Edited version of private advice

Authorisation Number: 1012649966096

Ruling

Subject: Reduced taxable value

Question 1

Will the reimbursement of children's education costs under an effective salary sacrifice arrangement to the employee be eligible for a reduction of taxable value under the provisions of section 65A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) by virtue of the employee being considered an overseas employee?

Answer

Yes.

Question 2

Will the reimbursement of overseas employment holiday transport costs under an effective salary sacrifice arrangement to the employee be eligible for a reduction of taxable value under the provisions of section 61A of the FBTAA by virtue of the employee being considered an overseas employee?

Answer

Yes.

This ruling applies for the following periods:

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

1 April 2015 to 31 March 2016

1 April 2016 to 31 March 2017

1 April 2017 to 31 March 2018

The scheme commences on:

1 January 2014

Relevant facts and circumstances

The employee works for Company A.

The employee was born overseas.

The employee normally resides overseas with his/her family.

The employee has children under 25 years of age.

The employee owns a home in the overseas country where the family resided before moving to Australia.

The property is being retained and is being rented out during his/her employment in Australia.

The employee was transferred to Company B in Australia by Company A effective 1 January 2014.

The employee of Company A will be an employee of Company B while working temporarily in Australia.

The employee and his/her family are currently residing in Australia on a Subclass 457 temporary resident visa.

The visa is valid for a period of four years.

The employee does not intend to apply for permanent residency in Australia.

The employee intends to return to live in his/her home in his/her overseas country after his/her Australian employment.

Company B is paying the employee a salary.

Company B is paying PAYG instalments.

Company B intends to enter into a salary sacrifice arrangement with the employee.

Under the terms of the salary sacrifice arrangement, Company B will reimburse the employee for the cost incurred by the employee educating his/her children and for overseas employment holiday transport.

These reimbursements will be expense payment fringe benefits.

The employee's children are attending full-time education at a school.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 61A,

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 and

Fringe Benefits Tax Assessment Act 1986 Subsection 143C(1).

Reasons for decision

Question 1

Summary

The reimbursement of children's education costs under an effective salary sacrifice arrangement to the employee will be eligible for a reduction of the taxable value under the provisions of section 65A of the FBTAA by virtue of the employee being considered an overseas employee.

Detailed reasoning

The FBTAA provides for the reduction of the taxable value of an expense payment fringe benefit where the recipients expenditure is in respect of the full-time education of a child.

Specifically section 65A of the FBTAA states that 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) …

(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) …

(iv) …

(b) the 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 an 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 it is necessary to determine the following:

(a) what type of fringe benefit has been provided?

(b) is the benefit provided in relation to full-time education at an educational institution or by a tutor to a child of the employee who is less than 25 years of age?

(c) is the education to be undertaken while the employee is an overseas employee?

(d) will the benefit be provided under the provision of an industrial instrument; or is it customary in your industry to provide these benefits?; and

(e) do you have documentary evidence of the expenses?

(a) What type of fringe benefit has been provided?

You intend to enter into a salary sacrifice arrangement with the employee where you will reimburse the employee for the cost incurred by him in educating his/her children. The reimbursement will be provided to enable the employee's children to attend full time school. The reimbursement will be an expense payment fringe payment. It is accepted that you meet this requirement.

(b) Has the benefit been provided in relation to full-time education at an educational institution or by a tutor to a child of the employee who is less than 25 years?

The benefit will be provided to enable the employee's children who are under 25 years of age to attend full-time education at a school. Therefore, the benefit will be provided in relation to full-time education at an education institution to the children of the employee who are all under 25 years of age. It is accepted that you meet this requirement.

(c) Was the education undertaken while the employee was an overseas employee? 

Section 143B of the FBTAA provides that an employee will be an overseas employee where the following conditions are met:

• the employee's usual place of residence is in a particular country,

• the employee performs the duties of their employment at a place outside the home country, or

• two or more places outside the home country, and

• the employee is required to live outside the home country in order to perform the duties of his/her or her employment at the place or places referred to above.

The employee's usual place of residence while on assignment in Australia, is overseas. The employee is required to work in Australia to fulfil the role in Australia.

Therefore, the education of children will be undertaken while the employee is an overseas employee. It is accepted that you meet this requirement.

(d) Will the benefits provided be in accordance with an industrial instrument or is it customary in your industry to provide these benefits?

An industrial instrument is defined in subsection 136(1) of the FBTAA to mean a law of the Commonwealth or of a State or Territory or an award, order, determination or industrial agreement in force under any such law.

You intend to enter a salary sacrifice arrangement with the employee. As a salary sacrifice arrangement is an agreement between an employer and employee as to the remuneration of the employee, the benefits would be accepted as being in accordance with an industrial instrument.

Guidance for what is meant by customary for employers in the industry is contained 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 states:

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.

When organisations request their employees to work on assignment overseas, it is common for them to provide incentives and benefits to their employees and their families as an encouragement.

Therefore we accept that it would be customary in your industry to provide these kinds of benefits. It is accepted that you meet this requirement.

(e) Has the relevant documentary evidence been provided?

You state that the employee will provide you with the relevant documentation before you lodge your FBT return.

As you are in the process of entering into a salary sacrifice arrangement with the employee, it is accepted that the employee will provide you with the relevant documentation before your FBT return is lodged. It is accepted that you would meet this requirement.

Conclusion

As the conditions above have been met you will be entitled to a reduction in the taxable value of the expense payment fringe benefit under section 65A of the FBTAA.

Question 2

Summary

The reimbursement of overseas employment holiday transport costs under an effective salary sacrifice arrangement to the employee will be eligible for a reduction of taxable value under the provisions of section 61A of the FBTAA by virtue of the employee being considered an overseas employee.

Detailed reasoning

The FBTAA provides for the reduction of the taxable value of an expense payment fringe benefit where the recipients expenditure is in respect of overseas employment holiday transport.

Subsection 61A(1) of the FBTAA states that where one or more fringe benefits, being fringe benefits in respect of overseas employment holiday transport, in relation to an employer in relation to a year of tax relate to a particular employee of the employer, the amount (in this subsection called the gross taxable value) that, but for this subsection and section 62, would be:

(a) so much of the taxable value of that fringe benefit as is attributable to transport, meals or accommodation for a particular family member; or

(b) so much of the sum of the taxable values of those fringe benefits as is attributable to transport, meals or accommodation for a particular family member;

as the case requires, in relation to that year of tax, shall be reduced by:

(c) 50% of the gross taxable value; or

(d) 50% of the benchmark travel amount in relation to that fringe benefit in relation to the family member or 50% of the greatest benchmark travel amount in relation to those fringe benefits in relation to the family member, as the case requires;

whichever is the less.

For the reduction to apply, the fringe benefit has to be in respect of an overseas employment holiday transport which is defined in subsection 143C(1) of the FBTAA.

Subsection 143C(1) of the FBTAA states that where:

(a) any of the following fringe benefits is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer:

(i) an expense payment fringe benefit where the recipients expenditure is in respect of the provision of transport, or meals or accommodation in connection with transport;

(ii) a property fringe benefit where the recipients property consists of meals in connection with transport;

(iii) a residual fringe benefit where the recipients benefit consists of the provision of transport or accommodation in connection with transport;

(b) the transport, accommodation or meals is for a family member;

(c) the transport is provided wholly or principally to enable the family member to have a holiday for a period of not less than 3 days;

(d) at the time (in this section called the ``outbound travel time'') immediately before the commencement of travel undertaken by the family member in connection with that holiday:

(i) the employee was an overseas employee; and

(ii) disregarding days of recreation leave, the employee's overseas posting period was a period of not less than 28 days;

(e) if the transport is for the employee:

(i) the transport is provided while the employee is on recreation leave, being recreation leave of not less than 3 working days; and

(ii) at the completion of that recreation leave, the employee resumes the duties of that employment at the place that was the employee's overseas employment place at the outbound travel time;

(f) either of the following subparagraphs applies:

(i) the transport is between:

(A) a place at or near the place that was the employee's overseas employment place at the outbound travel time; and

(B) another place;

(ii) the transport is for the spouse, or a child, of the employee, being a spouse or a child of the employee who does not live with the employee at the place that was the employee's overseas employment place at the outbound travel time, and the transport is between:

(A) a place where the spouse or child, as the case may be, meets the employee; and

(B) another place;

(g) in the case of an expense payment fringe benefit - the recipients expenditure is not in respect of remote area holiday transport;

(h) in the case of a property fringe benefit - the recipients property is not in respect of remote area holiday transport;

(j) in the case of a residual fringe benefit - the recipients benefit is not in respect of remote area holiday transport;

(k) if the transport is for the spouse, or a child, of the employee - the transport is not provided to enable the spouse or child to accompany the employee:

(i) while the employee is undertaking travel in the course of performing the duties of his or her employment; and

(ii) where the circumstances referred to in subsection 26-30(2) of the Income Tax Assessment Act 1997 do not apply; and

(m) 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;

the following provisions have effect:

(n) the fringe benefit shall be taken to be in respect of overseas employment holiday transport;

(q) if the transport for a particular family member consists wholly of transport:

(i) in respect of a holiday taken by the family member; and

(ii) by the most direct practicable route between:

(A) a place at or near the place that was the employee's overseas employment place at the outbound travel time; and

(B) a place in the country in which the employee's usual place of residence during the overseas posting period was located;

the fringe benefit shall be taken to be a home country fringe benefit in relation to the holiday for the family member.

Therefore it is necessary to determine the requirements in subsection 143C(1) of the FBTAA.

(a) an expense payment fringe benefit is provided where the recipients expenditure is in respect of the provision of transport, or meals or accommodation in connection with transport;

The reimbursements you will make to the employee are an expense payment fringe benefit in respect of the airline tickets for the employee and his/her family that consists of the provision of transport. It is accepted that you would meet this requirement.

(b) the transport, accommodation or meals is for a family member;

The transport will be provided to the employee's family members. It is accepted that you would meet this requirement.

(c) the transport is provided wholly or principally to enable the family member to have a holiday for a period of not less than 3 days;

The transport will be provided to enable the employee and his/her family to have a holiday of not less than 3 days leave. It is accepted that you would meet this requirement.

(d) at the time immediately before the commencement of travel undertaken by the family member in connection with that holiday, the employee was an overseas employee and the employee's overseas posting period was a period of not less than 28 days;

As discussed in part at Question 1, the employee is an overseas employee. He will be working in Australia for a period of four years. The posting period is greater than 28 days. Therefore the employee meets the requirements of an overseas employee.

(e) if the transport is for the employee, the transport is provided while the employee is on recreation leave, being recreation leave of not less than 3 working days and at the completion of that recreation leave, the employee resumes the duties of that employment at the place that was the employee's overseas employment place at the outbound travel time;

The transport will be provided to the employee whilst he is on recreation leave and he will resume the duties of employment in Australia after the conclusion of the recreation leave. It is accepted that you would meet this requirement.

(f) the transport is between a place at or near the place that was the employee's overseas employment place at the outbound travel time and another place;

The transport is to and from the employee's overseas work location in Australia. It is accepted that you would meet this requirement.

(g) in the case of an expense payment fringe benefit - the recipients expenditure is not in respect of remote area holiday transport;

The transport that will be provided to the employee and his/her family is for flights outside Australia. Therefore the transport is not in respect of remote area holiday transport. It is accepted that you would meet this requirement.

(k) if the transport is for the spouse, or a child, of the employee, the transport is not provided to enable the spouse or child to accompany the employee while the employee is undertaking travel in the course of performing the duties of his or her employment and where the circumstances referred to in subsection 26-30(2) of the Income Tax Assessment Act 1997 do not apply; and

You state that the flights provided to family members are not provided while the employee is undertaking travel and are not provided where the circumstances referred to in subsection 26-30(2) of the ITAA 1997 do not apply. It is accepted that you would meet this requirement.

(m) 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;

You state in your application that it is customary for employers in the industry to provide holiday flights to employees posted overseas. It is accepted that you meet this requirement.

Conclusion

As all the above requirements have been met in subsection 143C(1) of the FBTAA , the reimbursement of expenditure that would occur in respect to airline tickets for the employee and member of his/her family is considered to be a fringe benefit in respect of overseas employment holiday.

Therefore, the reimbursement of overseas employment holiday transport costs under an effective salary sacrifice arrangement to the employee will be eligible for a reduction of taxable value under the provisions of section 61A of the FBTAA.

In accordance with subsection 61A(2) of the FBTAA, if the fringe benefit in respect of overseas employment holiday transport is in the form of a reimbursement, then documentary evidence of the expenses must be obtained by the time the fringe benefits tax return is required to be lodged for the reduction in taxable value of the fringe benefit to apply.