Edited version of your written advice

Authorisation Number: 1012865287989

Date of advice: 24 August 2015

Ruling

Subject: Fringe benefits tax

Question 1

Has the company provided a fringe benefit to X for the purpose of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) during the FBT years ended 31 March 2012, 31 March 2013, 31 March 2014, 31 March 2015 and 31 March 2016 (inclusive)?

Answer

No

Question 2

If a fringe benefit has been provided to X during the 2012 to 2016 FBT years, is the fringe benefit provided a housing fringe benefit pursuant to Part III, Division 6 of the FBTAA?

Answer

Not applicable

Question 3

If a fringe benefit has been provided to X during the 2012 to 2016 FBT years, and that fringe benefit is not a housing fringe benefit, what type of fringe benefit has been provided to X?

Answer

Not applicable

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

The scheme commences on:

The scheme has commenced

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.

The shareholders of the company are A and B.

The company employs X.

B acquired a property (the Property) and is the registered owner.

B also owns several animals and they live on the Property.

There are two dwellings on the Property, one in which A and B currently dwell in and another (the First Dwelling).

A and B wanted a animal-minder to live in the First Dwelling to care for B's animals when B was unable to do so and to provide peace of mind that there was someone else nearby in case of an emergency.

A and B need someone to reside on the Property to look after B's animals if they are to be away for more than 18 hours as:

• The animals need attention every morning and evening. In addition to the usual tasks of general care, feed preparation and stable cleaning, there are particular tasks due to the climate. Because of this B spends at least an hour each morning and afternoon looking after the animals.

• The Property is somewhat remote.

• Access to the Property can be cut off at short notice. Typically access will be affected for less than 24 hours, but in the years A and B have lived on the Property there have been several occasions where access has been affected by the best part of a week.

The first animal-minder

A friend of B (C) who had experience with animals came and stayed on the Property when A and B needed to be away.

No payment was provided to C to stay and look after the animals and C did not pay to stay on the Property.

C was supposed to move into the First Dwelling once A and B had moved into the current house.

When A and B moved into the current house C's circumstances had changed and did not move into the First Dwelling.

A and B still wanted someone to reside in the First Dwelling to care for the animals and provide peace of mind. They did not believe there would be many candidates.

The second animal-minder

A and B asked X who was working for the company to live in the First Dwelling to be the resident animal-minder.

X had been working on a full time basis for the company. During this time X proved to be an honest and trustworthy individual in this role. X had the required experience with animals.

X accepted A and B's offer to stay in the First Dwelling to be the animal-minder.

A and B do not charge X rent to stay in the First Dwelling and they do not pay X any form of payment for animal-minding.

There is no lease or any other documentation with respect to X occupying the First Dwelling.

X does not have a set timetable or schedule as to how often or when X is required to care for the animals. However, the animal-minding is carried out before and after work on weekdays and as and when required on the weekends.

X's wage and employment conditions with the company did not change as a result of moving into the First Dwelling. X's wage and employment conditions would not change if X chose to stop being the resident animal-minder and move out of the First Dwelling.

In the event X ceases employment with the company, A and B would wish X to remain living in the First Dwelling as X is now very experienced in caring for B's animals and finding another suitable animal-minder would be difficult.

The nature of the arrangement to care for the animals between X and A and B is private and domestic and independent of any business otherwise conducted by A and B.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1).

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.

Question 1

Summary

The company has not provided a fringe benefit to X during the FBT years ended 31 March 2012, 31 March 2013, 31 March 2014, 31 March 2015 and 31 March 2016 (inclusive) by way of accommodation in the First Dwelling.

Detailed reasoning

A fringe benefit is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to mean:

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)…

(ea)…

…in respect of the employment of the employee,

X is an employee of the company and is remunerated accordingly. In addition to this X occupies the First Dwelling which is located on the Property.

The phrase 'in respect of' in relation to the employment of an employee is defined in subsection 136(1) of the FBTAA to include 'by reason of, by virtue of, for or in relation directly or indirectly to, that employment'.

The meaning of 'in respect of employment' was considered by the Federal Court in J & G Knowles v Federal Commissioner of Taxation [2000] 96 FCR 402; 2000 ATC 4151; 44 ATR 22 (Knowles) and Starrim Pty Ltd v Federal Commissioner of Taxation [2000] FCA 952; 2000 ATC 4460; 44 ATR 487 (Starrim).

In Knowles, the Full Federal Court considered the judgements in Smith v FCT (1987) 164 CLR 513; 19 ATR 274; 87 ATC 4883 and Federal Commissioner of Taxation v Rowe (1995) 60 FCR 99; 31 ATR 392; 95 ATC 4691 before concluding that it is not sufficient to conclude that there is causal connection between the benefit and the employment for the purpose of the FBTAA.

At paragraph 26 the Court said:

Whatever question is to be asked, it must be remembered that what must be established is whether there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment.

At paragraphs 28 and 29, the court said: 

While the width of the definition of "fringe benefit" was designed to capture benefits that, in truth, were other than remuneration, the stated purpose suggests that asking whether the benefit is a product or incident of the employment will be helpful. If it is not then the benefit is likely to be extraneous to the employment and will not bear FBT, notwithstanding that the employment might have been a causal factor in the provision of the benefit. In particular, the fact that a benefit is provided to a director because it was authorised by that director will not, of itself, be sufficient to characterise the benefit as one which is "in respect of" the employment. Without more, it is not a product or incident of that office. 

To put the matter another way, although the process of characterising the benefit provided in a particular case can involve questions of fact and degree, it is not sufficient for the purposes of the FBTAA merely to enquire whether there is a causal connection between the benefit and the employment. See FCT v Rowe (1995) 60 FCR 99 at 114 and 123; 31 ATR 292 at 404 and 412; 95 ATC 4691 at 4703 and 4710. Although Brennan, Deane and Gaudron JJ observed in Technical Products (at 47), that the requisite connection will not exist unless there is "some discernible and rational link" between the two subject matters which the statute requires to be linked, as was pointed out by Dawson J (at 51) the connection must be "material".

A and B were able to assess X's suitability for the role of animal-minder because of X's employment with the company. X was then provided with the accommodation because they asked X to also carry out duties as a animal-minder. Therefore, this indicates that there is a causal connection between the provision of the accommodation and X's employment with the company.

This alone is not sufficient as there must be a material connection. The fact that X's wage and employment conditions with the company did not change when X moved into the First Dwelling indicates that the provision of the accommodation is linked to the duties of animal-minding.

The question that then arises is whether the animal-minding duties are part of X's employment with the company. The following facts lend weight to the conclusion that X's animal-minding duties are not part of employment with the company:

• X was working for the company for at least six months prior to becoming animal-minder

• A and B would continue to keep X on as animal-minder even if X ceases employment with the company, and

• X carries out the animal-minding duties before and after work for the company.

Consequently, there is not a material or sufficient connection between the provision of accommodation in the First Dwelling and X's employment with the company. Therefore the company has not provided a fringe benefit to X.

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