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Subject: Fringe benefits tax: Employer of State or Territory Government employees

Question 1

Following the establishment of the statutory body, will the statutory body be the employer of the employees for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) in the year ending 31 March 2013?

Answer:

No.

Question 2

Following the establishment of the statutory body, will the Department be the employer of the employees for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) in the year ending 31 March 2013 if the previous nomination is not varied or revoked?

Answer:

Yes.

This ruling applies for the following period:

Year ending 31 March 2013

Relevant facts and circumstances

You are a 'nominated State or Territory body' under subsection 135S(2) of the FBTAA.

A separate statutory body is being established.

The Act establishing the statutory body provides that:

· it is a body corporate with perpetual succession;

· has a seal;

· may sue and be sued in its corporate name; and

· represents the Crown.

Some of your employees will be transferred into newly created positions within the statutory body.

The employees are Crown employees. This will not alter with the establishment of the statutory body. Employees who transfer to a position in the statutory body will continue to be Crown employees.

No new instruments of appointment/contracts of employment will be completed in respect of employees transferring to a statutory body position.

These employees will receive a letter that advises of their transfer to a new position and confirms that the transfer will not affect their entitlements, terms and conditions of employment or previous years of service.

Current permanent employees will be transferred to the statutory body by way of Gazette notice. The notice will name permanent employees and officers individually assigned to work units to clearly identify employees and officers being transferred to the statutory body.

Transfer of fixed term employees will be managed separately and these employees will be issued with new instruments of appointment to take effect from the date of transfer to the statutory body until the end of the current fixed term contract.

All transferred staff will be undertaking the same duties after transfer as they currently undertake.

All transferred staff will also be undertaking their duties within the same physical location after transfer.

There will be no change to employee entitlements including accrued annual, long service and sick leave.

You will continue to pay employee salary entitlement per fortnight after the date of employee transfer.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 5B(1E)

Fringe Benefits Tax Assessment Act 1986 subsection 57A(2)

Fringe Benefits Tax Assessment Act 1986 subsection 57A(3)

Fringe Benefits Tax Assessment Act 1986 Part XIC

Fringe Benefits Tax Assessment Act 1986 subsection 135S(2)

Fringe Benefits Tax Assessment Act 1986 subsection 135S(3)

Fringe Benefits Tax Assessment Act 1986 subsection 135S(5)

Fringe Benefits Tax Assessment Act 1986 paragraph 135T(1)(h)

Fringe Benefits Tax Assessment Act 1986 subsection 135U(1)

Fringe Benefits Tax Assessment Act 1986 subsection 135U(2)

Fringe Benefits Tax Assessment Act 1986 subsection 135U(3)

Fringe Benefits Tax Assessment Act 1986 section 135W

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

Who will be the employer of the employees for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) in the year ending 31 March 2013?

To determine whether there will be a change in employers on when the employees transfer to the new positions in the statutory body it is necessary to consider the following questions:

Will the legal employer change from the Crown to the STATUTORY BODY?

Will the STATUTORY BODY be a 'nominated State or Territory body'?

Will the employer change from the Department to the Crown?

Will the legal employer change from the Crown to the STATUTORY BODY on 1 July 2012?

The definition of 'employer' in subsection 136(1) of the FBTAA defines 'employer' to mean:

· a current employer;

· a future employer; or

· a former employer.

Each of these terms are also defined in subsection 136(1) of the FBTAA. The definitions of 'future employer' and 'former employer' refer to the definition of 'current employer' which states:

· current employer means a person (including a government body) who pays, or is liable to pay, salary or wages, and includes:

· in the case of a partnership - each partner; and

· in the case of any other unincorporated association or body of persons - its manager or other principal officer.

'Person' is defined in subsection 136(1) of the FBTAA to include:

· a body politic;

· a body corporate;

· a partnership;

· any other unincorporated association or body of persons; and

· a person in the capacity of trustee.

'Government body' is defined in subsection 136(1) of the FBTAA to mean:

· the Commonwealth, a State, a Territory or an authority of the Commonwealth or of a State or Territory.

In applying these definitions, each STATUTORY BODY will be a 'person' for the purposes of the FBTAA as it is a body corporate.

However, the STATUTORY BODY will not pay, or be liable to pay salary or wages to the employee. This liability will remain with the Crown and you will continue to make the payments.

Therefore, the Crown will continue to be the legal employer of the employees.

Will the STATUTORY BODY be a 'nominated State or Territory body'?

Where the Crown is the legal employer, Part XIC of the FBTAA enables a State or Territory to devolve the administration and payment of fringe benefits tax to its nominated State or Territory bodies.

Therefore, although the Crown remains the legal employer if the STATUTORY BODY is a 'nominated State or Territory body' it will be treated as the employer for the purposes of the FBTAA.

For a body to be a 'nominated State or Territory body':

· the body must be an 'eligible State or Territory body' as defined in subsection 135T(1) of the FBTAA; and

· the State or Territory must make a nomination in the approved form on or before 21 May in the first year of tax to which the nomination applies.

For the STATUTORY BODY to be a 'nominated State or Territory body' it must be an 'eligible State or Territory body' as defined in section 135T of the FBTAA.

The STATUTORY BODY does not come within this definition and therefore is not eligible to be nominated as a 'nominated State or Territory body'.

Therefore, the STATUTORY BODY can not be the employer of the employees for the purposes of the FBTAA.

Will the employer change from the Department to the Crown?

Subsection 135U(1) of the FBTAA provides that where a nomination is made the 'nominated State or Territory body' rather than the State or Territory is treated as the employer of each employee of the State or Territory that has a 'sufficient connection' with the body.

The meaning of 'sufficient connection' is set out in subsections 135U(2) and 135U(3) of the FBTAA which state:

135U(2)  Meaning of sufficient connection.  

An employee of the State or Territory has a sufficient connection with the body if the employee performs his or her duties of employment wholly or principally in the body.

135U(3)  [Sufficient connection]  

An employee of the State or Territory is taken to have a sufficient connection with the body if:

(a) the employee does not perform his or her duties of employment wholly or principally in any other nominated State or Territory body; and

(b) the employee is of a class of employees that the State or Territory has specified under paragraph 135S(2)(c) is to be taken to have a sufficient connection with the body.

The Department was nominated to be a 'nominated State or Territory body'.

Subsection 135S(3) of the FBTAA provides that:

… the nomination has effect in relation to the body in relation to the first year of tax as specified in the nomination and in relation to all later years of tax.

Therefore, unless that nomination is varied or revoked it will continue to apply in the year ending 31 March 2013.

If a variation or revocation is to occur, subsection 135S(5) of the FBTAA requires the variation or revocation to be made in the approved form on or before 21 May in the first year in which it is to have effect (for the year ending 31 March 2013, the revocation or variation must be made by 21 May 2012).

Alternatively, the nomination will cease to apply if the nominated State or Territory body is abolished. Under section 135W of the FBTAA (unless the employees are transferred to a nominated State or Territory body, or to a separate legal entity which becomes the employer) the State or Territory will become the employer of the employees who had a 'sufficient connection' with the body immediately before it ceased to exist from the date on which the nominated State or Territory body ceases to exist.

In the applying these provisions to the situation being considered:

· the Department was nominated as a 'nominated State or Territory body';

· neither a variation, nor a revocation has been lodged in relation to the nomination; and

· the Department has not been abolished.

Therefore, the Department can be the employer of the employees for the purposes of the FBTAA in the year ending 31 March 2013 as it will be a 'nominated State or Territory body'.

In your application, you accept the Department will be the employer of the employees until the transfer occurs, but you contend the Crown will become the employer of the relevant employees from the date of transfer. This contention is made on the basis that the employees will only be performing their duties of employment in the Department up until the date of transfer. From that date, you contend the employees will not have a 'sufficient connection' with the Department as:

· subsection 135U(2) will not apply as the duties will be performed in a body that is not a 'nominated State or Territory body'; and

· subsection 135U(3) will not apply as a nomination specifying that the employees are to be taken to have a sufficient connection with the Department under paragraph 135S(2)(c) will not be made.

In considering this contention, it is relevant to refer to the similarity of the wording that is used in subsections 57A(2) and 135U(2) of the FBTAA. Under subsection 57A(2) the duties of employment must be 'exclusively performed in, or in connection with a public hospital'. By comparison subsection 135U(2) looks at whether the 'employee performs his or her duties of employment wholly or principally in the body.'

In discussing the wording of subsection 57A(2), ATO ID 2003/40 Fringe benefits tax: exempt benefits - duties of employee relating to a public hospital states:

The word 'in' within its present context denotes physical location, physical precinct or physical situation. For a public hospital, the institution may in fact be located over separate physical sites, much the same as a university campus.

To satisfy this limb, the employee would be required to exclusively perform her duties of employment within the physical boundaries or sites of a public hospital which is a public benevolent institution.

On the basis of the conclusion in a previous private ruling it is accepted the employees are performing their duties exclusively in, or in connection with the STATUTORY BODY.

Once it is accepted that the employees are performing their duties exclusively in, or in connection with the STATUTORY BODY, then it must also be accepted that for the purposes of section 135U the employees are wholly or principally performing their duties of employment in the STATUTORY BODY. As the STATUTORY BODY is a separate legal entity that is not part of the Department, it is accepted that subsection 135U(2) will not apply in relation to the Department.

It is also accepted that it is not necessary for a nomination to be made in relation to a particular class of employees whose duties of employment are undertaken in a government body that is not an eligible State or Territory body. Therefore, it is also accepted that subsection 135U(3) will not apply in relation to the Department.

However, although we accept your conclusions in relation to the 'sufficient connection' tests contained within subsections 135U(2) and 135U(3), we do not accept the underlying rationale that the employer of a Crown employee is solely determined by the 'sufficient connection' test.

Rather, we consider it is necessary to firstly consider whether a 'nominated State or Territory body' can be identified as the employer using the 'current employer' definition and the 'sufficient connection' test only applies where the 'current employer definition' test does not enable the relevant 'nominated State or Territory body' to be identified.

Support for this approach is provided by the response to agenda item 6.3 of the meeting of the States and Territories Industry Partnership held on 31 July 2001. The agenda item and ATO response were as follows:

6.3 Sufficient connection

The definition of "sufficient connection" in subsection 135U(3) uses the test of the body for whom the employee performs his or her duties. As proposed this sub-section appears to require a different treatment for FBT purposes from that required for PAYG purposes. In the co-design worksheet there was a definition of 'responsible department' which looked at where the remuneration for the employment was appropriated. This change will create problems in situations where officers are seconded to other departments (a common practice in the public sector).

ATO response:

The definition of "sufficient connection" was included for the purpose of establishing an employer/employee relationship in situations where the usual employer/employee definitions do not enable a nominated body to be identified as the employer. Where it is not clear which nominated body is the employer, the State or Territory is able to specify a nominated body as the employer of a class or classes of employees.

The 'responsible department' definition referred to in the agenda item is contained within section 3 of the Fringe Benefits Tax (Application to the Commonwealth) Act 1986. The reason for this definition being referred to was the intention as stated in the Explanatory Memorandum to Taxation Laws Amendment Bill (No. 2) 2001 for the disaggregation provisions to operate in a manner that is consistent with the provisions that apply to the Commonwealth.

Under subsection 4(1) of the Fringe Benefits Tax (Application to the Commonwealth) Act 1986 the employer of a Commonwealth employee for the purposes of the FBTAA is the 'responsible Department'.

'Responsible Department' is defined in section 3 of the Fringe Benefits Tax (Application to the Commonwealth) Act 1986 to mean:

(a) where the remuneration in respect of that employment is or was paid wholly or principally out of money appropriated under an annual Appropriation Act - the Department in respect of which the money was appropriated; and

(b) where the remuneration in respect of that employment is or was paid wholly or principally out of money appropriated under an Act other than an annual Appropriation Act:

(i) if the employee performs or performed the duties of that employment in, or in respect of, a Department - that Department; or

(ii) in any other case - the Department of State administered by the Minister who administers the Act under which that money was appropriated, insofar as the Act appropriated that money; and

(c) where the remuneration in respect of that employment is or was paid wholly or principally out of money appropriated by the Constitution - the Finance Department.

In explaining the application of this definition the Explanatory Memorandum to the Fringe Benefits Tax (Application to the Commonwealth) Bill 1986 stated:

"responsible Department" is a term used in the Bill to identify, in relation to a particular Commonwealth employee, the Department that is to be responsible for accounting for fringe benefits provided to the employee. In the case of an employee whose remuneration is paid out of an annual appropriation, the responsible Department is defined to be the one whose appropriation is charged with that remuneration (paragraph (a)). Where the remuneration of the employee concerned is paid out of a standing appropriation (e.g., remuneration of a statutory office holder that is paid out of money appropriated by the Remuneration Tribunals Act 1973), the responsible Department will generally be the one for which the employee performs duties (sub-paragraph (b)(i)). However, if the employee concerned (e.g., a member of the Federal Parliament) does not perform duties for a Department, the responsible Department will be the one that administers that part of the Act under which money is appropriated for the payment of the employee's salary (sub-paragraph (b)(ii)). The Department of the Special Minister of State will be the responsible Department in the case of employees (e.g., Ministers) whose remuneration is paid out of money appropriated by the Constitution (paragraph (c)).

As can be seen from these extracts, the Department in which the employee performs his or her duties is not the only test that is used to determine the relevant employer. This test only applies where the remuneration is paid out of money appropriated under an Act other than an annual Appropriation Act. Given the intention for the disaggregation provisions to operate in a similar manner to the Commonwealth provisions, the 'sufficient connection' test cannot be considered to be the only test that is to be used to determine the relevant 'nominated State or Territory body'.

As discussed above, a 'current employer' is a person (including a government body) who pays, or is liable to pay salary or wages.

Under subsection 135U(5) of the FBTAA a 'nominated State or Territory body' is taken to be a company and a 'government body'. As a company it will be a 'person' for the purposes of the FBTAA. Therefore, in the context of determining which 'nominated State or Territory body' is the 'current employer', the test to consider is whether there is a 'nominated State or Territory body' that pays the salary or wages.

In applying this definition, the Department pays the salary or wages of the employees. This will not change with the establishment of the STATUTORY BODY. As set out in the facts, the Department will continue to pay the salary or wages and no new instruments of appointment/contracts of employment will be completed in respect of the employees. Therefore, as the Department will be paying the salary or wages, it will be the 'current employer' of the employees.

As the usual employer/employee definitions enable the 'current employer' to be identified there is no need to refer to the 'sufficient connection' test.

Therefore, the Department will continue to be the employer of the employees after the STATUTORY BODY is established.

However, it needs to be noted that this conclusion is dependent upon:

· the employees continuing to be employed by the Crown, rather than by the STATUTORY BODY;

· the Department continuing to pay all of the salary or wages of the employees; and

· a variation or revocation not being lodged in relation to the nomination of the Department.

If any of these factors change, there may be a change of employer. However, the timing of the date will depend upon the event that occurs. For example:

· if the employees were to be employed by the STATUTORY BODY the change of employer would occur on the date on which the STATUTORY BODY became the employer;

· if another body was to pay part of the 'salary or wages' it may be necessary to apply the 'sufficient connection' test to identify the relevant employer. If this resulted in a change of employer the date of the change would be determined by the date on which the change occurred; and

· if a variation or revocation occurred, the change of employer would apply from the start of the first year in which the revocation or nomination has effect.