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Ruling

Subject: Fringe benefits tax; concessional air transport

Question 1

Would the provision of concessional air transport by an airline to the employees of the employer constitute the provision of fringe benefits to the employees of the employer pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 2

Would the concessional air transport to be provided by an airline to the employees of the employer constitute fringe benefits that are residual benefits under section 45 of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 3

Would the concessional air transport to be provided by an airline to the employees of the employer constitute 'external non-period residual fringe benefits' for the purpose of section 50 of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 4

For the purpose of applying section 50 of the Fringe Benefits Tax Assessment Act 1986, could the 'stand-by value' (as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986) of the proposed concessional air transport, be used to represent the notional values of those benefits at the comparison time?

Answer

We have declined to rule on this question in accordance with the ATO valuations policy.

Question 5

Would section 62 of the Fringe Benefits Tax Assessment Act 1986 apply to reduce the aggregate taxable value of the proposed concessional air transport to be provided to the employees of the employer?

Answer

No

This ruling applies for the following fringe benefits tax years:

Year ending 31 March 2012

Year ending 31 March 2013

Year ending 31 March 2014

Year ending 31 March 2015

Year ending 31 March 2016

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.

The employer proposes to enter into an arrangement with an airline.

Under the arrangement the airline will provide air transport to the employees of the employer on a stand by basis.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 32,

Fringe Benefits Tax Assessment Act 1986 section 40,

Fringe Benefits Tax Assessment Act 1986 section 45,

Fringe Benefits Tax Assessment Act 1986 subsection 136(1),

Fringe Benefits Tax Assessment Act 1986 section 50,

Fringe Benefits Tax Assessment Act 1986 section 62 and

Fringe Benefits Tax Assessment Act 1986 subsection 149(1).

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

The definition of 'fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) applies to a benefit that is provided to an employee in respect of their employment. The benefit may be provided by the employer, an associate of the employer or under an arrangement with a third party.

The definition of 'benefit' in subsection 136(1) of the FBTAA is very broad and includes any right, privilege, service or facility.

The concessional air transport to be provided to the employees of the employer will be 'benefits' as defined in subsection 136(1) of the FBTAA and will be provided in respect of the employment of the employees.

Under paragraph (e) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA, the benefit will be a 'fringe benefit' if it is provided by a person, referred to as the arranger, under an arrangement covered by paragraph (a) of the definition of 'arrangement' between:

· the employer or an associate of the employer, and

· the arranger or another person.

Paragraph (a) of the definition of 'arrangement' in subsection 136(1) of the FBTAA is as follows:

'…any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings…'

As the provision of the benefits will be arranged by the airline and provided to the employees with the agreement of the employer, paragraph (e) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA will be satisfied.

Accordingly, the concessional air transport to be provided by the airline to the employees of the employer will constitute the provision of fringe benefits pursuant to subsection 136(1) of the FBTAA.

Question 2

A residual benefit is defined in section 45 of the FBTAA as being a benefit that is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive) of the FBTAA.

For the purpose of this ruling the relevant Divisions of the FBTAA to be considered are:

Division 5 - Expense payment fringe benefits

Division 8 - Airline transport fringe benefits, and

Division 11 - Property fringe benefits

Expense payment fringe benefits

Generally an expense payment fringe benefit may arise in either of two ways:

· where the employer pays a third party in satisfaction of expenses incurred by an employee, or

· where the employer reimburses an employee for expenses they incur.

As no payment will be made by the employer in relation to the concessional air transport to be provided by the airline either to discharge an obligation of its employees to pay the airline, or as a reimbursement of expenses incurred by the employees, no expense payment fringe benefit will arise under Division 5 of the FBTAA.

Airline transport fringe benefits

Division 8 of the FBTAA applies to airline transport fringe benefits.

Airline transport fringe benefits are described in Chapter 12 of the ATO publication 'Fringe benefits tax: a guide for employers' as follows:

An airline transport fringe benefit arises where employees (or their associates) of airlines or travel agents are provided with free or discounted air travel that is subject to the stand-by restrictions customarily applying to employees in the airline industry.

Free or discounted travel that is not subject to such restrictions is a residual benefit.

Airline transport fringe benefits are only applicable to employees (or their associates) of airline operators or travel agents.

The definition of 'airline operator' in subsection 136(1) of the FBTAA refers to a person who carries on a business of providing transport on passenger aircraft principally to outsiders.

The definition of 'travel agent' in subsection 136(1) of the FBTAA refers to a person whose business consists of, or includes, the sale of airline tickets principally to outsiders.

The employer is not an 'airline operator' or 'travel agent' which means that the concessional air transport that will be provided to their employees would not be airline transport fringe benefits under Division 8 of the FBTAA.

Property fringe benefits

Section 40 in Division 11 of the FBTAA details the criteria for a property fringe benefit to arise as:

Where, at a particular time, a person (in this section referred to as the "provider") provides property to another person (in this section referred to as the "recipient"), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

A property fringe benefit will therefore only arise if property is provided by the airline to the employees of the employer.

MacRobertson Miller Airline Service v. Commissioner of State Taxation (WA) 5 ATR 696 (the MacRobertson Case) considered the rights of a passenger surrounding the issue of an airline ticket to that passenger, and how the ticket impacts on a passenger. The MacRobertson Case held that there was no obligation on the airline at the time of the issue of the ticket to carry the passenger.

As the employees will only be provided with concessional air transport should there be seats available and, as the tickets provided to the employees will not carry a right or entitlement to a flight, they will not give rise to property benefits under Division 11 of the FBTAA.

The benefits to be provided to the employees are not benefits by virtue of Divisions 5, 8 or 11 of the FBTAA, or any of the other Divisions 2 to 11 of the FBTAA.

The fringe benefits that will arise from the provision of the concessional air transport to the employees will be residual benefits under section 45 of the FBTAA.

Question 3

Section 50 of the FBTAA sets out the valuation rules for external non-period residual fringe benefits.

Subsection 136(1) of the FBTAA defines an 'external non-period residual fringe benefit' as "a non-period residual fringe benefit other than an in-house residual fringe benefit".

The FBTAA does not define 'non-period residual fringe benefit' however 'period residual fringe benefit' is defined as a residual fringe benefit that is provided during a period.

Under subsection 149(1) a benefit shall be taken to be provided during a period if the benefit is provided during a period of more than one day and is not deemed by a provision of the FBTAA to be provided at a particular time or on a particular day. Where a benefit is available for a period of more than one day the benefit will be a period residual benefit.

The term 'period residual fringe benefit' usually applies to benefits that arise during a period such as the supply of gas or electricity and the use of property over a period of time.

The fringe benefits in relation to the concessional air transport that will be provided to the employees of the employer arise at the time they are provided. They will not be provided over a period and, therefore, will be non-period residual fringe benefits.

Subsection 136(1) of the FBTAA defines 'in-house residual fringe benefit'. There are two parts to the definition.

Paragraph (a) of the definition applies where the benefit is provided by the employer or an associate of the employer and the benefit is identical or similar to benefits provided by the employer (or associate) to the public in the ordinary course of business.

Paragraph (b) of the definition applies where the benefit is not provided by the employer (or associate) and:

· the benefit is purchased from the employer (or associate), and

· the benefit is identical or similar to benefits provided by both the provider and the seller to the public in the ordinary course of business.

The conditions to be met for a benefit to be an 'in-house residual fringe benefit' will not be satisfied in relation to the concessional air transport to be provided to the employees of the employer. This is because:

· the airline will be the provider of the benefits and is not an associate of the employer

· the employer will not purchase the benefits, and

· the employer is not in the business of providing air transport to the public.

As the concessional air transport to be provided to the employees will be 'non-period residual fringe benefits' and will not be 'in-house residual fringe benefits' as defined, they will constitute 'external non-period residual fringe benefits' for the purpose of section 50 of the FBTAA.

Question 4

The taxable value of an 'external non-period residual fringe benefit' is determined under one of the three valuation rules in section 50 of the FBTAA.

Paragraph 50(a) of the FBTAA applies where the employer (or an associate) provides the benefit and the benefit was purchased by the employer (or associate) under an arm's length transaction. The taxable value is the amount paid by the employer (or associate) reduced by any employee contribution.

Paragraph 50(b) of the FBTAA applies where the employer (or an associate) does not provide the benefit but the employer (or associate) incurs expenditure to the provider under an arm's length transaction for the benefit. The taxable value is the amount of that expenditure reduced by any employee contribution.

Where neither of the above rules apply, the taxable value is determined in accordance with paragraph 50(c) of the FBTAA. The taxable value is the 'notional value' of the property at the time the benefit is provided reduced by any employee contribution.

The valuation rules in paragraphs 50(a) and 50(b) of the FBTAA will not apply to the benefits that arise from the provision of the concessional air transport by the airline to the employees of the employer. This is because the benefits will not be provided by the employer (or associate) nor will the employer (or associate) purchase the benefits or incur expenditure in relation to the provision of the benefits.

The taxable value of the benefits that arise will be the 'notional value' in accordance with the valuation rule in paragraph 50(c) of the FBTAA.

Subsection 136(1) of the FBTAA defines 'notional value' of a benefit as the amount that the person receiving the benefit could reasonably be expected to have been required to pay for the benefit under an arm's length transaction.

The Commissioner does not provide private rulings on valuation methods to be used for taxation purposes. This is explained in the guide titled Market valuation for tax purposes and in the fact sheet titled Private rulings and valuations which are available on the ATO website www.ato.gov.au

The Commissioner will only rule on how a relevant provision applies to a particular taxpayer in relation to a particular scheme and, as the FBTAA does not prescribe a statutory method to be used for determining the arm's length value of residual fringe benefits, a question about whether or not a particular method is appropriate does not fall into this category.

Although a valuation method for air transport is set out in the definition of 'stand by value' in subsection 136(1) of the FBTAA, there is no indication in the FBTAA that the method in that definition can be used as the 'notional value' of a residual fringe benefit.

The definition of 'stand by value' in subsection 136(1) of the FBTAA applies to benefits that are airline transport fringe benefits under Division 8 of the FBTAA.

The requirements for airline transport fringe benefits to arise are that the air transport is:

· provided to employees of airline operators and travel agents, and

· subject to the stand by restrictions that customarily apply to employees in the airline industry.

While the Commissioner will not rule on valuation methods an applicant can, in seeking a private ruling, provide a valuation or ask for a determination of a value. In both instances a valuer would be engaged, either to confirm the valuation provided or to determine the value. The costs charged by the valuer would be passed on to the applicant.

Question 5

Where an employee is provided with one or more in-house fringe benefits and/or airline transport fringe benefits, section 62 of the FBTAA allows the aggregate of the taxable values of those fringe benefits to be reduced by up to $1000.

The concession applies to the following 'in-house fringe benefits' as defined in subsection 136(1) of the FBTAA:

· in-house expense payment fringe benefits

· in-house property fringe benefits, and

· in-house residual fringe benefits

As explained in the reasons for decision in relation to Questions 2 and 3, the concessional air transport to be provided to the employees will not be 'airline transport fringe benefits' and, although they will be residual fringe benefits, they will not be 'in-house residual fringe benefits'.

Accordingly, section 62 of the FBTAA would not apply to reduce the aggregate taxable value of the proposed concessional air transport to be provided to the employees of the employer.