Edited version of private ruling

Authorisation Number: 1011588613822

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Ruling

Subject: Fringe Benefits Tax - In-house residual expense payment fringe benefits

Issue 1

1. Will the reimbursement under a salary packaging arrangement of an upfront payment of the student contribution amount (the non-payment of which would result in a HECS-HELP debt) by an employee of the employer for themselves or their immediate family constitute an 'in-house residual expense payment fringe benefit' for the purposes of subsection 22A(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Yes

2. Will the reimbursement under a salary packaging arrangement of either:

· a voluntary discharge of a HECS-HELP debt in accordance with section 151-1 of the Higher Education Support Act 2003, or

· a compulsory discharge of a HECS-HELP debt in accordance with Division 154 of the Higher Education Support Act 2003,

· by an employee of the employer for themselves or their immediate family constitute an 'in-house residual expense payment fringe benefit' for the purposes of subsection 22A(2) of the FBTAA?

No

Issue 2

1. If the answer to either the first or second question is yes, then is each of the following people 'relatives' of an employee of the employer for the purposes of the definition in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

· Partner

· Former partner

· Child

· Step-child: adopted or not adopted

· Grandchild

· Step-grandchild: adopted or not adopted

· Parent

· Step-parent: person adopted or not adopted

· Grandparent

· Step-grandparent: person or parent adopted or person or parent not adopted

· Brother (including half-brother)

· Sister (including half-sister)

· Step-brother: adopted or not adopted

· Step-sister: adopted or not adopted.

No, however all are considered to be an 'associate' of the employee.

This ruling applies for the following periods:

1 April 2010 to 31 March 2011

1 April 2011 to 31 March 2012

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

The scheme commences on:

1 April 2010

Relevant facts and circumstances

The employer is a body corporate.

The employer is both a deductible gift recipient and an endorsed charitable institution.

The employers main activity is the provision of services.

The functions of the employer include:

· the provision of facilities for education and research

· the encouragement of the dissemination, advancement, development and application of knowledge informed by free inquiry

· the provision of courses of study or instruction, and the carrying out of research, to meet the needs of the community

· the participation in public disclosure

· the conferring of degrees and the awarding of diplomas, certificates and other awards

· the provision of teaching and learning

· the development of governance, procedural rules, admission policies, financial arrangements and quality assurance processes that are sufficient to ensure the integrity of the employer's academic programs.

The employer may borrow money, invest funds, acquire and dispose of property and establish or participate in companies and other incorporated bodies, partnerships, trusts and joint ventures.

The employer also engages in trading activities such as buying, selling and renting property, investing, the sale of publications and services, parking and the provision of student accommodation.

The employer wishes to offer a salary packaging program to its staff whereby it will reimburse both upfront student contribution amounts (that is, upfront HECS-HELP payments) and HECS-HELP loan repayments of its employees for either themselves or their immediate family who receive services from the employer.

The employer provides services to many Australian and international clients.

The services received by the employees' immediate family are identical or substantially similar to those offered by the employer to the public.

None of the services provided by the employer will be mainly provided to the employees or their immediate family.

The employees will provide the necessary documentary evidence to the employer, before the date on which the annual fringe benefits tax return for the employer is lodged.

The employer/employees agreement defines 'Immediate Family' as a partner or former partner of the staff member, a child, a step-child, grandchild, step-grandchild, parent, step-parent, grandparent, step-grandparent, brother (including half-brother), sister (including half-sister), step-brother or step-sister of the staff member or their partner or former partner.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 subsection 22A(2)

Fringe Benefits Tax Assessment Act 1986 section 23

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 148(2)

Income Tax Assessment Act 1936 subsection 318(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

Income Tax Assessment Act 1997 section 960-255

Reasons for decision

Issue 1 Question 1

Summary

The benefits provided are in-house residual expense payment fringe benefits for the purposes of subsection 22A(2) of the FBTAA as the employer meets the necessary requirements.

Detailed reasoning

The Higher Education Contribution Scheme (HECS) was introduced under the Higher Education Funding Act 1988 for students to contribute to the cost of their higher education. HECS applies to students attending Commonwealth funded higher education institutions (with some exceptions).

On 31 December 2004, the four schemes offered under the Higher Education Funding Act 1988 ended and were replaced by three new schemes under the Higher Education Support Act 2003.

From 1 January 2005, there is a new suite of loans known as the Higher Education Loan Programme (HELP). This programme offers Commonwealth loans to students to help them pay their higher education fees and to study overseas.

Students in a Commonwealth supported university place may pay the full upfront student contribution amount for a unit of study to the higher education provider directly by a set date (known as the census date). Otherwise a HECS-HELP debt is taken to be incurred by the student immediately after the census date and the Commonwealth pays the student contribution amount of their behalf.

If the Commonwealth lends you money under any of the new schemes, you will have a HELP debt.

On 1 June 2006, accumulated HECS debts became accumulated HELP debts.

Under the proposed agreement, the employer will reimburse an upfront payment of the student contribution amount of its employees for either themselves or their immediate family who are receiving services from the employer.

It is agreed that the reimbursement will be an expense payment fringe benefit.

In general terms, the valuation of a fringe benefit will depend on whether it is an 'in-house fringe benefit' or an 'external fringe benefit'.

An 'in-house fringe benefit' is defined in subsection 136(1) of the FBTAA to mean:

· an in-house expense payment fringe benefit

· an in-house property fringe benefit, or

· an in-house residual fringe benefit.

An 'external expense payment fringe benefit' is defined in subsection 136(1) of the FBTAA to mean 'an expense payment fringe benefit other than an in-house expense payment fringe benefit'.

Is the expense payment fringe benefit an in-house expense payment fringe benefit?

An 'in-house expense payment fringe benefit' is defined in subsection 136(1) of the FBTAA to mean:

· an in-house property expense payment fringe benefit, or

· an in-house residual expense payment fringe benefit.

Both of these terms are defined in subsection 136(1) of the FBTAA. For the purposes of this ruling the relevant definition is 'in-house residual expense payment fringe benefit' which is defined to mean:

"in-house residual expense payment fringe benefit", in relation to an employer, means an expense payment fringe benefit in relation to the employer where:

(a) the recipients expenditure was incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance) by a person (in this definition called the "residual benefit provider")

(b) if the residual benefit provider is the employer or an associate of the employer - at or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, the residual benefit provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders

(c) if the residual benefit provider is not the employer or an associate of the employer:

(i) the residual benefit provider purchased the benefit from the employer or an associate of the employer (which employer or associate is in this definition called the "seller"), and

(ii) at or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, both the residual benefit provider and the seller carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders, and

(d) documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date.

In-house residual expense payment fringe benefit

In considering this definition it is necessary to answer the following questions:

· Was the recipient's expenditure incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance)?

· Who was the residual benefit provider?

· Is the residual benefit provider the employer or an associate of the provider?

· Did the residual benefit provider carry on a business?

· If the residual benefit provider carried on a business, did the business consist of, or include the provision of identical or similar benefits?

· If the business consisted of, or included the provision of identical or similar benefits, where they provided principally to outsiders?

· Will documentary evidence of the expenditure be provided to the employer before the declaration date?

· Was the recipient's expenditure incurred in respect of the provision of a residual benefit?

The underlying benefit to which the recipient's expenditure relates is the provision of services provided by the employer.

Section 45 of the FBTAA defines a residual benefit as:

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

As the provision of such services does not fall within any of the specific categories of benefits within Subdivision A of Divisions 2 to 11 (inclusive), it is a residual benefit.

Who was the residual benefit provider?

Provider is defined in subsection 136(1) of the FBTAA to mean 'the person who provides the benefit'.

Person is defined in subsection 136(1) of the FBTAA to include:

· a body politic

· a body corporate

· a partnership

· any other unincorporated association or body of persons, and

· a person in the capacity of trustee.

The employer is a body corporate and therefore a person for the purposes of the FBTAA.

Is the residual benefit provider the employer or an associate of the provider?

The residual benefit provider will be the employer of the employees.

Did the residual benefit provider carry on a business?

The FBTAA does not define what constitutes carrying on a business for the purpose of the application of the in-house provisions. It does however define "business operations" in subsection 136(1) of the FBTAA as:

In relation to a government body or a non-profit company, includes any operations or activities carried out by that body or company.

In discussing the meaning of the term business operations paragraph 9 of Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of business premises states:

The term 'business operations' in the definition of 'business premises' includes a wide range of activities. The activities include those undertaken by a person in the ordinary course of carrying on a business. They also include those activities that, although not undertaken in the ordinary course of carrying on a business, are nevertheless undertaken in the course of carrying on a business. Profit making activities that fall short of being a business are also included in 'business operations' if they have a business or commercial character.

The term business is also defined in subsection 995-1(1) of the ITAA 1997 as:

A business includes any profession, trade, employment, vocation or calling, except the occupation as an employee.

The Macquarie media dictionary describes to be in business as:

to earn a living from a commercial activity; to be carrying out an activity, enterprise, etc., successfully.

These definitions indicate the requirement to be carrying on a business for the purpose of the FBTAA is capable of having a wide meaning.

Support for this conclusion was provided by the High Court decision in NT Power Generation Pty Ltd v. Power and Water Authority (2004) HCA 48; 219 CLR 90; 210 ALR 312; 79 ALJR 1 where the phrase carrying on a business was construed broadly.

In its decision the Court stated at paragraph 52 that the Power and Water Authority was carrying on a very substantial business. In making this statement the Court referred to the references to carrying on a business contained within the Power and Water Authority's internal documents, its annual report which discussed indicators like rate of return on assets, the debt to capital ratio and the sales revenue.

Further at paragraph 66 the court stated:

While the word business in any particular context takes its meaning from that context, normally it is a wide and general word. Its meaning in the Act (Trade Practices Act 1974) is widened by s 4(1), since business includes a business not carried on for profit.

In the earlier decision of NT Power Generation Pty Ltd v Power & Water Authority (2001) FCA 334 Mansfield J stated at paragraph 236:

Whether or not a business is being carried on is a question of fact, having regard, for example, to the nature of the activities carried out, and their continuous or repetitive character: Smith v Capewell (1979) 142 CLR 509; Fasold v Roberts (1997) 70 FCR 489.

Paragraph 13 of Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production also provides a number of indicators which are relevant to determining whether a person is carrying on a business for income tax purposes. The indicators are as follows:

· whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators

· whether the taxpayer has more than just an intention to engage in business

· whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

· whether there is repetition and regularity of the activity

· whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business

· whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit

· the size, scale and permanency of the activity, and

· whether the activity is better described as a hobby, a form of recreation or a sporting activity.

In considering the application of these indicators to the employer under this arrangement it is accepted that the following points are indicative of a business being carried on:

· there is repetition and regularity of the activities

· it provides fee-for-service training in a manner similar to other organisations that provide education and training in the course of carrying on a business

· it competes in a world wide market for international students

· the activities are conducted on a considerable size and scale in terms of the number of employees, the number of students, the turnover

· there is a permanency of the activities

· the activities are planned, organised and carried on in a businesslike manner

· the delivery of vocational education and training which generate revenue and increase market share

· the employer has the power to borrow money, invest funds, acquire and dispose of property and establish or participate in joint ventures for its benefit and promotion

· the employer undertakes in addition to the provision of education services, trading activities such as renting property, the sale of publications, parking and the provision of student accommodation.

By engaging in commercial activities and providing fee-for-service training the employer is acting in the same manner and in competition to other training providers that are carrying on a business. Further, in attracting overseas students, the employer competes in a world wide market. International students are charged full fees mainly for commercial purposes.

Based on these facts, it is accepted that the employer is carrying on a business. This is so notwithstanding the view that some of the goals of the employer are indicative of a body that may also be carrying out Government functions or giving effect to government policies.

If the residual benefit provider carried on a business, did the business consist of, or include the provision of identical or similar benefits?

This criterion involves identifying both the benefit that was purchased by the employee for themselves or their immediate family and the benefits that were provided as part of the business.

Having identified the benefits it is then necessary to determine whether the benefit purchased by the employee was identical or similar to the benefits provided as part of the business.

Guidance for determining whether the benefits are identical or similar is provided by paragraphs 202 to 217 of Taxation Ruling TR 2007/12 Fringe benefits tax: Minor benefits. In discussing when benefits will be identical or similar paragraphs 202, 204, 215, 216 and 217 state:

202. 'Infrequency and irregularity' and 'identical or similar' are not defined in the FBTAA and therefore take their ordinary meaning.

…

204. The Macquarie Dictionary defines 'identical' as:

1. (sometimes followed by to or with) corresponding exactly in nature, appearance, manner, etc.: this leaf is identical to that.

2. the very same: I almost bought the identical dress you are wearing

and 'similar' as:

1. having a likeness or resemblance, especially in a general way.

215. The term 'identical benefit' is defined in section 136(1), in relation to residual fringe benefits, to mean:

another benefit that is the same in all respects, except for differences (if any) that are minimal or insignificant and do not affect the value of the other benefit.

216. Although this definition does not apply to section 58P, it assists in understanding the meaning of the term and is not inconsistent with the ordinary (dictionary) meaning of 'identical'.

217. In giving meaning to the words 'identical' and 'similar', it is clear that the dictionary meanings, in the context of section 58P and its intended operation, are both appropriate and applicable.

The commercial activities undertaken by the employer include the provision of services to Australian students and overseas students on a fee for service basis.

The benefits that will be purchased by employees during an FBT year will be for the particular services selected by the employees for themselves or their immediate family during the year.

The cost of the right to undertake such subjects or courses is reflected in the upfront payment of the student contribution amount incurred by the employees for themselves or their immediate family in respect of services provided by the employer.

In applying the definitions of identical or similar, the benefit purchased by the employee for themselves or their immediate family will be identical to a benefit provided as part of the business where the courses undertaken by the employee or their immediate family are the same as those provided to other Australian or overseas students.

It is accepted that the services provided by the employer are identical or similar to those offered to other Australian or overseas students.

If the business consisted of, or included the provision of identical or similar benefits, where they provided principally to outsiders?

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

a person not being:

(a) an employee of the employer;

(b) an employee of an associate of the employer;

(c) an employee of a person (in this definition referred to as the "provider") other than the employer or an associate of the employer who provides benefits to, or to associates of, employees of the employer or an associate of the employer under an arrangement between:

(i) the employer or an associate of the employer; and

(ii) the provider or another person; or

(d) an associate of an employee to whom any of the preceding paragraphs apply.

In applying this definition, employees of the employer and their immediate family will not be outsiders.

Principally is not defined in the FBTAA. The Macquarie dictionary version 5.0.0 defines it as chiefly; mainly. To satisfy this requirement it is necessary that the employer provides its courses mainly to outsiders.

The facts of the arrangement state that none of the courses provided by the employer will be mainly provided to the employees or their immediate family.

It should be noted that in this context, the definition of employee in subsection 136(1) of the FBTAA refers to a current employee, a future employee or a former employee.

We accept that the business carried on by the employer included the provision of identical or similar benefits principally to outsiders and that this requirement is satisfied.

Will documentary evidence of the expenditure be provided to the employer before the declaration date?

Declaration date is defined in subsection 136(1) of the FBTAA as being the date of lodgement of the return of the fringe benefits taxable amount, or such later date as the Commissioner allows.

Subsection 136(1) of the FBTAA provides that the term documentary evidence means:

in relation to an expense incurred by a person, a document that would constitute written evidence of the expense obtained in a way described in Subdivision 900-E of the Income Tax Assessment Act 1997 if the expense were a work expense, and Division 900 of that Act applied to the person.

Under the arrangement the employees will provide the necessary documentary evidence to the employer, before the date on which the annual fringe benefits tax return for the employer is lodged. Therefore, this requirement will be satisfied.

Conclusion

As the necessary requirements of the definition of 'in-house residual expense payment fringe benefit' will be met for the upfront payment of the student contribution amount, the benefits provided under the arrangement will be in-house residual expense payment fringe benefits for the purposes of subsection 22A(2) of the FBTAA.

Issue 1 Question 2

Summary

The benefits provided are not in-house residual expense payment fringe benefits for the purposes of subsection 22A(2) of the FBTAA as the underlying expense paid by the employee or immediate family member would not have been a property or residual benefit if it had been directly provided by the employer.

Detailed reasoning

Following on from question 1, under the proposed agreement, the employer will reimburse HECS-HELP loan repayments of its employees for either themselves or their immediate family who are receiving services from the employer.

It is agreed that an expense payment fringe benefit will arise from the reimbursement by the employer of HECS-HELP loan repayments made by an employee or their immediate family.

Is the expense payment fringe benefit an in-house expense payment fringe benefit?

An in-house expense payment fringe benefit arises where the expenditure the employer reimburses or pays for was incurred by the employee (or their relatives) in purchasing goods or services that the employer (or an associate) sells to customers or clients in the ordinary course of their business.

An 'in-house expense payment fringe benefit' is defined in subsection 136(1) of the FBTAA to mean:

· an in-house property expense payment fringe benefit, or

· an in-house residual expense payment fringe benefit.

Both of these terms are defined in subsection 136(1) of the FBTAA. As previously advised in question 1, for the purposes of this ruling the relevant definition is 'in-house residual expense payment fringe benefit' which is defined to mean:

"in-house residual expense payment fringe benefit", in relation to an employer, means an expense payment fringe benefit in relation to the employer where:

(a) the recipients expenditure was incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance) by a person (in this definition called the "residual benefit provider");

(b) if the residual benefit provider is the employer or an associate of the employer - at or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, the residual benefit provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders;

(c) if the residual benefit provider is not the employer or an associate of the employer:

(i) the residual benefit provider purchased the benefit from the employer or an associate of the employer (which employer or associate is in this definition called the "seller"); and

(ii) at or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, both the residual benefit provider and the seller carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; and

(d) documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date.

In-house residual expense payment fringe benefit

In considering this definition it is necessary to answer the following questions:

· Was the recipient's expenditure incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance)?

· Who was the residual benefit provider?

· Is the residual benefit provider the employer or an associate of the provider?

· Did the residual benefit provider carry on a business?

· If the residual benefit provider carried on a business, did the business consist of, or include the provision of identical or similar benefits?

· If the business consisted of, or included the provision of identical or similar benefits, where they provided principally to outsiders?

· Will documentary evidence of the expenditure be provided to the employer before the declaration date?

Was the recipient's expenditure incurred in respect of the provision of a residual benefit?

The underlying benefit to which the recipient's expenditure relates is the payment of a debt to the Commonwealth and not the provision of a good or service by the employer.

Section 45 of the FBTAA defines a residual benefit as:

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

The discharge of a HECS-HELP debt by an employee for themselves or their immediate family either voluntarily or compulsorily would not be considered a residual benefit, but an expense payment benefit. As such it can not be an in-house expense payment fringe benefit.

As the first requirement of the definition 'in-house residual expense payment fringe benefit' has not been met for the discharge of a HECS-HELP debt there is no need to consider the other requirements.

Conclusion

The benefits provided under the arrangement will not be in-house residual expense payment fringe benefits for the purposes of subsection 22A(2) of the FBTAA.

However, the reimbursement by the employer of the HECS-HELP debt would be an external expense payment fringe benefit, which is considered under section 23 of the FBTAA.

Issue 2 Question 1

Summary

Whilst not all of the people are considered to be a 'relative' of an employee for the purposes of the definition in section 995-1 of the ITAA 1997, they are all considered to be an 'associate' of the employee by virtue of subsection 136(1) and subsection 148(2) of the FBTAA.

Detailed reasoning

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA as being a benefit that it provided by an employer or associate of the employer, to an en employee or an associate of the employee, in respect of the employment of the employee.

As defined by subsection 136(1) of the FBTAA, 'associate' has the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936).

'Associates of a natural person' are defined in subsection 318(1) of the ITAA 1936 and include a 'relative' of a natural person.

The definition of 'relative' for the purposes of section 318 of the ITAA 1936 is the meaning given by subsection 995-1(1) of the ITAA 1997, that is;

· relative of a person means:

o the person's *spouse; or,

o the *parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendent or *adopted child of that person, or of that person's spouse; or

o the spouse of a person referred to in paragraph (b).

Note: Section 960-255 may be relevant to determining relationships for the purposes of paragraph (b) of the definition of relative.

The FBTAA also contains a definition of 'relative' in subsection 136(1). This definition states that 'relative' also has the meaning given by subsection 995-1 of the ITAA 1997.

Subsection 995-1 of the ITAA 1997 also provides the following definitions in relation to the term 'relative':

· spouse of an individual includes:

o another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a State law or Territory law prescribed for the purposes of section 22B of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and

o another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.

· parent: an individual is the parent of anyone who is the individual's *child.

· adopted child of a person means someone the person has adopted:

o under a State law or Territory law about adoption of children; or

o under a foreign law about adoption of children, if the adoption would be recognised as valid under a State law or Territory law.

The term 'child' must also be considered and is also defined in subsection 995-1 of the ITAA 1997 as follows:

· child: without limiting who is a child of an individual, each of the following is the child of an individual:

o the individual's *adopted child, stepchild or exnuptial child;

o a child of the individual's *spouse;

o someone who is a child of the individual within the meaning of the Family Law Act 1975.

In considering the definition of 'relative' section 960-255 of the ITAA 1997 should be applied when determining family relationships. In relation to couples, subsection 960-255(1) provides:

If one individual is the *spouse of another individual because of the definition of spouse in subsection 995-1(1), relationships traced to, from or through the individual, and family groups of which either individual is a member, are to be determined in the same way as if the individual were legally married to the other individual.

In relation to children, subsection 960-255(2) provides:

If one individual is the *child of another individual because of the definition of child in subsection 995-1(1), relationships traced to, from or through the individual, and family groups of which either individual is a member, are to be determined in the same way as if the individual were the natural child of the other individual.

In relation to the employee of the employer the following would be considered to be their 'relative' and therefore an 'associate' of the employee as defined by subsection 136(1) of the FBTAA:

· spouse

· parent (including adoptive parent)

· step-parent

· grandparent (including adoptive grandparent)

· step-grandparent

· brother (including half brother and adopted brother)

· step-brother

· sister (including half sister and adopted sister)

· step-sister

· child (including adopted child, ex-nuptial child and child of spouse)

· step-child

· grandchild (including adopted grandchild)

· step-grandchild.

Notwithstanding the wide meaning of 'relative' given above, the following would not fall within this definition and therefore would not be an 'associate' of the employee as defined by subsection 136(1) of the FBTAA:

· former spouse

· former step-child

· child of former spouse

· former step-sister

· former step-brother

· former step-grandchild

· former step-parent

· former step-grandparent.

However, subsection 148(2) of the FBTAA provides an additional class or category of 'associate' by way of a deeming provision which also needs to be considered.

Subsection 148(2) of the FBTAA deems a third party to be an 'associate' of an employee where the third party receives a benefit provided under an 'arrangement' between the employer and the employee.

An 'arrangement' is defined in subsection 136(1) of the FBTAA and includes agreements, arrangements and promises.

As the employee and the employer have an agreement in place that recognises the above as the immediate family of the employee and therefore are able to be included in the arrangement between employer and the employee.

This broad definition was supported by the Full Federal Court decision in JG Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22. At paragraph 15 of the decision, the following is stated:

By s 148(2) where the benefit is provided to a person, other than the employee or an associate of the employee, under an agreement between the provider and the employee, the recipient shall be deemed an associate.

As a consequence, the former relatives are deemed to be an 'associate' of the employee under subsection 148(2) of the FBTAA. The benefits provided by the employer to the former relatives are therefore benefits provided to an 'associate' of the employee.

Accordingly, the benefits provided by the employer to its employee's immediate family (both current and former) are 'fringe benefits' as defined in subsection 136(1) of the FBTAA as all of the requirements of the definition are satisfied.

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