Edited version of private ruling

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Ruling

Subject: FBT - in-house fringe benefits

Question 1

Will the reimbursement of an employees public transport expenses under the arrangement be classified as an in-house expense payment fringe benefit?

Answer: Yes

Question 2

Will the taxable value of the expense payment fringe benefits that arise from the reimbursement of employees' public transport expenses be:

(a) calculated in accordance with subsection 22A(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as in-house residual expense payment fringe benefits; and

(b) reduced under section 62 of the FBTAA as in-house fringe benefits?

Answer: Yes

Question 3

Will the use of a Corporate card under the arrangement be classified as an in-house residual fringe benefit?

Answer

Yes where the travel is a fringe benefit. A fringe benefit may not arise if the employee only uses a Corporate card to travel between home and work on a bus service.

Question 4

Will the taxable value of the residual fringe benefits that arise where an employee uses a Corporate card to travel on public transport be:

(a) calculated in accordance with subsection 48 of the FBTAA as in-house residual expense payment fringe benefits; and

(b) reduced under section 62 of the FBTAA as in-house fringe benefits?

Answer: Yes.

This ruling applies for the following periods:

Year ended 31 March 2011

Year ended 31 March 2012

Year ended 31 March 2013

The scheme commences on:

1 April 2010

Relevant facts and circumstances

You provide passenger transport services.

The proposed arrangement relates to travel on:

· bus services;

· train services; and

· ferry services.

The arrangement will involve either:

· a reimbursement of travel undertaken by the employee; or

· the use of a Corporate Card that has been purchased by the employer.

Both of these arrangements which are detailed below are restricted to travel undertaken by the employee.

Reimbursement of travel arrangement

To claim a reimbursement an employee will be required to submit:

· the printed record of their travel; and/or

· copies of any transport tickets purchased.

In some circumstances, such as cash fare metropolitan train tickets, the original ticket may be required to ensure validity.

A reimbursement will only be allowed when the employee signs a declaration that only travel between home and work has been claimed.

The card cannot be used by associates of the employees, ie spouses and children.

Employees will be required to sign a declaration form evidencing entitlement to reimbursement, including confirmation of:

· the employee's entitlement to the reimbursement;

· the expenses being incurred only for travel to and from work;

· the use and continued use being solely public transport services supplied by you; and

· the employee's usual place of residence and employment details.

Corporate card arrangement

Under the alternative arrangement an employee will be provided with the use of a Corporate card.

The main difference between this and the reimbursement arrangement is that a Corporate card is purchased by the employer.

Under the Corporate card arrangement you will add credit to the card in accordance with your policies.

All other conditions are the same. That is:

· The use of the card is limited to the private use of the employee.

· An amount will only be credited where the employee signs a declaration that only travel between home and work has been claimed.

· The card cannot be used by associates of the employees, ie spouses and children.

· Employees will be required to sign a declaration form evidencing entitlement to have a credit added to the card, including confirmation of:

o the employee's entitlement to the credit;

o the use being restricted to travel to and from work;

o the use and continued use being solely public transport services supplied by you; and

o the employee's usual place of residence and employment details.

The employee will also be required to provide a statement detailing the travel undertaken.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 22A

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Subsection 46(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 Section 48

Fringe Benefits Tax Assessment Act 1986 Section 62

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 149

Reasons for decision

To encourage your employees to use public transport to travel to and from work you are proposing to provide two alternative arrangements:

1. a reimbursement of the expenses incurred by the employee in using public transport to travel between home and work; or

2. the use of a Corporate card to pay for the travel between home and work.

The amount of the fringe benefits tax liability (if any) that will arise from these arrangements will depend upon the type of benefits that are being provided.

1. What type of benefit will arise from a reimbursement of expenses?

The reimbursement of an expense will generally be an expense payment benefit under paragraph 20(b) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Section 20 of the FBTAA states:

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.

In applying this section each reimbursement will be an expense payment benefit.

2. Is the expense payment that arises from the reimbursement of an employee's travel expenses an 'in-house expense payment fringe benefit'?

Subsection 136(1) of the FBTAA defines an in-house expense payment fringe benefit as:

(a) an in-house property expense payment fringe benefit; or

(b) an in-house residual expense payment fringe benefit.

Both of these terms are also defined in subsection 136(1) of the FBTAA. In broad terms:

· an in-house property expense payment fringe benefit refers to an expense payment fringe benefit where the expenditure incurred by the employee was in respect of the purchase of goods of a kind sold by the employer in the ordinary course of business; and

· an in-house residual expense payment fringe benefit refers to an expense payment fringe benefit where the expenditure incurred by the employee was in respect of the purchase of a service or other residual benefit of a kind supplied by the employer to members of the public in the ordinary course of business.

As the transport will be a residual benefit the relevant definition to consider is the definition of an 'in-house residual expense payment fringe benefit'.

Is the reimbursement of the public transport expenses an 'in-house residual expense payment fringe benefit'?

Subsection 136(1) of the FBTAA defines an in-house residual expense payment fringe benefit, in relation to an employer to mean:

an expense payment fringe benefit in relation to an employer where:

(a) the recipients expenditure was incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance) by a person (in this definition called the "residual benefit provider");

(b) if the residual benefit provider is the employer or an associate of the employer - at or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, the residual benefit provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders;

(c) if the residual benefit provider is not the employer or an associate of the employer:

i. the residual benefit provider purchased the benefit from the employer or associate of the employer (which employer or associate is in this definition called the "seller"; and

ii. at or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, both the residual benefit provider and the seller carried on business that consisted of or included the provision of identical or similar benefits principally to outsiders: and

(d) documentary evidence of the recipients' expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date.

Therefore an 'in-house residual expense payment fringe benefit' requires that:

(a) The fringe benefit is an 'expense payment fringe benefit';

(b) The employee's (or associate's) expenditure is incurred on the provision of a residual benefit (other than a benefit provided under a contract of investment insurance);

(c) Either the residual benefit provider:

· is the employer or the employer's associate who carried on a business that consisted of, or included, the provision of identical or similar benefits principally to outsiders; or

· the provider purchased the benefit from the employer or the employer's associate and both the residual benefit provider and the employer or the employer's associate carried on a business that consisted of, or included, the provision of identical or similar benefits principally to outsiders.

(d) The required documentary evidence is given to the employer at the required time.

These criteria are discussed below.

(a) Will the fringe benefit be an expense payment fringe benefit?

As discussed previously, the reimbursement of an employee's public transport expenses will be an expense payment fringe benefit.

(b) Will the employee's expenditure be incurred on the provision of a residual benefit?

As also discussed previously, the provision of transport will be a residual benefit.

(c) Is the provider of the residual benefit the employer or an associate of the employer?

As you are the employer, this requirement is satisfied.

Do you carry on a business that consists of the provision of identical or similar benefits?

The term 'business' is not defined in the FBTAA. However, subsection 136(1) provides that the 'business operations' of a government body or a non-profit company includes any operations or activities carried out by that body or company.

As discussed above, the provision of transport is an activity that you undertake.

Further guidance for determining whether this transport is provided as part of a business that you are carrying on is provided in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?

Paragraph 13 of TR 97/11 lists the following indicators that are relevant in determining whether the activities constitute the carrying on of a business:

· whether the activity has a significant commercial purpose or character; this indicator comprises may aspects of the other indicators;

· whether the taxpayer has more than just an intention to engage in business;

· whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

· whether there is repetition and regularity of the activity;

· whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;

· whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit;

· the size, scale and permanency of the activity; and

· whether the activity is better described as a hobby, a form of recreation or a sporting activity.

It is accepted that these factors apply to you.

Guidance for determining whether the business consisted of or included the provision of identical or similar benefits is provided by paragraphs 204 and 215 of Taxation Ruling TR 2007/12 Fringe benefits tax: Minor benefits. These paragraphs state:

204. The Macquarie Dictionary defines 'identical' as:

1. (sometimes followed by to or with) corresponding exactly in nature, appearance, manner, etc.: this leaf is identical to that.

2. the very same: I almost bought the identical dress you are wearing

and 'similar' as:

1. having a likeness or resemblance, especially in a general way.

215. The term 'identical benefit' is defined in section 136(1), in relation to residual fringe benefits, to mean:

another benefit that is the same in all respects, except for differences (if any) that are minimal or insignificant and do not affect the value of the other benefit.

In applying these definitions a benefit will be identical where it involves the provision of transport between the same two locations that the employee travels between. A benefit will be similar where the transport is provided between different locations. It is accepted that you will provide benefits that are identical or similar to those that are provided to an employee.

Are the identical and similar benefits provided principally to outsiders?

The meaning of 'principally' is also not defined in the FBTAA, however, at page 52 in the ATO publication Income tax guide for non-profit organisations (NAT 7967-3.2007) 'principally' is stated to mean 'mainly or chiefly' and that 'less than 50% is not principally'. Therefore, under such guidance, 'principally' may be regarded to mean 'more than 50%' or, alternatively, 'more than half, of the time'.

'Outsider' is defined in subsection 136(1) of the FBTAA as being:

in relation to the employment of an employee of an employer, means a person not being:

(a) an employee of the employer;

(b) an employee of an associate of the employer;

(c) an employee of a person (in this definition referred to as the ``provider'') other than the employer or an associate of the employer who provides benefits to, or to associates of, employees of the employer or an associate of the employer under an arrangement between:

i. the employer or an associate of the employer; and

ii. the provider or another person; or

(d) an associate of an employee to whom any of the preceding paragraphs apply.

Therefore, an 'outsider' is someone who is not an employee of the relevant employer, not an employee of an associate of that employer, not an employee of someone who provides benefits to the employees of either that employer or that employer's associate under an arrangement between them and also not to any associates of these latterly mentioned employees.

Although it is not known how many journeys are undertaken by employees and associates as compared to the number of journeys undertaken by 'outsiders' it is accepted on the basis of the number of employees as compared to the population that the benefits are principally provided to outsiders.

Will documentary evidence of the employees expenditure be obtained from the employee?

Documentary evidence is defined in subsection 136(1) of the FBTAA as:

a document that would constitute written evidence of the expense obtained in a way described in Subdivision 900-E of the Income Tax Assessment Act 1997 if the expense were a work expense, and Division 900 of that Act applied to the person.

Employees seeking a reimbursement of their transport costs will be required to provide evidence of their expenditure and a declaration confirming their entitlement to receive the reimbursement.

Summary

As each of the requirements are satisfied the reimbursement of the employee's transport expenses will be an in-house expense payment fringe benefit.

3. Will the taxable value of the expense payment fringe benefits that arise under the arrangement for reimbursement of employees' public transport expenses be:

(a) calculated in accordance with subsection 22A(2) of the FBTAA as in-house residual expense payment fringe benefits; and

(b) reduced under section 62 of the FBTAA as in-house fringe benefits?

Subsection 22A(2) of the FBTAA states (as relevant here):

Subject to this Part, the taxable value in relation to a year of tax of an in-house residual expense payment fringe benefit (in this subsection called the "actual fringe benefit") provided during the year of tax is the amount that, if:

(a) the provision of the residual benefit to which the actual fringe benefit relates were an in-house residual fringe benefit (in this subsection called the "notional fringe benefit"); and

(b) the recipients contribution in relation to the notional fringe benefit were equal to the recipients expenditure reduced by whichever of the following amounts is applicable;

(i) the amount of the payment referred to in paragraph 20(a) reduced by the amount of the recipients contribution in relation to the actual fringe benefit;

(ii) the amount of the reimbursement referred to in paragraph 20(b);

would have been calculated under whichever of sections 48 and 49 is applicable as the taxable value… of the notional fringe benefit in relation to the year of tax.

As the benefit is an in-house residual expense payment fringe benefit, the taxable value of the expense payment fringe benefit will be calculated in accordance with subsection 22A(2) of the FBTAA.

Subsection 62(1) of the FBTAA states:

Where one or more eligible fringe benefits in relation to an employer in relation to a year of tax relate to a particular employee of the employer, the taxable value of that fringe benefit, or the sum of the taxable values of those fringe benefits, as the case may be, in relation to that year shall be reduced by:

(a) if the taxable value or sum of the taxable values does not exceed $1,000 - an amount equal to the taxable value or the sum of the taxable values; or

(b) in any other case - $1,000.

The term 'eligible fringe benefits' is defined under subsection 62(2) of the FBTAA to mean 'an in-house fringe benefit or an airline transport fringe benefit.

An 'in-house fringe benefit is defined under subsection 136(1) to mean:

(a) an in-house expense payment fringe benefit;

(b) an in-house property fringe benefit; or

(c) an in-house residual fringe benefit.

As the reimbursement is an in-house expense payment fringe benefit the taxable value will be reduced under section 62 of the FBTAA.

4. What type of benefit will arise from the use of a Corporate card to pay for the travel between home and work?

The use of a Corporate card will not be an expense payment benefit as it does not involve the payment of an obligation incurred by the employee, or a reimbursement of expenses incurred by the employee.

Section 45 of the FBTAA defines a residual benefit as a benefit that does not come within Subdivision A of Divisions 2 to 11 of the FBTAA.

In the National Australia Bank Ltd v. Federal Commissioner of Taxation 93 ATC 4914; (1993) 123 ALR 349, (the NAB Case), the National Australia Bank, (the Bank), authorised employees who worked specified shifts, to travel to and from work at the Banks expense. The Bank provided employees with Cabcharge vouchers which were debited to the Banks account each month.

Ryan J stated at ATC 4939:

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…

Ryan J then stated at 4940:

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 Act. I have also explained why the benefit is not an "expense payment fringe benefit" by virtue of any provision of Subdivision A of Division 5 of the Act. Since it has not been suggested to fall within Subdivision A of any of Divisions 2 to 4 or 6 to 77. it follows that it is a residual benefit by virtue of s. 45 of the Act.

The use of a Corporate card is similar to the use of a Cabcharge voucher in the NAB Case as you will be providing employees with a card that you have purchased and is registered in your name.

This view is confirmed in Taxation Ruling TR 1999/10 Income tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits, deductions and recoupments which provides guidance for the treatment of life gold passes and severance passes issued to Members of Parliament for income tax and fringe benefits tax purposes.

Paragraph 86 states:

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.

Therefore the benefit received by an employee who uses a Corporate card will be a residual benefit.

5. Will the use of a Corporate card to pay for the travel between home and work be an in-house residual fringe benefit?

Subsection 136(1) of the FBTAA defines an in-house residual fringe benefit, in relation to an employer to mean:

(a) where both of the following conditions are satisfied:

(i) the provider is the employer or an associate of the employer;

(ii) at or about the comparison time, the provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; or

(b) where all of the following conditions are satisfied:

(i) the provider is not the employer or an associate of the employer;

(ii) the provider purchased the benefit from the employer or an associate of the employer (which employer or associate is in this definition called the seller);

(iii) at or about the comparison time, both the provider and the seller carried on a business that consisted of or included the provision of identical or similar property principally to outsiders;

but does not include a benefit provided under a contract of investment insurance.

As the provider is the employer the use of a Corporate card to pay for the travel between home and work will be an in-house residual fringe benefit if the following conditions are met:

(a) the residual benefit is a residual fringe benefit;

(b) the employer carried carried on a business that consisted of, or included, the provision of identical or similar benefits principally to outsiders.

These criteria are discussed below.

(a) Is the residual benefit a residual fringe benefit?

Under the definition of fringe benefit in subsection 136(1) a benefit that is an exempt benefit will not be a fringe benefit.

The FBTAA specifically provides that a number of benefits will be exempt benefits. For the purpose of this ruling, the relevant exemption to consider is the exemption contained within subsection 47(6) of the FBTAA.

Subsection 47(6) states:

Where:

(a) a 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;

(A) a panel van or utility truck; or

(B) any 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.

As the travel is a residual benefit, it will be an exempt benefit if the following conditions are met:

(i) the benefit consists of the use of a motor vehicle

(ii) the benefit is provided to a current employee;

(iii) the motor vehicle is not one of those listed in paragraph 47(6)(aa);

(iv) the private use of the motor vehicle is restricted to:

· work related travel; and

· other private use that is minor, infrequent and irregular.

These conditions are discussed below:

(i) Will the benefit consist of the use of a motor vehicle?

'Motor vehicle' is defined under subsection 136(1) of the FBTAA as having 'the meaning given by subsection 995-1 of the Income Tax Assessment Act 1997'.

Subsection 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states 'motor vehicle means any motor-powered road vehicle (including a 4 wheel drive vehicle)'.

The work 'use' has a broad meaning. It is not restricted to situations where the employee has control of a vehicle. For example, the provision of transport on a bus consists of 'the use of a motor vehicle'.

In the NAB Case, Ryan J noted that the specific inclusion of 'a taxi let on hire to the provider' in paragraph 47(6)(aa) of the FBTAA indicates that the legislature considered 'use of a motor vehicle' could include a passenger's travel in a taxi. As a passenger's travel in a bus is comparable to a passenger's travel in a taxi, these comments support the conclusion that bus transportation can also involve the 'use of a motor vehicle'.

However, not all of the transport will involve the use of a motor vehicle. For example, neither a train nor a ferry will be a motor vehicle. Therefore, the exemption cannot apply in relation to travel on a train or ferry, but it may apply to the trips undertaken on a bus.

(ii) Will the benefit be provided to a current employee?

This condition is met as the transport is only provided to current employees.

(iii) Is the motor vehicle is one of those listed in paragraph 47(6)(aa)?

As a bus is not a taxi or a car this condition is met.

(iv) Will the private use of the motor vehicle be restricted to:

work related travel of the employee, and

other private use which is minor, infrequent and irregular?

Work related travel is defined under subsection 136(1) of the FBTAA as:

(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 Corporate arrangement employees will be required to provide a declaration that the only travel undertaken using the card has been between home and work. In addition, the employee will be required to provide you with a statement that sets out the trips that have been undertaken.

Therefore, the use of a Corporate card to travel between home and work on a bus will be an exempt benefit. As it is an exempt benefit it will not be a residual fringe benefit.

By contrast, the use of a Corporate card to travel on a train or ferry will not be an exempt benefit under subsection 47(6). Rather, it will be a residual fringe benefit.

(b) Does the employer carry on a business that consists of, or includes the provision of identical or similar benefits principally to outsiders?

For the same reasons as those discussed above in relation to the reimbursement of an employee's transport expenses it is accepted that this condition is satisfied.

Summary

Where a residual fringe benefit arises from the use of a Corporate card to travel between home and work, the residual fringe benefit will be an in-house residual fringe benefit. However, the use of a Corporate card to travel between home and work on a bus may be an exempt benefit.

6. Will the taxable value of the residual fringe benefits that arise under the arrangement for payment of employees' public transport expenses be:

(a) calculated in accordance with subsection 48 of the FBTAA as in-house residual expense payment fringe benefits; and

(b) reduced under section 62 of the FBTAA as in-house fringe benefits?

In calculating the taxable value of a residual fringe benefit the valuation rules in section 48 of the FBTAA are used where the benefit is a non-period benefit. If the benefit is a period benefit the valuation rules in section 49 of the FBTAA are used.

Section 149 of the FBTAA provides the test which is used to determine whether a benefit is provided during a period. Subsection 149(1) states:

[Provision for 1 day] For the purposes of this Act, a benefit shall be taken to be provided during a period if, and only if, the benefit:

(a) is provided, or subsists, during a period of more than 1 day; and

(b) is not deemed by a provision of this Act to be provided at a particular time or on a particular day.

However, subsection 46(2) of the FBTAA states that where a residual benefit (not being a residual benefit constituting either a lease or a licence in respect of property) is provided on a regular billing basis and identical benefits are provided to the public in the ordinary course of the provider's business, the provision of the residual benefit during each billing period constitutes a separate benefit deemed to have been provided at the time the payment in respect of each billing period becomes due and payable.

The relevant benefit in this case is the travel between home and work. As this does not involve a regular billing period the type of benefit will be determined by whether the trip lasts for more than one day.

As the trips will not last for more than one day the fringe benefits will be an in-house period residual fringe benefit and the taxable value will be determined under section 48.

As an in-house residual fringe benefit is an eligible benefit the value will be able to be reduced under section 62.