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Ruling

Subject: Benefits provided in respect of employee transport

Question 1

Would the taxable values of fringe benefits arising from the reimbursement of permanent employees' transport expenses be calculated in accordance with subsection 22A(2) of the FBTAA as 'in-house residual expense payment fringe benefits'?

Answer

Yes

Question 2

Would the taxable value of fringe benefits arising from the reimbursement of permanent employees' transport expenses be reduced to 'nil' under section 62 of the FBTAA?

Answer

Yes.

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

The employer is considering entering into salary sacrifice arrangements (SSA) with employee's in which they will pay expenses incurred in respect of transport.

The third party which provides the transport does so as part of their business.

Details of the SSA were provided.

The taxable value of all in-house benefits provided to each employee in a fringe benefits tax (FBT) year to which section 62 of the FBTAA would apply will be less than $1,000.

Relevant legislative provisions

FBTAA section 20

FBTAA subsection 22A(2)

FBTAA section 45

FBTAA section 48

FBTAA section 49

FBTAA section 62

FBTAA subsection 136(1)

FBTAA paragraph 159(2)(d)

Reasons for decision

Question 1

Summary

The benefits is an in-house residual expense payment fringe benefit as the provider of the benefit is an associate of the employer who provide the benefit to the public in the course of its business.

Detailed reasoning

Subsection 22A(2) of the FBTAA states:

Subject to this Part, the taxable value in relation to a year of tax of an in-house residual expense payment fringe benefit (in this subsection called the ``actual fringe benefit'') provided during the year of tax is the amount that, if:

(a) the provision of the residual benefit to which the actual fringe benefit relates were an in-house residual fringe benefit (in this subsection called the ``notional fringe benefit''); and

(b) the recipients contribution in relation to the notional fringe benefit were equal to the recipients expenditure reduced by whichever of the following amounts is applicable:

(i) the amount of the payment referred to in paragraph 20(a) reduced by the amount of the recipients contribution in relation to the actual fringe benefit;

(ii) the amount of the reimbursement referred to in paragraph 20(b);

would have been calculated under whichever of sections 48 and 49 is applicable as the taxable value, but for section 52 and Division 14, of the notional fringe benefit in relation to the year of tax.

For subsection 22A(2) of the FBTAA necessitates that the relevant fringe benefit be an 'in-house residual expense payment fringe benefit'. An in-house residual expense payment fringe benefit' is defined in subsection 136(1) of the FBTAA which states:

"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.

"recipients expenditure", in relation to an expense payment benefit, means the expenditure incurred by the recipient as mentioned in paragraph 20(a) or (b), as the case requires.

Therefore, an in-house residual expense payment fringe benefit requires the following conditions to be satisfied:

· the reimbursement by the employer is an 'expense payment fringe benefit';

· the recipients expenditure is incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance) by the 'residual benefit provider';

· either the requirements of paragraph (b) or (c) are satisfied; and

· the employee obtains 'documentary evidence' of his or her expenditure and provides that 'documentary evidence' or a copy, thereof, to the employer before the relevant 'declaration date'.

Expense payment fringe benefit

An expense payment benefit under section 20 of the FBTAA, will arise where an employer reimburses an employee for expenses incurred by the employee, or where an employer pays a third party in satisfaction of expenses incurred by an employee.

In this case the proposed payment constitutes an expense payment benefits.

Employees expenditure incurred in respect of a residual benefit

Section 45 of the FBTAA states that a residual benefit is one that is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA. Therefore, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA.

The provision of transport does not fall within any of the specific benefits types in Subdivision A of Divisions 2 to11 inclusive of the FBTAA and therefore expenditure incurred by the employees for public transport is a residual benefit.

Are the requirements of either paragraph (b) or paragraph (c) satisfied?

Paragraph (b) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, requires, that the residual benefit provider be either the employer or an associate of the employer.

The information provided shows that the provider of the transport is an associate as defined under the FBTAA.

Documentary evidence

The employer will require documentary evidence from the employees that an expense had been incurred.

When that evidence is provided this condition will be satisfied.

Conclusion

The benefit being provided will be an 'in-house residual expense payment fringe benefit' as defined under subsection 136(1) of the FBTAA and therefore subsection 22A(2) of the FBTAA will apply when determining the taxable value of the expense payment benefits.

Under subsection 22A(2) of the FBTAA the taxable value of the expenses payment benefit is determined using either section 48 or 49 of the FBTAA.

Question 2

Summary

As the benefit is an in-house benefit section 62 of the FBTAA applies to reduce the taxable value of the benefits.

Detailed reasoning

Subsection 62(1) of the FBTAA states in part:

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.

Subsection 62(2) of the FBTAA defines what is an eligible benefit and an eligible benefit includes an 'in-house fringe benefit'. An in-house benefit is defined in subsection 136(1) of the FBTAA to include an 'in house expense payment fringe benefit.'

Therefore, the reimbursements by the employer will be eligible fringe benefits for the purposes of subsection 62(1) of the FBTAA.

Provided the total reimbursement of all eligible fringe benefits does not exceed $1,000.00 in any one FBT year the taxable value of the relevant in-house expense payment fringe benefits will be reduced to 'nil'

Any benefits provided to an associate of an employee would form part of this $1,000. Although issued when the reduction was capped at $500 this is explained in paragraphs 4 to 6 in Miscellaneous Taxation Ruling MT 2044 Fringe benefits tax: reduction of aggregate taxable value of fringe benefits - application to associates which state:

The term "eligible fringe benefit" in section 62 is defined to mean an in-house fringe benefit or an airline transport fringe benefit. These terms, which are defined in subsection 136(1), rely on the meaning of the term "fringe benefit" which is also defined in subsection 136(1). As far as is relevant a "fringe benefit" is defined to mean a benefit provided to an employee or to an associate of the employee in respect of the employment of the employee. It follows that "eligible fringe benefits" in section 62 includes benefits provided to associates of an employee.

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.

In view of the above it follows that the exemption under section 62 of the first $500 of the taxable value of "eligible fringe benefits" applies in respect of the total benefits provided to each employee and his or her associates in a particular year.