Edited version of private ruling

Authorisation Number: 1011757880697

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Fringe benefits tax

Question 1

For the purposes of determining the employer's aggregate non-exempt amount under subsection 5B(1E) of the Fringe Benefits Tax Assessment Act 1986, should the taxable value of the residual benefits be reduced to the extent that the expenses are otherwise deductible to the employee?

Answer

Yes

Question 2

In determining the employee's individual quasi fringe benefits amount for the purposes of section 135Q of the Fringe Benefits Tax Assessment Act 1986, should the taxable value of the residual benefits be reduced to the extent that the expenses are otherwise deductible to the employee?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2011

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

The scheme commences on:

1 April 2006

Relevant facts and circumstances

The employer is a public benevolent institution (PBI).

The employer employs a director who has a disability.

The director is required to travel interstate to attend board meetings.

The director cannot travel and stay in hotels without assistance.

The director requires personal assistance during the day and after hours.

The director requires assistance during the board meetings.

The employer retains the services of the carer for the director whilst he is attending board meetings.

The carer will perform various administrative duties to assist the director to participate in the meeting.

The employer pays for the following:

· Airfares for the carer.

· Taxi fare for the carer (from the carer's house to pick up the director on the way to the airport).

· Fees for accompanying the director while travelling. This includes time spent helping the director travel to and from board meetings and general assistance before and after work hours on the day of the board meeting.

· Overnight fee per night.

· Fees for administrative service during the day.

· Extra expense in upgrading to a 'twin room' to allow for the carer. (Most hotels enable the carer to share a room with the director at no additional cost to the employer over the cost that would have been incurred if no carer was required.)

Board meetings are full day meetings and on occasions need to be extended into late afternoon or early evening. In these circumstances the director and carer would return interstate the following morning.

The director has been provided with other benefits in previous fringe benefits tax (FBT) years. The value of the any additional benefits provided to the director has not exceeded $30,000 in any of the FBT years.

The director did not personally incur any expenditure relating to the taxi fares of the carer, accommodation of the carer, airfares of the carer and fees paid to the carer.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 5B(1D)

Fringe Benefits Tax Assessment Act 1986 Subsection 5B(1E)

Fringe Benefits Tax Assessment Act 1986 Subsection 5E(2)

Fringe Benefits Tax Assessment Act 1986 Section 57A

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Section 50

Fringe Benefits Tax Assessment Act 1986 Section 52

Fringe Benefits Tax Assessment Act 1986 Section 135Q

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Question 1

Summary

For the purposes of determining the employer's aggregate non-exempt amount under subsection 5B(1E) the taxable value of the residual fringe benefits should be reduced to the extent that the expenses are otherwise deductible to the employee.

Detailed reasoning

Benefits provided to an employee of a PBI are exempt from FBT under section 57A up to the $30,000 capping threshold. If an employee is provided with fringe benefits above the capping threshold, then the PBI will subject to FBT on those fringe benefits.

An employer that is a PBI must, therefore, determine its fringe benefits tax liability, if any, for each year of tax. To do this the employer needs to calculate its fringe benefits taxable amount, which is the amount on which the employer must pay FBT.

For a PBI, the employer's fringe benefits taxable amount is increased by the employer's aggregate non-exempt amount for the year of tax under subsection 5B(1D).

The employer's aggregate non-exempt amount is worked out in accordance with subsection 5B(1E). This is done by determining each employee's individual grossed-up non-exempt amount which is, effectively, the amount of any fringe benefits above the capping threshold.

In order to determine each employee's individual grossed-up non-exempt amount, the employer must work out the amount that would be each employee's individual fringe benefit amount. To do this, each benefit

· that is provided in respect of the employment of the employee

· is exempt because of section 57A, and

· apart from section 57A would be a fringe benefit

must be treated as if it were a fringe benefit.

Under subsection 5E(2), an employee's individual fringe benefits amount is the sum of the employee's share of the taxable value of each fringe benefit that relates to the year of tax other than an excluded benefit.

Therefore in order to determine the aggregate non-exempt amount of the employer, it is necessary to work out the director's individual fringe benefits amount as if the benefits provided to him are fringe benefits.

The provision of the services of a carer for the director by the employer is considered to be a residual benefit under section 45.

The taxable value of the benefit would be determined under section 50 as a non-period residual benefit. The taxable value would be the amount paid or payable by the employer for the benefit. This would include the expenses the employer incurred in paying for airfares, taxi fares, fees and accommodation for the carer.

The taxable value of a residual fringe benefit can be reduced in accordance with section 52 where the expenditure would have been deductible to the employee had the employee incurred the expenditure (the otherwise deductible rule). The reduction applies only if the recipient of the benefit is an employee. Broadly this means that the taxable value may be reduced by the amount that the employee would have been entitled to claim as an income tax deduction.

Section 52 details the criteria that need to be met for a reduction in the taxable value to apply. It is necessary for the deduction in question to be allowable under the Income Tax Assessment Act 1997 (ITAA 1997).

The question arises therefore of whether the employee would have been entitled to a deduction for any of the cost of the services of the carer who accompanies him to the board meetings.

As is relevant, section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income except where the losses or outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

· it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T, (1958) 100 CLR 478)

· there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47)

· it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4148).

For a loss or outgoing to be found in gaining or producing assessable income, it is not sufficient that it be incurred while undertaking those activities. Rather, it is necessary that it be incurred in the course of those activities.

In most cases an expense incurred to overcome a physical disability will probably be private and domestic and non-deductible. This includes expenses incurred in relation to a carer who provides personal services to the taxpayer.

In Case P31 82 ATC 141; (1982) 25 CTBR (NS) 715, the taxpayer was denied a deduction for an attendant accompanying him on a trip. It was held that the expenditure for the attendant related to the taxpayer's medical condition rather than to the trip undertaken in the course of his employment. The essential characteristic of the outgoing was of a private nature.

In Frisch v. Commissioner of Taxation [2008] AATA 462; 2008 ATC 10-031; 72 ATR 551 (Frisch's Case), the taxpayer employed an assistant to type, write notes and memos, to retrieve, move and open files, to photocopy documents as well as provide some personal care.

The AAT held that to the extent that the expenditure of the taxpayer was in relation to non-personal services, the outgoing was incurred to enable the taxpayer to undertake employment duties and was thus incurred in gaining her employment income.

In considering whether the expenditure was private or domestic in character, Block J stated that the services of the assistant '…were required and provided (except in relation to the personal services) only at and for work'. The assistant's non-personal services were not considered to be private or domestic in nature.

That portion of the expenditure incurred by the taxpayer in Frisch's Case which related to the non-personal services was deductible.

The carer that the employer is providing to the employee is performing a variety of services. The administrative tasks undertaken by the carer during the meeting are of a similar nature to those of the assistant in Frisch's Case. Those tasks enabled the director to undertake employment duties, i.e. participating in the board meeting.

The administrative tasks were performed at the board meeting which was for that day the place of work for the director.

It is accepted therefore:

· that had the director incurred expenditure in relation to non-personal services of the carer it would be an outgoing to enable the director to undertake duties of employment, and

· the outgoing would not be of a private or domestic nature.

The outgoings related to the personal services of the carer would not be deductible as they are of a private or domestic nature.

Before the employer can apply any reduction on the basis of the otherwise deductible rule, the employee must provide a declaration to the employer in a form approved by the Commissioner. Such a declaration should include the nature of the benefit, the purposes for which the benefit was used, and percentage of the cost that would be otherwise deductible to the employee.

Since the director will be providing the appropriate declarations to the employer and part of expenses are otherwise deductible, the employer may reduce the taxable value of the residual fringe benefits for the purposes of determining its aggregate non-exempt amount.

Additional information

We have considered the extent to which the expenses are otherwise deductible to the employee.

Had the director incurred the expenses of the carer, only that portion of those expenses that are incurred in relation to the non-personal services of the carer would be deductible.

In Frisch's Case the taxpayer was allowed the deduction for seven-eighths of the expenditure incurred. The assistant performed non-personal services for seven hours and personal services during the one hour lunch break.

In the present situation the fees paid to the carer for the time that the non-personal services are being provided, i.e. during the meeting, would therefore be deductible.

In order for that carer to undertake those administrative duties, the director would have to pay for the carer's taxi and air fares to enable the carer to attend the meeting. It is accepted then, that those expenses would be deductible.

The director would also have had to pay the fees of the carer for the time the carer travelled to and from the meeting. Although the carer was also performing personal services during the travelling time, it accepted that the fees would also be a necessary cost of obtaining the non-personal services of the carer during the meeting.

The cost of the carer's:

· accommodation,

· overnight fee and

· fees related to the time not spent in the meeting and travelling,

are not accepted as part of the cost of obtaining the non-personal services of the carer. These outgoings are related to the personal services of the carer and would therefore be private.

Question 2

Summary

The taxable value of the residual benefits should be reduced to the extent that the expenses are otherwise deductible to the employee in order to determine the employee's individual quasi fringe benefits amount for the purposes of section 135Q

Detailed reasoning

For a PBI, section 135Q explains how to work out whether an employee has a reportable fringe benefits amount for a year of income in respect of the employee's employment.

Under subsection 135Q(2) an employee of a PBI will have a reportable fringe benefits amount if the sum of the employee's quasi-fringe benefits amount for the year of tax is greater than $2000.

Under subsection 135Q(3) the employee's quasi fringe benefit amount is:

the amount that would be the employee's individual fringe benefits amount for the year of tax in respect of the employee's employment by the employer if:

(a) each benefit described in subsection (1) in relation to the employee, employer and year of tax were a fringe benefit; and

(b) there were no other fringe benefits relating to the employee, the employer and the year of tax.

For a PBI, the description of each benefit referred to from subsection (1) is of a benefit:

· provided in respect of employment

· that is exempt because of section 57A, and

· apart from section 57A would be a fringe benefit.

Therefore if such a benefit is provided it should be treated as if it was a fringe benefit in order to determine the amount that would be the employee's individual fringe benefits amount.

The employer is providing residual benefits to the director in respect of employment. These benefits are exempt because of section 57A but they would be fringe benefits apart from that section.

The taxable value of these fringe benefits must be calculated in order to determine the employee's quasi fringe benefits amount. As explained in the reasons for decision for question one, the taxable value of the residual fringe benefits may be reduced to the extent that the expenses are otherwise deductible to the employee.