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Ruling

Subject: FBT - In house residual expense payment fringe benefits

Question 1:

Does the payment or reimbursement by you for the private expenses incurred by your employees (or their associates) constitute an expense payment fringe benefit for the purposes of section 20 of the Fringe Benefits Tax Assessment Act 1986?

Answer:

Yes

Question 2

If the answer to Question 1 is "yes", does the payment or reimbursement by you in the manner contemplated constitute an in-house residual payment benefit for the purposes of subsection 22A(2) of the Fringe Benefits Tax Assessment Act 1986?

Answer:

Yes

Question 3

If the answer to Question 2 is "yes," is the taxable value under subsection 22A(2) of the Fringe Benefits Tax Assessment Act 1986 determined in accordance with section 48 of the FBTAA at 75% of the lowest amount paid or payable by a member of the public in respect of a current identical benefit?

Answer:

Yes

Question 4

If the answer to Question 3 is "yes," are any resultant fringe benefits, eligible fringe benefits, and eligible for a further reduction of up to $1,000 per employee per year in accordance section 62 of the Fringe Benefits Tax Assessment Act 1986?

Answer:

Yes

This ruling applies for the fringe benefits tax years ended following period

31 March 2013

31 March 2014

31 March 2015

31 March 2016

The scheme commenced on

1 April 2012

Relevant facts and circumstances

The employer is proposing to reimburse private expenses incurred by its employees in respect of a product being supplied to these employees (or associates) by retailers.

The relevant intended reimbursements by the employer will be made on the presentation to them of the employee's (or associate's) invoice as evidence of the employee's (or associate's) payment.

The relevant retailers originally purchase the product from a wholesale market. An associated of the employer is a producer in this market. Once the retailer acquires the goods from various producers it is not able to distinguish, at the time of sale, which producer's goods have been sold to particular customers.

None of the relevant retailers are associates of the employer.

All of the relevant retailers sell the relevant product to the public at large.

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 42

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Subsection 46(2)

Fringe Benefits Tax Assessment Act 1986 Section 48

Fringe Benefits Tax Assessment Act 1986 Section 49

Fringe Benefits Tax Assessment Act 1986 Section 62

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 144

Fringe Benefits Tax Assessment Act 1986 Section 147

Fringe Benefits Tax Assessment Act 1986 Section 149

Fringe Benefits Tax Assessment Act 1986 Section 156

Fringe Benefits Tax Assessment Act 1986 Section 158

Fringe Benefits Tax Assessment Act 1986 Section 159

Income Tax Assessment Act 1936 Section 6

Income Tax Assessment Act 1936 Section 262A

Income Tax Assessment Act 1936 Section 317

Income Tax Assessment Act 1936 Section 318

Income Tax Assessment Act 1997 Section 900-115

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

Taxation Laws Amendment (Fringe Benefits and Substantiation) Act 1987 at Part A- Main Features: In-house fringe benefits, clauses 15, 17, 40, 48

Reasons for decision

Question 1

Summary

The proposed payment or reimbursement by you of the private expenses incurred by your employee(s) constitutes an expense payment benefit within the meaning of section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Detail reasoning

Section 20 of the FBTAA outlines the meaning of an expense payment benefit as follows:

Where a person (in this section referred to as the 'provider'):

· makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the 'recipient') to pay an amount to a third person in respect of expenditure incurred by the recipient; or

· reimburses another person (in this section also referred to as the 'recipient'), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

· the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient

Under the proposed arrangement you intend to reimburse your employee's private expenses. The reimbursement will be made upon presentation of the invoice.

A fringe benefit is defined in subsection 136(1) of the FBTAA to be 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 employee's employment and such benefit is not otherwise exempted.

The proposal by you to pay or reimburse the private expenses of the current employees (or their associates) will only arise due to the employer and employee relationship between those current employees and you.

Therefore, the proposal to pay or to reimburse the private expenses of employees (or associates) will, when acted upon, constitute expense payment fringe benefits.

Question 2

Summary

The proposed payments or reimbursements by you of the private residential supply expenses of your employees (or associates) will be in-house residual expense payment fringe benefits as defined in subsection 136(1) of the FBTAA.

Detailed reasoning

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

The payment or reimbursement of private expenses of the current employees will, when acted upon, only arise due to the employer and employee relationship between those current employees and yourself.

Therefore, when you pay or reimburse the private expenses of your employees, these payments or reimbursements will constitute expense payment fringe benefits.

Subsection 22A(2) of the FBTAA sets out the methodology for the calculation of the taxable value of an in-house residual expense payment fringe benefit.

An in-house residual expense payment fringe benefit, as defined in subsection 136(1) of the FBTAA is a fringe benefit that meets all of the following conditions:

Is an expense payment fringe benefit;

The employee's (or associate's) expenditure is incurred on the provision of a residual benefit;

The residual benefit provider is either:

The employer (or associate) who, at the relevant time, carried on a business that consisted of, or included, the provision of identical or similar benefits principally to outsiders; or

Not the employer nor an associate of the employer but who, at the relevant time, had purchased the benefit from the employer or associate and both the residual benefit provider and the employer or associate carried on a business that consisted of, or included, the provision of identical or similar benefits principally to outsiders.

(d) The required documentary evidence is given to the employer by the required time.

(a) Expense payment fringe benefit

As determined in Question 1, this condition has been satisfied.

(b) Employee's expenditure incurred in respect of a residual benefit

Section 45 of the FBTAA describes what constitutes a residual benefit. Under that description 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 relevant employee's (or associate's) expenditure incurred will be in respect of a residual benefit as such a supply is deemed not to be a property benefit and also that such supply does not otherwise fall within one of the other more specific benefit types contained in the FBTAA.

This condition has been satisfied.

(c)(i) Employer or associate is the residual benefit provider

An associate is defined in subsection 136(1) of the FBTAA to have the same meaning as that contained in section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 318(2) of the ITAA 1936 looks at associates of companies and it states:

For the purposes of this Part, the following are associates of a company (in this subsection called the "primary entity"):

(a) a partner of the primary entity or a partnership in which the primary entity is a partner;

(b) if a partner of the primary entity is a natural person otherwise than in the capacity of trustee - the spouse or a child of that partner;

(c) a trustee of a trust where the primary entity, or another entity that is an associate of the primary entity because of another paragraph of this subsection, benefits under the trust;

(d) another entity (in this paragraph called the "controlling entity") where:

(i) the primary entity is sufficiently influenced by:

(A) the controlling entity; or

(B) the controlling entity and another entity or entities; or

(ii) a majority voting interest in the primary entity is held by:

(A) the controlling entity; or

(B) the controlling entity and the entities that, if the controlling entity were the primary entity, would be associates of the controlling entity because of subsection (1), because of subparagraph (i) of this paragraph, because of another paragraph of this subsection or because of subsection (3);

(e) another company (in this paragraph called the "controlled company") where:

(i) the controlled company is sufficiently influenced by:

(A) the primary entity; or

(B) another entity that is an associate of the primary entity because of another paragraph of this subsection; or

(C) a company that is an associate of the primary entity because of another application of this paragraph; or

(D) 2 or more entities covered by the preceding sub-subparagraphs; or

(ii) a majority voting interest in the controlled company is held by:

(A) the primary entity; or

(B) the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection; or

(C) the primary entity and the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection;

(f) any other entity that, if a third entity that is an associate of the primary entity because of paragraph (d) of this subsection were the primary entity, would be an associate of that third entity because of subsection (1), because of another paragraph of this subsection or because of subsection (3).

Therefore for the purposes of determining whether someone is an associate of the employer is the 'primary entity' for the purposes of the definition of an associate in subsection 318(2) of the ITAA 1936.

Based on the facts of the case it was concluded the retailers purchased the product from an associate of the employer.

This condition has been satisfied.

(c)(ii) 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 we need to determine whether the benefit provider (being the entity providing the item to the employee) and, the seller (the employer's associate) carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders at the time the benefit was provided to the employees.

An outsider is defined in subsection 136(1) of the FBTAA to mean a person other than either:

(a) an employee of the relevant employer; or

(b) an associate of the relevant employer; or

an employee (or associate) of a third party where the third party, under an arrangement between the employer (or associate), provides benefits to employees (or associates) of the employer

Based on the facts of the case it was concluded that at the time the benefits will be provided, the benefit provider and the associate will be carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders at the time the benefit was provided to the employees.

This condition has been satisfied.

(d) Required documentary evidence given to employer at the required time

This condition is satisfied as the required documentary evidence will be given to the employer at the required time.

Question 3

Summary

Section 48 of the FBTAA gives rise to a valuation of 75% of the lowest amount paid or payable by a member of the public to acquire the benefits.

Detailed reasoning

Under subsection 22A(2) of the FBTAA the taxable value of an in-house residual expense payment fringe benefit is equal to the taxable value of the notional residual fringe benefit calculated under whichever of sections 48 or 49 of the FBTAA is applicable.

Section 49 of the FBTAA deals with the taxable value of an in-house period residual fringe benefit. An 'in-house period residual fringe benefit' is defined, in subsection 136(1) of the FBTAA, to mean an in-house residual fringe benefit that is provided during a period.

Section 149 of the FBTAA sets out when a benefit may be regarded as one 'that is provided during a period'. The relevant two main requirements, under section 149 of the FBTAA, are that the benefit:

(a) is provided, or subsists, during a period of more than 1 day; and

(b) is not deemed by a provision of the FBTAA to be provided at a particular time or on a particular day.

However, subsection 46(2) of the FBTAA deals with benefits provided in regular billing periods, which is the case here. Under this subsection the provision of the relevant benefit during each billing period constitutes a separate benefit which is deemed to have been provided at the time the payment for billing period becomes due and payable.

As the benefits in this case will be deemed, under subsection 46(2)(d) of the FBTAA, to be provided at the time when the payment in respect of that period is due and payable they fall within the specific exclusion of what is a 'period benefit' in section 149 of the FBTAA.

As the relevant benefits are not period benefits then they cannot be 'in-house period residual fringe benefit' under section 49 of the FBTAA.

Therefore, the relevant benefits will be valued under section 48 of the FBTAA as 'in-house non-period residual fringe benefits' as all the necessary requirements are met.

However it should be noted that whether the taxable value of the benefits are, in fact, calculated under section 48 of the FBTAA or under section 49 of the FBTAA would be effectively immaterial to the final result.

Question 4:

Summary

Section 62 of the FBTAA gives rise to a reduction of the taxable value of the fringe benefit provided by you by the lesser of the taxable value of the benefit or $1,000.

Detailed reasoning

Section 62 of the FBTAA provides for a reduction in the taxable values of 'eligible fringe benefits'. The reduction is the lesser of the aggregated taxable value of all relevant benefits or $1,000. The reduction applies separately to the relevant benefits provided to each employee. If the benefits are provided to both employees and associates of employees (As pointed out in Miscellaneous Tax Ruling MT 2044, Fringe Benefits Tax: Reduction of Aggregate Taxable Value of Fringe Benefits - Application to Associates), the reduction applies in respect of the total benefits provided to each employee and his or her associates in a particular year.

Under paragraph 62(2)(a) of the FBTAA, an 'in-house fringe benefit' is an 'eligible fringe benefit'. An 'in-house fringe benefit' is defined in subsection 136(1) of the FBTAA as including an in-house expense payment fringe benefit. In turn, an 'in-house expense payment fringe benefit' is defined, in subsection 136(1) of the FBTAA as including an 'in-house residual expense payment fringe benefit'.

Therefore, as it has already been determined that the benefits in this case are 'in-house residual expense payment fringe benefits' they will qualify as being 'eligible fringe benefits' for the purposes of section 62 of the FBTAA.

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