Edited version of your private ruling

Authorisation Number: 1012127798543

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Subject: Fringe benefits tax

Question 1

Will the reimbursement of electricity expenses incurred by an employee be an in-house expense payment fringe benefit?

Answer

No

Question 2

Will the reimbursement of expenses incurred by an employee using public transport provided by entity A be an in-house expense payment fringe benefit?

Answer

Yes

Question 3

Will the reimbursement of expenses incurred by an employee using public transport provided by entity B be an in-house expense payment fringe benefit?

Answer

No

This ruling applies for the following period<s>:

Year ending 31 March 2013

Year ending 31 March 2014

Year ending 31 March 2015

The scheme commences on:

1 April 2012

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 wants to make benefits available to its employees and wants to know if they will qualify for the in-house fringe benefit reductions.

The employer will provide the benefits as part of a salary sacrifice arrangement administered by one of a number of specific salary packaging providers.

The benefits will be provided within the guidelines and processes administered by the salary packaging provider.

Electricity

The electricity must be provided through electricity retailers sourcing electricity from particular electricity generators.

Only electricity invoices issued by a licensed retailer which provides an itemised breakdown of amounts can be reimbursed. A copy of all sides of electricity bills and proof of payment is required.

The particular electricity generators are companies.

Generators supply electricity to the National Electricity Market (NEM). The following information was obtained from the publication An Introduction to Australia's National Electricity Market July 2010, on the Australian Energy Market Operator (AEMO) website:

The NEM is a wholesale market for the supply of electricity to retailers and end-users. It is managed by the AEMO, which is responsible for balancing the demand and supply of electricity by dispatching the generation necessary to meet demand.

The NEM facilitates exchange between electricity producers and consumers through a pooled system where output from all generators is aggregated and scheduled to meet consumer demand.

Electricity cannot be stored for future use, so supply must vary dynamically with changing demand. One unit of electricity is indistinguishable from all other units, it is impossible to determine which generator produced which electricity.

Public Transport

Expenses that may be reimbursed are those in relation to public transport provided by certain providers.

The reimbursement of public transport expenses is by the reimbursement of expenses incurred travelling on various public transport services.

Specific records will be required before reimbursement takes place.

The providers of the public transport are entity A which is a company and entity B that is also a company.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20,

Fringe Benefits Tax Assessment Act 1986 section 22A,

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

Fringe Benefits Tax Assessment Act 1986 section 156,

Fringe Benefits Tax Assessment Act 1986 section 159,

Income Tax Assessment Act 1936 section 318 and

Income Tax Assessment Act 1936 subsection 6(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

Summary

The reimbursement of electricity expenses incurred by an employee will not be an in-house expense payment fringe benefit as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Detailed reasoning

The reimbursement of expenses incurred by an employee is an expense payment benefit. Under section 20 of the FBTAA an expense payment benefit arises where a person (the provider):

(a) makes a payment of the obligation of another person (the recipient) to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses the recipient expenditure incurred by the recipient.

The taxable value of an expense payment fringe benefit that is an in-house expense payment fringe benefit may be reduced in accordance with section 22A of the FBTAA.

An in-house expense payment fringe benefit is defined in subsection 136(1) to mean:

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

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

Where the expense incurred by the employee is in respect of property paragraph (a) will apply. Where the expense incurred by the employee is in respect of a residual benefit paragraph (b) will apply.

In considering the provision of electricity section 156 of the FBTAA provides that the supply of electricity or gas through a reticulation system shall be deemed not to constitute the provision of property. As electricity is being supplied through a reticulation system, the reimbursement of electricity expenses is not an in-house property expense payment fringe benefit.

Subsection 136(1) defines an 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 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);

(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.

As the employees' expenditure will be incurred on the provision of a residual benefit. The reimbursement will be an in-house residual expense payment fringe benefit if either of paragraphs (b) or (c) and paragraph (d) of the definition are met.

The employer will only be reimbursing expenses where the electricity is provided through electricity retailers sourcing electricity from particular electricity generators. Therefore paragraph (c) of the definition has been considered first.

Will the provider of the electricity purchase the electricity from the employer or an associate of the employer at the relevant time?

The particular generators are companies and not the employer. Therefore it is necessary to consider whether they are associates of the employer.

Subsection 136(1) of the FBTAA provides that the term associate has the same meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936).

Using the tests within section 318:

· the particular electricity generators are not associates of the employer, and

· the employer is not the associate of the particular electricity generators.

However, this definition of associate is extended for the purposes of the FBTAA by section 159 of the FBTAA.

Using the tests in section 159 of the FBTAA the particular generators are not associates of the employer. Therefore paragraph (c) of the definition is not met as the provider of the electricity, at the relevant time, will not be purchasing the electricity from the employer or an associate of the employer.

Will the employer or an associate of the employer provide of the electricity at the relevant time?

Having established that the provider of the electricity will not be purchasing the electricity from the employer or an associate of the employer, we must also consider paragraph (b) of the definition of in-house residual expense payment fringe benefit.

The provider of the electricity to the employees will be an electricity retailer.

There is no electricity retailer who is an associate of the employer.

Therefore paragraph (b) of the definition is not met as the provider of the electricity, at the relevant time, is neither the employer nor an associate of the employer

Since the electricity will not be provided by any of the following:

· the employer

· an associate of the employer

· by a provider who purchased the electricity from the employer or an associate of the employer

any reimbursement of the electricity bills of the employer's employees will not meet the definition of an in-house residual expense payment fringe benefit and consequently will not be in-house expense payment fringe benefit.

Question 2

Summary

The reimbursement of expenses incurred by an employee using public transport provided by entity A will be an in-house expense payment fringe benefit.

Detailed reasoning

The employer is considering reimbursing expenses employees incur in travelling on transport provided by entity A. The reimbursement of the expenses incurred by an employee is an expense payment benefit.

As noted above in the reasons for decision for question one, in order to determine whether the expense payment fringe benefit is an in-house expense payment fringe benefit we must consider whether it is:

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

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

Where the expense incurred by the employee is in respect of property paragraph (a) will apply. Where the expense incurred by the employee is in respect of a residual benefit paragraph (b) will apply.

Property means:

(a) intangible property; and

(b) tangible property

Tangible property means goods and intangible property means real property, a chose in action and any other kind of intangible property.

The provision of transportation is not property and is therefore a residual benefit. It is necessary to determine, therefore, whether the reimbursement of travel on transport provided by entity A is an in-house residual expense payment.

The reimbursement will be an in-house residual expense payment fringe benefit if either of paragraphs (b) or (c), and paragraph (d) of the definition are met.

The expenses the will be reimbursed are those incurred by the employee travelling on transport provided by entity A.

We have considered therefore, whether paragraph (b) of the definition will be met in relation to the reimbursement of expenses incurred using

Will the employer or an associate of the employer provide the transport at the relevant time?

Under paragraph (b) of the definition of in-house residual expense payment fringe benefit, the provider of the residual benefit must be either the employer or an associate of the employer.

The relevant residual benefits will be passenger transport services provided by entity A. As the employer is not the provider of those services, it is necessary to establish whether entity A is an associate of the employer.

As noted above, section 318 of the ITAA 1936 defines the term associate in relation to a natural person, a company, a trustee and a partnership. However the tests in section 318 of the ITAA 1936 will not be met in relation to the employer.

The extended definition if associate in subsection 159 of the FBTAA may apply.

It can be concluded that entity A is an associate of the employer based on subsection 159(2) of the FBTAA.

Having established that the employer and entity A are associates, it is necessary to consider whether entity A is carrying on a business that provides identical or similar benefits principally to outsiders.

It is accepted that entity A carries on a business, by providing public passenger transport.

Since it is accepted that entity A carries on the business of providing public passenger transport, it is also accepted that such passenger transport services are principally provided to individuals who are not the employees of entity A or of any related entity.

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

Having established that paragraph (b) of the definition of in-house residual expense payment fringe benefit has been satisfied, we must consider paragraph (d).

The declaration date is defined in subsection 136(1) of the FBTAA:

…in relation to an employer in relation to a year of tax, means the date of lodgement of the return of the fringe benefits taxable amount of the employer of the year of tax, or such later date as the Commissioner allows.

Thus the declaration date will generally be no later than 21 May following in the next year of tax.

One of the requirements of the salary packaging providers is that employees claiming a reimbursement must provide particular documentation. Since this will happen prior to the actual reimbursement, the appropriate documentary evidence will be provided before the declaration date. Therefore paragraph (d) of the definition of in-house residual expense payment fringe benefit will be met.

Since paragraphs (b) and (d) of the definition of in-house residual expense payment fringe benefit will be met, the reimbursement will be an in-house expense payment fringe benefit.

Question 3

Summary

The reimbursement of expenses incurred by an employee using public transport provided by entity B will not be an in-house expense payment fringe benefit.

Detailed reasoning

The employer is considering reimbursing expenses employees incur in travelling on transport provided by entity B. The reimbursement of the expenses incurred by an employee is an expense payment benefit.

As noted above, since transport is a residual benefit, it is necessary to determine whether the expense payment fringe benefit is an in-house residual expense payment fringe benefit in order to determine whether it is an in-house expense payment fringe benefit.

Entity B is a company and based on the reasoning in relation question one, it is not an associate of the employer.

Consequently, any reimbursement of expenses incurred in travelling on transport provided by entity B by the employer's employees will not meet the definition of an in-house residual expense payment fringe benefit and will not be in-house expense payment fringe benefit.