Edited version of private advice

Authorisation Number: 1051797647861

Date of advice: 16 March 2021

Ruling

Subject: FBT - minor benefits

Question

Is the reimbursement of childcare expenses made to employees exempt from Fringe Benefits Tax under the minor benefits exemption in section 58P of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), where multiple days of childcare have been claimed?

Answer

No

This ruling applies for the following periods

Year ended 31 March 20XX

Year ended 31 March 20XX

Year ended 31 March 20XX

Year ended 31 March 20XX

Year ended 31 March 20XX

The scheme commenced on

1 April 20XX

Relevant facts

The Enterprise Agreement provides employees with a specified amount claimable each financial year in relation to childcare expenses incurred during a course of professional development, being a fixed rate of $250 per day to facilitate the costs of childcare whilst undertaking a course of professional development.

The Enterprise Agreement also allows for the reimbursement of other expenses in relation to a course of professional development, including registration fees, travel costs, accommodation, per diem costs, books, portable technological aids and subscriptions.

Employees have claimed for a maximum of 5 days at any one time, with a maximum of 21 days for a full Fringe Benefits Tax (FBT) year.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 58P

Income Tax Assessment Act 1936 Section 318

Reasons for decision

Is the reimbursement of childcare expenses made to employees exempt from Fringe Benefits Tax under the minor benefits exemption in section 58P of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), where multiple days of childcare have been claimed?

The minor benefits exemption is set out in section 58P of the FBTAA:

(1)  [Tests for exemption] Where:

(a)  a benefit (in this section called a minor benefit) is provided in, or in respect of, a year of tax (in this section called the current year of tax) in respect of the employment of an employee of an employer;

(b)  ...

(c)   in the case of an expense payment benefit, a property benefit or a residual benefit - if the minor benefit were an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit, as the case may be, in relation to the employer, the expense payment fringe benefit, the property fringe benefit or the residual fringe benefit, as the case requires, would not be an in-house fringe benefit:

(d)  ...

(e)  the notional value of the minor benefit in relation to the current year of tax is less than $300; and

(f)    having regard to:

(i)            the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to:

(A)  the minor benefit; or

(B)  benefits provided in connection with the provision of the minor benefit:

have been or can reasonably be expected to be provided;

(ii)           the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of the minor benefit and any associated benefits, being benefits that are identical or similar to the minor benefit, in relation to the current year of tax or any other year of tax;

(iii)          the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of any other associated benefits in relation to the current year of tax or any other year of tax;

(iv)          the practical difficulty for the employer in determining the notional taxable values in relation to the current year of tax of:

(A)  if the minor benefit is not a car benefit - the minor benefit; and

(B)  if there are any associated benefits that are not car benefits - those associated benefits; and

(v)           the circumstances surrounding the provision of the minor benefit and any associated benefits including, but without limiting the generality of the foregoing;

(A)  whether the benefit concerned was provided to assist the employer to deal with an unexpected event; and

(B)  whether the benefit concerned was provided otherwise than wholly in principally by way of a reward for services rendered, or to be rendered by the employee;

it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefits in relation to the employer in relation to the current year of tax;

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

(2)  [Associated benefit] For the purposes of this section, a benefit is an associated benefit in relation to a minor benefit if, and only if:

(a)  any of the following subparagraphs applies:

(i)            the benefit is identical or similar to the minor benefit;

(ii)           the benefit is provided in connection with the provision of the minor benefit;

(iii)          the benefit is identical or similar to a benefit provided in connection with the provision of the minor benefit;

(b)  the benefit and the minor benefit both relate to the same employment of a particular employee; and

(c)   the benefit is not an exempt benefit by virtue of a provision of this Act other than this section.

Is an expense payment fringe benefit provided?

An expense payment fringe benefit is stated in section 20 as:

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.

The term 'notional taxable value' is defined in subsection 136(1):

'notional taxable value', in relation to a benefit provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer, means the amount that, if it were assumed that:

a.    in the case of a car benefit - the car benefit was a residual benefit; and

b.    in all cases - the benefit was a fringe benefit in relation to the employer in relation to the year of tax;

would be the taxable value of the fringe benefit in relation to the year of tax.

Where an employee attends a course of professional development, the employee is entitled to a fixed payment of $250 per day to offset the payment of childcare while attending a course of professional development.

The payment is an expense payment fringe benefit as the employer (the provider) makes a payment to discharge, in whole or in part, an obligation of another person (the recipient/employee) to pay an amount to a third person (the childcare centre), satisfying paragraph 20(a) of the FBTAA.

Unreasonableness test - subsection 58P(1)(f)

In considering the overall application of the exemption under subsection 58P(1)(f), it is necessary to look to the nature of the benefit provided and weight to each of the criteria around the nature of that benefit.

Reference is made under subsection 58P(1)(f) to 'associated benefits'. If a nexus can be established between the exempt benefit and any associated benefits, then the value of those associated benefits need to be added to the total value of the benefit.

Infrequency and irregularity with which associated benefits, being benefits that are identical or similar....

Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12) states the following:

203. The Macquarie Dictionary defines 'infrequent' as:

1. happening or occurring at long intervals or not often

2. not constant, habitual or regular

and 'irregular' as:

2. not characterised by any fixed principle, method or rate: irregular intervals

204. The Macquarie Dictionary defines 'identical' as:

1. (sometimes followed by to or with) corresponding exactly in nature, appearance, manner, etc.: this leaf is identical to that.

2. the very same: I almost bought the identical dress you are wearing.

and 'similar' as:

1. having a likeness or resemblance, especially in a general way.

The payment of childcare expense has been claimed for a maximum of five days at one time, with a maximum of 21 days in a full FBT year.

The claim for five days at one time indicates that childcare expenses were frequent during the time of a course of professional development. The continuing and on-going nature of the course of professional development indicates that the program is frequent and regular to maintain and update industry knowledge.

The sum of the notional taxable values of the minor benefits and any associated benefits in the current year and any other years of tax

It is claimed that the provision of childcare from one day to the other is not an associated benefit based on the definition of the term "associate" in subsection 136(1) of the FBTAA which refers to section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). Section 318 of the ITAA 1936 covers a broad range of entities that are associates of natural persons, companies, partnerships and trustees, including relatives, partners, trustees and beneficiaries, and related companies. For example, section 318 provides that a 'relative' of a natural person will be an 'associate' of that person.

It is considered that the term 'associate' as defined in section 318 of the ITAA 1936 is not relevant in testing whether there are benefits that are associated benefits provided to employees.

An associated benefit, in the context of minor benefits. is a benefit that is identical or similar to the minor benefit, as stated in subparagraphs 58P(1)(f)(ii) and 58P(2)(a)(i) of the FBTAA.

The payment of $250 for a day of childcare is a minor benefit with a notional taxable value of less than $300.

However, the sum of the values of the benefit and any associated benefits provided, being identical benefits in the current year of tax, the previous year and those that are reasonably expected to be provided in the future, are all applicable.

All payments with respect to childcare are considered to be associated benefits of the minor benefit. Claims for childcare have been made for a maximum of 21 days in an FBT year. The sum of the notional taxable values of the minor benefit and the associated benefits is a maximum of 21 x $250 = $5,250.

This criterion applies to the current year or any other year of tax. All years for which the childcare payment is made, past, present and future, are taken into account in calculating the sum of the notional taxable values of the minor benefit and any associated benefits.

The maximum sum of the notional taxable values of the minor benefit and the associated benefits in both a single year, and for all other years of tax, in relation to the minor benefit threshold of $300, may be significant.

Paragraph 224 of TR 2007/12 states:

Even if the value of each benefit is below the minor benefits threshold, the sum of the values of the benefits provided, being identical benefits in the current year of tax, the previous year and those that are reasonably expected to be provided in the future, are all taken into consideration under this criterion.

The sum of the notional taxable values of any associated benefits in the current year and any other years of tax

This criterion has regard to any other associated benefits that are associated benefits which are not 'identical or similar' to the minor benefit. This includes associated benefits which are provided in connection with the minor benefit and benefits which are 'identical or similar' to a benefit provided in connection with the minor benefit.

All of the benefits that can be claimed under the Enterprise Agreement, including conference costs, travel costs, accommodation per diem costs and other costs, enable the employee to undertake a course of professional development. When a day of childcare is provided, all the other benefits are in connection with the provision of childcare, and are associated benefits. All of the benefits that can be claimed under the Enterprise Agreement are associated benefits of the provision of childcare.

The sum of the taxable value of associated benefits, likely to be provided in the current year, and any other years of tax, is likely to be substantial and well above the minor exemption threshold.

The practical difficulty in determining the notional taxable values in relation to the current year

There is no practical difficulty in determining the notional taxable values in relation to the current year being $250 per day of childcare, plus reimbursement of associated benefits.

The circumstances surrounding the provision of the minor benefit and any associated benefits

The payment of childcare expenses only occurs during a course of professional development. Such an event is expected and planned, being included in the Enterprise Agreement. As this training necessitates that employees need further support in the form of childcare services if they are the sole providers of their child(ren) to undertake such professional development, it is considered that the benefits are provided as a reward for the provision of their services.

It has been determined that these benefits are 'identical or similar' to the minor benefit in terms of the provision and cost of the childcare. The on-going and regular basis of conducting a course of professional development indicates that it is not an unexpected event.

It is considered that the provision of childcare and any associated benefits is wholly or principally as a reward for services rendered.

Summary

The cost of childcare is claimed only during a course of professional development which is held on a regular basis. Employees have claimed a maximum of five days at any one time, with a maximum of 21 days for a full FBT year.

The maximum sum of the notional taxable values of the minor benefit and any associated benefits is $5,250 ($250 x 21) in the current year. The notional taxable value of any other associated benefits may be significant, and are in addition to the notional taxable values of the minor benefit.

The sum of the notional taxable values of the minor benefit and any associated benefits, is calculated with reference to the current year of tax or any other year of tax. In view of childcare expenses being paid for multiple years for the child(ren), the sum of the notional taxable values of the minor benefit and any associated benefits, will likely be substantially above the minor benefit threshold of $300.

It is not unreasonable to treat the minor benefit, and all associated benefits, in the current year of tax or any other year of tax, as fringe benefits. The benefit provided to the employees is not a minor exempt benefit.

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