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Ruling

Subject: Fringe Benefits Tax - exempt relocation benefits

Question

Will a fringe benefit arise from the payment or reimbursement of the airfares and associated costs incurred by the employee's spouse and children in travelling from the overseas country to Australia and the subsequent return travel to the overseas country?

Answer

Yes

This ruling applies for the following periods:

1 April 2010 - 31 March 2011

1 April 2011 - 31 March 2012

The scheme commences on:

1 April 2010

Relevant facts and circumstances

Your employee accepted a position that required relocating permanently to an overseas country.

The employee's spouse had pre-existing health related issues and was required to return to Australia to resume treatment.

The spouse returned to Australia with the children whilst the employee stayed in the position in the overseas country.

After obtaining treatment, the spouse is now in a position to return to the overseas country, together with the children, to re-join the employee.

The counsellor who provided the treatment is a Counselling Psychologist who was recommended by the employee's General Practitioner.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 58F

Fringe Benefits Tax Assessment Act 1986 section 58L

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1936 section 159P

Reasons for decision

Will a fringe benefit arise from the payment or reimbursement of the airfares and associated costs incurred by the employee's spouse and children in travelling from the overseas country to Australia and the subsequent return travel to the overseas country?

In general terms the definition of 'fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides that a fringe benefit will arise from the payment or reimbursement of the expenses incurred by the employee's spouse and children in travelling between the Overseas country and Australia unless it is an exempt benefit.

The benefits that are an exempt benefit on which the employer will not pay fringe benefits tax are listed in a number of sections of the FBTAA. For the purpose of this ruling the relevant sections to consider are:

§ section 58F which provides an exemption for benefits that constitute the provision of relocation transport; and

§ section 58L which provides an exemption for certain travel to obtain medical treatment.

In making this ruling we have not considered the possible application of:

§ section 58P which provides an exemption for minor benefits that have a value less than $300 and satisfy the conditions of section 58P; or

§ section 61A which provides a reduction in the taxable value of a fringe benefit that arises from holiday travel provided in accordance with an award or industry custom to employees posted overseas. For this concession to apply, the employee must be performing the duties of his or her employment at a place outside the home country (the home country is the country in which the employee's usual place of residence is located).

Will the exemption in section 58F apply to the payment or reimbursement of the airfares and associated expenses?

Section 58F of the FBTAA sets out the circumstances in which the cost of relocation transport can be an exempt benefit as follows:

Where:

(a) a car benefit, an expense payment benefit, a property benefit or a residual benefit is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer;

(b) the benefit is in respect of relocation transport; and

(c) in the case of an expense payment benefit:

(i) the benefit is not constituted by the reimbursement of the recipient, in whole or in part, in respect of an amount of a Division 28 car expense incurred by the recipient in relation to a car owned by, or leased to, the recipient, being a reimbursement calculated by reference to the distance travelled by the car; and

(ii) 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;

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

In considering these three requirements:

§ paragraph (a) will be satisfied as the payment or reimbursement will be an expense payment benefit that is provided in respect of the employment of the employee; and

§ paragraph (c) will be satisfied if the employee provides you with documentary evidence of the expenditure before the date on which the relevant fringe benefits tax return is lodged.

Therefore, the issue to consider is whether the benefit is in respect of 'relocation transport'?

Section 143A of the FBTAA defines relocation transport as follows:

For the purposes of this Act, where:

(a) any of the following benefits is provided in, or in respect of, a year of tax to an employee, or to an associate of the employee, in respect of the employment of the employee:

(i) a car benefit relating to a particular car where the application or availability of the car is in respect of the provision of transport;

(ii) an expense payment benefit where the recipients expenditure is in respect of the provision of transport, or meals or accommodation in connection with transport;

(iii) a property benefit where the recipients property consists of meals in connection with transport;

(iv) a residual benefit where the recipients benefit consists of the provision of transport or accommodation in connection with transport;

(b) the transport, meals or accommodation is for a family member;

(c) the transport is required solely because:

(i) the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;

(ii) the employee, having lived away from his or her usual place of residence in order to perform the duties of that employment, is required to return to his or her usual place of residence:

(A) in order to perform those duties; or

(B) because the employee has ceased to perform those duties; or

(iii) the employee is required to change his or her usual place of residence in order to perform the duties of that employment;

(d) the transport is provided to enable a family member to:

(i) if subparagraph (c)(i) applies - take up residence at or near the place where the employee performs the duties of that employment while living away from his or her usual place of residence;

(ii) if subparagraph (c)(ii) applies - take up residence at the employee's usual place of residence; or

(iii) if subparagraph (c)(iii) applies - take up residence at the employee's new usual place of residence;

(e) if the transport is for the spouse, or a child, of the employee - the transport is not provided to enable the spouse or child to accompany the employee:

(i) while the employee is undertaking travel in the course of performing the duties of that employment; and

(ii) where the circumstances referred to in subsection 26-30(2) of the Income Tax Assessment Act 1997 do not apply; and

(f) if the transport is for the employee - the transport is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(g) if subparagraph (c)(iii) applies - the benefit is not provided under a non-arm's length arrangement;

the benefit shall be taken to be in respect of relocation transport.

In considering these requirements:

§ paragraph (a) is satisfied as the expenditure is in respect of the provision of transport, or meals or accommodation in connection with transport; and

§ paragraph (b) is satisfied as the transport, meals or accommodation is for a family member.

However, paragraph (c) will not be satisfied if the employee has changed his or her usual place of residence to the Overseas country. From the information provided it is not possible to determine the usual place of residence of the employee. However, on the basis of the expectation that the appointment was a permanent appointment we have ruled on the basis that the Overseas country is the employee's usual place of residence.

Even if the employee has not changed his or her usual place of residence to the Overseas country, paragraph (d) will not be satisfied in relation to the travel from the Overseas country to Australia as the transport was not to enable the spouse and family to take up residence near where the employee performs the duties of employment while living away from his or her usual place of residence.

Therefore, the payment or reimbursement of the expenditure will not be in respect of relocation transport and therefore will not be an exempt benefit under section 58F of the FBTAA.

Will the exemption in section 58L apply to the payment or reimbursement of the airfares and associated expenses?

Section 58L of the FBTAA states:

58L(1) [Conditions for exemption] Where:

(a) a person (in this subsection called the ``traveller''):

(i) is provided with transport by another person; or

(ii) provides transport for himself or herself;

(b) any of the following benefits is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer:

(i) a car benefit relating to a particular car where the application or availability of the car is in respect of the provision of the transport;

(ii) an expense payment benefit where the recipients expenditure is in respect of the provision of:

(A) the transport; or

(B) meals or accommodation for the traveller;

(iii) a property benefit where the recipients property consists of meals for the traveller;

(iv) a residual benefit where the recipients benefit consists of the provision of:

(A) the transport; or

(B) accommodation for the traveller;

(c) the transport is required solely because a person (in this subsection called the ``patient'') requires medical treatment;

(d) the medical treatment is provided in a particular place (in this subsection called the ``treatment place'') at a time during a period when the employee is, or would but for that requirement to obtain treatment or any other temporary absence be, performing the duties of that employment in another place (in this subsection called the ``overseas employment place''), being a place in:

(i) a foreign country;

(ii) a part of a foreign country; or

(iii) a territory, dependency or colony (however described) of a foreign country;

(e) the transport is between:

(i) a place at or near the overseas employment place; and

(ii) a place at or near the treatment place;

(f) if the patient is not the employee - the patient is a family member and lives with the employee at or near the overseas employment place;

(g) if the traveller is not the patient - either of the following conditions is satisfied:

(i) the traveller accompanies the patient because:

(A) the patient has not attained the age of 18 years and requires the traveller as an escort; or

(B) the patient requires the traveller as an escort for medical reasons;

(ii) the traveller is a family member and accompanies or visits the patient where it is customary for family members to accompany or visit patients receiving medical treatment of the same nature and duration as the medical treatment required by the patient;

(h) the meals or accommodation:

(i) are:

(A) in connection with the transport; or

(B) required solely in connection with the presence of the traveller at the treatment place for purposes related to the medical treatment of the patient; and

(ii) where sub-subparagraph (i)(B) applies and the traveller is the patient - are not provided to the patient in a hospital, clinic or similar place in connection with the medical treatment of the patient;

(j) either of the following conditions is satisfied:

(i) the treatment place was the place nearest to the overseas employment place at which medical treatment suitable for the patient could be provided;

(ii) the total cost associated with obtaining medical treatment at the treatment place was equal to, or less than, the lowest total cost associated with obtaining medical treatment at any of the places at which medical treatment suitable for the patient could have been provided; and

(k) if subparagraph (b)(ii) applies - 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;

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

58L(2)  [Medical treatment]  

A reference in this section to medical treatment is a reference to an act or thing where a payment in respect of the act or thing is a medical expense within the meaning of section 159P of the Income Tax Assessment Act 1936.

For this exemption to apply, paragraph (d) requires the medical treatment to be provided while the employee performs the duties of employment in a 'foreign country'. Although the term 'foreign country' is not defined in the FBTAA, section 143B defines the 'home country' to be the country in which the employee's usual place of residence is located. Therefore, on the basis that the employee's usual place of residence is in the Overseas country, the employee will not be performing his or her duties of employment in a foreign country and the requirements of paragraph (d) will not be satisfied.

Alternatively, paragraph (c) requires the transport to be required solely because a person requires 'medical treatment'. Subsection 58L(2) of the FBTAA provides that the meaning of a 'medical expense' as per section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) is to be used for section 58L of the FBTAA.

Subsection 159P(4) of the ITAA 1936 defines medical expenses as follows:

medical expenses means payments:

(a) to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of an illness or operation; or

(b) to a legally qualified dentist for dental services or treatment or the supply, alteration or repair of artificial teeth; or

(c) to a person registered under a law of a State or Territory as a dental mechanic in respect of charges lawfully made by that person for the supply, alteration or repair of artificial teeth; or

(d) for therapeutic treatment administered by direction of a legally qualified medical practitioner; or

(e) in respect of an artificial limb (or part of a limb), artificial eye or hearing aid; or

(f) in respect of a medical or surgical appliance (not otherwise specified in this definition) prescribed by a legally qualified medical practitioner; or

(g) for:

(i) the testing of eyes or the prescribing of spectacles by a person legally qualified to perform those services; or

(ii) the supply of spectacles in accordance with any such prescription; or

(h) as remuneration of a person for services rendered by him or her as an attendant of a person who is blind or permanently confined to a bed or an invalid chair; or

(i) for the maintenance of a dog used for the guidance or assistance of, but not social therapy for, a person with a disability, being a dog that the Commissioner is satisfied is properly trained in the guidance or assistance of persons with disabilities;

but does not include ineligible medical expenses.

The services were provided by a Counselling Psychologist. The issue of whether consultation fees paid to a psychologist were medical expenses as defined in section 159P of the ITAA 1936 was considered by the Administrative Appeals Tribunal in Re VBI and Federal Commissioner of Taxation [2005] AATA 683; Case 9/2005 2005 ATC 193; 59 ATR 1197. At ATC 196 the Tribunal said:

Mr Anderson submitted on behalf of the applicant that a person registered under the Psychological Registration Act 2000 (Victoria) is a legally qualified medical practitioner. The psychologist here was so registered. There is no definition within the Act of a legally qualified medical practitioner. While the psychologist was registered, I am of the view that he is not a legally qualified medical practitioner as that term is generally accepted. The requirement is that the practitioner is qualified under the relevant legislation to practice medicine. A psychiatrist is so qualified but a psychologist is not. It can be said further, that the payments to the psychologist were not in respect of an illness. I would be surprised if the applicant would be prepared to say that he was suffering an illness. In the same way as a person will incur expenditure to improve physical fitness, the applicant incurred expenditure to improve his mental fitness from a source other than a legally qualified medical practitioner. It is clear that the treatment by the psychiatrist was not administered by direction of a legally qualified medical practitioner. It may be seen as incongruous that all that may have been required to have the expenditure within s 159P of the 1936 Act was for the applicant to arrange for his general practitioner to formally refer him for psychotherapy. Unfortunately this did not happen. Consequently, the expenditure is not subject to rebate under s 159P of the 1936 Act.

In applying this decision, paragraph 58L(1)(c) will only be satisfied if the Counselling Psychologist was acting on the basis of a referral from a legally qualified medical practitioner in respect of an illness or operation. However, as set out above, even if paragraph (c) is satisfied, paragraph (d) is not.

Therefore, the payment or reimbursement of the airfares and associated expenses will not be an exempt benefit under section 58L of the FBTAA.

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