Edited version of your private ruling

Authorisation Number: 1012160421572

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Ruling

Subject: PAYG and Fringe benefits tax - residency - car fringe benefits

Question 1

Will a PAYG withholding obligation arise on the payment of salary or wages to an Australian resident employee seconded to work in the Foreign Country branch for less than 184 days of the relevant Foreign Country tax year?

Answer

Yes.

Question 2

Will a PAYG withholding obligation arise on the payment of salary or wages to an Australian resident employee seconded to work in the Foreign Country branch for more than 183 days of the relevant Foreign Country tax year?

Answer

No.

Question 3

Will a car fringe benefit arise from the private use of a car that you hold by an employee seconded to work in the Foreign Country branch during the period in which a PAYG withholding obligation exists?

Answer

Yes.

Question 4

Will a car fringe benefit arise from the private use of a car that you hold by an employee seconded to work in the Foreign Country branch during the period in which a PAYG withholding obligation does not exist?

Answer

No.

This ruling applies for the following period

1 July 2011 to 30 June 2012.

1 July 2012 to 30 June 2013.

1 July 2013 to 30 June 2014.

1 July 2014 to 30 June 2015.

The scheme commenced on

1 July 2011.

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.

You recently set up a branch in a foreign country.

Some of your employees have been seconded from your Australian branch to work in the branch in the foreign country.

The periods of the secondments have varied and have included:

· secondments of less than six months;

· secondments for 12 months; and

· in the case of two employees a secondment of five years.

You pay all seconded employees from your Australian payroll office.

Details of the employees' circumstances are:

· they work in the foreign country under an appropriate Work Permit,

· they are permanent residents of Australia;

· they are employed on a fixed term contract in the foreign country with a specified end date;

· they intend returning to Australia at the end of their contract;

· they retain a family home in Australia;

· they have not rented their home in Australia;

· they retain a motor vehicle and other assets in Australia;

· they have bank accounts in Australia;

· they are active members of a superannuation scheme in Australia;

· they have not purchased real estate in the foreign country, instead, they live in accommodation leased by you;

· they have not obtained or applied for a migration visa to the foreign country; and

· they retain strong family ties in Australia

As the employees are unable to purchase a private vehicle in the foreign country due to visa restrictions you allow the employees to use your cars for private purposes outside of working hours. This includes transport between the place at which they are staying and the place of work.

The vehicles are required to be on site at the business premises during working hours.

There is no vehicle compound or secure overnight parking available at the business premises.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 66

Fringe Benefits Tax Assessment Act 1986 subsection 7(1)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 subsection 6-5(2)

Taxation Administration Act 1953 Schedule 1 section 12-35

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.

Will a PAYG withholding obligation arise on the payment of salary or wages to an Australian resident employee seconded to work at the foreign branch?

The provisions that set out when a PAYG withholding obligation will arise are contained within Division 12 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

Under section 12-35 of schedule 1 of the TAA an entity is required to withhold an amount from salary or wages it pays to an individual as an employee. However, this is subject to subsections 12-1(1) and 12-1(1A) of schedule 1 to the TAA. Subsection 12-1(1A) provides that an amount need not be withheld if the payment is not assessable income and not exempt income of the entity receiving the payment.

In general terms the determination of whether a payment will be assessable income will depend upon whether the person receiving the payment is an Australian resident and the source of the payment.

Under subsection 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of an Australian resident includes 'ordinary income' derived directly or indirectly from all sources whether in or out of Australia during the income year. By contrast, the assessable income of a foreign resident is limited to the 'ordinary income' derived directly or indirectly from all Australian sources during the income year and other 'ordinary income' that a provision includes in assessable income for the income year on a basis other than having an Australian source.

However, this is subject to the International Tax Agreements Act 1953 (the Agreements Act) which gives the force of law in Australia to Australia's tax treaties with overseas countries.

In general terms the Agreement with Foreign country prevents double taxation by allocating taxing rights between Australia and Foreign country in respect of all forms of income flowing between the two countries.

It provides that salaries, wages and other remuneration derived by an individual who is a resident of one of the Contracting States shall only be taxable in that State unless the employment is exercised in the other Contracting State. Where this occurs, it is necessary to consider the application of sub article (2).

In accordance with this sub article, the salary and wages will be taxable in Foreign country if the employee is a resident of Foreign country. However, if the employee is an Australian resident the country that has the taxing rights will be determined by sub article (2).

Under sub article (2) the salary or wages paid to a seconded employee who is an Australian resident will be taxed in Australia if the employee is present in Foreign country for less than 184 days in any 12 month period of the Foreign Country Tax Year.

Where this occurs there will be a PAYG withholding obligation in Australia.

Conclusion

An Australian PAYG withholding obligation will arise where the seconded employee is an Australian resident who is in Foreign country for less than 184 days in any 12 month period of the Foreign country tax year.

An Australian PAYG withholding obligation will not arise if the seconded employee is:

· a resident of Foreign country; or

· is an Australian resident who is in Foreign country for more than 183 days in any 12 month period of the Foreign country tax year.

Will a car fringe benefit arise from the private use of a car that you hold by an employee seconded to work in the Foreign Country?

A liability to fringe benefits tax (FBT) arises under section 66 of the FBTAA, which states that:

66(1) Subject to this Act, tax imposed in respect of the fringe benefits taxable amount of an employer of a year of tax is payable by the employer.

In general terms, an employer will have a fringe benefits taxable amount when a fringe benefit is provided to an employee or an associate of the employee.

Is the seconded employee an 'employee' for the purposes of the FBTAA?

The term 'employee' is defined in subsection 136(1) of the FBTAA to mean:

· a current employee;

· a future employee; or

· a former employee.

The term 'current employee' is defined in subsection 136(1) of the FBTAA as a person who receives or is entitled to receive, 'salary or wages'. A 'future employee' is defined as a person who will become a 'current employee' and a 'former employee' is defined as a person who has been a 'current employee'.

'Salary or wages' is defined in subsection 136(1) of the FBTAA to mean a payment from which an amount must be withheld (even if the amount is not withheld) under one of the listed provisions in Schedule 1 of the TAA. The listed provisions include section 12-35 of Schedule 1 of the TAA.

As discussed above, a withholding obligation will arise when the seconded employee is an Australian resident who is in Foreign country for less than 184 days in any 12 month period of the Foreign country tax year. In such a year, the seconded employee will be a 'current employee' for the purposes of the FBTAA.

In the other scenarios discussed above where a withholding obligation does not arise, the seconded employee will not be a 'current employee' for the purposes of the FBTAA in the relevant year. However, given the person is a seconded employee the person is likely to be either 'former employee' or a 'future employee'. In each of the scenarios the person is an 'employee' for the purposes of the FBTAA.

Does a 'fringe benefit' arise from the private use of the cars by the employee?

In accordance with the definition of 'fringe benefit' in subsection 136(1) of the FBTAA a 'fringe benefit' will be provided when:

· a benefit is provided;

· to an employee or an associate of an employee;

· by the employer, an associate of the employer or a third party in a situation that comes within either paragraph (e) or paragraph (ea) of the 'fringe benefit' definition;

· in respect of the employment of the employee;

· if the benefit does not come within paragraphs (f) to (s) of the fringe benefit definition.

Each of these conditions is considered below:

Is a benefit provided?

Subsection 7(1) of the FBTAA provides that where a car is applied to a private use by an employee, or is taken to be available for the private use of an employee, that application or availability constitutes a benefit.

Subsections 7(2) and 7(3) set out the circumstances in which a car will be taken to be available for the private use of an employee. Subsection 7(2) provides that the car will be taken to be available when the car is garaged or kept at or near a 'place of residence' of the employee. A 'place of residence' for the purposes of subsection 7(2) of the FBTAA is defined in subsection 136(1) of the FBTAA to mean:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not on a shared basis.

Therefore, the place at which the employee is staying in the Foreign Country will be a 'place of residence' for the purposes of subsection 7(2) of the FBTAA and a car benefit will arise when the employee garages your car at the place at which he or she is staying in the Foreign Country.

These circumstances are extended by subsection 7(3) which provides the car will be taken to be available for the employee's private use when it is not at the business premises if the employee is entitled to apply the car to a private use or the employee has custody and control of the car and is not performing the duties of his or her employment.

In applying these subsections a benefit will be provided when:

· the employees use the car for private purposes; and

· garage the car at the place at which he or she is staying in the Foreign Country.

Is the benefit provided to an employee?

The car benefit is provided to an employee.

Who is the benefit provided by?

The benefit is provided by the employer.

Is the benefit provided in respect of the employment of the employee?

The definition of 'in respect of' in subsection 136(1) of the FBTAA provides that the phrase 'in respect of' 'includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment'.

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

… the holding of any office or appointment, the performance of any functions or duties, the engaging in of any work, or the doing of any acts or things that results, will result or has resulted in the person being treated as an employee.

Where the employee is a 'current employee' the provision of the use of the car will be provided in respect of the employment of the employee as the employment is the reason for the employee being able to use the car for private purposes.

However, where the employee is a 'future employee' or 'former employee' the connection with the employment of the employee will not be present for the relevant period as the use of the car does not relate to the duties performed while the person was a 'current employee'. In this situation, the use of the car relates to the duties performed for which a PAYG withholding requirement did not apply.

Does the use of the car come within paragraphs (f) to (s) of the 'fringe benefit' definition?

The car benefit does not come within paragraphs (f) to (s) of the 'fringe benefit' definition.

Conclusion

A fringe benefits tax liability will arise from the provision of the private use and home garaging of your cars by a seconded employee during the period in which a PAYG withholding obligation exists.

A fringe benefits tax liability will not arise in respect of the car benefits provided during the period in which a PAYG withholding obligation does not exist.