Edited version of private ruling

Authorisation Number: 1011706553387

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Ruling

Subject: Fringe benefits tax; exempt loan benefits

Question

Are payments by the employer to employees posted overseas exempt loan benefits under subsection 17(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following fringe benefits tax years:

Year ending 31 March 2011

Year ending 31 March 2012

Year ending 31 March 2013

Year ending 31 March 2014

Year ending 31 March 2015

Relevant facts and circumstances

Employees of the employer are frequently posted overseas for varying periods in order to perform the duties of their employment.

Overseas posted employees are entitled to receive an advance , interest free, with the following conditions:

§ the deployment period must exceed a minimum prescribed term, usually 12 months.

§ the advances are provided solely to meet expenses associated with the overseas posting because employees are required to live away from their usual place of residence in Australia and re-establish themselves in a new location.

§ the employees must make a written application for an advance.

§ the application for an advance must state the purpose of the expenditure to which the advance will be applied.

§ the employees may request an advance to purchase a motor vehicle at the new location, or to purchase household items, or to buy food in bulk, or for a combination of specific expenses.

§ there is an upper limit to the amount of advance that is approved for payment.

§ within 6 months of the date of the outlay advance payment, the employees are required to account to the employer for the expenses met and repay any amount not so expended to the employer.

§ the employees must account for the expenditure to the employer either by providing actual receipts or by advising the employer of the items purchased, dates and amounts expended, and retaining relevant receipts in substantiation of their claims.

§ any balance of the advance outstanding is fully repaid within 12 months from the date of the advance payment, generally effected by automatic payroll deductions.

§ any balance of the advance outstanding is repayable immediately in full if the employee's posting is cancelled or terminated prior to the end of the 12 month repayment period.

Assumptions

For the purposes of this ruling the requirements of the following paragraphs and subparagraph of the FBTAA are assumed to be satisfied:

§ paragraph 17(3)(a)

§ subparagraph 17(3)(b)(ii)

§ paragraph 17(3)(c), and

§ paragraph 17(3)(d)

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 16(1),

Fringe Benefits Tax Assessment Act 1986 subsection 17(3) and

Fringe Benefits Tax Assessment Act 1986 subsection 136(1).

Reasons for decision

These reasons for decision accompany the Notice of private ruling for the employer.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

The advances paid by the employer to employees who are temporarily posted overseas are exempt loan benefits under subsection 17(3) of the FBTAA.

Detailed reasoning

Loan benefits

A loan benefit arises under subsection 16(1) of the FBTAA where a person (the provider) makes a loan to another person (the recipient) and the loan benefit exists in respect of each fringe benefits tax year in which the recipient is under an obligation to repay the whole or any part of the loan.

'Loan' is defined in subsection 136(1) of the FBTAA to include 'an advance of money'.

The employer gives amounts of money to employees who are posted overseas. The amounts are short term advances to be paid back to the employer.

The provision of the advances are loan benefits under subsection 16(1) of the FBTAA.

Exempt loan benefits

Subsection 17(3) of the FBTAA allows an exemption from fringe benefits tax where an advance is provided to a current employee to meet expenses incurred by the employee in the course of performing the duties of their employment where a number of conditions are satisfied.

Those conditions are contained in paragraphs 17(3)(a) to (d) of the FBTAA which states:

(a) a loan consists of an advance by an employer to a current employee of the employer in respect of his or her employment;

(b) the sole purpose of the making of the loan is to enable the employee to meet expenses incurred by the employee:

(i) in the course of performing the duties of that employment; and

(ii) not later than 6 months after the loan is made;

(c)  the amount of the loan does not substantially exceed the amount of those expenses that could reasonably be expected to be incurred by the employee; and

(d)  the employee is required:

(i) to account to the employer, not later than 6 months after the loan is made, for expenses met from the loan; and

(ii) to repay (whether by set-off or otherwise) any amount not so accounted for.

Based on the assumptions that paragraphs (a), (c) and (d) and subparagraph (b)(ii) of subsection 17(3) of the FBTAA are satisfied, the advances are exempt loan benefits if their sole purpose is to enable employees to meet expenses incurred in the course of performing the duties of their employment with the employer as required by subparagraph 17(3)(b)(i) of the FBTAA.

The terms 'expenses incurred…in the course of performing the duties of that employment' are not defined in the FBTAA and therefore take their ordinary meaning in the context in which they are used.

The Australian Concise Oxford Dictionary, 2004, 4^th edn, Oxford University Press, Melbourne (the Australian Concise Oxford Dictionary) defines 'In course of' to mean 'in the process of' and 'In the course of' to mean 'during'.

The Australian Concise Oxford Dictionary defines 'perform' as '1 carry into effect; be the agent of; do (a command, promise, task etc.)', 'duty' as '1 c what is required of one (do one's duty)' and 'employment' as '1 the act of employing or the state of being employed'.

The Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986, at Clause 17 states:

Under sub-clause 17(3), an advance made by an employer to an employee solely for the purpose of meeting expenses to be incurred, within a maximum of 6 months of the advance being made, in carrying out duties of employment, is taken outside the scope of the fringe benefits tax rules.

The courts have accepted that the words 'in the course of' are not so restrictive as to relate only to the actual times an employee works. Pincus J in Fullerton v. FC of T (1991) 22 ATR 757; (1991) 32 FCR 486; 91 ATC 4983 said:

..it has to be kept in mind that it is not essential that the expenditure coincide in time with any remunerative work; see for example FCT v Finn (1961) 106 CLR 60; 8 AITR 406 and FCT v Smith (1981) 147 CLR 578; 11 ATR 538.

Australian courts when dealing with workers compensation law have determined whether an injury occurring during intervals between an employee's ordinary duties was sustained 'in the course of employment'.

The courts have applied a principal formulated by the High Court in Hatzimanolis v. ANI Corporation Ltd (1992) 66 ALJR 365; (1992) 106 ALR 611; (1992) 173 CLR 473 f.c. 92/019 (Hatzimanolis) where the judgement by Mason C.J., Deane, Dawson, and McHugh JJ. states:

There are cases where an employee is required to embark upon some undertaking for the purpose of his or her work in circumstances where, notwithstanding that it extends over a number of daily periods of actual work, the whole period of the undertaking constitutes an overall period or episode of work… An injury occurring during the interval between periods of actual work in such a case is more readily perceived as being within the current conception of the course of employment than an injury occurring after ordinary working hours to an employee who performs his or her work at a permanent location or in a permanent locality.

…

Accordingly, it should now be accepted that an interval or interlude within an overall period or episode of work occurs within the course of employment if, expressly or impliedly, the employer has induced or encouraged the employee to spend that interval or interlude at a particular place or in a particular way.

The employees spend the advance on certain items in order to establish themselves in accommodation at the location of their overseas posting. The employees are engaged in working at their overseas location and are living away from home temporarily.

It is considered the entire period of the overseas posting constitutes an overall period or episode of work rather than a series of discrete periods or episodes of work. This satisfies the first element of the principle stated in Hatzimanolis. The second element in Hatzimanolis is satisfied as an employee does something which is reasonably required, expected or authorised to do in order to carry out the duties of that employment. That is, the employee was induced or encouraged, including by the making of the loan, to establish and live at a place of accommodation at the place of the overseas post.

In accordance with the principle formulated in Hatzimanolis, the spending of the advance by the employees is expenditure that is incurred 'in the course of employment' and 'in order to carry out the duties of that employment'.

The employees establish accommodation at an overseas post in order for the employees to work at the overseas post. The employees are living away from their usual place of residence in Australia. In order to facilitate this process the employer provides an outlay advance.

In these circumstances it is accepted that expenditure incurred by the employees is expenditure incurred 'in the course of performing the duties of that employment' in accordance with subparagraph 17(3)(b)(i) of the FBTAA.

As the requirements of subparagraph 17(3)(b)(i) of the FBTAA are satisfied the loans made in the form of advances are exempt benefits under subsection 17(3) of the FBTAA.