ATO Interpretative Decision

ATO ID 2002/614 (Withdrawn)

Fringe Benefits Tax

• This ATO ID is withdrawn. Guidance on the issue contained in this ATO ID can be found at the ATO publication Fringe benefits tax - a guide for employers at chapter 9.9. Expense payment fringe benefits.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does a payment made by an employer to an employee's home mortgage offset facility account constitutes an 'expense payment fringe benefit' under section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision

No, a payment made by an employer to an employee's home mortgage offset facility account cannot constitute an 'expense payment fringe benefit' under section 20 of the FBTAA. It is a payment of salary and wages and the employer will be required to withhold an amount from the payment under section 12-35, Schedule 1, Taxation Administration Act 1953 (TAA) before it is paid into the employee's home mortgage offset facility account.

Facts

An employee currently arranges with the employer to pay a specific amount into a home mortgage account. These payments are currently being treated as expense payment fringe benefits for the purposes of the FBTAA.

The financial institution now offers a new arrangement whereby the employer pays a specific amount into the employee's new home mortgage offset facility account, which allows the interest payable on the existing home mortgage loan account to be reduced, effectively reducing the overall mortgage amount owed.

The home mortgage offset facility account works in the following manner:

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A separate offset transaction account is set up in the name of the employee.

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This offset transaction account is used to accept all inflows of money (e.g., salary payments, rental income payments, etc.).

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The interest payable on a home mortgage loan account is automatically reduced by the interest earned from the home mortgage offset facility account.

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The funds in the home mortgage offset facility account are periodically transferred to the home mortgage loan account.

Reasons for Decision

For a benefit to be an 'expense payment fringe benefit' under section 20 of the FBTAA, the employer must be making a payment in relation to an 'obligation' of the employee and that the payment is in respect of 'expenditure incurred' by the employee.

An arrangement for the employer to pay an amount into the employee's home mortgage offset facility account is not considered to be an 'expense payment fringe benefit' provided by the employer to the employee under section 20 of the FBTAA. The payment is not made in relation to an 'obligation' in respect of 'expenditure incurred' by the employee but rather, an amount merely deposited by the employer into an account of the employee for the employee.

The fact that some or all of the funds in this account may subsequently be to transferred into the home mortgage loan account should not change the nature of the initial payment from one of 'a deposit' to 'an expense payment'. It is a payment of salary and wages and the employer will be required to withhold an amount from the payment under section 12-35, Schedule 1 of the TAA before it is paid into the employee's home mortgage offset facility account.

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

Legislative References:
Fringe Benefits Tax Assessment Act 1986
   Section 20

Keywords
Expense payment fringe benefits
FBT salary sacrifice

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  31 May 2002

ISSN: 1445-2782