Edited version of private ruling

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Ruling

Subject: Exempt Residual Benefits Subsection 47(6) of the FBTAA

Question 1

Will bus transport provided under salary sacrifice arrangements for employees of the employer based in Queensland, Western Australia, Victoria and New South Wales, as applicable, be exempt residual benefits under subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes, for the Queensland, Western Australia and Victoria arrangements.

No, for the New South Wales arrangements.

Question 2

Will tram transport provided under salary sacrifice arrangements for employees of the employer based in Victoria be exempt residual benefits under subsection 47(6) of the FBTAA?

Answer

No.

This ruling applies for the following period

1 April 2010 to 31 March 2015

The scheme commenced on

1 April 2010

Relevant facts

The employer has employees in each of New South Wales, Queensland, Victoria and Western Australia.

The employer is considering offering each employee the option to enter into effective salary sacrifice arrangements (SSAs) to package the value of the employee's public transport travel between the employee's place of residence and the employee's place of employment.

Provision of travel to employees working in Queensland, Western Australia, Victoria and New South Wales will be administered by the use of a Go Card, Smart Rider, MyKi money, MyBus TravelTen or similar card (Transport Cards) respectively.

The Transport cards will be purchased and registered by the employer where available and provided to the employees for their use.

The employer will pay for the Transport Cards and distribute these to the employees who have entered into an effective SSA for this purpose.

Employees will need to sign a declaration acknowledging that the Transport Card is the property of the employer.

The provision of transport to these employees will be provided via a predetermined top up amount on the Transport Cards.

The employer will implement a policy which restricts employee travel to buses only and, where relevant, to trams.

Trams are a form of public transportation designed to operate on its own contained system which may in part or in whole utilise public roads. A tram is a flanged wheel passenger vehicle which runs on a tramway. The tramway is powered by electricity fed from an external source which powers the tram's motor through a current collector from an overhead conductor wire. Trams are fitted with signalling devices, interact with motor vehicles and are subject to traffic rules.

The employer's policy will also prohibit private travel (other than home to work travel). A 'no private use' declaration (other than home to work travel) will be obtained from the employees to validate this. The employer, at its discretion, will request employees to provide reports to substantiate these declarations.

Where the Transport Card is used outside the agreed terms and conditions under the employer's policy, the employer will adjust the salary and wages of the employee accordingly.

The employees will determine an annual amount to salary sacrifice on a prospective basis. This amount will then be divided by the number of pay cycles and paid periodically onto the Transport Card by the employer.

An annual reconciliation will be prepared:

For employees who continue to salary sacrifice the transport benefit, any difference will be incorporated into subsequent salary sacrifice deductions; or

For employees not continuing to salary sacrifice the transport benefit, any used balance will be returned to the employee as salary and wages less the relevant PAYG withholdings.

In the event of an employee losing his or her Transport Card a replacement card will be provided with the balance of the original card to be transferred to the replacement card.

A Transport Card provided to an employee under this arrangement will only be cashed out in the event of the cessation of employment of the employee, a change in the employee's circumstances such as the employee being unable to use the card as a result of moving residence or the employ's death. In this case, any refund will be returned to the employee or the employee's estate as salary and wages less the relevant PAYG withholding.

The employer will incorporate into its existing SSA policies the rules and accountabilities applicable to packaging the transport arrangements. The policies will be enforced in accordance with other of the employer's employment conditions and any breaches of the policy will always be effectively enforced.

An example of the wording of the proposed Declarations to be provided to the employer by the employees at the relevant times is provided.

Queensland - Go Card

Queensland offers commuters the electronic 'Go Card' ticketing option.

The Go Card is the public face of the TransLink Transit Authority s (TTA) new smart card system and has been introduced across the public transport network.

The Go Card is equivalent in size to a credit card and contains microprocessors and memory that allows the card to be programmed for fare collection for the public transport network.

To use a Go Card, the cardholder simply touches the card on a card reader at the start and end of a journey. When the card is touched on a card reader at the start of the journey an amount will be deducted from the card's balance. When the card is touched off at the end of the journey the correct fare is calculated and the balance is adjusted accordingly. If the cardholder fails to touch off at the end of a journey the fixed amount will remain deducted from the balance and the cardholder will forfeit any right to have the balance adjusted to reflect the correct fare for that journey.

The card allows passengers to travel from destination to destination without discriminating as to the mode of transportation used to arrive at a particular destination. Essentially, a Go Card allows the passenger to travel on all modes of transportation (i.e. buses, trains and ferries).

A Go Card can be purchased online, at a Go Card retailer or by completing a form and mailing it to the TTA:

· The person who purchases (holds) the Go Card is known as the cardholder;

· The person who uses the Go Card is known as the authorised user;

· When applying online / via mail you can provide the name and address of the authorised user and the Go Card will be sent to the cardholder;

· The cost of the Go Card is a refundable deposit of $5. If the Go Card is registered and it is lost/ stolen the $5 deposit is refundable;

· If the Go Card is purchased from a Go Card retailer, the employer will be required to register the Go Card online by visiting the TTA website;

· If the Go Card is purchased online or via post then it will automatically be registered (for protection purposes);

· The employer will be the purchaser/ cardholder and registered owner of the Go Cards.

A travel history report can be obtained via the online Go Card facility, which can be used to ensure that the Go Card is used solely for bus travel between home and work. The report provides a summary of locations travelled by the user of the Go Card, in particular:

The report provides a summary of locations travelled by the user of the Go Card. The report does not specifically state if the travel is via bus, train or ferry. However, it provides a description of the stop (e.g. Roma Street station) and this description then enables you to determine the type of travel.

The available balance for the Go Card can be topped up as required or via an automatic top-up facility, subject to dollar limitations; and

Both the authorised user and the cardholder may cancel the Go Card where payments are made in cash. However, as the employer will be making payments via the online system, only the cardholder (i.e. the employer) may cancel the card. Any outstanding amounts on the card will be refunded via a cheque (sent via post) or directly credited to a nominated credit card.

Western Australia - SmartRider

Western Australia offers commuters the electronic SmartRider ticketing option.

TransPerth are the responsible body for providing transport services in the Perth metropolitan area and administering the SmartRider system.

SmartRider is comparable to Queensland's Go Card ticketing system, offering travellers an integrated, electronic ticket. The initial cost of a SmartRider cards is a $10 refundable deposit (or $5 for concessional travellers).

The SmartRider is equivalent in size to a credit card and contains microprocessors and memory that allows the card to be programmed for fare collection for the public transport network.

The card allows passengers to travel from destination to destination without discriminating as to the mode of transportation used to arrive at a particular destination.

To use the SmartRider card the cardholder must swipe their card against the processors at the start and also at the end of a journey. When the card is touched on a card reader at the start of the journey, the system will record the location where the passenger boarded, the date and time and stop and zone where boarded. When the card is touched off at the end of the journey, the system then records where the passenger has alighted, the time and date and the stop and zone, calculates the lowest fare possible for that trip and deducts this amount from the balance stored on the SmartRider card. If the cardholder fails to touch off at the end of a journey, a default fare is calculated equal to the cash fare on the assumed basis that the passenger who failed to tag off has travelled to the final destination of that particular bus, train or ferry service. The default fare is calculated at the time of the passenger's next tag-on.

The employer can register the SmartRider card either by calling the TransPerth InfoLine or by completing a SmartRider registration form. The employer must first set-up a TravelEasy account for each card. Each card will be allocated to the user by their name and date of birth. Once registered:

· The employer has full access to the online system which provides instant access to travel history reports and card balances; and

· The SmartRider card can be hot-listed which disables the card from further use and enables the value on a lost or stolen card to be transferred to a replacement card.

· The employer will be the purchaser/ cardholder and registered owner of the SmartRider cards.

Fares are calculated based on the zone of stop boarded, the zone of stop alighted, the time of boarding, the time of alighting and whether there was a transfer between services.

Value can be added to the SmartRider cards online, via Autoload (where a bank account can be nominated for funds to be transferred), add value machines, BPAY, on board buses and at various TransPerth InfoCentres and/or SmartRider outlets.

A 25% discount is provided where the value is added via the auto-load option and a 15% discount is offered for all other value-add options.

Victoria MyKi money

Victoria offers commuters the electronic MyKi ticketing option.

At present, the MyKi systems are only in use on metropolitan trains and on some regional bus services. However, it is expected that sometime in 2010 the MyKi system will become available across the metropolitan bus and tram public transport network and will also extend to Victorian suburban and regional centres.

The MyKi is a reusable plastic smart card that is used to store value for payment of fares on metropolitan and regional transport services. The system is administered by the Victorian State Government.

The MyKi pass (travel days) and MyKi money (stored dollar amount) tickets cost $10 to purchase. The MyKi may be purchased online or through authorised retail outlets.

The employer can register the MyKi as the account holder either online, via a registration form (submitted via mail) or via telephone. Once registered:

· Value can be added to the MyKi pass or MyKi money card via the online top-up facility or alternatively, via telephone or through authorised retail outlets; and

· The account holder can access the online system and the account holder can manage up to 8 cards under the one account. Multiple accounts can then be set- up and again another 8 cards can be managed under the separate accounts. The online profile enables the registered user to access and print travel history reports through their online profile.

· The employer will be the purchaser/ cardholder and registered owner of the MyKi cards.

The correct fare for each trip is calculated after a passenger touches on and subsequently touches off. Fares are calculated according to where and when you travel, and the correct fare is automatically deducted from the MyKi money balance.

Under the MyKi pass system, fares are based on the zone(s) of travel and the numbers of days of travel. MyKi money calculates fares based on a dollar amount and is not restricted to any specific zones travelled.

The MyKi can be hot-listed which disables the card from further use and enables the value on a lost or stolen card to be transferred to a replacement card.

New South Wales - MyBus

The New South Wales State Government offers commuters the MyZone, an integrated ticket system. MyZone is the new fare structure for public transport in the greater Sydney area that began on 18 April 2010.

The system is available on NSW Cityrail, State Transit Authority buses and ferries, Sydney Ferries and most private bus networks in the Greater Sydney region, including the Blue Mountains, Illawarra, Central Coast and the Hunter.

Under MyZone, commuters have the option of buying either a MyBus, MyTrain, MyFerry or MyMulti ticket allowing them to travel on those forms of transport only. There is no initial purchase fee for the ticket itself. Tickets must be validated on board buses, at train stations or by using ticket validation machines located on buses, trains and trams.

Tickets may be purchased online, via telephone, onboard buses, trains and trams, retail sales outlets or alternatively, a MyMulti ticket may be purchased.

The MyBus system is based on zones and the period of time (single or TravelTen). The MyBus TravelTen ticket provides commuters with 10 trips over an unlimited period of time, on any route.

The MyBus TravelTen tickets can be validated on board either by inserting the ticket into the 'green ticket validators' on board State Transit buses or by the driver on private buses.

The MyBus1 ticket covers travel over 1-2 sections, the MyBus2 ticket covers travel over 3 - 5 sections and the MyBus3 ticket covers travel over 6 or more sections.

Reasons for decision

Issue 1

Question 1

Detailed reasoning

Subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides exemption for residual benefits consisting of the provision or use of a motor vehicle under certain limited circumstances. Subsection 47(6) of the FBTAA states:

Where:

47(6) [Motor vehicle not for private use]

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

(aa) the motor vehicle is not:

a taxi let on hire to the provider; or

a car, not being:

a panel van or utility truck; or

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

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

work-related travel of the employee; and

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

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

Subsection 136(1) of the FBTAA also provides the following definitions:

"provide"

in relation to a benefit - includes allow, confer, give, grant or perform; and

...

motor vehicle has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997.

"taxi" means a motor vehicle that is licensed to operate as a taxi.

"in respect of", in relation to the employment of an employee, includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

current employee means a person who receives, or is entitled to receive, salary or wages.

car has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997.

"work-related travel", in relation to an employee, means:

travel by the employee between:

the place of residence of the employee; and

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

"place of residence", in relation to a person, means:

a place at which the person resides; or

a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not on a shared basis.

"private use", in relation to a motor vehicle, in relation to an employee or an associate of an employee, means any use of the motor vehicle by the employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee.

"producing assessable income" includes:

gaining assessable income; or

assessable income has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997.

"residual benefit" means a benefit that is a residual benefit by virtue of section 45

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides the following further definitions:

motor vehicle means any motor-powered road vehicle (including a 4 wheel drive vehicle).

car means a ^*motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

assessable income has the meaning given by sections 6-5, 6-10, 6-15, 17-10 and 17-30 [of the ITAA 1997].

Exemption under subsection 47(6) of the FBTAA , therefore, requires that (in the relevant fringe benefit tax (FBT) year(s)):

there is the provision or use of a motor vehicle to an employee.

the motor vehicle is provided or used in respect of the employment of a current employee.

The motor vehicle is of a type not otherwise excluded under paragraph 47(6)(aa) of the FBTAA.

the only private use of the motor vehicle is work-related travel by the employee and any other private use by the employee (or associate) that is minor, infrequent and irregular.

the provision or use of the motor vehicle is a residual benefit.

provision or use of a motor vehicle to an employee

The relevant means of transport in this instance will be a 'bus'. The term 'bus' is not defined in the FBTAA.

'Motor vehicle', as defined in subsection 136(1) of the FBTAA, uses the definition of that term in subsection 995-1(1) of the ITAA 1997 being, namely, 'any motor-powered road vehicle (including a 4 wheel drive vehicle)'.

In the Explanatory Memorandum (EM) to the Income Tax Assessment Bill 1996 it was stated regarding the definition of the term 'motor vehicle':

motor vehicle

This term is defined in 3 different ways in the [Income Tax Assessment Act 1936]...and differently again in the Income Tax Regulations. The definition in the Bill is slightly broader than some of those definitions, because it adopts the ordinary meaning of 'motor vehicle' with the clarification that it includes 4-wheel drive vehicles.

'Motor vehicle' is used in the Bill only in the car expenses and substantiation provisions and in the definition of car . The new definition does not change those provisions at all, because it is no wider than the definition already applying to those provisions.

It is considered, therefore, that a bus will qualify as a 'motor vehicle' within the meaning of that term for the purposes of subsection 47(6) of the FBTAA.

The term 'provide' is widely defined in the FBTAA but, nonetheless, it is considered that the arrangement whereby the employer acquires ownership of the relevant Transport Cards for the subsequent use by the employees for bus transportation does not mean that such buses are being 'provided' to the employees within the defined meaning of that term in the FBTAA.

However, it is considered that the word 'use' also has a broad meaning and is not merely restricted to situations where the employee has direct control over the relevant vehicle.

The case of National Australia Bank v FCT (1993) 46 FCR; 93 ATC 4914; (1993) 26 ATR 503 (NAB Case) examined a situation where the NAB bank as the employer authorised their employees who worked specified shifts, to travel to and from work in a taxi using Cabcharge vouchers which were then debited to the NAB's account each month. Ryan J noted, at ATC 4940, that the specific inclusion of a 'taxi let on hire to the provider in paragraph 47(6)(aa) of the FBTAA indicated that the legislature considered that the 'use of a motor vehicle' could include a passenger's travel in a taxi.

Accordingly, it is further considered that a passenger's travel in a bus is comparable to a passenger's travel in a taxi and, therefore, bus transportation can also be the 'use of a motor vehicle' for the purposes of subsection 47(6) of the FBTAA.

Each of the individuals to be transported as a passenger on the relevant buses is an employee.

Consequently, this requirement is met as there has, or will be, the use of a motor vehicle by an employee for the purposes of subsection 47(6) of the FBTAA.

motor vehicle is used in respect of the employment of current employee

As determined above, the relevant buses are 'motor vehicles' for the purposes of subsection 47(6) of the FBTAA.

The meaning of the phrase 'in respect of the employment of the employee' was considered in J and G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; 44 ATR 22 (Knowles). It was found in Knowles that the words 'in respect of' must be given a meaning that depends on the context in which they are used. In the case of the FBTAA, this means that there must be a sufficient or material relationship or connection between the provision of the benefit and the employee's employment. The establishment of a mere causal link between the benefit and the employee's employment is not necessarily enough.

The views expressed in Knowles, concerning the meaning of the phrase 'in respect of the employment of the employee', were stated with approval in the case of Starrim Pty Ltd v FCT (2000) 102 FCR 194; [2000] FCA 952; 2000 ATC 4460; (2000) 44 ATR 487.

The relevant individuals only obtain access to the bus transportation under salary sacrifice arrangements between themselves and their employer.

Although the relevant individuals may, perhaps, use bus transportation at other times for private travel such private travel will be purchased under separate arrangements not directly involving the employer and, therefore, it is considered that this travel will not be in respect of the employment of the employee.

Each of the individuals is a current employee of the employer.

Therefore, the relevant bus transportation is being used in respect of the employment of a current employee.

Accordingly, this requirement is met.

motor vehicle is of a type not otherwise excluded

This requirement is met as a bus is neither a 'taxi' nor a 'car' as defined for the purposes of the FBTAA.

only private use of the motor vehicle is work-related travel by employee

'Private use', as defined, in relation to a bus and in respect of an employee means any use of the bus by the employee that is not exclusively in the course of producing the assessable income of the employee.

Under the terms of the salary sacrifice arrangements entered into between the employees and the employer the relevant bus transportation will be for the employee's travel between the employee's place of residence and the employer's workplace.

As pointed out in paragraph 14 of Miscellaneous Taxation Ruling MT 2027, Fringe benefits tax: private use of cars: home to work travel:

14. As discussed in Taxation Ruling IT 112, the decision in Lunney and Hayley v FCT (1958) 100 CLR affirmed the position that travel between home and a person's regular place of employment or business is ordinarily private travel. While travel to work is a necessary pre-requisite to earning income it is not undertaken in the course of earning that income. Put at its simplest, travel to work is private; travel on work is business.

There is no indication from the facts presented concerning the bus transportation by the employees between their place of residence and their workplace that such bus travel will be other than for private purposes.

Such bus transportation by the employees also falls within paragraph (a) of the definition of 'work-related travel' in subsection 136(1) of the FBTAA.

Prohibitions will be put in place by the employer to ensure that the relevant bus transportation will only be used for travel between the employee's place of residence and the employer's workplace and adherence to such conditions will be enforced by declarations being required to be made by the employees to their employer(s) and other kinds of validation as, and when, required by the employer.

Under the arrangements, there will not be any other private use of the relevant bus transportation by the employees (or associates) that is minor, infrequent and irregular. As stated above, although the relevant individuals may, perhaps, use bus transportation at other times for private purposes such travel will be purchased under other separate arrangements that are not be in respect of the employment of the employee.

This requirement is, therefore, met as the only private use of the bus is work-related travel by the employee and also, in this case, there will be no other private use of the bus by the employee (or associate) that is minor, infrequent and irregular.

use of the motor vehicle is a residual benefit

Section 45 of the FBTAA states that a residual benefit is one that is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA. Therefore, in basic terms, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA.

In the NAB Case Ryan J stated (at pp ATC 4939 - 4940):

A good deal of attention in the course of argument was devoted to an analysis of the contractual arrangements which may be said to have been made between the taxi cab operator on the one hand, and the employee or the Bank on the other. It was the Commissioner's contention that the provision of travel by taxi cab is an expense payment benefit within s. 20 of the [FBTAA]. That section provides:

``Where a person (in this section referred to as the `provider')-

makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the `recipient') to pay an amount to a third person in respect of expenditure incurred by the recipient; or

reimburses another person (in this section also referred to as the `recipient'), in whole or in part, in respect of an amount of expenditure incurred by the recipient,

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.''

Little assistance is gleaned for the purpose of this analysis by endeavouring to impute to the taxi cab operator or driver a belief as to the person with whom the contract of carriage is made. On the evidence, it can be inferred only that the taxi cab operator is content to accept, as consideration for provision of the service, the right, arising from delivery of the Cabcharge voucher, to claim from Cabcharge the cost of providing the service. If the taxi cab operator thought about it at all, he or she would probably regard the contract of carriage as being made with the party having the contractual right to discharge the cost by means of the Cabcharge voucher; i.e. the Bank.

What I regard as the preferable view, that the contract is between the taxi cab operator and the Bank, accommodates the arrangement under which the shift supervisor arranges for the attendance of one or more taxi cabs and two or more employees travel in the same cab. The contract which the taxi cab operator then and there makes is to attend at the Bank's premises and convey one or more of its employees as directed, in consideration of the provision by the Bank of a warrant authorizing the cost of the conveyance to be met by Cabcharge on the Bank's account. Even where the employee commissions the taxi cab from his or her home, the analysis which I favour remains available because the employee can be regarded as the agent of the Bank, having actual authority, evidenced by the possession of the Cabcharge voucher, to conclude a contract with the taxi cab operator on behalf of the Bank...

The view which I take of the contractual arrangement is that no obligation is imposed on the employee. Accordingly, the provision of the warrant for payment in the form of a Cabcharge voucher does not effect or result in a discharge or extinction of an obligation of the employee to pay any amount to the taxi cab operator.

As already indicated, I have accepted that the provision by the Bank to Mr Brewster of transport by taxi cab was a ``benefit'' as defined in the [FBTAA]. I have also explained why that benefit is not an ``expense payment fringe benefit'' by virtue of any provision of Subdivision A of Division 5 of the [FBTAA]. Since it has not been suggested to fall within Subdivision A of any of Divisions 2 to 4 or 6 to 11, it follows that it is a residual benefit by virtue of s. 45 of the [FBTAA].

Therefore, as indicated in the NAB Case, in determining whether the transport provided is a residual benefit under the FBTAA it is important to establish whether the contractual obligation for the particular transport arrangements is between the employer and the transport entity or is, alternatively, (say) merely the discharge or reimbursement of an obligation incurred by the employee.

It is considered that the proposed transport arrangements in respect of the Queensland Go Card, the Western Australian SmartRider and the Victorian MyKi respectively are similar to the arrangements entered into in the NAB Case in that the employer will be the purchaser/ cardholder and registered owner of those cards so that the primary contractual arrangement for the transport is between the employer and the entity supplying the transport.

Therefore, it is also considered that the bus transport arrangements involving the Queensland Go Card, the Western Australian SmartRider and the Victorian MyKi respectively are residual benefits being provided by the employer to the employees.

Support for this conclusion is provided in Taxation Ruling TR 1999/10 Income tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits, deductions and recoupments. Paragraph 86 of TR 1999/10 in discussing the use of a Life Gold Pass or a Severance Pass states:

86. We do not consider that the issuing of passes under the Life Gold Pass and Severance Pass Schemes attracts any income tax implications. However, travel benefits received in relation to each use of a Gold Pass or Severance Pass by a Member will be taxed as a residual benefit, within the meaning of section 45 of Division 12 of the FBTAA, to the provider of the pass.

However, the proposed transport arrangements in respect of the New South Wales MyBus differ in some important aspects from the proposed transport arrangements under the Queensland Go Card, the Western Australian SmartRider and the Victorian MyKi discussed above.

Under the MyBus system a single-trip ticket or a multi-trip ticket is purchased from either selected 'MyZone' resellers or NSW State Transit Shops and enables the bearer to travel on public buses or certain private buses in the relevant geographical areas. Under that particular ticketing system there is no facility for the employer to be registered as either the purchaser or owner of such tickets and, therefore, ownership of such tickets is deemed by the mere possession by the bearer.

Under the proposed MyBus arrangements the employer is not engaging in the discharge or reimbursement of an obligation incurred by the employee so that an expense payment benefit will arise under section 20 of the FBTAA. However, it is considered that under these particular arrangements a property benefit will, instead, arise under section 40 of the FBTAA.

Section 40 of the FBTAA states:

40 PROPERTY BENEFITS

Where, at a particular time, a person (in this section referred to as the ``provider'') provides property to another person (in this section referred to as the ``recipient''), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

Further, subsection 136(1) of the FBTAA provides the following definitions:

"property benefit" means a benefit referred to in section 40, but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III.

"property" means:

intangible property; and

tangible property.

"intangible property" means:

real property;

a chose in action; and

any other kind of property other than tangible property;

but does not include:

a right arising under a contract of insurance; or

a lease or licence in respect of real property or tangible property.

"tangible property" means goods and includes:

animals, including fish; and

gas and electricity.

The MyBus tickets fall within the definition of 'intangible property' as defined above and the employer would be the 'provider' and the employee the 'recipient' for the purposes of section 40 of the FBTAA. As already stated above, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA. Therefore, as the provision of the MyBus tickets by the employer to the employees are considered to be a specific benefit type their provision cannot, consequently, be a residual benefit.

It is also considered that the fact that, under the proposed arrangements, the employee may sign a declaration that the employee considers that the relevant card type is the property of the employer does alter in any way the contractual obligations between the bearer of the ticket and the transport entity.

Summary

The bus transport arrangements involving the Queensland Go Card, the Western Australian SmartRider and the Victorian MyKi respectively are considered to residual benefits being provided by the employer to the employees.

The bus transport arrangements involving the New South Wales MyBus tickets are considered not to be residual benefits being provided by the employer to the employees (but rather are property benefits).

Conclusion

The bus transport provided under salary sacrifice arrangements for the employees based in Queensland, Western Australia and Victoria, as applicable, will be exempt residual benefits under subsection 47(6) of the FBTAA as all the necessary requirements are met.

The bus transport provided under salary sacrifice arrangements for the employees of based in New South Wales will not be exempt residual benefits under subsection 47(6) of the FBTAA as not all the necessary requirements are met.

Question 2

Detailed reasoning

As already stated above, exemption under subsection 47(6) of the FBTAA , therefore, requires that (in the relevant fringe benefit tax (FBT) year(s)):

· there is the provision or use of a motor vehicle to an employee.

· the motor vehicle is provided or used in respect of the employment of a current employee.

· The motor vehicle is of a type not otherwise excluded under paragraph 47(6)(aa) of the FBTAA.

· the only private use of the motor vehicle is work-related travel by the employee and any other private use by the employee (or associate) that is minor, infrequent and irregular.

· the provision or use of the motor vehicle is a residual benefit.

provision or use of a motor vehicle to an employee

The relevant means of transport in this instance will be a 'tram'. However, the term 'tram' is not defined in the FBTAA.

As discussed above, 'motor vehicle', as defined in subsection 136(1) of the FBTAA, uses the definition of that term as contained in subsection 995-1(1) of the ITAA 1997 being 'any motor-powered road vehicle (including a 4 wheel drive vehicle)'. What constitutes a 'road vehicle' is not further defined.

In DFC of T v. ICI Australia Operations Pty Ltd 87 ATC 4069; (1987) 18 ATR 313 Murray J considered whether a vehicle was a 'road vehicle' under the former Sales Tax (Exemptions and Classifications Act) 1935 (at ATC 4076; ATR 320):

A vehicle may be a road vehicle and yet be exclusively used on roads within private property. The manager of a large cattle station may purchase a utility for use exclusively for travel on the property whether over rough country or on bush tracks but nevertheless the utility is still a road vehicle.

Further at ATC 4077; ATR 321

It is fundamentally a vehicle and a vehicle of a kind which is designed for use on roads be they public roads or private roads.

This position was also taken in the more recent Administrative Appeals Tribunal (AAT) decision in Dreamtech International Pty Ltd v. Federal Commissioner of Taxation [2009] AATA 365; 2009 ATC 10-091; (2009) 72 ATR 822. One of the questions before the AAT was whether a Hummer was a road vehicle as the term was used in A New Tax System (Luxury Car Tax) Act 1999 . In making its decision the AAT examined the use for which it was designed and concluded that it was designed as a civilian vehicle for on road and off road use. It therefore fell within the description of a motor powered road vehicle. That decision and reasoning has not been overturned in subsequent Federal Court appeals.

For the purposes of the FBTAA, the question of whether a vehicle is a 'road vehicle' should also be determined by its inherent design characteristics rather than the use to which the vehicle is put.

A tram is designed only to run on rails in the form of a tramway. A tramway is a discrete transport system which may overlap with, but remains distinct from, a road network. Tram rails may co-exist with a road over a major portion of the tramway but this co-existence only arises from the sharing of that public space. Outside that shared space trams do not travel on roads and road vehicle do not travel on tramways. A tram is by design a rail vehicle.

Although a tram is a vehicle that is motorised and which may share some roadways with motor vehicles, it does not constitute a road vehicle. Therefore it is not a motor vehicle for the purposes of the FBTAA.

Consequently, this requirement is not met.

motor vehicle is used in respect of the employment of current employee

This requirement is not satisfied as, albeit it may be accepted that the tram transport would be used in a similar manner in respect of the employment of the employees as is the bus transport examined above, the relevant vehicle used for such transport does not meet the essential prerequisite of being a 'motor vehicle' for the purposes of subsection 47(6) of the FBTAA.

motor vehicle is of a type not otherwise excluded

This requirement is not satisfied as, albeit it may be accepted that the trams are not of a type otherwise excluded in a similar fashion as the buses examined above, the relevant vehicle still does not meet the essential prerequisite of being a 'motor vehicle' for the purposes of subsection 47(6) of the FBTAA.

only private use of the motor vehicle is work-related travel by employee

This requirement is not satisfied as, albeit it may be accepted that the only private use of the tram transport would be work-related travel by the employee, as is the bus transport examined above, the relevant vehicle used for such transport still does not meet the essential prerequisite of being a 'motor vehicle' for the purposes of subsection 47(6) of the FBTAA.

the provision or use of the motor vehicle is a residual benefit.

Albeit it may be accepted that the provision of the tram transport is a residual benefit, for similar reasons as is the bus transport examined above, the relevant vehicle used for such transport does not meet the essential prerequisite of being a 'motor vehicle' for the purposes of subsection 47(6) of the FBTAA.

Conclusion

The tram transport provided under salary sacrifice arrangements for employees of based in Victoria will not be exempt residual benefits under subsection 47(6) of the FBTAA as the necessary requirements have not been met.