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Ruling

Subject: FBT - In house residual expense payment fringe benefits

Question 1:

The gross payment or reimbursement by you of the private expense incurred by an employee (or associate) constitutes an expense payment benefit within the meaning of section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Answer: Yes

Question 2

If the answer to Question 1 is "yes", does the payment or reimbursement by you in the manner contemplated constitute an in-house residual payment benefit for the purposes of subsection 22A(2) of the FBTAA?

Answer:

Yes

Question 3

If the answer to Question 2 is "yes," is the taxable value under subsection 22A(2) of the FBTAA determined in accordance with section 48 or 49of 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 4

If the answer to Question 3 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 with section 62 of the FBTAA?

Answer:

Yes

This ruling applies for the following periods:

31 March 2013

31 March 2014

31 March 2015

31 March 2016

The scheme commences on:

On or after 1 April 2012

Relevant facts and circumstances

The employer is proposing to reimburse private expenses incurred by its employees in respect of a product being supplied to these employees (or associates) by retailers.

The relevant intended reimbursements by the employer will be made on the presentation to them of the employee's (or associate's) invoice as evidence of the employee's (or associate's) payment.

The relevant retailers originally purchase the product from a wholesale market. The employer and the employee are one of the producers in this market. Once the retailer acquires the goods from various producers it is not able to distinguish, at the time of sale, which producer's goods have been sold to particular customers.

None of the relevant retailers are associates of the employer.

All of the relevant retailers sell the relevant product to the public at large.

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)

The Interpretation Act 1901 Paragraph 22(1)(a)

The Interpretation Act 1901 Section 25

The Electricity Act (Qld) 1994 Section 55DB

The Electricity Act (Qld) 1994 Section 44A

Government Owned Corporations Act (Qld) 1993 Subsection 16(c)

Government Owned Corporations Act (Qld) 1993 Section 78

Government Owned Corporations Act (Qld) 1993 Subsection 79(1)

Government Owned Corporations Act (Qld) 1993 Subsection 82(2)

Government Owned Corporations Act (Qld) 1993 paragraph 84(1)(a)

Government Owned Corporations Act (Qld) 1993 Section 114

Government Owned Corporations Act (Qld) 1993 Section 115

Government Owned Corporations Act (Qld) 1993 Section 122

Reasons for decision

Question 1

Summary

The gross payment or reimbursement by you of the private expense incurred by an employee (or associate) constitutes an expense payment benefit within the meaning of section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Detailed reasoning

Section 20 of the FBTAA 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 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 employee(s) who is one of the producers of the product, the critical issues relating to section 20 of the FBTAA are whether the employee is under an obligation to pay the gross charges to the retailer, and whether the gross charges reflect expenditure incurred by the employee.

Subsection 136(1) of the FBTAA 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 of the FBTAA 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' to the employee are for the total quantity of the product sold by the retailer. A separate price is payable in respect of the product supplied by the employee. 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.

If the employee has incurred the charges for the product 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 the product.

Under the proposed arrangement the employer intends to reimburse their employee's private expenses. The reimbursement will be made upon presentation of the account.

The proposed arrangement will constitute as expense payment benefit as described in section 20 of the FBTAA.

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

The proposal to pay or reimburse the private expenses of current employees (or their associates) will, when acted upon, only arise due to the employer and employee relationship between those current employees and the employer.

Therefore, the proposal to pay or to reimburse the private expenses of employees (or associates) will, when acted upon, constitute expense payment fringe benefits.

Question 2

Summary

The proposed payments or reimbursements of the private expenses of employees (or associates) will be 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, the payment or reimbursement of private 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 you pay or reimburse the private expenses of your employees for 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, is a fringe benefit that meets 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.

As the provider of the residual benefit is not the employer or an associate of the employer we do not need to look at whether paragraph (b) of the definition applies. However in respect of paragraphs (b) and (c) of the definition only one of these paragraphs need to be satisfied (providing both paragraphs (a) and (d) are also satisfied).

(a) Expense payment fringe benefit

As determined in Question 1, this condition has been satisfied.

(b) Employee's expenditure incurred in respect of a residual benefit

Section 45 of the FBTAA describes what constitutes a residual benefit. Under that description a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA.

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

This condition has been satisfied.

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

You are the relevant employer but you do not directly retail the supply of the product to consumers. Consequently, you are not the residual benefit provider.

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).

Outsider', however, is defined in subsection 136(1) of the FBTAA as being:

in relation to the employment of an employee of an employer, means a person not being:

(a) an employee of the employer;

(b) an employee of an associate of the employer;

(c) an employee of a person (in this definition referred to as the 'provider') other than the employer or an associate of the employer who provides benefits to, or to associates of, employees of the employer or an associate of the employer under an arrangement between:

(i) the employer or an associate of the employer; and

(ii) the provider or another person; or

(d) an associate of an employee to whom any of the preceding paragraphs apply.

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.

You are not related to the retailer. Therefore, the relevant residual provider is not an associate of yours in this particular case.

Therefore, this requirement is not met as you are not the residual benefit provider or the associate of yours, and at the relevant time you carry on a business that consists of, or included, the provision of the product supply services principally to outsiders identical to the product supply services being provided to your relevant employees.

(c) (ii) Residual benefit provider is not the employer or 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).

You pay or reimburse your employee's retail account held with a non-related retailer. In this case, it is necessary to establish that the non-related retailer purchased the product from you or an associate of yours.

The key issue is whether the product provided to the employee is produced by the employee. Due to the nature of the product and its distribution, it is not possible to physically track with certainty the particular source of the product supplied to an individual employee. However, it is reasonable to accept that the product supplied to an employee by a non-related retailer or generated is purchased from you or an associate of yours.

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.

Therefore for the purposes of determining whether someone is an associate of the employer is the 'primary entity' for the purposes of the definition of an associate in subsection 318(2) of the ITAA 1936.

Based on the facts of the case it was concluded the retailers purchased the product from an associate of the employer.

This condition has been satisfied.

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

This condition is satisfied as the required documentary evidence will be given to the employer at the required time.

Question 3

Summary

Section 48 of the FBTAA gives rise to a valuation of 75% of the lowest amount paid or payable by a member of the public to acquire the benefits.

Detailed 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.

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 deals with benefits provided in regular billing periods, which is the case here. Under this subsection 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 for billing period becomes due and payable.

As the benefits in this case will be deemed, under subsection 46(2)(d) of the FBTAA, to be provided at the time when the payment in respect of that period is due and payable 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 cannot be 'in-house period residual fringe benefit' 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.

However it should be noted that whether the taxable value of the benefits are, in fact, calculated under section 48 of the FBTAA or under section 49 of the FBTAA would be effectively immaterial to the final result.

Question 4:

Summary

Section 62 of the FBTAA gives rise to a reduction of the taxable value of the fringe benefit provided by the employer is to be reduced by the lesser of the taxable value of the benefit or $1,000.

Detailed reasoning

Section 62 of the FBTAA provides for a reduction in the taxable values of 'eligible fringe benefits'. The reduction is the lesser of the aggregated taxable value of all relevant benefits or $1,000. The reduction applies separately to the relevant benefits provided to each employee. If the benefits are provided to both employees and associates of employees (As pointed out in Miscellaneous Tax Ruling MT 2044, Fringe Benefits Tax: Reduction of Aggregate Taxable Value of Fringe Benefits - Application to Associates), the reduction applies in respect of the total benefits provided to each employee and his or her associates in a particular year.

Under paragraph 62(2)(a) of the FBTAA, an 'in-house fringe benefit' is an 'eligible fringe benefit'. An 'in-house fringe benefit' is defined in subsection 136(1) of the FBTAA as including an in-house expense payment fringe benefit. In turn, an 'in-house expense payment fringe benefit' is defined, in subsection 136(1) of the FBTAA as including an 'in-house residual expense payment fringe benefit'.

Therefore, as it has already been determined that the benefits in this case are 'in-house residual expense payment fringe benefits' they will qualify as being 'eligible fringe benefits' for the purposes of section 62 of the FBTAA.