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Edited version of private advice
Authorisation Number: 1012618615179
Ruling
Subject: Public benevolent institution exemption
Question 1
Would benefits provided to an apprentice/trainee performing duties for a 'Host Employer' be exempt benefits under subsection 57A(1) of the Fringe Benefits Tax Assessment Act 1986?
Answer
Yes
This ruling applies for the following periods:
Year ended 31 March 2015
Year ended 31 March 2016
Year ended 31 March 2017
The scheme commences on:
1 April 2014
Relevant facts and circumstances
The entity is a public benevolent institution (PBI) endorsed under subsection 123C of the FBTAA.
One of the activities it undertakes is placing individuals with 'Host Employers'.
The individuals enter into an employment agreement with the entity and then the entity enters into a labour hire agreement with the Host Employer.
A copy of both the employment agreement and the labour hire agreement were provided and under the labour hire agreement it is the entity and not the Host Employer' who is liable to pay the wages and meet the pay as you go (PAYG) withholding obligations from those payments.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986, subsection 57A(1)
Fringe Benefits Tax Assessment Act 1986 subsection 123C
Fringe Benefits Tax Assessment Act 1986, subsection 136(1)
Reasons for decision
Subsection 57A(1) of the FBTAA states:
Where the employer of an employee is a public benevolent institution endorsed under section 123C, a benefit provided in respect of the employment of the employee is an exempt benefit.
The entity is an endorsed PBI, if it can be concluded the entity is the employer of the individuals and the benefits are provided in respect of that employment then subsection 57A(1) of the FBTAA will apply to exempt the benefits provided to the apprentices/trainees.
If we start with the phrase 'in respect of' in relation to the employment of an employee, it is defined in subsection 136(1) of the FBTAA to include 'by reason of, by virtue of, for or in relation directly or indirectly to, that employment'.
In J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 it was noted that the term 'in respect of employment', includes benefits where
...there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment...
As the benefits will be provided by way of a SSA it can be concluded that the benefits provide in lieu of salary are in respect of employment.
If we look at the definition of an employee under subsection 136(1) of the FBTAA it includes a 'current employee'.
A current employee (also defined in subsection 136(1) of the FBTAA) means '…a person who receives, or is entitled to receive, salary or wages'. The definition of salary or wages also defined in subsection 136(1) of the FBTAA includes:
(a) a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income…
An employer is defined in subsection 136(1) of the FBTAA to include' a current employer' and the definition of a current employer in subsection 136(1) of the FBTAA includes 'a person who pays or is liable to pay salary or wages'.
In looking at the labour hire agreement between the Host Employer and the entity it clearly states that the entity will be responsible for the payment of wages and meet the relevant PAYG withholding obligations.
In applying the labour hire agreement to the definitions of current employer in subsection 136(1) of the FBTAA it is the entity who is liable to pay salary or wages and it is the entity who is the employer of the individuals.
Therefore the exemption under subsection 57A(1) of the FBTAA will apply to exempt benefit provided to the individuals.
Note: The exemption under subsection 57A(1) of the FBTAA is capped at $30,000 grossed-up taxable value per employee as specified in subsection 5B(1E) of the FBTAA.