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Ruling

Subject: Fringe benefits tax

Question 1

Will the amount that represents a reasonable food component of a living-away-from-home allowance for expatriate employees as published by the ATO each year, be the exempt food component of the allowance paid to the employees in accordance with section 31(a)(ii) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

Question 2

Under section 26 of the Fringe Benefits Tax Assessment Act 1986 can the taxable value of non-remote area housing fringe benefits provided by the employer be calculated as follows?

[Weekly market rent on 1 March 201X ÷ 7 days x no of relevant days]

plus [weekly market rent on 1 March 201Y ÷ 7 days x no of relevant days]

minus the after tax contribution made by the employee. (Please note X + 1 = Y)

Answer

Yes

Question 3

In order to determine the taxable value of car parking fringe benefits under section 39C of the Fringe Benefits Tax Assessment Act 1986, can the employer establish the number of car parking fringe benefits by using the number of nights the car is garaged at home?

Answer

Yes

Question 4

Do medical report expenses paid for by the employer fall within the definition of a benefit under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 5

Does the payment of medical expenses fall within the definition of fringe benefit under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

The scheme commences on:

1 April 2011

Relevant facts and circumstances

Living-away-from-home allowance

Every year at a particular time of the year the employer sends some employees to reside and work in an area for several weeks.

The employer pays them an allowance which is indexed in accordance with the CPI food index.

The allowance is mainly for food. It may have a small portion for expenses other than food, but this small portion is minimal and not determinable.

It is paid in the nature of compensation for total food costs incurred because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment.

There was no tax consideration when it was first introduced.

The employer has included these allowances as living-away-from-home allowances (LAFHA) in its previous fringe benefits tax (FBT) returns.

The calculation of the taxable value in the previous FBT years was:

Total allowance received by the employee - (reasonable weekly rate as per ATO expatriate employee yearly publications + $42) x total number of weeks.

The accommodation provided has several rooms and each room has several sleeping beds. It has its own kitchen.

The employer has been receiving LAFHA declaration forms and will obtain them again.

Non-remote housing fringe benefits

The employer does not use the indexation method for calculating the taxable value of housing fringe benefits. The employer has been using the market valuation method.

Every year the employer receives a market rental report from a registered valuer for its non-remote properties. This market rental report contains the weekly market rent on 1 March every year.

Car parking fringe benefits

The employer has car parking spaces for the cars used by a particular group of employees.

A specific space might be allocated to a car for the groups.

In the 2011 FBT year the employer used the average cost method and the statutory formula method to calculate car parking fringe benefits.

Employees hurt on duty

The employer has employees who are excluded from the provisions under the Workers' Compensation Act 1987.

Under other guidelines, if one of these employees or ex-employees had a work-related accident after a specific date, the employer had a duty to ascertain whether he or she was injured as a result of work.

If another class of employees had a work-related injury prior to this date, the employer was required to pay for the medical costs. The employer is currently reimbursing the medical expenses of ex-employees who fall within this category. This requirement is outlined under other guidelines.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 31,

Fringe Benefits Tax Assessment Act 1986 Section 26,

Fringe Benefits Tax Assessment Act 1986 Section 58J and

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1).

Reasons for decision

All references made in these reasons for decision are to the Fringe Benefits Tax Assessment Act 1986 (FBTAA) unless otherwise stated.

Question 1

Summary

The amount that represents a reasonable food component of a LAFHA for expatriate employees as published by the ATO each year, will not be the exempt food component under section 31(a)(ii). This is because the employer is compensating the employees for their total food costs.

Detailed reasoning

As is applicable, under paragraph 31(a) the taxable value of a LAFHA fringe benefit in relation to a year of tax is:

(a) if the fringe benefit is covered by subsection 30(1) - the amount of the recipients allowance reduced by:

a. …

b. any exempt food component

In order to determine the exempt food component we must first determine the amount of the food component of the allowance.

Food component is defined in subsection 136(1) as follows:

In relation to the recipients allowance in relation to a living-away-from-home allowance fringe benefit in relation to an employee of an employer, means so much (if any) of the recipients allowance as it would be concluded is in the nature of compensation for expenses that the employee might reasonably be expected to incur, in respect of the recipients allowance period, in respect of food or drink for eligible family members.

Miscellaneous Taxation Ruling MT 2040 sets out what is considered to be a reasonable food component for expatriate employees. This has been up dated each FBT year by way of a Tax Determination.

Paragraph 4 of MT 2040 states the following in relation to the determination of what is a reasonable food component for expatriate employees:

Included in the ABS survey were amounts expended on all food and drink, including meals in restaurants, hotels, clubs etc., snacks and take-away food, and alcoholic beverages. This office has taken the results of that survey as they apply to the weekly spending on food and drink (including alcoholic drink) of families within the highest decile of household income groups, and applied an indexation factor to determine the reasonable food component for relevant years of tax. (The highest decile was chosen because expatriate employees are likely to be among the higher salary earners and expatriate families will tend to have a higher cost of living than their more settled Australian counterparts.)

Therefore it is necessary to determine whether that amount that is considered reasonable for expatriates is also reasonable for the employees residing at Locations A and B who are not expatriates.

LAFHA is generally paid where employees are away from home for longer periods of time as compared to travel allowance which is generally paid for shorter periods of time. Thus the 'reasonable' amounts for food for travel allowance set out by the Commissioner are generally higher than for LAFHA. Consequently, travel allowance rates are not always a good indicator of what is reasonable when a person is living away from home unless they are in similar conditions.

The employees who are living away from home will be in accommodation that has a kitchen and will therefore be able to prepare their own meals.

However, they will be in an area at a time when the area has many tourists and holiday makers. Consequently, it is likely that the cost of food would be higher than in an area not affected by high rates of tourism.

Therefore, for the purposes of establishing the exempt food component the employer may use the reasonable food component published by the ATO for expatriate employees.

The next step is to establish the amount of the exempt food component. Exempt food component is defined in subsection 136(1):

In relation to a living-away-from-home allowance fringe benefit in relation to an employee of an employer, in relation to a year of tax, means:

(a) where the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out particulars of:

i. the employee's usual place of residence during the recipients allowance period; and

ii. the place at which the employee actually resided during the recipients allowance period;

whichever of the following is applicable:

iii. where the food component of the recipients allowance has been determined by allowing for the whole or a part of the amount (which whole or part is in this definition referred to as the deducted home consumption expenditure) of the expenditure that might reasonably be expected to have been incurred by the employee, in respect of the recipients allowance period, in respect of food or drink for eligible family members if the eligible family members had resided at their usual place of residence during the recipients allowance period;

1. if the deducted home consumption expenditure is not less than the sum of the statutory food amounts in respect of eligible family members in respect of the recipients allowance period - the food component of the recipients allowance; or

2. in any other case - the amount ascertained in accordance with the formula:

A - (B - C)

Where:

A is the food component of the recipients allowance;

B is the sum of the statutory food amounts in respect of eligible family members in respect of the recipients allowance period; and

C is the deducted home consumption expenditure;

iv. where subparagraph (iii) does not apply - the food component of the recipients allowance reduced by the sum of the statutory food amounts in respect of eligible family members in respect of the recipients allowance period; or…

Where a LAFHA fringe benefit includes compensation for the employee's total food costs, the value of the exempt food component is the amount of the food component less the statutory food amount.

The following example is provided paragraph 6 of MT 2040:

In applying the living-away-from-home allowance rules to expatriate employees working in Australia during the year of tax ended 31 March 1988, a family consisting of 2 adults and 2 children under 12 will be treated as spending $188 per week on food and drink. That is, $188 per week of a living-away-from-home allowance benefit received by an expatriate employee in Australia with a spouse and 2 children under 12 will be treated as the food component of the allowance, on the basis that it was intended to cover the total cost of the family's weekly food bill. In that case, the exempt food component would be $188 minus $126 ($42 + $42 + $21 +$21), i.e., $62, with the remaining $126 of the food component being exposed to fringe benefits tax.

The employer is compensating its employees for all of their food costs whilst living away from home. Therefore the exempt food component is not the same as the reasonable food component published by the ATO for expatriate employees. It will be that reasonable food component less the statutory food amount.

Question 2

Summary

The taxable value of a non-remote area housing fringe benefit provided by the employer can be calculated in accordance with the formula provided as it is based on the market value of the employee's current housing right.

Detailed reasoning

The taxable value of housing fringe benefits is calculated in accordance with section 26. As is relevant, subsection 26(1) states:

Subject to this Part, the taxable value of a housing fringe benefit provided in respect of the employment of an employee in relation to a year of tax is:

(a)…

(b)…

(c) in any other case - the amount calculated in accordance with the formula:

AB

C

Where:

A is the statutory annual value of the recipients current housing right;

B is the number of whole days in the tenancy period; and

C is the number of days in the year of tax;

reduced by the recipients rent.

Under subsection 26(2):

For the purposes of the application of subsection (1) in relation to a housing fringe benefit in relation to an employer in relation to a year of tax (in this subsection referred to as the "current year of tax"), the statutory annual value of the recipients current housing right is:

if the current year of tax is a base year of tax in relation to the recipients current housing right - the amount calculated in accordance with the formula:

AB

C

Where:

A is the market value of the recipients current housing right;

B is the number of days in the current year of tax; and

C is the number of whole days in the tenancy period;

in any other case…

Under paragraph 26(3)(aa) the employer may elect that each year a housing fringe benefit is provided is a base year. The employer has stated that it does not use the indexation method but receives an annual market valuation from a third party. Since the employer is electing each year as a base year, the formula in paragraph 26(2)(a) must be applied to determine the statutory annual value of the recipient's current housing right.

Where the employer has provided the housing fringe benefit for the whole year, the statutory annual value of the recipient's current housing right will simply be the market value of the accommodation for the year.

The right to occupy the unit of accommodation is valued according to what it would command for rent in an open market situation, without taking into account any special employment conditions or associated expenses of the occupant that might be paid by another person. The object is to ascertain the market rental value by reference to the occupied property, and to disregard any matters particular to the person or people who occupy it.

In normal valuation practice, the market rental is what a willing but not anxious person would be prepared to pay the owner to occupy the particular property in its existing condition if it were placed on the open market for rent. Ordinarily, market rental is ascertained by comparing it with similar properties, on the basis that the best evidence of the market rental value of a property is found by examining rents obtained for comparable properties in the locality.

The employer has been obtaining a market valuation from a third party for the properties that it provides. This market valuation may be used in order to determine the statutory annual value of the recipient's current housing right.

Once this has been determined the employer must apply this amount to the formula in paragraph 26(1)(c) to determine the taxable value. The formula that the employer has provided is consistent with this. Consequently, the employer may use this formula to determine the taxable value of a non-remote housing fringe benefit.

Question 3

Summary

The employer can establish the number of car parking fringe benefits by using the number of nights the car is garaged at home in order to determine the taxable value of car parking fringe benefits under section 39C.

Detailed reasoning

The employer has car parking spaces that are allocated to cars used by specialist groups. There are detailed records of the number of nights that the particular car is at the employee's residence.

The commercial parking station method under section 39C states that the taxable value of a car parking fringe benefit on a day in the FBT year is equal to: 

(a) if, on that day, there is only one commercial parking station located within a 1 km radius of any of those premises - the lowest fee charged by the operator of the parking station in the ordinary course of business to members of the public for all-day parking on that day; or

(b) if, on that day, there are 2 or more commercial parking stations located within a 1 km radius of any of those premises - the lowest fee charged by any of the operators of those parking stations in the ordinary course of business to members of the public for all-day parking on that day;

reduced by the recipients contribution.

This means that on each day that a car parking fringe benefit exists, the employer must:

· record the lowest fee all-day parking fee charged on that day by any commercial parking station within one kilometre of the premises where the parking is provided, and

· apply that rate to value the car parking fringe benefit on that day.

For the FBT year therefore, the employer must establish the number of days that a car parking fringe benefit existed.

A car parking fringe benefit will exist on a day if all of the conditions in subsection 39A are satisfied:

(a) during the period or periods, a car is parked on one or more premises of a person (the provider), where:

(i)  the premises, or each of the premises, on which the car is parked are business premises, or associated premises, of the provider; and

(ii) a commercial parking station is located within a 1 km radius of the premises, or each of the premises, on which the car is parked; and

(iii) the lowest fee charged by the operator of any such commercial parking station in the ordinary course of business to members of the public for all-day parking on the first business day of the FBT year is more than the car parking threshold;

(b) the total duration of the period or periods exceeds 4 hours;

(c) any of the following applies:

(i)  a car benefit relating to the car is provided on that day to an employee or an associate of an employee in respect of the employment of the employee;

(ii)  the car is owned by, or leased to, an employee or an associate of an employee at any time during the period or periods;

(iii) the car is made available to an employee or an associate of an employee at any time during the period or periods by another person, where:

(A) the other person is neither the employer of the employee nor an associate of the employer of the employee; and

(B) the other person did not make the car available under an arrangement to which the employer of the employee, or an associate of the employer of the employee, is a party;

(d) the provision of parking facilities for the car during the period or periods is in respect of the employment of the employee;

(e) on that day, the employee has a primary place of employment;

(f)  during the period or periods, the car is parked at, or in the vicinity of, that primary place of employment;

(g) on that day, the car is used in connection with travel by the employee between:

(i)  the place of residence of the employee; and

(ii) that primary place of employment;

(h) the provision of parking facilities for the car during the period or periods is not taken, under the regulations, to be excluded from this section;

(i) the day is on or after 1 July 1993;

Paragraphs 63 to 68 of Taxation Ruling TR 96/26 address the record keeping requirements where an employer determines the taxable value of car parking fringe benefits by determining the actual number of fringe benefits provided.

Records kept under this method must be sufficient to establish the actual number and value of car parking benefits provided during an FBT year.

Employers adopting this method should complete, by the lodgement date of their FBT return, a declaration stating:

(a) the number of car parking spaces available to be used by employees and/or their associates;

(b) the daily value of those spaces;

(c) the number of days in the year which are business days of the employer; and

(d) the method of valuation which the employer has chosen to use.

An employer may keep records noting the occasions over the FBT year when no car parking benefit arose in respect of a car parking space because an employee who would normally occupy the parking space was absent on that particular day.

…

An employer may, in addition to the basic records, note the business days when certain car parking spaces were unoccupied because particular staff were absent from work.

In addition to the declaration described above, the employer can use other records establish the number of car fringe benefits that exist for a particular space.

For the car parking spaces that are allocated to particular cars, the employer has detailed records showing the number of nights the car is at the employee's residence. One of the conditions for a car fringe benefit to exist is that the car is used in connection with travel between:

· the place of residence of the employee; and

· the primary place of employment.

If the records show that on a particular day a car

· was not at an employee's residence that night and

· had not at an employee's residence the previous night

then there would not have been any travel between an employee's place of residence and primary place of employment on that day. Consequently, for the parking space which is allocated to that car, there would not be a car parking fringe benefit on that particular day.

The employer can therefore use the number of nights that the car was taken home to estimate the number of car parking fringe benefits for the purposes of calculating the taxable value of car parking fringe benefits under section 39C.

Question 4

Summary

The payment of medical report expenses by the employer falls within the definition of a benefit under subection136(1).

Detailed reasoning

Under subsection 136(1) a benefit:

…includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

a. the performance of work (including work of a professional nature), whether with or without the provision of property;

b. the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

c. the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money.

An employee will not receive payment where they are injured unless the employer has determined that they have been injured at work.

Although the medical report is only for investigative purposes, it is the result of an examination of the employee and is ultimately for the employee's benefit.

Therefore the payment of the medical report expenses by the employer will be a benefit under subsection 136(1).

Further informationl

The benefit may be a fringe benefit if it falls within the definition of a fringe benefit within subsection 136(1). A fringe benefit is a benefit provided by

· an employer

· an associate of an employer or

· a third party in an arrangement with an employer

to an employee or an associate of an employee in respect of the employee's employment.

Certain benefits are excluded from the definition of a fringe benefit. This includes benefits that are exempt benefits.

There are specific benefits that are exempt benefits within the FBTAA. Section 58J applies to compensable work-related trauma.

Under subsection 58J(1) where:

(a) a benefit is provided in respect of the employment of an employee for or in respect of compensable work-related trauma suffered by the employee; and

(b) either of the following paragraphs applies:

a. the benefit is provided under a workers' compensation law that applies to that employment;

b. the benefit is not provided under a workers' compensation law but the provision of the benefit is reasonable having regard to all the relevant matters including, but without limiting the generality of the foregoing, the value of the benefit and the nature and effects of the trauma;

the benefit is an exempt benefit.

Compensable work-related trauma is defined in subsection 136(1):

…means work-related trauma suffered by an employee where:

(a) if there is no Australian workers' compensation law that applies to the employment of the employee - if any Australian workers' compensation law had applied to the employment of the employee, that law would have provided for compensation or other benefits for or in respect of the trauma; or

(b) in all cases - there is a workers' compensation law that:

a. applies to the employment of the employee; and

b. provides for compensation or other benefits for or in respect of the trauma.

In accordance with subsection 136(1), work-related trauma in relation to an employee means:

(a) the injury of an employee (including the aggravation, acceleration or recurrence of an injury of the employee);

(b) the contraction, aggravation, acceleration or recurrence of a disease of the employee;

(c) the loss or destruction of, or damage to:

a. an artificial limb or other artificial substitute;

b. medical, surgical or similar aid or appliance used by the employee; or

c. clothing warn by the employee: or

(d) the coming into existence, the aggravation, acceleration or recurrence of any other physiological or psychological condition in relation to the employee that is or may be harmful or disadvantageous to, or result in harm or disadvantage to, the employee;

that is related to any employment of the employee.

Workers' compensation law which is also defined in subsection 136(1) means:

…a law of the Commonwealth, a State, a Territory or a foreign country that provides for compensation or other benefits for or in respect of work-related trauma suffered by employees without requiring proof of any breach by, or by persons associated with, employers.

Although these employees are not covered by the Workers' Compensation Act 1987, there is provision for their compensation in other guidelines. Part of the requirements of these guidelines is that the employer must establish if the employee is injured at work.

If an employee is determined as having been injured at work then they will have suffered compensable work-related trauma as defined. Any benefit provided to the employee in respect of that compensable work-related trauma will be an exempt benefit.

However, if the employer determines that an employee was not injured at work, the employee would not have suffered compensable work-related trauma as defined. Consequently the section 58J will not apply to any benefits provided to such an employee.

Question 5

Summary

The payment of medical expenses does not fall within the definition of fringe benefit under subsection 136(1), as it is excluded because it is an exempt benefit under section 58J.

Detailed reasoning

The payment of the medical expenses of the ex-employees by the employer is a benefit.

A fringe benefit is a benefit provided by

· an employer

· an associate of an employer or

· a third party in an arrangement with an employer

· to an employee or an associate of an employee in respect of the employee's employment.

Certain benefits are excluded from the definition of a fringe benefit. This includes benefits that are exempt benefits. Under subsection 58J benefits provided in respect of compensable work-related trauma are exempt.

As explained in the reasons for decision for question four, compensable work-related trauma is an injury or disease related to employment, for which the employee is entitled to receive compensation, etc under a workers' compensation law.

The ex-employees have suffered work related injuries and this falls within the definition of work-related trauma in subsection 136(1).

There was provision for their compensation under particular guidelines. Consequently, the employer is continuing to reimburse their medical expenses.

The benefits provided to these employees will, therefore, be exempt under section 58J and are excluded from the definition of a fringe benefit under subsection 136(1).