Edited version of private ruling

Authorisation Number: 1011790855616

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Ruling

Subject: Travel reimbursement

Question

Are you entitled to a deduction for the contribution your employer required you to pay in order to reduce their Fringe Benefits Tax (FBT) liability on the benefit they provided with respect to your overseas trip?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commences on:

1 July 2010

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 an Australian resident.

Your employment position requires that you travel overseas to Country A on a regular basis to undertake employment duties.

The dates of your trips and the time you are required to remain overseas are determined by your employer.

Your employer approved your attendance at a conference in Country B.

You departed from Australia and travelled to Country C at your employer's expense. From there you flew to Country B at your expense.

You decided to take leave in order to attend the conference, and then to travel and visit friends.

At the end of your leave, you travelled from Country B to Country D at your expense.

Your employer then paid for the flight from Country D to Country A, and the return flight

from Country A back to Australia.

You paid your employer an amount for an 'employee contribution required to reduce Fringe Benefits Tax on your overseas trip'.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 51AJ.
Income Tax Assessment Act 1997 Section 8-1.
Fringe Benefits Tax Assessment Act 1986 Subsection 136(1).

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

The definition of a fringe benefit within subsection 136(1) of the Fringe Benefits Tax Assessment Ac 1986 provides that a fringe benefit will arise where the following circumstances exist:

(a) A benefit is provided to an employee, or an associate of an employee

(b) The benefit is provided by the employer, an associate of the employer, or by a third party under an arrangement with the employer, or an associate of the employer

(c) The benefit is provided in respect of the employment of the employee

(d) The benefit is not one of one of the exempt benefits.

FBT is payable by an employer on a fringe benefit provided.

The FBT may be reduced (possibly to nil) in certain circumstances including:

· where the benefit provided would have been tax deductible to the employee (the 'otherwise deductible' rule);

· obtaining an employee contribution towards the cost of providing the fringe benefit

Under the 'otherwise deductible' rule, where an employee pays an expense for an employee and the employee would have been able to claim a tax deduction for the full amount of the expense if they had incurred it themselves, the employer's FBT liability would be reduced to nil.

In your case, your employer required you to pay an employee contribution with regards to the benefit they provided for your overseas trip. This was because they wished to reduce the FBT payable on the benefit.

If your employer believed that the expense they paid was totally work related, then there would be no need for them to ask you for an employee contribution as their FBT liability would already have been reduced to nil due to the operation of the 'otherwise deductible' rule. Therefore, they must consider that there was a private component with respect to the benefit they provided.

Section 51AJ of the Income Tax Assessment Act 1936 (ITAA 1936) states that an employee is not entitled to an income tax deduction for a contribution to a fringe benefit to the extent that the contribution is, in effect, a payment for the private element of the benefit.

Also, a deduction is not allowable under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), the general deduction provision, if the expense is private in nature.

It is acknowledged that you do not believe that there was any private element with respect to the benefit provided by your employer. However, this is not reflected in the fact that your employer has required you to make an employee contribution. Your employer's actions indicate that there was a private element to the benefit and this is the reason for the contribution. Therefore, the contribution is considered to be private in nature and therefore not deductible under section 8-1 of the ITAA 1997. Also, a deduction would be prevented by the operation of section 51AJ of the ITAA 1936.

Other information

Your contention that there was no private element with respect to the benefit provided by your employer is an issue dealing with the FBT payable on the benefit. As FBT is payable by the employer, it is an issue on which we could only provide a private ruling to your employer. Therefore, to pursue that issue you would have to ask your employer to apply for a private ruling on whether the 'otherwise deductible' rule would reduce their FBT liability on the benefit to nil.

The private ruling edited version you referred to in your application was a ruling provided to an employer on whether the 'otherwise deductible' rule reduced their fringe benefits tax liability to nil. As discussed above, this is an issue that must be dealt with in a private ruling for your employer, not yourself.