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Ruling

Subject: FBT - In house residual expense payment fringe benefits

Question 1

Does the payment or reimbursement by you for the private retail electricity charges incurred by your employee (s) constitute an 'in-house residual expense payment fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer:

Yes

Question 2

If the answer to Question 1 is 'yes', is the taxable value under subsection 22A(2) of the FBTAA determined in accordance with section 48 or 49 of the FBTAA at 75% of the lowest amount paid or payable by a member of the public in respect of a current identical benefit?

Answer:

Yes

Question 3

If the answer to Question 2 is 'yes', are any resultant fringe benefits, eligible fringe benefits, and eligible for a further reduction of up to $1,000 per employee per year in accordance to section 62 of the FBTAA?

Answer:

Yes

Question 4

Does the payment or reimbursement by you for the 'clean energy' charges incurred by your employee(s) as part of their retail electricity invoices constitute an 'in-house residual expense payment fringe benefit' as defined in subsection 136(1) of the FBTAA?

Answer:

Yes

Question 5

If the answer to Question 4 is 'yes', is the taxable value under subsection 22A(2) of the FBTAA determined in accordance with section 48 or 49 of the FBTAA at 75% of the lowest amount paid or payable by a member of the public in respect of a current identical benefit?

Answer:

Yes

Question 6

If the answer to Question 5 is 'yes', are any resultant fringe benefits, eligible fringe benefits, eligible for a further reduction of up to $1,000 per employee per year in accordance to section 62 of the FBTAA?

Answer:

Yes

Question 7

In the cases where an employee's invoice from their electricity retailer includes gross electricity charges payable to the retailer, and a credit amount for solar generated electricity supplied by the employee, does the reimbursement of the gross electricity charges constitute an expense payment benefits for the purposes of section 20 of FBTAA?

Answer:

Yes

This ruling applies for the following periods:

Fringe benefits tax year ended 31 March 2012

Fringe benefits tax year ended 31 March 2013

Fringe benefits tax year ended 31 March 2014

Fringe benefits tax year ended 31 March 2015

The scheme commences on:

1 April 2011

Relevant facts and circumstances

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.

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

Only electricity invoices issued by a related commercial retailer (scenario 1) and a non-related commercial retailer (scenario 2) that provide an itemised breakdown of amounts can be reimbursed.

The electricity producers and consumers through a pooled system where output from all generators are 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.

The employer currently treats the provision of benefits in both scenarios above as 'in-house' benefits with a taxable value reduced to nil through the operation of sections 48 and 62 of the FBTAA.

Some retailers offer clean energy scheme to their customers. Essentially, the schemes involve customers choosing to buy, at a higher price, a certain quantity of their electricity each month from a clean energy source. 'Clean Energy' is energy generated from a renewable or low carbon emission source.

The nature of electricity and its distribution through the network makes it impossible to trace the generation source of a particular customer's electricity. However, through the Accreditation program, customers can be assured that the additional cost of purchasing clean energy flows through to the cost of renewable electricity generation. This is achieved by independent auditing of participating retailers' purchases of renewable energy certificates which verify the generation of green energy. Therefore, although a customer that is billed for a quantity of green energy is likely to receive the same physical product, the customer has in substance bought a quantity of renewable energy due to the obligations placed on their retailer to secure the generation of the same quantity of electricity from a renewable source.

Some customers have solar photovoltaic cells (PV's) installed on their properties. Using sunlight, the solar PV's generated electricity that is either consumed by the customer or exported from the customer's property to the electricity grid. Only the excess electricity is exported. Electricity exported to the grid is measured through a separate meter. Retailers pay the customer in respect of the volume of energy exported to the grid. If the customer's electricity credit entitlement is greater than the electricity consumption charges, the customer is entitled to either cash from the retailer, or to carry forward the net credit to future invoices.

The network provider also has a legislative obligation to credit the amount in its network charges to the retailer. The network provider funds the feed in tariff amount received by the customer. The retailer ultimately still receives the same amount for retail energy. Some of your employees have residential fuel generator.

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 42

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Subsection 46(2)

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 144

Fringe Benefits Tax Assessment Act 1986 Section 147

Fringe Benefits Tax Assessment Act 1986 Section 149

Fringe Benefits Tax Assessment Act 1986 Section 156

Fringe Benefits Tax Assessment Act 1986 Section 158

Fringe Benefits Tax Assessment Act 1986 Section 159

Income Tax Assessment Act 1936 Section 6

Income Tax Assessment Act 1936 Section 262A

Income Tax Assessment Act 1936 Section 317

Income Tax Assessment Act 1936 Section 318

Income Tax Assessment Act 1997 Section 900-115

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

Reasons for decision

Question 1

Summary

It is considered that the reimbursements and payments in both scenario 1 and scenario 2 constitute 'in-house residual expense payment fringe benefits' as defined in subsection 136(1) of the FBTAA.

Detailed reasoning

A fringe benefit as defined in subsection 136(1) of the FBTAA, is a benefit provided to an employee or associate (employee) by an employer or associate (employer) or a third party under an arrangement with the employer in respect of the employee's employment and such benefit is not otherwise exempted.

As evidenced by the salary sacrifice arrangement (SAA), the payment or reimbursement of private electricity supply expenses of the current employees will, when acted upon, only arise due to the employer and employee relationship between those current employees and yourself.

Therefore, when the employer pays or reimburses the private electricity residential supply expenses to their employees these payments or reimbursements will constitute expense payment fringe benefits.

Subsection 22A(2) of the FBTAA sets out the methodology for the calculation of the taxable value of an in-house residual expense payment fringe benefit.

An in-house residual expense payment fringe benefit, as defined in subsection 136(1) of the FBTAA, must meet all of the following conditions:

· Is an expense payment fringe benefit;

· The employee's (or associate's) expenditure is incurred on the provision of a residual benefit;

The residual benefit provider is either:

· The employer (or associate) who, at the relevant time, carried on a business that consisted of, or included, the provision of identical or similar benefits principally to outsiders; or

· Not the employer nor an associate of the employer but who, at the relevant time, had purchased the benefit from the employer or associate and both the residual benefit provider and the employer or associate carried on a business that consisted of, or included, the provision of identical or similar benefits principally to outsiders.

(d) The required documentary evidence is given to the employer by the required time.

(a) Expense payment fringe benefit

In basic terms, an expense payment benefit, under section 20 of the FBTAA, is either 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.

The employer allows their employees to salary sacrifice up to $X per FBT year towards the payment of their private electric accounts by way of 26 instalments (i.e. $Y per fortnight) that are credited to their employee's electricity accounts with The employer's associate (Company A).

Section 20 of the FBTAA states:

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.

The first limb of the expense payment benefit provisions above provides that 'Where a person...makes a payment in discharge, in whole or in part, of an obligation of another person (...the 'recipient')...', the making of that payment gives rise to an expense payment benefit.

Section 147 of the FBTAA states that '...a person shall be deemed to be under an obligation to pay or repay an amount notwithstanding that the amount is not due for payment or repayment'.

Where the employer arranges for a relevant employee's electricity account to be credited with an instalment amount paid out of funds provided by the employer, a payment in discharge of an obligation of another person (either the relevant employee or their associate) is made. By virtue of section 147 of the FBTAA, and for the purposes of paragraph 20(a) of the FBTAA, an instalment payment by the employer does not need to relate to an amount that is currently due for payment by the relevant employee.

The first limb of the expense payment benefit provisions above also requires that a payment in discharge of an obligation relates to an obligation by the recipient 'to pay an amount to a third person in respect of expenditure incurred by the recipient'.

Therefore, where the employer arranges for a relevant employee's electricity account to be credited with an instalment amount paid out of funds provided by the employer, the obligation that is discharged, in whole or in part, by the employer's payment is the relevant employee's obligation to the electricity supply retailer for the supply of electricity to their private household.

Consequently, for the purposes of paragraph 20(a) of the FBTAA, an expense payment benefit arises at the time the employer arranges for a relevant employee's electricity account to be credited with an instalment amount paid out of funds provided by the employer.

However, in instances where the relevant credit to your employee's electricity accounts may be done solely by way of a 'rebate' granted by the electricity supply retailer then it cannot necessarily be said that the electricity retailer is discharging an obligation to pay a third person as there is no 'third person' involved. Therefore, in such a case the first limb of the expense payment benefit provisions above would not apply.

Paragraphs 3, 4, 9 to 10 of the Taxation Ruling TR 92/15, Income tax and fringe benefits tax: the difference between an allowance and a reimbursement provides guidance on the meaning of 'reimbursement'.

TR 92/15, therefore, explains under what circumstances a 'payment' may be regarded as a 'reimbursement' but there is no definition of the term 'payment', itself, in the FBTAA.

Some support for the view that a 'credit' or 'rebate' can be considered to be a 'reimbursement' can, perhaps, be found in the wording of section 144 of the FBTAA that states that 'any conduct by a person that effects or results in a discharge or extinction of an obligation of another person to pay an amount to a third person shall be taken to constitute the payment of an amount by the first-mentioned person' (but section 144 of the FBTAA itself can't directly apply here as there is no necessary obligation to pay a third person). Also, there is nothing in either the wording of the second limb of the expense payment benefit provisions above or in the guidance provided by TR 92/15 to specifically deny that a 'credit' or 'rebate' can ever be a 'reimbursement'.

It is considered, therefore, that where the relevant credit to the employee's electricity accounts are done solely by way of a 'rebate' granted by the electricity supply retailer then this will constitute a 'reimbursement' for the purposes of paragraph 20(b) of the FBTAA.

This condition is satisfied both where the employer arranges for a relevant employee's electricity account to be credited with an instalment amount paid out of funds provided by the employer or where the relevant credit to your employee's electricity accounts are done solely by way of a 'rebate' granted by the electricity supply retailer.

This condition has been satisfied.

(b) Employee's 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 Division 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.

Section 156 of the FBTAA deems that a supply of electricity (or gas) through a reticulation system does not constitute the provision of property.

Reticulation system is not defined in the FBTAA. Therefore it takes its ordinary meaning. The meaning of reticulation is defined in the Macquarie Multimedia dictionary version 5.00 01/10/01 as:

· the wires, pipes or ducts which convey services through a town or building.

The supply of electricity fits within the ordinary meaning of reticulation. Therefore, the relevant employee's expenditure to be incurred, in this case, will be in respect of the supply of electricity to their private residential premises through a reticulation system.

It is therefore considered that the relevant employee's expenditure incurred will be in respect of a residual benefit as such a supply is deemed, under section 156 of the FBTAA, not to be a property benefit and that also such supply does not otherwise fall within one of the other more specific types contained in the FBTAA.

This condition has been satisfied.

(c)(i) Employer or associate is the residual benefit provider

The employer does not directly retail the supply of electricity to consumers. Consequently, the employer is not the residual benefit provider.

Company A does retail the supply of electricity to consumers and, therefore, it is one of the relevant residual providers.

Paragraph 159(2)(a) of the FBTAA states that a company that is related to another company is deemed to be an associate of that company (for purposes of the FBTAA).

Paragraph 158(1)(a) of the FBTAA states that a company shall be taken to be related to another company if one of the companies is a subsidiary of the other company.

Under subparagraph 158(2)(a)(i) of the FBTAA, a company is a subsidiary (subsidiary company) of another (holding company) if all the shares in the subsidiary company are beneficially owned by the holding company (and also paragraph 158(2)(b) of the FBTAA doesn't apply).

The employer stated in the private ruling application that Company A is your wholly owned subsidiary.

Therefore, the relevant residual provider, Company A, is an associate of the employer, in this particular case.

'Carrying on a business' is not defined in the FBTAA, however, Miscellaneous Taxation Ruling MT 2006/1, The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number, Paragraphs 176 to 179 provides guidance on when an entity is carrying on a business. As with 'carrying on a business' further the meaning of 'principally' is also not defined in the FBTAA, however, at page 50 in the ATO publication 'Income tax guide for non-profit organisations' '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 'more than half, of the time'.

The meaning of 'similar benefits' is also not defined in the FBTAA. However, the Macquarie Dictionary, (3^rd edition), defines 'similar' as including 'having likeness or resemblance, especially in a general way'. The relevant benefit, in this case, is the supply of electricity.

'Outsider', however, is defined in subsection 136(1) of the FBTAA. Therefore, in basic terms, 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 not to any associates of these aforementioned employees.

It is considered therefore, using the guidance of the indicators provided in TR 97/11 that Company A is in the business of retailing the supply of electricity.

Albeit that Company A may be providing the supply of electricity to its own employees (and associates) and also the employees of other associates, it is accepted that the extent of Company A's customer base is such that its electricity supply services will be provided mainly to persons other than those aforementioned employees or their associates.

It is also accepted that the electricity supply services from Company A to the relevant employees is identical to the electricity supply services being provided by Company A to the general public.

Therefore, this requirement is met as Company A, the residual benefit provider, is an associate of the employer and at the relevant time Company A carries on a business that consists of, or included, the provision of electricity supply services principally to outsiders identical to the electricity supply services being provided to the relevant employees.

(c) (ii) Residual benefit provider is not the employer nor an associate of the employer

In subsection 136(1) of the FBTAA associate has the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936).

The meaning of 'entity', is defined in subsection 317(1) of the ITAA 1936 to not only include 'a company' (paragraph (a) of that definition) but also includes 'any other person' (paragraph (d) of that definition).

Subsection 6(1) of the ITAA 1936 defines a person to have the same meaning as that given by subsection 995-1(1) of the ITAA 1997. The definition states only that person includes a company. However, paragraph 22(1)(a) of the Acts Interpretation Act 1901 (AIA) states that in any Act, unless a contrary intention appears, expressions used to denote persons generally (such as 'person') will include a 'body politic'.

Paragraph 38 of MT 2006/1 provides the following guidance on what is meant by the term 'body politic':

'Body politic' is not a defined term. The term takes its meaning from the general law. It includes the Crown in right of the Commonwealth, a State or Territory. However, government departments are not bodies politic in their own right. Instead, they are part of the larger body politic of the Commonwealth or State or Territory....

As the employer is regarded as the 'primary entity' for the purposes of subsection 318(2) of the ITAA 1936 and is regarded as the 'controlling entity' for the purposes of subsection 318(2) of the ITAA 1936 then it is also considered that the employer is 'sufficiently influenced' (as that expression is defined in paragraph 318(6)(b) of the ITAA 1936) to be its 'associate' under subsection 318(2) of the ITAA 1936.

In scenario 2, the employer pays or reimburses their employee's retail electricity account held with a non-related retailer. In this case, it is necessary to establish that the non-related retailer purchased the electricity from the employer or its associate(s).

Due to the nature of electricity and its distribution, it is not possible to physically track with certainty the particular source of electricity supplied to an individual employee's premises. However, it is reasonable to accept that the electricity supplied to an employee by a non-related retailer is purchased from the employer's associates' generator. This conclusion can be drawn for the following reasons.

· On this basis, it is reasonable to conclude that the source of electricity for which you reimburse your employees under Scenario 2 is the employer's associates' generator. It is also reasonable to conclude that the non-related retailers purchase electricity from an associate of the employer.

· As such the condition of paragraph (c) is met as the residual benefit provider is either an associate of the employer or purchased the benefit from an associate of the employer and all relevant parties carried on a business that consisted of, or included, the provision of similar benefits principally to outsiders at the required time.

(d) Required documentary evidence given to employer at the required time

Paragraph (d) of the definition of 'in-house residual expense payment fringe benefit', contained in subsection 136(1) of the FBTAA, states:

documentary evidence of the recipient's expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date.

Documentary evidence is defined in subsection 136(1) of the FBTAA as follows:

… in relation to an expense, incurred by a person, 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 the person.

There is no definition of 'copy' in the FBTAA and it is, therefore, necessary to consider the ordinary meaning of the words. The Macquarie Dictionary (3^rd edition) defines a 'copy' as follows:

1. a transcript, reproduction, or imitation of the original.

2. That which is to be transcribed, reproduced or imitated. …

8. To follow as a pattern or model. …

11. To make or do something in imitation of something else.

The matter of record keeping by electronic means has been covered in Taxation Ruling TR 2005/9, Income tax: record keeping - electronic records, which explains the principles associated with the retention of electronic records for the purposes of section 262A of the ITAA 1936. TR 2005/9 sets out the Commissioner's views on what are sufficient electronic records to be retained to record and explain all transactions and other acts for the purposes of the ITAA 1936.

Subsection 262A(1) of the ITAA 1936 requires a person who carries on a business to keep records that record and explain all transactions and other acts engaged in by the taxpayer. Paragraph (a) of subsection 262A(3) of the ITAA 1936 requires records to be kept in writing in the English language or so as to enable the records to be readily accessible and convertible into writing in the English language. Paragraph (b) of subsection 262A (3) of the ITAA 1936 requires that records must also be kept so as to enable the person's liability under the ITAA 1936 to be readily ascertained.

Paragraphs 17, 23 to 25, 27 and 34 to 36 of the Taxation Ruling TR 2005/9 provide explanations for electronic record keeping requirements.

Paragraph (d) of the definition of 'in-house residual expense payment fringe benefit', contained in subsection 136(1) of the FBTAA requires, firstly, that 'documentary evidence of the employee's expenditure is obtained by the employee'. The definition of 'documentary evidence', also contained in subsection 136(1) of the FBTAA, states that the term in relation to an expense means 'a document that would constitute written evidence of the expense obtained in a way described in Subdivision 900-E of the ITAA 1997.

Any 'bill for service', in the form of a written tax invoice, issued by the relevant electricity retailers to your employees, for the electricity supply expenses incurred by these employees, would, therefore, constitute documentary evidence of the recipient's expenditure incurred provided the requirements of section 900-115 of the ITAA 1997 were met. Consequently, unless there is any evidence to the contrary, this particular condition of paragraph (d) of the definition of 'in-house residual expense payment fringe benefit', contained in subsection 136(1) of the FBTAA will be met in this case.

However, paragraph (d) of the definition of 'in-house residual expense payment fringe benefit', contained in subsection 136(1) of the FBTAA, also requires that 'documentary evidence, or a copy, is given to the employer before the declaration date'.

The information proposed to be provided by the electricity retailers to you will usually be in an electronic form rather than in any direct written form. Paragraph (c) of the definition of 'document', in section 25 of the AIA, includes 'any article or material from which...images or writings are capable of being reproduced'. Also the definition of 'writing', in section 25 of the AIA, 'includes any mode of...reproducing words, [or] figures... in a visible form'.

Therefore it is considered that, provided the electronic information proposed to be usually provided by the electricity retailers to you otherwise meets all the necessary requirements of section 900-115 of the ITAA 1997 and that the proper integrity safeguards outlined by TR 2005/9 are also in place, such electronic information will constitute 'documentary evidence' for the purposes of paragraph (d) of the definition of 'in-house residual expense payment fringe benefit' contained in subsection 136(1) of the FBTAA in this particular case.

It is also noted that, as required, you can obtain copies of the actual tax invoices issued by the various electricity retailers to the relevant employees.

This condition is met as such electronic information (or copies of the actual tax invoices) meets the necessary documentary evidence requirements of paragraph (d) of the definition of 'in-house residual expense payment fringe benefit', contained in subsection 136(1) of the FBTAA and also such documentary evidence will be provided to the employer by the required times.

In respect of scenario 2, the documentary evidence requirement is clearly satisfied as:

· The employee provides a copy of their retail invoice to the employer.

· The invoices satisfy the requirements of Subdivision 900-E of the ITAA 1997.

· The employer verifies that the invoice is in the employee's name (or jointly in the name of the employee and an associate of the employee) prior to reimbursing the electricity charges.

· The employer retain copies of the invoices reimbursed.

In respect of scenario 1, Company A issues electricity invoices to the employee in the same way it issues invoices to its other customers. The invoice shows the electricity charges payable in respect of electricity supplied to the employee's premises. Therefore, the process of Company A issuing its ordinary retail invoice to the employee/customer has the effect of the employee obtaining documentary evidence of the expenditure. This clearly satisfies the first aspect of requirement (d), that the evidence is obtained by the recipient.

The second aspect to requirement (d) is that the documentary evidence, or a copy, is given to the employer. An electronic record of the employee's expense is capable of satisfying this requirement as stated earlier. This is consistent with the meaning of 'document' in section 25 of the AIA.

The electronic record is capable of satisfying requirement (d). Company A retail billing system maintains electronic records that, while not the actual invoice, are reasonably described as 'a copy' of the invoice that issued to the customer. The billing system contains the electronic data that created the original invoice and effectively enables reproduction of the invoice. It is also noted that the employee, as part of entering an effective salary sacrifice arrangement for electricity credits, signs an authority allowing you to access the employees retail electricity account information held with Company A for the purpose of enabling you to comply with tax obligations. This authority, coupled with the employer and Company A's relationship, has the effect that the employer has access to a copy of the evidence of the employee's expenditure. Further, the employer obtains a report for each FBT year summarising the amount of electricity charges that have been offset by electricity credits for each employee that participates in the electricity salary sacrifice arrangement.

We consider that the overall effect of the above circumstances is that the documentary evidence requirement of paragraph (d) is met.

Question 2

Summary:

The taxable values of the expense payment fringe benefits, resulting from the payment or reimbursement by you of the private domestic electricity supply expenses of your relevant employees, under subsection 22A(2) of the FBTAA is in accordance with section 48 of the FBTAA at 75% of the lowest amount paid or payable by a member of the public in respect of current identical benefits.

Detail reasoning:

Under subsection 22A(2) of the FBTAA the taxable value of an in-house residual expense payment fringe benefit is equal to the taxable value of the notional residual fringe benefit calculated under whichever of sections 48 or 49 of the FBTAA is applicable (and also without taking into account the 'otherwise deductible rule' in section 52 or any of the other reductions of taxable value in Division 14 of the FBTAA).

Section 49 of the FBTAA deals with the taxable value of an in-house period residual fringe benefit. An 'in-house period residual fringe benefit' is defined, in subsection 136(1) of the FBTAA, to mean an in-house residual fringe benefit that is provided during a period.

Section 149 of the FBTAA sets out when a benefit may be regarded as one 'that is provided during a period'. The relevant two main requirements, under section 149 of the FBTAA, are that the benefit:

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

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

However, subsection 46(2) of the FBTAA states that in circumstances where an employee incurs a liability for a payment to be made for a benefit (not being either a lease or a licence in respect of property) on a regular billing basis and that the provision of identical benefits to the public is also part of the provider's business, the provision of the relevant benefit during each billing period constitutes a separate benefit which is deemed to have been provided at the time the payment in respect of each billing period becomes due and payable.

The relevant employees will be billed for the services on a regular basis in this case.

As it has been already determined above that the relevant benefits in this case are the supply of electricity through a reticulated system, the benefits being provided to both the relevant employees and the public as part of the provider's (electricity retailer's) business will, indeed, be identical.

Therefore, as the benefits in this case will be deemed, under paragraph 46(2)(d) of the FBTAA, to be provided at the time when the payment in respect of that period is due and payable (that is, deemed to be provided on a particular day) they fall within the specific exclusion of what is a 'period benefit' in section 149 of the FBTAA.

As the relevant benefits are not period benefits then they also cannot be 'in-house period residual fringe benefit' as defined nor, consequently, fall to be valued under section 49 of the FBTAA.

Therefore, the relevant benefits will be valued under section 48 of the FBTAA as 'in-house non-period residual fringe benefits' as all the necessary requirements are met.

It may be noted that whether the taxable value of such benefits are, in fact, calculated under section 48 of the FBTAA or under section 49 of the FBTAA will be, in a case such as this, effectively immaterial to the final result.

Irrespective of whether the provision of electricity is regarded as a period (section 49 of the FBTAA) or non-period residual benefit (section 48 of the FBTAA), the taxable value of the benefits outlined in this ruling will be the same. That is, the value is 75% of the lowest price charged by the electricity retailer to the public.

Question 3

Summary:

The taxable values of any expense payment fringe benefits arising from the payment or reimbursement by the employer to their employees' private electricity supply obtained from any of the relevant electricity supply retailers can be reduced under section 62 of the FBTAA.

Detail reasoning:

Section 62 of the FBTAA provides for the reduction of the aggregate taxable value of certain eligible fringe benefits.

Section 62 of the FBTAA states:

62(1) [Amount of reduction] 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.

62(2) [``eligible fringe benefit''] In this section, ``eligible fringe benefit'' means:

(a) an in-house fringe benefit; or

(b) ...

Paragraph (a) of the definition of 'in-house fringe benefit' contained in subsection 136(1) of the FBTAA includes an in-house expense payment fringe benefit.

As subsection 62(1) of the FBTAA refers to the situation where one or more eligible fringe benefits relate to a particular employee of the employer, it is considered, therefore, that section 62 of the FBTAA will apply to the payment or reimbursement by the employer to their employee's private electricity supplies obtained from any of the relevant electricity supply retailers.

However, as subsection 62(1) of the FBTAA only refers to relating to employees the position regarding the associates of employees is perhaps not so immediately clear.

Paragraphs 4 to 6 of the Taxation Ruling MT 2044, Fringe Benefits Tax: Reduction of Aggregate Taxable Value of Fringe Benefits - Application to associates, guidance is provided on the position of associates of employees under section 62 of the FBTAA.

Therefore, section 62 of the FBTAA can also apply to associates of an employee. However it should be noted that, as pointed out in paragraph 6 of MT 2044 above, the reduction of $1,000 will be deducted from the sum total of the taxable values of the relevant eligible fringe benefits that were provided to both the employee and the employee's associate(s) in a particular year.

Accordingly, the taxable values of any expense payment fringe benefits arising from the payment or reimbursement by the employer to their employees' private electricity supply obtained from any of the relevant electricity supply retailers can be reduced under section 62 of the FBTAA.

This has the effect that the first $Z worth of electricity per employee can be paid or reimbursed by the employer before FBT begins to apply.

Question 4

Summary

It is considered that the reimbursements and payments in both scenario 1 and scenario 2 for 'Clean Energy' or 'Green Energy' constitute 'in-house residual expense payment fringe benefits' as defined in subsection 136(1) of the FBTAA.

Detail reasoning

Clean energy is the electricity sourced from renewable energy sources or low carbon emission source e. g. wind power, solar power and hydroelectric power compared to electricity sourced from non-renewable energy sources such as coal. Company A offers a 'clean energy' product to it customers. Only a very small minority of the total 'clean energy' sold by Company A is sold to customers that are also your employees. That is, the clean energy product is principally supplied to outsiders.

While there are differences between the ways in which electricity is generated from renewable sources and from non-renewable sources, those differences do not change the nature of what customers are acquiring - which is electricity.

Therefore, the tests that were discussed in response to question 1 equally apply in relation to both green electricity and electricity sourced from non-renewable energy sources.

As Company A sells green electricity and green electricity which goes into the pool is generated by State Government owned generators the reimbursement of the expenses incurred by employees in purchasing green electricity will be an in-house residual expense payment fringe benefits.

In particular, for scenario 1, as Company A, the residual benefit provider, is an associate of the employer, paragraph (b) of section 136(1) of the FBTAA of the definition of 'in-house residual expense payment fringe benefit' is relevant:

(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

In scenario 1, Company A proposes to apply the amounts paid to it by the employer (funded from salary sacrifice deductions of employees) to the 'Clean Energy' charges in the employee's retail electricity account. This is considered to constitute an 'in-house residual expense payment fringe benefit'.

There will be no difference in the application of the FBT provisions as between the payment of Company A's 'Clean Energy' charges and the payment of Company A's normal electricity charges. In both cases, the electricity products are primarily supplied to outsiders.

Under Scenario 2, non-related retailers sell 'clean energy' products to their customers. You propose to reimburse your employees for amounts charged to them for 'clean energy' by non-related retailers. The process will operate exactly the same as for normal electricity charges. That is, the employee will provide a retail electricity invoice that includes 'clean energy' charges, and the employer will reimburse the employee and retain a copy of the invoice.

For the same reasons as outlined in the response to question 1, all of the requirements of the definition of an 'in-house residual expense payment fringe benefit' in paragraph (c) of section 136(1) of the FBTAA is relevant are met:

(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

Non-related retailers carry on businesses that include the provision of accredited 'clean energy' to their customers at large. The employer's associates carry on businesses that include the generation and sale of clean energy. Where the employer reimburses an employee's clean energy charges, requirement (c) is satisfied if the non-related retailer purchased the 'clean energy' from the employer's associate.

A customer, although paying a premium amount for 'clean energy' in fact simply acquires electricity. Due to the nature of the electricity, it is not possible to trace the exact source of the energy. On this basis, it could be argued, on the grounds as in response to question 1 above for 'normal' electricity, that it is reasonable to conclude that the retailer acquired the electricity from an associate by virtue of the majority of the energy being generated by the employer's associates.

However, should it be considered appropriate to regard the clean energy as a distinctly separate product, it is consider reasonable to conclude that the clean energy supplied to your employee from the retailer was sourced by the retailer from your associate. This conclusion is on the basis that the total quantity of clean energy generated by the employer's associates by far exceeds the quantity of clean energy sold by non-related retailers to the employees. This conclusion can be drawn from the fact that the employer has only a small proportion of employees that are supplied by non-related retailers, of which it is likely that only a 'handful' subscribe to 'clean energy'..

The arguments in support of the conclusion in respect of non-related retail 'Clean Energy' charges are essentially based on the same principles as the arguments for normal electricity. That is, it is reasonable to conclude that the source of energy is from the employer's related associate.

Based on the reasons as outlined in Question 1 in respect of normal retail electricity charges, all of the requirements of an 'in-house residual expense payment fringe benefit' are met.

Question 5

Summary:

The taxable values of the expense payment fringe benefits, resulting from the payment or reimbursement by the employer for 'clean energy' charges for private domestic electricity supply expenses incurred by your employees, under subsection 22A(2) of the FBTAA is in accordance with section 48 of the FBTAA at 75% of the lowest amount paid or payable by a member of the public in respect of a current identical benefit.

Detail reasoning:

Based on the reasons as outlined in Question 2 in respect of normal retail electricity charges, all of the requirements of an 'in-house residual expense payment fringe benefit' are met. Under subsection 22A(2) of the FBTAA the taxable value of an in-house residual expense payment fringe benefit is equal to the taxable value of the notional residual fringe benefit calculated under section 48 of the FBTAA.

The taxable value of the benefits is the value of 75% of the lowest price charged by the electricity retailer to the public.

Question 6

Summary:

The taxable values of any expense payment fringe benefits arising from the payment or reimbursement by the employer to their employees' 'clean energy' charges for private electricity supply obtained from any of the relevant electricity supply retailers can be reduced under section 62 of the FBTAA.

Detail reasoning:

Based on the reasons as outlined in Question 3 in respect of normal retail electricity charges, all of the requirements of an 'in-house residual expense payment fringe benefit' are met.

Accordingly, the taxable values of any expense payment fringe benefits arising from the payment or reimbursement by the employer to their employees' 'clean energy' charges for private electricity supply obtained from any of the relevant electricity supply retailers can be reduced under section 62 of the FBTAA.

This has the effect that the first $1,333 worth of electricity per employee can be paid or reimbursed by you before FBT begins to apply.

Question 7

Summary

The payment or reimbursement by the employer of the gross electricity charges incurred by their employee(s) constitutes an expense payment benefit within the meaning of section 20 of the FBTAA.

Detail reasoning

Section 20 outlines the meaning of an expense payment benefit as follows:

Where a person (in this section referred to as the 'provider'):

· 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

· reimburses another person (in this section also referred to as the 'recipient'), in whole or in part, in respect of an amount of expenditure I 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

For employees with solar PV cells, the critical issues relating to section 20 of the FBTAA are whether the employee is under an obligation to pay the gross electricity charges to the retailer, and whether the gross charges reflect expenditure incurred by the employee.

Subsection 136(1) provides that 'obligation, in relation to the payment or repayment of an amount, includes an obligation that is not enforceable by legal proceedings.'

Section 147 provides that '… a person shall be deemed to be under an obligation to pay or repay an amount notwithstanding that the amount is not due for payment or repayment.'

The 'gross charges' are for the total quantity of electricity sold by the retailer as a consequence of the energy moving from the grid to the customers premises. A specific price per kWh is charged in accordance with the retail electricity supply contract between the retailer and its customer. Electricity exported to the grid by a customer is metered separately to electricity sold by the retailer to the customer. A separate price is payable in respect of each product. The two amounts effectively represent separate transactions and separate obligations for the parties to pay the respective amounts. Both amounts are separately identified on the retail invoice but conveniently netted off for payment purposes.

On this basis, under scenario 1, the payment by the employer of gross electricity charges for electricity supplied by Company A to an employee discharges an obligation of the employee to pay Company A for that electricity. This is the case notwithstanding that Company A also has an obligation to pay the employee for excess solar generated electricity supplied to the grid.

Similarly, under scenario 2, the gross electricity charges of a non-related retailer to be an amount of expenditure incurred by the employee, notwithstanding that the employee may not actually pay this amount in cash to the retailer (due to the retailer's obligation in respect of solar energy being offset on the invoice).

If the employee has incurred the charges for energy purchased from the retailer and is obliged to pay the charges, the employee effectively pays for part of the charges using the money owed to them for the separate supply of solar energy.

The gross energy charges payable by a customer to their retailer in accordance with the notified prices or the contractually agreed price is an 'amount of expenditure incurred' by the customer. The amount is incurred when the energy is taken from the grid to the customers' house and recorded on the meter -- which is eventually read by the meter reader, ultimately providing the information for the retailer to bill for the charges in accordance with its contractual rights. The charges become payable under the terms of the retail contract between customer and retailer.

In contrast, the amount of credit for which a customer is entitled to receive for PV generated energy is triggered when some electricity flows from the house to the grid and is recorded in the outward meter. The meter is eventually read, the retailer is given notice of this 'outward' meter reading and provided with agreed amount of credit by the network provider and triggering the legislative obligation on the retailer to pay the amount to the customer. This payment or crediting via the legislation is a separate obligation to the payment for retail energy supply to the customer via the contract.

If the employer choose to pay its employee's gross energy charges payable in accordance with the contract (the notified prices or market agreed retail price), the employee is providing an expense payment benefit. The employer is paying the contractual retail charges. The alternative view, that the feed in tariff amount is merely a set off or discount to the retail charges and that the 'net' amount is the only amount 'incurred' by the customer, it is inconsistent with the fact that the retailer must pay the full agreed amount to the customer in cash (if the credit exceeds other charges payable). This indicates two separate expenses incurred by each of the parties - payable for different reasons -- but merely set off at invoicing point. That is, if the customer were to draw no energy from the grid, the retailer would be required to pay the customer the full agreed amount per Kwh for the energy sent to the grid.  It would be incurred by the retailer. Similarly, if the customers PV's stopped working for a whole billing period, the customer would have to pay the full retail charges to the retailer -- these full charges would clearly be incurred.  Just because both events can happen during the same billing period (sometimes during the month energy goes out, sometimes it goes in) shouldn't mean that the amounts payable in respect of each event cease to be separately incurred by the respective parties.

The underlying agreed amount or the additional 6 or 8 cents paid by some commercial retailers is clearly related to the export of energy from the customers PV cells and does not alter the amount incurred by the customer under the retail contract for energy drawn from the grid.

Therefore the payments or reimbursements outlined above are, in their entirety, expense payment benefits under section 20 of the FBTAA.