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Date of Advice: 6 April 2017

Ruling

Subject: FBT - packaging school fees of the children of overseas employees

Question 1

Does an expense payment fringe benefit under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) arise from packaging school fees of the children of “overseas employees”?

Answer

Yes

Question 2

If the benefit is an expense payment fringe benefit, will the taxable value be reduced by the attributable percentage under section 65A of the FBTAA?

Answer

Yes

This ruling applies for the following period(s)

Fringe Benefit tax years ended 01/04/2012 - 31/03/2022

The scheme commences on:

01/04/2012

Relevant facts and circumstances

The company is proposing to provide salary packaging of school fees of the children of their overseas employees who are working in Australia including expatriates from overseas on VISA 457 (the 'salary packaging arrangement'). These employees are 'overseas employees' as defined in section 143B of the FBTAA.

Under one of the salary packaging options, employees can choose to package their salary by getting reimbursement from the company for the expenses paid for their children's education.

The requirements are:

The employee must be an “overseas employee”;

“Overseas employee” means that the employee is working in Australia on VISA 457 and the employee is not originally from Australia;

The employee's child must be less than 25 years of age;

The education expense is solely for full-time education at an 'educational institution' as defined in subsection 136(1) of the FBTAA; and

The employee's overseas posting period is a period of not less than 28 Days.

If the above requirements are met:

Only the education expense in relation to the employee's overseas posting period will be reimbursed;

The employee's child need not be living with the employee during the employment period;

The education expenses for overseas children can be incurred in Australia or overseas;

The company is providing the salary packaging of school fees options to all eligible employees. There is no restriction on the employee groups that have access to the benefit.

The company has a related company that is operating in the same industry. The related company provides the same salary packaging option (packaging school fees of the children of overseas employees) to all eligible employees.

Documentary evidence of the recipient's expenditure will be obtained by the recipient and that documentary evidence, or copy, will be given to the employer of the employee before the declaration date.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986

Section 65A

Subsection 136(1)

Section 143B

Taxation Administration Act 1953

Section 12-35

Reasons for decision

Does an expense payment fringe benefit under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) arise from packaging school fees of the children of overseas employees?

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

An expense payment fringe benefit is defined in subsection 136(1) of the FBTAA as a fringe benefit that is an expense payment benefit.

Guidelines on the application of benefits provided in respect of employment are provided in Miscellaneous Taxation Ruling MT 2016.

MT 2016 states at paragraph 2, that:

An essential element of the definition of fringe benefit is that the benefit must be one provided in respect of the employment of the employee. Unless a benefit is provided in the context of an employer-employee relationship the tax has no application.

An employee is defined in subsection 136(1) of the FBTAA to mean:

(a) A current employee;

(b) A future employee; or

(c) A former employee.

The definitions of 'future employee' and 'former employee' refer to the definition of 'current employee'. 'Current employee' is defined in subsection 136(1) of the FBTAA to mean:

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 mean a payment from which an amount must be withheld (even if the amount is not withheld) under the provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income. Section 12-35 covers payments to employees.

In this case as the company is proposing to provide salary packaging of school fees of the children of their overseas employees an expense payment fringe benefit will arise from the packaging of school fees of the children of overseas employees.

If the benefit is an expense payment fringe benefit, will the taxable value be reduced by the attributable percentage under section 65A of the FBTAA?

The taxable value of an expense payment fringe benefit will be reduced if the requirements in section 65A of the FBTAA are satisfied. For the purpose of this ruling, the relevant legislative provisions to consider are:

Section 65A which outlines circumstances where the taxable value of a fringe benefit will be reduced;

Section 136(1) which provides the definition of an educational institution.

Section 143B which provides definition of an overseas employee.

Section 65A(a)-(e)

Section 65A of the FBTAA reduces the taxable value of an expense payment fringe benefit where the recipient expenditure is in respect of the full-time education of a child of the employee, not being a child who had attained the age of 25 years before the day on which the benefit was provided when the following conditions are satisfied:

The full-time education is:

i. At an educational institution; or

ii. By a tutor;

The whole or any part of the full-time education is undertaken by the child when the employee is an overseas employee;

Either of the following conditions is satisfied:

i. The benefit is provided pursuant to the provisions of an industrial instrument relating to the employment of the employee.

ii. It is customary for the employers in the industry in which the employee is employed to provide benefits of the same kind as the benefit provided to the recipient and to provide such benefits in similar circumstances to those that applied in relation to the provision of the benefit to the recipient;

In the case of expense payment fringe benefit - documentary evidence of the recipient's expenditure is obtained by the recipient and that documentary evidence, or copy, is given to the employer of the employee before the declaration date.

Full-time education of child

According to section 65A of the FBTAA, the full-time education must be at an educational institution, or by a tutor.

The term an educational institution is defined in subsection 136(1) of the FBTAA as meaning a school, college or university.

Under the salary packaging options the education expenses are solely for full-time education at an 'educational institution' as defined in subsection 136(1) of the FBTAA, therefore, this requirement is satisfied.

The employee is an overseas employee

The term overseas employee is defined in section 143B of the FBTAA 1986. An employee will be treated as an overseas employee where:

a) The employees' usual place of residence is in a particular country (the 'home country');

b) apart from temporary absences, the employee performs the duties of his or her employment at:

i. a place outside the home country; or

ii. 2 or more places outside the home country; and

c) The employee is required to live outside the home country in order to perform the duties of his or her employment at the place or places referred to in paragraph (b).

In broad terms, an employee who is required to live away from his or her home country in order to perform the duties of his or her employment at an overseas employment place is an overseas employee. This covers both Australian employees posted overseas and foreign employees posted to Australia.

You advise that the employer is proposing to provide salary packaging of school fees to their overseas employees who are working in Australia including expatriates from overseas and employees on 457 Visas.

Under the salary packaging options the employee must be an 'overseas employees' as defined in section 143B of the FBTAA so this requirement is satisfied.

Benefit provided in accordance with award or industry custom

The meaning of the term 'customary for employers in the industry' is discussed in Taxation Determination TD 94/97, Fringe benefit tax: what does the phrase 'customary for employers in the industry mean in relation to the provision of fringe benefit to employees?

Paragraph 2 of TD 94/97 states:

A benefit will be accepted as being customary where it is normal or common for employees of the class or job description in that industry to be provided with the same or similar benefits. It is not necessary that all or even the majority of employees in the industry receive the benefit. Where the provision of the benefit is unique, rare or unusual within an industry it would not be accepted as being customary.

You have a related company that is also operating in the same industry. You are aware that they provide the same salary packaging option (packaging school fees of the children of overseas employees) to all the eligible employees.

Based on the above mentioned facts, the Commissioner is satisfied that the benefit you provided is not unique rare or unusual within the industry you operate.

Documentary evidence

Documentary evidence of the recipient's expenditure will be obtained by the recipient and that documentary evidence, or copy, will be given to the employer of the employee before the declaration date.

Section 65A(f) - Reduction of taxable value

Paragraph (f) of section 65A of the FBTAA states:

a percentage (in this section called the "attributable percentage") of the taxable value, in relation to the year of tax, of the fringe benefit is attributable to the full-time education of the child in the period commencing on whichever of the following days is applicable:

(i) If:

(A) The full-time education is at an educational institution;

(B) The overseas posting period is a period of not less than 28 days; and

(C) The overseas posting period commenced during an academic period of the educational institution;

The day on which that academic period commenced; or

(ii) In any other case - the day on which the overseas posting period commenced;

and ending on whichever of the following days is applicable:

(iii) If:

(A) The full-time education is at an educational institution;

(B) The overseas posting period is a period of not less than 28 days; and

(C) The overseas posting period ended during an academic period of the educational institution; the day on which that academic period ended;

(iv) In any other case - the day on which the overseas posting period ended;

The amount that, but for this section and section 62, would be the taxable value of that fringe benefit in relation to the year of tax shall be reduced by the attributable percentage.

According paragraph (f) of section 65A of the FBTAA, the education costs you bear for children of employees who are posted overseas will be reduced proportionately, in accordance with the extent that benefits relates to the period of the employee's service overseas. If the overseas service commences or ceases during a school term, and the child receives their education at school, college or university, the education costs relating to the whole term will be subject to the reduction.

Therefore, paragraph (f) of section 65A of the FBTAA will be satisfied.

Conclusion

As each of paragraphs 65A(a) to (f) of the FBTAA will be satisfied under the salary packaging arrangement the requirements of section 65A will be satisfied and the taxable value of an expense payment fringe benefit will be reduced by the attributable percentage under section 65A of the FBTAA.

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