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Edited version of private ruling

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Ruling

Subject: Fringe benefits tax - health promotion charity, exempt benefits

In relation to an employee who is performing services predominantly for company B, would any benefits provided to the employee as a result of those services be exempt under subsection 57A(5) of the Fringe Benefits Tax Assessment Act 1986 up to the capping threshold of $30,000?

Yes.

This ruling applies for the following period:

1 April 2010 to 31 March 2011

The scheme commences on:

1 April 2010

Relevant facts and circumstances

Company A is a health promotion charity (HPC).

It purchased company B which provides services which were complementary with its own. Company B had no employees other than directors.

One of the directors has entered into employment contract with company A. Company A has also employed other people to undertake work for company B.

All individuals are paid by company A with whom they have an employment contract.

Company A intends to provide benefits to these people.

They perform the majority of their duties for company B, therefore they are remunerated for services provided mostly to other entities.

The director of company B continues in this role but is not remunerated for this.

There are a few other employees of company A who devote some of their time to company B.

Company A raises an invoice to company B each month as a management fee. Both companies are run out of the same premises and therefore all the costs associated with running the two entities are shared. These costs include such things as rent, power, telephone, internet stationary capital acquisitions, IT, human resources and so on. The management fee will be calculated on a cost recovery basis.

The management of company A wanted to maintain only one accounting and payroll system for administrative simplicity.

All profits derived from company B are retained by company A and are used to support its health promotion activities.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 57A(5)

Fringe Benefits Tax Assessment Act 1986 Section 5B

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1).

Reasons for decision

All references made in these reasons for decision are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise stated.

Summary

If company A provides any benefits to the individuals who are performing duties predominantly for company B, those benefits will be exempt in accordance with subsection 57A(5) up to the capping threshold of $30,000.

Detailed reasoning

Subsection 57A(5) exempts benefits provided to employees of HPCs.

A benefit provided in respect of the employment of an employee is an exempt benefit if:

Company A is a HPC. It is endorsed under subsection 123D(1) which states:

Since company intends to provide benefits to the individuals who are performing duties predominantly for company B, there are a number of issues that must be considered in order to determine if the exemption will apply.

Are the individuals employees of company A?

An employee is defined in subsection 136(1).

A current employee means '…a person who receives, or is entitled to receive, salary or wages'.

As is applicable salary or wages are defined in subsection 136(1) to mean:

An employer is defined in subsection 136(1).

The definition of a current employer from subsection 136(1) is a person who:

Company A pays the salaries of the individuals. This alone does not make it the employer as salary or wages may be paid by people who are not employers.

There is, however, further evidence that the individuals are employees of company A:

Taking into consideration these facts, we conclude that the individuals are employees of company A.

Would the benefits be provided in respect of their employment with company A?

This issue must be considered separately for the employee who is also a director of company B and the other employees.

Subsection 136(1) states that:

For the employees who are not directors of company B, any benefits that they may be provided with would be because of their employment with company A. Although they are performing duties for company B they are performing those duties as part of their employment with company A.

For the employee who is also a director of company B a little further analysis is needed. Although the person was not considered to be an employee by company B, a director is an employee. Since an employee can include a former employee it is necessary to consider whether this person will be provided with benefits as a result of the employment relationship with company B or company A.

The fact that the employee performs duties predominantly for company B suggests that any benefits received may be in respect of the employee's employment with that entity. Also this employee continues to be a director of company B.

However, the fact that prior to employment with company A the employee did not receive benefits from company B indicates that any benefits the person may now receive will be in respect of employment with company A. This is supported by the fact that the employee does not currently receive remuneration as a director of company B. Therefore, any benefits the employee will receive from company A will be in respect of employment with company A.

The benefits that will be provided to the employees will be exempt in accordance with 57A(5).

Subsection 5B(1E) caps the fringe benefits tax exemption given to employers under section 57A on a per employee basis. Since company A is a HPC, it sets an exemption threshold of grossed-up taxable value of $30,000 per employee. Any amount in excess of the $30,000 threshold, that is, the aggregate non-exempt amount, will not be exempt and will subject to fringe benefits tax.


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