Edited version of private ruling

Authorisation Number: 1011620582608

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Ruling

Subject: Expense payment fringe benefit

Question 1

Is the reimbursement of the employee's car parking lease costs exempt from fringe benefits tax?

Answer

No

Question 2

If the answer to question 1 is No and an expense payment fringe benefit arises, can the 'otherwise deductible rule' reduce the taxable value of the expense payment fringe benefit?

Answer

No

This ruling applies for the following period:

01 April 2010 to 31 March 2011

The scheme commenced on:

1 June 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it.

The fact sheet has more information about relying on your private ruling.

The employer hired an expert for his labour skills.

He is hired to carry out work-related duties at the premises of the company's client. Once this contract is over and another contract is not immediately available, the company ceases to hire him.

The company pays him for his skills and is responsible for his superannuation guarantee, workers compensation premiums and PAYGW is deducted at source.

The employee has leased a car-parking space in the vicinity to the client's premises on a month-by-month basis. The car park is in the basement of a building.

The lease is available on a monthly basis and the car park is leased from another company unrelated to the company's client.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 20(b)

Fringe Benefits Tax Assessment Act 1986 subsection 24(1)

Fringe Benefits Tax Assessment Act 1986 section 39A

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 58G(1)

Tax Administration Act 1953 12-35 Schedule 1

Income Tax Assessment Act 1997 section 8-1

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you understand how we reached our decision.

Question 1

Detailed reasoning

Is the expert an employee if he is hired only for his labour?

If a contractual arrangement between a company and the hired person were predominantly for labour, this would create an employer-employee relationship because amongst other factors, the person has contracted to provide his labour to achieve a result for and on behalf of the company, and is subject to the control and direction of the company in the way the work is performed.

This is contrasted with an independent contractor, who amongst other factors produces a result for himself, in his own business and absorbs any risk.

A fringe benefit is a benefit provided in respect of the employment of the employee.

The definition of employment in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), has an extended meaning to include:

'…..the performance of any functions or duties…..will result or has resulted in the person being treated as an employee'.

The definition of salary and wages in subsection 136(1) of the FBTAA states that an amount must be withheld from a payment, as outlined in section 12-35 of Schedule 1 to the Tax Administration Act 1953 (TAA).

The company has hired a specialist for his labour and he is an employee for the purposes of FBTAA.

Therefore, PAYGW is deducted from the payment made to the employee. The company has correctly applied these provisions.

Expense payment fringe benefit and exempt motor vehicle parking

An expense payment fringe benefit may arise in either of two ways. The first is where an employer pays a third party in satisfaction of expenses incurred by an employee.

The second is where an employer reimburses an employee for expenses incurred by the employee.

If reimbursement of car parking expenses takes place the benefit will fall within the definition of an expense payment fringe benefit in section 20 of the FBTAA.

However, an exemption under paragraph 58G(1)(a) of the FBTAA provides that an expense payment benefit that relates to the provision of motor vehicle parking facilities will be an exempt benefit if the benefit is not an 'eligible car parking expense payment benefit'.

Eligible car parking expense payment:

We need to ascertain whether the intended reimbursement of the car parking expense is an 'eligible car parking expense payment benefit'.

An 'eligible car parking expense payment benefit' is defined in subsection 136(1) of the FBTAA to mean an expense payment benefit where the following conditions are satisfied:

(a)  the recipient is an employee, or an associate of an employee

(b)  the recipients expenditure is in respect of the provision of car parking facilities for

a car on one or more days

(c)  the following conditions are satisfied in relation to any of those days:

(i) the employee has a primary place of employment

(ii) the car was parked for one or more daylight periods exceeding 4 hours in total at,

or in the vicinity of, that primary place of employment

(iii) the whole, or a part of the recipients expenditure is in respect of the provision of

the parking facilities to which that parking relates

(iv) on that day, the car was used in connection with travel by the employee between the place of residence of the employee and that primary place of employment, and

(v) the provision of parking facilities for the car during the period or periods is not taken, under the regulations, to be excluded from this definition.

The reimbursement relates to car parking expenses incurred by the employee, it is first necessary to consider whether the client's premises is the 'primary place of employment' of the employee on the relevant days the employee's car is parked under a lease agreement for the car parking facility.

'Primary place of employment' is defined in subsection 136(1) of the FBTAA.

in relation to an employee in relation to a day, means business premises, or associated premises, of the employer of the employee, or of an associate of the employer, where:

(a) if the employee performed duties of his or her employment on that day - on that day; or

(b) in any other case - on the most recent day before that day on which the employee performed duties of his or her employment;

those premises are or were:

(c) the sole or primary place of employment of the employee; or

(d) otherwise the sole or primary place from which or at which the employee performs duties of his or her employment.

Under paragraph 136(1)(d) of the FBTAA the client's business premises is the primary place of employment because the premises are the sole or primary place at which the employee performs duties of his employment.

Aside from the previous paragraph, the facts provided indicate, all other conditions have been satisfied, except the condition in sub-paragraph (c)(v) above of the definition of eligible car parking expense payment benefit.

Furthermore, the eligible car parking expense payment benefit is not excluded by the FBT regulations.

Conclusion

The intended reimbursement will be an eligible car parking expense payment benefit and not exempt under subsection 58G(1) of the FBTAA. The reimbursement is subject to FBT as an expense payment fringe benefit under section 20 of the FBTAA.

Question 2

Detailed reasoning

Section 24 of the FBTAA allows an employer to reduce the taxable value of an expense payment fringe benefit if the employee was allowed to claim a once-only income tax deduction for the car parking expense. Therefore, we have to ascertain that the travel from the employee's home (residence) to his primary place of employment (client's premises), in his own car, is an income tax deduction in the hands of the employee.

If the travel taken between his home and the client's business premises, can be claimed an income deduction, then the car parking lease expense will also be an income tax deduction.

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you can deduct a loss or outgoing from your assessable income to the extent that it is incurred in gaining or producing your assessable income. You cannot deduct a loss or outgoing that is a private or domestic nature.

Generally, the travel between a person's residence and his work place is a private expenditure and the travel expenses are not income tax deductible.

The tax office view regarding travelling between one's residence and a place of employment is set out in Taxation Rulings IT 112 and TR 95/34.

IT 112 states that a deduction will not be allowed if the employee is not travelling in the course of earning assessable income or if the travel is not in the course of employment or in the performance of an employee's duties. Travelling should be an inherent part of an employee's work, for example, a sales person.

TR 95/34 looks at different situations dealing with itinerant workers. The Macquarie Dictionary defines 'itinerant' as 'travelling from place to place' or 'one who travels from place to place especially for duty or business'.

The employee is travelling from his home to the client's business premises. Paragraph 81 of TR 95/34 states:

An employee may be regularly employed at one site on some days and another on other days. In both cases, the normal work place is where the employee performs normal duties.

For the time, the employee's duties are performed at your client's business premises, this will be the employee's primary place of employment (normal work place) and therefore the travel expense is a private expense and not income tax deductible.

Following the same rationale, the car parking expenses are therefore not income tax deductible as these costs are private expenditure incurred by the employee.

Conclusion:

The reimbursement of the car parking lease expense incurred by the employee whilst performing work duties at your client's business premises, will be subject to FBT as an expense payment fringe benefit (eligible car parking expense payment benefit) and the taxable value of the fringe benefit cannot be reduced by the otherwise deductible rule.

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