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Ruling

Subject: Provision of a Fringe benefit

Question 1:

Is the reimbursement by the employer to an employee for the purchase of furniture by the employee who has permanently relocated from either overseas or other area within Australia an Expense Payment Fringe Benefit?

Answer: Yes

Detailed reasoning

Fringe benefits tax

In broad terms, the definition of a fringe benefit in subsection 136(1) of the FBTAA 1986 provides that a benefit will be a fringe benefit where the benefit:

· is provided to an employee (or an associate)

· by an employer, an associate of the employer, or another person under an arrangement with either the employer, or an associate of the employer

· in respect of the employment of the employee, if

· the benefit is not one of the benefits specifically excluded from being a fringe benefit by paragraphs (f) to (s) of the definition.

The term 'benefit' is defined in subsection 136(1) of the FBTAA 1986 to include any rights, privileges or services.

The term 'in respect of' is defined by subsection 136(1) of the FBTAA 1986 in relation to the employment of an employee, so that a benefit will be regarded as provided in respect of employment if it is provided by reason of, by virtue of, or in relation directly or indirectly to that employment.

The meaning of 'in respect of employment' was considered by the Full Federal Court in J & G Knowles v. Federal Commissioner of Taxation (2000) 96 FCR 402, 2000 for the purposes of the FBTAA 1986. To conclude that there was more than a causal connection between the benefit and the employment, it must be established that there was a sufficient and material connection or relationship between the benefit and the employment. Therefore, the relevant question to ask is whether the benefit is a product of the person's employment.

As a guide to whether a benefit is provided in respect of employment, the guide 'Fringe benefits tax: a guide for employers' states that the question to ask is whether you would have provided the benefit if the recipient had not been an employee.

A benefit that is not provided in respect of employment is not a fringe benefit. A benefit provided in respect of employment effectively means a benefit provided to somebody because he or she is an employee. Where a benefit is provided in part for employment reasons and in part for other reasons, the benefit is deemed to be totally in respect of employment (paragraph 148(1)(a) of the FBTAA 1986).

Expense payment fringe benefit

In basic terms, an expense payment benefit, under section 20 of the FBTAA 1986, is either where an employer (or associate) reimburses an employee (or associate) for expenses incurred by the employee (or associate) or where an employer (or associate) pays a third party in satisfaction of expenses incurred by an employee (or associate).

An 'expense payment fringe benefit', as defined in subsection 136(1) of the FBTAA 1986, is a fringe benefit that is an expense payment benefit.

How the law applies to this circumstance

In this case the benefit has been provided to an employee, being that the account is in the name of the employee. The benefit is provided to the employee by way of the employee's employment relationship with the employer and not for any other reasons. Therefore the following requirements have been met:

· a benefit has been provided to an employee,

· the benefit is provided by the employer;

· the benefit is provided in respect of the employment of the employee; and

· the benefit is not one that is specifically excluded from being a fringe benefit by paragraphs (f) to (s) of the definition.

Accordingly, if the employer makes a one off payment for furniture for the employee and the payment was made direct to the employee on supply of receipts for the furniture purchase. The one off payment would be a benefit as defined in subsection 136(1) of the FBTAA 1986 and it is provided in the form of an expense payment fringe benefit pursuant to section 20 of the FBTAA 1986.

It is important to note that the rules in respect to 'Expense Payment Fringe Benefits' apply to expenses incurred by an employee that is reimbursed or paid by the employer. They do not apply to goods or services you purchase directly and provide to the employee

Question 2:

Is the purchase of furniture by the employer that is then supplied to an employee who has been permanently relocated from either overseas or other area within Australia an Expense Payment Fringe Benefit under section 20 of the FBTAA 1986?

Answer: No

Detailed reasoning

As explained above, an expense payment benefit may arise in either of two ways: where an employer (or associate) reimburses an employee (or associate) for expenses incurred by the employee (or associate) or where an employer (or associate) pays a third party in satisfaction of expenses incurred by an employee (or associate).

In either case, an expense has been incurred and there is an obligation on the employee to pay the expense.

In the current case, the arrangement provides that the employer purchases furniture or household goods directly for an employee due to a permanent relocation, and the employee retains ownership of the goods. This direct purchase may be either by a payment direct to the supplier of the goods, or by charging a corporate card, which is subsequently paid by the employer. As such, the benefit does not constitute an expense payment benefit. It gives rise to a property fringe benefit under section 40 of the FBTAA 1986.

A property fringe benefit arises when an employer provides an employee with free or discounted property. For fringe benefit tax (FBT) purposes, property includes:

· goods (including gas and electricity, unless provided through a reticulation system) and animals

· real property, such as land and buildings

· rights to property, such as shares or bonds.

For further information on property fringe benefit, please refer to the guide 'Fringe benefit tax - a guide for employers'

Question 3 No ruling made.

Question 4

Will the payment/reimbursement by the employer to an employee for the purchase of new furniture up to the same amount as the cost to transport the existing furniture or up to a budgeted relocation allowance amount give rise to an exempt benefit under section 58B of the FBTAA 1986?

Answer: No

Detailed reasoning

Under section 58B of the FBTAA 1986, where an employer meets the costs of removal and storage of household effects of an employee who is required to live away from home due to job location changes, the benefit is exempt under section 58B of the FBTAA 1986. For the exemption to apply, it is essential that the benefit is solely in relation to the removal and storage of household goods.

Requirements of section 58B of the FBTAA 86

A benefit is only exempt under section 58B if the following conditions are met:

(a) The benefit provided is for the removal or storage of household effects of the employee.

(b) The removal or storage of the household effects must have been required because the employee is required to:

(i) live away from his or usual place of residence in order to perform employment duties;

(ii) return to his or her usual place of residence at the end of a period during which the employee moved away from that place in order to perform the employment related duties; or

(iii) change his of her usual place of residence in order to perform employment related duties.

(c) Where the employee is required to live away from, or change his or her usual place of residence ((i) and (iii) above), the removal or storage must be necessary to enable the employee (or family member) to take up residence, or continue to reside at the new locality

(d) Where the employee changes his or her usual place of residence, the benefit is only exempt if it is provided under an arms length arrangement and if the removal or storage occurs within 12 months from the day the employee commences employment at the new place of employment

(e) In the case of an expense payment benefit, documentary evidence of the expenditure incurred by the employee must be given to the employer before the date the employer has to submit a fringe benefits return for the year.

(f) The exemption under section 58B of the FBTAA does not apply where the employee is undertaking travel in the course of performing employment duties.

Under the arrangement, the employer will not incur any cost for the removal and transportation of the employee's household effects. Whether it is more cost effective or efficient for the employer to pay or reimburse an employee for the purchase of new furniture up to the same amount as the cost to transport the existing furniture or up to the relocation allowance amount is irrelevant for section 58B purposes. Thus, the exemption will not apply.

Other exempt benefits

There are a range of exemptions from FBT. These include certain benefits provided by religious institutions and benefits provided by international organisations and public benevolent institutions. In addition, there are some specific types of benefits that are exempt from FBT. The exemptions are scattered through the provisions of the FBTAA 1986, particularly sections 53 to 58Z in Div 13.

None of these provisions apply to the current case.

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