'in respect of the employment of the employee'. However, whether this is the case is a question of fact to be decided on the circumstances of each case.
    11. Facts that may indicate such a contrary conclusion would include where the employee's obligation to repay the amount of the payment made by mistake is waived because it is a bad debt (for example, the amount cannot be recovered because the employee has no assets) rather than by reason of the employment relationship. That fact could be established by showing that reasonable efforts were made to recover the amount from the employee but that was unsuccessful and that the waiver was in line with the employer's policy in relation to the waiver of bad debts owing by non-employees.
    12. Other facts that may also indicate a contrary conclusion would include where the employee's obligation to repay the amount of the payment made by mistake is waived because it is uneconomic to recover the amount from the employee. That fact could be established by showing that the employer adheres to a policy of not pursuing any debts owed to it that are below a certain amount (because the employer has reasonably assessed that it is uneconomic for them to do so) and that the waiver of the employee's obligation to repay the amount of the payment made by mistake occurs under that policy, rather than by reason of the employment relationship. Such a policy would have to apply to all debts owed to it, not only debts owed by employees.

    5.4 Reimbursement of course fees or FEE-help loan?

    Issue:

    FEE-help loan vs FEE-help debt distinction

    Background:

    Where it is determined that relevant self-education expenses have a connection to an employee’s current income-earning activities (i.e. the self-education enables the employee to maintain or improve their skill or knowledge relevant to their employment), Department A reimburses the employee for the expenditure incurred.

    Per Department policy, before the relevant self-education expense claim can be processed as a reimbursement, Department A requires the employee to provide it with the academic results achieved and confirm the successful completion of the course (i.e. costs are only reimbursed where the course/subject is successfully completed by the employee).

    In this regard, due to the timing difference between when the employee is required to pay their tertiary education fees and the finalisation of their academic results, a number of employees will initially fund their education fees via a FEE-HELP loan. Subsequently, after successfully completing the course/subject, Department A will process the reimbursement claim and make the relevant payment back to the employee. Due to the complexities in relation to deductibility of such costs (and therefore the application of the otherwise-deductible-rule), all such reimbursements have been treated as fully taxable for FBT purposes.

    Technical references:

    In relation to the above, the otherwise-deductible-rule will not apply to any HECS-HELP loans as the Income Tax Assessment Act 1997 (‘ITAA’) specifically denies a deduction through the operation of sub-section 26-20(1)(ca). In contrast, the otherwise deductible rule may be applicable to FEE-HELP loans.

    Specifically, the ITAA (per sub-section 26-20(1)(cb)) operates such that a deduction is denied where the payment relates to reducing a debt to the Commonwealth (e.g. the payment actually relates to FEE-HELP loan re-payments). In this case, a distinction can be made between the reimbursement of course fees that were initially funded by a FEE-HELP loan, as opposed to payments made to reduce a FEE-HELP debt.

    Where the Department’s reimbursement relates to the former, we note guidance provided by the Commissioner of Taxation (refer ATO Interpretative Decision 2005/26) provides that, even though the taxpayer has obtained a loan for all or part of the fees for the course under FEE-HELP, this does not preclude the taxpayer from claiming a deduction for the expenses incurred in relation to the course.

    In this instance, Department A maybe able to apply the otherwise-deductible-rule in respect of self-education costs, so as to determine whether the taxable value attributable to the payment of self-education costs may be reduced.

    Impact on clients:

    It is likely that Department A’s FBT liability calculated for self-education benefits is overstated.

    Question:

    Clarification is required in relation to at what point in time the FEE-Help loan becomes a FEE-Help debt?

    ATO response:

    The circumstances in which a reimbursement will be considered to be a reimbursement of course fees, rather than the reimbursement of the FEE-HELP loan used to pay the course fees was discussed at the FBTSTIP meeting held on 17 March 2009.

    The ATO response to agenda item 6.11 said in part:

    The use of the otherwise deductible rule in relation to a payment, or reimbursement of either the course fees, or FEE-HELP loan will depend upon what the employer is paying, or reimbursing. This distinction is set out in ATO Interpretative Decisions ATO ID 2005/26 Income Tax Deductions: self education - course fees paid from FEE-HELP loan funds and ATO ID 2005/27 Income Tax Deductions: self education - payments made to reduce FEE-HELP debt.
    ATO ID 2005/26 considers the deductibility for course fees paid where the student has obtained a loan under FEE-HELP and the course is directly related to their current income earning activities. In applying paragraphs 13 to 15 of TR 98/9 Income tax: deductibility of self-education expenses, it concludes the student would be entitled to a deduction under section 8-1 of the ITAA 1997 for expenses paid for the course of study as it is directly related to their current income earning activities, even though they have obtained a loan for all or part of those fees under FEE-HELP.

    By contrast ATO ID 2005/27 sets out that the student would not be entitled to a deduction under section 8-1 of the ITAA 1997 for payments to reduce their FEE-HELP debt. This is because paragraph 26-20(1)(cb) of the ITAA 1997 specifically prevents a deduction for payments made to reduce a debt to the Commonwealth under Chapter 4 of the Higher Education Support Act 2003 (HESA). Chapter 4 of the HESA governs debts raised as a result of loans made under Chapter 3 of the HESA 2003, which includes FEE-HELP loans.

    5.5 Classification of car parking fringe benefits as a type 1 or type 2 benefit

    Issue

    Is a car parking fringe benefit a Type 1 or a Type 2 benefit for applying the gross-up formula?

    Background

    Car parks may be provided to employees at:

    1. leased business premises that includes a number of car parking spaces as part of the lease;
    2. leased business premises where the car parking spaces are leased separate to the lease of the premises;
    3. business premises owned by the employer;
    4. business premises owned by a third party by arrangement with the employer;
    5. a commercial parking station where the car space provided to the employee is leased by the employer.

    Assume that the conditions for a car parking benefit are satisfied in all of the above cases.

    The higher gross-up rate applies to a Type 1 benefit, whilst the lower gross-up rate applies to a Type 2 benefit.

    A type 1 benefit is where the benefit provided is a GST-creditable benefit defined by section 149A of the Fringe Benefits Tax Assessment Act 1986 (FBT Act). Subsection 149A(1) does not apply to any of the situations referred to above because there is no input tax credit available pursuant to Division 111 of the A New TAX System (Goods and Services Tax) Act 1999 (GST Act) resulting from a reimbursement to an employee.

    Subsection 149A(2) may apply in the situations referred to above. To be a GST-creditable benefit under subsection 149A(2), the employer, or the provider of the benefit, must be entitled to an input tax credit under the GST Act because of the acquisition of the benefit provided.

    GST generally applies to situation (1) above and an input tax credit may be available in respect of the lease of the business premises. However, the lease is for the business premises with the car parking spaces incidental to the lease. There is no additional lease payments required for the car parking spaces whether or not the car parking spaces are utilised.

    For situation (2) above there is a distinct acquisition of car parking spaces that would provide the employer with an input tax credit.

    There is no identifiable input tax credit for situation (3) above. The employer may be entitled to an input tax credit for expenses relating to the operating expenses of the business premises but the car parking spaces would be incidental to the purpose of the business premises.

    Subsection 149A(2) applies where the person providing the benefit is entitled to an input tax credit because of the acquisition of the benefit being provided. Situation 4 is where a third party provides a benefit but, similar to situation (3), the business premises of the third party were not acquired to provide the benefits.

    For situation (5) it is assumed the commercial parking station is registered for GST. The employer would be entitled to an input tax credit in respect of the leasing of the car parking spaces.

    Industry view/suggested treatment

    The benefit is a Type 1 benefit where there is a clear connection between the acquisition of the car parking spaces and the provision of the benefit. This would result in situations (2) and (5) being Type 1 benefits and situations (1), (3) and (4) being Type 2 benefits.

    Technical references

    Paragraph 91 of taxation ruling TR 2001/2 refers to the use of the commercial car parking station method and the average cost method for calculating the taxable value of a car parking fringe benefit. However, there is no reference to the Type of benefit in these cases. Also, the statutory formula method is not mentioned although it may calculate the taxable value of the benefit using the commercial parking station method or the average cost method.

    Impact on clients

    Provide certainty on the calculation of the FBT liability in these cases.

    Question:

    Is a car parking fringe benefit a Type 1 or a Type 2 benefit for applying the gross-up formula?

    ATO response:

    This issue was discussed at the FBT STIP meeting held on 9 September 2005 and the meetings of the FBT subcommittee of the National Tax Liaison Group held on 19 August 2004 and 18 November 2004.

    The agenda item concerned 5 situations which were where the parking was provided in:

    1. leased business premises where the parking spaces were provided as part of the lease;
    2. leased business premises where the parking spaces are leased separate to the lease of the premises;
    3. business premises owned by the employer;
    4. business premises owned by a third party where the parking is provided under an arrangement with the employer; and
    5. a commercial parking station where the parking space is leased by the employer.

    The agenda item suggested that:

    • situations (2) and (5) would be type 1 benefits; and
    • situations (1), (3) and (4) would be type 2 benefits.

    Guidance for considering this interpretation was provided in the ATO response to agenda item 15 of the FBT NTLG meeting held on 9 September 2005 which stated:

    … a car parking fringe benefit can arise where a person, for example the employer or car parking operator, is the provider of the car parking benefit as defined for the purposes of section 39A of the FBTAA.
    A car parking fringe benefit can arise where a car parking benefit exists and that benefit has been provided by either the employer or a 3rd party under an arrangement with the employer.
    For a GST-creditable benefit to arise all that is required is that the person providing the benefit is entitled to an input tax credit for acquiring the right to provide the benefit to the employee.
    In the case of the employer lease, as an example, the employer will be the provider of the benefit for section 39A, the car parking fringe benefit and section 149A. It does not appear there is any difference of view in relation to this outcome.
    In the case of an employer who only has a mere licence for an unreserved parking spot, the car parking operator will be the provider of the benefit for section 39A, however, the employer will be the provider of the car parking fringe benefit and for section 149A.
    It is not necessary that the person who is the 'provider' for section 39A purposes to be the same person for section 149A purposes.
    It would be an incorrect interpretation to say that where the car parking operator is the provider for the purposes of section 39A that a GST-creditable benefit cannot therefore arise. The car parking operator grants a right under payment to the employer. The employer then passes such a right on to the employee. The employer is entitled to an input tax credit for purchasing that right from the car parking operator. A GST-creditable benefit does arise as the employer will be entitled to an input tax credit in respect of that payment.

    In applying this principle to the 5 situations listed in the agenda item, the determination of the type of benefit requires the identification of the provider of the benefit for the purposes of section 149A.

    This may not be the person who owns the premises on which the car is parked. For example, the agenda item of the FBT STIP meeting held on 9 September 2005 GST concerned a situation in which the property on which the parking was provided was purchased by the Crown prior to the introduction of GST (ie. no GST was paid on purchase), but GST was paid by the department that was the employer of the employee on the cost recovery charge imposed on the department for the use of the property.

    In situation (1) the provider of the parking spaces acquires the spaces as part of a lease on which GST is paid. Therefore, as the provider is entitled to an input tax credit for acquiring the right to provide the parking to the employee the benefit will be a type 1 benefit.

    It is agreed that the benefit in situation (2) is a type 1 benefit.

    The classification in situation (3) will depend upon the circumstances in which the premises were purchased by the employer and whether there are any agreements in place which will create an entitlement to claim an input tax credit.

    The classification in situation (4) will depend upon the circumstances in which the premises were purchased by the third party and the terms of the agreement between the owner of the premises and the employer. As illustrated by the above response provided at the FBT NTLG meeting, it is possible for the benefit to be a type 1 benefit.

    It is agreed that the benefit in situation (5) is a type 1 benefit.

    5.6 Employee with two employment contracts

    Issue

    Is remote area accommodation provided to an employee working in a non-remote area during the day but engaged by the same employer as caretaker in the remote area at night exempt from FBT?

    Background

    An employee of a government agency resides in a remote area but works in a non-remote area. The employee has a separate agreement with the agency to be caretaker of property owned by the agency. The property is located in a remote area adjacent to where the employee resides. The accommodation in which the employee resides is owned by the agency and, under the terms of the agreement, provided to the employee free of charge in return for carrying out the caretaker duties.

    There are no salary/wages or other benefits provided to the employee.

    The caretaker duties do not require the services of an employee of the agency. The agreement could be between the agency and a non-government employee.

    Industry view/suggested treatment

    Treat the caretaker agreement between the employer and the employee as a separate employment contract resulting in the accommodation being an exempt remote area housing benefit.

    Technical references

    ATO ID 2006/321 confirms that an employee may be engaged under two separate contracts of employment by the same employer.

    Impact on clients

    No FBT liability for accommodation provided in the remote area.

    Question:

    Is remote area accommodation provided to an employee working in a non-remote area during the day but engaged by the same employer as caretaker in the remote area at night exempt from FBT?

    ATO response:

    Section 58ZC provides that a housing benefit provided in respect of the employee’s employment will be an exempt benefit if the requirements of subsection 58ZC(2) are met.

    The requirements in subsection 58ZC(2) include requirements for the accommodation and the usual place of employment to be in a remote area.

    The agenda item concerns a situation in which a housing benefit is provided to an employee who has 2 separate employment agreements with the employer. The accommodation and one of the employment locations are in a remote area. The other employment location is not in a remote area.

    Guidance for considering whether the employment duties undertaken at a location that is not in a remote area affect the application of subsection 58ZC(2) is provided in paragraphs 62 and 63 of TD 2015/12.

    In considering the application of the exemption in subsection 57A(2) to an employee who has two separate job positions paragraphs 62 and 63 of TD 2015/12 state:

    62. The criteria in paragraph 57A(2)(b) must be tested in respect of the employee's particular position. When an employee of an employer that is a government body changes job positions during the year or is concurrently engaged in separate positions during a period, those positions should be considered separately for the purposes of subsection 57A(2).
    63. In the circumstances where there are separate job positions, it is possible for subsection 57A(2) to apply to the benefits provided in respect of one of the positions even if the requirements of subsection 57A(2) are not met in relation to the other position.

    In applying these paragraphs, it is accepted that the requirement for the place of employment to be in a remote area is met as the accommodation specifically relates to the remote area position.

    5.7 Classification as volunteer or employee

    Issue:

    Are the benefits provided to a caretaker residing on business premises subject to FBT?

    Background

    A school may enter into an agreement to allow an individual to park their caravan on school grounds and use school facilities in return for undertaking caretaker duties.

    There is no payment of salary or wages.

    The benefits provided may include:

    1. Caravan site on school grounds;

    2. Connection to the school’s electricity supply;

    3. Connection to the school’s water supply;

    4. Access to the school’s amenity block;

    5. Access to the school’s phone.

    In some cases the school may provide accommodation located on the school grounds.

    This arrangement may apply to a school in a remote area or a school in a non-remote area.

    A fringe benefit only arises where it is provided in respect of the employment of an employee. A current employee is defined as a person who receives, or is entitled to receive, salary or wages. The agreement does not provide for the payment of salary or wages to the caretaker. However, section 137 of the FBT Assessment Act deems a person an employee if the benefit would constitute salary or wages if provided in cash rather than as a benefit. FBT can apply where an employer provides non-cash benefits in lieu of salary or wages.

    This needs a consideration of the terms of engagement to determine if duties performed is a contract of service (i.e. employer/employee relationship) or a contract for services (i.e. independent contractor).

    The terms of the agreement sets out a list of duties the caretaker is required to undertake and does not allow the caretaker to engage someone else to undertake the duties. The arrangement is more in line with an employer/employee relationship rather than an independent contractor. This view is based on the distinction between a contract of service and a contract for services provided by taxation ruling TR 2005/16.

    The caretaker would be deemed an employee for FBT purposes although not an actual employee.

    The benefits listed at 1 to 5 above would be residual fringe benefits. The caravan site and school facilities are located on business premises of the employer and are wholly or principally used directly in connection with the school’s operations. In this case the benefits would be exempt under subsection 47(3) of the FBT Assessment Act.

    In the situation where the school provides accommodation on the school grounds, this would also be property located on business premises and used principally for the school’s operations. However, the benefit would be excluded from being a residual benefit because it is housing benefit by virtue of Subdivision A of Division 6, Part III of the FBT Assessment Act.

    Where the accommodation is located in a remote area the benefit would be an exempt remote area housing benefit. However, the provision of electricity in relation to a housing benefit is a separate benefit as explained by ATO ID 2004/276. Provision of electricity would be a residual benefit but section 59 applies where electricity is provided in connection with a housing benefit. The electricity would be subject to FBT with a 50% reduction to the taxable value provided by section 59.

    Water is not residential fuel so that section 59 does not apply. ATO ID 2005/158 confirms that water is part of the housing benefit and would be exempt if provided in connection with an exempt remote area housing benefit.

    A housing benefit provided in a non-remote area would be subject to FBT where the taxable value is the market or notional value. The taxable value includes water but the electricity is a separate benefit subject to FBT with no reduction to the taxable value. Access to school facilities would be exempt residual benefits under subsection 47(3) of the FBT Assessment Act.

    Industry view/suggested treatment

    The benefits listed at 1 to 5 would be exempt residual benefits whether provided in a remote area or a non-remote area. Provision of accommodation results in a housing benefit that would be exempt if provided in a remote area but the electricity would be subject to FBT with a 50% concession if provided with a remote area housing benefit.

    Technical references

    • Taxation ruling TR 2005/16

    • Section 156 of the FBT Assessment Act states that the provision of electricity through a reticulation system shall be deemed not to constitute the provision of property

    • ATO ID 2004/276 remote area housing and residential fuel

    • ATO ID 2005/158 remote area housing and water

    Question:

    What benefits provided to a caretaker residing on business premises are subject to FBT?

    ATO response:

    In considering whether a fringe benefits tax liability will arise from the various benefits provided to a school caretaker who is not paid salary or wages, but is permitted to park their caravan on the school grounds and use various facilities (e.g. electricity, water, the school’s amenity block and telephone) it is relevant to consider whether the caretaker is a volunteer.

    For the benefits to be a fringe benefit, the caretaker must be an employee. Generally, a volunteer will not be an employee and therefore benefits provided to volunteers do not attract FBT.

    Guidance for determining whether a benefit provided to an individual will not be a fringe benefit on the basis of the person being a volunteer is provided on the ato website at http://www.ato.gov.au/non-profit/your-workers/volunteers/

    The website in the section headed Paying volunteers states:

    • A payment that is not assessable to a volunteer will have many of the following characteristics:
    • The payment is to meet incurred or anticipated expenses.
    • The payment has no connection to the volunteer’s income-producing activities or services.
    • The payment is not received as remuneration or as a consequence of employment.
    • The payment is not relied upon or expected by the volunteer for day-to-day living.
    • The payment is not legally required or expected.
    • There is no obligation on the part of your organisation to make the payment.
    • The payment is a token amount compared to the services provided or expenses incurred by the volunteer. Whether the payment is token depends on the full facts surrounding the payment and volunteer's circumstances.

    It provides the following examples in the section headed Volunteers and FBT:

    Qiaoli volunteers her time with an environmental group planting trees along waterways. While planting in country areas she is provided with accommodation and basic meals. Qiaoli is not considered to be an employee and no FBT will arise on these benefits.
    Jorge provides his services to the local volunteer bushfire brigade. He is reimbursed for travel and other minor expenses he incurs in carrying out his duties. Jorge is not considered to be an employee as the reimbursement he receives does not amount to salary or wages. No FBT will arise on these reimbursements.

    In applying these examples to the facts provided in relation to the school caretaker, the benefits listed are unlikely to be fringe benefits as the situation described appears to be similar to the situation of Qiaoli in the above example.

    5.8 Application of the otherwise deductible rule to expense payment benefits relating to telephone and internet use.

    Issue:

    The applicability of the recently released guidelines for claiming an income tax deduction for telephone and internet expenses to the otherwise deductible rule

    Background:

    The ATO recently released a rewrite of Practice Statement PS LA 2001/6 to include contemporary electronic device issues. The rewrite also updates the ATO’s approach to the apportionment of mobile phone, home phone and internet expenses.

    The Practice Statement provides that if a taxpayer’s work use is incidental and they are not claiming a deduction of more than $50 in total, they can make a claim based on the following without having to analyse their bills:

    $0.25 for work calls made from taxpayer’s landline

    $0.75 for work calls made from taxpayer’s mobile, and

    $0.10 for text messages sent from taxpayer’s mobile.

    If the taxpayer has a phone plan where they receive an itemised bill, they need to determine their percentage of work use over a four-week representative period which can then be applied to the full year.

    A reasonable basis for determining this percentage could include:

    the number of work calls made as a percentage of total calls;

    the amount of time spent on work calls as a percentage of the taxpayer’s total calls; and

    the amount of data downloaded for work purposes as a percentage of the taxpayer’s total downloads.

    If the taxpayer has a phone plan where they don’t receive an itemised bill, they determine their work use by keeping a record of all their calls over a four-week representative period and then calculate their claim using a reasonable basis.

    Where the phone and internet service is bundled a taxpayer claiming a deduction for work-related use of one, or more of the services needs to apportion their costs based on their work use for each service.

    If the taxpayer has a bundled plan, they need to identify their work use for each service over a four-week representative period during the income year. This will allow the taxpayer to determine their pattern of work use which can then be applied to the full year.

    Question:

    Do the substantiation requirements that apply to income tax also apply when using the otherwise deductible rule in relation to telephone and/or internet expenses that are paid or reimbursed?

    ATO response:

    As set out in the agenda item, the revised guidelines for substantiating the work related use of a mobile phone, internet or home phone for income tax purposes (income tax guidelines) are provided in Practice Statement PS LA 2001/6 and on the ATO website at http://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-claim/other-deductions/claiming-mobile-phone,-internet-and-home-phone-expenses/.

    The agenda item concerns the application of these guidelines to the otherwise deductible rule. In general terms, it is only necessary to consider the application of the otherwise deductible rule where the benefit is a fringe benefit. Not all benefits that relate to a mobile phone, internet or home phone will be a fringe benefit. The benefit may be an exempt benefit under:

    • section 20A of the FBTAA if the benefit is an expense payment benefit and the employer only pays or reimburses the portion of the expense that relates to work;
    • section 47A if the benefit is a residual benefit and the telephone is only used for work purposes;
    • section 58P if the value of the benefit is less than $300 and it would be unreasonable on the basis of the factors listed in paragraph 58P(1)(f) to treat the benefit as a fringe benefit; or
    • section 58X if the benefit involves the use of a portable electronic device.

    Sections 20A and 47A require the employer to complete a no private use declaration. Although the FBTAA does not specifically require records to be kept that substantiate there was no private use, there is a general requirement in section 132 for records to be kept that record and explain all transactions that are relevant for the purpose of ascertaining the employer’s FBT liability. This requirement will be met where records that have been kept in accordance with the income tax guidelines are used to determine the work related portion.

    Similarly, it is accepted that records kept in accordance with the income tax guidelines can be used for the purposes of determining whether the benefit is an exempt minor benefit under section 58P.

    However, records kept in accordance with the income tax guidelines will not be relevant when determining whether section 58X applies. Subsection 58X(2) provides that a portable electronic device is an eligible work related item if it is primarily for use in the employee’s employment.

    In considering whether a laptop computer came within section 58X, ATO ID 2008/127 states:

    The employer in applying section 58X of the FBTAA is required to have a basis for concluding that the laptop computer is primarily for use in the employee's employment. This conclusion is based on intended use at the time the benefit is provided to the employee that is, why the laptop computer was provided to an employee 'in the first place'.
    There is no requirement to reach this conclusion by reference to usage which can only be ascertained retrospectively. Rather this conclusion is determined by reference to the available evidence at the time the benefit is provided.
    Generally, an employer will know whether a laptop computer is being provided chiefly or principally to enable the employee to undertake their employment duties. For example, the employee's job description, duty statement or employment contract can provide a basis for concluding that the laptop computer was primarily for business use.
    Alternatively or in cases where it is evident that there are competing uses, in order to determine if the laptop computer is primarily for use in the employee's employment an employer could document such factors as:
    • the reason or reasons the laptop computer was provided to the employee
    • the type of work to be performed by the employee
    • how the use of the laptop computer relates to the employee's employment duties and
    • the employer's policy and any conditions relating to the use of a laptop computer.

    Where the benefit is a fringe benefit the otherwise deductible rule enables the taxable value of the benefit to be reduced by the amount the employee would have been able to claim as an income tax deduction if the benefit had not been provided by the employer.

    Generally, the use of the otherwise deductible rule requires the employee to provide the employer with a declaration stating the percentage which would be deductible. Where an employee has kept records in accordance with the income tax guidelines, these records can be used by the employee to determine the percentage shown on the declaration as being otherwise deductible.

    A subsequent question asked was whether it is mandatory for a 4 week diary to be kept for FBT purposes. That is, can the otherwise deductible can be applied if a 4 week diary has not been kept. In response, it is noted that the FBTAA does not require a diary to be kept for 4 weeks. However, the general record keeping requirement in section 132 requires there to be a basis for the otherwise deductible percentage that is shown on a declaration. Therefore, if alternative records have been kept which substantiate the percentage claimed it will not be necessary for a diary to be kept for 4 weeks.

    The ATO advised that it will update Fringe benefits tax: a guide for employers to provide this clarification.

    6 Date and location of next meeting

    The next meeting is scheduled to be held in Sydney in March 2016.

      Last modified: 31 Mar 2016QC 48608