ATO Interpretative Decision

ATO ID 2001/759

Fringe Benefits Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Whether a lump sum payment made under the Death and Disability (D & D) insurance cover, is a fringe benefit as defined under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Decision

No. A lump sum payment made under the D & D insurance cover, is not a fringe benefit as defined under subsection 136(1) of the FBTAA.

Facts

The employer has a D & D insurance policy covering nominated employees. The insurance policy provides the employee or the estate of the employee with a lump sum payment upon death or disability of the employee. The premium is payable by the employer. The insurance cover is only provided to those employees who are current contributing members of the employer's staff superannuation fund. In the event that a claim is lodged, the benefit is payable to the employer, who will then pass it on to the employee or the employee's estate, taking into account any taxation requirements in respect of the payment at that time.

Reasons for Decision

The payment of the lump sum is a 'benefit' provided under a contract of insurance as defined in subsection 136(1) of the FBTAA. However, it is not a 'fringe benefit' as defined under subsection 136(1) of the FBTAA because it is not provided to an employee or associate, in respect of the employment of the employee.

A payment made under the D & D insurance cover is not a benefit paid 'in respect of employment'. In accordance with the tests applied in J & G Knowles & Associates v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 45 ATR 1101, in order to establish whether a sufficient or material relationship exists, it is necessary to examine the reason why the benefit is to be provided. Under the terms of the insurance policy, the insurer has agreed to indemnify the persons insured against death or disability. The lump sum is paid by reason of the death or disability of the persons insured. This contractual payment is not a product or incident of employment and as such, is extraneous to the employment.

Even though the lump sum may be payable to the insurant/employer, who then passes it to the employee or to his or her estate, this does not mean that the lump sum payment is provided 'in respect of employment'. Although there is a causal relationship due to the fact that the employer is the policy holder and the persons insured are the employees of the employer, this does not constitute a sufficient or material relationship between the payment of the lump sum and the employee's employment. A lump sum payment made on death or disability to the persons insured under the D & D insurance cover is not a benefit which is received 'in respect of employment'. Accordingly, it is not a fringe benefit, as defined in subsection 136(1) of the FBTAA.

Year of income:  Year ended 31 March 2001 Year ending 31 March 2002 Year ending 31 March 2003 Year ending 31 March 2004

Legislative References:
Fringe Benefits Tax Assessment Act 1986
   Subsection 136(1)

Case References:
J & G Knowles & Associates v. Federal Commissioner of Taxation
   (2000) 96 FCR 402
   44 ATR 22
   2000 ATC 4151

Keywords
Residual fringe benefits
In respect of employment
Fringe benefits
Death and disability insurance

Business Line:  FBT COE

Date of publication:  6 December 2001

ISSN: 1445-2782