Edited version of your private ruling

Authorisation Number: 1012611853202

Ruling

Subject: Full Time Education Expenses of Employee

Question 1

Is the taxable value of an expense payment fringe benefit provided to a foreign national employee, for the education of their child, reduced to nil as a result of Section 65A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?

Answer

Yes

This ruling applies for the following periods:

1 April 2013 - 31 March 2018

The scheme commences on:

The scheme has commenced.

Relevant facts and circumstances

The employee commenced a role in Australia in mm/yyyy.

The start and end date of employment is dd/mm/yyyy and dd/mm/yyyy.

The employee travelled to Australia from abroad in order to perform their duties.

They are engaged for a fixed term and is working in Australia on a subclass 457 temporary visa. The start and end dates of the employee's visa are dd/mm/yyyy - dd/mm/yyyy.

It is the employee's intention to return to their home country at the conclusion of the engagement and once the visa expires.

The employee does not intend to apply for a Australian permanent residency nor do they wish to stay in Australia for more than the term of their four year visa.

The employee has citizenship abroad.

They hold a drivers licence in their home country.

They will be entitled to receive a pension from their home country.

Their home country is their usual place of residence.

Over the past X years this employee has lived in many places overseas

They always return to their home country at the conclusion of a role and prior to commencing a new role. Their possessions are always shipped back to their residence.

They do not own a home in their home country.

While in Australia they rent a property and have no intention to purchase a property while here.

They hold a bank account abroad and a car.

Their salary from Australia is paid into an Australian bank account and then transferred into accounts in their home country.

The employee's parents live in the employee's home country and the employee travels there every year to visit.

The employee has a child who attends school in Australia full-time.

Once per week the child attends an international school to allow them to re-join the education system on their return to their home country.

The employer pays for their child's tuition fees. It is customary, although a discretionary decision, for foreign senior executives to receive school fee benefits.

The company will reimburse the employee for the school fees.

Evidence required will be a receipt or proof of payment such as a bpay receipt or credit card statement.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 65A.

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1).

Fringe Benefits Tax Assessment Act 1986 Section 143B.

Reasons for decision

Section 65A of FBTAA 1986 provides for the reduction of the taxable values of certain fringe benefits arising in respect of the education of the children of oversees employees.

Section 65A of the FBTAA states: Where:

(a) any of the following fringe benefits in relation to a year of tax is provided in respect of the employment of an employee:

(i) a car fringe benefit where the application or availability of the car is in respect of the full-time education of a child of the employee, not being a child who had attained the age of 25 years before the day on which the benefit was provided;

(ii) an expense payment fringe benefit where the recipients expenditure is in respect of the full-time education of a child of the employee, not being a child who had attained the age of 25 years before the day on which the benefit was provided;

(iii) a property fringe benefit where the recipients property is required solely for the purposes of the full-time education of a child of the employee, not being a child who had attained the age of 25 years before the provision time;

(iv) a residual fringe benefit where the recipients benefit consists of, or is required solely for the purposes of, the full-time education of a child of the employee, not being a child who had attained the age of 25 years before the comparsion time;

(b) full-time education is:

(i) at an educational institution; or

(ii) by a tutor;

(c) the whole or any part of the full-time education is undertaken by the child when the employee is an overseas employee;

(d) either of the following conditions is satisfied:

(i) the benefit is provided pursuant to the provisions of an industrial instrument relating to the employment of the employee;

(ii) it is customary for employers in the industry in which the employee is employed to provide benefits of the same kind as the benefit provided to the recipient and to provide such benefits in similar circumstances to those that applied in relation to the provision of the benefit to the recipient;

(e) in the case of expense payment fringe benefit - documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer of the employee before the declaration date; and

(f) a percentage (in this section called the attributable percentage) of the taxable value, in relation to the year of tax, of the fringe benefit is attributable to the full-time education of the child in the period commencing on whichever of the following days is applicable:

(i) if

(A) the full-time education is at an educational institution;

(B) the overseas posting period is a period of not less than 28 days; and

(C) the overseas posting period commenced during an academic period of the educational institution;

the day on which that academic period commenced; or

(ii) in any other case, the day on which the overseas posting period commenced;

and ending on whichever of the following days is applicable:

(iii) if

(A) the full-time education is at an educational institution;

(B) the overseas posting period is a period of not less than 28 days; and

(C) the overseas posting period ended during an academic period of the educational institution;

the day on which that academic period ended;

(iv) in any other case- the day on which the overseas posting period ended;

the amount that, but for this section and section 62, would be the taxable value of that fringe benefit in relation to the year of tax shall be reduced by the attributable percentage.

Therefore, in basic terms, the requirements for a reduction under section 65A of the FBTAA are as follows:

Fringe benefits eligible for reduction (paragraph (a))

Any of the following fringe benefits may be eligible for the reduction in taxable value provided in section 65A of the FBTAA:

• any car fringe benefit or an expense payment fringe benefit provided in respect of the full-time education costs of an employees' child, or

• any property fringe benefit or residual fringe benefit provided solely for the purposes of the child's full-time education.

For the purposes of this concession, a child is an employees' child who is less than 25 years of age at the time the benefit is provided.

Full-time education of child (paragraph (b))

The full-time education being received by the child must be either at an educational institution or by a tutor. An educational institution is defined in subsection 136(1) of the FBTAA as meaning a school, college or university.

Education received while employee is overseas employee (paragraph (c))

The whole or any part of the full-time education of the child must be undertaken while the employee is an overseas employee. Overseas employee is defined in section 143B of the FBTAA. An employee will be treated as an overseas employee where:

• the employee's usual place of residence is in a particular country (the home country);

• the employee performs his employment duties at a place outside the home country; and

• the employee is required to live outside the home country in order to perform those duties at his overseas work place.

The concession applies to both Australian employees posted overseas and overseas residents posted to Australia. The employees' child does not have to accompany the employee overseas in order for you to be entitled to this concession.

Benefit provided in accordance with award or industry custom (paragraph (d))

To qualify for the concession, the benefit must be provided either:

• in accordance with the provisions of an industrial instrument (as defined in subsection 136(1) of the FBTAA) relating to the employment of the employee; or

• in accordance with industry custom

• that is, it is customary for employers in the industry in which the employee is employed to provide benefits of the same kind and in similar circumstances.

The meaning of the phrase customary for employers in the industry is discussed in Taxation Determination TD 94/97, Fringe benefits tax: what does the phrase 'customary for employers in the industry' mean in relation to the provision of fringe benefits to employees?

Paragraph 2 of TD 94/97 states that:

'A benefit will be accepted as being customary where it is normal or common for employees of that class or job description in that industry to be provided with the same or similar benefits. It is not necessary that all or even the majority of employees in the industry receive the benefit. Where the provision of the benefit is unique, rare or unusual within an industry it would not be accepted as being customary.-'

Documentary evidence of expense payment fringe benefit (paragraph (e))

In the case of an expense payment fringe benefit, documentary evidence of the expenditure incurred by the employee must be supplied to the employer before the date by which the employer's fringe benefits tax return for the year has to be lodged.

Reduction of taxable value (paragraph (f))

The taxable value of a fringe benefit that fulfils the conditions in paragraphs 65A(a) to (e) of the FBTAA will be reduced to the extent that it is attributable to the education of the child during a specified qualifying period.

(a) Commencement of qualifying period

The qualifying period may commence on the day the employee commences work at his or her overseas work place, that is, the commencement of the overseas posting period.

Overseas posting period is defined in paragraph 143B(d) of the FBTAA. The overseas posting period is the period that begins when the employee first commences work at an overseas post and ends when the employee ceases working at such a post. The overseas posting period can thus encompass a number of consecutive overseas postings.

In some cases, however, the qualifying period will commence at an earlier time. These are cases where:

• the full-time education is at an educational institution;

• the overseas posting period is a period of not less than 28 days; and

• the overseas posting period commenced during an academic period of the educational institution.

In these cases, the qualifying period commences on the day on which that academic period commenced.

Academic period, in relation to an educational institution, means either a term of the academic year, a semester of the academic year or an academic year, depending on the way the academic year is divided up (subsection 136(1) of the FBTAA).

(b) End of qualifying period

The qualifying period may end on the day on which the overseas posting period ended (that is, the day the employee ceases to carry out employment duties at the overseas work place. In certain cases, however, the qualifying period will end at a later time. These are cases where:

• the full-time education is at an educational institution;

• the overseas posting period is a period of not less than 28 days; and

• the overseas posting period ended during an academic period of the educational institution.

In these cases, the qualifying period ends on the day on which that academic period ends.

Where the child receives their education by a tutor, the reduction applies to the education costs relating to the period from the day the posting started to the day the posting ended.

Conclusion

Provided a number of conditions are satisfied, section 65A of the FBTAA applies to reduce the taxable value of certain fringe benefits which meet the costs of full-time education of children of overseas employees and that child is under 25 years of age.

Other requirements are that the tuition, be at an educational institution or by a tutor and that documentary evidence of the expenditure has been given to the employer.

The facts provided with the request show that most of these conditions have been satisfied. The legislation is clear when it states that the education must be full-time. We understand that the child attends school full-time, which meets the requirements in the legislation. However the attendance by the child at the International School is only once per week and the question arises as to whether or not this would be included in the meaning of full-time in accordance with subparagraph 65A(a)(ii) of the FBTAA.

Although the attendance of a child at the International School is not of itself 'full time education', it needs to be considered whether the additional tuition is 'in respect of the full time education' of a child.

As held in the Full Federal Court decision of J & G Knowles v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151 (2000) 44 ATR 22, the words 'in respect of' have no fixed meaning. However 'the words must be given a meaning that depends on the context in which the words are found'. It was also held by the Court that there must be a 'sufficient or material connection or relationship' between the benefit and employment.

The words 'in respect of the full time education of the child', requires that any expense, whilst not necessarily directly incurred on full time education, must have a sufficient or material connection to the full time education of the child.

It is considered that the extra tuition provided to the employee's child at the International School, is supporting the study needs of the child in practical areas of their normal education and culture.It has sufficient or material connection to the child's full time education. Accordingly, the recipient's expenditure is 'in respect of the full time education' of a child of the employee and thus eligible for reduction under section 65A of the FBTAA.

Section 65A of the FBTAA also requires that the benefit must have been provided in accordance with the provisions of an industrial instrument or in accordance with industry custom.

The facts of the case indicate that the employer makes this benefit available to each of its employees who are seconded from overseas although it is discretionary. The Commissioner would consider that the benefit provided would not be unique rare or unusual within the industry in which the employer operates.

The Commissioner therefore forms the opinion that the expenses incurred by the employee for their child's education and reimbursed is eligible for the reduction as outlined in section 65A of the FBTAA.