Edited version of your written advice

Authorisation Number: 1013048667422

Date of advice: 8 July 2016

Ruling

Subject: Is the Branch manager an employee

Question 1

Is Person A an 'employee' of Entity A for the purposes of the definition of an 'employee' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) which would result in Entity A being liable to pay fringe benefits tax (FBT) on the use of the car it provides to Person A?

Answer

No

This ruling applies for the following period:

Year ended 31 March 2017.

The scheme commences on:

1 April 2016

Relevant facts and circumstances

Entity A directly employs some of its staff while some of the staff are employed by Entity B and are placed at Entity A's business premises.

One of the people placed at these premises is Person A.

Person A is paid by Entity B and Entity B withholds from the payments it makes to Person A. Entity B also issues the payment summary to the Person A at the end of the income tax year.

Entity B lodges a FBT return and pays the FBT on benefits provided to its employees which includes Person A. However it passes the costs associated with providing the benefits on to Entity A.

One of the benefits provided to the Person A is the use of a car which is owned by Entity A.

Relevant legislative provisions

Fringe Benefits Tax Act 1986 Section 5

Fringe Benefits Tax Assessment Act 1986 section 5B

Fringe Benefits Tax Assessment Act 1986 subsection 5B(1E)

Fringe Benefits Tax Assessment Act 1986 subsection 7(1)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Taxation Administration Act 1953 Schedule 1 section 12-35

Reasons for decision

Summary

For the purposes of the FBTAA Entity B is the employer of the Parson A and it is Entity B who is liable to pay the FBT on the car provided to the Branch Manager.

Detailed reasoning

Section 5 of Fringe Benefits Tax Act 1986 states that:

Tax is imposed in respect the fringe benefits tax taxable amount of an employer of that year of tax.

The fringe benefits tax taxable amount is determined under section 5B of the FBTAA and as per the method statement in subsection 5B(1E) the employer is required to determine the amount of benefits they provide to 'each employee'.

Subsection 136(1) of the FBTAA defines an employee as

means:

(a) a current employee;

(b) a future employee; or

(c) a former employee.

Subsection 136(1) defines a future employee in subsection 136(1) 'means a person who will become a current employee and a former employee 'means a person who was a current employee'. A current employee 'means a person who receives, or is entitled to receive, salary or wages'.

An employer is similarly defined and the definition of a current employer states:

means a person (including a government body) who pays, or is liable to pay, salary or wages, and includes:

(a) in the case of a partnership - each partner; and

(b) in the case of any other unincorporated association or body of persons - its manager or other principal officer.

Therefore whether a person is an employee of an entity will depend on whether that person is receives (or is entitled to receive) salary or wages from that entity.

Salary or wages is also defined in subsection 136(1) and that definition states:

means:

(a) a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; and

(aa) a payment from which an amount must be withheld (even if the amount is not withheld) under paragraph 12-110(1)(ca) (about parental leave pay) in Schedule 1 to the Taxation Administration Act 1953, other than a payment under Part 3-3 of the Paid Parental Leave Act 2010 (Payment of instalments by Secretary); and

(b) a payment from which an amount must be withheld (even if the amount is not withheld) under section 12-47 in Schedule 1 to the Taxation Administration Act 1953 where:

(i) the payment is made to a religious practitioner by a religious institution; and

(ii) the activity, or series of activities, for which the payment is made is done by the religious practitioner as a member of the religious institution.

Withholding payments covered
Item	Provision	Subject matter
1	Section 12-35	Payment to employee
2	Section 12-40	Payment to company director
3	Section 12-45	Payment to office holder
4	Section 12-115	Commonwealth education or training payment
5	Section 12-120	Compensation, sickness or accident payment

In looking at the arrangement between Entity A and Entity B it is Entity B who pays Person A and withholds an amount from that in accordance with the pay as you go (withholding) provisions under schedule 1 to the Taxation Administration Act 1953 (TAA).

Therefore the purposes of the FBTAA Person A is an employee of Entity B and under section 5 of Fringe Benefits Tax Act 1986 it is Entity B that is liable to pay FBT on the benefits provided to the Person A as part of their employment with Entity B.

In looking at the provision of the car subsection 7(1) of the FBTAA states in part:

Where:

(a) at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as the provider):

(i) is applied to a private use by the employee or an associate of the employee; or

(ii) is taken to be available for the private use of the employee or an associate of the employee; and

(b) either of the following conditions is satisfied:

(ii) the car is so applied or available, as the case may be, under an arrangement between:

(A) the provider or another person; and

(B) the employer, or an associate of the employer, of the employee;

Therefore although Entity A owns the car and provides it to Person A, Entity A and Entity B have an arrangement in place in respect of Person A's employment. The provision of a car is part of that arrangement and under the arranger provision within subsection 7(1) of the FBTAA a car fringe benefit would arise. The taxable value of that car fringe benefit would form part of Entity B's fringe benefits tax taxable amount calculated under section 5B of the FBTAA.

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