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Ruling

Subject: Fringe Benefits Tax: Application of 'otherwise deductible rule'

Question 1

Do fringe benefits arise where an entity employee (Coordinator) is provided with all necessary flights, meals and accommodation while the employee is acting as a Coordinator of an overseas trip provided to other entity employees as a reward for their exceptional performance and contributions to the entity?

Answer

Yes, but the taxable values of those fringe benefits would be reduced to 'nil'.

Question 2

If the answer to Question 1 is yes, are the grossed-up taxable values of any such fringe benefits required to be shown as reportable fringe benefits amounts on the Coordinator's Payment Summary?

Answer

No, as the taxable values are 'nil'.

This ruling applies for the following periods:

1 April 2011 - 31 March 2012

The scheme commences on:

1 April 2011

Relevant facts and circumstances

The entity rewarded its high performing employees in recognition of their exceptional performance and contribution to the entity by providing them with an overseas trip.

Another employee of the entity accompanied those high performing employees overseas for the full term of the trip to ensure that all travel, flights, hotel accommodation, dinner and activities operated smoothly.

The entity paid for all the necessary flights, accommodation and meals for the Coordinator while on the overseas trip.

The Coordinator was actively engaged on such duties, in relation to the overseas trip, for a minimum of 12 hours per day during each day of the trip.

It is specifically part of the Coordinator's job description as a Human Resources Director that the Coordinator performs such duties in relation to overseas trips.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 40

Fringe Benefits Tax Assessment Act 1986 Section 44

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Section 52

Fringe Benefits Tax Assessment Act 1986 Section 135P

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Question 1

Detailed reasoning

Depending on exactly how the necessary flights, accommodation and meals were provided to the Coordinator when attending the overseas trip either or both of the following benefit categories are likely to have been provided to the Coordinator:

· property benefits under section 40 of the FBTAA.

· residual benefits under section 45 of the FBTAA.

In basic terms, 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 employee's employment and such benefit is not otherwise exempted.

It is considered that any of the categories of benefits listed above that were, in fact, provided to the Coordinator were provided in respect of the Coordinator's employment with the entity and, therefore, would also constitute fringe benefits (that is, property fringe benefits and/or residual fringe benefits, as applicable).

However, reductions of the taxable values of both property fringe benefits and residual fringe benefits may be made under the 'otherwise deductible rule' (section 44 and section 52 of the FBTAA respectively).

Again in basic terms, and as relevant here, the 'otherwise deductible rule' means that the taxable value of the fringe benefit is reduced by the amount that the employee would have been entitled to claim as an income tax deduction if the benefit had not been provided as a fringe benefit and the employee had purchased the property or services.

The ATO Fringe benefits tax: a guide for employers (available at www.ato.gov.au) provides the following illustrative examples of the operation of the 'otherwise deductible rule' in relation to property fringe benefits and also residual fringe benefits (at paragraphs 17.5 and 18.7 respectively):

For example, if an employee purchased an item of property and used it only to perform employment-related duties, the purchase price would be wholly deductible for income tax purposes. Under the otherwise deductible rule, if you purchased the same item and gave it to the employee to use in performing employment-related duties, the taxable value would be nil...

For example, if an employee hired an item of property and used it only to perform employment-related duties, the hire cost would be wholly deductible for income tax purposes. Under the otherwise deductible rule, if you hired the same item and made it available to the employee to use in performing their employment-related duties, the taxable value of this residual fringe benefit would be nil...

It is considered that, in the absence of any evidence to the contrary, the Coordinator was performing wholly employment-related duties for the full period the Coordinator was engaged in the overseas trip.

Therefore, it is also considered that, irrespective of the categories of fringe benefits which would actually apply to the necessary flights, accommodation and meals provided to the Coordinator in relation to the overseas trip, the taxable values of those fringe benefits would be reduced to 'nil' under the 'otherwise deductible rule' relevant to that category of fringe benefit.

Question 2

Detailed reasoning

If the total taxable value of certain fringe benefits (reportable fringe benefits) provided to an employee in a fringe benefits tax (FBT) year (1 April to 31 March) exceeds $2,000 the grossed-up taxable value of those reportable fringe benefits must be recorded on the employee's Payment Summary for the corresponding income year (1 July to 30 June).

It has been determined above (at paragraph 8 of Question 1) that the taxable values of the relevant fringe benefits provided to the Coordinator, in relation to the overseas trip, will be reduced to 'nil'.

Therefore, there is no need to report those particular fringe benefits on the Coordinator's Payment Summary.

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