Edited version of private ruling

Authorisation Number: 1011794286262

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Ruling

Subject: FBT-Non-Profit Organisations-Exemption Capping Threshold

Question 1

For the purposes of subsection 5B(1E) of the Fringe Benefits Tax Assessment Act 1986 where an employee transfers during the FBT year from a Public Benevolent Institution to an entity which is a Public Benevolent Institution and a hospital; can the $30,000 capped FBT exemption threshold that applies to the old employer per employee continue to apply until the end of the FBT year to the new employer in relation to staff who transferred to the new employer?

Answer: No

This ruling applies for the following period

01 April 2011 to 31 March 2012

Relevant facts and circumstances

The old employer (the parent entity) is an incorporated association and operates an aged care business activity and a hospital business activity. The hospital business is operated through an entity (the new employer) that is a subsidiary incorporated association.

The predominant activity of the parent entity is the provision of aged care services. As a result, it is endorsed as a non hospital PBI entitled to a capped FBT exemption threshold of $30,000 per employee. The subsidiary entity is an entity which is a PBI and a hospital and has endorsement as an income exempt charity and deductible gift recipient from the Australian Taxation Office. The predominant activity of the subsidiary entity is a non-profit hospital business and therefore entitled to FBT exemption threshold of only $17,000 per employee.

Both the employers' status did not change during the FBT year.

Action has been taken for the parent entity to relinquish control of the hospital activity and transfer the business assets to the subsidiary. It is planned for the staff currently employed by the parent entity working in the hospital activity to be transferred from the parent entity to the subsidiary entity during the FBT year.

As outlined above the current employer is eligible for the capped FBT exemption threshold of $30,000 per employee as an endorsed PBI other than a hospital. The new employer the employees will transfer to during the FBT year is eligible for the $17,000 capped FBT exemption threshold as a PBI and a hospital.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 5B,

Fringe Benefits Tax Assessment Act 1986 subsection 5B(1B),

Fringe Benefits Tax Assessment Act 1986 subsection 5B(1C),

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

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

Fringe Benefits Tax Assessment Act 1986 section 57A ,

Fringe Benefits Tax Assessment Act 1986 subsection 57A(1),

Fringe Benefits Tax Assessment Act 1986 subsection 57A(4) and

Fringe Benefits Tax Assessment Act 1986 subsection 123C(1).

Reasons for decision

Question 1

Summary

Under subsection 5B(1E) of the FBTAA, employer Company B being a non profit hospital will not be entitled to the $30,000 capped exemption for each employee who transferred to their employment and who was provided with benefits by the old employer The Company A prior to the transfer during the FBT year. They will be entitled to only a $17,000 cap.

Detailed reasoning

Subsection 5B(1D) of the FBTAA requires an adjustment to be made to an employer's fringe benefits taxable amount for the year of tax where benefits have been provided to an employee in respect of their employment which are exempt benefits under section 57A of the FBTAA. Subsection 5B(1D) of the FBTAA requires that the employer's fringe benefits taxable amount be increased by the employer's 'aggregate non-exempt amount' for the year of tax.

The aggregate non-exempt amount for the year of tax is determined under the method statement in subsection 5B(1E) of the FBTAA.

Step 1 of the method statement determines the 'individual grossed-up non-exempt amount' for each employee.

Step 2(d) of the method statement, which is relevant in these circumstances, requires for each employee's individual grossed-up non-exempt amount to determine whether the employer is a hospital described in subsection 57A(4) of the FBTAA. If step 2(d) is satisfied, the individual grossed-up non-exempt amount is reduced by $17,000.

Where step 2 of the method statement does not apply, step 3 will apply to reduce the employee's individual grossed-up non-exempt amount by $30,000.

Step 4 of the method statement adds together the amounts calculated under steps 2 and 3 in relation to the employees of the employer. The total amount ascertained at step 4 is the employer's aggregate non-exempt amount for the year of tax concerned.

The subsidiary entity (the new employer) being non profit hospital for the whole of FBT year means that the step 1 individual grossed-up non-exempt amount for the year of tax would consist of only one category of benefits provided by it to its employee:

benefits provided to employees by an employer being a non profit hospital described in subsection 57A(4) of the FBTAA.

For an employee the benefits received from the new employer after an employee's transfer from the old employer to the new employer during the FBT year, all benefits provided to that employee by the new employer would be benefits received as a result of the employer being a hospital described in subsection 57A(4) of the FBTAA. The step 1 amount for this employee in relation to their employment with the new employer is an amount to which step 2(d) would apply. For this employee, Step 2 of the method statement will apply to reduce the individual grossed-up non-exempt amount by $17,000 only in relation the benefits received from the new employer.

As described in the facts, employees working in the hospital activity would continue being employed by the old employer until transfer to the new employer in the FBT year and would be employed by the new employer during the rest of the FBT year. These employees would be provided with benefits during the FBT year by two associated but separate/different employers with different FBT concession status. In these circumstances the old and new employers as associated but separate/different employers will be subject to FBT liability separately in relation to the benefits provided to these employees:

for these employees in relation to the benefits provided by the old employer, the step 1 amount can be described as an amount where the employer was not a hospital as described in subsection 57A(4) of the FBTAA for the year of tax: Step 2 does not apply. For these employees and the benefits provided to them by the old employer, Step 3 of the method statement will apply to reduce the individual grossed-up non-exempt amount by $30,000.

for these employees in relation to the benefits provided by the new employer, the step 1 amount can be described as an amount where the employer was a hospital as described in subsection 57A(4) of the FBTAA for the year of tax: Step 2 does apply. For these employees and the benefits provided to them by the new employer, Step 2 of the method statement will apply to reduce the individual grossed-up non-exempt amount by $17,000.

Accordingly, under subsection 5B(1E) of the FBTAA the old employer will be entitled to the $30,000 capped exemption for each employee who was employed by them until they transferred to the new employer. The new employer will be entitled to only the $17,000 capped exemption for each employee who transferred to them during the FBT year.

Summary:

The provision of benefits by the old and new employers to employees are treated separately. The provision of benefits to an employee by the old employer in excess of the $30,000 capping threshold amount and the provision of benefits by the new employer to a transferred employee in excess of the $17,000 capping threshold amount will be subject to FBT liability. Certain excluded benefits are not included in the capping threshold amounts.

The FBT cap that will apply to those employees who transferred to the new employer for the year FBT year ended 31 March 20xx will be $17,000. The new employer being a PBI and a hospital is entitled to a $17,000 capped exemption for each of its employees that it provided benefits to.

Note:

1. The new employer's situation is different to that in ATO Interpretative decision (ATOID) 2009/159. In ATOID 2009/159 there was only one employer whose status changed and in the new employer's situation there are two separate employers.

2. In respect of an employee that transfers to the new employer:

(a) the old employer is entitled to a $30,000 exemption cap for benefits it provided to the employee whilst was employed by the them; and

(b) the new employer is entitled to a $17,000 exemption cap for benefits it provided to the employee whilst employed by the new employer