• FBT State and Territories Industry Partnership minutes - 17 September 2014

    Text

    Meeting details

    Venue:

    Perth

     

     

    Date:

    17 September 2014

     

     

    Start:

    10:00

    Finish:

    15:10

    Chair:

    Glenn Smith

    Contact:

    03 9275 4849

    Secretariat:

    Anna Strohfeldt

    Contact:

    02 6216 3333

    Attendees

     

     

    Desley Croker

    ACT

    Joan Cram (via phone)

    NSW

    Harold Glenwright

    NT

    Daniel Fielding

    QLD

    Jenni Skyner

    WA

    Julie Sinclair

    SA

    Stephen Bray

    ATO

    Ashlea Perry

    Commonwealth

    Naomi Leong

    Glenn Smith (Chair)

    NT

    ATO

     

     

    Apologies

    Henriette Prego

    NSW

    Christine Havas

    Commonwealth

    Rachel Johnston

    TAS

    Robert Enright

    ACT

    Peter Stibbard

    Anna Strohfeldt

    VIC

    ATO

     

     

    Disclaimer

    Please Note: The FBT State and Territories Industry Partnership agendas, minutes and related papers are not binding on the Tax Office or any of the other bodies referred to in these papers. While every effort is made to accurately record the views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

    Agenda items

    1 Opening of meeting including any changes to the agenda

    The Chair opened the meeting and welcomed members.

    The Chair also welcomed the following guests:

    • Leassa Armstrong (ATO) who attended the meeting for agenda item 3;
    • Kellie Grant (ATO) who joined the meeting by telephone for agenda item 6.1; and
    • Geri Panfilo (ATO) who joined the meeting by telephone for agenda item 6.2.

    Joan Cram (NSW) attended the meeting via teleconference.

    Apologies were received from Peter Stibbard (Vic), Christine Havas (Commonwealth), Robert Enright (ACT), Anna Strohfeldt (ATO), Henriette Prego (NSW) and Rachel Johnston (Tas).

    2 Previous minutes

    The Minutes for the meeting held on 18 March 2014 were confirmed by Members prior to being published on ato.gov.au on 18 July 2014.

    3 Taxable Government Grants and Specified Payments update

    Leassa Armstrong (ATO) joined the meeting to provide an update on the progress of the Taxable Government Grants and Specified Payments data matching project.

    The project arises from the Federal Budget announcement that the reporting of taxable government grants and specified payments income tax compliance improvement measure will commence on 1 July 2016.

    The proposed measure will require government entities to report to the ATO the payments they make that are:

    • Taxable grants, and
    • Specified payments, such as payments they make to contractors, consultants and other vendors for services.

    The discussion at the STIP was part of the consultation the ATO is currently undertaking with government entities.

    4 Items carried over from previous meetings

    4.1 Meeting of 13 September 2012

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

    At the meeting held on 6 March 2013 the ATO advised the following two draft Taxation Determinations had been notified on the public rulings program:

    • Fringe benefits tax: is a Local Hospital Network a ‘public hospital’ for the purposes of section 57A of the Fringe Benefits Tax Assessment Act 1986?
    • Fringe benefits tax: when are the duties of an employee of a government body exclusively performed in, or in connection with a public or non-profit hospital for the purposes of subsection 57A(2) of the Fringe Benefits Tax Assessment Act 1986?

    The background to these issues was discussed at the March 2014 STIP meeting.

    Following that meeting, the ATO circulated a Technical Discussion Paper concerning the circumstances in which the duties of employment of an employee of a government body will be considered to be exclusively performed in or in connection with a public hospital or non-profit hospital for the purposes of paragraph 57A(2)(b) of the Fringe Benefits Tax Assessment Act 1986.

    In circulating the Technical Discussion Paper, the ATO provided an opportunity for members to provide comments and discuss the proposed approach outlined in the discussion paper. Several members took this opportunity.

    The ATO thanked the members who took the opportunity to provide comments and/or participate in a discussion concerning the discussion paper. The responses provided have been considered and taken into account in drafting a Draft Taxation Determination. The Public Rulings Program for 5 September 2014 advises the planned issue date of this Draft Taxation Determination is 29 October 2014.

    The ATO advised members it will forward the Draft Taxation Determination to members when it issues. In accordance with normal practice, the Draft Taxation Determination will invite comments on the draft and the proposed date of effect.

    The discussions that occurred in relation to the Discussion Paper included a discussion about the way in which the health system operates in the relevant State or Territory. These discussions highlighted the differences that exist between the various jurisdictions in the way in which the Local Hospital networks were formed and operate.

    Given the variety of arrangements, the general consensus reached in the discussions was that a Taxation Determination was not the most appropriate method for providing guidance in relation to Local Hospital Networks. Consequently, the ATO will not be proceeding with the proposed Taxation Determination concerning Local Hospital Networks.

    Members who require guidance in relation to the operation of the Local Hospital Networks in their particular jurisdiction are invited to apply for a private ruling in relation to their particular circumstances.

    ACTION ITEM

    The ATO will forward the Draft Taxation Determination concerning the operation of subsection 57A(2) to Members when it issues.

    4.2 Meeting of 6 March 2013

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

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

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

    The ATO advised Members no further action had been taken in relation to the TIES request as any legislative changes or Regulations are subject to the Government’s legislative priorities. As there are other issues which have a higher priority, no further action has been taken in relation to the TIES issue.

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

    ACTION ITEM

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

    4.3 Meeting of 16 September 2013

    Agenda item 4 Charter and Forum Review

    At the meeting held on 16 September 2013, the ATO advised members that it would send members the bi-annual review of the Charter and the forum and ask members to provide their responses to the Secretariat.

    Overall the feedback received was positive. Areas for improvement were the timely circulation of meeting materials, the scheduling of STIP meetings and the possible use of video conferencing facilities.

    In June, members were asked to indicate whether they would be interested in making use of video or teleconference facilities to attend the September STIP meeting. Two responses were received indicating interest in making use of either teleconference or video conference facilities. However there is a general preference for meeting in person, as it is easier to follow and participate in the discussion when members are physically present.

    The GST and FBT STIP have been scheduled mid-week as requested.

    Agenda item 6.4 Training/retraining expenses for excess employees

    Agenda item 6.4 of the meeting held on 16 September 2013 concerned the treatment of the reimbursement of training expenses incurred by employees who become excess to the requirements of their agency where the training enables the employee to undertake a new field of employment.

    In responding to this agenda item the ATO noted the various different factual circumstances that can arise in relation to excess employees and discussed the possible different outcomes.

    In so doing, the ATO noted that if the reimbursement is provided as a consequence of the termination of employment it may be an employment termination payment.

    Where the reimbursement is not provided as a consequence of the termination of employment, the relevant issues to consider are whether the benefit is an exempt benefit and if it is not whether the taxable value of the fringe benefit can be reduced under the otherwise deductible rule.

    The exemption discussed at the meeting was the exemption for work-related counselling in section 58M. During this discussion reference was made to Taxation Determination TD 93/153 which accepts that outplacement services are in the nature of work-related counselling.

    In discussing the definition of work-related counselling in subsection 136(1), the ATO accepted that a course undertaken to obtain a new skill could be counselling within the meaning set out in paragraphs 113 to 117 of Class Ruling CR 2011/41. Therefore, the attendance of the employee at the training course could satisfy the requirements of paragraph (a) of the work-related counselling definition.

    It was also accepted that if the employer has the necessary plan or policy in place the attendance at the training course would satisfy the requirements of paragraph (c) of the work related counselling definition.

    In addition, the ATO accepted that in the circumstances discussed, the requirements in paragraph (e) of the work-related counselling definition would be satisfied.

    However, even if these requirements are met, the counselling must relate to one of the matters listed in paragraph (d) of the work-related counselling definition.

    Since the previous meeting the ATO has further considered whether a training course attended by a redundant employee can be considered to relate to one of the matters listed in paragraph (d) of the definition of work-related counselling. This consideration has not identified any of the listed matters as having the necessary relationship to the counselling.

    The ATO is drafting an ATO Interpretative Decision in relation to the application of paragraph (d) to the payment or reimbursement of vocational based training courses or activities for an employee made redundant. The ATO advised members it will forward a copy of the ATO Interpretative Decision to members when it issues.

    The ATO also advised Members that where the payment or reimbursement of the training expenses is a fringe benefit, guidance regarding the application of the otherwise deductible rule is provided in paragraphs 12 to 15 of Taxation Ruling TR 98/9.

    Meeting Discussion

    In discussion a question was asked as to whether a fringe benefit would arise if the employer made a payment to a third party who established a fund that was used to pay or reimburse the training expenses of the employee under an arrangement that was similar to the arrangement in Class Ruling CR 2014/49

    In response to this question, the ATO advised that the application of the Fringe benefits Tax Assessment Act 1986 (FBTAA) in such a situation will depend upon the facts of the particular arrangement(s).

    As set out in the decision of the Federal Court in Federal Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16; 65 ATR 369; 2007 ATC 4236, if the payment to the third party is not made in respect to a particular employee, a fringe benefit will not arise from the payment to the third party. However, a fringe benefit may arise when the third party pays or reimburses the training expenses if there is the necessary connection between the payment or reimbursement and the employment of the employee.

    Alternatively, if the payment to the fund is made in respect of particular employees, a fringe benefit may arise at the time the payment is made to the fund.

    The conclusions reached in CR 2014/49 were based upon the facts in that particular arrangement and may not apply in other situations.

    ACTION ITEM

    The ATO will forward a copy of the ATO Interpretative Decision that considers whether the payment or reimbursement of training expenses is work-related counselling to Members when it issues.

    4.4 Meeting of 18 March 2014

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

    Agenda item 4.1 of the meeting held on 18 March 2014 was a compliance update provided by the ATO. The update included details of activities to be undertaken to determine how employers are applying and complying with the legislative amendments made to the living away from home provisions.

    During the discussion of this item 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 was intended to further consult with the Member who raised the issue to ensure the revised declaration meets the concern raised at the meeting.

    ACTION ITEM

    The ATO will:

    • Consult with the Member who raised the issue about the suitability of the revised declaration; and
    • Forward a copy of the revised declaration to Members when it issues.

    5 News from the Tax Office

    5.1 Compliance update

    The ATO will be undertaking the following compliance activities.

    • Checking the eligibility of entities claiming an FBT rebate or the Section 57A exemption;
    • LAFHA – ensuring that employees satisfy the eligibility conditions when employers claim a reduction in the taxable value of allowances;
    • Contacting employers to obtain lodgment of overdue FBT returns;
    • Undertaking reviews of employers who have purchased cars but not disclosed car fringe benefits in an FBT return or appropriate employee contributions in their income tax return.

    5.2 Legislation and regulations

    Fringe Benefits Tax Amendment (Temporary Budget Repair Levy) Act 2014 - Act No 42 of 2014

    On 13 May 2014 the Parliamentary Secretary to the Treasurer introduced a package of Bills into the House of Representatives to enact a three-year progressive budget repair levy in the primary form of additional income tax on Australian resident and foreign resident individuals commencing in the 2014-15 financial year.

    The levy is payable at a rate of 2% of each dollar of a taxpayer’s annual taxable income over $180,000.

    As part of the package the fringe benefits tax rate will increase from 47% to 49% for the 2016 and 2017 FBT years. This will increase the gross-up rates to 2.1463 for type 1 benefits and 1.9608 for type 2 benefits.

    To prevent lower income employees of not-for-profit institutions and hospitals and ambulance workers being adversely affected, changes are being made to existing exemption and rebate caps and to the rebate rate.

    The 17,000 cap will increase to $17,667 and the $30,000 cap will increase to $31,177.

    The rebate rate will be changed from 48% of the tax that would otherwise be payable to the FBT rate from 1 April 2015. For example, in the 2016 and 2017 FBT years the rebate rate will be 49%.

    Treasury Legislation Amendment (Repeal Day) Bill 2014 Exposure Draft

    Treasury has released for comment exposure draft legislation [http://www.treasury.gov.au/ConsultationsandReviews/Consultations/2014/Treasury-Legislative-Amendment] which proposes to:

    1. simplify the tax laws by:
      • consolidating duplicated taxation administration provisions contained in various taxation Acts into a single set of provisions in Schedule 1 to the Taxation Administration Act 1953 (TAA). This includes the application of the rules around the Commissioner’s power to obtain information under Division 353 in schedule 1 and the application of the rules around how documents issued by the Commissioner or by taxpayers are to be treated as evidence in judicial proceedings contained in Division 350 in Schedule 1.
      • This includes the repeal of sections 125 to 128 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)
      • repealing spent or redundant taxation laws.
      • This includes the penalty tax provisions contained in Part VIII of the FBTAA that applied prior to 1 April 2001; and
      • moving longstanding regulations into the primary law.
       
    2. rewrite provisions defining "Australia" for income tax purposes from the Income Tax Assessment Act 1936 (ITAA 1936) into the Income Tax Assessment Act 1997 (ITAA 1997) and the TAA.

      This includes amendments to the FBTAA in relation to the application of the FBTAA and replaces the definition of Australia in subsection 136(1) with a definition that uses the definition inserted into the ITAA 1997.
    3. amend the Financial Sector (Shareholdings) Act 1998 so that persons who do not hold a direct control interest in a financial sector company will be deemed to have no stake in that financial sector company; and
    4. amend the SIS Act to repeal the payslip reporting provisions;

    The majority of the amendments are proposed to generally commence and apply from Royal Assent.

    COMMENTS are due by 17 September 2014.

    5.3 FBT related Taxation Rulings

    The following FBT taxation ruling addenda have issued:

    • Addendum to GST Ruling GSTR 2001/3External Link (GST and how it applies to supplies of fringe benefits) to correct the Ruling to reflect the withdrawal and replacement of GST Ruling GSTR 2000/20External Link (GST: commercial residential premises).
    • Addendum to TR 2001/2 (Income tax: Fringe benefits tax: the operation of the new fringe benefits tax gross-up formula to apply from 1 April 2000) to reflect the withdrawal and replacement of GST Ruling GSTR 2000/20External Link (GST: commercial residential premises).
    • Addendum to Taxation Ruling TR 2012/8 (Income tax and fringe benefits tax: assessability of amounts received to reimburse legal costs incurred in disputes concerning termination of employment). The addendum amends the ruling to improve the terminology used in an example, to ensure there is no confusion in the application of the ruling having regard to current employment and industrial laws.

    Other rulings

    • Addendum to Taxation Ruling TR 2011/5 (Objections against income tax assessments) to clarify various issues and update the Ruling as a result of recent amendments made by the Tax and Superannuation Laws Amendment (2013 Measures No 1) Act 2013.

    5.4 FBT related Class Rulings

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

    • Addenda to CR 2014/26: FBT: employer clients of Universal Gift Card Pty Ltd who make use of Universal Gift Card Pty Ltd's Minor expenses card
    • Class Ruling CR 2014/49External Link (Payments made under the Education and Training Grant Program provided by the Rugby Union Players' Association).
    • CR 2014/56External Link : FBT: corporate clients of Dell Australia Pty Ltd (Dell Australia) who participate in the Dell Australia employee purchase program (EPP).
    • CR 2014/60External Link : Customers of Procon Telematics Pty Ltd who use the FleetLocate/Easy2log Vehicle Logbook Report for their log book records.
    • CR 2014/69External Link : FBT: employers who use the TomTom Telematics system for car log book and odometer records.

    Product Ruling

    The following FBT related product ruling has issued since the last meeting:

    • PR 2014/16: Tax consequences for employees and employers under a LeasePlan novated vehicle lease

    5.5 FBT related Taxation Determinations

    The following FBT related taxation determinations have issued:

    • TD 2014/3External Link Fringe benefits tax: for the purposes of s 28 of the Fringe Benefits Tax Assessment Act 1986 what are the indexation factors for valuing non remote housing for the fringe benefits tax year commencing on 1 April 2014?
    • TD 2014/4External Link Fringe benefits tax: for the purposes of s 135C of the Fringe Benefits Tax Assessment Act 1986, what is the exemption threshold for the fringe benefits tax year commencing on 1 April 2014?
    • TD 2014/5External Link Fringe benefits tax: what is the benchmark interest rate to be used for the fringe benefits tax year commencing on 1 April 2014?
    • TD 2014/6External Link Fringe benefits tax: what are the rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car for the fringe benefits tax year commencing on 1 April 2014?
    • TD 2014/9 Fringe benefits tax: reasonable amounts under section 31G of the Fringe Benefits Tax Assessment Act 1986 for food and drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit for the fringe benefits tax year commencing on 1 April 2014
    • TD 2014/11External Link 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 2014.

    The following FBT draft taxation determination has issued:

    • TD 2014/D14External Link – Fringe benefits tax: is the provision of Bitcoin by an employer to an employee in respect of their employment a property benefit for the purposes of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986?

    Other Taxation Determinations

    Taxation Determination TD 2014/19 Reasonable travel and meal allowance amounts for 2014-15 REASONABLE TRAVEL AND MEAL ALLOWANCE AMOUNTS FOR 2014-15.

    5.6 FBT related rulings / determinations on the public rulings program

    The following Taxation Determinations were listed on the Public Rulings Program as of 5 September 2014:

    • Fringe benefits tax: is a Local Hospital network a ‘public hospital’ for the purposes of section 57A of the Fringe Benefits Tax Assessment Act 1986?
    • Fringe benefits tax: when are the duties of an employee of a government body exclusively performed in, or in connection with, a public or non-profit hospital for the purposes of subsection 57A(2) of the Fringe Benefits Tax Assessment Act 1986?

    These Determinations were discussed at agenda item 4.1.

    5.7 FBT related law administration practice statements

    No FBT related law administration practice statements (LAPS) have issued since the last meeting.

    5.8 FBT related ATO Interpretive Decisions

    The following FBT ATO interpretative decisions (ATOIDs) have issued since the last meeting:

    • ATO ID 2014/15 Meal Entertainment Fringe Benefit: travel - reimbursement of car parking fees
    • ATO ID 2014/17 Fringe Benefits Tax Property fringe benefits: redemption of voucher/coupon by a retail store employee for merchandise retailed by their employer
    • ATO ID 2014/18 Fringe Benefits Tax Car expense – cost of map update of in-built satellite navigation system.

    The following ATO ID has been withdrawn:

    • ATO ID 2004/706 Fringe benefits tax Living-away-from-home allowance benefits: offshore oil and gas rig workers and hardlying allowance.

    The withdrawal notice states:

    The ATO ID is withdrawn. Guidance on the issue contained in this ATO ID can be found in ATO ID 2005/314 Income Tax Assessable Income: Offshore oil and gas rig workers and hardlying allowance.

    5.9 Cases

    FBT related cases

    AAT Case [2014] AATA 316External Link, Re Qantas Airways Ltd and FCT

    The issue in dispute was whether the car parks located at various airports were commercial parking stations as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

    The AAT held that all but one of the airports were commercial parking stations. The exception was Canberra airport which it was held did not provide car parking spaces in the ordinary course of business to members of the public as the parking was only available for use by airline passengers and meters and greeters of airline passengers.

    Appeals have been lodged against this decision

    Commissioner of Taxation v Hunger Project Australia [2014] FCAFC

    The Full federal Court dismissed the Commissioner’s appeal to the decision in The Hunger project Australia v Commissioner of Taxation [2013] FCA 693.

    A Decision Impact Statement has been published in relation to this decision. The Decision Impact Statement advises the ATO will adopt the decision and reasoning of the Court. It also states:

    The ATO observes that on 3 December 2012, the Australian Charities and Not-for-profits Commission (ACNC) became responsible for the registration of charities that are public benevolent institutions. The ACNC issued on 24 July 2014 a Commissioner's Interpretation Statement providing guidance as to the meaning and application of this decision.
    For the purposes of the Fringe Benefits Tax Assessment Act 1986, the ATO will endorse an entity as a PBI if it meets the conditions in section 123C of that Act, including that it has been registered by the ACNC as a charity that is a public benevolent institution.

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

    There are six cases concerning FBT currently under litigation. The issues include:

    • the definition of commercial parking station in subsection 136(1);
    • the application of the otherwise deductible rule to transport provided to fly-in fly-out employees travelling between their usual residence and place of employment at the beginning and end of their period of days off;
    • whether benefits are provided in respect of employment;
    • whether the expenses for which an allowance is paid are deductible expenses for the purpose of section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

    5.11 FBT Products

    Revision of form for nominating or revoking the nomination of an eligible State or Territory body

    Nomination form has been updated and is now sent to ASProduct@ato.gov.au

    5.12 Calculation of the taxable value of a tax exempt body entertainment benefit that arises from the provision of recreational entertainment

    The ATO advised Members that it was in the process of reviewing the advice provided in various publications including Fringe benefits tax: a guide for employers, FBT and entertainment for government and FBT and entertainment for non-profit organisations in relation to the methodology used to calculate the taxable value of a tax-exempt body entertainment fringe benefit that arises from the provision of the recreational entertainment by:

    • an employer who comes within section 57A (for example a public hospital, an organisation that provides public ambulance services or a health promotion charity); or
    • an income tax exempt employer who does not come within section 57A (for example a school).

    The review arises from a private ruling in which employees were allowed to use a recreational facility located on the employer’s premises. In the situation being considered:

    • the recreational facility is not mainly operated for employees to use; and
    • the expenses incurred when an employee uses the recreational facility are not incurred in providing entertainment for payment in the ordinary course of a business that is being carried on.

    Therefore, a tax-exempt body entertainment benefit will arise when expenditure is incurred as a result of an employee using the recreational facility as neither item 1.5 of the table in section 32-30 of the Income Tax Assessment Act 1997 (ITAA 1997), nor item 3.1 of the table in section 32-40 of the ITAA 1997 apply to make the expenditure deductible.

    To calculate the taxable value of a tax-exempt body entertainment benefit, section 39 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) requires the identification of the amount of the non-deductible exempt entertainment expenditure that is attributable to use of the facility by an employee. This may have considerable complexities as there can be a variety of expenses incurred in operating the recreational facility which are not readily apportioned to an individual user.

    Therefore, the issue being considered is whether there is a practical method that can be used to calculate the taxable value of the tax-exempt body entertainment benefits that arise from the use of the facility.

    6 Issues raised by States and Territories

    6.1 The tests for determining whether a person is a contractor or employee

    Issue:

    Clarification is sought regarding the tests that are used to determine whether a person is an employee or contractor following the recent decision in XVQY and Commissioner of Taxation [2014] AATA 319 (Plumbers case).

    Background

    For employment tax purposes (eg FBT, SGAA etc) sometimes it can be difficult to determine whether a person is an employee or contractor. Particularly where the person primarily supplies their personal labour, the dividing line between an employee and a contractor is even harder to distinguish as the tools of the contractors trade is their knowledge and expertise.

    It is noted that in the past, determining whether an independent contractor relationship exists, the courts have looked at the following factors:

    • Whether the work involves a particular profession or skill set
    • The level of control the contractor has over how the contract is executed
    • The ability of the contractor to delegate work to another person
    • Whether the contractor supplies his own tools or equipment
    • Whether the contractor has his own place of business
    • The contractors ability to generate goodwill or saleable assets during the course of the contract
    • How the contractor is paid (for hours worked or a result)
    • The level of risk the contractor bears, and
    • Whether the contractor is independent or in reality, simply ‘part and parcel’ of the organisation they contract to (Organisation test).

    A principle case has been the Associated Translators and Linguistics Pty Ltd v Commission of Taxation 2010 (Translators case), whereby the AAT formed the view that the person (interpreter) was an employee.

    Key issues raised in AAT

    Employment tax considered was SGAA: subsection 12(1) and 12(3) - “if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract”.

    It appears from reading the case, that whilst all factors were generally considered, the main factors in determining in favour of the Tax Commissioner were:

    Organisation test

    • Client complaints affected ATL’s goodwill not the interpreters
    • Interpreters did not have the capacity to generate business as they had to refer back any assignments requested by clients to ATL.
    • Interpreters did not bear the risk of the assignment i.e. payment was not contingent on performance.
    • Interpreters carried ATL business cards/ identification cards
    • ATL has no capacity to deliver their services across the range of languages and geographic locations without them, placing a reliance on the panel member.

    Control

    • While interpreters could decline an assignment, once they have accepted they are under fairly tight control by ATL. It was generally expected that the interpreter would report back to ATL within 24 hours.

    Lack of freedom

    • Interpreters did not have the capacity to delegate an assignment. They could not complete the assignment as they saw fit.

    The issue of whether the contractor was employed to produce a result was discussed, and the AAT found that panel members were not contracted to produce a result but paid for their time.

    The court held that in order to make an objective assessment of the nature of the relationship that a person has with the entity, that takes the benefit of that person’s work and to look at the real substance of the relationship in question i.e. the ‘totality of the relationship’. Following consideration of the totality of the relationship, the court found that the interpreters were employees under subsection 12(1) of the SGAA.

    In contrast, a very recent case has been the Plumbers case whereby the AAT formed the view that the person (plumber) was a contractor.

    Key issues raised in AAT

    Employment tax considered was SGAA: subsection 12(1) and 12(3) - “if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract”.

    It appears from reading the case, that whilst all factors were generally considered, the main factors in determining in favour of XVQY were:

    Control

    • Plumbers engaged were free to exercise their discretion in performing their trade. The entity did not give instructions or directions on the manner in which the allocated trade work was to be done.

    Materials

    • The plumbers were responsible for providing a significant amount of their own materials and expenses but could also choose whether to use the entity’s materials, which many did due to the favourable cost and convenience.

    Risk and Responsibility

    • The plumbers bore the commercial risk and responsibility for any poor workmanship or injury arising from the performance of work - all plumbers took out their own insurance policy.

    Differences between Plumbers and Translator cases.

    Control

    In Plumbers case, plumbers engaged were free to use their discretion in undertaking the plumbing task, as the entity did not give instructions or directions on the manner in which the trade work was to be completed. The plumber could delegate all or part of the job.

    In Translators, the company ATL, exercised strong controls over how the work was completed and translators were required to report back within 24 hours of completing the assignment. Further, they did not have the capacity to delegate an assignment and were unable to carry out the assignment as they saw fit.

    Materials/Skills

    In Plumbers, plumbers were required to bring their own tools, however could use the entities own materials, given the wholesale discount afforded to the entity. At 110, his Honour highlighted that “where a worker is responsible for providing a significant amount of materials and incurring a significant amount of expenses, the worker may be more likely to be considered an independent contractor” In Translators, special tools were not required for providing translator services.

    Risk

    In Plumbers the plumbers bore the commercial risk and responsibility for any poor workmanship or injury arising from the performance of work, evidenced viz all workers took out their own insurance policy. In Translators, the translator did not bear the risk of the assignment.

    Paid to produce a result

    In Translators, the translator was not paid to produce a result, rather paid for their time. If the service was cancelled at the last minute, the entity still got paid as did the translator. In Plumbers, a schedule of works was required to be completed before the plumber got paid, that payment was contingent on results (however the jobs were costed based on hours to perform the job).

    Issues going forward

    After reviewing both cases, there appears to be no conclusive definition of who is or isn’t independent contractor, with the following matters identified for clarification.

    Organisation Test

    There appears to be difficulties in establishing the organisation test – that is proving beyond reasonable doubt that the applicant is or is not part of the organisation.

    In both cases, the workers could decide to work for whom they wished however the entities’ work in both cases formed a large part of that persons workload. Clients phoned the entity and would not know any other business name other than that of the entity they phoned. This appears subjective.

    Integration

    His Honour appears to compare the two cases in Plumbers (at 92) with regard to the reliance placed on the workers and whether it was significant, however, it is unclear what the distinction is. Further, his Honour states (at 94) “in my opinion it makes it more probable than not that their business could be considered as so integrated”, yet his decision reflected independence from the entity and accordingly a contractor?

    Control

    Difficulties in establishing where this control lies given the differing levels and usual autonomy required by both employees and contractors, particular where they are operating a particular skillset such as a trade or profession - as invariably there is discretion required in every role regardless of the nature of employment.

    Lack of freedom

    There were overlaps between whether a person was paid for their time or paid to produce a result. In both cases, there was a nature of the relationship ‘in totality’, which was discussed, however it did not appear to be at a level to establish clear principles on the matter.

    Work for Others

    The issue of ‘economic dependency’, that is where most of the workers income came from the entity. From the facts of both cases, it appears workers were allowed to work for others in as much or little capacity they saw fit, which from an employer’s perspective would create concerns and complications, in particular IP and competing against a competitor.

    ATO Response

    The decision in XVQY and Commissioner of Taxation [2014] AATA 319; Case 3/2014 2014 ATC 1-065 (XVQY) is one of several cases where the decision has been determined by the facts presented to the Tribunal and the evidence given by an employee. Consequently, this decision does not provide a precedent that can be used when determining whether a person is an employee.

    This is similar to the decision in Re The Trustee for the SR & K Hall Family Trust and FCT [2013] AATA 681; [2013] AATA 681 where the opposite decision was reached by the Administrative Appeals Tribunal.

    Rather than relying on the decisions in these cases, the relevant authority is the decision of the High Court in Hollis v Vabu Pty Ltd [2001] HCA 44; (2001) 47 ATR 559; 2001 ATC 4508.

    This decision was referred to by Bromberg J in the Federal Court in On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366;2011 ATC 20-258; 83 ATR 137. The ATO provided its response to this decision in a Decision Impact Statement

    To assist employers to determine whether a worker is an employee or contractor for tax and super purposes the ATO provides an Employee/contractor decision tool on its website at http://www.ato.gov.au/Calculators-and-tools/Employee-or-contractor/.

    Further guidance is provided in Taxation Ruling TR 2005/16 and Superannuation Guarantee Ruling SGR 2005/1. Both of these rulings discuss the various indicators that should be considered in determining whether a person is an employee or an independent contractor.

    6.2 Super payments for former employees

    Geri Panfilo (ATO) joined the meeting by telephone to discuss the issues that can arise and the actions that need to be taken where an employer needs to make a final payment of Superannuation Guarantee for a former employee where:

    • the employee’s fund account has been closed and the employer is unable to locate the employee; or
    • the employee has retired, closed their account, is drawing a super pension from the account and there is no other existing fund for the employee and the default fund of the employer will not accept payment.

    The ATO advised Members it is considering possible solutions to overcome the problems discussed. In so doing, the ATO will continue to consult with the representative Member of the forum who raised the issues.

    6.3 Living away from home – Employee intends to return to their usual place of residence

    Issue

    What is the meaning of the phrase ‘reasonable to expect that the employee intends to resume living at the unit of accommodation when the period of LAFH ends’ in section 31C(b) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

    Background

    Due to workforce placing, employees living away from home (LAFH) will generally be notified of an upcoming transfer prior to a period of LAFH ceasing. Such a transfer may be on a permanent basis, and to a location other than their usual place of residence.

    If their home is available for their immediate use during the LAFH period, the employee will generally continue to keep this arrangement until the end of their posting. Subsequently, they will temporarily return to the old location, and arrange for the removal of their goods and the sale/lease of their property.

    At the point of transfer notification, the employee will no longer intend to resume living at their usual place of residence on an ongoing basis. However, if they were to return from post early, they would return to their usual place of residence until the new (permanent) transfer commenced.

    At what point in time is it necessary to consider whether it is reasonable that an employee will resume living at a place when that period ends. Further, does the employee need to resume living at the residence on an ongoing basis, or will a temporary return to pack and arrange uplift suffice?

    Industry view/suggested treatment

    Section 31 of the FBTAA allows for a reduction in the taxable value of living away from home fringe benefits where an employee satisfies:

    • The maintaining a home provisions in section 31C;
    • The 12 month period criteria in section 31D; and
    • A declaration is provided in accordance with section 31F.

    An employee will satisfy the maintaining a home provisions in section 31C where:

    • The employee or their spouse has an ownership interest in a unit of accommodation in which they usually reside;
    • The unit of accommodation continues to be available for the employee's immediate use and enjoyment during the period; and
    • It is reasonable to expect that the employee will resume living at that place when that period ends.

    A literal interpretation of this legislation would suggest that the consideration of whether an employee will resume living in their usual place of residence would need to occur for each period a living-away-from-home allowance fringe benefit is received.

    However in this case, when the living away from home period ends, the employee will resume living in the usual place of residence, albeit for a short period. There is no clarification that the employee must resume living in the residence on an ongoing basis. Therefore, section 31C should be satisfied.

    Technical references

    Section 31 of the Fringe Benefits Tax Assessment Act 1986

    ATO Response

    In the situation raised for discussion, the employee has an ownership interest in a unit of accommodation in Australia. The unit of accommodation is at location A. The employee’s duties of employment currently require the employee to live away from location A to perform employment duties at location B.

    While working at location B the employee is notified that he or she will be transferred to location C at the conclusion of their current appointment. This transfer may be on a permanent basis.

    The question raised is whether the requirement in paragraph 31C(b) can be met once the employee is notified of the transfer.

    Section 31C contains the requirements that must be met for an employee to be considered to be maintaining a home in Australia. The requirement to maintain a home in Australia is one of the three requirements that must be met in order for the taxable value of a living-away-from-home allowance fringe benefit to be calculated under section 31, rather than section 31B (assuming the employee is not a fly-in fly-out and drive-in drive-out employee.

    Before these valuation provisions are considered, the allowance being paid to the employee must be a living-away-from-home allowance that satisfies the requirements of section 30. That is, the allowance must be in the nature of compensation to the employee for additional expenses incurred by the employee ‘by reason that the duties of that employment require the employee to live away from his or her normal residence’.

    Subsection 136(1) defines the ‘normal residence’ of an employee whose usual place of residence is in Australia as being the employee’s usual place of residence.

    Subsection 136(1) defines ‘place of residence’ to mean a place at which the person resides, or a place at which the person has sleeping accommodation.

    The agenda item indicates the employee has been receiving a living-away-from-home allowance which has been valued under section 31. That is, the requirements in section 31C (about maintaining an Australian home), 31D (about the first 12 months and section 31F (about declarations) are being met.

    By itself, the notification of the transfer to another location will not prevent any of these requirements from applying. Section 31D envisages the payment of a living-away-from-home allowance to an employee who is required to work at a second location by providing that a separate 12 month period can start if the employer requires the employee to live at another location for the purposes of that employment and it would be unreasonable to expect the employee to commute to that other location from the earlier location.

    However, this depends upon whether the original residence which the employee is living away from continues to be the employee’s usual place of residence.

    Guidance for determining the employee’s usual place of residence is provided by Taxation Ruling MT 2030. Paragraph 20 of MT 2030 provides the following general rule:

    Employees who move to a new locality to take up a position of limited duration with an intention to return to the old locality at the end of the appointment would generally be treated as living away from their usual place of residence. For example, a construction worker having to travel to a construction site to live and work would be in this category unless he had abandoned the former place of residence upon moving to the locality of the site. A case of the latter situation would be where the employee decided to permanently leave the former home, e.g., if a resident of Sydney, on obtaining a job for two years on a construction site in a remote part of Western Australia, decided to "sell up" in Sydney and move permanently to Western Australia to live.

    In applying this guidance, the residence at location A will cease to be the usual place of residence when the employee decides he or she will not be returning to that residence.

    If the employee abandons the residence at location A while he or she is performing his or her employment duties at location B, the employee is unlikely to be living away from the usual place of residence. In such a situation, the allowance will not satisfy the requirements of section 30 and it will not be necessary to consider section 31C.

    However, if the decision to abandon the residence at location A is made at the conclusion of the appointment at location B, it is possible for the requirements in both sections 30 and 31C to be met during the relevant period as the employee will have maintained the intention to return to the unit of accommodation at location A in which he or she an ownership interest during the relevant period.

    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

    Issue:

    Can the method outlined in Taxation Ruling MT 2024 for determining whether a dual cab vehicle is designed for the principal purpose of carrying passengers be used to determine whether the work-related exemption in subsection 8(2) of the FBTAA applies to a four wheel drive vehicle?

    Background

    Subsection 8(2) of the FBTAA provides that a car benefit will be an exempt benefit if:

    (a) the car is:

    (i) a taxi, panel van or utility truck, designed to carry a load of less than 1 tonne; or

    (ii) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

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

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

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

    Paragraph 8(2)(a)(ii) provides that a car will be exempt if it is not designed for the principal purpose of carrying passengers.

    Taxation Ruling MT 2024 provides a test that can be used when determining whether a dual cab vehicle can qualify for this exemption. The test as set out in paragraph 14 of MT 2024 requires a determination of whether the majority of the designed load capacity (the gross vehicle weight reduced by the basic kerb weight of the vehicle) is attributable to passenger carrying capacity.

    Paragraph 15 of MT 2024 provides that the designed passenger carrying capacity is to be determined by multiplying the designed seating capacity (including the driver’s) by 68 kg which is the figure adopted for the purposes of the application of the Australian Design Rules.

    Paragraph 2 of MT 2024 describes the vehicles for which this test is to be used. Paragraph 2 states:

    Broadly, dual cabs are variants of conventional goods vehicles under which additional seating positions are provided behind the driver and front-passenger seats. They share a common chassis to which the single or dual passenger cab and alternate tray sections may be fitted.

    The application of this test to other vehicles is discussed in Taxation Determination TD 94/19 which states:

    Fringe benefits tax: is the method outlined in Taxation Ruling MT 2024 appropriate for determining whether a vehicle, other than a dual or crew cab, is 'designed for the principal purpose of carrying passengers' and thereby ineligible for the work-related use exemption available under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986?

    1. No. The method outlined in paragraphs 14 to 16 of MT 2024 only applies to dual cab or crew cab vehicles. According to that method, if the majority of the load carrying capacity of the dual or crew cab is attributable to passenger carrying capacity, then it is taken to have been designed for the principal purpose of carrying passengers, regardless of any other considerations.

    2. In determining the principal purpose for which any other vehicle was designed, regard should be had to factors including, but not limited to, the following:

    • the appearance and presentation of the vehicle
    • any relevant promotional literature
    • the emphasis evident in marketing
    • the vehicle's specifications
    • load carrying capacity
    • passenger carrying capacity

    Example

    ABC Pty Ltd purchased a new four wheel drive station wagon for the business. The office manager of the company, Rob, is allowed to use the car for home to work travel. The vehicle has seating for 5 passengers and has a load carrying capacity of 865 kgs. Promotional literature for the vehicle emphasises its level of passenger comfort, off-road capability and "sporty" features. Little reference is made to its capacity to carry a load. It has very little room to carry anything other than luggage or tools. It is clear from the promotional literature and the vehicle's specifications that it is designed principally for carrying passengers. Any private use of the vehicle by Rob, including home to work travel, will be subject to fringe benefits tax.

    End of example

    The ATO website has a publication titled FBT – exempt motor vehicles. This publication provides a listing of vehicles that may be eligible for the exemption and vehicles which are not eligible for the exemption. The listing is divided into the following categories of vehicles:

    • dual cabs
    • single cab utes
    • four wheel drives and vans

    The publication includes an explanation of the basis used to determine whether a dual cab is eligible for the exemption. This explanation refers to MT 2024.

    However, the publication does not provide an explanation of the basis used to determine whether a four wheel drive vehicle is eligible. Nor does it refer to TD 94/19.

    The absence of an explanation as to the basis used to classify the listed four wheel drive vehicles is causing confusion as to how these vehicles are to be treated. To add to the confusion particular types of four wheel drive vehicles are listed in both the eligible and ineligible lists. For example, the lists include:

    • the Toyota Prado 5 seater in the eligible list for 2007 and the Toyota Prado GX in the ineligible list in 2006;
    • the Landcruiser 200 GX grade 4x4, 4.5L V8 Turbo Diesel in the eligible list for 2012 and the Toyota Landcruiser 200 GX 4x4 4.5L V8 Turbo diesel, auto trans 5 seater in the ineligible list in 2011; and
    • the Mitsubishi NW Pajero GLX 4WD 3.2L diesel in the 2012 eligible list and the Mitsubishi Pajero GLS 3.8L & 3.2L LWB wagons in the 2009 ineligible list.

    If the tests in TD 94/19 have been used, it is not clear how this different listing arose. It appears the tests in MT 2024 have been used.

    Industry view/suggested treatment

    These vehicles are four wheel drive vehicles which do not appear to be a dual or crew cab vehicle. Therefore, in determining the possible application of the exemption the appropriate tests are those in paragraph 2 of TD 94/19.

    If these tests are applied to the four wheel drive vehicles referred to above, the exemption in subsection 8(2) should not apply. This is consistent with the example of the four wheel drive station wagon provided in TD 94/19.

    Therefore, guidance is sought as to which test is to be applied. To provide clarification it is suggested the listing needs to be reviewed to either be a listing purely for dual or crew cabs, or to provide an explanation of the basis used in determining the classification of the vehicles that are not a dual or crew cab.

    Technical references

    Subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986

    MT 2024

    TD 94/19

    The ATO publication FBT – exempt motor vehicles

    ATO Response

    Subparagraph 8(2)(a)(ii) of the FBTAA provides that a car benefit will be an exempt benefit if:

    • the vehicle is designed to carry a load of less than 1 tonne;
    • the vehicle is not designed for the principal purpose of carrying passengers; and
    • the private use of the vehicle is restricted to work-related travel of the employee and minor, infrequent and irregular private use by the employee or associate.

    Subparagraph 47(6)(aa)(ii)(B) contains a similar exemption for vehicles designed to carry a load of at least 1 tonne.

    Taxation Ruling MT 2024 was issued in response to a question as to whether vehicles known as dual cabs are capable of qualifying for this work-related exemption. Paragraph 2 of MT 2024 provides a definition of the vehicles to which the ruling applied.

    Paragraph 2 of MT 2024 states:

    Broadly, dual cabs are variants of conventional goods vehicles under which additional seating positions are provided behind the driver and front-passenger seats. They share a common chassis to which the single or dual passenger cab and alternate tray sections may be fitted.

    As set out in the agenda item, paragraph 14 of MT 2024 provides a test that can be used for determining whether a vehicle that comes within the dual cab definition in paragraph 2 is a vehicle not designed for the principal purpose of carrying passengers.

    The question of whether the test set out in paragraph 14 of MT 2024 can be used for vehicles that do not come within the dual cab definition in paragraph 2 of MT 2024 is considered in Taxation determination TD 94/19. In answering this question, paragraph 1 of TD 94/19 states:

    No. The method outlined in paragraphs 14 to 16 of MT 2024 only applies to dual cab or crew cab vehicles.

    For vehicles that do not come within the dual cab definition in paragraph 2 of MT 2024, paragraph 2 of TD 94/19 provides a separate list of factors which are to be used to determine the principal purpose of the vehicle. Paragraph 2 of TD 94/19 states:

    In determining the principal purpose for which any other vehicle was designed, regard should be had to factors including, but not limited to, the following:

    • the appearance and presentation of the vehicle
    • any relevant promotional literature
    • the emphasis evident in marketing
    • the vehicle's specifications
    • load carrying capacity
    • passenger carrying capacity

    To illustrate the application of these factors, TD 94/19 provides the following example of a four wheel drive station wagon:

    ABC Pty Ltd purchased a new four wheel drive station wagon for the business. The office manager of the company, Rob, is allowed to use the car for home to work travel. The vehicle has seating for 5 passengers and has a load carrying capacity of 865 kgs. Promotional literature for the vehicle emphasises its level of passenger comfort, off-road capability and "sporty" features. Little reference is made to its capacity to carry a load. It has very little room to carry anything other than luggage or tools. It is clear from the promotional literature and the vehicle's specifications that it is designed principally for carrying passengers. Any private use of the vehicle by Rob, including home to work travel, will be subject to fringe benefits tax.

    For the tests in paragraph 2 of TD 94/19 to be used in this example, the four wheel drive station wagon referred to in the example cannot be a dual cab vehicle as defined in paragraph 2 of MT 2024. This conclusion will apply to other four wheel drive station wagons, unless the vehicle is a variant of a goods vehicle as described in the dual cab definition in paragraph 2 of MT 2024.

    In providing guidance that could be applied to dual cab vehicles, MT 2024 provided an appendix which contained a list of dual cabs to which the exemption could apply and a list of dual cabs to which the exemption could not apply. The listing did not have a category titled ‘four wheel drives and vans’.

    This category was included in the listing by a Ruling Addendum that issued on 19 January 2000. In reviewing the list in that Addendum, it appears all of the vehicles in the list of vehicles eligible for exemption would have been eligible on the basis of the factors listed in TD 94/19 as all but one of the eligible vehicles were vans. The exception was the Toyota Landcruiser Troop Carrier.

    Similarly, it appears the vehicles listed as ineligible were ineligible on the basis of the factors listed in TD 94/19 as most of the vehicles listed were four wheel drives. The vans that were listed were passenger carrying vans. Therefore, although the listing included vehicles to which the test in MT 2024 did not apply, the list was in accordance with the tests in TD 94/19 and MT 2024.

    The list was subsequently amended by Ruling Addendums that issued on 13 July 2005, 12 July 2006, 22 August 2007 (which applied from 14 September 2006) and 19 September 2007.

    The appendixes were subsequently omitted from MT 2024 by a Notice of Partial Withdrawal that issued on 22 October 2008. The Notice of Partial Withdrawal advised the listing of vehicles which formed the appendixes were now listed in the publication FBT – exempt motor vehicles. This list was subsequently updated on several occasions with the last update occurring in February 2013.

    As noted in the agenda item, in the course of these updates, a number of vehicles which do not appear to satisfy the tests in TD 94/19 have been listed as being eligible. Consequently, the ATO will be reviewing the publication FBT – exempt motor vehicles.

    Meeting Discussion

    In discussion, Members noted that some employers had relied on the list when making vehicle purchasing decisions and determining which records to keep for the vehicles. As the record keeping requirements that apply when using the operating cost method differ from the record keeping requirements that apply where the car benefit is exempt under subsection 8(2), concern was raised that these employers would be disadvantaged if they are required to amend back year returns.

    A concern was also raised about the possible complexities that could arise in calculating the taxable value of the car fringe benefits that would arise from a change in classification if the change is required to be applied part way through the FBT year.

    In discussion, Members also made a number of suggestions for improving the list. The suggested changes included:

    • Listing vehicles by manufacturer and type of vehicle, rather than listing in terms of the first year a vehicle was added to the list; and
    • Listing all the models.

    The ATO advised Members that it will consider the concerns raised and suggested improvements as part of its review. The ATO also undertook to advise Members of the outcome of its review.

    ACTION ITEM

    The ATO will advise Members when the review of the publication FBT – exempt motor vehicles has been completed and will forward Members a copy of the revised publication.

    In issuing the revised publication the ATO will advise employers affected by any changes that occur to the classification of a vehicle of the date from which the revised clarification is to apply.

    6.5 Excluded benefit for personal security concern

    Issue: Is it possible for a benefit provided to an employee prior to a threat assessment being completed to be an excluded fringe benefit under paragraph 5E(3)(l) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

    Background:

    Paragraph 5E(3)(l) of the FBTAA provides that a fringe benefit that is provided to address a security concern relating to the personal safety of an employee, or an associate of an employee will be an excluded fringe benefit if it arises in respect of the employee’s employment.

    Subsection 5E(6) limits the exclusion provided by paragraph 5E(3)(l) to the extent to which the fringe benefit is consistent with a threat assessment made by a person who is recognised by a relevant industry body or government body or the Commissioner as competent to make threat assessments in relation to the employee or associate.

    In accordance with past practice, an employee has been receiving a particular benefit which is provided to all employees employed at the position level of the employee.

    Following a controversial decision the employee has publically been verbally abused and subject to general harassment. Given the nature of this abuse and harassment, a threat assessment was undertaken in relation to the employee’s circumstances. The assessment recommended the implementation of several security measures including the provision of the particular benefit to ensure the safety of the employee and members of the employee’s family.

    Questions:

    (1) Will the exclusion provided by paragraph 5E(3)(l) apply to the provision of the benefit both before and after the risk assessment was provided?

    (2) Does the risk assessment provided in respect of the employee enable the exclusion in paragraph 5E(3)(l) to be applied to the provision of the particular benefit to the other employees employed at the position level of the employee?

    ATO Response:

    The requirements that must be met for the FBT reporting exclusion for personal security measures to apply are discussed in the ATO fact sheet FBT reporting exclusion – personal security measures.

    Further guidance was also provided in the Explanatory Memorandum that accompanied Tax Laws Amendment (2006 Measures No 3) Bill 2006.

    As set out in the fact sheet, for the reporting exclusion to apply, the fringe benefit must address a security concern that:

    • relates to the personal safety of the employee or an associate of the employee; and
    • arises in respect of the employee’s employment.

    In addition, the fringe benefit provided must be consistent with a threat assessment made by a person who is recognised as competent to make threat assessments.

    In discussing whether it is necessary for there to be an identified direct threat, paragraphs 8.18 and 8.19 of the Explanatory memorandum stated:

    8.18 Certain public officials and certain proprietors and employees of businesses may have security concerns which arise due to the nature of their responsibilities and the contacts that they make in the course of their duties or which arise because of their operational duties. Consequently a security concern may arise, for the purposes of the reporting exclusion, in the absence of demonstrated threats from identified individuals or parties.

    8.19 A security concern exists where there is a risk to the employee's personal safety specifically connected to the nature of the work carried on by the employee, regardless of whether there were direct threats from identified individuals or parties.

    Therefore, it is possible for a security concern to arise in relation to both the employee who has received the direct threats and the other employees who have not received a direct threat.

    However, for the exclusion to apply, subsection 5E(6) requires the threat assessment to be made in relation to the relevant employee or associate. It is also necessary for the threat assessment to:

    • identify and analyse the facts and circumstances relating to the security concern;
    • provide advice on measures to treat the security concern; and
    • be based on (or consistent with) the relevant Australian or New Zealand Standard or equivalent industry standard practices.

    Therefore, provided the threat assessment satisfies these requirements, the exclusion can apply to the benefit provided to the employee whose circumstances were addressed by the threat assessment. The fact the benefit had been provided prior to the assessment will not affect the application of the exclusion.

    However, the assessment of the employee’s circumstances is not able to be used in relation to the other employees. A separate risk assessment must be made in relation to the circumstances of these employees.

    In discussing a situation where a fringe benefit is provided to address a security concern prior to the completion of the threat assessment, paragraphs 8.32 to 8.34 of the Explanatory memorandum stated:

    8.32 It is recognised that there will be situations where, for various reasons, employers will need to provide fringe benefits to employees to address a security concern prior to the completion of the threat assessment.

    8.33 An employer who provides fringe benefits to address a security concern prior to the completion of the threat assessment will not be precluded from excluding those fringe benefit amounts from reporting once the threat assessment has been made. The fringe benefits must still be consistent with the threat assessment.

    8.34 Where fringe benefits are provided to address a security concern in the absence of a threat assessment, the employer will need to report the fringe benefit amounts on the recipient employee's payment summary. However, should these fringe benefits subsequently meet the conditions to be an excluded fringe benefit, the employer may correct an amount, on a payment summary, based on the procedures set out by the Commissioner.

    Example 8.6

    Benjamin is an employee of a business which provided him with fringe benefits to address a perceived security risk to his personal safety in the 2004-05 income year. The reportable amounts arising from those fringe benefits were reported on his payment summary at the time.

    The employer subsequently became aware of the paragraph 5E(3)(l) reporting exclusion. The employer would be required to seek a threat assessment in relation to Benjamin concerning the fringe benefits provided so that the amounts on the payment summary can be corrected.

    End of example

    7 Date and location of next meeting

    The next meeting will be held in Melbourne in March 2015.

      Last modified: 13 Jan 2015QC 43716