ntlg: 13 November 2008 | Legal database




Minutes	meeting	24/12/2008	UNCLASSIFIED
format	EVENT TYPE	ISSUE Date	Classification
NTLG FBT Sub-committee minutes	File Ref:	NOV08

	Title:	National Tax Liaison Group FBT Sub-committee Meeting
	Venue:	Taxpayers’ Australia, 1405 Burke Rd, East Kew
	Event Date:	13 November 2008	Start:	10:00	Finish:	15:00

	Chair:	Lee Beaver	Facilitator:	Not applicable
	Contact:	Joanne Dibetta	Contact Phone:	(02) 9374 1889

	expected Attendees: Names/Section	Lee Beaver (Chairperson) Tax Office Kevin Lock TA Elizma Bolt ICAA Peter Lane FCAI Ray Conwell LCA Elizabeth Lucas TIA James Deliyannis NTAA Peter Moltoni TIA Michelle De Niese CTA Stephen Mulcahy Tax Office Joanne Dibetta Tax Office Vindaya Peiris NIA Paul Ellis ICAA Kent Perdrisat Tax Office Paul Hockridge CPA Aust Heather Schache TA Norman Kang ICAA
	Apologies: Name/Section	Gary Andrews Tax Office Paul Mather NZICA Lance Cunningham NIA Andrew Purdon CPA Aust Asja Jaksic FCAI Stephen Quah Tax Office Asja Jaksic FCAI Asja Jaksic FCAI Frank Klasic LCA

Disclaimer:

Please note: NTLG FBT sub-committee agendas, minutes and related papers are not binding on the Tax Office or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

Agenda Summary

1 Opening of meeting including any changes to the agenda 1

2 Confirmation of minutes of the 14 August 2008 meeting 1

3 Items carried over from previous meetings 2

3.1 Taxpayer Alert TA 2008/13 and Taxpayer Alert TA 2008/14 (Tax Office) 2

4 TRs/TDs, class rulings, LAPS and ATO IDS issued since the August meeting 3

4.1 FBT related taxation rulings, taxation determinations, class rulings and law administration practice statements 3

4.2 FBT related ATO interpretative decisions 4

4.3 FBT related rulings on the public rulings program (Tax Office) 5

5 News from the Tax Office 6

5.1 Cases 6

5.2 Legislation update 6

5.3 FBT publications 7

5.4 FBT Better Practice Guide 9

5.5 FBT processing update 9

5.6 2008-09 budget income tests 9

6 Definition of briefcase (ICAA) 11

7 Briefcase primarily for use in employee’s employment (ICAA) 15

8 Section 58X exemption – applying ‘work test’ to mobile phones, rental charges (NTAA) 19

9 Recent amendments to joint benefits and the ‘otherwise deductible rule’ (NTAA) 21

10 Incentive awards (FCAI) 25

11 Re-location transport (ICAA) 28

12 Documentation to substantiate odometer readings (ICAA) 31

13 Recipient’s payments for car benefits (TIA) 35

14 LAFHA - same place of employment (NIA) 37

15 LAFHA - unit of accommodation or location (NIA) 39

16 LAFHA - recipients allowance period (NIA) 42

17 FBT risk and compliance update (Tax Office) 44

18 Annual review (Tax Office) 46

19 Other business 47

19.1 Meeting dates for 2009: 47

20 Close of meeting 47

External representatives

	CPA Australia	CPA Aust
	Corporate Tax Association	CTA
	The Federal Chamber of Automotive Industries	FCAI
	Institute of Chartered Accountants in Australia	ICAA
	Law Council of Australia	LCA
	National Institute of Accountants	NIA
	National Tax and Accountants Association	NTAA
	New Zealand Institute of Chartered Accountants	NZICA
	Taxpayers’ Australia	TA
	Taxation Institute of Australia	TIA

Agenda items

Agenda items are provided by external representatives and the Tax Office

^{[_Toc139169365]}^{[_Toc205891057]}^{[_Toc217814933]} 1 Opening of meeting including any changes to the agenda ^{[_Toc139169366]}

The chairperson opened the meeting and welcomed members. The chair welcomed new member Heather Schache and advised that Heather would replace Evan Lancaster on the sub-committee. The Tax Office thanked Evan for his valuable contribution during his 13 years as a member of this forum.

The chair also welcomed Peter Lane representing the FCAI, Vindaya Peiris representing the NIA, and Elizabeth Lucas representing the TIA.

Apologies were received from Gary Andrews (Tax Office), Lance Cunningham (NIA), Asja Jaksic (FCAI), Frank Klasic (LCA), Paul Mather (NZICA), Andrew Purdon (CPA Aust) and Stephen Quah (Tax Office).

^{[_Toc217814934]} 2 Confirmation of minutes of the 14 August 2008 meeting

The minutes of 14 August 2008 meeting were accepted.

3 ^{[_Toc139169367]}^{[_Toc217814935]} Items carried over from previous meetings

^{[_Toc217814936]} 3.1 Taxpayer Alert TA 2008/13 and Taxpayer Alert TA 2008/14 (Tax Office)

^{[_Toc139169370]}The Tax Office advised that in response to the issues raised in the taxpayer alerts three taxation determinations are being prepared to clarify the ATO view in respect of the arrangements identified in TA 2008/13 and TA 2008/14. The drafts are listed on the Public Ruling Program and will be considered when the Panel meets on 11 December 2008.

The draft taxation determinations are:

· Income tax: what are the income tax consequences for an employee entering into an Employee Savings Plan as described in Taxpayer Alert 2008/23

· Income Tax: what is the income tax treatment of salary deferral arrangement as described in Taxpayer Alert 2008/14; and

· Income tax and fringe benefits tax: what is the treatment of the receipt of bonus units by an employee as part of a remuneration arrangement.

4 ^{[_Toc217814937]} TRs/TDs, class rulings, LAPS and ATO IDS issued since the August meeting

^{[_Toc139169371]}^{[_Toc217814938]} 4.1 FBT related taxation rulings, taxation determinations, class rulings and law administration practice statements

The Tax Office advised that no FBT taxation rulings, taxation determinations and law administration practice statements have issued since the August meeting.

The following FBT taxation ruling has been partially withdrawn:

· Miscellaneous Taxation Ruling MT 2024 – Fringe benefits tax: dual cab vehicles eligibility for exemption

MT 2024 is partially withdrawn by omitting all appendixes to the ruling and the preceding note. The listings of vehicles which formed the various appendixes to this ruling may now be found as separate listing on the Tax Office website in the FBT exemption – exempt car benefits document.

Relocating the vehicle listings to a web based document will allow for updates to be made on a more frequent basis.

The following FBT related miscellaneous ruling has issued:

· Miscellaneous Taxation Ruling MT 2008/1 - Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard

This ruling gives the Commissioner’s interpretation of the concepts ‘reasonable care’, ’recklessness’ and ‘intentional disregard’ as used in Subdivision 284-B of Schedule 1 to the Taxation Administration Act 1953 (TAA). These concepts describe behaviour that can give rise to an administrative penalty under this subdivision.

The administrative penalty regime, which includes Division 284 applies from 1 July 2000 in relation to;

o income tax matters for the 2000-01 and later income tax year;

o for fringe benefits tax matters for the year commencing 1 April 2001 and later years; and

o matters relating to other taxes for the year commencing 1 July 2000 and later years.

· Miscellaneous Taxation Ruling MT 2008/2: Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable

This ruling sets out the Commissioner’s views on the imposition of an administrative penalty for taking a position that is not ‘reasonably arguable’ under subsection 284-75(2) of Schedule 1 to the TAA (this is referred to as the ‘no reasonably arguable position’ penalty).

The administrative penalty regime, which includes Division 284, applies from 1 July 2000, in relation to;

o income tax matters for the 2000-01 and later income tax year;

o for fringe benefits tax matters for the year commencing 1 April 2001 and later years; and

o matters relating to other taxes for the year commencing 1 July 2000 and later years.

· Miscellaneous Taxation Ruling MT 2008/3: Shortfall penalties: voluntary disclosures

This ruling outlines the Commissioner’s interpretation of section 284-225 of Schedule 1 to the TAA which applies to voluntary disclosures.

The administrative penalty regime, which includes Division 284, applies from 1 July 2000, in relation to;

o income tax matters for the 2000-01 and later income tax year;

o for fringe benefits tax matters for the year commencing 1 April 2001 and later years; and

o matters relating to other taxes for the year commencing 1 July 2000 and later years.

The following law administration practice statement has issued:

· Law Administration Practice Statement PS LA 2008/15: Taxpayer Alerts

This practice statement guidance to Tax Office staff for initiating and issuing a taxpayer alert and replaces Law Administration Practice Statement PS LA 2005/13.

The following FBT class ruling has issued:

· Class Ruling CR 2008/55 : FBT: employer clients of Auto-Ad Pty Limited whose employees hire cars from Smart Car Rentals Pty Limited;

· Class Ruling CR 2008/73: FBT: Fernwood Corporate Health Counselling program

The following FBT class rulings have been withdrawn:

· Class Ruling CR 2005/89 : FBT: employer clients of Remunerator (Aust) Pty Ltd that make use of a Salary Packaging Dining Card facility;

· Class Ruling CR 2006/81 : FBT and income tax: employer clients of Sodexho Australia Pty Ltd or Universal Sodexho Pty Ltd that make use of the Sodexho 'SmartPay' card facility;

· Class Ruling CR 2008/23 : FBT: employer clients of Super Group International (Australia) Pty Limited or SMB Fleet Management Pty Limited who make use of the SMB Cafe Card facility.

The FBT class rulings are no longer current and were withdrawn with effect from 20 August 2008 as a result of Tax Laws Amendment (Budget Measures) Act 2008 which inserted subsection 41(2) into the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Subsection 41(2) denies exemption under section 41 for food or drink provided as part of an employee salary sacrifice arrangement.

^{[_Toc139169373]}^{[_Toc217814939]} 4.2 FBT related ATO interpretative decisions

The following FBT ATO interpretative decisions (ATO IDs) have issued:

· ATO Interpretative Decision ATO ID 2008/127- Exempt Benefits: work related items - primarily for use in the employee's employment

· ATO Interpretative Decision ATO ID 2008/133 - Exempt Benefits: work related items - a portable electronic device

The following ATO IDs have been withdrawn:

· ATO Interpretative Decision ATO ID 2003/894 - FBT- Exempt Benefits: mobile phones

· ATO Interpretative Decision ATO ID 2004/14 - Exempt benefits: Personal Digital Assistants (PDA's) - handheld and palm sized organisers

· ATO Interpretative Decision ATO ID 2006/44 - Exempt Benefits: work related item - notebook computer, laptop computer or similar portable computer

· ATO Interpretative Decision ATO ID 2006/236 - Exempt benefits: work related items - laptop computer or similar portable computer - computer software

The FBT ATO IDs were withdrawn because they contain a view in respect of a provision of the FBTAA that does not apply after 13 May 2008. The ATO IDs continue to be a precedential view in respect of decisions with regards to the operation of this provision up to and including 13 May 2008.

^{[_Toc217814940]} 4.3 FBT related rulings on the public rulings program (Tax Office)

The following FBT ruling is listed on the Public Rulings Program as at 10 November 2008:

· Income tax and fringe benefits tax: what is the tax treatment of the receipt of bonus units by an employee as part of a remuneration arrangement?

5 ^{[_Toc217814941]} News from the Tax Office

^[top]^{[_Toc217814942]} 5.1 Cases

· FCT v Word Investments Ltd (2007) 69 ATR 1

The Non-Profit News 2008/17 reported that on 27 August 2008, the High Court heard the Commissioner's appeal against the decision of the Full Federal Court in FCT v Word Investments Ltd (2007) 69 ATR 1, reported at 2007 WTB 48 [2140]. The High Court reserved its decision, but has released a transcript of that hearing.

In its test case decision, the Full Federal Court unanimously confirmed that a company established for Christian evangelical purposes was entitled to be endorsed as a charitable institution, despite the fact that it generated funds for these purposes from ordinary commercial and business activities.

· The Compass Group (Vic) Pty Ltd as Trustee for White Roche and Associates Hybrid Trust v FC of T [2008] AATA

The AAT has decided that an allowance paid to an accountant to assist with renting a property near his workplace was not a living-away-from-home allowance (LAFHA) for FBT purposes.

^{[_Toc217814943]} 5.2 Legislation update

· Tax Laws Amendment (2008 Measures No. 4) Bill 2008 ^[OLE_LINK7]^[OLE_LINK5]^[OLE_LINK1] received Royal Assent on 3 October 2008 as Tax Laws Amendment (2008 Measures No 4) Act 2008 - Act No 97 of 2008.

The Bill contains an amendment to the definition of eligible State or Territory Bodies in subsection 135T(1)(a) and (h) of the FBTAA for New South Wales and Tasmania.

FBT applies to State and Territory bodies defined in subsection 135(1) of the FBTAA. That definition relies on listed State and Territory Acts. Two of those Acts have been replaced by new Acts. The amendment replaces the existing references with references to the new Acts. These amendments apply to the first year of tax starting after Royal Assent.

· Tax Laws Amendment (2008 Measures No. 5) Bill 2008

Subsequent to this meeting the Bill received Royal Assent on 9 December 2008 as Tax Laws Amendment (2008 Measures No 5) Act 2008 - Act No 145 of 2008.

The Bill amends the FBTAA to ensure that where a fringe benefit is provided jointly to an employee and their associate, the employer’s FBT liability on the taxable value of the fringe benefit will only be reduced to the extent the employee’s share of the fringe benefit is used for income producing purposes.

The amendments apply to benefits provided from 7.30pm Australian Eastern Standard Time (AEST) on 13 May 2008.

For loans entered into before 7.30pm (AEST) on 13 May 2008, the existing law will continue to apply to loan benefits provided before 1 April 2009.

For expense payment benefits, property benefits and residual benefits provided under a salary sacrifice arrangement, the changes will apply to agreements entered into after 7.30pm (AEST) on 13 May 2008. For agreements entered into before this time, employees will be able to utilise the current law until 1 April 2009.

Part 2 of Schedule 4 to this Bill also makes some minor technical corrections to the FBT law. The amendments will correct certain cross references and in line with current drafting practice, improve the readability of these provisions.

· Same-Sex Relationships (Equal Treatment in Commonwealth Laws - General Law Reform) Bill 2008

Subsequent to the meeting the Bill received Royal Assent on 9 December 2008 as Same-Sex Relationships (Equal Treatment in Commonwealth Laws - General Law Reform) Act 2008 - Act No 144 of 2008.

The Bill seeks to eliminate discrimination against same-sex couples and the children of same-sex relationships in a wide range of Commonwealth laws, including tax laws.

The amendments to the FBTAA are:

o The term ‘relative’ is defined in subsection 136(1) of the FBTAA to have the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). The Bill inserts a note at the end of section 58V of the FBTAA to alert the reader to the possibility that section 960-255 of the ITAA 1997, which provides rules for determining when certain family relationships are recognised, may affect the meaning of ‘relative’ for the purposes of this subsection.

o The Bill inserts a note at the end of paragraph (h) of the definition of ‘fringe benefit; in subsection 136(1) of the FBTAA to alert the reader to the possibility that section 960-255 of the ITAA 1997, which provides rules for determining when certain family relationships are recognised, may affect the meaning of ‘relative’ in this definition.

o The Bill inserts a definition of ‘parent’ into subsection 136(1) of the FBTAA, referring to the definition in subsection 995-1(1) of the ITAA 1997.

The amendments to the FBTAA will apply in relation to the FBT year starting on 1 April 2009, and to subsequent years.

· The Tax Laws Amendment (2008 Measures No 6) Bill 2008 was introduced in the House of Representatives on 3 December 2008.

The amendments to the FBTAA are:

o Amends the FBT calculation of an employer’s aggregate fringe benefits amount to restore the pre-GST concessional treatment of remote area property benefits

o Allows approved worker entitlement funds to make payments to the dependants of deceased workers.

^{[_Toc217814944]} 5.3 FBT publications

The following publications have been released:

· Fringe benefits tax (FBT) - exempt work-related items

This information explains when the provision of certain work-related items is exempt from FBT, and a list of items that qualify for the exemption.

This web only document explains section 58X of the FBTAA and what is meant by the terms ‘primarily for use in the employee’s employment’ and ‘portable electronic device’. It encompasses the principles set out in ATO Interpretative Decision ATO ID 2008/127 and ATO Interpretative Decision ATO ID 2008/133.

· Fringe benefits tax (FBT) - exempt car benefits

This information explains when the use of certain motor vehicles is exempt from fringe benefits tax (FBT), and lists vehicles that qualify for the exemption and vehicles that do not.

The list was previously available as appendices to Miscellaneous Taxation Ruling MT 2024 – Fringe benefits tax: dual cab vehicles eligibility for exemption where private use is limited to certain work related travel. For the years 2000–2004 which are not covered, it is necessary to apply the information contained within MT 2024 to determine whether or not a vehicle qualifies for exemption.

· FBT and Christmas parties

The Tax Office issued a reminder to employers to consider FBT obligations when organising Christmas parties and gifts for employees. The article refers readers to the FBT and Christmas parties fact sheet.

· Fringe Benefits Tax (FBT) fact sheet

The Tax Office has developed an Introduction to Fringe Benefits Tax fact sheet for non English speaking background employers. The fact sheet has been translated into Arabic, Chinese, Russian, Turkish and Vietnamese. These are available on ato.gov.au from Other languages >Business essentials.

· Fundraising for non-profit organisations (Nat 13095.09.20083)

The Tax Office has released a new version of the guide to replace the one issued in March 2005. The new version incorporates changes to the tax law since the guide was last issued and includes changes to the fringe benefits tax minor benefits threshold.

· FBT car calculator

The Tax Office is looking at reviewing/redeveloping the FBT car calculator on ato.gov.au and whether some decision support functionality would add value to the calculator. Members of this forum are welcome to provide feedback and if interested, we will provide some focusing questions. When a draft/mock up version of a revised calculator is developed members of the FBT NTLG Sub-committee will be invited to provide input/feedback.

Action item:

The Tax Office to provide members with a link to the car calculator and set of focusing questions for feedback on the review/redeveloping of the FBT calculator.

Feedback to be forwarded to lee.cordon@ato.gov.au by 19 December 2008

^{[_Toc217814945]} 5.4 FBT Better Practice Guide

One of the specific compliance issues identified in the Compliance Program 2008-09 is to review and update the Administration of Fringe Benefits Tax Better Practice Guide . Although the Guide is directed at Australian Government entities, the principles and considerations outlined may be applicable to private sector entities as well.

As part of the review, the Tax Office is currently seeking feedback from the various levels of Government about the publication and the ways in which it may be improved to meet the needs of all government entities and members of the NTLG FBT Sub-committee are also welcome to provide feedback. If interested, we will provide some focusing questions.

The guide was developed by the Australian National Audit Office (ANAO) in consultation with the Tax Office following the release of its report on the administration of fringe benefits tax.

The guide outlines better practices for the administration of FBT and practical guidance on managing a range of benefits commonly provided by Australian Government entities.

The guide was not prepared as a technical reference on FBT and should only be used in conjunction with the FBT legislation and Tax Office guidance.

The publication has two parts.

· Part 1 is designed to assist Chief Executives, Chief Financial Officers and FBT and risk managers to review existing governance and control arrangements in their entities.

· Part 2 is designed to assist FBT Managers and other staff who have specific responsibilities in FBT administration.

Action item:

The Tax Office to provide members with a set of focusing questions for feedback on the FBT Better Practice Guide

Feedback to be forwarded to lee.cordon@ato.gov.au by 19 December 2008

^{[_Toc217814946]} 5.5 FBT processing update

The Tax Office advised that a further 'release' of the new FBT processing system occurred on 24 October 2008. This release made improvements to several accounting aspects of the system along with correcting a range of 'system errors', including some GIC matters and refund related errors which were restricting our ability to issue some assessments and a small number of refund cases.

A further 'release' is planned for late November 2008. This release will overcome a number of outstanding errors which are currently impacting on a small number of accounts.

5.6 ^{[_Toc217814947]} 2008-09 budget income tests

On 7 November 2008 Treasury released the draft legislation and consultation paper Reforms to Income Tests - 2008-09 Budget Measures giving effect to the 2008-09 budget income tests reforms.

The Tax Office advised that The Treasury is seeking comments on the materials by close of business 5 December 2008.

Action item:

Tax Office to provide members with the link to the draft legislation and consultation paper on the Treasury website.

Feedback should be forwarded as per the contact details on the Treasury website by close of business 5 December 2008

^{[_Toc139169395]} 6 ^{[_Toc217814948]} Definition of briefcase (ICAA)

Issue – What is the definition of a ‘briefcase’ for purposes of the section 58X FBTAA exemption.

Background

Section 58X of the FBTAA provides that the following benefits provided by an employer to an employee of the employer in respect of the employee’s employment is an exempt benefit.

(a) an expense payment fringe benefit where the recipients expenditure is in respect of an eligible work related item;

(b) a property benefit where the recipients property is an eligible work related item

Section 58X (2) defines an ‘eligible work related item’ as

(a) ….

(b) ….

(d) a briefcase

In the 2008 Federal Budget released on 13 May 2008, the Treasurer announced that the above exemption for work related items would be restricted to items used ‘primarily for work purposes’. In addition, the FBT exemption will be limited to one item of each type per employee per FBT year.

Definition of a briefcase

We wish to seek clarification on what items can be included in the definition of ‘briefcase’ for the purposes of subsection 58X(c). A ‘briefcase’ has been defined as ‘a case with a handle; for carrying papers or files or books’; and ‘a narrow box-shaped bag or case used mainly for carrying papers and other documents and equipped with a handle’. Therefore will items only be eligible for the subsection 58X(c) exemption if they fall strictly within this definition, or can the definition be extended to include a broader variety of modern bags that are now being widely used such as: satchel bags, wheeled business cases, backpacks, shoulder bags, laptop bags, tote bags and so on.

Because all of the above mentioned types of bags are used for the similar purpose of transporting items to or from an employee’s place of work, it can be seen that they serve the same purpose as a briefcase whilst not necessarily technically being defined as such.

Intended purpose and contents of briefcase

We seek clarification surrounding the degree to which the type of bag determines whether the item is being used ‘primarily for work purposes’.

Briefcases are commonly used to carry a variety of items that are both work related and non work related. An employee’s laptop, work documents and materials are common contents but briefcases may also contain reading materials such as newspaper or a book to read whilst travelling to work, an employee’s lunch for the day, an umbrella and so on.

To what extent (if any) does the type of bag determine whether the briefcase is used primarily for work purposes? We propose that the very purpose of a briefcase (or similar item) is to be used by the employee to carry items to or from work and that this should be sufficient. The fact that personal/ private items may be carried in the briefcase seems purely incidental.

We also suggest that the term ‘briefcase’ should include satchel bags, wheeled business cases, backpacks, shoulder bags, laptop bags, tote bags and so on and for administrative purposes the purpose of the bag, rather than the type, should be the determining factor as to its use. It would unreasonably burdensome and restrictive for employers to check the type of bag to determine whether they are used primarily for work purposes.

Meeting discussion:

LCA stated that this might be the situation where what is required is some purposive construction by asking what did Parliament intend when they put the word ‘briefcase’ in the legislation. Unfortunately it is a bit like laptop computers where they have used a description whereas its description was well understood at the time. Instead of describing it by reference to its useful purpose they described it by reference to what it was called at the time.

Whether you can attribute other properties to a briefcase and say that a briefcase back in 1995 was a case for carrying documents primarily to or from work or between work places and today satchel bags, wheeled business cases, backpack, shoulder bag, laptop bags, tote bags and so on have exactly that same purpose. In a sense these bags are the modern form of a briefcase and if you adopt the description back in 1990, rigid sides, generally square and probably with locks and so on, this description would almost be redundant.

The TIA noted that before laptops people would be carrying documents around and now they are carrying a laptop and disks and they are not carrying papers. The laptop bag has replaced the briefcase.

CPA Aust noted if the view is that the bag is not a briefcase it might be a ‘tool of trade’ (paragraph 58X(2)(e)). If it is not a tool of trade and the employee is given the use of the bag, it is a residual benefit. This may be a minor benefit or the otherwise deductible rule could be considered.

Tax Office response:

The question raised is, given there is no definition of ‘briefcase’ in the FBTAA, what does the Tax Office consider to be a ‘briefcase’ for the purposes of section 58X. Does the Tax Office take a narrow view or can the word briefcase be read widely to include a broader variety of ‘modern bags’ that are now used by employees such as satchel bags, wheeled business cases, backpacks, shoulder bags, laptop bags, tote bags and so on.

The Tax Office noted that section 58X was introduced with effect from 1 April 1995 as a ‘cost of compliance measure’ on the basic premise that it removed the need for an employer to obtain declarations for benefits relating to certain listed eligible work related items.

In accordance with, as it was, paragraph 58X(2)(c) a ‘briefcase’ was an eligible work related item. An expense payment benefit in respect of a ‘briefcase’, a property benefit being a ‘briefcase’ or residual benefits that arose where an employer makes available a ‘briefcase’ would simply have been exempt benefits.

The most recent amendments to section 58X contained in Tax Laws Amendment (Budget Measures) Act 2008, although introducing the ‘primarily for use in the employee’s employment’ test to expense payment, property or residual benefits relating to briefcases, did not alter the original intent that the exemption contained in section 58X was to a ‘briefcase’.

It was also noted by the Tax Office that the type of benefits that were exempt under section 58X were considered to be employment-related and generally any private use was incidental to their employment use.

The Tax Office referred to the Explanatory Memorandum to Taxation Laws Amendment (FBT Cost of Compliance) Bill 1995 and in particular paragraphs 4.4, 4.7, 4.8 and 4.9.

Purpose of the amendments

4.2 These amendments will exempt a range of employment-related benefits from FBT. The benefits will only be exempt where they are provided to employees and not to their associates.

4.3 In addition, car phones and mobile phones provided to employees will be exempt benefits where the phones are primarily for use in the employee's employment.

4.4 These amendments will remove the need for an employer to obtain declarations for these benefits.

Background to the amendments

4.7 An employee is required to provide to the employer a declaration stating the percentage of employment-related use of a benefit before the taxable value of the benefit can be reduced under the 'otherwise deductible' rule. This rule applies to reduce the taxable value of a benefit provided to an employee by the percentage of employment-related use of the benefit.

4.8 There is a range of employment-related benefits for which an employee is required to provide a declaration before the taxable value of the benefit can be reduced under this rule.

4.9 Often the private use of these benefits is incidental to employment use but, because the benefits are not exclusive employee benefits, an employee declaration is required. Exclusive employee benefits are benefits where, if the employee had incurred the cost of providing the benefit, that expense would have been deductible for income tax purposes.

While acknowledging the issues raised in discussion at the meeting, the Tax Office stated that the term 'briefcase' was intended to be limited in its meaning and was not intended to include other types of luggage/bags that may be used to some extent by an employee undertaking their duties of employment.

It was also noted that the legislation does not use the phrase 'briefcase or similar item'.

The Tax Office also stated that given the original legislation has existed since 1 April 1995 and has been applied by employers since that date, the commonly understood meaning of briefcase, being in terms of the ICAA submission, a narrow interpretation, should continue to be applied.

For assistance, the Tax Office referred to a number of dictionary definitions, as follows;

Macquarie Dictionary:

briefcase

noun . a flat, rectangular case of leather or other material used for carrying documents, books, manuscripts, etc.

Oxford Dictionary:

briefcase

n. a flat rectangular case for carrying documents etc.

The exemption will only apply to items that fit the definition of a briefcase as above.

A wide interpretation by reference to a variety of ‘modern bags’ that employees may use was not agreed to by the Tax Office. The exemption cannot be extended to items that serve the same purpose as a briefcase, that is transporting work documents and items to such as a laptop to or from an employee's place of work.

The amendment to 58X now requires that for the exemption to apply to benefits relating to a briefcase the briefcase must be primarily for use in the employee's employment (as is the requirement for every other eligible work related item). It is accepted that a briefcase would rarely be provided to an employee other than for use in the employee's employment and that private use would generally be incidental, however, this test still needs to be applied by the employer.

During the discussion, the CPA Aust suggested that benefits relating to a ‘modern bag’ might be considered under section 58X as being a benefit in relation to a ‘tool of trade’.

The Tax Office, by reference to ATO Interpretative Decision ATO ID 2006/248 - Fringe Benefits Tax: Exempt Benefit: eligible work-related item - tool of trade, stated that a ‘modern bag’ would not be considered to be a ‘tool’.

The Tax Office advised that although benefits relating to ‘modern bags’ which are not briefcases cannot be considered for exemption under section 58X, benefits relating to such items may be subject to the otherwise deductible rule where an employee declaration is provided that states the percentage of employment related use of the item.

Further, employers could also consider whether the benefit provided could be treated as a minor benefit where the benefit provided was less than $300; refer Taxation Ruling TR 2007/12; Fringe benefits tax: minor benefits.

7 ^{[_Toc217814949]} Briefcase primarily for use in employee’s employment (ICAA)

Briefcase - meaning of ‘primarily for use in the employee’s employment’

As a result of the introduction of Tax Laws Amendment (Budget Measures) Act 2008 (amendment), the FBT exemption in section 58X of the FBTAA for eligible work-related items is restricted to items that are ‘primarily for use in the employee’s employment’.

The purpose of this paper is to submit to the Tax Office our position that briefcases to be used by the employee as a means of transporting items to and from work should satisfy the requirement of ‘primarily for use in the employee’s employment’ by the operation of sub-section 58X(2)(d) of the FBTAA.

Issues:

· What is the meaning of ‘use in the employee’s employment’?

· Whether ‘use in employee’s employment’ is a concept of ‘otherwise deductible’, in connection of employee’s employment, or to enable the employee to undertake their employment duties?

· Whether the requirement of ‘primarily for use in employee’s employment’ can be satisfied where the employer anticipates competing uses for the briefcase?

As the Tax Office has indicated through ATO Interpretative Decision ATO ID 2008/127, the word ‘primarily’ is not defined in the FBTAA, therefore it takes on its ordinary meaning. The Macquarie Dictionary defines ‘primarily’ as: ‘in the first place; chiefly; principally’. Generally, an employer will know, based on the type of work performed by employee, whether a briefcase is being provided ‘chiefly’ or ‘principally’ to enable the employer to undertake their employment duties. The employer must examine why the briefcase was provided to the employee ‘in the first place’. It is noted that ATO ID 2008/127 is focused on ‘primarily’ and does not really address the issue of ‘use in the employee’s employment’. To this end, we are seeking to better understand in what circumstances and situations use of an item would be regarded as ‘use in an employee’s employment’.

Example 1

In a business context, where the nature of the work necessitates that work documents be transported to and from client premises and business meetings, it can be said that the reason that the briefcase is provided in the first place is to enable/assist the employee to carry out their employment duties. The nature and common usage of briefcases dictate its connection with business. But for the business purpose, the briefcase would not otherwise be used at all.

We submit that the intended use of the briefcase in this way would satisfy the requirement for ‘use in the employee’s employment’.

Example 2

The briefcase is used for transporting work-related materials to and from work and home, rather than business meetings. Given that employees nowadays readily perform work outside work premises and at home, transporting work-related materials home should be considered necessary to enable the employee to carry out their employment duties. There is a material relationship between the provision of the briefcase and the employee’s employment.

ATO ID 2008/127 considers the possibility of competing uses to the item provided, and concluded that incidental personal use of the item is not detrimental to fulfilling the requirement of ‘primarily for use’ in employment provided that it is merely incidental use.

We therefore submit that the employer expects that work-related materials will be transported by the briefcase on some days and on other days the briefcase will be used to transport items such as an umbrella, newspaper and the employee’s lunch. For example, an umbrella is needed for the employee to travel to work without getting wet; and lunch is required as sustenance during the employee’s working day. The reasonable conclusion would be to treat all such use as use in the employees’ employment. This is appropriate because but for work purposes a briefcase would not otherwise be used.

Example 3

The employee uses the briefcase to transport from home to work (and vice versa) a number of items such as an umbrella, lunch, newspaper, a book and a digital music player (for example, an ipod) and mobile phone. No work-related materials are ever included.

Again, similar to example 2 above the umbrella is needed for the employee to travel to work without getting wet, lunch is required as sustenance during the employee’s working day, the newspaper is used to keep informed of general issues that may affect the business. The transportation of other items is merely incidental. The reasonable conclusion would be to treat all such use as ‘use in the employees employment’. This is appropriate because but for work purposes a briefcase would not otherwise be used.

Tax Office response:

The most recent amendments to section 58X contained in Tax Laws Amendment (Budget Measures) Act 2008 have, as noted in the ICAA submission, introduced the requirement that a briefcase must be ‘primarily for use in the employee’s employment’.

The Tax Office position on the meaning of the phrase ‘primarily for use in the employee’s employment’ is set out in ATO ID 2008/127; Fringe Benefits Tax - Exempt Benefits: work related items - primarily for use in the employee's employment.

The following extract from ATO ID 2008/127, although dealing factually with a laptop computer, equally applies to a benefit relating to a briefcase:

The employer in applying section 58X of the FBTAA is required to have a basis for concluding that the laptop computer is 'primarily for use in the employee's employment'. This conclusion is based on intended use at the time the benefit is provided to the employee that is, why the laptop computer was provided to an employee 'in the first place'.

There is no requirement to reach this conclusion by reference to usage which can only be ascertained retrospectively. Rather this conclusion is determined by reference to the available evidence at the time the benefit is provided.

Generally, an employer will know whether a laptop computer is being provided 'chiefly' or 'principally' to enable the employee to undertake their employment duties. For example, the employee's job description, duty statement or employment contract can provide a basis for concluding that the laptop computer was primarily for business use.

Alternatively or in cases where it is evident that there are competing uses, an employer could document such factors as:

o the reason or reasons the laptop computer was provided to the employee

o the type of work to be performed by the employee

o how the use of the laptop computer relates to the employee's employment duties, and

o the employer's policy and any conditions relating to the use of a laptop computer;

in order to determine if the laptop computer is primarily for use in the employee's employment.

As stated in the ICAA submission, ATO ID 2008/127 is focussed on the full phrase ‘primarily for use in the employee’s employment’. The ICAA has sought clarification on the meaning of the words ‘for use in the employee’s employment’. The ICAA has explored the extent of this query by way of three examples.

The Tax Office noted that section 58X was introduced with effect from 1 April 1995 as a ‘cost of compliance measure’ and while the ‘primarily for use in the employee’s employment’ requirement existed for mobile phones; it has now been extended to all benefits relating to eligible work related items including briefcases.

Section 58X removed the need for an employer to obtain declarations for benefits relating to certain listed eligible work related items.

The type of benefits that were made exempt by this provision was considered to be employment-related and generally any private use was incidental to their employment use.

The Tax Office referred to the Explanatory Memorandum (EM) to Taxation Laws Amendment (FBT Cost of Compliance) Bill 1995 and in particular paragraphs 4.7, 4.8 and 4.9 which set out the background to the amendments in 1995:

4.8 There is a range of employment-related benefits for which an employee is required to provide a declaration before the taxable value of the benefit can be reduced under this rule.

The Tax Office advised that the term ‘for use in the employee’s employment’ does have a relationship with the ‘otherwise deductible rule’ methodologies and declaration requirements, as explained in the EM extract above.

Broadly, as noted in the Fringe benefits tax: a guide for employers, an employer can rely on the ‘otherwise deductible rule’ where the recipient of the benefit is the employee. Broadly, this means an employer may reduce the taxable value by the amount the employee would have been entitled to an income tax deduction.

However, for the purposes of section 58X, there is a ‘primary’ test which, if satisfied will mean that the benefit will be exempt. Incidental private use will not alter this outcome.

Whilst it is accepted that a briefcase would rarely be provided to an employee other than for use in the employee's employment and that private use would generally be incidental, thus satisfying the ‘primarily for use in the employee’s employment’ requirement, an employer needs to be satisfied that this is in fact the case.

Prior to the introduction of 58X an employer would have needed to obtain a declaration from an employee stating the percentage of employment-related use of the briefcase, before the taxable value of the briefcase could have been reduced under the otherwise deductible rule.

The requirement under the otherwise deductible rule is that the employee must have been able to claim a deduction for the expenditure incurred. When section 58X was originally introduced the exemption that applied to these items, other than mobile phones, simply meant that a declaration was not required as these items were accepted as being primarily for use in the employee's employment.

With the latest amendment to 58X an employer is now required to ensure that the items listed under 58X(2) are only provided to employees where they are in fact 'primarily for use in the employee's employment'.

Example 1

In relation to example 1, it was agreed that in such circumstances, that the briefcase would be ‘primarily for use in the employee’s employment’.

Example 2

In relation to example 2, as acknowledged in ATO ID 2008/127 and the EM, it is arguable in these circumstances that the briefcase is ‘primarily for use in the employee’s employment’. The fact that the employee might, in these circumstances, carry lunches and an umbrella in the briefcase to and from work, would only be incidental private use and would not be the ‘primary’ reason that the briefcase has been provided.

Example 3

In relation to example 3, the Tax Office advised that it did not appear, in these circumstances that the briefcase was ‘for use in the employee’s employment’.

8 ^{[_Toc217814950]} Section 58X exemption – applying ‘work test’ to mobile phones, rental charges (NTAA)

As a result of recent amendments to Section 58X of the FBTAA, the FBT exemption for eligible work-related items acquired after 13 May 2008 will basically only apply where the relevant item (for example, a portable electronic device, mobile phone or a tool of trade) is ‘primarily for use in the employee’s employment’.

These amendments effectively require the application of a ‘work use’ test before an eligible work-related item can qualify for the exemption under Section 58X. Refer to the Tax Laws Amendment (Budget Measures) Act 2008.

Recently, the Tax Office issued ATO Interpretative Decision (ATO ID) 2008/127 to provide guidelines on how to establish whether an eligible work-related item is ‘primarily for use in an employee’s employment’. The ATO ID basically advises that an employer is only required to make this conclusion (or determination) on the basis of the ‘intended use’ (or ‘anticipated use’) of the relevant item at the time the benefit is provided to an employee (that is, why the item was provided to the employee in the first place). This effectively means there is no requirement for an employer to make this determination on the basis of the actual use of the item over a period of time.

This is supported by the following comments in ATO ID 2008/127:

In relation to a mobile phone, the Tax Office has previously advised that the FBT exemption under Section 58X can also apply in respect of the cost of calls, rental charges and accessories (for example, a charger, carry pouch and additional battery), provided that the ‘work use’ test is satisfied. Refer to the FBT Sub-committee minutes of meeting dated 14 March 1996.

Furthermore, in the FBT Sub-committee minutes of meeting dated 13 June 1996, the Tax Office indicated that the ongoing actual use of a mobile phone primarily for work purposes would need to be established when applying the exemption to running costs (e.g., phone calls and phone rental), as follows:

Whilst intention is clearly relevant, ongoing actual use is considered to be the means of demonstrating/establishing/proving that intention (especially if exemption of calls/connection fees/rental costs is sought)…Continued exemption of any running costs will of course be dependent upon continued satisfaction of “primarily for use in the employee's employment.

Issue for Tax Office clarification

The NTAA would like to seek the Tax Office’s clarification on whether the Tax Office will continue to administer the ‘work use’ test as noted above (that is, whether employers will need to continue to monitor the ongoing actual use of a mobile phone), when determining whether the cost of mobile phone calls, rental charges and phone accessories satisfy the ‘work use’ test and qualify for the FBT exemption under the recently amended Section 58X.

Tax Office response

The application of the exemption provided by section 58X to the provision of a mobile phone has not been effected by the recent amendment to section 58X as the ‘primarily for use in the employee’s employment’ test has applied to the provision of mobile phones since the introduction of section 58X in 1995.

As noted in the NTAA submission, this issue has previously been discussed at this forum, as recorded in the minutes of meeting, 13 June 1996 as follows;

A.5 Mobile phones - A.5.3 Use test

Whilst intention is clearly relevant, ongoing actual use is considered to be the means of demonstrating / establishing / proving that intention (especially if exemption of calls / connection fees / rental costs is sought). However, it is accepted that circumstances will change over time (for example, jobs will change, employees will be promoted, duties / roles of employees will change) and that the validity of the change would also be relevant to intention. Continued exemption of any running costs will of course be dependent upon continued satisfaction of ‘primarily for use in the employee's employment’.

The Tax Office advised that its position as previously stated has not changed and that it would continue to administer section 58X in relation to mobile phone ongoing running costs as previously advised.

The Tax Office noted that expense payment, property or residual benefits can arise in relation to the provision of and/or use of a mobile phone.

Benefits relating to the ongoing running costs of a mobile phone can also arise depending on what and how the ongoing charges are treated as between the employer and employee.

Where benefits are being provided in relation to the ongoing costs (expense payments or residual), the exemption of such costs under section 58X will be dependant upon the continued satisfaction of the ‘primarily for use in the employee’s employment’ test.

9 ^{[_Toc217814951]} Recent amendments to joint benefits and the ‘otherwise deductible rule’ (NTAA)

Taxation Laws Amendment (2008 Measures No. 5) Bill 2008 (the Bill) was recently introduced into Parliament to make amendments to the FBT legislation in relation to the application of the ‘otherwise deductible rule’ to joint benefits (that is, benefits provided jointly to an employee and their associate).

More specifically, the Bill makes amendments to the FBT legislation to effectively ensure that the ‘otherwise deductible rule’ will not apply (that is, FBT will be payable by an employer) in respect of the associate’s share of a joint benefit.

According to the Bill, the amendments will apply to benefits (that is, loan benefits, expense payment benefits, property benefits and residual benefits) provided after 7.30pm AEST on 13 May 2008.

Furthermore, transitional rules will be introduced to ensure the following:

(a) For loans entered into before 7:30 pm (AEST) on 13 May 2008, the existing law will continue to apply to loan benefits provided before 1 April 2009; and

(b) For expense payment benefits, property benefits and residual benefits provided under a salary sacrifice arrangement entered into before 7:30 pm (AEST) on 13 May 2008, employees will be able to utilise the current law until 1 April 2009.

Issues for Tax Office clarification

In relation to the application of the transitional rules up until 1 April 2009, the NTAA seeks the Tax Office’s clarification on the following issues:

1. In relation to joint loans, does the transitional rule reflect the consultation process originally announced by the Government?

2. In relation to a salary packaging agreement entered into before 13 May 2008 for the payment by an employer of deductible expenses related to a jointly held rental property, will the transitional rule continue to apply if there is a variation (that is, increase or decrease) to the salary sacrifice amount during the transitional period?

Example

Bart is an employee. On 1 April 2008, Bart arranges with his employer to salary package deductible expenses related to a rental property that is jointly owned by Bart and his wife (Marge). Bart estimates that the deductible expenses for the 2009 FBT year related to the property (apart from depreciation) will be $30,000.

Accordingly, the salary sacrifice amount for Bart (that is, the amount by which Bart’s fortnightly salary would be reduced) was calculated by reference to this amount.

In October 2008, the variable interest rate on a joint loan taken out by Bart and Marge to purchase the property was reduced from 9.5% p.a. down to 8.5% p.a. This resulted in the monthly interest expense for Bart and Marge being reduced by $500. Accordingly, Bart’s fortnightly salary sacrifice amount was also reduced.

Could the Tax Office please clarify whether the transitional rule would continue to apply to the above arrangement, up until 1 April 2009, if the employer continued to pay for the interest expenses incurred by Bart and Marge (and other joint expenses related to the property) after the variable rate reduction.

3. If an employer pays for an employee’s share of a deductible expense (for example, an interest expense) related to a rental property that is jointly owned by the employee and their associate, will the ‘otherwise deductible rule’ apply to reduce the taxable value of the benefit to ‘nil’ under the proposed amendments?

Example

Helen is an employee who owns a rental property jointly with her husband. The couple originally took out a joint loan in April 2007 (at a 5-year fixed interest rate) in order to purchase the property.

At the time the property was acquired, Helen arranged for her employer to pay for the deductible interest expenses incurred in relation to the joint loan. Assume that the monthly interest expense is $4,000.

Helen is advised by her accountant about the proposed change to the ‘otherwise deductible rule’ for joint benefits, and makes enquiries with her bank about re-financing the existing loan into two separate loans (that is, one in her name and one in her husband’s name) from 1 April 2009. The bank advises her that penalties will apply if the existing loan is re-financed.

Helen decides to keep the existing joint loan, but arranges for her employer to pay for her share only (that is, 50%) of the interest incurred (that is, $2,000) from 1 April 2009.

Could the Tax Office please clarify whether the taxable value of this expense payment fringe benefit can be reduced to ‘nil’ under the proposed amendments.

4. If an employer pays for deductible expenses in respect of a rental property that is jointly owned by two employee spouses (that is, both joint owner spouses are employees of the same employer), do the proposed amendments apply to this arrangement?

Example

Mike and Carol are employees of ABC Pty Ltd (the employer). The employer pays for all deductible expenses (other than depreciation) in respect of a rental property that is jointly owned by Mike and Carol on a 50/50 basis.

For the purposes of this example, assume one of those deductible expenses is a monthly interest expense of $4,000 related to a joint loan originally taken out by Mike and Carol to acquire the property.

Disregarding the transitional rules, could the Tax Office please clarify whether the proposed amendments apply in these circumstances.

NTAA views

1. Although not made clear in the Explanatory Memorandum to the Bill, it appears the Bill reflects the Government’s final position regarding the application of the transitional rules to joint loan benefits following the Government’s recent consultation process.

2. On a literal reading of Item 23(2) of Schedule 4 to the Bill, it could be argued that the transitional rule does not apply where the employee in the above example (that is, Bart) arranges for his employer to pay the reduced interest expenses in return for a (lower) reduction in his gross salary.

However, the NTAA believes that the transitional rule should continue to apply, as the variation in the reduction in Bart’s gross salary relates to the existing agreement which was entered into before 13 May 2008.

If the transitional rule did not apply in these circumstances, the NTAA believes that this would have an adverse impact on many such salary packaging arrangements, as the initial salary sacrifice amount in these circumstances would normally be determined by reference to an estimate of the amount of deductible expenses an employee (and their associate) are likely to incur over an income year or FBT year.

3. In the circumstances of the example put forward, on a literal reading of proposed paragraph 24(1)(l) and subsection 24(9), as the benefit being provided is still a joint benefit and subsection 138(3) applies, the taxable value of the benefit is reduced only by the employee’s share of the benefit. Therefore, on this basis, it would appear that the taxable value of the joint benefit would only be reduced by 50% or $1,000 (that is, the employee’s share), resulting in a taxable value of $1,000 (that is, $2,000 - $1,000 reduction).

4. Before the proposed amendment applies in respect of an expense payment fringe benefit, proposed paragraph 24(1)(l) requires that subsection 138(3) must have applied to deem the expense payment fringe benefit to have been provided to the employee only.

Subsection 138(3) will apply where a benefit is provided jointly to an employee and their associate, in respect of the employment of the employee. Where the employee’s associate also happens to be an employee of the same employer, it is a question of fact as to whether the benefit is provided in respect of only one employee’s employment or in respect of the employment of both employees.

If the employer pays for the monthly interest expense of $4,000 only in respect of the employment of one employee (for example, only in respect of Mike’s employment), then it would appear that subsection 138(3) would apply and, therefore, the proposed amendments would apply to ensure that the taxable value of the benefit is reduced by only the employee’s share of the joint benefit (that is,, to the extent of 50% in this case).

However, if the employer pays for each employee’s share of the joint expense (that is, 50% each) in respect of each employee’s respective employment (that is, the employer pays for Mike’s 50% share of the interest expense in respect of his employment, and pays for Carol’s 50% share of the interest expense in respect of her employment), it is not entirely clear as to whether subsection 138(3) applies in the first instance, as follows:

(a) On one view, it is arguable that subsection 138(3) does not apply (that is, there is no joint benefit). On the basis of this view, proposed paragraph 24(1)(l) would not apply. Therefore, the otherwise deductible rule in section 24 would apply in the normal way (in respect of each employee’s benefit) and the taxable value of each employee’s benefit would be reduced to ‘nil’ (that is, the proposed amendment would not apply).

This may be further supported by the Tax Office’s approach when applying the otherwise deductible rule in those circumstances where an employer reimburses an employee for the business portion of an expense incurred by the employee. In these circumstances, as the Tax Office accepts that an employer can identify and choose to reimburse only the business portion, the otherwise deductible rule applies to reduce the taxable value of the benefit to ‘nil’. Refer to Chapter 9.4 of the Tax Office’s publication Fringe benefits tax (FBT) - A guide for employers.

(b) In the alternative view, it could be argued that a joint benefit is still being provided in these circumstances on the basis that it is not possible to identify an employer is only paying for one employee’s share of the expense (that is, interest expense). For example, it may be argued that even if the employer is paying for 50% of the interest expense (that is, $2,000) in respect of Mike’s employment, half this portion is still attributable to Carol’s share (with the remaining half being attributable to Mike’s share).

On the basis of this view, it could be argued that subsection 138(3) applies, in which case, proposed paragraph 24(1)(l) would apply. As a result, the initial taxable value of $2,000 in the above example would only be reduced by Mike’s percentage (that is, 50%) down to $1,000, generally resulting in an FBT liability for the employer.

Tax Office response

The Tax Office advised members that it cannot provide indicative interpretative advice about the proposed amendments relating to the application of the 'otherwise deductible rule' to joint benefits prior to Royal Assent (see Practice Statement Law Administration - PS LA 2004/6 - The Tax Office role in providing information or advice on the potential application of announced changes to the tax, or where legislative change is contemplated but not announced.)

The Tax Office had been informed by Treasury that submissions received through the consultation phase had been considered in developing the transitional rule that is contained in the Bill.

In view of the limitations imposed by PS LA 2004/6, the Tax Office advised that it was not in a position to provide advice in relation to the examples contained in the NTAA submission as the examples deal with the possible application and interpretation of the introduced, but not passed, measures.

However, as noted in the NTAA submission, the proposed measures will only apply where there is a joint benefit to which paragraph 138(3) would apply. The Tax Office noted that where a benefit is provided jointly to two employees of an employer (for example a husband and wife) where they could also be 'associates' of each other, the decision of Ryan J in National Australia Bank v. Federal Commissioner of Taxation (1993) 26 ATR 503; 93 ATC 4914, (NAB Case), at 26 ATR 514; 93 ATC 4923 provides the following;

However, in my view, section 138(3) is erected on the assumption that a fringe benefit cannot be provided to an associate who is also an employee in respect of the same fringe benefit. That is borne out by the definition of ‘fringe benefit’ quoted above which is cast in terms of ‘a benefit’ ‘in relation to an employee’ being ‘provided to the employee or to an associate of the employee’ (emphasis added).

It was agreed that following Royal Assent, if issues remain they can be raised at a future meeting.

10 ^{[_Toc217814952]} Incentive awards (FCAI)

Background

· A ‘Dealer of the Year’ award is offered to dealership business by a manufacturer or distributor as part of an Incentive Awards program.

· The Dealer Principal of the dealership with the highest total sales ($) for the relevant period is the recipient of the award (for example, an overseas holiday).

· The Dealer Principal is the owner of the dealership or alternatively beneficially owns the dealership via interposed entities.

· The Dealer Principal does not perform work within the Sales department of the dealer business.

Issue

Where the Dealer Principal receives an award as a result of his/her dealer business achieving the highest total sales, will the award constitute a benefit that has been provided in respect of:

a. the employment of the Dealer Principal (and therefore it is a fringe benefit)?; or

b. the Dealer Principal’s equity ownership in the dealership (and therefore not a fringe benefit)?

Discussion

A fringe benefit is defined at subsection 136(1) of the FBTAA to include:

….a benefit provided to the employee or to an associate of the employee ...by...the employer... in respect of the employment of the employee. .. [emphasis added]

Accordingly, a benefit must be provided in the context of an employer-employee relationship in order for the benefit to be a fringe benefit. An employee is defined for FBT purposes to include a current, future or former employee. A ‘current employee’ is defined as ‘a person who receives, or is entitled to receive, salary or wages’.

The meaning of 'in respect of employment' has been considered on numerous occasions by the Courts. For example the Full Federal Court in J & G Knowles v. Federal Commissioner of Taxation (J & G Knowles case) held that a sufficient and material connection or relationship as opposed to a mere causal connection must be established between the provision of the benefit (that is, the loans to the directors) and the employment of the directors, in order for a benefit to be provided in respect of employment.

In the Federal Court hearing of the J&G Knowles case, the trial judge noted that a benefit is only considered to be provided in respect of the employment of the employee ‘…if it is granted as a consequence of the existence of the employment relationship, or if the relationship is a reason why the benefit is provided, or is a cause of its provision…’.

Accordingly, where it is established that a benefit has been provided solely as a result of the individual’s ownership in the dealership and not as a result of the individual’s employment by the dealership, the benefit will not be a fringe benefit and therefore it will not be subject to FBT.

The views of the Full Federal Court in the J & G Knowles case were applied in Slade Bloodstock v. Commissioner of Taxation and in Starrim Pty Ltd v. Federal Commissioner of Taxation (Starrim case). The Starrim case established that the remote connection that was taken to exist between the provision of the benefit and the employment relationship was not sufficient to constitute a nexus. Rather the on-loan ‘was consistent with the couple’s ownership of Starrim…’.

Where the provision of a benefit is not expressly linked to the individual’s employment it is necessary to consider the individual facts and circumstances in order to establish in what capacity the benefit is regarded as being granted to the shareholder/employee (that is, was the benefit provided as a result of the individual’s ownership or as remuneration for services?). Some of the factors to be considered are noted in Miscellaneous Taxation Ruling MT 2019 - Fringe benefits tax: shareholder employees of family private companies and directors of corporate trustees, including ‘…the extent of any services rendered by the shareholder/employee and the extent of his or her shareholding…’.

Accordingly, it is our contention that the Dealer Principal is receiving the benefit as a result of the Dealer Principal’s equity holdings and therefore will not be subject to FBT, for the following reasons:

1. The Dealer Principal did not perform work as an employee within the Sales Department and therefore the award is not taken to be provided as a remuneration for services; and

2. The provision of the award is determined with respect to the success of the dealership as a whole and not in respect of the Dealer Principal’s individual performance.

Tax Office response

Following a general discussion and an acknowledgement by FCAI that there can be different arrangements in place between different manufacturers, distributors and dealers, the Tax Office advised that the outcome will depend on actual facts of a promotional or incentive arrangement.

The Tax Office generally agreed with the FCAI submission and the reasoning provided. Where it is established that a benefit has been provided solely as a result of a persons individual ownership in a dealership, for example, and not as a result of that persons employment at the dealership, the benefit will not be a fringe benefit and accordingly would not be subject to FBT.

However, a 'Dealer of the Year' award offered to a Dealer Principle by a manufacturer or a distributor as part of an incentive award, where it is not subject to FBT may nonetheless be subject to income tax.

As noted in the FCAI submission, MT 2019 can assist with reaching a conclusion on particular facts as to whether a benefit has been provided 'in respect of the employment of an employee'. Similarly, decisions of the Federal Court, such as the J & G Knowles case can also assist.

The Tax Office also referred to the views expressed in Taxation Determination TD 93/6 - Fringe benefits tax and income tax: what are the tax consequences for a distributor who, under a product promotion arrangement with a manufacturer whose products it distributes, is provided with a non-cash business benefit (not being trading stock of the distributor) which may be passed on to the distributor's employees?

TD 93/6 considers the tax consequences for a distributor who, under a product promotion arrangement with a manufacturer whose product it distributes, is provided with a non-cash business benefit which may be passed on to the distributor's employees. TD 93/6 considers the following three scenarios and provides an explanation on each as to how the benefits involved should be treated from both the FBT and income tax perspectives:

1. Where there is a condition of a promotion arrangement between a manufacturer and a distributor that the benefit must be passed on to the distributor's employees, and the benefit is passed on

2. Where a benefit is provided to the distributor who can choose to keep the benefit or pass the benefit on to its employees, and

3. The decision to keep the benefit or pass it on to its employees is not made at the time the benefit was provided to the distributor.

The Tax Office indicated that the views expressed in TD 93/6 would assist, in many cases, in determining how benefits in the scenario outlined in the FCAI submission can be treated for FBT and income tax purposes.

11 ^{[_Toc217814953]} Re-location transport (ICAA)

Issue

Are accommodation, travel and meal costs incurred by an employee whilst they are in Australia on a ‘look-see trip’ exempt from FBT?

Legislation:

Section 58F of the FBTAA, provides an exemption for ‘relocation transport’ benefits, provided in the form of a car benefit, an expense payment benefit, a property benefit or a residual benefit, provided in respect of the employment of an employee of an employer. For the purpose of this discussion, we have assumed that the criteria in subsections 58F(c) are satisfied.

In accordance with section 143A of the FBTAA a ‘relocation transport’ benefit must be provided to an employee or an associate of an employee and must be in respect of the provision of transport or accommodation or meals en route. The transport, meals or accommodation must be required solely because the employee is required to:

· live away from his or her usual place of residence in order to perform the duties of that employment;

· return to his or her usual place of residence at the end of a period during which the employee was required to live away from that place, in order to perform employment duties, or because the employee has ceased to perform those duties; or

· change his or her usual place of residence in order to perform the duties of that employment.

The transport must be provided to ‘enable’ the employee who is required to live away from home / change their usual place of residence to take up residence at the new locality. The transport must not be provided while the employee is undertaking travel in the course of performing the duties of employment. In the case of the provision of transport to a family member, the transport must not be provided for that family member to accompany the employee while the employee is undertaking such travel. In relation to a change of usual place of residence, the benefit must not be provided under a non-arm’s length arrangement.

Background:

A ‘look-see trip’ is a trip prior to the actual relocation of an employee (including family members), to the new location. The purpose of a ‘look-see trip’ is for employees and family members to familiarise themselves with the new location prior to the actual relocation, and to facilitate the making of arrangements such as obtaining suitable accommodation, investigate options for children’s education and schooling and so on.

In the NTLG FBT sub-committee meeting minutes of 12 December 1996, the Tax Office confirmed that the section 58F FBT exemption for relocation transport could extend to cover a trip to the new location to find suitable accommodation where the employee is definitely relocating.

In addition, the Tax Office confirmed in NTLG FBT sub-committee meeting minutes of 20 November 2003 that the section 58F FBT exemption could also extend to more than one trip, insofar as the employee had already accepted the transfer to the new location at the time the ‘look-see’ trip is undertaken. That is, an exemption for relocation transport is not available if the employee is undertaking a ‘look-see trip’ for the purposes of determining if they may or may not accept the transfer.

Question

Does the exemption under sections 58F and 143A of the FBTAA extend to travel and accommodation costs provided to employees, associates and family members during a ‘look-see trip’ to the new location?

Under Section 143A, we submit that travel expenses such as taxis, public transport and/or hire car costs incurred during a ‘look-see trip’ to visit real estate agents, view properties, schools and so on, would be FBT exempt as the transport ‘enables’ the employee or the family member to take up residence at a new locality, and is directly related to the relocation of the employee.

Similarly, accommodation provided to employees and family members during a ‘look-see trip’ is provided in connection with the transport and is provided for the purpose of ‘enabling’ the employee and their family to take up residence in the new location. On this basis we submit that accommodation provided while on a ‘look-see trip’ should be exempt under sections 58F and 143A of the FBTAA.

Support for this position is provided in ATO Interpretative Decision ATO ID 2004/293, whereby the Tax Office confirmed that ‘other expenses’, such as accommodation and meals en route to visit real estate agents and view rental properties, reimbursed to an employee whilst undertaking a look see trip, will satisfy the criteria in section 143A and will therefore be exempt under section 58F of the FBTAA. In particular, in ATO ID 2004/293, the Tax Office stated that section 143A of the FBTAA would be satisfied in this situation as

subparagraph 143A (d) (i) requires that the transport (including meals and accommodation whilst undertaking the journey) is provided to an employee and their family to enable them to take up residence near the locality of the new workplace. It is accepted that a journey undertaken prior to relocation in order to seek accommodation (where the employee and their family are definitely relocating) does 'enable' the employee to take up residence in the new locality.

This includes the costs of airfares to the new location, plus travel costs, accommodation and meals incurred by the employee whilst undertaking the ‘look-see trip’ (that is, at the new location).

The ATO view in ATO ID 2004/293 confirms that section 143A (subject to the other criteria being met) applies to provide support for the section 58F FBT exemption for ALL transport, meals and accommodation provided to employees (and family members) both in getting the employee (and family members) to the new location for a ‘look-see trip’ but also during the ‘look-see trip’, on the basis that the entire journey ‘enables’ the employee to take up residence in this new locality.

Tax Office response:

Following a short discussion, the ICAA agreed that the question being asked is whether there is any difference in treatment between certain expenses incurred during a 'look-see trip' and those incurred in getting the employee (including family members) to the new location.

It was also agreed that the submission and discussion was based upon the fact that the 'look-see trip' related to an employee who has already accepted a transfer to the new location.

The Tax Office advised that ATO Interpretative Decision ATO ID 2004/293: Fringe Benefits Tax - Exempt benefits; relocation transport benefits provided to an employee prior to actual relocation taking place, provides the Tax Office view that meal and accommodation costs associated with a journey undertaken by an employee and their family in the circumstances outlined in the submission would be exempt from FBT. No distinction is drawn between the treatment of such benefits provided en-route or during a 'look-see trip', so long as the other requirements of section 143A are satisfied.

The Tax Office noted that the purpose of the trip is for the employee and family members to familiarise themselves with the new location prior to actual location and to facilitate the making of arrangements such as obtaining suitable accommodation, investigate options for children's education, schooling and so on.

ATO ID 2004/293, as noted in the in ICAA submission, accepts that 'other expenses', being meal costs and accommodation in such circumstances will be benefits in respect of relocation transport that can be treated as exempt benefits under section 58F. It is accepted that a journey undertaken prior to relocation in such circumstances does 'enable' family members to take up residence in the new locality. This is the case in relation to 'other expenses' provided to the employee (and family members) both in getting them to the new location for the 'look-see trip' and also any such expenses incurred during that trip. These are all benefits that are accepted as being in respect of relocation transport.

It was also noted that any incidental benefits relating to transport during a 'look-see trip', for example taxis or public transport, would be the 'provision of transport' for the purposes of section 143A.

12 ^{[_Toc217814954]} Documentation to substantiate odometer readings (ICAA)

Background

An employer entity provides over 150 car fringe benefits to its employees. Some of the cars are owned by the employer entity. The rest are provided to employees by way of novated lease.

For the owned vehicles, all details of each car are maintained in the employer’s fixed asset system by the Logistics Manager. At 31 March each year, the Logistics Manager goes around to each of the company owned cars (that happen to be in the employer’s car park on that day) and writes down the closing odometer reading for each car and later enters those readings into the FBT return car fringe benefits worksheet. If a car is not in the car park at the time that the Logistics Manager goes around, he will then contact the driver by telephone or email and ask the driver to confirm the respective car’s closing odometer reading.

For the novated lease cars, the relevant fleet manager, provides the employer entity with a report including various car details including closing odometer readings at 31 March.

Issue

With respect to the owned cars, if this entity were audited by the Tax Office, would the inclusion of odometer readings on the FBT car fringe benefit worksheet (collected by the Logistic Manger) be viewed (by the Tax Office) as sufficient evidence to substantiate the odometer readings of each vehicle for the purpose of calculating the taxable value of each of the respective cars. If the Tax Office response is no, what additional documentation would they require in this instance.

With respect to the novated lease cars, does the existence of a fleet statement including odometer readings for cars at 31 March constitute sufficient evidence to substantiate the odometer readings of each vehicle for the purpose of calculating the taxable value of each of the respective cars? If the Tax Office response is no, what additional documentation would they require in this instance.

Finally, what is the Tax Office position with respect to ‘odometer reading declarations’ signed by the respective employee at the end of the FBT year? Are they a must have?

Clarification if you require a signed declaration. Is there an evidential requirement

Tax Office response:

In providing a general response to the issues raised in the ICAA submission, the Tax Office advised that the Fringe Benefits Tax: A guide for employers provides practical advice for employers in relation to the record keeping requirements for both the statutory formula and operating cost methods of valuing car fringe benefits.

It is also important to note that the record keeping requirements vary between the statutory and operating cost methods. It is not clear in the ICAA submission whether the employer is relying on the statutory or the operating cost method to value the car fringe benefits.

The Tax Office stated that with respect to ‘odometer reading declarations’ there is no legislative requirement under the FBTAA for an employee to provide an employer with a ‘declaration’ in respect of odometer readings. However, while there is no legal requirement an employer could, as an internal administrative practice, request same from an employee.

At a technical level, the defined terms ‘logbook’ and ‘odometer records' have particular relevance to the operating cost method. Where an employer elects to use the operating cost method to value car fringe benefits, logbook and odometer records must be maintained by or on behalf of the provider/employer.

The Fringe Benefits Tax: A guide for employers at paragraph 4.2. discusses logbook records and odometer records and states:

…….In a logbook year, you must keep both types of records. In a year other than a logbook year, you need keep only odometer records.

A logbook year commonly occurs when you use the operating cost method to value a car fringe benefit for the first time. The term is dealt with in more detail in 7.8.

Logbook records contain a record of business use and are usually maintained for a continuous 12-week period. Odometer records are a record of the total distance travelled during the same 12 weeks that logbook records are maintained, and the total distance travelled each year. The 12-week period chosen should be representative of the car’s business use.

Also at paragraph 4.2 under ‘Information to be recorded in odometer records the guide states that, ‘….odometer record should be kept for the same period for which a logbook is kept.’

'Odometer records' is defined in subsection 136(1) of the FBTAA as a document, in relation to a car, which contains the following particulars:

(a) the odometer reading of the car at the commencement of the period; and

(b) the odometer reading at the end of that period; and

(c) if paragraph 162K(2)(b) or 162L(2)(b) applies with effect from a particular date - the odometer readings of both the replacement car and the original car referred to in that paragraph, as at that date;

Being entered at, or as soon as reasonably practicable after the respective times to which those odometer readings relate.

The relevant periods for which odometer records must be maintained are set out in the FBTAA:

o in a log book year, at the start and end of the applicable log book period and at the start and the end of the holding period (section 10A of the FBTAA); and

o in a non-log book year, at the start and end of the holding period (section 10B of the FBTAA).

Paragraph 4.2 of the guide, operating cost method records, provides a sample odometer reading:

Employer name	FBT year ended 31 March 2007
Car Make	Model	Registration Number	Start	End
			Date	Odometer reading	Date	Odometer reading
Holden	Commodore	AAA 999	01/04/2006	116,000km	31/03/2007	126,000km

The guide also indicates that the Tax Office does not produce an official odometer form and that an employer is entitled to keep records of their own design, or to purchase one of the many commercial products available.

Of course the minimum required detail for ‘odometer records’ must be satisfied and set out in a document where an employer has elected to use the operating cost method to value car fringe benefits.

The Tax Office advised that as odometer readings can be maintained by or on behalf of the provider/employer, the odometer readings in respect of the owned vehicles that are made on behalf of the provider by the Logistic Manager or drivers of the respective cars, would appear to be considered as satisfying the requirements of ‘odometer records’ document if completed appropriately. It is presumed that the minimum requirements of maintaining ‘odometer records’ has been satisfied.

Similarly, the Tax Office advised it would appear that information provided by the fleet manager in relation to novated lease cars held by the employer could satisfy the requirements of ‘odometer records’ where the minimum requirements of maintaining ‘odometer records’ has been satisfied. A fleet statement would also fall into the same category as being sufficient evidence.

As noted previously, the Tax Office stated that an employer is not specifically required to maintain 'odometer records', as defined, when using the statutory formula to value car fringe benefits.

However, as explained in the Fringe Benefits Tax: A guide for employers, ‘Statutory formula method records’, 'Total kilometres travelled', keeping a record of odometer readings at the beginning and end of the FBT year is the best way to determine the total kilometres travelled by a car during the year. Paragraph 7.8 states:

If you use the statutory formula method to calculate the taxable value of a car fringe benefit, you have to determine the total kilometres travelled by the car during the year. The best way to do this is to keep a record of the odometer readings at the beginning and end of the FBT year.

If you fail to record odometer readings for the car, it is acceptable to provide appropriate evidence of two separate odometer readings close to the beginning and end of the FBT year, for example:

o vehicle purchase or sale invoices showing an odometer reading

o repair invoices showing an odometer reading

o service records showing an odometer reading

o any document used for registration purposes that shows an odometer reading (for example, pink slips)

o entries in your logbooks showing an odometer reading close to the beginning and/or end of the FBT year (as long as the entry is dated, and shows the name and signature of the person making the entry, and the odometer reading)

o fleet management or oil company charge cards that show an odometer reading on account statements, or

o if a new car was purchased and no odometer reading was recorded on the vehicle purchase invoice, zero kilometres is acceptable as the opening odometer reading.

The above examples are also found in Taxation Determination TD 94/26 - Fringe benefits tax: what records of distance travelled are acceptable if the employer did not keep the opening and closing odometer readings for a car for the statutory formula method of calculating car fringe benefits in section 9 of the FBTAA?

13 ^{[_Toc217814955]} Recipient’s payments for car benefits (TIA)

Clarification regarding recipient’s payments relating to car benefits provided by way of ‘associate leases’ was provided in the meeting minutes of this sub-committee dated 17 August 2006. We now seek further clarification regarding recipient’s payments in a slightly different ‘associate lease’ scenario.

The issue discussed at the August 2006 meeting related to an associate of an employee leasing a car to the employer and the employer providing that car for use by the employee and their associate. The facts appeared to relate to a situation where the associate owned or leased the car and incurred car expenses (that is running costs) directly during the holding period. The Tax Office confirmed that car expenses incurred directly by the associate in that scenario will constitute recipient’s payments under subparagraph 9(2)(e)(ia) or (ii) of the FBTAA.

We now seek clarification of the same issue, but in the situation where the associate leases the car on a fully maintained basis from an external financier, before then sub-leasing the car, also on a fully maintained basis, to the employer. That is, the associate pays lease instalments to the financier which include an amount to cover car expenses (that is running costs). The car is then sub-leased to the employer (usually with a small profit margin) who provides its use as a fringe benefit to the employee and associate. The associate might be provided with a fuel card by the financier to facilitate payment of the running costs.

Importantly, we raise this issue in relation to a situation where the amount incorporated into the associate’s lease payment to the financier in respect of running costs will be adjusted at the end of each FBT year to reflect the actual running costs incurred. However, the lease payments paid by the employer to the associate will not. That is, the lease payments charged to the associate are specifically in respect of the lease of the car (financing aspect) and the actual running costs and will usually be under a finance lease. If running costs are more than estimated, the additional costs will be charged to the associate. If the costs are less than estimated, the excess will be refunded to the associate. In contrast, the lease payments charged to the employer are in respect of the use of the car on a fully maintained basis and under an operating lease and will not be adjusted at all at year end.

In our view, the car expenses (that is running costs) paid by the associate to the finance company will constitute a recipient’s payment in terms of subparagraph 9(2)(e)(ia) and (ii) because the exact cost of those expenses is passed on to the associate who therefore bears, or incurs, those costs. It may, in fact, be said that the financier initially pays those costs as agent for the associate. Whilst these costs to the associate are then relevant in determining the lease amount to be charged to the employer, they are not directly passed on to the employer and there is no adjustment in the amount charged to the employer in respect of the costs. Therefore, the employer does not bear or incur these costs as such.

Fundamentally, the situation considered in the August 2006 meeting and the situation presented above are the same in that the associate bears the financing cost for the car and bears the running costs and then builds these costs into the determination of the flat lease amount to be charged to the employer. Therefore, the calculation of taxable value for FBT purposes should be the same in both cases.

Would the Tax Office please confirm its agreement or otherwise to this interpretation.

Tax Office response :

The submission by the TIA refers to the minutes of this forum of the meeting held on 17 August 2006 and the response provided by the Tax Office concerning recipient's payments relating to car benefits provided by way of associate leases (agenda item 10). The current submission seeks 'further clarification regarding recipient's payments in a slightly different 'associate lease' scenario'.

The Tax Office acknowledged the comments made at the meeting held on 17 August 2006.

In discussing the issue raised generally, the Tax Office stated that it was concerned that arrangements relating to associate leases was being dealt with through this forum based on, perhaps, a selective approach without the full facts relating to the arrangements being provided.

The Tax Office raised this caution on the basis of the views expressed previously in Taxation Ruling IT 2509: Income tax and fringe benefits tax consequences of an employee leasing a car to an employer which is subsequently provided back to the employee. IT 2509 issued on 17 November 1988 in response to, what was at the time, particular arrangements concerning leases (inclusive of 'associate leases') involving the employer, finance company and the employee or, in variations, the associate of an employee. IT 2509 provided an analysis of the tax implications for the employer, the employee and the associate of the employee in relation to particular arrangements. IT 2509 also acknowledged there were variations to the straight forward dual lease arrangement outlined which were, at that time, also being promoted. IT 2509 did accept that a novation of a lease and 'associate leases' can operate effectively.

The Tax Office advised that given what appears to be variations to what are 'straight forward' arrangements that may be factually complex, an employer considering entering into such arrangements should have the matter considered by the Tax Office by way of private binding ruling application. Such an application should include all relevant facts and documents relating to the arrangement between the employer, employee, associate and the lessor.

14 ^{[_Toc217814956]} LAFHA - same place of employment (NIA)

A recent AAT case, The Compass Group v FC of T (2008) AATA 804, deals with the question of ‘Can a living away from home allowance be paid without changing the location of employment’. The case resulted from the Commissioner giving a negative private ruling on this question in relation to specific facts as outlined in the case. The AAT agreed with the Tax Office that in the circumstances outlined in that case the employee could not be seen as being required to live away from his usual place of residence in order to perform the duties of his employment. The main reason for this conclusion appears to be because it was the employee’s choice to move closer to his place of employment for his own convenience rather than any necessity of his employment duties. The fact that his original place of residence was within a normal commuting distance appeared to be of relevance in this case. It was also relevant that the employer did not require him to live closer to his place of work.

Could the Tax Office comment on whether there would be any circumstances that an employee may be entitled to a living away from home allowance, reimbursement or accommodation benefit without changing the location of employment?

For example, If an employee who’s usual place of residence is say one and a half hours commute from their place of employment (not unusual in Australia’s larger cities) and in the normal course of the employee’s duties they are happy to be travelling to and from work for a total of three hours per day while they are working normal hours. However, say the employee is required to work additional hours for a specific time, say two months where they are required to work 13 to 15 hour days on a big project. To allow the employee to have enough time to eat and sleep during this time the employer provides the employee with a living away from home benefit (either accommodation allowance, reimbursement or direct accommodation benefit) so they can live close to their place of work for that two months period.

It appears that in such a circumstance the employee could be seen as being required to live away from their usual place of residence in order to perform the duties of their employment, even though the location of their employment has not changed.

Could the Tax Office confirm that in situations similar to the example described above the employee could be taken to be required to live away from home to perform the duties of their employment?

Meeting discussion

LCA stated that you could envisage a case where an employee who lived in Melbourne and for personal reasons relocated his family to Sydney to live. The employer required the employee to work back in Melbourne for six months while he filled his position in Melbourne and paid for the employee to temporarily relocate to Melbourne notwithstanding that his family stayed in Sydney.

The place of employment and the duties of employment did not change. The only change is the usual place of residence. The LCA stated that in this scenario section 30 should apply.

The LCA also stated that this would also be the case if an employee had to work twenty four seven for a period of time and the employer said that it is best if you stay in the motel next door to the place of employment.

The Tax Office explained that this is the inherent difficulty with the living-away-from-home provisions and why it is difficult to provide direct, clear answers. The outcome will simply depend on the facts. However, there was no requirement under the Act that requires the employee's place of employment to change. There can be valid business reasons why an employer requires an employee to live-away-from their usual place of employment where there has not, at the same time, been a change in the location of employment. An employee has no choice in such situations and the employer takes on those additional costs as its own.

Tax Office response:

The Tax Office advised that Miscellaneous Taxation Ruling MT 2030: Fringe Benefits Tax; Living-away-from-home allowance benefits, provides guidance in relation to the interpretation and application of the FBTAA to living-away-from home allowance benefits.

The issue raised in the NIA submission is whether a living-away-from-home allowance, reimbursement or accommodation benefit could be provided to an employee in a factual situation where the employee does not change the location of employment.

At paragraph 2 of MT 2030, the following is stated;

2. A living-away-from-home allowance exists where it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for additional expenses incurred, or additional expenses incurred and other disadvantages suffered, because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment. Additional expenses do not include expenses for which the employee would be entitled to an income tax deduction.

For example, what is important to note is that a decision in relation to how a living-away-from-home allowance should be treated will depend on the facts and whether it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for additional expenses incurred, or additional expenses incurred and other disadvantages suffered, because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment.

In this regard, section 30 requires that the allowance must have been provided 'by reason employee is required to live away from his or her usual place of residence in order to perform the duties of employment'.

Accordingly, in response to the question raised, the Tax Office advised that there can be circumstances where an employee does not change the location of employment however the duties of that employment or other factors have changed such that the employee 'is required to live away from his or her usual place of residence in order to perform the duties of employment'. This will always be a question of fact based on the specific circumstances of an individual employee.

15 ^{[_Toc217814957]} LAFHA - unit of accommodation or location (NIA)

Another issue that comes out of The Compass Group case is whether the ‘usual place of residence’ is referring to a unit of accommodation or a location. In the last sentence of Paragraph 59 of the case the AAT member states:

The person may, for example decide to lease the place that is his or her usual place of residence so that, even if initially required to work away from it, that place can no longer be regarded as his or her usual place of residence for it is no longer a place to which he or she has access let alone able to reside in

This statement indicates that the reference to place in ‘usual place of residence’ is an actual unit of accommodation and not just a locality. However it appears that this comment is obiter because in this case the employee did not let out the house that he considered to be his usual place of residence. The taxpayer lost the case it was because of other factors.

It is our view that whether or not the employee maintains their residence is only one of the factors in determining whether they are living away from their usual place of residence. Depending on the other circumstances, a particular location could suffice as an employee’s usual place of residence where the taxpayer intended to return to that location after a temporally working in another location even though they don’t maintain a residence in the old location during their time of absence.

While the AAT’s implies that a usual place of residence must be a unit of accommodation, we note that in Miscellaneous Tax Ruling MT 2030 at, paragraph 33 and 34 suggests that the intention to return to the same city or district is sufficient.

Could the Tax Office indicate whether it is possible for an employee to be living away from their usual place of residence in the following three situations(assuming there are sufficient other indications to them living away from their usual place of residence):

1. where an employee owns their usual place of residence but leases it out while there are temporally working in another location but intend returning to their usual place of residence on completion of the work in the other location;

2. where the employee was leasing their usual place of residence but gives up the lease when they temporally are working in another location but they intend to return to the same location (e.g. same town or city) as there previously leased premises; and

3. where the employee was living with their parents or other relatives as their usual place of residence and they intend to return to live with them when they return from temporally working in another location?

Tax Office response

The Tax Office acknowledged the Tribunal's decision in The Compass Group (Vic) Pty Ltd as Trustee for White Roche and Associates Hybrid Trust v FC of T [2008] AATA was based on the facts before it.

The Tax Office indicated that Miscellaneous Taxation Ruling MT 2030: Fringe Benefits Tax; Living-away-from-home allowance benefits, provides the Tax Office views and broad guidance in relation to the interpretation and application of the FBTAA to living-away-from home allowance benefits.

As noted in the NIA submission, MT 2030 provides guidance in relation to the meaning of the phrase 'usual place of residence'. In particular, as is relevant to the query raised in the submission, the view expressed in MT 2030 is that it may not always be the case that an employee can make a declaration on the basis that they have an actual residence to return to; they may have an intention to return to the same city or district to live upon resuming residence in the home country which will suffice. The relevant extracts from MT 2030 are as follows:

29. Another question that has been raised is the extent to which it is necessary, before an employer may treat an allowance as a living-away-from-home allowance, to establish whether the employee does in fact have a residence at a place other than the locality at which the employee is temporarily residing.

30. The Act does not express a requirement, for a person to qualify as having a ‘usual place of residence’, that it be established that he or she actually have such a residence. If the employee is one of a class of employees, (e.g., diplomats posted overseas, foreign experts employed in Australia, construction workers at a remote construction site, etc.) who could reasonably be expected by the employer to satisfy the tests set out in paragraphs 11-25 of living away from the usual place of residence, and the allowance is paid to compensate for additional costs (as explained in paragraph 28) that the employees could be expected to incur through having to live away from home, the allowance will constitute a living-away-from-home allowance in terms of section 30.

31. As mentioned in paragraph 9, however, it is necessary in order that the taxable value of a living-away-from-home allowance may be reduced by the exempt accommodation component and the exempt food component, that the employer obtain from the employee a declaration, in an approved form, as to the particulars of the employee's usual place of residence and actual place of residence for the part of the fringe benefits tax year during which the living-away-from-home allowance was paid.

33. While an employee eligible to make such a declaration would ordinarily be able to indicate that residential premises are being kept at the place where he or she usually resides, that may not always be the case. For example, for financial reasons an expatriate coming to Australia to work for a limited but substantial period may have terminated the lease on a house, flat or apartment where he or she lived in the home country intending to release it or lease another home on return. Similarly, a home could have been sold with the intention of acquiring another. Provided the tests set out in paragraphs 11-25 are satisfied and the expatriate intends to return to the same city or district to live upon resuming residence in the home country, he or she would be entitled to declare that his or her usual place of residence is that city or district.

34. Similar principles would apply in relation to say an Australian resident temporarily employed abroad or an employee transferred for a fixed term from one State in Australia to another or from a city to a rural district, or vice versa.

In relation to the three scenarios set out in the NIA submission, the question was asked whether it is possible for an employee to be living away from their usual place of residence in each of the scenarios.

In relation to scenarios one and two, the Tax Office indicated, in accordance with MT 2030 paragraphs 30 and 33 provides support for the view that the employee could be entitled to declare that they were living away from home.

In relation to scenario three, the Tax Office indicated that where an employee was living with parents or other relatives, the answer to whether that place is their 'usual place of residence' will depend on the specific facts relating to that employee. A 'single' person may be unable to establish that they are living away from their usual place of residence because of the transitory nature of their lifestyle means that their usual place of residence is wherever they happen to sleep at night. This view is expressed at paragraph 21 of MT 2030;

21. Some employees may be unable to establish that they are living away from their usual place of residence because the transitory nature of their lifestyle means that their usual place of residence is wherever they happen to sleep at night. Employees who follow the job, say, from construction site to construction site and have no permanent place of residence would fit into this particular category.

The Tax Office noted that each case however must be considered on it's individual facts with reference to the full guidance provided by MT 2030.

16 ^{[_Toc217814958]} LAFHA - recipients allowance period (NIA)

The definition of ‘exempt accommodation component’ in section 136 of the FBTAA requires the employee to provide the employer with a declaration before the declaration date stating the employee’s usual place of residence and their actual place of residence during the recipients allowance period. The ‘recipients allowance period’ is defined in section 136 as “the period to which the recipients allowance relates’.

The question is, in situations where the allowance is paid for periods or parts of periods that occur before the FBT year in which the allowance is paid, can the employee include these prior year periods as part of the ‘recipients allowance period’ in the declaration?

For example, if an employee is required to live away from their usual place of residence in order to perform the duties of their employment during the period from 1 February 2008 until 30 August 2008. The employer pays the allowance to compensate for the additional costs of accommodation for this period but the payments are not made until after 31 March 2008 that is, the payments partially relate to the 2007-08 FBT year but are not paid until the 2008-09 FBT year. It appears that the living away from home allowance needs to be dealt with in the 2008-09 FBT return but the employee’s declaration for the 2008-09 FBT year should state the recipients allowance period as including the period in the 2007-08 year that is, from 1February 2008 to 30 August 2008 and assuming the allowance otherwise qualifies as exempt accommodation component it will be exempt from FBT.

Does the Tax Office agree with this analysis?

As an extension to the above question, does it make any difference when the employer agreed to pay the allowance. Extending the above example if the employee agreed to living away from home in order to perform the duties of their employment from 1 February 2008 but the employer did not decide to pay the living away from home allowance until say 1 July 2008, but back paid it to cover the employee’s additional accommodation cost since 1 February 2008. It appears that it should not make any difference when the decision to pay the allowance is made provided it is paid to cover the additional costs of accommodation while the employee is required to live away from home to perform their employment duties.

Does the Tax Office agree with this analysis?

Tax Office response:

The Tax Office agreed with the analysis put forward in the NIA submission.

Broadly section 30 refers to an allowance being paid at a 'particular time, in respect of the employment of an employee of an employer'.

The benefit that section 30 refers to is the payment of the allowance. An agreement to pay an allowance is not the benefit and does not impact on the provision of the benefit.

In determining to what extent a living-away-from-home allowance fringe benefit will be exempt from FBT, section 31 refers to the reductions available for the exempt accommodation and exempt food components of the 'recipients allowance'.

The 'exempt accommodation component' and 'exempt food component' definitions in sub-section 136(1) require a declaration in an approved form before any reduction is possible. Both of these definitions also refer to the 'recipients allowance period'. This is in turn defined in sub-section 136(1) as being 'in relation to a living-away-from-home allowance fringe benefit, means the period to which the recipients allowance relates'.

Given the requirements set out in the relevant provisions and related definitions, the Tax Office also agreed that where a living-away-from-home allowance is paid that covers a period spanning two different FBT years, the living-away-from-home declaration will cover such situations and an employee would complete the declaration (in the approved form) stating the periods that the employee was in fact required to live-away-from-home. This would set out the 'recipients allowance period', being the period to which the allowance paid during the FBT year related (even if that period included part of a previous FBT year).

The following is a link to the relevant declaration (being the form approved by the Commissioner).

17 ^{[_Toc217814959]} FBT risk and compliance update (Tax Office)

The following risk and compliance work has been undertaken:

· Car benefits risk sizing project

Work on this project is continuing:

o Use of default assessments where there is no response from the taxpayer or there has been a lack of co-operation

Key findings from research work:

o Failure to recognise that a car garaged at an employee’s home is considered available for private use,

o Failure to keep a valid logbook;

o Failure to keep odometer records

o Incorrectly treating employee contributions

o A related entity accounting for and paying the employers’ FBT liability

o Incorrect application of exempt car benefits, and

o Incorrect application of income tax and FBT laws.

· Use of outbound calls, for example compliance verification activities

· Issues encountered through audits include:

o double dipping (using the otherwise deductible rule to reduce the taxable value of a benefit for the employer, and then the employee claiming the same amount as an income tax deduction in their individual return). Section 51AH of the ITAA 1936 operates to deny the deduction to the employee.

o Charities claiming the public benevolent institution (PBI) exemption of $30,000, when they are in fact endorsed as a charity that enables them to access the $30,000 rebate per employee.

· Data matching

o Data from the various registration authorities has been refreshed with data for vehicles with a value greater than the luxury car tax threshold;

o For future data refreshes the threshold has been lowered to $10,000 - this will capture information in respect of dual cabs and the like.

o Exploring a pilot to request data from fleet managers

· Forward compliance arrangements

o The Tax Office and the ANZ bank have signed an Forward Compliance Arrangement (FCA) for FBT as announced at the May meeting of this committee;

o The Tax Office is currently working with another entity on the FCA process, with a Memorandum of Understanding recently signed by both parties; and

o The Tax Office has also been approached by other parties about the possibility of entering into an FCA for FBT.

Action item

The Tax Office to investigate providing the forum with a sanitised or generic copy of an FBT FCA.

18 ^{[_Toc217814960]} Annual review (Tax Office)

The following documents were provided with the agenda to facilitate the review of the forum for the period 1 January 2008 to 31 December 2008.

• Committee Management Practice Statement PS CM 2006/06

• Forum Charter

• Forum Review Template

Following discussion members agreed that the 2008 review document would be completed ‘out of session’ and electronically. It was agreed that members would return the completed survey forms to the secretariat by close of business 5 December 2008.

^{[_Toc217814961]} 19 Other business

^{[_Toc217814962]} 19.1 Meeting dates for 2009:

The following meeting dates were agreed for 2009:

Date	Host	Place
26 February 2009	Tax Office	Sydney
14 May 2009	NIA	Melbourne
13 August 2009	TIA	Sydney
12 November 2009	CPA Aust	Melbourne

^{[_Toc217814963]} 20 Close of meeting

The next meeting will be held on Thursday, 26 February 2009 at the Australian Taxation Office, 12-22 Woniora Road, Hurstville.

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[_Toc139169365][_Toc205891057][_Toc217814933] 1 Opening of meeting including any changes to the agenda [_Toc139169366]

[_Toc217814934] 2 Confirmation of minutes of the 14 August 2008 meeting

3 [_Toc139169367][_Toc217814935] Items carried over from previous meetings

[_Toc217814936] 3.1 Taxpayer Alert TA 2008/13 and Taxpayer Alert TA 2008/14 (Tax Office)

4 [_Toc217814937] TRs/TDs, class rulings, LAPS and ATO IDS issued since the August meeting

[_Toc139169371][_Toc217814938] 4.1 FBT related taxation rulings, taxation determinations, class rulings and law administration practice statements

[_Toc139169373][_Toc217814939] 4.2 FBT related ATO interpretative decisions

[_Toc217814940] 4.3 FBT related rulings on the public rulings program (Tax Office)

5 [_Toc217814941] News from the Tax Office

[top][_Toc217814942] 5.1 Cases

[_Toc217814943] 5.2 Legislation update

[_Toc217814944] 5.3 FBT publications

[_Toc217814945] 5.4 FBT Better Practice Guide

[_Toc217814946] 5.5 FBT processing update

5.6 [_Toc217814947] 2008-09 budget income tests

[_Toc139169395] 6 [_Toc217814948] Definition of briefcase (ICAA)

7 [_Toc217814949] Briefcase primarily for use in employee’s employment (ICAA)

8 [_Toc217814950] Section 58X exemption – applying ‘work test’ to mobile phones, rental charges (NTAA)

9 [_Toc217814951] Recent amendments to joint benefits and the ‘otherwise deductible rule’ (NTAA)

10 [_Toc217814952] Incentive awards (FCAI)

11 [_Toc217814953] Re-location transport (ICAA)

12 [_Toc217814954] Documentation to substantiate odometer readings (ICAA)

13 [_Toc217814955] Recipient’s payments for car benefits (TIA)

14 [_Toc217814956] LAFHA - same place of employment (NIA)

15 [_Toc217814957] LAFHA - unit of accommodation or location (NIA)

16 [_Toc217814958] LAFHA - recipients allowance period (NIA)

17 [_Toc217814959] FBT risk and compliance update (Tax Office)

18 [_Toc217814960] Annual review (Tax Office)

[_Toc217814961] 19 Other business

[_Toc217814962] 19.1 Meeting dates for 2009:

[_Toc217814963] 20 Close of meeting

^{[_Toc139169365]}^{[_Toc205891057]}^{[_Toc217814933]} 1 Opening of meeting including any changes to the agenda ^{[_Toc139169366]}

^{[_Toc217814934]} 2 Confirmation of minutes of the 14 August 2008 meeting

3 ^{[_Toc139169367]}^{[_Toc217814935]} Items carried over from previous meetings

^{[_Toc217814936]} 3.1 Taxpayer Alert TA 2008/13 and Taxpayer Alert TA 2008/14 (Tax Office)

4 ^{[_Toc217814937]} TRs/TDs, class rulings, LAPS and ATO IDS issued since the August meeting

^{[_Toc139169371]}^{[_Toc217814938]} 4.1 FBT related taxation rulings, taxation determinations, class rulings and law administration practice statements

^{[_Toc139169373]}^{[_Toc217814939]} 4.2 FBT related ATO interpretative decisions

^{[_Toc217814940]} 4.3 FBT related rulings on the public rulings program (Tax Office)

5 ^{[_Toc217814941]} News from the Tax Office

^[top]^{[_Toc217814942]} 5.1 Cases

^{[_Toc217814943]} 5.2 Legislation update

^{[_Toc217814944]} 5.3 FBT publications

^{[_Toc217814945]} 5.4 FBT Better Practice Guide

^{[_Toc217814946]} 5.5 FBT processing update

5.6 ^{[_Toc217814947]} 2008-09 budget income tests

^{[_Toc139169395]} 6 ^{[_Toc217814948]} Definition of briefcase (ICAA)

7 ^{[_Toc217814949]} Briefcase primarily for use in employee’s employment (ICAA)

8 ^{[_Toc217814950]} Section 58X exemption – applying ‘work test’ to mobile phones, rental charges (NTAA)

9 ^{[_Toc217814951]} Recent amendments to joint benefits and the ‘otherwise deductible rule’ (NTAA)

10 ^{[_Toc217814952]} Incentive awards (FCAI)

11 ^{[_Toc217814953]} Re-location transport (ICAA)

12 ^{[_Toc217814954]} Documentation to substantiate odometer readings (ICAA)

13 ^{[_Toc217814955]} Recipient’s payments for car benefits (TIA)

14 ^{[_Toc217814956]} LAFHA - same place of employment (NIA)

15 ^{[_Toc217814957]} LAFHA - unit of accommodation or location (NIA)

16 ^{[_Toc217814958]} LAFHA - recipients allowance period (NIA)

17 ^{[_Toc217814959]} FBT risk and compliance update (Tax Office)

18 ^{[_Toc217814960]} Annual review (Tax Office)

^{[_Toc217814961]} 19 Other business

^{[_Toc217814962]} 19.1 Meeting dates for 2009:

^{[_Toc217814963]} 20 Close of meeting