Edited version of private ruling

Authorisation Number: 1011676633489

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Ruling

Subject: FBT exempt benefit - work-related travel

Provision of residual fringe benefits for work related travel of current employees of the employer

Question

Will the proposed card arrangements for the provision of transport on buses for use by employees of the employer to travel between their place of residence and their place of work be eligible for exemption under subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer: Yes.

Relevant facts

Introduction

The employer is considering the supply of residual fringe benefits to its current employees in the form of cards for travel on buses between the employee's place of residence and their place of employment. The card will initially be purchased by the employer which will be registered in the name of the employer.

The card will operate in the same way as a card purchased by a member of the general public. However, the card purchased and supplied by the employer will be restricted to:

· travel between home and work; and

· bus services operated by the Council as part of the public transport system for the city;

· in addition, subject to the Commissioner's response to the questions below, the scheme could be extended to include the travel between home and work on privately operated buses.

The card is an electronic fare collection system operated that currently provides one single public transport network.

The company has agreements in place with each of the transport operators that form part of the public transport network.

The funds necessary for the operation of this proposed arrangement will be undertaken via an approved salary sacrifice arrangement between the employees and the employer and operated by one or more contracted third party salary sacrifice providers under contractual obligations to the employer.

Background to application

For the purposes of this application, the relevant public transport operators that have an agreement with the company are the Council (bus transport operations only) and private bus operators. The goal of company is to combine bus, train and ferry services so that customers can enjoy a smooth and effortless journey. This is achieved through:

· buses, trains and ferries meet at key interchange points

· services run on time

· one card or paper ticket for travel on buses, trains and ferries

· a single point of contact for all customer information through the company website and call centre.

The company activity operates by the use of a credit card sized card known as card that allows cardholders to touch-on and touch-off when using the public transport system in the area of operation. The card contains microprocessors and memory that allows the card to hold credit that is collected as fare travel for the public transport network. If the card holder fails to touch-off at the end of the journey a fixed amount will be deducted from the balance held on that card and the card holder is unable to have the balance adjusted to reflect the correct fare for that journey.

Cards are available for purchase from a number of retail outlets, certain railway stations and on-line. A refundable deposit is required when purchasing a card. This deposit is like a safety net which allows the card holder to finish the journey even if there are insufficient funds on the card (as long as the balance is positive at the start of the journey).

In an effort to encourage greater use of the public transport services, the employer is examining an arrangement for card usage amongst its employees.

The arrangement will relate to employees travel on bus services within the area. The card will be purchased by the employer and provided to its employees who wish to take advantage of this arrangement.

It will be registered in the name of the employer. There is a number on the back of a card. This number can be used to identify that the owner is the employer. Details of employees are not linked to this card.

The card will be made available to employees and will operate in the same manner as all other cards.

The employees will be required to touch-on and touch- off at the beginning and end of each relevant journey.

In situations that a card is lost by an employee, anyone picks it up can use it until the company is being informed to stop it.

When an employee leaves the employer, any unused amount on the card will be transferred back to the payroll system - employee's salary account.

However, the card provided by the employer to its employees will only be available for use for travel between the employee's place of residence and the place of employment of the employee in accordance with the definition of 'work related travel' as contained in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

In order to participate in this arrangement, employees will be required to annually review their travel arrangements and costs of travel so that suitable salary sacrifice arrangements can be implemented to ensure that appropriate credit is available on the card.

Card statements of travel are available on-line to registered card holders for a period of up to two months (60 days). Periodical monitoring of card usage will be managed by contracted salary sacrificed providers.

To ensure employees use the card under the agreed principles an annual reconciliation will be undertaken in which travel is reviewed to ensure it is restricted to approved transport providers.

The employer will negotiate with the company to see if this card can exclude train and ferry usage.

In addition, each employee will be required to complete and sign the following declaration certifying the user and travel limits of the employer provided card:

NO PRIVATE USE DECLARATION- BUS TRANSPORT

Period of Declaration __________ to ___________

1, ______________________________ acknowledge that the card is the property of the

(Name of Employee)


employer. For the purposes of the Salary Sacrifice Arrangement, I will not allow any other person to use my designated card. My bus travel was limited to utilising the card facility for the purposes of the Salary Sacrifice Arrangement and was limited to travel between my place of work and my place of residence.

My 'Place of Work' is: _______________________________________________

My 'Place of Residence' is: ___________________________________________

Important note If your 'place of residence' or 'place of work changed during the course of the declaration period, please provide full details of new locations and the date of change:


Signature _________________

Date ___________________

Relevant legislative provisions

Section 45 of the Fringe Benefits Tax Assessment Act 1986

Subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Subsection 995-1(1) of the Income Tax Assessment Act 1997

Reasons for decision

Question 1

Summary

The proposed card arrangements for the provision of transport on buses for use by employees of the employer to travel between their places of residence and their place of work constitutes an exempt residual benefit under subsection 47(6) of the FBTAA.

Detailed reasoning

Subsection 47(6) of the FBTAA provides an exemption for the private use of certain motor vehicles where certain conditions are met.

Subsection 47(6) of the FBTAA 1986 states:

Where:

(a) 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:

(i) a taxi let on hire to the provider; or

(ii) a car, not being:

(A) a panel van or utility truck; or

(B) 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:

(i) work-related travel of the employee; and

(ii) 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.

Therefore, the provision of travel to employees of the rule will be an exempt benefit where:

(i) the benefit is a residual benefit

(ii) the benefit consists of the provision or use of a motor vehicle

(iii) the motor vehicle is not one of the above listed exclusions

(iv) the benefit is provided to a current employee

(v) the only private use of the motor vehicle is:

· work related travel of the employee and

· other private use by the employee or an associate of the employee is minor, infrequent and irregular.

(i) the benefit is a residual benefit

Subsection 136(1) of the FBTAA 1986 defines a residual benefit to mean a benefit that is a residual benefit by virtue of section 45.

Section 45 of the FBTAA states that 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). 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 National Australia Bank Ltd v. Federal Commissioner of Taxation 93 ATC 4914; (1993) 123 ALR 349, (the NAB Case), the employer authorised employees who worked specified shifts, to travel to and from work in a taxi using Cabcharge vouchers which were debited to the Banks account each month.

In considering the type of benefit that had been provided, Ryan J stated at ATC 4939:

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 Banks 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 Banks account.

Further at ATC 4940 Ryan J stated:

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 Act. I have also explained why the benefit is not an expense payment fringe benefit by virtue of any provision of Subdivision A of Division 5 of the Act. Since it has not been suggested to fall within Subdivision A of any of Divisions 2 to 4 or 6 to 77, it follows that it is a residual benefit by virtue of s. 45 of the Act.

The arrangement is similar to the situation that existed in the NAB Case as the employer will be providing employees with cards that are purchased by the employer and registered in the employer's name. The employee will use the card to obtain travel on buses.

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 in discussing the use of a Life Gold Pass or a Severance Pass states:

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.

The use of the card can be considered similar to the use of the Cabcharge in the NAB Case and the use of the Life Gold Pass or Severance Pass.

Therefore, the benefit received by the employees will be a residual benefit which is the provision of transport.

(ii) the benefit consists of the provision or use of a motor vehicle

Motor vehicles as defined under subsection 136(1) of the FBTAA, uses the definition of that term in subsection 995-1(1) of the Income Tax Assessment Act 1997 (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':

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.

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

Subsection 136(1) of the FBTAA also provides the definition of 'provide':

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

(b) …

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 cards for the subsequent use by its 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, in the current case, consideration must be given particularly to the meaning to be ascribed to the word -use- within that expression. When employees travel on the bus, the employees have the -use- of the motor vehicle provided by the employer.

Although it could be said that the phrase -provision or use- involves an element of control which would make the exemption inapplicable to bus passengers, this would be an unwarrantedly narrow confinement of words which, in the ordinary course, are of wide import.

In the NAB Case Ryan J noted the specific inclusion of 'a taxi let on hire to the provider' in paragraph 47(6)(aa) of the FBTAA indicates that the legislature considered 'use of a motor vehicle' could include a passenger's travel in a taxi. It is not restricted to situations where the employee has control of a vehicle. The word 'use' has a broad meaning.

The benefit, therefore, consists of the -use of a motor vehicle- as required for exemption under sub-section 47(6)(a) of the FBTAA.

(iii) the motor vehicle is not one of the above listed exclusions

Paragraph 47(6)(aa) of the FBTAA requires that the motor vehicle is not one of the following vehicles:

(i) a taxi let on hire to the provider; or

(ii) a car, not being;

(A) a panel van or utility truck; or

(B) 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).

Subsection 136(1) of the FBTAA defines a 'car' to mean:

a motor vehicle (including a vehicle known as a four wheel drive vehicle), being:

(a) a motor car, station wagon, panel van, utility truck or similar vehicle, designed to carry a load of less than 1 tonne; or

(b) any other road vehicle designed to carry a load of less than 1 tonne or fewer than 9 passengers;

but does not include a motor cycle or similar vehicle.

A bus is not a taxi let on hire to the provider and a bus does not fit into the definition of a car. Therefore, it is not in the excluded list.

(iv) the benefit is provided to current employees

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 casual link between the benefit and the employee's employment is not necessarily enough.

The only relevant individuals who can obtain access to the bus transportation are those under salary sacrifice arrangement between themselves and the employer.

Each of the individual 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.

(vi) the only private use of the motor vehicle is:

· work related travel of the employee and

· other private use by the employee or an associate of the employee is minor, infrequent and irregular.

Paragraph 47(6)(b) of the FBTAA provides that the exemption will only apply if 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:

(i) work-related travel of the employee; and

(ii) 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;

…

Subsection 136(1) of the FBTAA defines 'work-related travel' to mean:

(a) travel by the employee between:

(i) the place of residence of the employee; and

(ii) 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

(b) travel by the employee that is incidental to travel in the course of performing the duties of his or her employment.

Bus transportation by employees of the employer falls within paragraph (a) of the definition of 'work-related travel'.

Card statements of travel are available on-line to registered card holders for a period of up to two months. Proper periodical monitors will be put in place to ensure that there is no unauthorised use of the cards.

In addition, each employee will be required to complete and sign the 'No Private Use Declaration' certifying the user and travel limits of the employer provided card.

The employer will also negotiate with the company to see if this card can exclude train and ferry usage.

As there should not be any other private use of the motor vehicle by employees, the requirement is met.

As all the conditions listed under subsection 47(6) of the FBTAA are satisfied, the proposed arrangements in respect of the provision of bus transport for use by employees of the employer to travel between their places of residence and their place of work constitutes an exempt benefit.