Edited version of your private ruling

Authorisation Number: 1012559988328

Ruling

Subject: Fringe Benefits Tax gross-up rates

Question

Will the following fringe benefits be included in the calculation of your type 2 aggregate fringe benefits amount:

(a) car benefits for the private use of cars provided under a salary sacrifice arrangement;

(b) car benefits for the private use of cars used for both private and business purposes;

(c) car parking benefits;

(d) housing benefits;

(e) loan benefits;

(f) meal entertainment benefits;

(g) expense payment benefits for the reimbursement of the costs of spectacles;

(h) expense payment benefits for the reimbursement of certain loan costs that relate to a home loan used to purchase of a house in a remote area;

(i) expense payment benefits for the reimbursement of the electricity and gas bills of employees in a remote area;

(j) expense payment benefits relating to the reimbursement of return plane tickets to City X for employees located in a remote area.

Answer

(a) No

(b) Yes

(c) No

(d) Yes

(e) Yes

(f) No

(g) Yes if the benefit is not an exempt benefit

(h) Yes

(i) Yes

(j) Yes

This ruling applies for the following periods:

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

The scheme commences on:

1 April 2013

Relevant facts and circumstances

You are registered for Goods and Services Tax (GST).

You make acquisitions that are solely or partly related to input taxed and taxable supplies for GST purposes.

You provide the following fringe benefits to your employees:

Car benefits

Certain employees use cars that you hold for private purposes. The cars used may be provided as part of a salary sacrifice novated lease arrangement. Alternatively, the cars may be cars used for both work related and private purposes.

Car Parking

You allow certain employees to park their cars in parking bays associated with a building that you own.

Housing Benefit

You provide accommodation to certain employees.

Loan Benefit

Several employees were overpaid salary or wages and have been allowed to repay the overpaid amount over a period of time.

Meal Entertainment

You have provided entertainment to certain employees by way of food and/or drink.

Expense Payment Benefits

Spectacles

You will reimburse eligible employees part of the costs incurred for corrective optical lenses.

Home Loan Subsidy

You provide financial assistance to certain employees to assist them to purchase a house in specific remote areas.

Fuel Subsidies

Your employees are entitled to a reimbursement for the cost of their electricity and gas bills.

Travel Subsidies

Employees who are stationed in remote areas are entitled to receive a reimbursement of the cost of a return plane ticket to the capital city of the State or Territory in which they are employed.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 11

A New Tax System (Goods and Services Tax) Act 1999 Division 69

A New Tax System (Goods and Services Tax) Act 1999 Division 71

A New Tax System (Goods and Services Tax) Act 1999 Division 111

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 149A(2)

Reasons for decision

When calculating your fringe benefits taxable amount it is necessary to classify the fringe benefits into 2 types of aggregate fringe benefits amounts, grouped according to whether there was an entitlement to input credits in respect of goods and services tax (GST) paid.

The 'employer's type 1 aggregate fringe benefits amount' is the total of those fringe benefits for which are GST-creditable benefits as defined under section 149A of the FBTAA.

The second type is the 'employer's type 2 aggregate fringe benefits amount' which is the total of those fringe benefits for which there are no entitlements to claim input tax credits.

What are GST-creditable benefits?

A GST creditable benefit is defined in section 149A of the Fringe benefits Tax Assessment Act 1986 (FBTAA). It arises where:

· the person, or another member of the same GST group, who provided the fringe benefit (or excluded fringe benefit) is entitled to an input tax credit for that benefit by the operation of Division 111 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); or

· the fringe benefit (or excluded fringe benefit), is a 'thing', that was acquired or imported by the person, or another member of the same GST group, and either that person or that member of the same GST group is entitled to a GST input tax credit because of that acquisition or importation of the thing.'

Taxation Ruling TR 2001/2 Fringe benefits tax: the operation of the new fringe benefits tax gross-up formula to apply from 1 April 2000 (TR 2001/2) which discusses the operation of the new fringe benefits tax gross-up formula states at paragraph 14:

The classification of a fringe benefit (or excluded fringe benefit) as a type 1 benefit does not depend on the extent of the GST input tax credit entitlement to the provider. Nor does the classification as a type 1 benefit depend on whether the input tax credit is subsequently claimed. The test is whether there is any entitlement to a GST input tax credit.

Section 11-20 of the GST Act allows an input tax credit to be claimed for any creditable acquisitions that are made.

 Section 11-5 of the GST Act defines a creditable acquisition. One of the requirements for the acquisition to be solely, or partly for a 'creditable purpose'.

Section 11-15 of the GST Act defines a 'creditable purpose' as follows:

11-15  Meaning of creditable purpose  

(1)  You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2)  However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

(b) the acquisition is of a private or domestic nature.

(3)  An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be *input taxed to the extent that the supply is made through an *enterprise, or a part of an enterprise, that you *carry on outside Australia.

(4)  An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be *input taxed if:

(a) the only reason it would (apart from this subsection) be so treated is because it relates to making *financial supplies; and

(b) you do not *exceed the financial acquisitions threshold.

The application of GST to supplies of fringe benefits is discussed in Goods and Services Tax Ruling GSTR 2001/3 Goods and Services Tax: GST and how it applies to supplies of fringe benefits (GSTR 2001/3).

In discussing whether an acquisition or importation made to provide a fringe benefit is for a creditable purpose paragraph 52 of GSTR 2001/3 states:

An acquisition or importation you make to provide a fringe benefit in respect of employment in your enterprise is made in carrying on the enterprise and is not of a private or domestic nature for the purposes of section 11-15 and section 15-10. It is your purpose at the time of making the acquisition or importation that is relevant to whether the acquisition or importation is for a creditable purpose. For example, an acquisition made to provide a car for the private use of your employee is made for a creditable purpose.

Therefore, an acquisition or importation made to provide a fringe benefit will generally be for a creditable purpose. However, as set out above, there is no entitlement to claim an input tax credit for an acquisition or importation that relates to making input taxed supplies.

In ascertaining the GST implications of the provision of a fringe benefit, GSTR 2001/3 distinguishes between two concepts, 'work benefit' and 'remuneration benefit'.

The concept of the term 'remuneration benefits' is discussed at paragraphs 55 to 59 of GSTR 2001/3. These paragraphs state:

55. 'Remuneration benefits' are benefits provided to employees which, together with salary and wages, are provided by employers in return for employee services. Acquisitions that relate to providing these remuneration benefits will not relate to other supplies that an entity makes, such as input taxed supplies that an entity makes to clients or customers.

56. Examples of Remuneration Benefits would include:

· Use of a car to be used for employee's private travel;

· Entertainment provided to employees;

· Employee holiday travel and accommodation.

Example 9

57. International Bank acquires a car by way of lease, undertaking to make lease payments to a lessor so as to provide employee Eva with a motor vehicle for her private use, entirely as a remuneration benefit. The bank does not require the car to be used for work activities. The supply of the car to International is a taxable supply. International is entitled to input tax credits for the lease payments on the car and for car running costs such as petrol and repairs that it incurs to the extent that it meets the other requirements of section 11-5.

58. However if the supply of a remuneration benefit is one that relates to making an input taxed supply such as the provision of a loan or residential housing, you are not entitled to an input tax credit under paragraph 11-15(2)(a).

Example 10

59. Archimedes Ltd rents houses from various landlords to provide the use of the houses to its employees on an indefinite basis as remuneration benefits. Archimedes Ltd also pays another entity, Adminco, to administer the supply of houses to employees. The acquisition by Archimedes Ltd is not a creditable acquisition. The acquisition relates to the supply of benefits to employees that are input taxed supplies. Paragraph 11-15(2)(a) denies input tax credit entitlements on such payments. This result does not change whether or not the benefits are exempt or reduced in value for FBT purposes. Nor is the result affected by whether or not an amount of rent is received from an employee .

The concept of the term 'work benefits' is discussed at paragraphs 60 to 62 of GSTR 2001/3. These paragraphs state:

60. In contrast, a 'work benefit' is not provided for consideration (in the form of the employee's services) because the purpose of the benefit is to serve genuine and legitimate ends of the employer's enterprise, and any incidental advantage to the employee is disregarded as a minor outcome.

61. With a work benefit, the provision by an employer of pleasant working premises for employees clearly benefits an employee (when compared to unpleasant working conditions) but primarily serves the employer's purpose of creating an efficient working environment. An employee does not provide his or her services as consideration for the use of a desk or an office or other similar conditions of employment. Employee services are provided for the employer's provision of salary and wages, plus remuneration benefits.

62. Examples of work benefits would include:

· Provision of a car to an employee to use for work activities;

· Business travel and accommodation;

· Uniforms;

· Use/benefit of work property on work premises for work activities - desks, computer, chairs, tables, air conditioning.

The entitlement to claim an input tax credit is also affected by Division 71 of the GST Act. The operation of Division 71 of the GST Act is discussed in paragraphs 69 to 74 of GSTR 2001/3. These paragraphs state:

69. Division 71 will deny an input tax credit for acquisitions or importations for the purpose of providing a fringe benefit to employees of an input taxed supplier provided:

· FBT is payable on the provision of the fringe benefit; and

· the supplier would have been entitled to an input tax credit for the acquisition or importation (but for this Division).

This Division can apply to deny certain input tax credit entitlements where you make input taxed supplies in the course of your enterprise. The whole of the input tax credit is disallowed where Division 71 applies.

70. However Division 71 does not apply to an acquisition or importation if:

· the only reason it relates to making input taxed supplies is it relates to making financial supplies; and

· you do not exceed the financial acquisitions threshold.^F35

71. The most common application of Division 71 is where an acquisition is made to provide a fringe benefit that is in part a remuneration benefit and in part a work benefit that has a connection with making input taxed supplies. Division 71 can apply where an item is acquired by an employer for the purpose of both making input taxed supplies, and also providing a fringe benefit to an employee on which fringe benefits tax is payable.

Example 12

72. Eastbank Ltd exceeds the financial acquisitions threshold. It acquires a fleet of cars by way of lease, to use primarily in the Loans Division. Certain employees are each allocated a particular vehicle which is required to be garaged at the employee's home at night. FBT is payable on the vehicles because of the home garaging arrangement. The vehicles have been acquired partly to be used for enterprise activities, and partly for private use by employees.^F36 These vehicles are valued for FBT purposes using the statutory formula method.

73. In this example, Division 71 applies to deny any input tax credit entitlement on the lease of motor vehicles to Eastbank Ltd as the vehicles are subject to FBT and partly used in making input tax supplies .

Example 13

74. Assuming the same facts in Example 12 except Eastbank Ltd leases a fleet of cars, for use in the Sales Division to make taxable supplies. Division 71 would not deny the input tax credit entitlement for the lease of the cars to Eastbank Ltd as the vehicles were used wholly in making taxable supplies. Division 71 applies only where an acquisition relates, at least in part, to making input taxed supplies .

The operation of Division 71 of the GST Act and the concepts of remuneration benefits and work benefits were discussed at the meetings of the FBT subcommittee of the National Tax Liaison Group held on 21 June 2001 and 16 August 2001.

The Minutes of the meeting held on 21 June 2001 at agenda item 6.1.2 record the ATO provided the following response to a question concerning the operation of Division 71 of the GST Act:

The ATO considers that Division 71 of the GST Act does not apply to acquisitions resulting in entertainment benefits to employees (and their associates).

For entertainment, the FBTAA allows employers to make elections for meal entertainment and entertainment leasing facility benefits. These elections have also been incorporated into Division 69 of the GST Act to assist entities in reducing compliance costs.

Division 71 requires input taxed suppliers to classify each FBT acquisition. However, specific provisions relating to non-deductible expenses and provisions allowing elections to be made under Division 69 specifically remove or reduce these requirements.

Therefore, the ATO considers that Division 71 does not apply to acquisitions that result in entertainment benefits. For example, an employer who elects to apply section 69-25 (50/50 split for meal entertainment) would be entitled to 50% of the normal GST credit entitlement for all meal entertainment acquisitions. The credit entitlement will apply regardless of whether the employer makes any input taxed supplies to which Division 71 might otherwise apply (if it were not for the effect of Division 69). Elections made under section 69-30 (12 week register method for entertainment) and section 69-35 (50/50 split method for entertainment facilities) or acquisitions to which subsections 69-5(1) and (2) apply, will have the same effect, that is, to override the operation of Division 71. Also, an employer who does not make an election can claim input tax credits for a meal entertainment and entertainment leasing expense to the extent that the expense results in benefits provided to an employee and will be subject to FBT.

Consistent with this Division 71 approach to entertainment acquisitions, paragraph 11-15(2)(a) does not apply either. Therefore, it is not necessary for GST purposes to identify whether a particular entertainment acquisition is a remuneration benefit or a work benefit. Paragraphs 96 to 109 of GSTR 20001/3 apply irrespective of whether an employer makes input taxed supplies.

However, paragraphs 69 to 85 of the ruling explain the circumstances where Division 71 may apply to other acquisitions, such as for car benefits, provided by input taxed suppliers.

The Minutes of the meeting held on 16 August 2001 at agenda item 6.1 record the ATO provided the following response to a question concerning the concepts of remuneration and work related benefits:

Car and entertainment acquisitions and their identification as work or remuneration benefits for GST purposes was addressed in the sub- committee's discussions of 21 June 2001. This submission asks for further guidance on how to identify other types of benefits.

It is helpful to ask if these other benefits fall within one of three broad classes: those that relate wholly to remuneration benefits; those that result partly in a remuneration benefit (with some FBT payable); and those that relate only to work benefits (where no FBT is payable on the supply of the benefit).

Acquisitions that relate wholly to remuneration benefits.
Remuneration benefits are provided as consideration for employee services and are characterised by private use at the employee's discretion. Where such benefits are taxed at market value or arm's-length rate for FBT purposes, the benefit can be treated wholly as a remuneration benefit.

For example, car parking benefits under section 39A of the FBTAA are remuneration benefits. This is because such benefits are purely of a private nature and the FBT methods of valuation set out (in section 39A) are estimates of market value of the benefit. Any 'in-house' benefit value reductions for benefit values wouldn't preclude this result.

Acquisitions that relate to benefits that are wholly remuneration benefits are not subject to Division 71 of the GST Act.

Acquisitions that result partly in remuneration benefits (with some FBT payable).
Where an asset is used partly for work purposes and also privately, or where the employer imposes restrictions on use (even where the benefit is essentially private), the benefit will be both a work and a remuneration benefit. For example, where the FBT benefit value is reduced by the 'otherwise deductible rule' (because of the work activities) or there is a statutory reduction in value (such as a 50% reduction for Division 14, Part III, FBTAA). In these circumstances an 'otherwise deductible' declaration for a benefit would indicate that the acquisition was in part resulting in a work benefit.

Relocation benefits, whilst essentially private, still have some connection with work activities, as is suggested by the requirements of Division 14 of the FBTAA (the benefit is taxed at 50% of market value). These benefits are partly work benefits and partly remuneration benefits.

Acquisitions that result in benefits that are partly work benefits and partly remuneration benefits will be subject to Division 71 of the GST Act where the acquisition relates to making input taxed supplies.

Acquisitions that result only in work benefits (and no FBT is payable).
Where FBT is not payable on the supply of the benefit, Division 71 of the GST Act will not apply. In many cases this will be because the benefit arising is a work benefit and is merely a by-product of normal enterprise activities.

For example, subsection 47(3) of the FBTAA provides that a residual benefit provided to an employee that consists of the use of property (other than a motor vehicle) that is ordinarily located on business premises, and is wholly or principally used directly in connection with business operations of the employer, is an exempt benefit. The private use of a work telephone by an employee is an exempt benefit under subsection 47(3). The use of the telephone merely results in a benefit to the employee as part of work activities. The acquisition of the telephones is creditable to the same extent as other acquisitions that do not result in benefits to employees.

The same outcome results where the FBT value of the benefit is reduced to nil because of the 'otherwise deductible rule' applying.

GSTR 2000/15 explains the basic rules for input tax entitlements and GSTR 2000/22 discusses the rules for financial institutions.

Therefore, in summary:

· acquistions that relate to benefits that are wholly remuneration benefits will not relate to other supplies that an entity makes and are not subject to Division 71 of the GST Act;

· acquisitions that result partly in remuneration benefits with some FBT payable will be subject to Division 71 of the GST Act where the acquisition relates to making input taxed supplies; and

· acquisitions that result only in work benefits with no FBT payable will not come within Division 71 of the GST Act.

In applying this summary to the benefits provided:

(a) Car benefits for cars provided under a salary sacrifice arrangement

In accordance with paragraphs 55 to 57 of GSTR 2001/3 the use of the cars provided to employees under a salary sacrifice arrangement will be a remuneration benefit that does not relate to the input taxed supplies that you make. Therefore, you will be entitled to input tax credits for expenses relating to the car that meet the other requirements of section 11-5 of the GST Act and the value of the car fringe benefit will be classified as a type 1 benefit.

(b) Car benefits for cars used for both private and business purposes

By contrast the car fringe benefit that arises from the use of a car that is used for both business and private purposes will come within Division 71 of the GST Act as the supply partly relates to the making of a supply that is input taxed. As Division 71 of the GST Act operates to deny the claiming of input tax credits in relation to these car benefits they will be classified as a type 2 benefit.

(c) Car parking benefits

As set out in the ATO Response to the FBT subcommittee of the National tax Liaison Group at the meeting held on 16 August 2001, car parking benefits are remuneration benefits that will not be subject to Division 71 of the GST Act and will be classified as a type 1 benefit.

(d) Housing benefits

As set out in your private ruling application the supply of the right to use residential premises is input taxed. As the supply is input taxed there is no entitlement to an input tax credit for anything acquired or imported to make the supply and it will be classified as a type 2 benefit.

(e) Loan benefits

As set out in your private ruling application the making of a loan is a financial supply that is input taxed. As the supply is input taxed there is no entitlement to an input tax credit for anything acquired or imported to make the supply and it will be classified as a type 2 benefit.

(f) Meal entertainment benefits

As set out in the ATO Response to the FBT subcommittee of the National tax Liaison Group at the meeting held on 21 June 2001, Division 71 does not apply to acquisitions resulting in entertainment benefits to employees. An employer who elects to apply the 50/50 split for meal entertainment is entitled to 50% of the normal GST credit entitlement for all meal entertainment acquisitions. This entitlement will apply regardless of whether the employer makes any input taxed supplies to which Division 71 might otherwise apply (if it were not for the effect of Division 69).

(g) Expense payment benefits for the reimbursement of the costs of spectacles;

Depending upon the circumstances in which the reimbursement occurs, the reimbursement may be an exempt benefit under either section 58M or 58P of the FBTAA. If the benefit is an exempt benefit, it will not be necessary to determine if the benefit is a type 1 or a type 2 benefit.

If the reimbursement is not an exempt benefit, it may be a GST-free supply. As set out in paragraph 17 of Taxation Ruling TR 2001/2 Fringe benefits tax: the operation of the new fringe benefits tax gross-up formula to apply from 1 April 2000 (TR 2001/2) fringe benefits that are wholly GST-free cannot be classified as a type 1 benefit and consequently must be a type 2 benefit.

(h) Expense payment benefits for the reimbursement of certain home loan costs incurred in the purchase of a house in a remote area

You provide financial assistance to employees in purchasing a house in specific remote areas. This assistance relates to the loan taken out by the employees to purchase the home. As the home loan will be a financial supply which is input taxed the benefit will be a type 2 benefit.

(i) Expense payment benefits for the reimbursement of the electricity and gas bills of employees in a remote area;

Under section 59 of the FBTAA a 50% reduction can apply to the reimbursement of the cost of residential fuel where the employee is:

· the recipient of a remote area housing benefit; or

· under an obligation to repay the whole or a part of a remote area housing loan connected with the dwelling for which you are providing assistance; or

· incurring remote area housing rent for which you are providing assistance.

Where the 50% reduction applies, the benefit will be both a work and a remuneration benefit. As set out in set out in the ATO Response to the FBT subcommittee of the National tax Liaison Group at the meeting held on 16 August 2001, acquisitions that result in benefits that are partly work benefits and partly remuneration benefits will be subject to Division 71 of the GST Act where the acquisition relates to making input taxed supplies. Therefore, where the 50% reduction applies, the benefit will be a type 2 benefit.

(j) Expense payment benefits relating to the reimbursement of return plane tickets to the relevant capital city for employees located in a remote area

Your employees who are stationed in remote areas are entitled to be reimbursed for the cost of the return flights to the relevant capital city. The expense payment benefit that results from this assistance may be able to be reduced under section 60 of the FBTAA (remote area holiday transport fringe benefits subject to ceiling) or section 61 of the FBTAA (remote area holiday transport fringe benefits not subject to ceiling.

Where this reduction occurs, the principles discussed above in relation to the reimbursement of the electricity and gas bills will apply. That is, the benefit will be subject to Division 71 of the GST Act and the benefit will be a type 2 benefit.

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