Edited version of your written advice

Authorisation Number: 1012802613956

Ruling

Subject: Fringe Benefits Tax - Expense Payment Benefits

Question 1

Can the taxable value of an external expense payment fringe benefit be reduced by the operation of subsection 24(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) where the reimbursement is in respect of an employee's self-education expenses?

Answer

Yes. Subsection 24(1) of the FBTAA 1986 will apply to reduce the taxable value of the external expense payment fringe benefit.

This ruling applies for the following period:

1 April 2013 to 31 March 2014

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

(As per ruling application)

The employee is a registered nurse working within the Operating Theatres at a Public Hospital. The employee is completing a post-graduate qualification, being the Master of Nursing Science, to improve their skills and knowledge in the field of nursing. The increased qualification is likely to result in an increase to their income upon completion of her course of study, as demonstrated in clause 55 of the Nurses and Midwives (Victorian Public Sector) (Single Interest Employers) Enterprise Agreement 2012-2016.

The employee is undertaking their Master of Nursing Science at a University. An invoice for the Commonwealth Supported Place Student Contribution for Semester 2, 20XX has been submitted. The invoice issued to the student has been provided to the Public Hospital.

The amount of the invoice was reimbursed to the employee during the relevant FBT year and has subsequently been included in the Public Hospital's 20XX Fringe Benefits Tax return as a type 2 benefit.

The employee has signed the required expense payment fringe benefit declaration form declaring the course fee to be 100% business related, as part of the employee expense reimbursement form.

Additional information

The following information has been provided:

Employee's current duties.

Operating Theatre Nurses provide direct and individualised nursing care to patients based on the application of scientific nursing principles. In addition to general nursing care, during a surgical procedure an Operating Theatre Nurse may be required to complete any of the following tasks:

• Circulating Nurse, with the following additional duties:

• Assists in positioning, responding to comfort & safety of patient

• Provides for accurate care and handling of specimens

• Observes and enforces strict standards of asepsis

• Observes, checks and monitors all equipment used during surgery to confirm they are running smoothly

• Handles patient documentation

• Inventories all items both pre and post-surgery

• Scrub Nurse, with the following additional duties:

• Selects and handles instruments and supplies used for the operation, passing them to the surgeon

• Inventories all items both pre and post-surgery

• Nurses First Assist, with the following additional duties

• Delivers direct surgical care by assisting physicians

• Helps control bleeding

• Provides wound exposure

• Sutures patients after surgery

Details of the course being undertaken, including subjects and relevance to the employee's current position.

The employee is currently completing a Master of Nursing Science at the University of an Australian State. The Master of Nursing Science is designed to provide opportunities for nurses to develop advanced skills in clinical enquiry, practice and leadership in professional nursing. The degree provides graduates with a rigorous grounding in research methods, critical analysis, leadership and theoretical perspectives that inform nursing.

The subjects undertaken by the employee which have been reimbursed under the Postgraduate Nursing and Midwifery Scholarship Program are Knowledge Translation, Professional Practice and Specialised Period Nursing Practice.

How is this course of study likely to increase the employee's income?

Upon completion, the employee will receive an additional $X per fortnight in their taxable income, in accordance with clause 55 of the Nurses and Midwives (Victorian Public Sector) (Single Interest Employers) Enterprise Agreement 2012-2016. Further, as the employee will then hold the higher qualifications, they may be requested to undertake the position of Associate Unit Manager (i.e. the person responsible for a ward in the absence of a Nurse Unit Manager) when the Nurse Unit Manager is not present. Although the qualifications do not guarantee this, it is a qualification that is desired to undertake the roles at higher duties.

At the completion of the course of study, will the employee be automatically entitled to an allowance payable under the Nurses and Midwives (Victorian Public Sector) (Single Interest Employers) Enterprise Agreement 2012-2016?

Yes, under the terms of clause 55 of the Nurses and Midwives (Australian state Public Sector) (Single Interest Employers) Enterprise Agreement 2012-2016 the employee will be eligible to receive the allowance upon presentation of their higher qualification to the Public Hospital.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986

Section 20

Paragraph 20(b)

Section 23

Section 24

Subsection 24(1)

Subsection 136(1)

Income Tax Assessment Act 1997

Section 8-1

Section 26-20

Income Tax Assessment Act 1936

Subsection 82A(1)

Reasons for decision

Was an expense payment benefit provided to an employee?

Section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) sets out the circumstances in which a reimbursement will be an expense payment benefit. Section 20 states:

Where a person (in this section referred to as the provider):

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the recipient) in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

As you reimbursed your employee for expenses they incurred, the benefit is an expense payment benefit under paragraph 20(b) of the FBTAA 1986.

The taxable value of an expense payment benefit can be reduced in certain circumstances by the 'otherwise deductible' rule if the employee would have been entitled to claim an income tax deduction for the expense if they hadn't been reimbursed by the employer. The requirements for the otherwise deductible rule to apply to expense payment benefits are set out in section 24 of the FBTAA 1986. Section 24 states:

(1) Where:

(a) the recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer; and

(b) if the recipient had, at the time when the recipients expenditure was incurred, incurred and paid unreimbursed expenditure (in this subsection called the gross expenditure), in respect of the same matter in respect of which the recipients expenditure was incurred, equal to:

(i) in the case of an in-house expense payment fringe benefit - the amount that, but for this subsection and Division 14 and the recipients contribution, would be the taxable value of the expense payment fringe benefit in relation to the year of tax; or

(ii) in the case of an external expense payment - the amount of the recipients expenditure;

a once-only deduction (in this subsection called the gross deduction) would, or would if not for section 82A of the Income Tax Assessment Act 1936, and Divisions 28 and 900 of the Income Tax Assessment Act 1997, have been allowable to the recipient under either of those Acts in respect of the gross expenditure; …

The reduction in taxable value only applies where the employee would have been entitled to a "once-only deduction" assuming he or she had incurred the expense. This once-only deduction is called the "gross deduction'' and is calculated ignoring the limitation on deductions for self-education expenses imposed by section 82A of the ITAA 1936 and the income tax substantiation rules in ITAA 1997.

Example

An employer lends an amount to an employee to pay fees for a prescribed course of education, and the employee has to pay interest on the loan. If the interest on the loan would be deductible under s 8-1of the ITAA 1997, but because of section 82A of the ITAA 1936, the deduction would only apply to the extent that the interest exceeded $250, then that limit would be disregarded and the gross deduction is 100% of the interest on the loan.

In summary, the otherwise deductible rule as set out in section 24 of the FBTAA 1986 will apply to reduce the taxable value of an expense payment benefit if the following conditions are satisfied:

1. the recipient of the benefit is your employee

2. the employee who received the benefit, would have been entitled to a once-only deduction had you not reimbursed the employee for the expense incurred

A 'once-only' deduction is defined in subsection 136(1) to mean:

once-only deduction, in relation to expenditure, means a deduction in a year of income in respect of a percentage of the expenditure where no deduction is allowable in respect of a percentage of the expenditure in any other year of income.

It is accepted that you provided an expense payment benefit to your employee.

Would the employee who received the benefit have been entitled to a once-only deduction for the expense had you not reimbursed them for the expense incurred?

The deductibility of self-education expenses is discussed in Taxation Ruling TR 98/9.

General guidelines for determining the deductibility of self-education expenses are provided in paragraphs 12 to 16 of TR 98/9. At these paragraphs the ruling states:

12. Self-education expenses are deductible under section 8-1 [of the Income Tax Assessment Act 1997 (ITAA 1997)] where they have a relevant connection to the taxpayer's current income-earning activities.

13. If a taxpayer's income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge, the self-education expenses are allowable as a deduction.

14. If the study of a subject of self education objectively leads to, or is likely to lead to, an increase in a taxpayer's income from his or her current income-earning activities in the future, the self education expenses are allowable as a deduction.

15. The fact that the study will enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the taxpayer's current employment) is not a sufficient basis in itself for self-education expenses to be deductible. This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

16. In practice, the above principles do not always operate on a mutually exclusive basis. It is always necessary to have regard to the words of section 8-1 and apply them to the facts.

The deductibility of tuition fees and higher education loan repayments is specifically discussed at paragraphs 23 to 24 of TR 98/9 as follows:

23. Subject to the general tests under 8-1 being met, the following types of expenses related to self-education are allowable:

(a) course or tuition fees of attending an educational institution, work-related conference or seminar, including student union fees;

…

24. The following expenses related to self-education are not allowable under section 8-1:

(a) a student contribution amount or debt repayment amount specified in section 26-20 of the ITAA 1997;

…

Paragraph 85 then provides further detail on these general statements:

85. Course or tuition fees incurred in attending an educational institution or attending work-related conferences or seminars, including student union fees, are allowable under section 8-1. However, you cannot deduct a student contribution amount paid to a higher education provider under the Higher Education Support Act 2003: paragraph 26-20(1)(ca) of the ITAA 1997. Such payments are made by a student to cover the cost of a course of study at a tertiary educational institution. Repayment amounts for a Higher Education Loan Program (HELP) debt or a Student Financial Supplement Scheme (SFSS) debt are also not deductible: paragraph 26-20(1)(cb) and paragraph 26-20(1)(d) of the ITAA 1997, respectively.

These general principles are discussed in relation to studies funded by FEE-HELP loans in ATO Interpretative Decision ATO ID 2005/26 Income Tax Deductions: self-education - course fees paid from FEE-HELP loan funds (ATO ID 2005/26) and ATO Interpretative Decision ATO ID 2005/27 Income Tax Deductions: self education - payments made to reduce FEE-HELP debt (ATO ID 2005/27).

Taking into account the principles set out in TR 98/9 and applied in ATO ID 2005/26 and ATO ID 2005/27, the employee would have been entitled to claim a once only deduction for the course fees.

Conclusion

It is accepted that the employee's expenditure would be deductible under section 8-1 of the ITAA 1997 as the outgoing has the relevant connection to the employee's current income-producing activities. The expenditure was therefore incurred in the gaining or producing of the employee's assessable income.

Therefore the 'otherwise deductible' rule can be applied to reduce your FBT liability on the reimbursement of your employee's self-education expense.

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