Edited version of your written advice

Authorisation Number: 1012940073050

Date of advice: 29 January 2016

Ruling

Subject: In-house Fringe Benefit

Question 1

Will an in-house residual fringe benefit arise from your proposed arrangement with your employees?

Answer

Yes

Question 2

If an in-house residual fringe benefit arises from the arrangement will the taxable value of the fringe benefit be calculated under section 49 of the Fringe benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 3

If a fringe benefit arises from the provision of the arrangement can the taxable value of the fringe benefit be reduced under section 62 of the FBTAA?

Answer:

Yes.

This ruling applies for the following periods:

Year ended 31 March 2016

Year ended 31 March 2017

Year ended 31 March 2018

The scheme commences on:

1 April 2015

Relevant facts and circumstances

You provided us with a copy of the proposed arrangement.

The benefit will not be provided as part of a salary packaging arrangement.

Relevant legislative provisions

Fringe Benefit Assessment Act 1986 subsection 136(1),

Fringe Benefit Assessment Act 1986 section 49 and

Fringe Benefit Assessment Act 1986 section 62.

Reasons for decision

Question 1

The definition of the term 'in-house residual fringe benefit' in subsection 136(1) of the FBTAA defines 'in-house residual fringe benefit' to mean:

… a residual fringe benefit in relation to the employer:

(a) where both of the following conditions are statisfied:

(i) the provider is the employer or an associate of the employer;

(ii) at or about the comparison time, the provider carried on a business that consisted of or included the provision of the identical or similar benefits principally to outsiders; or

(b) where all the following conditions are satisfied:

(i) the provider is not the employer or an associate of the employer;

(ii) the provider purchased the benefit from the employer or an associate of the employer (which employer or associate is in this definition called the seller);

(iii) at or about the comparison time, both the provider and the seller carried on a business that consisted of or included the provision of identical or similar property principally to outsiders;

but does not include a benefit provided under a contract of investment insurance.

Is the benefit a fringe benefit?

Subsection 136(1) of the FBTAA contains an inclusive definition of 'benefit' which states:

benefit includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property;

(ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money.

The definition of fringe benefit in subsection 136(1) of the FBTAA provides that a fringe benefit will arise when:

• a benefit is provided;

• to an employee or an associate of an employee;

• by the employer, an associate of the employer or a third person under an arrangement with the employer (or associate) or in a situation that comes within paragraph (ea) of the fringe benefit definition;

• if the benefit is provided in respect of the employment of the employee; and

• paragraphs (f) to (s) of the fringe benefit definition do not apply.

It is accepted the provision of benefit in your proposed arrangement fits within the definition.

(a) Is the benefit a residual fringe benefit?

A benefit will be a residual benefit under section 45 of the FBTAA if it comes within the definition of 'benefit' in subsection 136(1) of the FBTAA, but is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

For the purpose of this ruling, the relevant Divisions are Division 5 which deals with expense payment benefits and Division 10 which deals with property benefits.

A benefit will be an expense payment benefit under section 20 of the FBTAA if the employee is reimbursed for expenses the employee has incurred, or if the employer pays a third party in satisfaction of expenses incurred by an employee. Neither of these applies to the arrangement being considered as the employee will not incur an amount of expenditure.

A property benefit will arise under section 40 of the FBTAA if the employee receives property. Section 40 of the FBTAA states:

Where, at a particular time, a person (in this section referred to as the ``provider'') provides property to another person (in this section referred to as the ``recipient''), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

Subsection 136(1) of the FBTAA defines property as intangible property and tangible property.

Tangible property is defined in subsection 136(1) to mean:

goods and includes:

(a) animals, including fish; and

(b) gas and electricity.

The benefit does not come within this definition.

Intangible property is defined in subsection 136(1) to mean:

(a) real property;

(b) a chose in action; and

(c) any other kind of property other than tangible property;

but does not include:

(d) a right arising under a contract of insurance; or

(e) a lease or licence in respect of real property or tangible property.

Based on the information you provided, the benefit is neither tangible property, nor intangible property. Therefore, it is accepted that the benefit will be a residual fringe benefit.

Is the provider of the residual fringe benefit the employer or an associate of the employer?

You are the provider of the benefit.

Did you at or about the comparison time carry on a business that consisted of or included the provision of identical or similar benefits principally to outsiders?

Given the size, scale and permanency of these activities and the businesslike manner in which they are organised it is accepted that you are carrying on a business that includes the provision of identical or similar benefits principally to outsiders.

Question 2

Will the taxable value of the fringe benefit be calculated under section 49 of the FBTAA?

The taxable value of an in-house residual fringe benefit will be calculated under section 49 of the FBTAA where the benefit is provided during a period. Alternatively, where the benefit is not provided during a period, the taxable value will be determined under section 50 of the FBTAA.

Section 149 of the FBTAA provides that a benefit shall be taken to be provided during a period if the benefit is provided, or subsists during a period of more than one day and is not deemed by a provision of the FBTAA to be provided at a particular time or on a particular day.

Therefore, as the benefit will be provided on an ongoing basis for the period that the recipient is an employee, section 49 is the relevant section for determining the taxable value.

Section 49 of the FBTAA states:

Subject to this Part, the taxable value of an in-house period residual fringe benefit in relation to a year of tax is:

(aa) if the benefit was provided to the recipient under a salary packaging arrangement - an amount equal to the notional value of the benefit at the comparison time; or

(ab) if paragraph (aa) does not apply and the benefit is an airline transport fringe benefit - an amount equal to 75% of the stand-by airline travel value of the benefit at the comparison time; or

(a) if neither paragraph (aa) nor (ab) applies and, at or about the comparison time, identical overall benefits were provided by the provider:

(i) in the ordinary course of business to members of the public under an arm's length transaction or arm's length transactions; and

(ii) in similar circumstances and subject to identical terms and conditions (other than as to price) as those that applied in relation to the provision of the recipients overall benefit;

an amount equal to 75% of the lowest amount paid or payable by any such member of the public in respect of the current identical benefit in relation to an identical overall benefit so provided; or

(b) in any other case - an amount equal to 75% of the notional value of the recipients current benefit;

reduced by the amount of the recipients contribution insofar as it relates to the recipients current benefit.

It is agreed that your proposed valuation method is reasonable in the circumstances.

Question 3

Can the taxable value of the fringe benefit be reduced under section 62 of the FBTAA?

Section 62 of the FBTAA states:

62(1)  

Where one or more in-house fringe benefits in relation to an employer in relation to a year of tax relate to a particular employee of the employer, the taxable value of that fringe benefit, or the sum of the taxable values of those fringe benefits, as the case may be, in relation to that year shall be reduced by:

(a) if the taxable value or the sum of the taxable values does not exceed $1,000 - an amount equal to the taxable value or the sum of the taxable values; or

(b) in any other case - $1,000.

62(2)  

Subsection (1) does not apply to an in-house fringe benefit provided under a salary packaging arrangement

Subsection 136(1) defines in-house fringe benefit to mean:

(a) an in-house expense payment fringe benefit;

(b) an in-house property fringe benefit; or

(c) an in-house residual fringe benefit.

As the benefit is an in-house residual benefit which is not provided under a salary packaging arrangement it is agreed that section 62 of the FBTAA will apply to reduce the taxable value.