Edited version of private advice

Authorisation Number: 5010066025005

Date of advice: 2 July 2020

Ruling

Subject: Reduction of taxable value of fringe benefit - education of children of overseas employees

Question

Where Company A reimburses the school tuition costs incurred by two executives of its overseas parent Company B who are in Australia on secondment, will the taxable value of the fringe benefit provided be reduced under section 65A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?

Answer

Yes

This ruling applies for the following period:

FBT year 1 April 20xx - 31 March 20xx

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

Company A operates a business in Australia. Company A is a subsidiary of Company B, which is incorporated in and resident of a foreign jurisdiction. To build a balanced team with skills to support all aspects of business development, two key executive employees of Company B were seconded from the foreign country to Company A on four-year visas.

Both employees' usual place of residence is in the foreign country. However, to fulfil their employment duties the two executives are required to live and work in Australia (with their families joining them in Australia). Their children, who are under the age of 25 years old, are receiving full-time education in Australian schools.

Documentary evidence of the tuition costs incurred by the employees from Company B will be supplied to Company A to obtain a reimbursement of the expenditure incurred before the date by which the fringe benefits tax return for the 20XX-20XX year for Company A has to be lodged, being 21 May 20XX.

You advised most employers in this industry provide a similar level of financial support for the education of dependents of overseas employees on secondment.

The overseas posting period for both employees is more than 28 days and the tuition costs will only be incurred after the overseas posting period has started.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 65A

Fringe Benefits Tax Assessment Act 1986 section 136

Fringe Benefits Tax Assessment Act 1986 section 143B

Reasons for decision

Under section 65A of the FBTAA, the taxable value of a fringe benefit provided to an overseas employee in respect of the education of their children will qualify for reduction provided that:

The fringe benefit (being either a car fringe benefit, an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit) must be provided in respect of, or solely for, the full-time education of the employee's child under the age of 25 years before the day the benefit was provided (subsection 65A(a) of the FBTAA).

The full-time education must be at an educational institution or by a tutor (subsection 65A(b) of the FBTAA). An educational institution is defined in subsection 136(1) of the FBTAA to include a school, college or university.

The whole or part of the full-time education of the child must be undertaken while the employee is an 'overseas employee' (subsection 65A(c) of the FBTAA). Under section 143B of the FBTAA, an employee will be treated as an overseas employee where:

·         the employee's usual place of residence is in a particular country (the home country)

·         the employee performs their employment duties at a place outside the home country, and

·         the employee is required to live outside the home country in order to perform those duties at their overseas workplace.

The benefit is provided under an:

·         'industrial instrument' (which is defined in subsection 136(1) of the FBTAA to mean a law of the Commonwealth or of a state or territory or an award, order, determination or industrial agreement in force under any such law), or

·         in accordance with 'industry custom' - that is, it is customary for employers in the industry in which the employee is employed to provide benefits of the same kind and in similar circumstances (subsection 65A(d) of the FBTAA).

With reference to industry custom, Taxation Determination TD 94/97 Fringe benefits tax: what does the phrase 'customary for employers in the industry' mean in relation to the provision of fringe benefits to employees? states at paragraph 4 that:

A benefit will be accepted as being customary where it is normal or common for employees of that 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.

TD 94/97 also has the following example:

Oil Driller Pty Ltd regularly employs expatriate technicians on secondment from the parent company in the United Kingdom. These employees are provided with return travel to their UK home for themselves and their families twice a year during their secondment. It is accepted that it is customary for employees of that type to be provided with such benefits, notwithstanding that industry employees generally do not receive similar benefits.

Where the benefit is an expense payment fringe benefit, it is necessary that documentary evidence of the recipients' expenditure is provided by the recipient to the employer before the declaration date (which is defined in subsection 136(1) of the FBTAA as the date by which the employer's fringe benefits tax return for the year has to be lodged (21 May) or such later date as the Commissioner allows) (subsection 65A(e) of the FBTAA).

The taxable value of a fringe benefit that meets the conditions in subsections 65A(a) to (e) of the FBTAA will be reduced to the extent that it is attributable to the education of the child during a specified qualifying period under subsection 65A(f) of the FBTAA.

We consider that all the requirements for a reduction of the taxable value of the fringe benefits to be provided by Company A to both of the foreign employees of its foreign parent Company B on secondment in Australia in respect of the education of their children will be satisfied under section 65A for the following reasons:

An expense payment fringe benefit will be provided in respect of the full-time education of the employees' children who will be under the age of 25 years before the day the benefit will be provided, (being the reimbursement by Company A of the tuition fees incurred by each employee in respect of the full time education of their children) (subsection 65A(a) of the FBTAA).

The full-time education will be received by the children at Australian schools, which are an educational institution (subsection 65A(b) of the FBTAA).

The employees on secondment will be overseas employees under subsection 65A(c) of the FBTAA as:

·         the employees maintain a home in a foreign country where they usually reside

·         the employees have been seconded to Australia to perform their employment duties, and

·         as a result, the employees are required to live in Australia to perform those employment duties.

It is customary, for overseas executive employees on secondment from an overseas parent company to its Australian subsidiary to be provided with benefits relating to the education of their children, notwithstanding that industry employees generally do not receive similar benefits.

Documentary evidence of the recipient employees' expenditure will be provided by the employees to Company A the employer before the declaration date, 21 May 20XX, being the date by which its fringe benefits tax return for the 20XX-20XX year has to be lodged.

Section 65A of the FBTAA will then apply to reduce the taxable value of the fringe benefit provided to the employees on secondment in respect of the full-time education of their children.

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