Edited version of private ruling

Authorisation Number: 1011721837880

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Ruling

Subject: FBTAA exemption

Question

Will a fringe benefit arise from the payments made by the employer to an external child care provider in respect of a Priority of Access arrangement?

Answer

No.

This ruling applies for the following period

Year ended 31 March 2011

Year ended 31 March 2012

Relevant facts

The employer entered into an agreement with an external child care provider to provide child care and also make available X priority of access spaces for its employees.

Under the child care agreement (a copy of which was provided) the employer will pay a fixed amount for X priority of access places at the child care centre.

These payments will be paid for regardless of whether a place within the centre became available.

The child care provider will maintain a list of interested employees and if a space became available it will be offered to the employee who had been on the list for the longest period of time.

If an employee on the list ceases their employment they will be removed from the list.

The child care provider has been approved as a centre based long day care service under Division I of Part 8 of the A New Tax System (Family Assistance) (Administration) Act 1999 and approved by the Department of Education, Employment and Workplace Relations (DEEWR) for Child Care Benefit (CCB) under the Child Care Management System (CCMS).

Relevant legislative provisions

Section 45 of the FBTAA

Subsection 47(8) of the FBTAA

Subsection 136(1) of the FBTAA

Section 995-1 if the ITAA 1997

Section 318 of the ITAA 1936

Reasons for decision

Summary

A fringe benefit will not arise from the payments made in respect of the Priority of Access arrangement as either:

§ a benefit has not been provided to an identifiable employee; or

§ if a benefit is provided to an identifiable employee, the benefit will be an exempt benefit under subsection 47(8) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Detailed reasoning

The definition of 'fringe benefit' in subsection 136(1) of the FBTAA states:

fringe benefit , in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

(i) the employer or an associate of the employer; and

(ii) the arranger or another person; or

(ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer:

(i) participates in or facilitates the provision or receipt of the benefit; or

(ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;

and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

in respect of the employment of the employee, but does not include:

…

The application of this definition was considered by the Full Federal Court in Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16; 2007 ATC 4236; 65 ATR 369 (Indooroopilly).

Edmonds J provided reasons for decision, with which Stone and Allsop JJ agreed in separate judgements. In his judgment his Honour adopted the construction of 'fringe benefit' of Kiefel J in Essenbourne, Pty Ltd v. Federal Commissioner of Taxation [2002] FCA 1577; 2002 ATC 5201; 51 ATR 629 to conclude that for a fringe benefit to arise it is necessary to identify a particular employee in respect of whose employment a benefit is provided.

At ATC 4248 Edmonds J stated:

… unless a benefit is provided to an employee or to an associate of the employee, it will not be a "fringe benefit" even if it is provided by an employer, an associate of the employer or a person within pars (e) or (ea) of the definition. In short, a benefit will not be a "fringe benefit" as defined unless it is provided to one of two possible "recipients" and is provided by one of four possible "providers".

In applying this judgment a fringe benefit will not arise from the payment unless a benefit has been provided to either an employee, or an associate of an employee.

In this case the employee will pay for X spaces for any employee's child on the waiting list without reference to the employee.

This means that when the payments were made it could have been possible to identify which employees who were at the top of that list. However although they may be on the top of the list they are not locked in to receiving the benefit at that time. The waiting list is just that and employees can add and remove their names at any time. This means that the employees on the top of the waiting list when the priority of access is reserved will not necessarily be the ones who could benefit if a space in the child care centre becomes available.

This means that although a benefit is being provided it is not being provided to an identifiable employee. It is a benefit that any employee could benefit from at some point in the future but equally any employee may not receive a benefit from it.

As no particular employee can be identified as the employee who will benefit under the Arrangement, it is not possible to find that the benefit has been provided in respect of the employment of an employee when the payment is made.

Unless a particular employee can be identified, a fringe benefit as defined in subsection 136(1) of the FBTAA will not be provided.

However, it is also possible that at some stage an employee may receive a benefit from the payment that has been made. For example, when an employee enrols their child in a situation where it would not have been possible make an enrolment if the payment had not been made. In such a situation there will be an identified employee who has received a benefit and it will be necessary to consider whether the benefit is an exempt benefit under subsection 47(8) of the FBTAA.

If a benefit is provided will it be an exempt benefit under subsection 47(8) of the FBTAA?

Subsection 47(8) of the FBTAA provides that a residual benefit that arises out of priority of access, for a child or children of the employee will be an exempt benefit when the stated requirements are satisfied.

Subsection 47(8) states:

If:

(a) a residual benefit provided in respect of the employment of an employee arose out of priority of access, for a child or children of the employee, to:

(i) a place that is an eligible child care centre for the purposes of any provision of the Child Care Act 1972; or

(ia) (Repealed by No 83 of 1999)

(ii) family day care provided before the commencement of item 1 of Schedule 10 to the A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No. 2) 1999; or

(iii) care outside school hours provided before the commencement of item 1 of Schedule 10 to the A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No. 2) 1999; or

(iv) care in school vacations provided before the commencement of item 1 of Schedule 10 to the A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No. 2) 1999; or

(v) an approved centre based long day care service within the meaning of the A New Tax System (Family Assistance) (Administration) Act 1999; or

(vi) an approved family day care service within the meaning of the A New Tax System (Family Assistance) (Administration) Act 1999; or

(vii) an approved outside school hours care service within the meaning of the A New Tax System (Family Assistance) (Administration) Act 1999; or

(viii) an approved in-home care service within the meaning of the A New Tax System (Family Assistance) (Administration) Act 1999; and

(b) in order to obtain that priority of access, the employer of the employee, or an associate of the employer, made a contribution under a program administered by the Families Department;

the residual benefit is an exempt benefit.

In determining whether this exemption applies in respect of the Agreement we need to examine whether:

§ the benefit is a residual benefit;

§ the benefit is in respect of the employment of the employee;

§ the benefit is in respect of priority of access for a child of an employee;

§ one of the conditions set down in subparagraphs 47(8)(1) (i) to 47(8)(1)(viii) apply;

§ the employer of the employee, or an associate of the employer, made a contribution; and

§ the contribution is made under a program administered by the Families Department.

Is the benefit a residual benefit?

A residual benefit is defined in section 45 of the FBTAA which states:

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 Division 2 to 11 (inclusive).

In this case the benefit is priority of access to a child care centre as the result of a contract between the employer and child care provider. This constitutes a residual benefit as it does not come within a provision of Subdivision A of Divisions 2 to 11.

Is the residual benefit provided in respect of the employment of an employee?

The Agreement only applies to current employees who if they cease employment will lose any access to the service under the Agreement. Therefore, the benefit can be seen to be provided as a result of the employee's employment.

Is the benefit in respect of priority of access for a child of an employee?

The benefit consists of priority of access for children of employees.

Do any of the conditions in subparagraphs 47(8)(1) (i) to 47(8)(1)(viii) apply?

In this case subparagraph 47(8)(1)(v) applies as the centre is an approved centre based long day care service.

Did the employer or an associate of the employer make a contribution?

The payment was made by the employer or an associate of the employer.

Is the contribution made under a program administered by the 'Families Department'?

'Families Department' is defined in subsection 136(1) of the FBTAA to have the same meaning as that in section 995-1 of the ITAA 1997.

In section 995-1 of the ITAA 1997, 'Families Department' is defined to mean:

the Department that:

(a) deals with matters arising under section 1 of the A New Tax System (Family Assistance) (Administration) Act 1999 and

(b) is administered by the Families Minister.

'Families Minister' is also defined in section 995-1 of the ITAA 1997 to mean:

the Minister administering section 1 of A New Tax System (Family Assistance) (Administration) Act 1999

The effect of the definitions of 'Families Department' and 'Families Minister' is that the 'Families Minister' for the purpose of subsection 47(8) of the FBTAA is the Minister who administers the Family Assistance Administration Act. Following on from this, the 'Families Department' for the purpose of subsection 47(8) is the Department under that Minister.

In looking at the Family Assistance Administration Act there are a number of issues that this Act deals with and these issues are not all dealt with by the same Commonwealth Department.

For example, Part 3 of the Family Assistance Administration Act deals with the payment of family assistance. Family assistance payments are made by the Family Assistance Office.

The relevant part of the Family Assistance Administration Act for the purpose of this ruling is Part 8 which deals with the Approval of child care services and registered carers.

In respect of child care services it is the Department of Education, Employment and Workplace Relations (DEEWR) that deals with Part 8 of the Family Assistance Administration Act. In fact DEEWR deal with all child care services issues through the Child Care Management System (CCMS).

Under the CCMS it is a condition of approval and continued approval for Child Care Benefit (CCB) that services comply with the relevant Family Assistance Law. CCBs are approved by DEEWR.

The Priority of Access Guidelines are set out in the Child Care (eligibility of Child Care Services for Approval and Continued Approval) Determination 2000 and these guidelines are administered by DEEWR. These guidelines apply to Long Day Care, Family Day Care, Outside School Hours Care and In-Home Care services. It is DEEWR who would administer sanctions if these guidelines are not followed.

Any entity that wishes to operate as a child care centre must seek approval from DEEWR and to maintain approval (including approval as centre based long day care service within the meaning of the Family Assistance Administration Act) that entity must follow the Child Care (eligibility of Child Care Services for Approval and Continued Approval) Determination 2000 which is also administered by DEEWR.

Given subsection 47(8) of the FBTAA deals with priority of access and that priority of access is administered by DEEWR, for the purposes of the application of paragraph 47(8)(2) of the FBTAA, DEEWR is the 'Families Department'.

DEEWR has the following on its website in respect of 'priority of access' and employer sponsored child care:

Employer sponsored child care

When a child care service is funded by an employer to provide child care solely or primarily for the children of the employer's employees, the service may give priority to those children.

When a child care service has an agreement with an employer that the employer pays for a certain number of places for their employees' children, the service may give priority to those children for the agreed number of places.

The employer has such an agreement with the child care provider and as such the payment to secure the priority of access spaces under the agreement is a contribution made under a program administered by the 'Families Department'.