Edited version of your written advice

Authorisation Number: 1012731329330

Ruling

Subject: Fringe Benefits Tax - Travel expenses

Question 1

Are the payments by the Company for the director's airfares, car hire and meals to attend board meetings interstate expense payment fringe benefits for the purposes of section 20 of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes.

Question 2

If the payments by the Company for the director's airfares, car hire and meals to attend board meetings interstate are considered to be expense payment fringe benefits, does the otherwise deductible rule in section 24 of the Fringe Benefits Tax Assessment Act 1986 apply to reduce the taxable value of those expense payment fringe benefits?

Answer

Yes, if the Company obtains a declaration from the director and documentary evidence in respect of the air fare expenses.

Question 3

Are the payments by the director for their airfares, car hire and meals expenses when travelling away from home to attend meetings with clients considered to be expense payment fringe benefits for the purposes of section 20 of the Fringe Benefits Tax Assessment Act 1986?

Answer

No.

Question 4

Is the Company entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 for the director's home office expenses, as paid by the director?

Answer

No.

This ruling applies for the following periods:

Year ended 31 March 2015

Year ended 31 March 2016

Year ended 31 March 2017

Relevant facts and circumstances

The head office of the Company is in State A.

The director is both a director and an employee of the Company.

The director lives in State B, where they work from their home office.

The director incurs all expenses related to the home office. These expenses are not reimbursed by the Company.

When the director is required to travel to State A for board meetings, the Company reimburses them or discharges their obligation to pay a third party for their airfares, car hire (when required) and meals.

When the director travels for meetings with clients outside of those board meetings, they incur all these expenses. They do not receive any reimbursement from the Company.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 24

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 8-1

Taxation Administration Act 1953 Schedule 1 section 12-40

Reasons for decision

Question 1

Summary

The payment by the Company for the director's airfares, car hire and meals when they travel to City A for board meetings are subject to fringe benefits tax as the payments qualify as expense payment fringe benefits.

Detailed reasoning

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA as a benefit that is provided to an employee by the employer in respect of the employment of the employee.

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

Subsection 136(1) of the FBTAA also defines 'salary or wages', to be payments from which an amount must be withheld under a provision in Schedule 1 to the Taxation Administration Act 1953 ('TAA 1953'). This includes payments to a director, under section 12-40 of Schedule 1 to the TAA 1953.

The director receives payments from the Company in respect of their duties, from which an amount must be withheld under Schedule 1 to the TAA 1953. As a result, the director is an employee of the Company, for the purposes of the FBTAA. The benefits they receive from the Company in the form of airfares, car hire and meals are provided in respect of their employment as a director, as they allow them to fulfil their duties as a director. Consequently, they are considered to be 'fringe benefits'.

Expense payment fringe benefits are defined in section 20 of the FBTAA and arise when an employer either:

• makes a payment which, wholly or in part, discharges an obligation of the recipient to pay an amount to a third person; or

• reimburses the recipient, wholly or in part, for an amount of expenditure incurred by the recipient.

As the Company pays for the director's airfares, car hire (when required) and meals, either by reimbursing them or discharging their obligation to pay a third party, it is providing an expense payment fringe benefit to the director.

Question 2

Summary

The 'otherwise deductible rule' in section 24 of the FBTAA can apply to expense fringe benefits incurred for airfares, care hire and meals. This is subject to a declaration and documentary evidence being obtained from the director in relation to the airfares, but not for car hire or meals.

Detailed reasoning

Where an employer has not made a no-private-use declaration under section 20A of the FBTAA, then the taxable value of expenses payment fringe benefits must be calculated to determine the employer's FBT liability.

However, the taxable value of expense payment fringe benefits may be reduced by the otherwise deductible rule in section 24 of the FBTAA.

Broadly, section 24 of the FBTAA states that if the employee would have been entitled to an income tax deduction if the expenditure was not paid or reimbursed by the employer, then the taxable value of an expense payment fringe benefit can be reduced.

The reduction is equal to the difference between the deduction that would have been allowable to the employee if the employer had not paid or reimbursed them, and the actual deduction allowable to the employee for the expenditure.

Section 8-1 of the ITAA 1997 allows a taxpayer a deduction for any expenses they incur in gaining or producing their assessable income, except if those expenses are of a capital, private or domestic nature.

Miscellaneous Taxation Ruling MT 2034 Fringe benefits tax: private use of motor vehicles other than cars states:

where the employer meets hiring costs incurred by an employee, an expense payment benefit arises under Division 5 of Part III of the Act, the gross value of the benefit being the amount paid or reimbursed by the employer.

ATO Interpretative Decision ATO ID 2002/807 Income Tax - Deductions: meal expenses whilst on overnight business travel allowed states:

meal expenses incurred while travelling overnight in the course of the taxpayer's business are deductible section 8-1 of the ITAA 1997, provided the relevant substantiation provisions of the ITAA 1997 are satisfied.

Generally, an employer will need to obtain documentary evidence of the expenses and a declaration from the employee in order to apply the otherwise deductible rule.

However, if the expenses are 'eligible incidental travel expense payment benefits', then neither a declaration nor documentary evidence are required from the employee, pursuant to paragraphs 24(1)(c) and 24(1)(e) of the FBTAA.

'Eligible incidental travel expense payment benefits' are defined in subsection 136(1) of the FBTAA. For travel within Australia, 'eligible incidental travel expense payment benefits' are expenses incurred by the employee when travelling away from their usual place of residence while performing the duties of their employment. It lists accommodation, the purchase of food or drink and other travel incidentals as relevant types of expenses.

As part of their duties as a director of the Company, the director is required to attend board meetings in State A. In these circumstances, the director's expenditure on airfares, car hire and meals are incurred in the course of earning their assessable income and are not private or domestic in nature. As a result, the director would be allowed income tax deductions for those expenses if the Company had not paid or reimbursed them.

Consequently, in applying section 24 of the FBTAA, the taxable value of the expense payment fringe benefits could be reduced to nil.

Where the Company wishes to apply the otherwise deductible rule, a declaration must be obtained from the director, along with documentary evidence of the expenses incurred.

The cost of the airfares would not be considered 'eligible incidental travel expense payment benefits' as they are not incidental to the travel. However, for the director's meals and car hire, these would be considered 'eligible incidental travel expense payment benefits'.

As a result, if the Company obtains a declaration from the director and documentary evidence in respect of the air fare expenses, it can apply the otherwise deductible rule. This will reduce the taxable value of the expense payment fringe benefits provided to the director to nil.

Question 3

Summary

The payments made by the director for airfares, meals and car hire to attend meeting with their clients are not subject to fringe benefits tax.

Detailed reasoning

A 'benefit' is defined in subsection 136(1) of the FBTAA to include:

a right, benefit, privilege, service or facility that is… provided under an arrangement for or in relation to the performance of work…

In relation to the expenses that the director incurs when travelling away from home, the Company has not provided the director with any benefit.

Specifically, as the Company does not reimburse the director for the payment of their airfares, car hire and meals expenses when travelling away from home, an expense payment fringe benefit has not been provided, pursuant to section 20 of the FBTAA.

Question 4

Summary

The Company is not entitled to claim deductions under section 8-1 of the ITAA 1997 for any of the director's home office expenses, as the Company has not incurred any of these expenses.

Detailed reasoning

Section 8-1 of the ITAA 1997 entitles a taxpayer to a deduction for any expenses they incur in gaining or producing their assessable income or that are necessarily incurred in carrying on a business for the purpose of gaining or producing the assessable income.

Taxation Ruling TR 97/7 Income tax: section 8-1 - meaning of 'incurred' - timing of deductions provides the Commissioner's view as to the meaning of 'incurred'. Paragraph 5 of TR 97/7 broadly states that 'you incur an outgoing at the time you owe a present money debt that you cannot escape'.

As the director pays their own office expenses, the Company has not incurred any costs in relation to the home office. The Company is not liable for any of the director's office expenses. As a result, the Company is not entitled to a deduction for any of the director's office expenses.

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