Edited version of your private ruling

Authorisation Number: 1012476501412

Ruling

Subject: FBT and payment of Visa costs

Question 1

Where Employer A pays the costs of a certain visa application under a salary sacrifice arrangement for an employee, would the benefit be exempt from FBT under section 58F of the Fringe Benefits Tax Assessment Act 1986 ("The FBTAA")?

Answer

No.

Question 2

Where Employer A pays the costs of a certain visa application for an employee under a salary sacrifice arrangement, would the "otherwise deductible rule" under section 24 of the FBTAA apply?

Answer

No.

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.

The scheme commences on:

01 April 2013.

Relevant facts and circumstances

The entity (employer A) had a staff member, who had recently been working for them for a period of time in an Australian city whilst on a certain visa.

The staff member is currently renting a home in the same city in Australia.

The staff member is from another country and would like to remain in Australia.

The staff member is currently working for a different, unrelated employer, but in the same city in Australia.

The entity would like the staff member to resume working with the entity in the same city in Australia.

The entity's staff member would like to apply for a different visa so they can resume working for the entity in the same city in Australia.

The entity would pay the costs of the new visa.

The staff member would pay for their new visa through a salary sacrifice arrangement.

Relevant legislative provisions

Section 20 of the Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Section 58F of the Fringe Benefits Tax Assessment Act 1986

Section 142A of the Fringe Benefits Tax Assessment Act 1986

Section 143A of the Fringe Benefits Tax Assessment Act 1986

Section 8-1 of the Income Tax Assessment Act 1997

Reasons for decision

Summary

An employer that pays the costs of a new visa application without connection to transport will not be exempt for FBT under section 58F of the FBTAA.

Detailed reasoning

Transport provided to an employee and family members as a consequence of an employee being required to relocate his/her usual place of residence to perform employment duties are an exempt benefit under section 58F of the FBTAA which states:

Exempt benefits--relocation transport

                   Where:

                     (a)  a car benefit, an expense payment benefit, a property benefit or a residual benefit is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer;

                     (b)  the benefit is in respect of relocation transport; and

                     (c)  in the case of an expense payment benefit:

                              (i)  the benefit is not constituted by the reimbursement of the recipient, in whole or in part, in respect of an amount of a Division 28 car expense incurred by the recipient in relation to a car owned by, or leased to, the recipient, being a reimbursement calculated by reference to the distance travelled by the car; and

                             (ii)  documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date;

the benefit is an exempt benefit in relation to the year of tax.

The benefit is exempt if it fulfils the conditions in subsections 58F(a), (b) and (c).

Condition 1: An expense payment benefit (subsection 58F(a))

With reference to subsection 136(1) of the FBTAA, section 20 of the FBTAA defines "expense payment benefit" as:

Expense payment benefits

                   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.

With regards to these circumstances, Employer A is the provider. Employer A is making a payment in discharge of the visa expenses to a third party (Department of Immigration & Citizenship) in respect of their employee. The expense payment benefit therefore satisfies paragraph (a) of section 20 of the FBTAA.

Therefore, Condition 1 is satisfied

Condition 2: the benefit is in respect of relocation transport (subsection 58F(b))

The circumstances in which a benefit will be treated as a benefit 'in respect of relocation transport' are specified in section 143A of the FBTAA. Broadly, such benefits are transport, meals or accommodation provided to an employee who is required to live away from, or change, their usual place of residence in order to perform the duties of their employment.

Subparagraph 143A(a)(ii) of the FBTAA stipulates that relocation costs include an expense payment benefit where the recipients expenditure is in respect of the provision of transport, or meals or accommodation in connection with transport.

Transport is not defined in the FBTAA but by virtue of subsection 142A(1) of the FBTAA expenditure by an employee on accident insurance, airport or departure tax, a passport, a visa, a vaccination or any similar matter 'in connection with transport' is taken to be 'in respect of the provision of, or to consist of, transport'.

The meaning of the phrase 'in connection with' was discussed in Burswood Management Ltd v. A-G (1990) 23 FCR 144. In a joint decision the court said:

The words "in connection with" are words of wide import; and the meaning to be attributed to them depends on their context and the purpose of the statute in which they appear.

The Explanatory Memorandum to the Tax Laws Amendment (Fringe Benefits and Substantiation) Bill 1987 ('the EM') which introduced section 143A of the FBTAA discusses the intended meaning of 'benefit in respect of relocation transport':

The circumstances in which a benefit will be treated as a "benefit in respect of relocation transport" are specified in proposed section 143A. Broadly, such a benefit is one that is provided to an employee who moves from one locality to another in the course of employment or in order to commence new employment where the benefit meets travel costs (i.e., transport costs and accommodation and meals en route) incurred by the employee (or a family member) for the purpose of taking up residence in the locality of the new work place.

The EM makes it clear that a benefit in respect of relocation transport is intended to cover travel costs incurred for the purpose of an employee taking up residence in the locality of a new work place. Therefore, the words 'in connection with' in subsection 142A(1) of the FBTAA should be read such that only visa application costs that are incurred for the purpose of an employee taking up residence in the locality of a new work place will be 'in connection with transport'.

The employee applied for a visa in order to remain in Australia. At the time, the employee was already living in Australia. The visa application costs were not incurred for the purpose of the employee taking up residence in the locality of a new work place. Therefore, the costs are not 'in connection with transport' for the purposes of subsection 142A(1) of the FBTAA or 'in respect of the provision of transport' for the purposes of subparagraph 143A(a)(ii) of the FBTAA.

Conclusion

Accordingly, the benefit is not provided 'in respect of relocation transport' and therefore is not an exempt benefit under section 58F of the FBTAA as condition 2 is not satisfied.

Issue 2 Question 1

Summary

The otherwise deductible rule will not apply and cannot be applied to reduce the taxable value of the benefit.

Detailed reasoning

The "Otherwise Deductible Rule" is outlined in chapter 9.4 of the Fringe benefits tax - Guide for employers and states the following:

The taxable value of an expense payment fringe benefit may be reduced in accordance with the otherwise deductible rule, but only if the recipient of the benefit is the employee. Broadly, this means that the taxable value may be reduced by the amount the employee would have been entitled to claim as an income tax deduction if you had not reimbursed them.

Section 8-1 of the Income Tax Assessment Act 1997 ("ITAA97") broadly allows a deduction for any losses or outgoings to the extent to which they are incurred in gaining or producing assessable income except to the extent outgoings are of a capital, private or domestic nature.

The courts have considered the meaning of 'incurred in gaining or producing the assessable income'. In Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47 the High Court stated that:

For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing assessable income" mean in the course of gaining or producing such income.

This issue is addressed in ATOID 2002/208: Income tax - Deductibility of visa expenses - temporary business visa to remain in Australia. In the ATOID, the taxpayer wanted to claim a deduction under section 8-1 of the ITAA 1997 for expenses incurred in applying for a temporary business visa to remain in Australia. ATOID 2002/2008 held that the visa was to allow the taxpayer to remain legally in Australia - alternatively it was found that the outgoing was of a private or domestic nature.

At the National Tax Liaison Group FBT Sub-committee meeting - 9 August 2012 guidance was sought on whether the otherwise deductible rule may apply to the renewal work visa costs as the visa is mandatory to allow the employee to continue to perform income producing services at agenda item 8. The ATO advised that, in relation to that agenda item, in order to continue to work the taxpayer also needs to travel to work, to feed, clothe and house himself. The occasion of these outgoings (travel, food, clothes, housing) is generally not considered productive of assessable income. Whilst the 457 visa allows the taxpayer to continue to live and work in Australia, the occasion of an outgoing for the renewal of the 457 visa would not itself be considered productive of assessable income. Fundamentally the visa is an instrument which allows a person to reside in Australia, and a 457 visa is a particular kind of visa that allows/requires the person to work while residing in Australia.

In the current situation, the new Visa application cost is needed to put the staff member in a position ready to work with Employer A. Such expense is not considered a deduction under section 8-1 of the ITAA97 as it is not incurred in gaining or producing assessable income. Rather, they are private in nature.

Since the costs of the Visa application cannot be claimed as a deduction, the "Otherwise Deductible Rule" cannot be applied to reduce the taxable value of the benefit.