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What this ruling is about:

1. Does section 62 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to the taxable values of expense payment fringe benefits arising from reimbursements by the employer of its employees' expenditures incurred on services provided by service provider A?

2. Does section 62 of the FBTAA apply to the expense payment fringe benefits arising from reimbursements by the employer of its employees' associates' expenditures incurred on services provided by service provider A?

3. Does section 62 of the FBTAA apply to the expense payment fringe benefits arising from reimbursements by the employer of its employees' expenditures incurred on services provided by service provider B?

4. Does section 62 of the FBTAA apply to the expense payment fringe benefits arising from reimbursements by the employer of its employees' associates' expenditures incurred on services provided by service provider B?

5. Is the taxable value of any expense payment fringe benefit arising from the payment or reimbursement by the employer of its employee (or associates) on services provided by service provider A an amount equal to 75% of the lowest price charged by A for current identical services provided to members of the public?

6. Is the taxable value of any expense payment fringe benefit arising from the payment or reimbursement by the employer of its employee (or associates) on services provided by service provider B an amount equal to 75% of the lowest price charged by B for current identical services provided to members of the public?

7. Does section 62 of the FBTAA apply to the expense payment fringe benefits arising from reimbursements by the employer of its employees expenditures incurred on services provided by service providers A or B, when part of the service is also provided by C?

8. Does section 62 of the FBTAA apply to the expense payment fringe benefits arising from reimbursements by the employer of its employees' associates expenditures incurred on services provided by service providers A or B, when part of the service is also provided by C?

Ruling

Subject: In-house residual expense payment fringe benefits

Question 1

Does section 62 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to the taxable values of expense payment fringe benefits arising from reimbursements by the employer of its employees' expenditures incurred on services provided by service provider A?

Answer

Yes.

Question 2

Does section 62 of the FBTAA apply to the expense payment fringe benefits arising from reimbursements by the employer of its employees' associates' expenditures incurred on services provided by service provider A?

Answer

Yes.

Question 3

Does section 62 of the FBTAA apply to the expense payment fringe benefits arising from reimbursements by the employer of its employees' expenditures incurred on services provided by service provider B?

Answer

Yes.

Question 4

Does section 62 of the FBTAA apply to the expense payment fringe benefits arising from reimbursements by the employer of its employees' associates' expenditures incurred on services provided by service provider B?

Answer

Yes.

Question 5

Is the taxable value of any expense payment fringe benefit arising from the payment or reimbursement by the employer of its employee (or associates) on services provided by service provider A an amount equal to 75% of the lowest price charged by A for current identical services provided to members of the public?

Answer

Yes.

Question 6

Is the taxable value of any expense payment fringe benefit arising from the payment or reimbursement by the employer of its employee (or associates) on services provided by service provider B an amount equal to 75% of the lowest price charged by B for current identical services provided to members of the public?

Answer

Yes.

Question 7

Does section 62 of the FBTAA apply to the expense payment fringe benefits arising from reimbursements by the employer of its employees expenditures incurred on services provided by service providers A or B, when part of the service is also provided by C?

Answer

Yes.

Question 8

Does section 62 of the FBTAA apply to the expense payment fringe benefits arising from reimbursements by the employer of its employees' associates expenditures incurred on services provided by service providers A or B, when part of the service is also provided by C?

Answer

Yes.

This ruling applies for the following periods:

1 April 2012 - 31 March 2013

1 April 2013 - 31 March 2014

1 April 2014 - 31 March 2015

1 April 2015 - 31 March 2016

1 April 2016 - 31 March 2017

The scheme commences on:

1 April 2012.

Relevant facts and circumstances

You have implemented the reimbursement to employees of services provided by A and B.

The relevant employees will enter into effective salary sacrifice arrangements (SSAs) with you for access to such reimbursements.

Under the terms of such SSAs some associates of the relevant employees will also gain access to reimbursements of their expenditure on services provided by A and B.

Only certain expenditure will be reimbursed.

Detailed information is recorded electronically about the expenditure incurred on the services provided.

Services and costs provided by A, B and C will be individually identified.

Other expenditure will not be reimbursed.

Agents of the employer hold all the shareholding in service provider A and are also able to direct the activities of service provider A in certain circumstances.

The employer is able to direct the activities of service provider B in certain circumstances.

Under the terms of the SSAs, the relevant employees (or their associates) will provide documentary evidence of their expenditures to the employer by the time required by the FBTAA.

Relevant legislative 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 45

Fringe Benefits Tax Assessment Act 1986 section 48

Fringe Benefits Tax Assessment Act 1986 section 49

Fringe Benefits Tax Assessment Act 1986 section 62

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 section 149

Fringe Benefits Tax Assessment Act 1986 section 159

Income Tax Assessment Act 1936 section 6

Income Tax Assessment Act 1936 section 317

Income Tax Assessment Act 1936 section 318

Income Tax Assessment Act 1997 section 960-100

Income Tax Assessment Act 1997 subsection 995-1(1)

Acts Interpretation Act 1901

Patents Act 1990 (Cwlth)

Reasons for decision

Question 1

Detailed reasoning

Section 62 of the FBTAA provides for the reduction of the aggregate taxable value of certain eligible benefits that include 'in-house fringe benefits'.

Subsection 136(1) of the FBTAA defines 'in-house fringe benefit' as:

(a) an in-house expense payment fringe benefit;

(b) an in-house property fringe benefit; or

(c) an in-house residual fringe benefit.

Is the benefit an in-house expense payment fringe benefit?

Subsection 136(1) of the FBTAA defines an in-house expense payment fringe benefit as:

(a) an in-house property expense payment fringe benefit; or

(b) an in-house residual expense payment fringe benefit.

Both of these terms are also defined in subsection 136(1) of the FBTAA. For the purpose of this ruling, the relevant definition is an 'in-house residual expense payment fringe benefit', which is defined to mean:

"in-house residual expense payment fringe benefit" in relation to an employer, means 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.

In considering this definition it is therefore necessary to consider the following questions:

(a) Is the benefit provided to the employee an expense payment fringe benefit?

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

(c) Who is the residual benefit provider?

(d) Is the residual benefit provider the employer, or an associate of the employer?

(e) Does the residual benefit provider carry on a business?

(f) If the residual benefit provider carries on a business, does the business consist of, or include the provision of identical or similar benefits?

(g) If the business consists of, or includes the provision of identical or similar benefits, are they provided principally to outsiders?

(h) Will documentary evidence of the expenditure be provided to the employer before the declaration date?

Is the benefit provided to the employee an expense payment fringe benefit?

Section 20 of the FBTAA provides that an expense payment benefit will arise:

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.

As you will reimburse your employees for cost of expenditure on service provider A, the reimbursement will be an expense payment fringe benefit.

Is the employee's expenditure incurred in respect of the provision of a residual benefit?

Section 45 of the FBTAA defines a residual benefit as:

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Division 2 to 11 (inclusive).

The underlying benefit to which the benefit relates is the provision of a service.

As the provision of the service does not fall within any of the specific categories of benefits within Subdivision A of Divisions 2 to 11 (inclusive), the employee's expenditure will be incurred in the provision of a residual benefit.

c. Who is the residual benefit provider?

In this case, you are the employer of the relevant employees, and the relevant residual benefits are the services being provided by A.

The residual benefit provider is therefore A.

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

The residual benefits are provided by service provider A, therefore it is necessary to determine whether service provider A is an associate.

Is service provider A an associate?

The expression 'associate' is defined in subsection 136(1) of the FBTAA to have the same meaning as given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936).

Subsection 318(2) of the ITAA 1936 states:

318(2) [Associates of a company]

For the purposes of this Part, the following are associates of a company (in this subsection called the "primary entity"):

(a)  …

(b) … 

(c) …

(d) another entity (in this paragraph called the "controlling entity") where:

(i)  the primary entity is sufficiently influenced by:


(A)  the controlling entity; or


(B)  the controlling entity and another entity or entities; or


(ii)  a majority voting interest in the primary entity is held by:


(A)  the controlling entity; or


(B)  the controlling entity and the entities that, if the controlling

entity were the primary entity, would be associates of the controlling entity because of subsection (1), because of subparagraph (i) of this paragraph, because of another paragraph of this subsection or because of subsection (3);

(e) …

Also, subsection 318(6) of the ITAA 1936 provides interpretation for some of the expressions used in subsection 318(2) of the ITAA 1936, as follows:

318(6) [Interpretation]

For the purposes of this section:

(a)  …

(b)  a company is sufficiently influenced by an entity or entities if the company, or

its directors, are accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the entity or entities (whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed companies, partnerships or trusts); and

(c)  an entity or entities hold a majority voting interest in a company if the entity or entities are in a position to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of the company.

A 'company' is defined in section 6 of the ITAA 1936 as having the same meaning as subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

Subsection 995-1(1) of the ITAA 1997 defines a 'company' to mean:

(a) a body corporate; or

(b) any other unincorporated association or body of persons;

but does not include a partnership or a ^*non-entity joint venture.

Service provider A and the employer are associates as service provider A is sufficiently under the influence of the employer and also from the fact that agents of the employer hold all the shareholding of service provider A.

Service provider A carrying on a business of providing benefits principally to outsiders.

Does the residual benefit provider carry on a business?

Paragraphs 176 to 179 of MT 2006/1 provide guidance on when an entity is carrying on a business:

176. As the definition of 'business' is identical in the GST Act and the ITAAs, it can be interpreted in a similar way. The meaning of 'business' is considered in Taxation Ruling TR 97/11. Although TR 97/11 deals with carrying on a primary production business, the principles discussed in that Ruling apply to any business.

Indicators of a business

177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators are:

§ a significant commercial activity;

§ a purpose and intention of the taxpayer to engage in commercial activity;

§ an intention to make a profit from the activity;

§ the activity is or will be profitable;

§ the recurrent or regular nature of the activity;

§ the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

§ activity is systematic, organised and carried on in a businesslike manner and records are kept;

§ the activities are of a reasonable size and scale;

§ a business plan exists;

§ commercial sales of product; and

§ the entity has relevant knowledge or skill.

179. There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 states that 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'. TR 97/11 can be referred to for a fuller discussion on whether a particular activity constitutes the carrying on of a business.⁶¹

The meaning of 'principally' is not defined in the FBTAA, however, in the ATO publication Income tax guide for non-profit organisations (NAT 7967-03.2007) 'principally' is stated to mean 'mainly or chiefly' and that 'less than 50% is not principally'.

Therefore, under such guidance, 'principally' may be regarded to mean 'more than 50%' or, alternatively, 'more than half, of the time'.

The term 'outsider' is defined in subsection 136(1) of the FBTAA as being:

in relation to the employment of an employee of an employer, means a person not being:

(a)  an employee of the employer;

(b)  an employee of an associate of the employer;

(c)  an employee of a person (in this definition referred to as the provider) other than the employer or an associate of the employer who provides benefits to, or to associates of, employees of the employer or an associate of the employer under an arrangement between:

(i) the employer or an associate of the employer; and


(ii) the provider or another person; or

(d)  an associate of an employee to whom any of the preceding paragraphs apply.

Therefore, an 'outsider' is someone who is not an employee of the relevant employer, not an employee of an associate of that employer, not an employee of someone who provides benefits to the employees of either that employer or that employer's associate under an arrangement between them and also not to any associates of these latterly mentioned employees.

It is accepted that the service provider A carries on a business of providing relevant residual benefits principally to outsiders.

Will documentary evidence of the expenditure be provided to the employer before the declaration date?

Paragraph (d) of the definition of an 'in-house residual expense payment fringe benefit' in subsection 136(1) of the FBTAA, requires the recipient to provide the employer with documentary evidence in support of the recipients' expenditure.

Subsection 136(1) of the FBTAA provides that the term documentary evidence means:

…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 that person.

Employees will provide documentary evidence of their expenditures to the employer by the time required by the FBTAA.

Will the reduction available under section 62 of the FBTAA apply to the reimbursement of the employees of the cost of services provided by A?

Section 62 of the FBTAA provides for the reduction of the aggregate taxable value of certain fringe benefits and states at subsection 62(1):

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.

Eligible fringe benefit is defined in subsection 62(2) as an in-house fringe benefit or an airline transport fringe benefit.

Subsection 136(1) of the FBTAA defines 'in-house fringe benefit as:

(a) an in-house expense payment fringe benefit;

(b) an in-house property fringe benefit; or

(c) an in-house residual fringe benefit.

As it has been determined above that your reimbursements of the service costs of service provider A of your employees constitute in-house residual expense payment fringe benefits which, in turn, are in-house expense payment fringe benefits and in-house fringe benefits, the taxable value of the fringe benefits can be reduced under section 62 of the FBTAA.

Question 2

Detailed reasoning

As stated previously, section 62 of the FBTAA provides for the reduction of the aggregate taxable value of certain eligible fringe benefits that include 'in-house fringe benefits'.

Miscellaneous Taxation Ruling MT 2044 Fringe benefits tax: reduction of aggregate taxable value of fringe benefits - application to associates (MT 2044), discusses whether the reduction of the taxable value available under section 62 of the FBTAA applies to associates.

Paragraph 5 of MT 2044 states:

Section 62 applies to benefits which "relate to a particular employee". The word "relate" is not specifically defined in the Act and therefore has its ordinary meaning. The Concise Oxford Dictionary defines "relate" to mean "…establish relation between; connected; allied". The Macquarie Dictionary, in so far as is relevant, defines "relate" to mean "to bring into or establish association, connection, or relation". It is therefore considered that a benefit will "relate" to an employee if the provision of that benefit is connected to or associated with the employee. As a benefit provided to an associate of an employee must be in respect of the employment of the employee, the provision of the benefit is therefore connected to or associated with the employee. In other words it relates to the employee.

Paragraph 6 of MT 2044 concludes that in view of the above the reduction available under section 62 applies in respect of the total benefits provided to each employee and their associates. However, it should be noted that where an employee and their associates receive 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 and their associates.

Question 3

Detailed reasoning

As stated in question 1 section 62 will apply to reduce the taxable value of the expense payment fringe benefits where the benefit is an eligible benefit that is an in-house fringe benefit. Further it was determined that the relevant definition applicable for the purpose of this ruling is 'in-house residual expense payment fringe benefit.

To fall within the definition of an in-house residual expense payment fringe benefit, the following conditions must be met:

a the benefit must be an expense payment fringe benefit

b the employee's expenditure must be incurred in respect of the provision of a residual benefit

c the residual benefit provider must be the employer, or an associate of the employer?

d the residual benefit provider must carry on a business that consists of, or includes the provision of identical or similar benefits principally to outsiders?

e documentary evidence of the expenditure must be provided to the employer before the declaration date?

a. Is the benefit an expense payment fringe benefit?

As stated previously, an expense payment will arise where you reimburse an employee for expenses they incur.

As you will reimburse your employees for the cost of the services provided by service provider B, the reimbursement will be an expense payment fringe benefit.

b. Is the employee's expenditure incurred in respect of the provision of a residual benefit?

As stated in question 1 the employee's expenditure will be incurred on the provision of a residual benefit.

c. Is the residual benefit provider the employer, or an associate of the employer?

You are the employer of the relevant employees and the relevant residual benefits are the services provided by B.

Service provider B as an associate of the employer.

As described earlier (and as most relevant here), sub-subparagraph 318(2)(d)(i)(A) and paragraph 318(6)(b) of the ITAA 1936 taken together state that a company (the primary entity) will be an associate of a controlling entity where the controlling entity has sufficient influence over the primary entity to have the primary entity carry out its directions,

Service provider B is an associate of the employer

d. Is the residual benefit provider carrying on a business which provides identical or similar benefits principally to outsiders?

Under the provisions of the relevant act, the key objectives set for B is to be commercially It is accepted that service provider B carries on the business of providing its services principally to individuals who are neither the employees of service provider B nor the employees of the employer.

Service provider B is an associate of the employer and, as determined above, service provider B does carry on the business of providing the relevant residual benefits principally to outsiders.

e. Will documentary evidence of the expenditure be provided to the employer before the declaration date?

This condition will be met.

Will the reduction available under section 62 of the FBTAA apply to the reimbursement of the employees' costs of services provided by B?

As stated in question 1 above section 62 of the FBTAA will apply to reduce the aggregate taxable value of in-house residual expense payment fringe benefits. As the reimbursement of the expenses incurred by your employees for services provided by service provider B are in-house residual expense payment fringe benefits, and the reduction available under section 62 of the FBTAA will apply.

Question 4

Detailed reasoning

This arrangement is the same as the arrangement discussed in question 2 above, therefore section 62 of the FBTAA will apply to benefits provided to associates of the relevant employees.

However, it should be noted that where an employee and their associates receive 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 and their associates.

Question 5

Detailed reasoning

In calculating the taxable value of the expense payment fringe benefit, subsection 22A(2) of the FBTAA provides that the taxable value is that amount that would have been the taxable value if the provision of the residual benefit to the employee had constituted the provision of an in-house residual fringe benefit and the consideration paid had been equal to the expenditure incurred by the employee reduced by the amount of the reimbursement or payment by the employer.

In calculating what would have been the taxable value if the benefit had been a residual benefit the valuation rules in section 48 of the FBTAA are used where the benefit is a non-period benefit. If the benefit is a period benefit the valuation rules in section 49 of the FBTAA are used.

Section 149 of the FBTAA provides the test which is used to determine whether a benefit is provided during a period. Subsection 149(1) states:

[Provision for 1 day] For the purposes of this Act, a benefit shall be taken to be provided during a period if, and only if, the benefit:

(a) is provided, or subsists, during a period of more than 1 day; and

(b) is not deemed by a provision of this Act to be provided at a particular time or on a particular day.

As the transport is provided is provided for less than one day, the benefit is taken to not be provided during a period under subsection 149(1) of the FBTAA.

Therefore, the valuation rules in section 48 of the FBTAA will be used to determine the taxable value of the in-house residual expense payment fringe benefits.

Section 48 of the FBTAA states:

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

(a)  where, at or about the comparison time, identical benefits were provided by the provider:

(i)  in the ordinary course of business to members of the public under an arm's length transaction or arm's length transactions; and


(ii)  in similar circumstances and subject to identical terms and conditions

(other than as to price) as those that applied in relation to the provision of the recipients benefit to the recipient;

an amount equal to 75% of the lowest price at which an identical benefit was so sold to a member of the public; or

(b)  …

As identical benefits were provided by service provider A to members of the public during the ordinary course of business the taxable value of the benefits will be an amount equal to 75 per cent of the lowest price charged by service provider A for the current identical transport services to members of the public.

Question 6

Detailed reasoning

As the arrangement in this question is the same as the arrangement in question 5 the law applicable in question 5 equally applies to this question.

Therefore, the valuation rules in section 48 of the FBTAA should be used to determine the taxable value of the in-house residual expense payment fringe benefits.

As identical benefits were provided by service provider B to members of the public during the ordinary course of business the taxable value of the benefits will be an amount equal to 75 per cent of the lowest price charged by service provider B for the current identical transport services to members of the public.

Question 7

Detailed reasoning

As determined in questions 1 and 3 above, section 62 of the FBTAA will apply to the taxable values of the expense payment fringe benefits arising from the reimbursements by you of your employees' service provider A and service provider B service expenses.

Section 62 of the FBTAA will therefore apply to the expense payment fringe benefits which arise from the reimbursements of your employees' associates expenditure on service provider A and/or service provider B services where the total service encompasses a service also provided by service provider C, which can be separately identified as part of the same service, and where the service components are separately identified.

Question 8

Detailed reasoning

As discussed above at questions 2 and 4 the reduction available under section 62 of the FBTAA will apply to associates of employees'. Further as discussed in question 7, section 62 will only apply to the expenses which have been reimbursed and which are in-house fringe benefits.

Section 62 of the FBTAA will therefore apply to the expense payment fringe benefits which arise from the reimbursements of your employees' associates expenditure on service provider A and/or service provider B services where the total service encompasses a service also provided by service provider C, which can be separately identified as part of the same service, and where the service components are separately identified.