Edited version of your written advice

Authorisation Number: 1012690107092

Ruling

Subject: Scholarship-Reimbursement Of Costs

Question 1

Does reimbursement of student contribution and text book costs by the taxpayer to University Scholarship Scheme students constitute a fringe benefit under subsection 136(1) of the Fringe Benefits Assessment Act 1986 (FBTAA 1986)?

Answer

No

This ruling applies for the following periods:

Year ending 31 March 2015

Year ending 31 March 2016

Year ending 31 March 2017

Year ending 31 March 2018

The scheme commences on:

1 April 2008

Relevant facts and circumstances

In 2008 the taxpayer in partnership with a University embarked on a regional industry scholarship program to provide Industry Scholarships.

The University promotes the scholarship program to Year 12 students of local high schools.

The taxpayer is a sponsor of the industry scholarship scheme and is invoiced bi-annually by the University. The University then makes payments of scholarship monies to eligible scholars fortnightly.

The taxpayer's primary reason for becoming a sponsor of the industry scholarship scheme is to contribute to the supply of industry trained graduates to help meet future demands.

The students submit an application to the University who in turn assess their suitability and the taxpayer then selects a number of these to undertake an interview. The students are also selected by a number of other sponsor organisations for interview. Sponsors can be from other private sector organisations and other local government authorities.

The interview process is organised and coordinated by the University with a representative of the taxpayer, the University and another sponsoring organisation present on the interview panel.

Additional information was requested from the applicant by telephone conversation on 2 July 2009. As a result, the Sponsorship Agreement between the University and the taxpayer was provided.

Under the terms of the industry scholarship program, scholarships are offered for a number of years. During the term of the scholarship, the scholar is required to undertake mandatory industry placements during semester breaks with the taxpayer.

At the end of each academic semester the taxpayer reimburses the scholar with the cost of HECS/student contribution fees and prescribed textbooks on successful completion of units of study. The HECS fees are paid in the first instance to the University by the Scholar.

The taxpayer is under no obligation to employ the Scholar either during the scholarship or on completion.

Further additional information was subsequently requested from the applicant in respect to the reimbursement of student contributions/HECS and textbook costs. Information provided:

• there is no agreement between the taxpayer and the Scholar. This is purely an arrangement between the taxpayer and the scholar. After the interview process is complete and successful candidate/s selected, the offer of a scholarship is made to the student with the added bonus of payment of HECS and text books if the student is prepared to accept the scholarship. This ensures the taxpayer's money is targeted at the brightest and best students most likely to complete the course.

• the expectation of the student is reimbursement of HECS fees and books on successful completion of each semester. HECS fees and books are paid up front by the student at the beginning of each semester. The students gain valuable industry experience during the duration of the scholarship.

• the taxpayer's expectation is that the student satisfactorily passes each semester of study to enable progression in the course. Any failed units would not be reimbursed. Passing on industry knowledge and experience to the scholar and providing them with practical engineering skills.

• the taxpayer has been participating in the industry scholarship program for a number of years. The University has not and does not promote or advertise the fact that the taxpayer reimburses scholars for HECS and cost of text books. Payment of HECS and text books is subject to the availability of funding and is reviewed annually by the taxpayer.

• the taxpayer is under no obligation to employ any of the students during, or on completion of their scholarship. It may well be the case that the scholar is unsuitable for employment or simply no suitable positions exist with the taxpayer at time of completion.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Taxation Administration Act 1953 section 12-35

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

A fringe benefit is defined in subsection 136(1) of the FBTAA as follows:

'fringe benefit', in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

(i) the employer or an associate of the employer; and

(ii) the arranger or another person; or

(ea) a person other than the employer or an associate of the employer, of the employer or an associate of the employer:

(i) participates in or facilitates the provision or receipt of the benefit; or

(ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;

and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

in respect of the employment of the employee, but does not include:...

Paragraphs (f) to (s) of the definition contain a number of exclusions from this definition, none of which apply to the circumstances described in the arrangement which is the subject of this Ruling.

Miscellaneous Taxation Ruling MT 2016 describes two essential requirements for a benefit to be subject to fringe benefits tax. At paragraph 8 it states:

To be subject to fringe benefits tax two essential requirements must be satisfied. First, the benefit must be provided to an employee (or associate) and, second, the benefit must be provided in respect of the employment of the employee.

Are the benefits provided to an employee or an associate of an employee?

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

Salary or wages is defined in subsection 136(1) of the FBTAA to be a payment from which an amount must be withheld (even if the amount is not withheld) under one of the listed provisions of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). The listed provisions include sections 12-35 of Schedule 1 to the TAA 1953.

Section 12-35 of Schedule 1 to the TAA 1953 states:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

You have stated that the scholars are not paid salary or wages by the taxpayer during their work placement. The facts as presented show there is no contractual obligation between the taxpayer and the scholar. There is also no condition in the agreement for the taxpayer to make any payment to the scholar. The agreement states specifically that the scholar is not an employee of the sponsor (the taxpayer). The agreement is an obligation on the scholar to complete units of study which the work placement is merely a part.

Are the benefits provided in respect of employment of the employee?

A benefit must be in respect of employment to satisfy the definition of a fringe benefit contained in subsection 136(1) of the FBTAA. In J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000 ) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22, it was concluded that there must be a sufficient or material, rather than a causal connection or relationship between the benefit and the employment for the benefit to be in respect of employment.

Under the industry scholarship program agreement the scholar must undertake work placements with the taxpayer as a condition of the agreement in respect to their course of study.

The employees are not paid salary and wages in the form of cash payments. The reimbursement of student contribution and text book costs reimbursement is provided as an added incentive to the scholars on acceptance of the scholarship being provided. The reimbursements are paid only after successful completion of units and are subject to available funding by the taxpayer.

It is considered that there is not a sufficient material connection between the reimbursement of student contribution and text book costs by the taxpayer and the work placement of the scholar. The work placement is connected to their course of study and scholarship and is not considered to be provision of these benefits is respect to the employment of an employee. It is not considered that an employer/employee relationship exists.

Conclusion

As the reimbursement of student contributions and text book costs are not provided to employees in respect of employment, they are not considered to be fringe benefits pursuant to subsection 136(1) of the FBTAA.

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