Edited version of private advice

Authorisation Number: 1051526913074

Date of advice: 12 June 2019

Ruling

Subject: Salary Sacrifice - Exempt Fringe Benefits

Question

Does subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) apply to exempt the fringe benefits provided under a salary sacrifice arrangement where employees use a travel card where the private use is restricted to home to work travel?

Answer

Yes

This ruling applies for the following periods:

FBT year ending 31^st March 20XX

FBT year ending 31^st March 20XX

FBT year ending 31^st March 20XX

FBT year ending 31^st March 20XX

The scheme commences on:

1^st April 20XX

Relevant facts and circumstances

The employer is an authority of the State Government.

Entity A provides suburban bus services. Payment for these services can be made through the use of a prepaid transport card. This card is akin to a debit charge card for bus services.

Employees can salary sacrifice an amount to be placed on the transport card to use for home to work travel on the public bus system.

The arrangement will work as follows:-

• Use of the card is restricted to this transport company only where travel is between home and work
• Employees are required to sign a no-private-use declaration
• The employer has incorporated into its existing salary sacrifice policies, the rules and accountabilities applicable to packaging the transport arrangements. The policies are able to be enforced in accordance with the employer's other employment conditions and any breaches of the policy can be effectively enforced.

Relevant legislative provisions

Subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Subsection 995-1(1) of the Income Tax Assessment Act 1997

Reasons for decision

A 'fringe benefit' as defined in subsection 136(1) of the FBTAA is a benefit provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employee's employment and such benefit is not otherwise exempted.

There are various benefit types that are specifically exempt or attract a concession or reduction in taxable value from the definition of a "fringe benefit.

Section 47 of the FBTAA 1986 deems a number of residual benefits to be exempt benefits and thus not taxable under the FBTAA. All of the residual benefits exempted by section 47 must be provided in respect of the employment of an employee.

Subsection 47(6) of the FBTAA 1986 provides an exemption for the use of a motor vehicle that is not a car in certain circumstances.

Subsection 47(6) of the FBTAA 1986 states:

Where:

(a) a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee

(aa) the motor vehicle is not:

(i) a taxi let on hire to the provider; or

(ii) a car, not being:

(A) a panel van or utility truck; or

(B) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

(b) there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than:

(i) work-related travel of the employee; and

(ii) other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular.

the benefit is an exempt benefit in relation to the year of tax.

Work related travel is defined in subsection 136(1) of the FBTAA 1986 as:

in relation to an employee, means:

(a) travel by the employee between:

(i) the place of residence of the employee; and

(ii) the place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or

(b) travel by the employee that is incidental to travel in the course of performing the duties of his or her employment.

Paragraph 46(a) of the FBTAA 1986 uses the following terms (most of which are defined terms): "residual benefit", "provision or use", "motor vehicle", "in respect of", and a "current employee".

A "residual benefit" is defined in subsection 136(1) of the FBTAA 1986 as a benefit that is a residual benefit by virtue of section 45 of the FBTAA 1986. Section 45 of the FBTAA 1986 specifies that any benefit that is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive) is a residual benefit. In other words, a residual benefit is one that does not fall within one of the other more specific types contained in the FBTAA 1986.

The term "provision or use" is not defined in the FBTAA 1986. The term "provide" in relation to a benefit is defined in subsection 136(1) of the FBTAA 1986 to include, allow, confer, give, grant or perform. ATO Interpretative Decision ATO ID 2001/313 Fringe benefits tax Fringe Benefits Tax: Exempt Residual Benefit (ATO ID 2001/313) is of assistance in that it provides that the word "use" has a broad meaning, and is not restricted to situations where the employee has control of a vehicle. And as such, a passenger's travel on a bus involves the use of a motor vehicle. This condition is satisfied.

A "motor vehicle" as defined in subsection 136(1) of the FBTAA 1986, uses the definition of that term in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), that being: any motor-powered road vehicle (including a 4 wheel drive vehicle). It is considered that a bus satisfies the definition of a motor vehicle.

The term "in respect of" is widely defined in subsection 136(1) of the FBTAA 1986, in relation to the employment of an employee, to include by reason of, by virtue of, or for or in relation directly or indirectly to, that employment. For a benefit to be provided in respect of employment there must be a sufficient or material link between the benefit and the employment of the employee: see J & G Knowles & Associates Pty Ltd v FCT (2000) 44 ATR 22 at 28-29.

Subsection 136(1) of the FBTAA 1986 provides that a "current employee" is a person who receives, or is entitled to receive, salary or wages. In the present case, the transportation benefits are offered by the employer via a SSA. Accordingly, such employees satisfy the aforementioned definition.

In summary subsection 47(6)(a) of the FBTAA 1986 has been satisfied.

Subsection 136(1) of the FBTAA 1986 refers us to subsection 995-1 of the ITAA 1997 for definition of a 'car'. Under the definition, a bus is not a car.

A bus is also not a 'taxi let on hire'.

Paragraph 47(6)(aa) of the FBTAA 1986 is satisfied.

Paragraph 47(6)(b) of the FBTAA 1986 uses the defined terms: "private use" and "work-related travel".

"Private use" is defined in subsection 136(1) of the FBTAA 1986, in relation to a motor vehicle, in relation to an employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee.

"Work-related travel" is defined in subsection 136(1) of the FBTAA 1986, in relation to an employee, to mean:

'(a) travel by the employee between:

(i) the place of residence of the employee; and

(ii) the place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or

(b) travel by the employee that is incidental to travel in the course of performing the duties of his or her employment.'

The terms "minor", "infrequent", and "irregular" are not defined and therefore take their ordinary meanings, according to, for example, the Macquarie Dictionary 6^th Ed: "minor" is defined to mean lesser, as in size, extent or importance; "infrequent" is defined to mean, not constant, habitual or regular, and "irregular" means not characterised by any fixed principle, method or rate. All three of the above descriptions are required to be satisfied for the purposes of subparagraph 47(6)(b)(ii) of the FBTAA 1986.

ATO Interpretative Decision ATO ID 2009/140 Fringe Benefits Tax Exempt benefits: free travel on bus - private use (ATO ID 2009/140) is presently relevant, as it considers whether an employee travelling between home and work on a bus, under an employment arrangement, will constitute a residual benefit which is an exempt benefit under subsection 47(6) of the FBTAA 1986. This ATO ID states in part:

...The employee is provided with free transport on the buses under the employment arrangement. The employment arrangement is facilitated through the employer providing the employee with the use of a pre-paid ticket. The tickets and credits on each ticket are purchased by the employer from the third party entity, remain the property of the employer, and are held in the employer's name.

Under the employment arrangement the employee is only permitted to use this ticket for travel between the employee's place of residence and the employee's place of employment (between home and work). Any other form of use, including any use by an associate of the employee, is expressly prohibited....

In ATO ID 2009/140it was concluded that subsection 47(6) of the FBTAA 1986 would apply and the facts in the employer's arrangement with its employees are similar to those in the ATO ID being:

• private travel is restricted to home to work travel (which is work-related travel as defined);
• employees will be required to sign a "no private use" declaration (other than for travel between home and work); and
• employees will be made to reimburse the employer if they use the card for any trips outside of home to work travel.

Conclusion

The bus transport arrangements provided by the employer to their employees by way of provision of the travel card are considered to be residual benefits.

The bus transport provided under SSA's for the employees will be exempt residual benefits under subsection 47(6) of the FBTAA 1986 as all the necessary requirements are met.

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