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Ruling

Subject: FBT - Expense payment fringe benefits

Question 1

Will section 62 of the FBTAA reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of a State government departments' employees or their associates, private public train transport expenses under the terms of valid salary sacrifice agreements (SSAs)?

Advice/Answers

Yes

Question 2

Will section 62 of the FBTAA reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of a State government departments employees' or their associates, private electricity bills under the terms of valid SSAs?

Advice/Answers

Yes

Question 3

Will section 62 of the FBTAA reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of a State government departments' employees' or their associates, private public transport under the terms of valid SSAs?

Advice/Answers

Yes

This ruling applies for the following periods:

1 July 2012 - 31 March 2013

1 April 2013 - 31 March 2014

1 April 2014 - 31 March 2015

1 April 2015 - 31 March 2016

1 April 2016 - 31 March 2017

This ruling is based on the in-house fringe benefit provisions that are currently contained in the Fringe Benefits Tax Assessment Act 1986 (FBTAA). As part of the Mid-Year Economic and Fiscal Outlook 2012-13, the Treasurer announced that the government will remove the concessional fringe benefits tax treatment for in-house fringe benefits if they are accessed by way of a salary sacrifice arrangement. If enacted, these proposed reforms will apply from the 22nd October 2012 for salary sacrifice arrangements entered into from its announcement on 22 October 2012, and from 1 April 2014 for salary sacrifice arrangements entered into before its announcement on 22nd October 2012.

You should note that if the law is substantively changed, the part of the private ruling dealing with the changed law ceases to apply.

More information regarding the proposed reforms is available from the Mid-Year Economic and Fiscal Outlook 2012-13, Appendix A (accessible on the internet at http://www.budget.gov.au/2012-13/content/myefo/html/08_appendix_a_revenue-07.htm).

The scheme commences on:

During income year 1 July 2012 to 2013

Relevant facts and circumstances

Statutory body

The employer is a State owned statutory body established pursuant to a legislative Act.

The public train transport provider is a government owned corporation (GOC).

The electricity providers are GOC's.

The public transport provider is a local government authority.

The employer intends to enter into valid salary sacrifice arrangements (SSAs) with their employees whereby the employer will either pay or reimburse their employees (and/or the employee's associates) for their private expenditure incurred on public transport and the supply of electricity.

The taxable values, or the sum of the taxable values, of any fringe benefits resulting from the provision of benefits under the terms of the SSA will either be equal to or not exceed $1,000.

The employees will provide the employer with any required documentary evidence of the relevant expenditures incurred by any required time for the purposes of the FBTAA.

Relevant legislative provisions

Divisions 2 - 11 of the Fringe Benefits Tax Assessment Act 1986

Section 20 of the Fringe Benefits Tax Assessment Act 1986

Section 45 of the Fringe Benefits Tax Assessment Act 1986

Section 62 of the Fringe Benefits Tax Assessment Act 1986

Subsection 62(1) of the Fringe Benefits Tax Assessment Act 1986

Paragraph 62(1)(a) of the Fringe Benefits Tax Assessment Act 1986

Paragraph 62(1)(b) of the Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Section 136 of the Fringe Benefits Tax Assessment Act 1986

Section 159 of the Section 20 of the Fringe Benefits Tax Assessment Act 1986

Subsection 159(1) of the Fringe Benefits Tax Assessment Act 1986

Subsection 159(2) of the Fringe Benefits Tax Assessment Act 1986

Subsection 159(3) of the Fringe Benefits Tax Assessment Act 1986

Subsection 159(4) of the Fringe Benefits Tax Assessment Act 1986

Subsection 317(1) of the Income Tax Assessment Act 1936

Section 318 of the Income Tax Assessment Act 1936

Subsection 318(2) of the Income Tax Assessment Act 1936

Subsection 318(6) of the Income Tax Assessment Act 1936

Issue 1

Question 1

Summary

Yes, section 62 of the FBTAA will apply to reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of the State government departments' employees' or their associates private public train transport under the terms of valid salary sacrifice agreements?

Detailed reasoning

Section 62 of the FBTAA permits a reduction of the taxable values of certain 'eligible fringe benefits' including 'in-house fringe benefits'.

Subsection 62(1) states:

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

Further, section 156 of the FBTAA states 'the supply of electricity or gas through a reticulation system shall be deemed not to constitute the provision of property.

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

(a) expense payment fringe benefit

An expense payment benefit under section 20 of the FBTAA, is either:

Subsection 136(1) of the FBTAA defines the term 'expense payment fringe benefit' as meaning 'a fringe benefit that is an expense payment fringe benefit.'

A fringe benefit as defined in subsection 136(1) of the FBTAA as 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 public transport expenses of its employees 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' public train transport expenses 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 Division 2 to 11 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.

The provision of transport does not fall within any of the specific benefit types in Subdivison A of Divisions 2 to 11 inclusive of the FBTAA and therefore, the expenditure incurred by the employees on public transport is a residual benefit.

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 transport will be provided by the transport provider to the State government department's employees or their associates so, therefore, the relevant residual benefit provider in this case is the transport provider. As the transport provider is not the employer it is necessary to then determine whether the transport provider is an associate of the employer.

Is the employer an associate of the State Government?

Section 159 of the FBTAA states:

Authority of the State

The FBTAA does not define the term 'authority of the State' and there are no cases which have directly considered this term for the purposes of the FBTAA. However, there are a number of cases which have considered this term in the context of other legislation. In this regard, the courts show a consistent approach in applying the meaning derived from 'authority', 'public authority' and 'authority of the State' from one statue in the context of another statue.

Gibb J in the High Court decision in Committee of direction of Fruit Marketing v. Australian Postal Commission (1980) 144 CLR 577 (Committee of Direction of Fruit Marketing) at 580 states:

Also, in FC of T v. Bank of Western Australia Limited: FC of T v. State Bank of New South Wales Limited 133 ALR 599; 96 ATC 4009 (Bank of Western Australia), the Full Federal Court as expressed through the judgment of Hill J at ALR618 and ATC 4027, made the following statements when determining whether an entity qualified as an 'authority' of the State or Commonwealth:

The employer is an 'authority of the State' because it:

The transport provider is an 'authority of the State' because it:

Under paragraph 159(2)(d) of the FBTAA the State is deemed to be an associate of each authority of the State, therefore, the State Government is an associate of the employer and the transport provider. That is, the State Government, the employer and the transport provider are all associates of one another for the purposes of the FBTAA.

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 the transport provider 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, 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 definition is met, it 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:

The employer has stated that 'copies of invoices will be supplied to the employer with the reimbursement requests.'

It is accepted that this requirement is satisfied.

Conclusion

The reimbursement of the employees' or their associates public transport travel expenses incurred on the service provider will be in-house residual expense payment fringe benefits as all the required conditions are met for the purposes of paragraph 62(2)(a) of the FBTAA.

Therefore, in accordance with subsection 62(1) of the FBTAA the taxable value of expenses incurred by the State government department employees' or their associates on the transport provider's services due to the entering into effective SSAs will be reduced to nil as the taxable values of any fringe benefits provided under the terms of the SSA will either be equal to or not exceed $1,000.

Employees' associates

Miscellaneous Taxation Ruling MT 2044 Fringe benefits tax: reduction of aggregate taxable value of fringe benefits - application to associates (MT 2044), discusses whether the reduction of the taxable value available under section 62 of the FBTAA applies to associates.

Paragraph 5 of MT 2044 states:

Paragraph 6 of MT 2044 concludes that in view of the above the reduction available under section 62 applies in respect of the total benefits provided to each employee and their associates.

However, it should be noted that where an employee and their associates receive more than one eligible benefit the reduction is not applied to each benefit. Rather, the reduction applies to the total value of the eligible fringe benefits provided to an employee and their associates.

Question 2

Summary

Yes, section 62 of the FBTAA will reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of State government department employees' or their associates private electricity bills from the electricity providers under the terms of valid SSAs?

Detailed reasoning

Electricity Retailers

The electricity providers are registered as GOCs

The supply of domestic electricity is sold by various electricity companies licensed by the State Government. These companies (energy retailers) are mainly independent private companies which are otherwise unassociated with the State Government. However, the electricity providers, provide retail services to non-market customers.

The generators of electricity supplies comprise publicly owned and partially or fully privately owned generators. The Government has full ownership of power stations operated by electricity generators (entities). GOCs, (electricity distributors), are the electricity distributors for most of the State. The supply of electricity is transmitted by another entity which is also a GOC.

The National Electricity Market (NEM) is the market for the wholesale supply and purchase of electricity for various States and Territories. The administrator of the NEM is Australian Energy Market Operator Limited (AEMO).

The electricity generators sell their supply of electricity into the NEM and the electricity retailers then make bulk purchases from this wholesale market to on-sell to their own residential (and commercial) customers.

ATO Interpretative Decision ATO ID 2006/196 Fringe Benefits Tax: in house residual expense payment fringe benefit - meaning of 'associate' determines that an electricity producer company which sells electricity to an unrelated third party electricity retailer is an associate of an employer company that re-imburses their employee's electricity expenses which are incurred to the third party electricity retailer for the purposes of subsection 136(1) of the FBTAA. This is because the employer and the electricity producer are controlled by the same company.

The employer is controlled by the State Government. Therefore, the electricity providers and the employer are associates of each other for the purposes of subsection 136(1) of the FBTAA.

For similar reasons to those used above for the reimbursement of the public train travel expenses, the proposal by the employer to reimburse the private electricity expenses of its employees or their associates will, when acted upon, be eligible fringe benefits, under paragraph 62(2)(a) of the FBTAA.

Therefore, in accordance with subsection 62(1) of the FBTAA the taxable value of expenses incurred by the State government department employees' on employees or their associates private electricity expenses from the electricity providers due to the entering into effective SSAs will be reduced to nil as the taxable values of any fringe benefits provided under the terms of the SSA will either be equal to or not exceed $1,000.

However, as stated in question 1 above, in accordance with MT 2044 it should be noted that if an employee or 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.

Question 3

Summary

Yes, section 62 of the FBTAA will apply to reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of the State government department employees' or their associates, private public transport on under the terms of valid SSAs.

Detailed reasoning

The public transport provider is a local government authority.

As stated in question 1, section 62 will apply to reduce the taxable value of the expense payment fringe benefits where the benefit is an eligible benefit that is an in-house fringe benefit. Further it was determined that the relevant definition applicable for the purpose of this ruling is 'in-house residual expense payment fringe benefit.'

To fall within the definition of an in-house residual expense payment fringe benefit, the following conditions must be met:

(a) expense payment fringe benefit

As stated in question 1, an expense payment will arise where you reimburse an employee for expenses they incur.

As you will reimburse your employees for the cost of their travel on public transport the reimbursement will be an expense payment fringe benefit.

This condition is satisfied.

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

As stated in question 1, the residual benefit is one that is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 of the FBTAA, the expenditure incurred by the State government departments' employee's of on public transport is a residual benefit.

This condition is satisfied.

(c) are the requirements of either paragraph (b) or (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.

As stated in question 1, under paragraph 159(2)(d) for the FBTAA, the employer is an associate of the State Government for the purposes of the FBTAA.

Is the transport provider an associate of the employer?

The transport will be provided by the transport provider to the State government department employees and their associates so, therefore, the relevant residual benefit provider in this case is the transport provider. As the transport provider is not the employer it is necessary to then determine whether the transport provider is an associate of the employer for the purposes of the FBTAA.

Further to the cases identified in question 1, ATO Interpretative Decision 2012/94 Associate: Authority of the State (ATO ID 2012/94) supports the view that a local government council may be an 'authority of the State' for the purposes of the extended definition of 'associate' in subsection 159(2) of the FBTAA.

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 the transport provider provides transport 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, 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 definition is met, it 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:

The employer has stated that 'copies of invoices will be supplied to the employer with the reimbursement requests.'

It is accepted that this requirement is satisfied.

Conclusion

The reimbursement of the State government department's employees' or their associates public transport expenses incurred on the transport provider's services will be in-house residual expense payment fringe benefits as all the required conditions are met.

Therefore, in accordance with subsection 62(1) of the FBTAA the taxable value of expenses incurred by the State government department's employees' or their associates on the transport provider's services due to the entering into effective SSAs will be reduced to nil as the taxable values of any fringe benefits provided under the terms of the SSA will either be equal to or not exceed $1,000.

However, as stated in question 1 above, in accordance with MT 2044 it should be noted that if an employee or 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.


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