Edited version of private ruling

Authorisation Number: 1011661870303

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Ruling

Subject: Work-related exemptions

Issue 1

Question 1

Is the proposed trauma, life and salary continuance cover to be provided to certain employees of an employer exempt under section 58M of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

This ruling applies for the following period

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

The scheme commenced on

1 July 2012

Relevant facts

The employer considers that the health of its employees is paramount and complements its safety programme. The employer carried out a survey of its employees and discovered that few had salary continuance or trauma cover as they considered that such cover was too expensive.

The employer, therefore, intends to arrange for trauma, life and salary continuance insurance cover to be made available for its employees and it is proposed that:

· under the arrangements the employer will pay a progressive percentage of the costs of such cover depending on the number of years a relevant employee has been with the employer.

· the employee's contribution is deducted from the employee's after-tax pay (and not by salary sacrifice).

· these insurance arrangements do not form any part of the 'Employee Collective Agreement'.

· the employees will be named as the persons insured and also will be the named policy holders.

· each of the eligible employees holds one share in the employer.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 58M(1)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 148(1)

Reasons for decision

Issue 1

Question 1

Detailed reasoning

Section 58M of the FBTAA provides exemption for several categories of work-related health and counselling benefits. Section 58M of the FBTAA states (as relevant here):

58M(1) [Exemptions]

Where any of the following benefits is provided in respect of the employment of an employee:

(a) an expense payment benefit where the recipients expenditure is in respect of:

(i) a work-related medical examination of the employee;

(ii) work-related medical screening of the employee;

(iii) work-related preventative health care of the employee;

(iv) work-related counselling of the employee or of an associate of the employee; or

(v) ...

(b) a property benefit where the recipients property is required solely for the purposes of:

(i) a work-related medical examination of the employee;

(ii) work-related medical screening of the employee;

(iii) work-related preventative health care of the employee;

(iv) work-related counselling of the employee or of an associate of the employee; or

(v) ...

(c) a residual benefit where the recipients benefit consists of the provision of:

(i) a work-related medical examination of the employee;

(ii) work-related medical screening of the employee;

(iii) work-related preventative health care of the employee;

(iv) work-related counselling of the employee or of an associate of the employee; or

(v) ...

the benefit is an exempt benefit.

Therefore, exemption under subsection 58M(1) of the FBTAA will arise where:

· there is any of (i) an expense payment benefit, (ii) a property benefit or (iii) a residual benefit; and

· the relevant expense, property or residual benefit (as applicable) was provided in respect of the employment of an employee; and

· the recipients expenditure, recipients property or recipients benefit (as applicable in this case) is in respect of any of:

(i) a work-related medical examination of the employee;

(ii) work-related medical screening of the employee;

(iii) work-related preventative health care of the employee;

(iv) work-related counselling of the employee (or associate).

Therefore, it is necessary to examine, firstly, whether either or both of the pertinent events listed in paragraph 1 fall within any of the categories of particular benefits listed above in subparagraph (a) of paragraph 2.

(a) Benefit type

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

'expense payment benefit' means a benefit referred to in section 20 [of the FBTAA].

'property benefit' means a benefit referred to in section 40 [of the FBTAA], 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 [of the FBTAA].

'property' means:

(a) intangible property; and

(b) tangible property.

'intangible property' means:

(a) real property;

(b) a chose in action; and

(c) any other kind of property other than tangible property;

but does not include:

(d) a right arising under a contract of insurance; or

(e) a lease or licence in respect of real property or tangible property.

'tangible property' means goods and includes:

(a) animals, including fish; and

(b) gas and electricity.

'residual benefit' means a benefit that is a residual benefit by virtue of section 45.

Section 20 of the FBTAA states:

20 EXPENSE PAYMENT BENEFITS

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

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

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

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

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.

Section 45 of the FBTAA states:

45 RESIDUAL BENEFITS

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

The employer payments of its eligible employee's trauma, life and salary continuance insurance cover (insurance cover) not being goods are not 'tangible property' as that term is defined in subsection 136(1) of the FBTAA nor are they 'intangible property' as that term is defined in subsection 136(1) of the FBTAA. As the employer payments of its eligible employees' insurance cover are neither tangible nor intangible property they cannot be property benefits under section 40 of the FBTAA.

Albeit that the employer may pay, and be invoiced for, all or part of the insurance cover for a particular eligible employee this does not alter the fact that the ultimate contractual obligation to pay for the relevant insurance cover is by the eligible employee in his or her capacity as the person insured and as the insurance policy holder.

Therefore, as the employer pays for the insurance cover directly to the insurance company in whole or in part discharge of the individual insurance obligations of the eligible employees expense payment benefits under paragraph 20(a) of the FBTAA will arise.

As the employer's payments of its eligible employees' insurance cover gives rise to the specific benefit type of expense payment benefits under section 20 of the FBTAA such payments are precluded from being the provision of residual benefits under section 45 of the FBTAA.

Therefore, the employer's payments of eligible employees' insurance cover gives rise to expense payment benefits under paragraph 20(a) of the FBTAA.

(b) In respect of employment of an employee

It is necessary to examine, secondly, whether the expense payment benefits resulting from the employer's payments of the eligible employees' insurance cover are being provided in respect of an employee's employment.

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

'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.

'employment', in relation to a person, means the holding of any office or appointment, the performance of any functions or duties, the engaging in of any work, or the doing of any acts or things that results, will result or has resulted in the person being treated as an employee.

'employee' means:

(a) a current employee;

……..

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

'provide':

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

………

'provider', in relation to a benefit, means the person who provides the benefit.

The meaning of the provision of a benefit in respect of the employment of an employee is further extended by subsection 148(1) of the FBTAA which states:

148(1) [Meaning of provision of benefit to person] 

A reference in this Act to the provision of a benefit to a person in respect of the employment of an employee is a reference to the provision of such a benefit:

(a) whether or not the benefit is also provided in respect of, by reason of, by virtue of, or for or in relation directly or indirectly to, any other matter or thing;

……….

(g) whether or not the provision of the benefit is, or is in the nature of, income; and

(h) whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

Miscellaneous Taxation Ruling MT 2019, Fringe benefits tax: shareholder employees of family private companies and directors of corporate trustees, provides the following guidance:

6. By virtue of paragraph 148(1)(a) of the Fringe Benefits Tax Assessment Act, a benefit provided to a person by reason of both his or her employment activity and shareholding will be taken to be provided in respect of the person's employment. If, however, it can be established that a benefit is provided to a shareholder/employee solely by reason of that person's position as a shareholder of the company and not to any extent by reason of that person's employment by the company, the benefit will not be subject to FBT.

Taxation Ruling TR 1999/6 provides the following further guidance:

7. Flight rewards, with the following exceptions [not relevant to this particular case], are not subject to FBT as they result from a personal (that is, non-employment) contractual relationship... It should be noted the Commissioner has determined that flight rewards accrued from membership of consumer loyalty programs are distinct and separate from any benefit resulting from the payment by the employer of membership fees.

...

16. In Payne's case [Payne v. Federal Commissioner of Taxation (1996) 66 FCR 299; 96 ATC 4407; (1996) 32 ATR 516], Mrs Payne joined the consumer loyalty program without her employer's knowledge. Mrs Payne was unable to cash in the flight reward (airline tickets) or transfer it to anyone else, but she was able to have the flight reward made out in the name of family members. The reward points Mrs Payne accrued from employer-paid travel (and some privately-paid travel) were used to acquire airline tickets in the name of her parents who travelled from England to visit her. The Commissioner assessed Mrs Payne on the value of the airline tickets that accrued from employer-paid travel. The Federal Court held Mrs Payne was not assessable in respect of the flight reward as she received the flight reward as a result of the personal contract she established with the airline on payment of the membership fee.

...

23. The identification of the relationship, if any, between the giving of the benefit on the one hand and the taxpayer's employment or business activities on the other, is crucial to determining whether the taxpayer receives a benefit in any capacity other than that of employee or business operator and whether it can be said the benefit is in consequence only of the taxpayer's employment or business activity or of some other consideration. Although Payne's case dealt purely with an employment situation, it is considered the following comments apply equally in a business context, except where the activities associated with obtaining the benefits have a business character.

24. In Payne's case, the matter of identifying whether an employment relationship existed, i.e., whether the provision of the free travel was 'in respect of ... employment', attracted considerable argument. The Federal Court decided if there was a benefit given, it was given as a result of the personal contract between the taxpayer and the consumer loyalty program provider, notwithstanding the benefit arose as a 'consequence' of the employment. The Court found paragraph 26(e) of the 1936 Act did not apply as the points were not earned because of the employment relationship but because of the relationship between the passenger and the airline, a relationship that was not productive of income for the passenger.

25. The Court further found the flight tickets were provided in 'consequence' of the taxpayer's employment in that the flights that earned the necessary points were undertaken in the course of her employment and paid for by her employer. The employment was, therefore, an indirect or 'contributory cause' of the receipt of the benefit. However, this was not sufficient for the benefit to be taxable under paragraph 26(e) as, per Foster J (FCR at 321; ATC at 4425; ATR at 535), 'for a benefit, etc, to be caught by the section, there needed to be a role played by the employer in the giving, etc, of the benefit'. This is lacking where the employee is the person who makes the decision to join or not join the loyalty program. In Payne's case, the taxpayer's employer had no part in the program and did not encourage, arrange or pay for the employee to participate.

The meaning of the phrase 'in respect of the employment of the employee' was considered in J & 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 extent of the payments of the insurance cover provided by the employer to the eligible individual is directly related to the number of continuous years that the individual has been employed by the employer. Therefore, the payments for insurance cover by the employer will have a sufficient or material connection with the employment of each of the eligible employees to be considered to be provided in respect of the employment of each of those particular employees.

The fact that such eligible employees are also concurrently shareholders in the employer is merely, at best, a causal link between that shareholding and the provision of the relevant expense payment benefits.

Also, paragraph 148(1)(a) of the FBTAA would deem the payments by the employer of the eligible employees' insurance cover to be in respect of the employees' employment given that it has not been established on the facts presented that these benefits are being provided to the eligible employees solely, or otherwise, by virtue of their shareholding and not by reason of their employment.

The facts that the employer's payments for the insurance cover of the eligible employees are (a) outside the terms of the 'Employee Collective Agreement 2008' and (b) are not part of any salary sacrifice arrangements by these employees do not act as effective bars to the payment of such premiums being considered to be in respect of the relevant employees' employment due to both the breadth of the expression 'in respect of', as defined in subsection 136(1) of the FBTAA, and also by the application of paragraphs 148(1)(g) and 148(1)(h) of the FBTAA as relevant.

Therefore, the payments of the relevant insurance cover in part or whole by the employer are made in respect of the employment of the eligible employees (and not in respect of these employees' concurrent shareholding in the employer nor are they denied from being in respect of these employees' employment by the fact that such payments are made outside of the terms of the 'Employee Collective Agreement').

(c) Work-related health care

It is necessary to examine, thirdly, whether the expense payment benefits resulting from the employer's payments of the eligible employees' insurance cover are in respect of work-related health care.

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

'work-related medical examination', in relation to a benefit provided in respect of the employment of an employee, means an examination or test carried out by, or on behalf of, an audiometrist or a legally qualified medical practitioner, nurse, dentist or optometrist wholly or principally in order to ascertain the physiological or psychological condition of the employee for any or all of the following purposes:

(a) the commencement of the employment of the employee;

(b) the confirmation of probationary employment of the employee;

(c) a change in the duties or location of the employment of the employee;

(d) the employee becoming a member of a superannuation fund.

'work-related medical screening' , in relation to an employee of an employer, means an examination or test carried out by, or on behalf of, an audiometrist or a legally qualified medical practitioner, nurse, dentist or optometrist wholly or principally in order to ascertain whether the employee has suffered, is suffering or is at risk of suffering, from work-related trauma, but does not include an examination or test that is not made available generally to all employees of the employer:

(a) who are likely to have suffered, be suffering or be at risk of suffering, from similar work-related trauma;

(b) who perform the duties of their employment at or near the place where the employee performs the duties of his or her employment; and

(c) whose duties of employment are similar to those of the employee.

'work-related preventative health care', in relation to an employee of an employer, means any form of care provided by, or on behalf of, a legally qualified medical practitioner, nurse, dentist or optometrist wholly or principally in order to prevent the employee suffering from work-related trauma, but does not include a form of care that is not made available generally to all employees of the employer:

(a) who are likely to be at risk of suffering from similar work-related trauma;

(b) who perform the duties of their employment at or near the place where the employee performs the duties of his or her employment; and

(c) whose duties of employment are similar to those of the employee.

'health care' means any examination, test or form of care (whether therapeutic, preventative or rehabilitative) that is related to the physiological or psychological health of a person and, without limiting the generality of the foregoing, includes:

(a) the supply, maintenance or repair of:

(i) an artificial limb or other artificial substitute; or

(ii) a medical, surgical or similar aid or appliance used by a person; and

(b) the supply of drugs or other property in connection with such an examination, test or form of care.

'work-related trauma', in relation to an employee, means:

(a) the injury of the employee (including the aggravation, acceleration or recurrence of an injury of the employee);

(b) the contraction, aggravation, acceleration or recurrence of a disease of the employee;

(c) the loss or destruction of, or damage to:

(i) an artificial limb or other artificial substitute;

(ii) a medical, surgical or similar aid or appliance used by the employee; or

(iii) clothing worn by the employee; or

(d) the coming into existence, the aggravation, acceleration or recurrence of any other physiological or psychological condition in relation to the employee that is or may be harmful or disadvantageous to, or result in harm or disadvantage to, the employee;

that is related to any employment of the employee.

'work-related counselling':

(a) in relation to an employee of an employer, means counselling attended by the employee; and

(b) in relation to an associate of an employee of an employer, means counselling attended by the associate where the associate is accompanied by the employee;

where all of the following conditions are satisfied:

(c) the attendance of:

(i) if paragraph (a) applies - the employee; and

(ii) if paragraph (b) applies - both the employee and the associate;

at the counselling gives effect to an objective, purpose, plan or policy devised, adopted or required to be followed, by the employer to:

(iii) improve or maintain the quality of the performance of employees' duties; or

(iv) prepare employees for retirement;

(d) the counselling relates to any of the following matters:

(i) safety;

(ii) health;

(iii) fitness;

(iv) stress management;

(v) personal relationships;

(vi) retirement problems;

(vii) drug or alcohol abuse;

(viii) rehabilitation or prevention of work-related trauma or of other disease or injury;

(ix) first aid;

(x) any similar matter;

(e) there is no benefit that:

(i) is provided in respect of the employment of the employee;

(ii) consists of the provision of, or relates to, the counselling; and

(iii) is provided wholly or principally as a reward for services rendered or to be rendered by the employee.

As determined above, the employer's payments of eligible employees' insurance cover give rise to expense payment benefits. Therefore, it is noted that the exemption under paragraph 58M(1)(a) of the FBTAA for expense payment benefits requires that 'the recipients expenditure is in respect of' one or other of that paragraph's listed types of work related health care.

'Recipients expenditure' is defined in subsection 136(1) of the FBTAA as follows:

'recipients expenditure', in relation to an expense payment benefit, means the expenditure incurred by the recipient as mentioned in paragraph 20(a) [of the FBTAA]...as the case requires.

In this case, the 'recipients expenditure' (that is, the expenditure by the eligible employees) is incurred, as already stated above, to fulfil the employees' contractual obligations to pay their insurance cover to the insurance company.

It may be that as a result of being so insured those eligible employees may gain subsequent access to health care necessitated by the form of work that they do but such an ultimate possibility does not alter the essential fact that the costs incurred by these employees are primarily related to their trauma, life and salary continuance insurance cover. Any ensuing access to health care is secondary to such insurance cover.

The possibility that if the employer directly paid various listed medical professionals for services provided to the employees or else reimbursed the employees for costs incurred for services provided to them by various listed medical professionals such payments may have fallen within the exemptions provided by section 58M of the FBTAA does not affect the above conclusion. Despite any view that may be held that the end result for the relevant employees is the same whether the employer paid the for the insurance cover or the employer directly paid the listed medical professionals does not alter the essential fact that the relevant payments are being made in respect of expenditure incurred by the employees for the relevant trauma, life and salary continuance insurance cover.

Therefore, the recipients expenditures in respect of the expense payment benefits arising from the employer's payments of the eligible employees' insurance cover are not in respect of any of the types of work-related health care listed in paragraph 58M(1)(a) of the FBTAA.

Summary

The employer's payments in respect of expenditure incurred by the employees for the relevant trauma, life and salary continuance insurance cover are not exempt under section 58M of the FBTAA as not all of the required conditions are met (but rather are in respect of expense payment benefits).

It may be noted that as, in basic terms, a fringe benefit, as defined in subsection 136(1) of the FBTAA, is a benefit provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employee's employment, and such benefit is not otherwise exempted, the employer's payments for the insurance cover would probably lead to expense payment fringe benefits being provided.

However, it may also be noted, the current ruling request only concerns possible exemption under section 58M of the FBTAA and does not refer to whether any part of the employers payments for the insurance cover are otherwise exempt under section 58P of the FBTAA. There is currently insufficient information to rule on this further point.