Edited version of private ruling

Authorisation Number: 1011795570405

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Ruling

Subject: FBT Bicycles

Question 1

Will the provision of a number of bicycles for staff members be considered a fringe benefit as defined under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), where employees will be able to utilise the bicycles for both work and private purposes, including but not limited to improving employee wellbeing, home to work commuting, and personal shopping trips?

Answer

Yes

Question 2

If the provision of the bicycles is considered to be a fringe benefit, will it be considered an in-house fringe benefit and qualify for the reduction under section 62 of the FBTAA?

Answer

No

Question 3

If the provision of the bicycles is considered to be a fringe benefit, will it qualify for an exemption due to it being 'work-related preventative health care' under section 58M of the FBTAA?

Answer

No

Question 4

If the provision of the bicycles is considered to be a fringe benefit and not eligible for any exemption, would it form part of the employees individual fringe benefit amount under section 5E of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

year ending 31 March 2011

year ending 31 March 2012

year ending 31 March 2013

The scheme commences on:

1 April 2011

Relevant facts and circumstances

The employer has implemented a program where a number of bicycles are made available to staff.

The bicycles have been made available for two primary reasons:

· The bicycles are seen as a green option in comparison to the employer's fleet of motor vehicles. Bicycles have provided so as to assist in the goal of focusing on reducing the carbon footprint in the workplace.

· Employee Health - the bicycles are seen as an aid in improving employee wellbeing, through an Increase in fitness. Improving employee wellbeing is seen to be of benefit to the workplace, through a potential decrease in employee absenteeism.

A number of bicycles and helmets have been purchased at a cost of $XYZ.

Additional helmets have been purchased .The use of these helmets is restricted to a set group of employees. It was intended that the helmets be used for work purposes only, however it is acknowledged that the holders of these helmets are also able to utilise the bicycles for private purposes.

Bicycle racks have been purchased to enable the protected storage of the bicycles when they are not in use.

Operational costs incurred during the year for ongoing maintenance and repairs are not yet known.

The bicycles are provided for the following uses:

· Use for short trips by Staff for work purposes. For example, they may be used to transport a staff member to an offsite business meeting; or to transport them from one building to another to attend a training session; or similar event;

· Use for employee health. For example, an employee may utilise a bicycle during their lunch break to improve fitness.

· Use for personal purposes.

The bicycles are not allocated to a specific employee but are pooled. A logbook system has been implemented to track usage time and purpose. The log simply records who is utilising a bicycle, for how long, and for what purpose. The identification of "Purpose" in the log is limited to a simple 'work versus "private" use break-up only.

Therefore, the log will provide some degree of identification of "work" versus "personal" use split on both an organisational level, and on an individual staff member level.

Very early indications of use suggest the bicycles are likely to be used repetitively by a core group of users, with other ad-hoc users utilising them from time to time.

Again, it is very early, but the log to date show the bicycles are being utilised approximately 50% of the time for work purposes.

The employer is not in the business of providing bicycles to ordinary members of the public.

Relevant legislative provisions

Section 5E FBTAA

Section 45 FBTAA

Section 48 FBTAA

Section 49 FBTAA

Section 58M FBTAA

Section 62 FBTAA

Subsection 136(1) FBTAA

Reasons for decision

Question 1

Summary

As the provision of bicycles allows employees to utilise the bicycles for private purposes, a fringe benefit being an external residual fringe benefit will arise.

The taxable value of the external fringe benefit will be determined as either a period or non period residual fringe benefit depending on the usage of the bicycles.

Detailed reasoning

Fringe Benefit

ATO ID 2007/194 provides a description of what constitutes a fringe benefit, it states the following:

The definition of a fringe benefit contained within subsection 136(1) of the FBTAA requires, amongst other things, that in order for a benefit to be a fringe benefit that the benefit be provided to 'the employee or an associate of the employee' and that the benefit be provided 'in respect of the employment of the employee'.

In determining whether a 'fringe benefit' has been provided in these circumstances the Full Federal Court decision in Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16; 2007 ATC 4236; 65 ATR 369 is authority for the requirement that a particular employee must be identified.

Edmonds J provided reasons for decision, with which Stone and Allsop JJ agreed in separate judgements. His Honour said that it was necessary, as Kiefel J had held in Essenbourne, Pty Ltd v. Federal Commissioner of Taxation [2002] FCA 1577; 2002 ATC 5201; 51 ATR 629 to identify a particular employee in respect of whose employment a benefit is provided.

An analogy was drawn that in terms of an associate of a natural person, it would not be possible to conclude that a person is a relative without knowing the identity of the relevant employee. On that basis, this was strongly suggestive of the reference to 'the employee' being a reference to a particular employee.

Under the arrangement employee's have the option of using bicycles owned by the employer. Given that only employees can use these bicycles (and when not in use stored at the employer's business premises) it can be concluded that the bicycles are provided 'in respect of employment'.

However as explained in ATO ID 2007/194 for a fringe benefit to arise there has to be an identifiable employee in receipt of a benefit. Although making pooled bicycles available for private use gives employees access to the bicycles, a fringe benefit will only arise when an employee actually uses a bicycle and can be identified.

This can be contrasted with the availability of pooled cars. Section 7 of the FBTAA deems a car benefit to arise when a car is made available for private use regardless of whether it is actually used privately. As a result any employee allowed to use the pooled car will be treated as being in receipt of the car benefit.

There are no such deeming provisions in respect of bicycles, so a fringe benefit will only arise each time an individual employee makes use of the bicycles for a private purpose.

A residual fringe benefit is a benefit which is not subject to the main categories of fringe benefits according to paragraph 18.1 of the Fringe benefits tax: a guide for employers NAT 1054 (FBT employers guide), it states:

Essentially, these are the fringe benefits that remain or are left over because they are not one of the more specific categories of fringe benefit.

A residual fringe benefit could include providing services (such as travel, or the performance of professional or manual work) or the use of property.

In this case the employees are getting the use of property (being the bicycles) and the private use of the bicycles will be regarded as a residual fringe benefit.

Valuing a residual fringe benefit

FBT employers guide provides guidance in terms of valuing a residual fringe benefit. In paragraph 18.3 it states that:

For valuation purposes, there are two types of residual fringe benefits: in-house residual fringe benefits and external residual fringe benefits. Each type of benefit has specific valuation rules.

An in-house residual fringe benefit is defined according to subsection 136(1) of the FBTAA. It states that:

in-house residual fringe benefit , in relation to an employer, means a residual fringe benefit in relation to the employer:

(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.

A description of what constitutes an external residual fringe benefit is provided according to FBT employers guide. Paragraph 18.5 states:

Any residual benefit that is not an in-house residual fringe benefit is an external residual fringe benefit.

Commonly, an external residual fringe benefit arises where:

· You provide the residual benefit but the benefit is not of a kind provided to the public in the ordinary course of business, for example, a hairdresser provides his employees with health insurance cover under a group policy taken out for the benefit of the employees. Or

· You arrange for the residual fringe benefit to be provided by a third party, for example, a solicitor arranges for an accountant to provide discounted services to the solicitor's employees,

Based on the employer not being in the business of providing bicycles to ordinary members of the public, the benefit being provided will not constitute an in-house fringe benefit. The benefit which is being provided will instead constitute an external residual fringe benefit for valuation purposes.

Taxable value of External Residual fringe benefit

FBT employers guide provides guidance in relation to the taxable value of the external residual fringe benefits. Paragraph 18.5 states:

When you purchased the service, right, privilege, etc under an arm's length transaction, the taxable value is the cost price to you, less any employee contribution.

If the above rule does not apply, the taxable value is the amount the employee could reasonably be expected to obtain the benefit under an arm's length transaction, reduced by any amount paid by the employee.

An external residual fringe benefits taxable value may be either period or non-period. Section 50 of the FBTAA provides guidance in relation to the taxable value of an external period residual fringe benefit, it states that:

Subject to this Part, the taxable value of an external non-period residual fringe benefit in relation to an employer in relation to a year of tax is:

(a) where the provider was the employer or an associate of the employer and the benefit was purchased by the provider under an arm's length transaction - the amount paid or payable by the provider for the benefit;

(b) where the provider was not the employer or an associate of the employer and the employer, or an associate of the employer, incurred expenditure to the provider under an arm's length transaction in respect of the provision of the benefit - the amount of that expenditure; or

(c) in any other case - the notional value of the benefit at the comparison time; reduced by the amount of the recipients contribution.

Section 51 of the FBTAA provides guidance in relation to the taxable value of an external non-period residual fringe benefit, it states that:

Subject to this Part, the taxable value of an external period residual fringe benefit in relation to an employer in relation to a year of tax is:


(a) where the provider was the employer or an associate of the employer and the recipients overall benefit was purchased by the provider under an arm's length transaction - the amount paid or payable by the provider in respect of the recipients current benefit;

(b) where the provider was not the employer or an associate of the employer and the employer, or an associate of the employer, incurred expenditure to the provider under an arm's length transaction in respect of the provision of the recipients current benefit - the amount of that expenditure; or

(c) in any other case - the notional value of the recipients current benefit;

reduced by the amount of the recipients contribution insofar as it relates to the recipients current benefit.

A period residual fringe benefit is defined in subsection 136(1) of the FBTAA as a residual fringe benefit that is provided over a period. A non-period residual fringe benefit is not defined but would be any residual benefit that does not meet the definition of a period residual fringe benefit.

Whether or not the benefit is a period or non-period benefit would depend on the usage of a bicycle by the employee (e.g. a bicycle taken home overnight and returned the next day would be over a period whilst one used during a lunch break would not be).

However regardless of whether the benefit is a period or non-period residual fringe benefit, the taxable value will be the notional value of the recipient's current benefit. This is because the benefit is the use of property and the employer has not purchased the use of the bicycles but purchased them outright.

Notional value is defined under subsection 136(1) of the FBTAA as:

in relation to the provision of property or another benefit to a person, means the amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arm's length transaction.

Therefore the taxable value will be the amount that an employee would have had to pay for the use of the bicycle under an arm's length transaction.

In determining what might constitute an arm's length transaction Australian Taxation Office Interpretative Decision ATO ID 2005/156 states:

The expression 'at arm's length' is defined in The CCH Macquarie Concise Dictionary of Modern Law , 1988, CCH Australia Ltd/ Macquarie Library Pty Ltd, Sydney as meaning that the parties to a transaction are not connected in such a way as to bring into question the ability of one to act independently of the other.

In Granby Pty Ltd v. FCT (1995) 30 ATR 400; 95 ATC 4240, where the expression 'dealing with each other at arm's length' in section 160ZH of the Income Tax Assessment Act 1936 was in question, Lee J said (at ATR 403; ATC 4243):

   The expression "dealing with each other at arm's length" involves an analysis of the manner in which the parties to a transaction conducted themselves in forming that transaction. What is asked is whether the parties behaved in the manner in which parties at arm's length would be expected to behave in conducting their affairs. Of course, it is relevant to that enquiry to determine the nature of the relationship between the parties, for if the parties are not parties at arm's length the inference may be drawn that they did not deal with each other at arm's length.

Question 2

Summary

The provision of bicycles by the employer will not meet the criteria of section 62 of the FBTAA and thus the applicant will not qualify for the exemption due to the benefit not constituting an in-house fringe benefit.

Detailed reasoning

Section 62 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 the 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.

In this section, "eligible fringe benefit" means:

(a) an in-house fringe benefit; or

(b) an airline transport fringe benefit.

In addition the FBT employers guide provides a description of the application of section 62 of the FBTAA and chapter 19.5 states:

If you provide one or more in-house fringe benefits to an employee during the FBT year, you may reduce the aggregate of the taxable values of the in-house benefits by $1,000.

Broadly, in-house fringe benefits are benefits that are identical or similar to the benefits you provide to customers in the ordinary course of business.

This concession applies only to:

· In-house expense payment benefits

· In-house property fringe benefits

· In-house residual fringe benefits

· Airline transport fringe benefits

Due to the employer not being in the business of providing bicycles to ordinary members of the public as well as not providing in house fringe benefits to its employees, the provision of bicycles will not meet the criteria of section 62 of the FBTAA and thus the applicant will not qualify for the reduction.

Question 3

Summary

The residual fringe benefit being provided to the employees does not qualify for an exemption under section 58M of the FBTAA due to the benefit not meeting the definition of work-related "preventative health care".

Detailed reasoning

An exemption to a residual benefit is provided in paragraph 58M(1)(c) of the FBTAA if it relates to the following:

(i) a work-related medical examination of the employee;


(ii) work-related medical screening of the employee;


(iii) work-related preventative health care of the employee;


(iv) work-related counselling of the employee or of an associate of the employee; or


(v) migrant language training of the employee or of an associate of the employee;

the benefit is an exempt benefit.

"Work-related preventative health care" is defined in Subsection 136(1) of the FBTAA, it states that:

work-related preventative health care, in relation to an employee of an employer, means any form of care provided by, or on behalf of, a legally qualified medical practitioner, nurse, dentist or optometrist wholly or principally in order to prevent the employee suffering from work-related trauma, but does not include a form of care that is not made available generally to all employees of the employer:

(a) who are likely to be at risk of suffering from similar work-related trauma;

(b) who perform the duties of their employment at or near the place where the employee performs the duties of his or her employment; and

(c) whose duties of employment are similar to those of the employee.

One of the primary reasons for the provision of bicycles to the employees is that it will "aid in improving employee wellbeing, through an increase in fitness". However this does not relate to a form of care being provided on behalf of a legally qualified medical practitioner, nurse, dentist or optometrist as required by the definition of 'work-related preventative health care' contained in subsection 136(1) of the FBTAA.

As a result the exemption contained in section 58M of the FBTAA cannot apply where an employee chooses to use a bicycle.

However if a legally qualified medical practitioner, nurse, dentist or optometrist instructs a specific employee, under a work-related preventative health care program, to use a bicycle as part of the care they are providing to that employee, then the use of the bicycle by that employee as instructed may be exempt.

Question 4

Summary

The provision of bicycles by the employer will form part of the employee's individual reportable fringe benefits according to section 5E of the FBTAA and needs to be taken into account when determining each employee's individual fringe benefits amount.

Detailed reasoning

Section 5E of the FBTAA provides a description of what constitutes an employees individual fringe benefit amount. Subsection 5E (2) states that:

The 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 and is provided in respect of the employment other than an excluded fringe benefit.

Once again we can contrast the use of the bicycles with the deeming provisions in respect of a car fringe benefit contained in section 7 of the FBTAA and the availability of pooled cars.

Fringe Benefit Tax Regulations 1992 regulation excludes a car benefit arising from in respect of pooled cars from being included in the employee's individual fringe benefit amount. No such exclusion exists in respect of any other pooled benefit.

Therefore when an employee uses a bicycle privately the taxable value of the fringe benefit will form part of that employee's individual fringe benefit amount.

Whether a reportable fringe benefit amount will arise will depend on the total of each employee's individual fringe benefit amount.

Subsection 135P(1) of the FBTAA provides guidance in relation to an employee's reportable fringe benefits amount. It states in part:

An employee has a reportable fringe benefits amount for a year of income in respect of the employee's employment by an employer if the employee's individual fringe benefits amount for the year of tax ending on 31 March in the year of income in respect of the employee's employment by the employer is more than $2,000.

FBT employers guide provides clarification regarding a reportable fringe benefit amount. Chapter 5.4 states in part:

Where an employee's individual fringe benefits amount is $2,000 or less, you do not have to report an amount on the employee's payment summary. . .

The provision of bicycles by the employer will form part of the employee's individual reportable fringe benefits according to section 5E of the FBTAA and needs to be taken into account when determining each employee's individual fringe benefits amount. If that amount exceeds $2,000 a reportable fringe benefit amount will arise.