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Authorisation Number: 1011750401152

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Ruling

Subject: Reduction of taxable value-education of children of overseas employees

Question 1

Will the taxable value of the expense payment fringe benefit that arises from the reimbursement of the listed expenses be reduced under section 65A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) if the expenses have a sufficient or material connection to the full-time education of the employee's child?

Answer

Yes

Question 2

Is there a cap to the amounts that can be claimed annually?

Answer

No.

This ruling applies for the following period

Year ended 31 March 2011 to 31 March 2013

Relevant facts

You have sponsored a person from overseas on a 457 Visa. The employee intends to work in Australia for a period of a number of years before returning to their home country.

The employee has a spouse and x children. It is intended to educate two of the children (both who are under the age of 25) via a home school education program.

Your employee intends to salary sacrifice for the education costs of his children.

The program they intend to undertake is recognised by the xxx Board of Studies as complying with xxx education regulations. Both children are in full-time education and the tutor arrangement is formalised with the xxx Board of Studies.

Some of the expected expenses include:

-uniforms

-books

-music instruments

-long term piano hire

-excursion costs

-tennis camp- airfares/accommodation/food and travel costs for the family

-science equipment

-laptop computer and programs

-sport equipment (tennis racquets)

-desks and shelving

You are unaware of other employers in your industry offering similar benefits to their employees, however you do pay private school fees in respect of at least one other employee.

Documentary evidence of each expense will be provided.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 65A

Fringe Benefits Tax Assessment Act 1986 section 143B

Reasons for decision

Question 1

Will the taxable value of the expense payment fringe benefit that arises from the reimbursement of the listed expenses be reduced under section 65A of the FBTAA if the expenses have a sufficient or material connection to the full-time education of the employee's child?

Detailed reasoning

You intend to enter into a salary sacrifice arrangement with the employee. Under the terms of the salary sacrifice arrangement you will reimburse the employee for the costs incurred by the employee in educating his children. These reimbursements will be expense payment fringe benefits.

Section 65A of the FBTAA enables the taxable value of an expense payment fringe benefit to be reduced where the following conditions are met:

(a) the expenditure is in respect of the full-time education of a child of the employee

(b) the child is less than 25 years of age

(c) the full-time education is

o at an educational institution, or

o by a tutor

(d) the education is received while the employee is an overseas employee

(e) the benefit must be provided in accordance with an industrial instrument or it is customary within the industry

(f) documentary evidence must be given to the employer where the benefit is an expense payment benefit

(b) Is the expenditure in respect of the full-time education of a child of the employee?

The expenditure is in respect of full-time education. The children are undertaking the subjects prescribed by the xxx Board of Studies for a full-time student.

Australian Tax Office Interpretative Decision 2006/52 (ATO ID 2006/52) 'Fringe Benefits Tax: Expense payment fringe benefits: reduction of taxable value-education of children of overseas employees', states;

The word 'in respect of the full time education of the child', requires that any expense, whilst not necessary directly incurred on full time education, must have a sufficient or material connection to the full time education of the child.

It is considered that the extra tuition provided to the employee's child at the Development & Coaching Centre, in supporting the study needs of the child in practical area of their normal education and not being in the area of general interest pursuits, has a sufficient or material connection to the child's full time education.

You have provided a list of expenses that will be eligible for reimbursement. It would appear as if some of the items listed may not have the necessary connection to the full-time education of the child. If the necessary connection does not exist the reduction under section 65A of the FBTAA will not apply.

As you have not provided any details as to whether or not the expected expenses have a sufficient or material connection to the children's full-time education we are unable to rule as to whether the individual items you have named in your application will be eligible for the reduction of taxable value under section 65A of the FBTAA.

(c) Will the full-time education be provided to a child who is less than 25 years of age?

The education is in respect of two children under the age of 25.

(d) Will the full-time education be provided in an educational institution or by a tutor?

As the education will be provided by the employee's spouse it is not being provided in an educational institution.

There is no definition of 'tutor' in the FBTAA and as such it takes on its ordinary meaning. The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'tutor' as:

4. a teacher without institutional connections who assists students in preparing for examinations.

A 'teacher' in turn is defined in The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 as:

1. one who teaches or instructs, especially as a profession; instructor.

Where a parent has been accepted by the Board of Studies for registration as a home schooler and there is a formal Home School Education Program in place, the parent can be considered as 'one who teaches or instructs' and is therefore a 'tutor' as defined. Evidence of meeting these requirements is provided through records of the teaching/learning program, time allocated, assessment of achievement and progress and resources used under the formal program,

Accordingly, it is accepted that a spouse of an overseas employee who participates in the Home School Education Program in respect of the full-time education of their child, is a 'tutor' for the purposes of subparagraph 65A(b)(ii) of the FBTAA.

(f) Will the education be received while the employee is an overseas employee?

Overseas employee is defined in section 143B of the FBTAA which provides that an employee will be an overseas employee where;

-an employee's usual place of residence is in a particular country (the home country)

-the employee performs the duties of their employment at a place outside the home country; and

-the employee is required to live outside the home country in order to perform the duties of their employment.

You have sponsored the employee to come to Australia on a 457 Visa to work for you for a four year period. At the end of the contract the employee will return to his home country.

(g) Will the benefits provided be in accordance with an industrial instrument or is it customary within the industry?

Subsection 136(1) of the FBTAA provides the term 'industrial instrument' means:

a law of the Commonwealth or of a State or Territory or an award, order, determination or industrial agreement in force under any such law.

You advise that you intend to enter into a salary sacrifice arrangement with your employee. As a salary sacrifice agreement is an agreement between an employer and an employee as to the remuneration of an employee, the benefits can be accepted as being in accordance with an industrial instrument.

Alternatively, it is accepted that it is customary for employers in your industry to reimburse expenses for educational assistance to employees relocated from overseas.

Summary

Where all the above requirements have been met the taxable value of the fringe benefit can be reduced by the percentage of the taxable value that is attributable to the full-time education of the child during the period of the employee's employment.

Question 2

Is there a cap to the amounts that can be claimed annually?

Detailed reasoning

Section 65A of the FBTAA allows a reduction in the taxable value of certain benefits provided in respect to the full time education of children of overseas employees. There is no cap placed on the amount of the expenses that are eligible for the reduction.