Edited version of your private ruling

Authorisation Number: 1012568268942

Ruling

Subject: Fringe Benefits Tax

Question

Will the benefits provided to an overseas visitor give rise to a taxable fringe benefit?

Answer

No.

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 a registered religious institution which has a number of part time volunteers (volunteers) who do not receive any remuneration or benefits for the services they provide.

You also have visitors from overseas (overseas visitors) who assist you by conducting:

• prayer sessions;

• lectures;

• homilies; religious instruction; and

• educational campaigns.

You do not have a formal agreement with the overseas visitors.

The overseas visitors are not paid salary or wages or leave payments. However, the overseas visitors may receive support in the form of lodging, meals, personal toiletries, dry cleaning, some medical expenses, medical insurance, clothes, mobile phone plan and use of a shared car.

The overseas visitors are able to determine their working hours and the activities they provide based on agreement with the volunteers as to the best means of furthering your purposes.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 57

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 137

Taxation Administration Act 1953 Division 12 of Schedule 1

Reasons for decision

Will the benefits provided to an overseas visitor give rise to a taxable fringe benefit?

In general terms a fringe benefit will arise when:

• a benefit is provided to an employee;

• by the employer, an associate or a third party under an arrangement;

• that is in respect of the employment of the employee; but

• does not come within paragraphs (f) to (s) of the fringe benefit definition in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). For the purposes of this Ruling, the relevant paragraph to consider is paragraph (g) which provides that an exempt benefit will not be a fringe benefit.

In the situation being considered, the first of these conditions is met as you provide a range of benefits to the overseas visitors.

Is an overseas visitor an employee?

An 'employee' is defined at subsection 136(1) of the FBTAA to mean a current, future or former employee.

A 'current employee' is defined at subsection 136(1) of the FBTAA to mean 'a person who receives, or is entitled to receive, salary or wages'.

'Salary or wages' is defined at subsection 136(1) of the FBTAA to mean a payment from which an amount must be withheld under one of the listed provisions in Schedule 1 to the Taxation Administration Act 1953 (TAA). The listed provisions include:

• section 12-35 which covers payments to common law employees; and

• section 12-47 where the payment is made to a religious practitioner by a religious institution and the activities for which the payment is made is done by the religious practitioner as a member of the religious institution.

Are the overseas visitors common law employees?

As the overseas visitors only receive benefits they do not receive and are not entitled to receive 'salary or wages'. Therefore, they do not come within the definition of 'current employee'.

However, section 137 of the FBTAA extends the meaning of salary or wages to create an employment relationship for the purposes of the FBTAA where a benefit is provided that would have been classified as salary or wages if it had been a cash payment. That is, had the benefit been provided by way of a cash payment, the payment would be a payment from which an amount must be withheld under one of the provisions of the TAA listed in the definition of salary or wages.

Subsection 137(1) states:

For the purpose only of ascertaining whether a person is an employee or an employer within the meaning of this Act, where:

(a) a benefit is provided by a person (in this subsection referred to as the first person) to, or to an associate of, another person (in this subsection referred to as the second person);

(b) but for this subsection, the benefit would not be regarded as having been provided in respect of the employment of the second person; and

(c) either of the following conditions is satisfied:

(i) if the benefit were provided by the first person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the first person to the second person;

(ii) all of the following conditions are satisfied:

(A) subparagraph (i) does not apply in relation to the benefit;

(B) the first person is an associate of a third person or the benefit is provided under an arrangement between the first person and a third person;

(C) if the benefit were provided by the third person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the third person to the second person;

a definition in subsection 136(1) applies as if the benefit were salary or wages paid to the second person by:

(d) in a case to which subparagraph (c)(i) applies - the first person; or

(e) in a case to which subparagraph (c)(ii) applies - the third person.

In considering whether the relevant withholding provisions would apply if the benefits had been provided as a cash payment it is necessary to consider whether the overseas visitors are volunteers or employees? Guidance for considering this question is provided in the ATO publication, Volunteers and tax,( NAT 4612-04.2008 Guide for non-profit organisations and individuals Volunteers and tax Treatment of transactions between non-profit organisations and volunteers (Guide for non-profit organisations and individuals) as follows:

ARE PAYMENTS TO VOLUNTEERS ASSESSABLE INCOME?

Volunteers can be paid in cash, given non-cash benefits or given a combination of both cash and non-cash benefits. These payments are given various descriptions, including honorariums reimbursements and allowances. Sometimes they are given no name at all.

How an amount is described does not determine its treatment for tax purposes. Whether a payment is assessable income in the hands of a volunteer depends on the nature of the payment and the recipient's circumstances.

Generally, receipts which are earned, expected, relied upon and have an element of periodicity, recurrence or regularity are treated as assessable income.

…

A payment to a volunteer that is not assessable will have many of the following characteristics.

• The payment is to meet incurred or anticipated expenses.

• The payment has no connection to the recipient's income-producing activities or services.

• The payment is not received as remuneration or as a consequence of employment.

• The payment is not relied upon or expected by the recipient for day-to-day living.

• The payment is not legally required or expected.

• There is no obligation on the part of the payer to make the payment.

• The payment is a token amount compared to the services provided or expenses incurred by the recipient. Whether the payment is token depends on the full facts surrounding the payment and recipient's circumstances.

Volunteers and tax also provides guidance in distinguishing volunteers from employees:

MEANING OF VOLUNTEER

There is no legal definition of 'volunteer' for tax purposes. The dictionary defines a volunteer as someone who enters into any service of their own free will, or who offers to perform a service or undertaking.

MEANING OF EMPLOYEE

Generally, an individual is considered to be an employee if they:

• are paid for time worked

• receive paid leave (for example, sick, annual or recreation, or long service leave)

• are not responsible for providing the materials or equipment required to do their job

• must perform the duties of their position

• agree to provide their personal services

• work hours that are set by an agreement or award

• are recognised as part and parcel of the payer's 'business'

• do not take commercial risks and cannot make a profit or loss from the work performed.

A genuine volunteer does not work under a contractual obligation for remuneration and would not be an employee or an independent contractor. You should always consider the facts and circumstances of each individual when determining whether they are a volunteer, employee or independent contractor.

Further guidance is provided in Miscellaneous Taxation Ruling MT 2032 Fringe benefits tax: sporting clubs (MT 2032). In discussing whether a benefit provided to a player will be a fringe benefit paragraph 3 of MT 2032 states:

a taxable fringe benefit will only arise in relation to benefits given to players if the players are "employees" of the club.

In discussing when players will be considered to be employees of the club paragraph 4 notes there is a range of situations. The situations at both ends of the range are discussed in paragraphs 4 and 6 of MT 2032. Paragraph 4 of MT 2032 states:

At one end there are the professional clubs of the major football competitions in each State. The players in these typically are under contract, are well remunerated, and there is a clear employer-employee relationship for FBT purposes. If such a club provides an overseas trip or similar reward to its players there is clearly a taxable fringe benefit

By contrast, paragraph 6 of MT 2032 states:

It is equally clear that at the other end of the spectrum an employer-employee relationship does not exist in the case of minor competitions where the players do not receive match payments from the club.

In providing a guideline as to the approach to be adopted where the situation is between these two situations paragraph 8 of MT 2032 states:

Where the level of payments to players is such as to do little more than offset the training and travelling expenses of the players this tends towards a conclusion that the players are not employees for FBT purposes.

In applying these guidelines, many of the benefits merely offset expenses that would otherwise be incurred in coming to Australia to undertake duties for you. For example, the accommodation and meals expenses are incurred as a result of coming to Australia. However, there are also benefits which appear to be additional to expenses incurred in coming to Australia to undertake duties for you. For example, personal travel, medical and clothes.

In considering whether these additional benefits cause the overseas visitors to be considered to be common law employees it is relevant to note:

• the overseas visitors do not receive any other remuneration;

• the value of the benefits that do not offset expenses incurred in coming to Australia will not be sufficient to cause the benefits to be considered to be a form of remuneration;

• the overseas visitors do not receive employment rights and entitlements such as paid leave or superannuation;

• there is no expectation or entitlement to receive the benefits;

• the services are provided by way of an informal understanding, rather than a contract obligation or formal agreement;

• you do not exercise control over the overseas visitors. Rather, the overseas visitors are able to determine their working hours and the activities they provide;

• the benefits provided are not a fixed or regular amount; and

• the overseas visitors do not work hours that are set by an award or agreement.

Each of these factors indicates a common law relationship does not exist with the overseas visitors. Given these factors, the value of the benefits received is not considered to be sufficient for the overseas visitors to be considered to be common law employees.

Do the overseas visitors come within section 12-47 of schedule 1 to the TAA?

Section 12-47 of Schedule 1 to the TAA 1953 provides that an entity must withhold an amount from a payment it makes to a religious practitioner for an activity, or a series of activities, if:

• the activity, or series of activities, is done as a member of a religious institution (per subsection 12-47(b)), and

• the payment is made in the course or furtherance of an enterprise that the entity carries on (per subsection 12-47(c)).

If these requirements are met, the overseas visitors will be employees for the purposes of the FBTAA. However, such a conclusion may not result in the benefits being fringe benefits as section 57 of the FBTAA provides that a benefit provided to a religious practitioner who is an employee for the purposes of the FBTAA will be an exempt benefit if:

• the employer is a registered religious institution; and

• the benefit is provided principally in respect of duties of employment that are pastoral duties, or directly related to the practice, study, teaching or propagation of religious beliefs.

Are you a registered religious institution?

A registered religious institution is defined under subsection 136(1) of the FBTAA as an institution that is a registered charity and is registered with the Australian Charities and Not-for-profit Commission (ACNC) as an entity with a purpose of the advancement of religion. You satisfy this requirement.

Do the overseas visitors undertake pastoral duties or duties directly related to the practice, study, teaching or propagation of religious beliefs?

Paragraphs 20 to 29 of Taxation Ruling TR 92/17 Income tax and fringe benefits tax: exemptions for 'religious institutions' (TR 92/17) considers what are and what are not 'pastoral duties" and what are "directly related religious activities' as well as the 'provided principally' test required in paragraph 57(d) of the FBTAA.

Paragraph 21 of TR 92/17 describes 'pastoral duties' generally as duties associated with the spiritual care of the members of the congregation of a religious body and gives examples, such as:

(a) communication of religious beliefs;

(b) teaching and counselling adherents and members of the surrounding community;

(c) providing adherents and members of the surrounding community with spiritual guidance and support;

(d) attendance at an in-service training seminar by a person or persons conducting the seminar, provided that the seminar is of a spiritual nature; and

(e) meeting with and visiting adherents, the sick, the poor, or persons otherwise in need of emotional and spiritual support.

Paragraphs 22 and 23 of TR 92/17 consider what duties or activities are 'directly related religious activities'. Paragraphs 22 and 23 state:

22. The duties or activities must be related directly to the practice, study, teaching or propagation of religious beliefs to meet the requirements of paragraph 57(d) of the FBTAA. The duties or activities may include secular activities if it can be shown that there is a direct link between those activities and the religious beliefs of the person concerned.

23. Although a full-time member of a religious order may not be involved exclusively or predominantly in pastoral duties, he or she generally is engaged in duties or activities that are directly related to the practice, study, teaching or propagation of their religious beliefs.

The Macquarie Dictionary version 5.0.0-01/10/01 defines 'propagation' as follows:

…

4. To spread (a report, doctrine, practice, etc.) from person to person; disseminate.

5. To cause to increase in number or amounts …

Therefore, duties that can be directly relating to causing the growth or spread of religious beliefs will be accepted as religious activities.

Paragraph 25 of TR 92/17 provides an exhaustive list of examples of duties or activities which are not 'pastoral duties' or 'directly related to religious activities' as follows:

(a) the administration of a church; and

(b) work undertaken by a director of a department of a Diocese or similar unit of ecclesiastical administration; and

(c) the administration of a school.

The activities undertaken by the overseas visitors include:

• conducting prayer sessions

• lectures

• homilies

• religious instruction

• educational campaigns

These activities are pastoral duties or activities directly related to the religious beliefs of the Association.

Conclusion

A fringe benefit will not arise from the provision of the benefits to the overseas employees as either:

• the overseas visitors are not an employee for the purposes of the FBTAA; or

• if the overseas visitors are an employee for the purposes of the FBTAA, the benefits will be exempt benefits under section 57 of the FBTAA.

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