Edited version of your private ruling

Authorisation Number: 1012434495373

Ruling

Subject: Volunteers and Fringe Benefits Tax & Income Tax Issues

Question 1

Are the Helpers deemed to be volunteers and not employees as per "Volunteers and Tax' (NAT4612) tax guide for not for profit organisations?

Answer

No

Question 2

Is the provision of meals and on site accommodation benefits to Helpers exempt from fringe benefits tax?

Answer

Yes

Question 3

Is the periodic payment for various incidentals out of pocket expenses to Helpers exempt from fringe benefits tax?

Answer

N/A

This ruling applies for the following periods:

FBT year ended 31 March 2014

FBT year ended 31 March 2015

FBT year ended 31 March 2016

FBT year ended 31 March 2017

The scheme commences on:

1 April 2013

Relevant facts and circumstances

1. Entity A is a not for profit organisation and a public benevolent institution. It is entitled to the following tax concessions; GST concession, FBT exemption and Income tax exemption. It is also listed as a deductible gift recipient.

2. Entity A is a charitable and etho-specific certified and fully accredited Facility.

3. Entity A receives Helpers from overseas to assist in its operations.

4. These Helpers are allowed to stay with Entity A for up to one year and are given allowances, various entitlements and a periodic payment towards various out of pocket living expenses whilst at Entity A.

5. During the time the Helpers are on annual leave, they will still be paid the periodic payment. There is no reduction in the payment should the Helpers fall sick. The Helpers are expected to pay additional food, phone, insurance, entertainment, transport and personal requirements expenses with the periodic payment

6. The Helpers work normal working hours.

7. The Helpers are provided with on-site accommodation for the period of their stay with Entity A. The Helpers must keep their room tidy and ensure that the accommodation where they are living in clean and tidy. They must agree to respect any property belonging to Entity A and treat items loaned to them as though they were their own.

8. These Helpers provide assistance and act as a support staff to the existing staff. They understand that in times where specific positions are needed to be filled, they might need to leave their regular position and help out in other areas.

9. The Helpers have entitlements to annual leave and sick leave.

10. The Helpers are provided with a contract stipulating that they will be provided with lunch on the days they work in the staff room.

11. The grounds of dismissal are as per the contract and also cover general inappropriate behaviour matters.

12. No motor vehicle is provided to these Helpers for any private use.

Assumptions

The grossed up value of the on-site accommodation residual benefit provided to each Helper does not exceed $30,000.

Relevant legislative provisions

Section 6-5 of the ITAA 1997

Section 85 of the FBTAA 1986

Section 41 of the FBTAA 1986

Section 75A of the FBTAA 1986

Section 45 of the FBTAA 1986

Reasons for decision

Issue 1

Question 1

Summary

The Helpers are employees of Entity A and not volunteers.

Detailed reasoning

NAT4612 Volunteers and Tax outlines the differences between a volunteer and employee and TD 2004/75 Income tax: are payments to a volunteer respite carer to cover expenses of providing respite care for a disabled person assessable income? provide guidelines for determining whether a person is an employee or a volunteer of an entity. A volunteer is someone who enters into any service of their own free will, or who offers to perform a service or undertaking. Whereas, an employee generally has the following characteristics:

(1) Employees are paid for the time worked

In this case, the Helpers are paid periodically. They are given on-site accommodation (7 days a week) and lunch for each day they work (5 days a week). If they do not work in accordance with the contract with Entity A (including working hours 9am - 5pm with ½ hour lunch break 1pm to 1.30pm for a 38 hour week), they may have some privileges (periodic payments, accommodation or meals) taken away. If they are sick and unable to work, they would be on unpaid leave if their sick and annual leave is used up. Hence, the Helpers are paid for the time worked.

(2) Employees receive paid leave e.g. sick or annual leave

In this case, the Helpers are provided with annual leave. No more than 4 Helpers must be on holiday at one time. Helpers are provided with paid some sick leave. Further sick days will be either unpaid or taken out of annual leave. Hence, the Helpers are paid sick and annual leave.

(3) Employees are not responsible for providing the materials or equipment required to do their job

In this case, the Helpers, under the contract, must respect property of the Entity A and do not provide any materials and equipment to do their job.

(4) Employees must perform the duties of their position

In this case, the Helpers provide assistance and various other tasks. Their primary function is to act as a support staff to the existing staff. The Helpers' contract with the Entity A states that if specific positions need to be filled within the facility, the Helper may need to leave their regular position and help out in other areas. If they do not work in accordance with the contract with Entity A, they may have some privileges (periodic payment, accommodation or meals) taken away. Hence, the Helpers must perform the duties of their position.

(5) Employees must agree to provide their personal services

The Helpers sign a contract which shows they agree to provide their personal service, to work within certain hours and to provide assistance to other staff when required.

Employees work hours that are set by an agreement or award

Under the contract between the Helpers and Entity A, the Helpers are required to work from 9 am to 5pm with ½ hour break from 1pm to 1.30pm each day, amounting to a 38 hour week. They understand that in times where specific positions are needed to be filled within the facility, they might need to leave their regular position and help out in other areas. Hence, the Helpers work hours that are set by an agreement and unlike a volunteer cannot decide when they would like to come to work.

(6) Employees are recognised as part and parcel of the payer's business.

The Helpers are important in supporting the existing staff that provides the primary care to the aged in the aged facility. Hence, they are recognised as part of Entity A's business.

(7) Employees do not take commercial risks and cannot make a profit or a loss from the work performed.

The Helpers provide their personal services to do their job and do not need to incur their own expenses to do the work i.e. they do not take commercial risk and cannot profit or make a loss from the work performed.

Hence, the Helpers are employees of Entity A rather than volunteers as the Helpers are (a) paid for the time worked, (b) paid sick and annual leave, (c) under the contract, must respect property of the Entity A and (d) do not provide any materials and equipment to do their job (e) perform the duties of their position (f) do provide their personal services (g) work hours that are set by an agreement and cannot decide when they would like to come to work, (h) recognised as part of Entity A's business and (i) do not take commercial risks and cannot make a profit or loss from the work performed.

The courts have considered the indicators of employment in a number of cases. In Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16, the High Court stated the indicators of employment included, with the degree of control that an employer exercises over an employee, the mode of remuneration, provision and maintenance of equipment, the obligation to work, the hours of work, provision of holidays, the deduction of tax from payments to the employee and the delegation of work carried out by the employee. In Vabu Pty Ltd v FCT (1996) 33 ATR 537, the Supreme Court of NSW added the regular payment of fixed sums as salary or wages.

In Entity A's case, the Helpers are remunerated by regular payment of fixed sums rather than having expenses reimbursed. These Helpers are obliged to work; the hours that they work are not subject to their own control, they receive paid holidays. As the majority of the indicators of employment identified by the courts are present in this case, the Helpers are regarded as employees of Entity A.

Issue 2

Question 1

Summary

As the Helpers are Entity A's employees, any non-cash benefits provided to them (on-site accommodation and meals) by Entity A would usually be subject to fringe benefits tax. Section 58 of the FBTAA 1986 does not apply to these benefits as the on-site accommodation provided to the Helpers is not directly related to the provision of care to the elderly because they are not on-call 24 hours a day.

Section 41 of the FBTAA1986 provides that a PBI can have morning tea, afternoon tea and a light lunch provided to the employees and still be an exempt FBT benefit. Hence, the lunch meals are not subject to FBT.

Section 57A of the FBTAA 1986 provides that a PBI can have $30,000 threshold for benefits provided to each employee (grossed-up non-exempt amount). Benefits provided up to this amount will be an exempt benefit to TTHA. The on-site accommodation is included as part of the $30,000 exempt benefits in respect of each IV. If the accommodation is not the employee's usual place of residence, the benefit will not be a housing benefit but will be a residual benefit under section 45 of the FBTAA 1986. Provided that the taxable value of the on-site accommodation and any other benefits provided to the Helpers is less than $30,000 threshold per Helper, then Entity A will not be subject to FBT on the on-site accommodation benefit provided to the Helper.

Detailed reasoning

Section 58 of the FBTAA1986 provides that meals and on-site accommodation provided to on-site residential workers are exempt FBT benefits. In this case, the Helpers work generally 9am to 5pm 5 days a week as a support staff to existing staff. Outside these work hours, the Helpers would not be called in. Hence, the onsite accommodation provided would not be directly related to the Helper's as the Helpers are not on-call 24 hours a day. Therefore, section 58 does not apply to make the on-site accommodation or the meals FBT exempt benefits.

Since section 58 of the FBTAA 1986 does not apply, there may be other sections of the FBTAA 1986 which may apply to exempt the provision of the on-site accommodation and lunch meals.

Paragraph 44 of Taxation Ruling TR 97/17 Income tax and Fringe Benefits Tax: Entertainment by way of Food and Drink states:

44. Section 41 of the FBTAA provides that property (including food

or drink) that is provided to and consumed by an employee on the

employer's business premises on a working day is an exempt benefit.

This exemption applies whether or not the food or drink amounts to

meal entertainment; however, it does not apply where the employer

has elected to value all meal entertainment benefits under the two

methods provided in Division 9A. The section 41 exemption applies

even if the food is not prepared on the employer's business premises.

A working day is any 24 hour period during which work is usually

performed by the employee.

Example 1.2 of TR 97/17 states:

Example 1.2

53. An employer provides full hot lunches to employees in an

'in-house dining facility'.

54. The lunch provided does amount to meal entertainment.

However, the meal is exempt from FBT under section 41 of the

FBTAA. An income tax deduction for the meals will be allowable to

the employer under item 1.1 of the table in section 32-30 of the ITAA

as the meals were provided in an 'in-house dining facility'. Item 1.1

overrides the denying effect of section 32-5.

Hence, the hot lunch provided by Entity A to the Helper employees on Entity A's premises will be exempt under section 41 of the FBTAA 1986 and Entity A will not be paying FBT on the cost of the meals.

The on-site accommodation is provided to the Helpers during their stay at the Entity A. The on-site accommodation is not the Helper's usual place of residence. The Helpers are from outside of Australia (non-residents of Australia) and usually stay with Entity A for up to 1 year. Hence, the on-site accommodation provided will not be a housing fringe benefit but a residual property benefit under section 45 of the FBTAA 1986.

If subsection 47(5) of the FBTAA 1986 is satisfied, the residual property benefit will be exempt. This requires that the employee satisfies section 31C (maintaining an Australian home) and section 31D (about the last 12 months) or section 31E (fly-in-fly-out and drive-in-drive-out requirements). In this case, the Helpers do not satisfy these requirements i.e. the residual fringe benefit provided to them will not be exempt.

Section 75A of the FBTAA 1986 provides a FBT exemption (subject to a capping threshold of $30,000) for fringe benefits provided by a PBI to its employees. As a PBI, benefits Entity A provides to their employees are exempt from FBT where the total grossed-up value of fringe benefits for each employee during the FBT year is $30,000 in accordance with section 57A of the FBTAA 1986. If the grossed-up benefits provided by an employer, that is a PBI, exceed $30,000 for an employee, FBT is payable in the excess. As the gross-up of the benefits provided to each Helper does not exceed $30,000 the benefits are FBT exempt.

Issue 3

Question 1

Summary

If an amount is an allowance to an employee, this will be assessable under income tax. Hence, this is not subject to FBT.

Detailed reasoning

A benefit that is taxable under the FBTAA 1986 (or specifically exempted under that Act, except for certain car expense payment benefits) is free from income tax. Generally allowances are subject to income tax in the employee's hands and that non-cash benefits are subject to FBT, which is payable by the employer and are not subject to income tax.

An allowance normally forms apart of an employee's salary and wages and is assessable for income tax under section 6-5 of the ITAA 1997.

Guidance on what is an allowance is found in Taxation Ruling TR 92/15 Income tax and fringe benefit tax: the difference between an allowance and a reimbursement, where in paragraphs 2 it states: 

2. A payment is an allowance when a person s paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

In this case, the periodic payment falls within the definition of an allowance and will be subject to income tax (if any) under the income tax legislation and not a fringe benefit under the FBTAA 1986.