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Ruling

Subject: Salary Sacrifice

Issue 1

Question 1

Would the taxable values of any fringe benefits arising from the reimbursement of employees' private expenses for services provided by Company A, be calculated in accordance with subsection 22A(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as 'in-house residual expense payment fringe benefits'?

Answer

Yes.

Question 2

Would the taxable value of any fringe benefits arising from the reimbursement of employees' private expenses for services provided by Company A, be reduced to 'nil' under section 62 of the FBTAA?

Answer

Yes.

Question 3

Would the taxable values of any fringe benefits arising from the reimbursement of employees' private expenses for services provided by Company B or Company C, be calculated in accordance with subsection 22A(2) of the FBTAA as 'in-house residual expense payment fringe benefits'?

Answer

Yes.

Question 4

Would the taxable values of any fringe benefits arising from the reimbursement of employees' private expenses for services provided by Company B or Company C, be reduced to 'nil' under section 62 of the FBTAA?

Answer

Yes.

Issue 2

Question 1

Would the taxable values of any fringe benefits arising from the reimbursement of seconded employees' private expenses for services provided by Company A, be calculated in accordance with subsection 22A(2) of the FBTAA as 'in-house residual expense payment fringe benefits'?

Answer

Not ruled upon as intended Rulee not relevant employer.

Question 2

Would the taxable value of any fringe benefits arising from the reimbursement of seconded employees' private expenses for services provided by Company A, be reduced to 'nil' under section 62 of the FBTAA?

Answer

Not ruled upon as intended Rulee not relevant employer.

Question 3

Would the taxable values of any fringe benefits arising from the reimbursement of seconded employees' private expenses for services provided by Company B or Company C, be calculated in accordance with subsection 22A(2) of the FBTAA as 'in-house residual expense payment fringe benefits'?

Answer

Not ruled upon as intended Rulee not relevant employer.

Question 4

Would the taxable values of any fringe benefits arising from the reimbursement of seconded employees' private expenses for services provided by Company B or Company C, be reduced to 'nil' under section 62 of the FBTAA?

Answer

Not ruled upon as intended Rulee not relevant employer.

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

Relevant facts

The employer proposes that employees be able to enter into effective salary sacrifice arrangements.

The employees will enter into valid salary sacrifice arrangements for reimbursements for services provided to these employees by Company A, Company B and Company C as applicable.

The employer does not provide any of such services to consumers.

The employees will be billed for these services on a regular basis by Company A, Company B and Company C as applicable.

Company B and Company C provide identical services. Company A provides different services from either Company B or Company C.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20

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

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Section 62

Fringe Benefits Tax Assessment Act 1986 Section 136(1)

Reasons for decision

Issue 1

Question 1

Would the taxable values of any fringe benefits arising from the reimbursement of employees' private expenses for services provided by Company A be calculated in accordance with subsection 22A(2) of the FBTAA as 'in-house residual expense payment fringe benefits'?

Subsection 22A(2) of the FBTAA

Subsection 22A(2) of the FBTAA states:

22A(2) [Valuation of in-house residual expense payment fringe benefit]

Subject to this Part, the taxable value in relation to a year of tax of an in-house residual expense payment fringe benefit (in this subsection called the ``actual fringe benefit'') provided during the year of tax is the amount that, if:

(a) the provision of the residual benefit to which the actual fringe benefit relates were an in-house residual fringe benefit (in this subsection called the ``notional fringe benefit''); and

(b) the recipients contribution in relation to the notional fringe benefit were equal to the recipients expenditure reduced by whichever of the following amounts is applicable:

(i) the amount of the payment referred to in paragraph 20(a) reduced by the amount of the recipients contribution in relation to the actual fringe benefit;

(ii) the amount of the reimbursement referred to in paragraph 20(b);

would have been calculated under whichever of sections 48 and 49 is applicable as the taxable value, but for section 52 and Division 14, of the notional fringe benefit in relation to the year of tax.

Therefore, for the taxable value of a fringe benefit to be calculated under paragraph 22A(2) of the FBTAA necessitates that the relevant fringe benefit be an 'in-house residual expense payment fringe benefit'.

In-house residual expense payment fringe benefit

Subsection 136(1) of the FBTAA provides the following definitions:

"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.

"recipients expenditure", in relation to an expense payment benefit, means the expenditure incurred by the recipient as mentioned in paragraph 20(a) or (b), as the case requires.

Therefore, an 'in-house residual expense payment fringe benefit', as defined, requires the following conditions to be satisfied:

a) the reimbursement by the employer (as is applicable in this case) is an 'expense payment fringe benefit'; and

b) the recipients expenditure (the employee's expenditure as applicable in this case) is incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance) by the 'residual benefit provider'; and

c) either the requirements of paragraph (b) are satisfied (if the 'residual benefit provider' is the employer or an associate of the employer), or the requirements of paragraph (c) are satisfied (if the 'residual benefit provider' is not the employer or an associate of the employer); and

d) the employee obtains 'documentary evidence' of his or her expenditure and provides that 'documentary evidence' or a copy, thereof, to the employer before the relevant 'declaration date'.

(a) expense payment fringe benefit

An expense payment benefit under section 20 of the FBTAA, 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).

Therefore, the proposal by the employer to reimburse the private expenses of its employees in respect of Company A will, when acted upon, constitute expense payment benefits.

A fringe benefit as defined in subsection 136(1) of the FBTAA, is a benefit provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employees employment and such benefit is not otherwise exempted.

The proposal by the employer to reimburse the private expenses of its employees in respect of Company A will, only arise due to the entering into of effective salary sacrifice arrangements between the employer and its relevant employees.

Therefore, the proposed reimbursement of the employees' private expenses in respect of Company A will be in respect of their employment and, consequently, when acted upon will constitute expense payment fringe benefits.

This condition is satisfied.

(b) employees expenditure incurred in respect of a residual benefit

Section 45 of the FBTAA states that a residual benefit is one that is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA. Therefore, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA.

It is considered that the reimbursement of the employee's Company A expenses, will be residual benefits as the services provided by Company A, do not otherwise fall within one of the other more specific benefits types contained in Subdivision A of Divisions 2 to11inclusive of the FBTAA.

This condition is satisfied.

(c) are the requirements of either paragraph (b) or paragraph (c) of the definition satisfied?

Paragraph (b) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, requires, firstly, that the residual benefit provider be either the employer or an associate of the employer.

The employer does not provide the relevant services and as such, cannot be the residual benefit provider for the purposes of this case.

The relevant residual benefit provider is Company A.

Company A, is an associate of the employer.

However, paragraph (b) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, also requires that the residual benefit provider carries on a business providing identical or similar benefits principally to outsiders.

As Company A, provides services to the public in general it is accepted that it is carrying on a business consisting of the provision of identical or similar benefits principally to outsiders.

Therefore, from all of the above, paragraph (b) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, is met. As paragraph (b) of the aforementioned definition is met in is unnecessary to determine whether paragraph (c) of that definition is met.

This requirement is satisfied.

(d) will documentary evidence of the employee's expenditure be provided?

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

documentary evidence, in relation to an expense incurred by a person, means 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.

Documentary evidence (or copies) of the expenditure incurred will be provided to the employer, by any times required under the FBTAA.

It is accepted that in such circumstances that this requirement is satisfied.

Summary on in house residual expense payment fringe benefits

The reimbursement of employees' private expenses for services provided by Company A, will be in-house residual expense payment fringe benefits as all the required conditions are met.

Conclusion on subsection 22A(2) of the FBTAA

As it has been determined above that the reimbursement of employees' private expenses for services provided by Company A, will be in-house residual expense payment fringe benefits the taxable values of such fringe benefits will fall to be valued under subsection 22A(2) of the FBTAA.

Issue1

Question 2

Would the taxable value of any fringe benefits arising from the reimbursement of employees' private expenses for services provided by Company A, be reduced to 'nil' under section 62 of the FBTAA?

Subsection 62(1) of the FBTAA states:

62(1) [Amount of reduction]

Where one or more eligible fringe benefits in relation to an employer in relation to a year of tax relate to a particular employee of the employer, the taxable value of that fringe benefit, or the sum of the taxable values of those fringe benefits, as the case may be, in relation to that year shall be reduced by:

(a) if the taxable value or the sum of the taxable values does not exceed $1,000 - an amount equal to the taxable value or the sum of the taxable values; or

(b) in any other case - $1,000.

62(2) ["eligible fringe benefit"]

In this section, "eligible fringe benefit" means:

(a) an in-house fringe benefit; or

(b) ....

An 'in-house fringe benefit' is defined under subsection 136(1) of the FBTAA to include an 'in house expense payment fringe benefit.'

Therefore, the reimbursements of the employee's private expenses in respect of Company A will be eligible fringe benefits, under paragraph 62(2)(a) of the FBTAA, for the purposes of subsection 62(1) of the FBTAA.

Provided the total reimbursement does not exceed $1,000.00 in any one FBT year the taxable value of the relevant in-house expense payment fringe benefits will be reduced to 'nil'.

However, it should be noted that if an employee (and the employee's associates) receive more than one eligible benefit in any one FBT year the reduction is not applied to each of the eligible benefits separately. Rather, the reduction applies to the total value of the eligible fringe benefits provided in that FBT year to the employee (and the employee's associates).

Issue1

Question 3

Would the taxable values of any fringe benefits arising from the reimbursement of employees' private expenses for services provided by Company B or Company C, be calculated in accordance with subsection 22A(2) of the FBTAA as in-house residual expense payment fringe benefits

Subsection 22A(2) of the FBTAA

As stated previously, the taxable value of a fringe benefit to be calculated under paragraph 22A(2) of the FBTAA necessitates that the relevant fringe benefit be an 'in-house residual expense payment fringe benefit'.

In-house residual expense payment fringe benefit

As also stated previously, an 'in-house residual expense payment fringe benefit', as defined, requires the following conditions to be satisfied:

a) the reimbursement by the employer (as is applicable in this case) is an 'expense payment fringe benefit'; and

b) the recipients expenditure (the employee's expenditure as applicable in this case) is incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance) by the 'residual benefit provider'; and

c) either the requirements of paragraph (b) are satisfied (if the 'residual benefit provider' is the employer or an associate of the employer), or the requirements of paragraph (c) are satisfied (if the 'residual benefit provider' is not the employer or an associate of the employer); and

d) the employee obtains 'documentary evidence' of his or her expenditure and provides that 'documentary evidence' or a copy, thereof, to the employer before the relevant 'declaration date'.

(a) expense payment fringe benefit

For similar reasons to those used above for the reimbursement of the Company A expenses, the reimbursement by the employer of the private expenses of its employees for services provided by Company B or Company C, will when acted upon, constitute expense payment benefits.

The proposal by the employer to reimburse the Company B or the Company C expenses, as applicable, will only arise due to the entering into of effective salary sacrifice arrangements between the employer and its relevant employees.

Therefore, for similar reasons to those used above for the reimbursement of the Company A expenses, the reimbursement of the employees' private expenses for services provided by Company B or Company C, will be in respect of their employment and, consequently, when acted upon will constitute expense payment fringe benefits.

This condition is satisfied.

(b) employees expenditure incurred in respect of a residual benefit

It is considered that the reimbursement of the employee's Company B or Company C expenses, will be residual benefits as the services provided by either of those aforementioned companies do not otherwise fall within one of the other more specific benefits types contained Subdivision A of Divisions 2 to11inclusive of the FBTAA.

This condition is satisfied.

(c) are the requirements of either paragraph (b) or paragraph (c) of the definition satisfied?

The relevant residual benefit providers in this case, being one or other of Company B or Company C, are not the relevant employer nor are either of them an associate of that employer.

Consequently, paragraph (b) of the definition of 'in house residual expense payment fringe benefit' in subsection 136(1) of the FBTAA does not apply in this case.

However, paragraph (c) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, may apply provided that the following additional requirements are met:

I. The residual benefit provider purchased the benefit from the employer or an associate of the employer (the 'seller')

II. At the relevant 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.

In this case, both Company B and Company C, purchase the services they subsequently provide to the employer's employees from an associate of the employer.

Therefore, the requirements of paragraph (c) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, are met in full.

This requirement is satisfied.

(d) will documentary evidence of the employee's expenditure be provided?

The relevant employees will provide the documentary evidence as and when required.

For similar reasons to those used above for the reimbursement of the Company A expenses, it is accepted that in such circumstances this requirement is satisfied.

Summary on in-house residual expense payment fringe benefits

The reimbursement of the employee's Company B or Company C expenses, as applicable, will be in-house residual expense payment fringe benefits as all the conditions are met.

Conclusion on subsection 22A(2) of the FBTAA

As it has been determined above that the reimbursement of employees' Company B or Company C expenses, as applicable, will be in-house residual expense payment fringe benefits the taxable values of such fringe benefits will fall to be valued under subsection 22A(2) of the FBTAA.

Issue 1

Question 4

Would the taxable values of any fringe benefits arising from the reimbursement of employee's private expenses for services provided by Company B or Company C, be reduced to 'nil' under section 62 of the FBTAA?

For similar reasons to those used above for the reimbursement of Company A expenses, the reimbursement by the employer Company B or Company C expenses, as applicable, will when acted upon, be eligible fringe benefits, under paragraph 62(2)(a) of the FBTAA, for the purposes of subsection 62(1) of the FBTAA.

Provided the total reimbursement does not exceed $1,000.00 in any one FBT year the taxable value of the relevant in-house expense payment fringe benefits will be reduced to 'nil'.

However, it should be noted that if an employee (and the employee's associates) receive more than one eligible benefit in any one FBT year the reduction is not applied to each of the eligible benefits separately. Rather, the reduction applies to the total value of the eligible fringe benefits provided in that FBT year to the employee (and the employee's associates).

Issue 2

Questions 1, 2, 3and 4

These questions have not been ruled upon as the intended Rulee is not the relevant employer.

Does Part IVA, or any other anti-avoidance provision, apply to this ruling?

No.

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