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Edited version of your written advice
Authorisation Number: 1012769946623
Ruling
Subject: Interest-free loan
Question
Does the interest-free loan constitute a fringe benefit under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Answer
No.
This ruling applies for the following periods
1 April 2013 to 31 March 2014
1 April 2014 to 31 March 2015
The scheme commenced on
The scheme has commenced
Relevant facts and circumstances
Background facts
The taxpayer employed their carer to tend to their day to day care in their later years.
There existed an employment contract between them.
The employee was given an interest-free loan from their employer.
The loan was settled and the funds were advanced in one large lump sum. No further advances have been made under the new employer.
The employer was a shareholder in the trustee company.
The employer passed away and the Estate was established.
Facts related to issue
The Family Trust employed this employee to undertake work for the Estate.
The employee is not a beneficiary of the Family Trust.
The employee ceased being an employee of the Family Trust.
The Estate did not set up a bank account due to the urgency that this needed to be set up.
The Family Trust is a discretionary trust for investment only.
The employee was paid by the Family Trust.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986, Section 16
Fringe Benefits Tax Assessment Act 1986, Subsection 136(1)
Reasons for decision
'Fringe benefit' is defined at subsection 136(1) of the FBTAA to include:
'A benefit provided to the employee or to an associate of the employee ... by ... the employer or an associate of the employer ... in respect of the employment of the employee... .' [emphasis added]
Thus for a benefit to be a 'fringe benefit' it must be provided 'in respect of' the employment. Whilst the expression 'in respect of ' has no fixed meaning, it has been considered by the courts in various statutory contexts on numerous occasions.
Whilst an employee's employment may explain their selection to receive a benefit, in order to find that a benefit is provided 'in respect of' employment, there needs to be a sufficient or material, rather than a causal connection or relationship to employment. Refer J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation [2000] FCA 196.
In this case, the interest-free loan provided by the Family Trust to the employee was made by reason of, either their employment by the employer, or the employee's personal relationship with the employer. Neither reason is due to the employee's employment with the Family Trust.
Accordingly, it cannot be concluded that the benefit was provided to the employee 'in respect of' their employment with the Family Trust.
Therefore, the interest-free loan provided to the employee by the Family Trust under the circumstances described above is not subject to fringe benefits tax (FBT) under section 16 of the FBTAA which deals with loan fringe benefits.