ATO Interpretative Decision

ATO ID 2007/200

Fringe Benefits Tax

Issue

Is a Commonwealth Statutory Agency, whose establishment Act provides a general exemption from taxation, nevertheless subject to the notional application of fringe benefits tax under the Fringe Benefits Tax (Application to the Commonwealth) Act 1986?

Decision

Yes. The Statutory Agency is subject to the notional application of fringe benefits tax in relation to benefits provided in respect of the employment of Commonwealth employees under the Fringe Benefits Tax (Application to the Commonwealth) Act 1986.

Facts

A Commonwealth Government body (the Agency) is a 'Statutory Agency' within the meaning of that term in the Public Service Act 1999 and is a 'Commonwealth authority' within the meaning of that term in the Commonwealth Authorities and Companies Act 1997.

The Agency was established by an Act of Parliament (the Agency Act), a Commonwealth Act specific to the Agency.

The Agency Act provides for money to be appropriated by the Parliament for the purposes of the Agency which is applied for the payment of remuneration and allowances.

Commonwealth employees perform their duties of employment in or in respect of the Agency.

The Agency provides benefits in respect of the employment of Commonwealth employees.

The Agency Act provides 'Exemption from taxation' as follows:

The income, property and transactions of the Agency are not subject to taxation under any law of the Commonwealth or of a State or Territory.

Reasons for Decision

In his second reading speech introducing the Fringe Benefits Tax Assessment Bill 1986 the Treasurer stated:

As the purpose of the tax is to remove a serious gap in the income tax law and ensure that all forms of remuneration paid to employees bear a fair measure of tax, fringe benefits tax is pitched at all employers - both taxable employers and exempt employers under the income tax law. It will apply to Commonwealth, State and local governments and their agencies.

The fringe benefits tax legislation has been subject to constitutional challenges. In State Chamber of Commerce and Industry & Ors v. The Commonwealth of Australia (1987) 163 CLR 329; (1987) 87 ATC 4745; (1987) 19 ATR 103 (the Second Fringe Benefits Tax Case), the High Court of Australia examined the Fringe Benefits Tax Act 1986 (the Tax Act); the Fringe Benefits Tax Assessment Act 1986 (the Assessment Act); and the Fringe Benefits Tax (Application to the Commonwealth) Act 1986 (the Application Act).

At CLR 357-358; ATC 4757; ATR 118-119, Mason CJ, Wilson J, Dawson J, Toohey J and Gaudron J discuss the Application Act:

The Application Act is, as its long title indicates, an Act to provide for the notional application of fringe benefits tax in relation to benefits provided in respect of the employment of Commonwealth employees. Section 4 provides that, subject to certain modifications, the Assessment Act applies in relation to Commonwealth employment. Section 7 enables the Minister of Finance to give such directions in writing as are necessary or convenient to be given for carrying out or giving effect to the Application Act and, in particular, may give directions in relation to the transfer of money within the Public Accounts.

The plaintiffs' submission that the Application Act cannot be supported as an exercise of either the taxation power or the express incidental power operating in combination therewith is not to the point.

The Constitution established a new body politic, the Commonwealth of Australia. The body politic was armed with specific legislative, executive and judicial powers. However, the establishment and the nature of the body politic gave rise also to certain implied powers, as explained by Dixon J. (as he then was) in Burns v. Ransley (1949) 79 CLR 101 at p. 116; The King v. Sharkey (1949) 79 CLR 121 at pp. 148-149; and Australian Communist Party v. The Commonwealth (1950-1951) 83 CLR 1 at p. 188. Subject to constitutional prohibitions, express or implied, the implied powers include a power for the regulation and supervision of the polity's own activities, the exercise of its powers and the assertion or waiver of its immunities.

The Application Act is a law for the regulation and supervision of the provision of fringe benefits by Commonwealth departments and authorities to Commonwealth employees, and as such is a law which the power to enact is necessarily implied from the establishment and nature of the Commonwealth of Australia. It may also be supported as an exercise of the express incidental power in sec. 51(xxxix) in combination with other constitutional provisions.

But in any event the invalidity of the Application Act, if it could be established, would not lead to the invalidity of the Tax Act and the Assessment Act. The operation of the Tax Act and the Assessment Act is not expressed to be conditional on the operation of the Application Act: DFC of T (NSW) v. W.R. Moran Pty Ltd (1939) 61 CLR 735 at pp. 762, 772; Logan Downs Pty. Ltd. v. FC of T (1965) 112 CLR 177 at pp. 187, 190. Moreover, the Tax Act, the Assessment Act and the Application Act do not form interdependent elements in a general scheme because the rights and liabilities created by the first two statutes are not related to the operation of the Application Act: W.R. Moran Pty. Ltd. at pp. 762, 772; South Australia v. The Commonwealth (the First Uniform Tax Case") (1942) 65 CLR 373, at pp. 411, 447-448, 456, 462. The plaintiffs relied on statements in Hansard made with reference to the Application Act with a view to showing that the three Acts form part of a general interdependent scheme. The statements do not go that far and, even if they did, they provide no basis for giving the statutes an interpretation which finds no support at all in their language.

An examination of the fringe benefits tax legislation shows there are two independent schemes operating to deal with the subject of fringe benefits. The main scheme deals with the general population of employers and comprises two Acts, the Tax Act and the Assessment Act. The secondary Commonwealth scheme deals with employment of Commonwealth employees and comprises two Acts, the Application Act and the Assessment Act.

The 'main scheme'

The main scheme comprised of the Tax Act and the Assessment Act applies taxation to taxpayers who are employers within the definition of 'employer' in subsection 136(1) of the Assessment Act.

Tax is imposed on the employer by the Tax Act on the fringe benefits taxable amount. Tax imposed on the employer is payable under section 66 of the Assessment Act.

The definition of 'employer' in subsection 136(1) of the Assessment Act does not include:

(d)

the Commonwealth; or

(e)

an authority of the Commonwealth that cannot, by a law of the Commonwealth, be made liable to taxation by the Commonwealth.

Goods and Services Tax Ruling GSTR 2006/5 Goods and services tax: meaning of 'Commonwealth, a State or a Territory', discusses the meaning of 'Commonwealth....' under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

It is accepted that the meaning of 'the Commonwealth' in the GST Act and in the Assessment Act are the same. Note: the meaning of 'the Commonwealth' in these Acts can be determined in accordance with the same general principles as developed by the High Court of Australia, for example in considering the meaning of 'the Commonwealth' within the scope of the expression in section 75(iii) of the Constitution in Australian Securities & Investments Commission v. Edensor Nominees Pty Ltd (2001) 204 CLR 559; [2001] HCA 1.

GSTR 2006/5 at paragraphs 6 and 7 provides for a Statutory Agency, within the meaning of the Public Service Act 1999, to be 'the Commonwealth' under the GST Act. The Agency, being 'the Commonwealth', is therefore not included in the definition of 'employer' in subsection 136(1) of the Assessment Act.

As the Agency is not an 'employer' it is not subject to fringe benefits tax under the main scheme.

Any questions on liability for tax imposed under section 66 of the Assessment Act under the main scheme, because the Agency Act contains a taxation exemption clause, do not arise.

The 'Commonwealth scheme'

As the long title to the Application Act indicates, the Commonwealth Scheme comprised of the Application Act and the Assessment Act provides for the notional application of fringe benefits tax, and for the application of the reportable fringe benefits system, in relation to benefits provided in respect of the employment of Commonwealth employees.

In his second reading speech to the Fringe Benefits Tax (Application to the Commonwealth) Bill 1986 the Treasurer stated that:

the various departments and authorities will face the same obligations as other employers to lodge annual fringe benefits tax returns and to pay the tax, including quarterly instalments. The Government will be at pains to ensure that agencies fully bear the burden of the tax through the annual appropriation procedures and other measures.

Under subsection 3(1) of the Application Act, 'Department' is relevantly defined as:

(c)

an Executive Agency or Statutory Agency (within the meaning of the Public Service Act 1999).

The Agency is a 'Statutory Agency' and a 'Department' as defined under subsection 3(1) of the Application Act.

The Agency is also the 'responsible Department' as defined under subsection 3(1) of the Application Act because the Commonwealth employee's remuneration is paid out of the Agency's appropriation and the employee performs duties in or in respect of the Agency.

Under section 4 of the Application Act, the Assessment Act applies as if the employee were employed by the 'responsible Department' (the Agency) and not by the Commonwealth.

The Commonwealth scheme does not impose tax as does the Tax Act. Instead, the Application Act, rather than being a law with respect to taxation, 'is a law for the regulation and supervision of the provision of fringe benefits by Commonwealth departments and authorities to Commonwealth employees', as quoted above from the Second Fringe Benefits Tax Case.

The Commonwealth scheme through the Application Act including section 7 of that Act provides for a transfer of money within the Public Account.

As the Commonwealth scheme does not impose tax, the provision in the Agency Act for a general exemption from all Commonwealth, State and Territory taxes does not affect the transfer of money under the Commonwealth scheme.

The Commonwealth scheme applies to the Agency. The Agency is subject to the notional application of fringe benefits tax in relation to benefits provided in respect of the employment of Commonwealth employees under the Application Act. The Agency is also subject to the application of the reportable fringe benefits system.

Year of income:  Year ended 31 March 2007

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   The Act

Case References:
Australian Securities & Investments Commission v. Edensor Nominees Pty Ltd
   (2001) 204 CLR 559
    [2001] HCA 1

Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2006/5

Other References:
Second reading speech to the Fringe Benefits Tax (Application to the Commonwealth) Bill 1986
Second reading speech to the Fringe Benefits Tax Assessment Bill 1986

Keywords
Fringe benefits
Fringe benefits tax

Siebel/TDMS Reference Number:  5725596; 1-6DDM6YX; 1-D9QGD8R

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  9 November 2007
Date reviewed:  24 January 2018

ISSN: 1445-2782