Edited version of your written advice

Authorisation Number: 1012736934471

Ruling

Subject: Fringe Benefits Tax: Expense Payment Benefits: Exempt Benefits

Question 1

Providing it is not an exempt benefit, is a specific Allowance paid to an employee by the Employer in accordance with a clause the Award a fringe benefit in accordance with section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Will the specific Allowance paid by the Employer to reimburse the employee for the cost of outplacement services in the nature of work-related counselling be an exempt benefit under subsection 58M(1)(a)(iv) of the FBTAA?

Answer

Yes

Question 3

Will the specific Allowance paid by the Employer to reimburse the employee for the cost of property, such as a laptop computer, be an exempt benefit under subsection 58M(1)(a)(iv) of the FBTAA?

Answer

No

This ruling applies for the following periods:

1 July 2014 - 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

1. The Employer is subject to the Award.

2. A clause of the Award deals with Workplace Change and Redundancy and, as far as relevant, states:

A redundant employee shall be entitled to the payment of a job search allowance of up to $2,500 to meet expenses associated with seeking other employment subject to proof of expenditure or on production of an invoice, and/or other appropriate documentation….

3. The Employer is proposing to make a specific Allowance payment to former employees in accordance with the Award.

4. The Employer states that the specific Allowance will be paid only to employees who have been made genuinely redundant; it would not be paid to employees who terminate their employment under normal circumstances.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986, section 20

Fringe Benefits Tax Assessment Act 1986, section 58M

Fringe Benefits Tax Assessment Act 1986, subsection 58M(1)(a)(iv)

Fringe Benefits Tax Assessment Act 1986, subsection 136(1)

Anti-avoidance rules

Not applicable.

Reasons for decision

Question 1

Summary

In general, the specific Allowance paid to redundant employees under the Award will be an expense payment fringe benefit. Because it reimburses the employee for the exact amount of their expenditure, the 'specific Allowance' will be a reimbursement not an allowance.

Generally, the reimbursement of expenses incurred by employees is an expense payment benefit, unless the payment is specifically not included in the definition of a fringe benefit. Exempt benefits and employment termination payments are specifically not included in the definition of fringe benefit.

For the purpose of this question it will be assumed that the specific Allowance is not an exempt benefit, whether or not the specific Allowance is an exempt benefit is further considered in questions 2 and 3 of this ruling.

In a recent private ruling issued to you we have concluded that the specific Allowance is not an employment termination payment.

Thus the specific Allowance provided to your employees under the Award will be an expense payment fringe benefit, provided it is not an exempt benefit.

Detailed Reasoning

In general terms, the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA provides that a reimbursement will be a fringe benefit if the following conditions are satisfied:

(a) the reimbursement is a benefit;

(b) the benefit is provided to an employee or an associate of an employee;

(c) the benefit is provided by the employer, an associate or a third party under an arrangement;

(d) the benefit is provided in respect of the employment of the employee, and

(e) the benefit does not come within any of the paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA.

These conditions are considered in relation to your circumstances below.

(a) Is the reimbursement a benefit?

An expense payment fringe benefit is defined in section 20 of the FBTAA in the following terms:

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.

The distinction between an allowance and a reimbursement is considered in Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement, specifically paragraphs two and three of this ruling state:

2. A payment is an allowance when a person is 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.

3. A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessarily disbursed. In general, the provider considers the expense to be its own and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A requirement that the recipient refunds unexpended amounts to the employer adds further weight to that presumption.

In this instance, the specific Allowance will only be paid up to a predefined sum of $2,500 once suitable evidence of expense incurred by the redundant employee is provided. As the employee is compensated exactly for an expense already dispersed the payment, despite being called a 'specific Allowance', is a reimbursement.

Thus as the Employer (a provider) reimburses the employee (a recipient) for expenses incurred by the recipient, the payment of the specific Allowance would be the provision of a benefit.

(b) Is the benefit provided to an employee or an associate of an employee?

Employee is defined in subsection 136(1) of the FBTAA to mean:

n a current employee;

n a future employee, or

n a former employee.

As the specific Allowance is paid to a redundant employee of the Employer, it is provided to an employee or an associate of an employee. It does not matter if the redundant employee has already been terminated when they receive payment of the specific Allowance, as former employees are included in the definition of employee for the purposes of the FBTAA.

(c) Is the benefit provided by the employer, an associate or a third party under an arrangement?

In this instance the specific Allowance is paid as a reimbursement by the Employer to the employee. As such the benefit is provided by the Employer.

(d) Will the benefit be provided in respect of the employment of the employee?

The term 'in respect of' is defined in subsection 136(1) of the FBTAA to include 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment'.

The term 'in respect of' was considered in J&G Knowles & Associates v. FC of T [2000] FCA 196, it was held to require a 'nexus, some discernible and rational link, between the benefit and employment'. The full court found that what must be established was whether there was a sufficient or material connection between the benefit and the employment. Put another way 'in respect of employment' effectively means a benefit is provided to somebody because they are an employee.

In this instance as the specific Allowance is paid under the terms of the Award forming part of the employment conditions of the redundant employee there is a discernible and rational link between the benefit and the employment. As such the specific Allowance is provided in respect of the employment of the employee.

(e) the benefit does not come within any of the paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA

Paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA (the Definition of a Fringe Benefit) list certain benefits and payments that are not included in the definition.

For the purpose of this ruling the relevant paragraph is paragraph (g) which provides that a fringe benefit does not include a benefit that is an exempt benefit.

The application of paragraph (g) as it relates to specific Allowance is further considered in question 2 and 3 of this ruling. For the purpose of answering this question it will be assumed that the specific Allowance is not an exempt benefit. As will be further explained in answering questions 2 and 3 there may be circumstances where the specific Allowance will be an exempt benefit and thus excluded from the Definition of a Fringe Benefit.

For completeness it should be noted that an employment termination payment (ETP) is specifically excluded by paragraph (lc) of the Definition of a Fringe Benefit. In a recent private ruling issued to you it was concluded that the Specific Allowance was not an ETP. As such it would not be excluded from the Definition of a Fringe Benefit on the basis that it is an ETP.

Conclusion

The specific Allowance provided by you to redundant employees, provided it is not an exempt benefit, will be a fringe benefit because, as explained above:

(a) the reimbursement is a benefit;

(b) the benefit is provided to an employee or an associate of an employee;

(c) the benefit is provided by the employer, an associate or a third party under an arrangement;

(d) the benefit is provided in respect of the employment of the employee, and

(e) the benefit does not come within any of the paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA provided it is not an exempt benefit.

Question 2

Subsection 58M(1)(a) of the FBTAA sets out the circumstances in which an expense payment benefit will be an exempt benefit. For the purpose of this ruling the relevant subparagraph is subparagraph 58M(1)(a)(iv) which provides an exemption for work-related counselling of the employee or of an associate of the employee.

Thus, the payment of the specific Allowance will be an exempt benefit under subparagraph 58M(1)(a)(iv) of the FBTAA if the employee's expenditure is 'in respect of … work-related counselling of the employee'.

Taxation Determination TD 93/153 Fringe Benefits Tax: are outplacement services provided to current and former employees in the nature of work-related counselling and thus exempt from fringe benefits tax under section 58M of the [FBTAA] provides guidance on the application of section 58M to outplacement services. These outplacement services are provided to assist redundant employees to organise their skills and experience in order to obtain satisfactory new employment.

In relation to the outplacement services, paragraph 3 of TD 93/153 states:

… Such services, as they are normally provided, are considered to fall within the meaning of counselling as defined in paragraph (d) of the definition of "work-related counselling" in subsection 136(1).

Typical examples of outplacement services are provided at paragraph 5 of TD 93/153, which are:

n assistance in writing a resume and job application;

n guidance on seeking new employment;

n training for employment interviews and selection tests;

n the provision of any ancillary services in support of the primary services provided e.g. the use of the employer's telephone or office space.

Thus, where the specific Allowance paid to your employees involves the provision of outplacement services which are consistent with TD 93/153, the allowance would be an exempt benefit under subsection 58M(1)(a)(iv) of the FBTAA.

Question 3

Summary

The specific Allowance as defined by the Award entitles a redundant employee to a payment of up to $2,500 to meet expenses associated with seeking other employment. As such, the definition of the Allowance would encompass the exemption for the provision of work-related counselling, but it is also broad enough to encompass expenditure not contemplated by that exemption.

Work-related counselling is defined in the FBTAA to include all manner of counselling services provided to employees, including inter alia improving their performance, stress management and preparing them for retirement.

The provision of property such as a laptop computer would be of assistance to a redundant employee in enabling them to find alternative employment, but it is not a counselling service as provided for by subsection 58M(1)(a)(iv) of the FBTAA, as such it would not be the provision of an exempt benefit.

Detailed Reasoning

While it is accepted that expenditure in line with TD 93/153, as explained in question 2, will be an exempt benefit, it is not accepted that this exemption extends to all expenditure on the specific Allowance. In order to be exempt the expenditure must fit within the definition of work-related counselling as defined in subsection 136(1) of the FBTAA, which is defined as follows:

work-related counselling:

(a) in relation to an employee of an employer, means counselling attended by the employee; and

(b) in relation to an associate of an employee of an employer, means counselling attended by the associate where the associate is accompanied by the employee;

where all of the following conditions are satisfied:

(c) the attendance of:

(i) if paragraph (a) applies - the employee; and

(ii) if paragraph (b) applies - both the employee and the associate;

at the counselling gives effect to an objective, purpose, plan or policy devised, adopted or required to be followed, by the employer to:

(iii) improve or maintain the quality of the performance of employees' duties; or

(iv) prepare employees for retirement;

(d) the counselling relates to any of the following matters:

(i) safety;

(ii) health;

(iii) fitness;

(iv) stress management;

(v) personal relationships;

(vi) retirement problems;

(vii) drug or alcohol abuse;

(viii) rehabilitation or prevention of work-related trauma or of other disease or injury;

(ix) first aid;

(x) any similar matter;

(e) there is no benefit that:

(i) is provided in respect of the employment of the employee;

(ii) consists of the provision of, or relates to, the counselling; and

(iii) is provided wholly or principally as a reward for services rendered or to be rendered by the employee.

The meaning of the term counselling in the context of the work-related counselling definition is discussed in paragraphs 112 to 117 of Class Ruling CR 2011/41 Fringe benefits tax: health services provided by BUPA Wellness Pty Ltd. Paragraphs 112 to 117 of CR 2011/41 state:

What is counselling?

112. In understanding the meaning of this term it is helpful to refer to the ordinary dictionary meanings.

113. The Macquarie Dictionary defines the word 'counsel' as 'advice; opinion or instruction given in directing the judgment or conduct of another'. The Australian Concise Oxford Dictionary defines 'counselling' as the act or process of giving counsel' and relevantly the noun 'counsel' as 'advice, esp. formally given', and the verb as ' 1 ... advise (a person) 2a give advice to (a person) on social or personal problems, esp. professionally' and ' b assist or guide (a person) in resolving personal difficulties'.

114. The wording of the definitions in paragraphs 112 and 113 indicates 'counselling' involves a suitably qualified person providing advice or guidance to someone else in relation to their established area of expertise.

115. The Explanatory Memorandum to Taxation Laws Amendment (Fringe Benefits and Substantiation) Bill 1987 indicates the advice or information can be given either on an individual basis, or in a group situation such as a seminar. This is reflected in the definition of 'counselling' in subsection 136(1) which states that 'counselling' 'includes the giving of advice or information in a seminar'.

116. The advice or information can be in relation to a wide range of matters. For example, the Explanatory Memorandum to Taxation Laws Amendment (Fringe Benefits and Substantiation) Bill 1987 indicates it can be related to matters such as safe work practices, stress management, fitness, drug or alcohol abuse or retirement problems. This list of examples is extended by Taxation Determination TD 93/153 to include outplacement services such as assistance in writing a resume and job application, guidance on seeking new employment or training for employment interviews and selection tests.

117. Although the advice or information provided can be in relation to a wide range of areas a benefit will not be considered to be 'counselling' unless the provision of advice is the principal purpose for the benefit being provided to the employee. For example, although 'counselling' can include training or advice about how to undertake various physical activities, a physical activity session with limited instruction undertaken by an employee for the purpose of keeping fit will not constitute 'counselling'.

The specific Allowance is defined broadly. This Award entitles a redundant employee to a payment of up to $2,500 to meet expenses associated with seeking other employment. As such, the definition of the specific Allowance would encompass the types of expenditure contemplated by the exemption in subsection 58M(1)(a)(iv) of the FBTAA for work-related counselling, but it is also broad enough to encompass expenditure not contemplated by that exemption.

The provision of property, such as a laptop computer, is an example of such expenditure. The provision of a laptop computer may well be of assistance to a redundant employee in enabling them to find alternative employment, but is not providing work-related counselling as defined in the FBTAA as outlined above. In short, providing property is not providing the service of counselling as intended by subsection 58M(1)(a) of the FBTAA.

As such, the provision of property, such as a laptop computer, to a redundant employee would not be an exempt benefit under subsection 58M(1)(a)(iv) of the FBTAA. Meaning the use of the specific Allowance to provide a redundant employee with property, such as a laptop computer, would be subject to fringe benefits tax as it would be an expense payment fringe benefit.

Other relevant comments

N/A