Edited version of private ruling

Authorisation Number: 1011821918475

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Ruling

Subject: Fringe benefits tax: In house expense payment benefits

Question 1

Do in-house residual expense payment fringe benefits arise for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) when you reimburse your employees for private expenses purchased from an associate?

Answer: Yes

Question 2

Does subsection 22A(2) of the FBTAA apply?

Answer: Yes

Question 3

Are the taxable values of the provision of the above benefits reduced under section 62 of the FBTAA?

Answer: Yes

This ruling applies for the following periods:

Year ending 31 March 2013

Year ending 31 March 2014

Year ending 31 March 2015

Year ending 31 March 2016

The scheme commences on:

1 April 2008

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 offer your employees the ability to enter into effective salary sacrifice arrangements whereby you reimburse your employees for the cost of private expenses purchased from an associate up to a certain amount per employee per year.

Employees will provide you with a copy of the invoice they receive from the associate prior to the lodging of your FBT return.

This ruling is given on the basis of the facts stated in the description of the scheme as set out above. Any material variation from these facts (including any matters not stated in the description above and any departure from these facts) will mean that the ruling will have no effect. No entity will then be able to rely on this ruling as the Commissioner will consider that the scheme has been implemented in a way that is materially different from the scheme described.

Relevant provisions:

Fringe Benefits Tax Assessment Act 1986 Section 20.
Fringe Benefits Tax Assessment Act 1986 Subsection 22A(2).
Fringe Benefits Tax Assessment Act 1986 Section 40.
Fringe Benefits Tax Assessment Act 1986 Section 45.
Fringe Benefits Tax Assessment Act 1986 Section 62.
Fringe Benefits Tax Assessment Act 1986 Subsection 136(1).
Fringe Benefits Tax Assessment Act 1986 Section 156.

Explanation: (This does not form part of the notice of private ruling)

Question 1

Do in-house residual expense payment fringe benefits arise for the purposes of the FBTAA when you reimburse your employees for private expenses purchased from an associate?

The term 'in-house residual expense payment fringe benefit' is defined under subsection 136(1) of the FBTAA as:

an expense payment fringe benefit in relation to the 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 an 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 a 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:

i. 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

ii. 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) Is the benefit an expense payment fringe benefit

Section 20 of the FBTAA describes the circumstances under which an expense payment benefit will arise as follows:

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.

The payments made to the employees will be a reimbursement in whole, or in part of the expenditure incurred by the employee in purchasing private expenses from an associate. As this comes within paragraph 20(b) the benefit will be an expense payment fringe benefit.

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

For the benefit to be an in-house residual expense payment fringe benefit the expenditure must relate to a residual benefit which is defined in section 45 of the FBTAA to be a benefit that is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA.

As the private expense does not come within Divisions 2 to 11, it will be a residual benefit.

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

· Is the provider of the residual benefit the employer or an associate of the employer?

The provider of the residual fringe benefit is an associate.

· Does the associate carry on a business that consists of the provision of identical or similar benefits principally to outsiders?

The associate is carrying on a business consisting of the provision of identical benefits principally to outsiders.

(d) Will documentary evidence of the employee's 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.

You advise that employees will provide you with copies of their private expense bills in order to make a reimbursement claim.

Therefore as all the conditions have been met the reimbursement of an employee's private expense will be an in-house residual expense payment fringe benefit.

Question 2

Does subsection 22A(2) of the FBTAA apply?

Subsection 22A(2) of the FBTAA provides the method for calculating the taxable value for 'in-house residual expense payment fringe benefits'.

As the reimbursement of an employee's private expense has been accepted as an in-house residual expense payment fringe benefit, subsection 22A(2) of the FBTAA will apply in calculating the taxable value.

Question 3

Can the taxable values of any fringe benefits arising reduced under section 62 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) of the FBTAA 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 come within section 62 of the FBTAA.

However, it should be noted that where an employee receives more than one eligible benefit the reduction is not applied to each benefit. Rather, the reduction applies to the total value of the eligible fringe benefits provided to an employee.