Edited version of private ruling

Authorisation Number: 1011532150249

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Ruling

Subject: exempt benefits

Will bus transport provided under a salary sacrifice arrangement (SSA) for your employees constitute an exempt residual benefit under subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer: Yes

This ruling applies for the following period

Year ended 31 March 2011

Year ended 31 March 2012

Year ended 31 March 2013

Relevant facts and circumstances

You are a corporation and an employer.

You are considering providing a card as part of a salary sacrifice arrangement (SSA) for the purpose of allowing your employees to travel between their home and work. You have provided information relating to the use of this card available to the general public.

Under the SSA arrangement you will purchase the card which you will provide to your employees. You will be the registered cardholder.

The use of the card will be restricted to travel between home and work.

You will have access to the cards' travel history.

In the event of an employee losing their card a replacement card will be provided with the balance of the original card transferred to the replacement card.

A card provided to an employee will be cashed out in the event of the cessation of employment of the employee, a change in the employee's circumstances such as the employee being unable to use the card as a result of moving residence or the employee's death. Where the card is cashed out any remaining balance will be processed as salary or wages.

You will incorporate into your existing SSA policies the rules and accountabilities applicable to packaging the transport benefit. The policies will be enforced in accordance with other employment conditions. Any breaches of the policy will be dealt with in the usual manner such that employees will suffer the consequences. Where non-compliance is identified, fringe benefits tax will be calculated based on the benefit provided.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Summary

Subsection 47(6) of the FBTAA provides an exemption for a residual benefit consisting of the use of certain motor vehicles where the private use is restricted to the following circumstances:

· travel to and from work;

· use that is incidental to travel in the course of performing employment-related duties; and

· non work-related use that is minor, infrequent and irregular.

Under the SSA arrangement, your employees will be provided with the use of a transport card.

As the transport provided under the SSA constitutes the use of a specified motor vehicle for travel between home and work, the transport provided to your employees under the SSA will be an exempt benefit under subsection 47(6) of the FBTAA.

Detailed reasoning

Subsection 47(6) of the FBTAA provides an exemption for the private use of certain motor vehicles where certain conditions are met.

Subsection 47(6) of the FBTAA states:

Where:

(a) a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee;

(aa) the motor vehicle is not:

(i) a taxi let on hire to the provider; or

(ii) a car, not being;

(A) a panel van or utility truck; or

(B) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

(b) there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than;

(i) work-related travel of the employee; and

(ii) other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular;

the benefit is an exempt benefit in relation to the year of tax.

Therefore, the provision of travel to your employees will be an exempt benefit where:

(i) the benefit is a residual benefit

(ii) the benefit consists of the use of a motor vehicle

(iii) the benefit is provided to a current employee

(iv) the motor vehicle is not one of the above listed exclusions

(v) the only private use of the motor vehicle is:

· work related travel of the employee and

· other private use by the employee or an associate of the employee is minor, infrequent and irregular.

These requirements are considered below:

(i) Will the benefit be a residual benefit?

Section 45 of the FBTAA defines a residual benefit as a benefit that does not come within Subdivision A of Divisions 2 to 11 of the FBTAA.

Guidance for determining whether the SSA involves the provision of a residual benefit was provided by the decision in National Australia Bank Ltd v. Federal Commissioner of Taxation 93 ATC 4914; (1993) 123 ALR 349, (the NAB Case). In that case, the employer authorised employees who worked specified shifts, to travel to and from work in a taxi using Cabcharge vouchers which were debited to the Banks account each month.

In considering the type of benefit that had been provided, Ryan J stated at ATC 4939:

What I regard as the preferable view, that the contract is between the taxi cab operator and the Bank, accommodates the arrangement under which the shift supervisor arranges for the attendance of one or more taxi cabs and two or more employees travel in the same cab. The contract which the taxi cab operator then and there makes is to attend at the Bank's premises and convey one or more of its employees as directed, in consideration of the provision by the Bank of a warrant authorizing the cost of the conveyance to be met by Cabcharge on the Bank's account…

Further at ATC 4940 Ryan J stated:

As already indicated, I have accepted that the provision by the Bank to Mr Brewster of transport by taxi cab was a 'benefit' as defined in the Act. I have also explained why the benefit is not an 'expense payment fringe benefit' by virtue of any provision of Subdivision A of Division 5 of the Act. Since it has not been suggested to fall within Subdivision A of any of Divisions 2 to 4 or 6 to 77. It follows that it is a residual benefit by virtue of s. 45 of the Act.

The provision of transport using the card is similar to the situation that existed in the NAB Case as you will be providing employees with a card that is purchased by you and registered in your name. The employee will use the card to obtain bus travel.

Support for this conclusion is provided in Taxation Ruling TR 1999/10 Income tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits, deductions and recoupments. Paragraph 86 in discussing the use of a Life Gold Pass or a Severance Pass states:

We do not consider that the issuing of passes under the Life Gold Pass and Severance Pass Schemes attracts any income tax implications. However, travel benefits received in relation to each use of a Gold Pass or Severance Pass by a Member will be taxed as a residual benefit, within the meaning of section 45 of Division 12 of the FBTAA, to the provider of the pass.

The use of the card can be considered similar to the use of the Cabcharge in the NAB Case and the use of the Life Gold Pass or Severance Pass.

Therefore, the benefit received by the employees will be a residual benefit which is the provision of transport.

(ii) Will the benefit consist of the use of a motor vehicle?

The word 'use' has a broad meaning. It is not restricted to situations where the employee has control of a vehicle. In the NAB Case Ryan J noted the specific inclusion of 'a taxi let on hire to the provider' in paragraph 47(6)(aa) of the FBTAA indicates that the legislature considered 'use of a motor vehicle' could include a passenger's travel in a taxi. As a passenger's travel in a bus is comparable to a passenger's travel in a taxi, these comments support the conclusion that bus transportation can also involve the 'use of a motor vehicle'.

(iii) Will the benefit be provided to a current employee?

A 'current employee' is defined in subsection 136(1) of the FBTAA to mean 'a person who receives, or is entitled to receive, salary or wages'.

As you will only be providing the cards to employees who enter into a SSA, this condition will be satisfied.

(iv) Is the motor vehicle one of the listed exclusions?

The bus is not a taxi, panel van, utility truck or a vehicle designed to carry a load of less than one tonne. Therefore this condition is met.

(v) Will the private use of the motor vehicle be restricted to:

(a) work related travel of the employee, and

(b) other private use by the employee or an associate of the employee which is minor, infrequent and irregular?

Private use is defined in subsection 136(1) of the FBTAA to mean:

any use of the motor vehicle by the employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee.

Work-related travel is defined in subsection 136(1) of the FBTAA:

'work-related travel', in relation to an employee, means:

(a) travel by the employee between:

(i) the place of residence of the employee; and

(ii) the place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or

(b) travel by the employee that is incidental to travel in the course of performing the duties of his or her employment.

Paragraph 47(6)(b) of the FBTAA requires that there was no private use of the bus during the year of tax and at a time when the benefit was provided other than private use by the employee being work-related travel or other than private use by the employee or associate being use that was minor, infrequent and irregular.

The introductory words to subsection 47(6) of the FBTAA indicate the private use being considered is that provided 'in respect of the employment of a current employee'.

The phrase 'in respect of' in relation to the employment of an employee is defined in subsection 136(1) of the FBTAA to include 'by reason of, by virtue of, for or in relation directly or indirectly to, that employment'.

The meaning of this phrase was considered by the Federal Court in J & G Knowles v. Federal Commissioner of Taxation [2002] 96 FCR 402; 2000 ATC 4151; 44 ATR 22 (Knowles).

In Knowles, the Full Federal Court considered the judgements in Smith v. FCT (1987) 164 CLR 513; 19 ATR 274; 87 ATC 4883 and Federal Commissioner of Taxation v. Rowe (1995) 60 FCR 99; 31 ATR 392; 95 ATC 4691 before concluding that it is not sufficient for the purposes of the FBTAA to conclude that there is a causal connection between the benefit and the employment.

At paragraph 26 the Court said:

Whatever question is to be asked, it must be remembered that what must be established is whether there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment.

At paragraphs 28 and 29, the Court said:

While the width of the definition of 'fringe benefit' was designed to capture benefits that, in truth, were other than remuneration, the stated purpose suggests that asking whether the benefit is a product or incident of the employment will be helpful. If it is not then the benefit is likely to be extraneous to the employment and will not bear FBT, notwithstanding that the employment might have been a causal factor in the provision of the benefit. In particular, the fact that a benefit is provided to a director because it was authorised by that director will not, of itself, be sufficient to characterise the benefit as one which is 'in respect of' the employment. Without more, it is not a product of incident of that office.

To put the matter another way, although the process of characterising the benefit provided in a particular case can involve questions of fact and degree, it is not sufficient for the purposes of the FBTAA merely to enquire whether there is some causal connection between the benefit and the employment: see FCT v Rowe (1995) 60 FCR 99 at 114 and 123; 31 ATR 392 at 404 and 412; 95 ATC 4691 at 4703 and 4710. Although Brennan, Deane and Gaudron JJ observed in Technical Products (at 47), that the requisite connection will not exist unless there is 'some discernible and rational link' between the 2 subject matters which the statute requires to be linked, as was pointed out by Dawson J (at 51), the connection must be 'material'.

Under the SSA, employees will be provided with the use of a card that is registered to you as a cardholder. The employee will only receive the use of the card through the SSA and you will implement a policy that will prohibit any private use of the card other than for travel between the home and work of the employee. Therefore, the only use of the bus that is in respect of the employment of the employee will be when the employee uses the employer supplied card to travel between home and work.

The SSA prohibits the employee for using the card for any private purpose other than travel between their home and place of employment.

Therefore, the only use of the bus that is in respect of the employment of the employee will be when the employee uses the employer supplied card for travel. As this travel is limited to travel between home and work it will be an exempt benefit under subsection 47(6) of the FBTAA.

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