Edited version of your written advice

Authorisation Number: 1012865219407

Date of advice: 24 August 2015

Ruling

Subject: Fringe benefits tax

Question 1

Is X your employee for the purpose of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as a result of their living in the First Dwelling to care for your livestock?

Answer

Yes

Question 2

If X is your employee, have you provided a fringe benefit to X for the purpose of subsection 136(1) of the FBTAA during the years ended 31 March 2012, 31 March 2013, 31 March 2014, 31 March 2015 and 31 March 2016 (inclusive)?

Answer

Yes

Question 3

If a fringe benefit has been provided to X during the 2012 to 2016 FBT years, is the fringe benefit provided to X a housing fringe benefit pursuant to Part III, Division 6 of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 4

If a fringe benefit has been provided to X during the 2012 to 2016 FBT years, and that fringe benefit is not a housing fringe benefit, what type of fringe benefit has been provided to X?

Answer

Not applicable

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

The scheme commences on:

The scheme has commenced

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You and your spouse are the sole shareholders of a company that employs X.

You acquired a property (the Property) and are the registered owner.

You own several animals and they live on the Property.

There are two dwellings on the Property, the dwelling that you currently live in and another that you lived in previously (the First Dwelling).

You intended to have an animal minder live in the First Dwelling once you moved into your current house.

You and your spouse need someone to reside on the Property to look after your animals if you both are to be away for more than 18 hours as:

• The animals need attention every morning and evening. In addition to the usual tasks of general care, feed preparation and stable cleaning, there are particular tasks due to the climate. Because of this you spend at least an hour each morning and afternoon looking after the animals.

• The Property is somewhat remote.

• Access to the Property can be cut off at short notice. A few times a year access will be cut off and will be affected for less than 24 hours, but in the years you have lived on the Property there have been several occasions where access has been affected by the best part of a week.

The first animal-minder

Previously your friend B who had experience with animals came and stayed on the Property when you needed to be away.

No payment was provided to B to stay and look after the animals and B did not pay to stay on the Property.

B was supposed to move into the First Dwelling once you had moved into the new house. When you and your spouse moved to your current house, B's circumstances had changed and it was no longer an option for B to move into the First Dwelling.

You and your spouse still wanted someone to reside in the First Dwelling to care for the animals and provide peace of mind. You did not believe there would be many candidates.

The second animal-minder

You and your spouse asked X who was working for the company to live in the First Dwelling to be the resident animal-minder.

X had been working on a full time basis for the company. X proved to be an honest and trustworthy individual in this role and had the required experience with animals.

X accepted the offer to stay in the First Dwelling to be the animal-minder.

You and your spouse do not charge X rent to stay in the First Dwelling and do not pay X any form of payment for animal-minding.

There is no lease or any other documentation with respect to X occupying the First Dwelling.

X does not have a set timetable or schedule as to how often or when X is required to care for the animals. However, the animal-minding is carried out before and after work on weekdays and as and when required on the weekends.

X's wage and employment conditions with the company did not change as a result of moving into the First Dwelling. X's wage and employment conditions would not change if X chose to stop being the resident animal-minder and move out of the First Dwelling.

In the event X ceases employment with the company, you and your spouse would wish X to remain living in the First Dwelling as X is now very experienced in caring for your animals and finding another suitable animal-minder would be difficult.

The nature of the arrangement to care for the animals between X and you and your spouse is private and domestic and independent of any business otherwise conducted by you and your spouse.

Relevant legislative provisions

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

Fringe Benefits Tax Assessment Act 1986 Section 137,

Fringe Benefits Tax Assessment Act 1986 Section 25 and

Taxation Administration Act 1953 Section 12-35 of Schedule 1.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Summary

X is your current employee for the purpose of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Section 137 of the FBTAA also includes as an employee a person who would have been treated as an employee if a benefit is received by the person and such benefit if paid by way of a cash payment, would constitute salary or wage.

Detailed reasoning

An employee is defined in subsection 136(1) of the FBTAA to be:

a current employee

a future employee, or

a former employee.

Subsection 136(1) of the FBTAA also sets out that a current employee is someone who receives, or is entitled to receive, salary or wages.

Section 137 of the FBTAA further expands this to include persons who receive non-cash remuneration in circumstances where the person would have been treated as an employee if the non-cash remuneration had been received by way of a cash payment.

Subsection 137(1) states:

For the purpose only of ascertaining whether a person is an employee or an employer within the meaning of this Act, where:

(a) a benefit is provided by a person (in this subsection referred to as the first person) to, or to an associate of, another person (in this subsection referred to as the second person);

(b) but for this subsection, the benefit would not be regarded as having been provided in respect of the employment of the second person; and

(c) either of the following conditions is satisfied:

(i) if the benefit were provided by the first person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the first person to the second person;

(ii) all of the following conditions are satisfied:

(A) subparagraph (i) does not apply in relation to the benefit;

(B) the first person is an associate of a third person or the benefit is provided under an arrangement between the first person and a third person;

(C) if the benefit were provided by the third person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the third person to the second person;

a definition in subsection 136(1) applies as if the benefit were salary or wages paid to the second person by:

(d) in a case to which subparagraph (c)(i) applies - the first person; or

(e) in a case to which subparagraph (c)(ii) applies - the third person.

You have allowed X to occupy the First Dwelling as a result of his caring for your animals. This is a 'benefit' as defined in subsection 136(1) of the FBTAA provided under an arrangement or in relation to the performance of work.

If it were not for subsection 137(1) of the FBTAA the benefit would not be regarded as having been provided in respect of employment as X does not receive salary or wages.

The next question to consider is if you were to make cash payments to X rather than providing the accommodation would those payments constitute salary or wages? If so, subsection 136(1) will apply as if the benefit were salary or wages paid by you to X.

Salary or wages is defined in subsection 136(1) of the FBTAA to mean:

(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; …

The relevant provision in Schedule 1 to the Taxation Administration Act 1953 (TAA) is section 12-35, Payment to Employee, which states:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

As noted in Taxation Ruling TR 2005/16: Pay As You Go - withholding from payments to employees the term 'employee' is not defined in the TAA and that for the purposes of withholding under section 12-35 has its ordinary meaning.

Paragraph 7 of TR 2005/16 states:

Whether a person is an employee is a question of fact to be determined by examining the terms and circumstances of the contract between them having regard to the key indicators expressed in the relevant case law. Defining the contractual relationship is often a process of examining a number of factors and evaluating those factors within the context of the relationship between the parties. No one indicator of itself is determinative of that relationship. The totality of the relationship between the parties must be considered.

The relationship between employee and employer is said to be a contract of service, and has been referred to as a master/servant relationship.

The contract between you and X is not a written contract, however, you do have an agreement that X provides services to you and you allow X to reside in the First Dwelling. X receives no compensation from you other than to reside in that dwelling.

X looks after your animals every day and when you are not available. X would need to follow your directions and instructions in order to do this in a manner that is acceptable to you. In addition to this X's presence on the Property provides you and your spouse with peace of mind in case of an emergency.

Whilst these services may be of a private or domestic nature, this does not exclude X from being an employee and you an employer.

For the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) subsection 12(11) of that Act provides that:

A person who is paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week is not regarded as an employee in relation to that work.

The existence of this exemption implies that it is possible for a person who is undertaking work that is wholly or principally of a domestic or private nature to be an employee.

For the purposes of Schedule 1 to the TAA, no similar exemption from pay as you go (PAYG) withholding exists that would exempt a person who is undertaking work that is domestic or private in nature from being an employee.

Although X undertakes duties that are of a domestic or domestic nature, X is still an employee as X is providing you with a service in accordance with your requirements.

X is living in the First Dwelling as a result of providing these services to you. If X had received a cash payment rather than the occupancy of the First Dwelling, you would be required to withhold under section 12-35 of Schedule 1 to the TAA. Therefore, for the purposes of subsection 136(1) of the FBTAA X is your employee.

Question 2

Summary

You have provided a fringe benefit to X during the years ended 31 March 2012, 31 March 2013, 31 March 2014, 31 March 2015 and 31 March 2016.

Detailed reasoning

A fringe benefit is defined in subsection 136(1) of the FBTAA to mean:

a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer; or…

(e)…

(ea)…

…in respect of the employment of the employee

You are the registered owner of the Property where the First Dwelling is located and have allowed X to live there. Therefore, the provision of the accommodation is a benefit provided to your employee and is a fringe benefit if it is provided in respect of employment.

The phrase 'in respect of' in relation to the employment of an employee 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'.

The meaning of 'in respect of employment' was considered by the Federal Court in J & G Knowles v Federal Commissioner of Taxation [2000] 96 FCR 402; 2000 ATC 4151; 44 ATR 22 (Knowles). In Knowles, the Full Federal Court concluded that there needs to be a sufficient or material, rather than a causal connection or relationship between the benefit and the employment.

The following facts indicate that there is a material connection between the provision of accommodation in the First Dwelling and X's duties for you as a animal-minder:

• X is occupying the First Dwelling to enable X to take care of your animals when necessary and to provide peace of mind to you and your spouse

• X's wage and employment conditions with the company would not change if X chose to stop taking care of your animals and move out of the dwelling,

• X's occupancy of the First Dwelling is not in respect of employment with the company, and

• you and your spouse would continue to allow X to live in the First Dwelling even if X ceased employment with the company because X is very experienced in taking care of your animals.

As X is your employee and you have provided X with the accommodation in the First Dwelling in respect of employment with you, the provision of that accommodation will be a fringe benefit.

Question 3

Summary

The fringe benefit provided to X is a housing fringe benefit pursuant to Part III, Division 6 of the FBTAA.

Detailed reasoning

A housing fringe benefit is defined to mean a fringe benefit that is a housing benefit. Housing benefit is defined in subsection 136(1) of the FBTAA as meaning a benefit referred to in section 25 of the FBTAA. Under section 25 a benefit will arise where a person grants a 'housing right' to another person.

'Housing right' is defined in subsection 136(1) of the FBTAA as meaning a lease or licence being granted to a person to occupy a unit of accommodation as that person's current usual place of residence.

Although there is no lease or other documentation with respect to X occupying the First Dwelling, you have allowed X to occupy it as X's usual place of residence.

Therefore, the provision of the fringe benefit will constitute a housing benefit