Edited version of private ruling

Authorisation Number: 1011769047093

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Ruling

Subject Fringe Benefits Tax - Salary sacrifice - child care

Question 1

Is the provision of child care by the employer to its employees under a salary sacrifice arrangement an exempt benefit under subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

This ruling applies for the following periods:

1 April 2007 to 31 March 2008

1 April 2008 to 31 March 2009

1 April 2009 to 31 March 2010

1 April 2010 to 31 March 2011

1 April 2011 to 31 March 2012

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

TAX LAW:

Fringe Benefits Tax Assessment Act 1986 Subsection 47(2).

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

Relevant facts and circumstances

The employer owns and operates child care centres.

All but one of the child care centres are owned by the employer. The premise of the other child care centre is currently leased from another entity.

Each child care centre provides child care to at least two (2) children under the age of six (6).

Each child care centre is operated as a business and is open to the general public as well as employees.

No child care places are put aside for employees.

All employees employed at each of the child care centres are employees of the employer and are on the employer's payroll.

The provision of child care is provided to current employees of the employer under a salary sacrifice arrangement.

Reasons for decision

Question 1

Summary

The employer has a right of possession and control over the premises and the premises are used for its business operations. The Commissioner concludes that the provision of childcare benefits by the employer to its employees under a salary sacrifice arrangement is an exempt benefit pursuant to subsection 47(2) of the FBTAA.

Detailed reasoning

The law

Subsection 47(2) of the FBTAA provides that:

Where -

a residual benefit provided to a current employee in respect of his or her employment consists of -

· the provision, or use, of a recreational facility; or

· the care of children of the employee in a child care facility; and

· the recreational facility or child care facility, as the case may be, is located on business premises of -

o the employer; or

o if the employer is a company, of the employer or of a company that is related to the employer,

o the benefit is an exempt benefit.

Application of the law

The provision of childcare facilities to the employees may be an exempt benefit under subsection 47(2) of the FBTAA if all of the following conditions are satisfied:

· the benefit is a residual benefit;

· the benefit is provided to a current employee;

· the benefit consists of the care of the employee's children;

· the care of children is in a child care facility; and

· the child care facility is located on the business premises of the  employer (or a related company if the employer is a company).

(i) The benefit is a residual benefit

Section 45 of the FBTAA defines a residual benefit as:

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).

Child care does not fit into any of the specific benefit categories contained within Divisions 2 to 11 (inclusive) of the FBTAA. As the provision of childcare facilities does not come within those divisions it will be a residual benefit (unless otherwise exempted).

The employer is providing child care to their employee's children. Therefore a 'residual benefit' is being provided.

(ii) The benefit is provided to a current employee

In subsection 136(1) of the FBTAA, 'current employee' is defined as '… a person who receives, or is entitled to receive, salary or wages'.

The benefit of child care under a salary sacrifice arrangement will be provided to current employees. Therefore this criterion is satisfied.

(iii) The benefit consists of the care of the employee's children

The benefit will consist of the provision of child care services for the employee's children. Therefore this criterion is satisfied.

(iv) The care of children is in a child care facility

Subsection 136(1) of the FBTAA defines a 'child-care facility' as:

means a facility at which a person receives, or is ready to receive, 2 or more children under the age of 6, not being associates of the person, for the purpose of minding, caring for or educating them for a day or part of a day without provision for residential care but does not include a facility at the place of residence of any of these children.

The employer is involved in several types of child care services. Each child care centre caters for more than two children under the age of six and therefore meets the criteria of a child care facility as defined in subsection 136(1) of the FBTAA.

(v)  The child care facility is located on the business premises of the employer

Subsection 136(1) of the FBTAA defines 'business premises' as:

"business premises", in relation to a person, means premises, or a part of premises, of the person used, in whole or in part, for the purposes of business operations of the person, but does not include:

(a) premises, or a part of premises, used as a place of residence of an employee of the person or an employee of an associate of the person; or

(b) a corporate box; or

(c) boats or planes used primarily for the purpose of providing entertainment unless the boat or plane is used in the person's business of providing entertainment; or

(d) other premises used primarily for the purpose of providing entertainment unless the premises are used in the person's business of providing entertainment.

This definition contains a two-fold test for determining whether the premises are 'business premises' for the purposes of the FBTAA. The first requirement is that the premises or part of premises are of the person. Secondly, the premises or part of premises must be used by the person, in whole or in part, for the purposes of their business operations.

The question of what constitutes 'business premises' for the purpose of the FBTAA has been considered in Taxation Ruling TR 2000/4 - Fringe benefits tax: meaning of 'business premises'.

Guidance on the 'first requirement' on the meaning of 'premises, or a part of premises, of a person' is given by paragraphs 7 and 8 of TR 2000/4:

7. If a person has ownership of premises, or has exclusive occupancy rights as lessee of premises, the premises would ordinarily be described as premises of the person.

 

8. In other circumstances, for example, where a person has non-exclusive possession of premises, the person satisfies this requirement if they have a right to possession of the premises, at least to the extent necessary to enable the conduct thereon of their business operations.

 

Guidance on the 'second requirement' is given in paragraphs 9 and 10 of TR 2000/4:

 

9. The term 'business operations' in the definition of 'business premises' includes a wide range of activities. The activities include those undertaken by a person in the ordinary course of carrying on a business. They also include those activities that, although not undertaken in the ordinary course of carrying on a business, are nevertheless undertaken in the course of carrying on a business. Profit making activities that fall short of being a business are also included in 'business operations' if they have a business or commercial character.

 

10. Important to this Ruling is the question of whether the operations of facilities, such as child care facilities, are operations that would fall within the term 'business operations'. In this context, the provision of benefits to current employees in the form of child care would be an important factor in recruiting, retaining and otherwise rewarding employees. Activities undertaken in connection with the provision of those benefits to employees would be 'business operations' of the employer.

Paragraphs 11 and 12 of TR 2000/4 provide that there is no absolute or conclusive test of whether premises are business premises.  In determining whether the premises are premises of the employer and are used for the business operations of the employer, it is relevant to consider the following two factors:

· the control the employer has over the premises; and

· the consistency of an employer's actions and activities on the premises with those of normal business practices.

Paragraph 13 of TR 2000/4 states that having regards to the two factors, where a person is carrying on business operations on premises, the premises are their business premises where in form and substance the person bears the rights and risks of possession of the premises associated with the conduct of the business operations.

Paragraph 54 of TR 2000/4 states that the control question requires an objective consideration of both the form and the substance of the arrangement and specifically, whether the employer has a sufficient interest in the premises to carry on its business operations.

Merkel J in Esso Australia Ltd v. FC of T 98 ATC 4953 at 4958; 40 ATR 76, (1998) 157 ALR 652 considered this issue and stated:

            It seems to me that, under s47(2), for the relevant business premises to be those of an employer, the employer must have a right to possession of the premises, at least to the extent necessary to enable the conduct thereon of the relevant recreational or child care facility.  If the employer has the requisite possessory entitlement in respect of the premises it does not appear to matter that entitlement is one of ownership, exclusive possession or non-exclusive possession.

In respect of all but one of the child care centres, the employer owns and operates each one. The employer is the legal owner of the premises, and ownership is usually the best possessory right for the purposes of subsection 47(2) of the FBTAA. Therefore the employer has the rights of possession and control over the use of the relevant premises. 

In respect of the other child care centre, the employer has entered into a lease with the owner of the property where the child care centre is located. As the employer has exclusive occupancy rights as lessee of premises, the employer has the rights of possession and control over the use of the relevant premises. 

The running of each of the child centres are performed by the employer. All staff are employed by the employer. It is therefore considered that the employer has the requisite possessory entitlement and degree of control over the premises necessary to conduct their business operations of the child care facility.

Consequently, the premises of all the child care centres are considered to be business premises of the employer for the purposes of the FBTAA.

Conclusion

The premises of all the child care centres are business premises of the employer for the purposes of the FBTAA.

It is considered that all the required conditions under subsection 47(2) of the FBTAA have been met. Therefore pursuant to subsection 47(2) of the FBTAA, the provision of child care to current employees under a salary sacrifice arrangement by the employer on the relevant premises will be an exempt benefit.

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