Edited version of private ruling

Authorisation Number: 1011744637035

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Ruling

Subject: Salary Sacrifice Arrangement and Exempt Residual Benefits

Question

Will the transport provided under the proposed Salary Sacrifice Arrangement (SSA) constitute an exempt residual benefit under Section 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where the transport only provided on buses?

Answer

Yes

This ruling applies for the following period;

1 April 2011 to 31 March 2012

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

1 April 2015 to 31 March 2016

The scheme commenced on

1 April 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are considering the possibility of providing employees with transport on a bus between their residence and place of employment.

The arrangement will be administered by the use of a card that will be registered in the employer's name.

Under the arrangement he employers will purchase the cards and register the cards in the employer's name.

The card will be provided to an employee under an effective SSA.

An employee receiving the card will be required to sign a declaration acknowledging that the card is the property of the employer and agreeing to use the card in accordance with the specified terms and conditions.

The terms and conditions will restrict the employee's use of the card to travel between home and work. To verify the use of the card employees will be required to provide the relevant declaration. An example of the declaration was provided with the ruling application.

In addition, travel history reports will be obtained for the cards.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Will the transport provided under the proposed Salary Sacrifice Arrangement (SSA) constitute an exempt residual benefit under Section 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where the transport only provided on buses?

Subsection 47(6) of the FBTAA provides an 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]

1. 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;

(a) the motor vehicle is not:

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

(ii) a car, not being:

I. panel van or utility truck; or

II. ny 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.

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

"provide"

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

(b) ...

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:

(a) ravel by the employee between:

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

(ii) he 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) ...

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

(a) a place at which the person resides; or

(b) 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:

(a) gaining assessable income; or

(b) ...

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 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].

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

(b) a residual benefit is provided;

(c) the residual benefit consists of the provision or use of a motor vehicle;

(d) the use of the motor vehicle is provided in respect of the employment of a current employee;

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

(f) 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) is minor, infrequent and irregular.

(a) Is a residual benefit provided?

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.

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. In discussing the type of benefit that was provided 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')-

(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.''

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 are similar to the arrangements entered into in the NAB Case in that the employers will be the purchaser/ cardholder and registered owner of the cards so that the primary contractual arrangement for the transport is between the employers and the entity supplying the transport.

Therefore, it is considered that the transport arrangements are residual benefits being provided by the employers.

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.

(b) Does the residual benefit consist of the provision or use of a motor vehicle?

The relevant means of transport in this instance will be a 'bus'.

'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)'.

As the buses that will be used are motor powered road vehicles the buses will be a 'motor vehicle'.

In considering whether the benefit consists of the use of a motor vehicle Ryan J in the NAB Case 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.

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.

(c) Is the use of the motor vehicle provided in respect of the employment of a current employee?

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.

In this instance, this relationship or connection between the provision of the benefit and the employee's employment arises as the benefit is obtained under a salary sacrifice arrangement. Therefore, as the benefit is being provided as remuneration for services provided it can be seen to be provided in respect of the employee's employment.

Further, as the benefit is being provided under a salary sacrifice arrangement it is being provided in respect of the employment of a current employee.

(d) Is the motor vehicle of a type not otherwise excluded under paragraph 47(6)(aa) of the FBTAA?

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

Is the only private use of the motor vehicle work-related travel by the employee with any other private use by the employee (or associate) being minor, infrequent and irregular?

'Work-related travel' is defined in subsection 136(1) 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.

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

Procedures will be put in place by the employers 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.

Under the arrangements, there will not be any other private use of the relevant bus transportation. Although the employees may use bus transportation at other times for private travel such private travel will be purchased under separate arrangements that will not involve the employer. Therefore, it will be part of the residual benefit.

Therefore, this requirement is met as the only private use of the bus is work-related travel by the employee.

Conclusion

The bus transport provided under salary sacrifice arrangements will be exempt residual benefits under subsection 47(6) of the FBTAA as all the necessary requirements are met.