Class Ruling

CR 2007/15

Fringe benefits tax: employer clients of Community Sector Banking Pty Ltd who are subject to the provisions of section 57A of the Fringe Benefits Tax Assessment Act 1986 that make use of a CSB Salary Benefit Card Account facility

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What this Ruling is about

1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.

Relevant provision(s)

2. The relevant provisions dealt with in this Ruling are:

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subsection 5B(1E) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA);

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section 5C of the FBTAA;

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section 20 of the FBTAA;

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section 38 of the FBTAA;

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section 40 of the FBTAA;

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section 45 of the FBTAA;

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section 57A of the FBTAA; and

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subsection 149A(2) of the FBTAA.

All references in this Ruling are to the FBTAA unless otherwise stated.

Class of entities

3. The class of entities to which this Ruling applies are employers subject to the provisions of section 57A who enter into an agreement with Community Sector Banking Pty Ltd (the financial institution) to make use of a Salary Benefit Card Account facility.

Qualifications

4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling.

5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 12 to 19 of this Ruling.

6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then:

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this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and

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this Ruling may be withdrawn or modified.

7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Commonwealth Copyright Administration

Attorney General's Department

Robert Garran Offices

National Circuit

Barton ACT 2600

or posted at: http://www.ag.gov.au/cca

Date of effect

8. This Ruling applies from 1 April 2006. The Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling. Furthermore, the Ruling only applies to the extent that:

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it is not later withdrawn by notice in the Gazette; or

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the relevant provisions are not amended.

9. If this Class Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)).

10. If this Class Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Class Ruling is made, the following two conditions are met:

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the income year or other period to which the rulings relate has not begun; and

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the scheme to which the rulings relate has not begun to be carried out.

11. If the above two conditions do not apply, the relevant class of entities may rely on either ruling which applies to them (item 3 of subsection 357-75(1) of Schedule 1 to the TAA).

Scheme

12. The scheme that is the subject of this Ruling is described below and is based on the documents listed below. These documents, or relevant parts of them, as the case may be, form part of and are to be read with this description. The relevant documents or parts of documents incorporated into this description of the scheme are:

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further information received on 23 November 2006, including:

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email template which is forwarded to interested employers;

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Community Sector Banking Salary Benefits Card information document; and

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Community Sector Banking Salary Benefits Card Common Questions and Answers; and

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further information received on 7 December 2006, including:

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Community Sector Banking Salary Benefit Card Application form dated April 2006;

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Community Sector Banking Business Accounts and Facilities Terms and Conditions dated 1 November 2006;

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Salary Packaging Participation Agreement form;

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Community Sector Banking CSB Client information booklet; and

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Community Sector Banking CSB Salary Benefit Card brochure.

Note: certain information received from the applicant has been provided on a commercial-in-confidence basis and will not be disclosed or released by the Tax Office under the freedom of information legislation.

13. An employer applies to the financial institution for a Salary Benefit Card Account (the account). The account will be opened under the employer's customer record.

14. Employees of the employer may apply to the financial institution for a Payments Card (the card). Each employee will be an additional cardholder to the account. Spouse and partner cards can be issued where required.

15. An employer enters into an effective salary sacrifice arrangement with each participating employee and sets aside a salary sacrificed amount for each employee. Employees use the card to draw down on funds to pay for goods or services. These products and services are settled from the account.

16. The card is based on a Visa Debit Card and has a zero credit limit.

17. The following will not be permitted under the card:

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cash withdrawals;

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ATM withdrawals;

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chequebook facilities;

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transfer of funds into other personal accounts;

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in Branch transactions; and

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Internet banking.

18. An employer is liable for any obligation incurred by its employee's use of the card. Ultimate ownership of the card remains with the employer at all times and it is their responsibility.

19. If there is any remaining credit in the account on termination of employment, it is the employer's decision to pay the remainder out to the employee either as salary subject to tax withholding rules or other form of benefit.

Ruling

20. A payment by the employer into the account in respect of an employee does not constitute an expense payment benefit for the purposes of section 20.

21. The use of the card by an employee or associate of the employee to purchase goods or services gives rise to benefits including tax-exempt body entertainment benefits under section 38, property benefits under section 40 or residual benefits under section 45.

22. Where the value of the benefits provided to an employee during the fringe benefits tax year does not exceed the relevant threshold specified in subsection 5B(1E) they will constitute exempt benefits under section 57A.

23. The employer is liable for fringe benefits tax on the value of benefits provided in excess of the relevant threshold specified in subsection 5B(1E).

24. A benefit will be a GST-creditable benefit if the requirements of subsection 149A(2) are satisfied. Such a benefit will be a type 1 benefit for the purposes of section 5C. Where the requirements of this subsection are not satisfied, the benefit will not be a GST-creditable benefit and thus a type 2 benefit.

Commissioner of Taxation
7 March 2007

Appendix 1 - Explanation

25. According to section 20 an expense payment benefit may arise where a person, in this case an employer:

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makes a payment in discharge, in whole or in part, of an obligation of another person (the recipient) to pay an amount to a third person in respect of an amount of expenditure incurred by the recipient; or

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reimburses the recipient, in whole or in part, in respect of an amount of expenditure incurred by the recipient.

26. Thus, an expense payment benefit can only exist where the recipient of the benefit, in this case the employee (or associate), has incurred expenditure. The payment or reimbursement must be referable to that expense incurred by the employee.

27. The payment by the employer into the account under the scheme is not referable to:

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an employee obligation to the financial institution in respect of expenditure incurred by the employee; or

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an employee obligation to any other person in respect of expenditure incurred by the employee.

28. Under the scheme:

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the account is owned by the employer;

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the employee is an additional cardholder; and

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the card that is issued to the employee has a zero credit limit.

29. When the employer makes a payment into the account, the employer is merely meeting its obligations to make such payments under agreements with the financial institution and the employee. No expense payment benefit arises at that time.

30. The fact that some or all of the funds in this account may subsequently be used to pay for purchases made by the employee does not change the employer's payment into the account to that of an 'expense payment benefit'.

31. The employer is not making the payment into the account to discharge an obligation of the employee to another person for an expense he or she may later incur. This is evidenced by the fact that an employee may potentially not even use any of the money during the year.

32. Under the scheme the account is opened under the employer's customer record and is controlled and maintained by the employer. Ultimate ownership of the card remains with the employer at all times and it is their responsibility. Using the card in his or her capacity as an additional cardholder, the employee does not incur any expenditure to have an obligation to another person. It is the employer who incurs the expenditure and any obligation will be that of the employer.

33. Under the scheme, the obligation that is discharged by payment of the amount charged to the account in a particular transaction is the employer's obligation to the merchant. The employer incurs an expense to a merchant when the employee purchases a good or a service. The financial institution then uses the credit available on the employer's account to pay the merchant.

34. As it is the employer and not the employee who incurs the expense, the elements of paragraph 20(a) are not satisfied and an expense payment benefit does not arise.

35. The use of the card by an employee or associate of the employee to purchase goods or services gives rise to benefits including tax-exempt body entertainment benefits under section 38, property benefits under section 40 or residual benefits under section 45. Where no exemption under the FBTAA applies, such benefits will constitute fringe benefits as defined in subsection 136(1).

36. Section 57A provides that certain employers are generally exempt from fringe benefits tax. This section applies to employers that are public benevolent institutions, certain hospitals, public ambulance services (or a supporting service) and charitable institutions that promote the prevention or the control of diseases in humans.

37. Public and non-profit hospitals and ambulance services (or a supporting service) have a capping threshold placed on the value of benefits exempt from fringe benefits tax that may be provided to employees. This threshold is $17,000 grossed-up taxable value per employee. Such employers are liable for fringe benefits tax on the value of benefits provided in excess of this threshold.

38. All other employers to which section 57A applies have a capping threshold of $30,000 grossed-up taxable value per employee. Such employers are liable for fringe benefits tax on the value of benefits provided in excess of this threshold.

39. Tax-exempt body entertainment benefits includes meal entertainment and non-meal entertainment. For employers subject to the provisions of section 57A, meal entertainment is always an exempt benefit because of the interaction between section 57A and subsection 5B(1L). Step 1 of the method statement in subsection 5B(1L) specifically disregards the taxable value of the provision of meal entertainment for the purposes of determining exposure to the capping thresholds.

40. To determine whether a benefit provided under this scheme is a type 1 or type 2 benefit for the purposes of section 5C, it is necessary to ascertain whether the benefit is a GST-creditable benefit as defined in section 149A.

41. Taxation Ruling TR 2001/2 points out that for the purposes of section 149A, to be a GST-creditable benefit, the provider of the benefit must be entitled to an input tax credit for that benefit and that a GST-creditable benefit arises where the provider is entitled to an input tax credit because of:

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the operation of Division 111 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); or

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because the fringe benefit is a 'thing' that was acquired or imported by the provider.

42. The first point in paragraph 41 of this Ruling does not apply to this scheme as subsection 149A(1) of the FBTAA only applies where there is a reimbursement to an employee and the provider is entitled to an input tax credit under Division 111 of the GST Act. In this case there is no reimbursement for the purposes of the GST Act. Consequently, employers need only consider the second point of paragraph 41 of this Ruling.

43. A benefit will be a GST-creditable benefit if the requirements of subsection 149A(2) are satisfied. Such a benefit will be a type 1 benefit for the purposes of section 5C. Where the requirements are not satisfied, the benefit will not be a GST-creditable benefit and thus a type 2 benefit for the purposes of section 5C.

Appendix 2 - Detailed contents list

44. The following is a detailed contents list for this Ruling:

Not previously issued as a draft

References

ATO references:
NO 2007/2946

Related Rulings/Determinations:

TR 2001/2

Subject References:
class rulings
expense payment benefits
FBT salary packaging
FBT salary sacrifice
fringe benefit
fringe benefits tax
property benefits
residual benefits

Legislative References:
FBTAA 1986 5B(1E)
FBTAA 1986 5B(1L)
FBTAA 1986 5C
FBTAA 1986 20
FBTAA 1986 20(a)
FBTAA 1986 38
FBTAA 1986 40
FBTAA 1986 45
FBTAA 1986 57A
FBTAA 1986 136(1)
FBTAA 1986 149A
FBTAA 1986 149A(1)
FBTAA 1986 149A(2)
TAA 1953
TAA 1953 Sch 1 357-75(1)
ANTS(GST)A 1999 Div 111
Copyright Act 1968