ATO Interpretative Decision

ATO ID 2005/219 (Withdrawn)

Fringe Benefits Tax

• This ATO Interpretative Decision is withdrawn from the database because it contains a view in respect of a provision of the Fringe Benefits Tax Assessment Act 1986 that does not apply to loans entered into from the announcement time at 7.30pm on the 13 May 2008, or from 1 April 2009 for loans entered into before the announcement time. This is as a result of changes contained in the Taxation Laws Amendment (2008 Measures No. 5) Act 2008. Despite its withdrawal from the database, this ATO Interpretative Decision continues to be a precedential view in respect of decisions up to and including 13 May 2008 or 1 April 2009 as applicable.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does the 'otherwise deductible rule' (ODR) pursuant to subsection 19(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to reduce the taxable value of a loan fringe benefit to nil, where the employer provides a low interest loan jointly to the employee and their spouse and where the proceeds of the loan are used to jointly acquire an income producing property?

Decision

Yes. Subsection 138(3) of the FBTAA applies so that the loan is deemed to be provided to the employee alone. The same fiction is maintained for the purposes of paragraph 19(1)(b) of the FBTAA so that the employee is deemed to be entitled to a 'once-only' deduction.

The employee provides the employer with a declaration pursuant to paragraph 19(1)(c) of the FBTAA and the ODR applies in accordance with subsection 19(1) of the FBTAA to reduce the taxable value of the loan fringe benefit to nil.

Facts

The employer, a financial institution, provides staff loans to certain employees at a lower interest rate than it charges its customers. One of these staff loans is provided jointly to an employee and their spouse.

The spouse is not an employee of the employer.

The loan is wholly used by the employee and the spouse to jointly acquire a rental property. The property is rented to a third party at a commercial rate.

In accordance with subparagraph 19(1)(c)(ii) of the FBTAA, the employee provides the employer, before the declaration date, with a declaration in a form approved by the Commissioner.

Reasons for Decision

Subsection 19(1) of the FBTAA was the subject of detailed consideration by Ryan J in National Australia Bank v. Federal Commissioner of Taxation (1993) 46 FCR 252; 26 ATR 503; 93 ATC 4914, (NAB Case). The NAB Case established the following propositions in relation to a staff loan provided to Mr and Mrs Heskett, 'The Heskett Loan':

1.

That the mechanism chosen by the draftsman (under subsection 138(3) of the FBTAA) to avoid the result of double taxation in the circumstances of a single benefit provided jointly is to deem it for all the purposes of the FBTAA to have been provided to a single recipient.

2.

That the loan provided jointly to Mr and Mrs Heskett is deemed to have been provided to Mr Heskett alone and on that basis paragraph 19(1)(a) of the FBTAA is satisfied.

3.

That the same fiction is maintained for the purposes of paragraph 19(1)(b) of the FBTAA, so that Mr Heskett, as the sole recipient of the loan and the sole investor of the proceeds, would have been entitled to a once only deduction in respect of the whole of the gross interest had he paid it in the relevant tax year.

4.

That paragraph 19(1)(ba) of the FBTAA was satisfied including the taking into account the amount of interest actually paid to the Bank.

5.

That there was sufficient information contained on Mr Heskett's declaration form so that paragraph 19(1)(c) of the FBTAA was satisfied.

In the present case the facts are analogous to 'The Heskett Loan' and the NAB Case decision can be applied. Subsection 19(1) of the FBTAA is therefore satisfied and the ODR applies to reduce the taxable value of the loan fringe benefit to nil.

Year of income:  Year ended 31 March 2005

Legislative References:
Fringe Benefits Tax Assessment Act 1986
   subsection 19(1)
   paragraph 19(1)(a)
   paragraph 19(1)(b)
   paragraph 19(1)(ba)
   paragraph 19(1)(c)
   subparagraph 19(1)(c)(ii)
   subsection 138(3)

Case References:
National Australia Bank Ltd v. Federal Commissioner of Taxation
   (1993) 46 FCR 252
   (1993) 26 ATR 503
   93 ATC 4914

Keywords
Fringe benefits tax
FBT otherwise deductible rule
Fringe benefits
Fringe benefits tax
Loan fringe benefits

Business Line:  Administration, Business and Personal Taxes Centre of Expertise

Date of publication:  29 July 2005

ISSN: 1445-2782