Edited version of your written advice

Authorisation Number: 1012979726211

Date of advice: 15 March 2016

Ruling

Subject: Fringe benefits tax and salary sacrifice arrangements

Question 1

Can X, a public benevolent institution (PBI), make payments to an employee's mortgage loan account, and contributions to the employee's superannuation as part of a salary packaging arrangement as defined in section 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), also known as a salary sacrifice arrangement (SSA)?

Answer

Yes

Question 2

Are superannuation contributions made by X to the employee's complying superannuation fund included in working out X's aggregate non-exempt amount under subsection 5B(1E) of the FBTAA?

Answer

No

Question 3

Are payments made by X to the employee's mortgage loan account included in working out X's aggregate non-exempt amount under subsection 5B(1E) of the FBTAA?

Answer

Yes

Question 4

When X makes contributions to an employee's superannuation and payments to the employee's mortgage loan account under a SSA, is the fringe benefits tax exemption capping threshold in relation to the employee, for the purposes of subsection 5B(1E) of the FBTAA, the total of the employee's superannuation concessional contribution cap plus the PBI FBT exemption capping threshold in relation to the employee?

Answer

No

This ruling applies for the following period:

Fringe benefits tax year ending 31 March 2016

The scheme commences on:

1 April 2015

Relevant facts and circumstances

X is a registered public benevolent institution, endorsed to access fringe benefits tax exemption.

X has entered a salary sacrifice arrangement (SSA) with an employee.

Under the SSA, X makes payments to the employee's mortgage loan account and makes contributions to the employee's superannuation account.

The payments are made to a loan account, and not a mortgage offset facility.

The employee is aged between 60 and 65 years old.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 5B(1E)

Fringe Benefits Tax Assessment Act 1986 subsection 5B(1L)

Fringe Benefits Tax Assessment Act 1986 section 5E

Fringe Benefits Tax Assessment Act 1986 subsection 5E(3)

Fringe Benefits Tax Assessment Act 1986 section 135Q

Fringe Benefits Tax Assessment Act 1986 section 135Y

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 Division 291

Income Tax Assessment Act 1997 section 291-15

Income Tax (Transitional Provisions) Act 1997 subsection 291-20(1)

Reasons for decision

Question 1

Summary

Yes. The FBTAA does not restrict the type of non-cash benefits provided to employees in respect of their employment under a SSA. For the purposes of the FBTAA, X can pay an employee's mortgage loan account and also make contributions to the employee's superannuation account as part of the SSA.

Detailed Reasoning

The terms 'benefit' and 'fringe benefit' are defined in subsection 136(1) of the FBTAA. The Fringe benefits tax - a guide for employers (NAT 1054 7.2014) (the FBT guide) provides the Commissioner's view regarding how the FBTAA applies to employers. In the 'Introduction', the FBT guide broadly explains the terms as follows:

• a 'benefit' includes any right, privilege, service or facility.

• a 'fringe benefit' is a benefit provided to an employee, or their associate (such as a family member) in respect of employment. Effectively, this means a benefit is provided to somebody because they are an employee. An employee can be a current, former or future employee. These benefits can be provided by the employer, the employer's associate, or by a third party under an arrangement with the employer.

Taxation Ruling TR 2001/10 Income Tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/10) discusses fringe benefits tax (FBT) in relation to SSAs, and defines a SSA as:

'an arrangement under which an employee agrees to forego part of his or her total remuneration, that he or she would otherwise expect to receive as salary or wages, in return for the employer or someone associated with the employer providing benefits of a similar value.

Chapter 1 of the FBT guide at 1.11 explains that all non-cash benefits can be included in a SSA. Paragraph 20 of TR 2001/10 provides some examples of benefits commonly included in SSAs are payment of superannuation contributions, the provision of motor vehicles, and payment of expenses, such as payment of school fees, childcare costs or loan repayments (paragraph 20).

As such, for the purposes of the FBTAA, X can make payments to the employee's mortgage loan account, and contributions to the employee's superannuation account, and provide any other non-cash benefits, as part of a SSA.

Question 2

Summary

No. Superannuation contributions to the employee's complying superannuation fund account are not a 'fringe benefit' as defined in subsection 136(1) of the FBTAA, and are not included in the grossed-up taxable value of fringe benefits provided to the employee, or the 'aggregate non-exempt amount' of X under subsection 5B(1E) of the FBTAA.

Detailed reasoning

Subsection 5B(1E) of the FBTAA provides the method for working out the total amount by which the grossed-up taxable value of fringe benefits provided to each employee exceeds the FBT exemption capping threshold of each employee. This is the employer's 'aggregate non-exempt amount'.

The term 'fringe benefit' is defined in subsection 136(1) of the FBTAA and, effectively, means a benefit provided to somebody because they are an employee (the FBT guide, at 1.1). Paragraph 8 of TR 2001/10 further explains that, under the definition in subsection 136(1), a 'fringe benefit' does not include:

• a payment of 'salary or wages' (paragraph (f) of the definition of fringe benefit in the FBTAA);

• an exempt benefit (paragraph (g) of the definition); or

• a payment to a complying superannuation fund in respect of an employee (paragraph (j) of the definition).

The FBT guide at 1.11 provides that superannuation contributions an employer makes under a SSA to an employee's account at a complying superannuation fund are not fringe benefits. However, where superannuation contributions are paid for the benefit of an associate, for example to the superannuation account of a spouse, the contributions are a fringe benefit.

Where an employer provides a benefit that is not a 'fringe benefit', the benefit is not included in working out the employee's individual fringe benefit amount, or the employer's aggregate non-exempt amount in subsection 5B(1E) of the FBTAA.

As provided in the facts, X makes superannuation contributions to the complying superannuation fund account of an employee as part of a SSA with the employee.

Although these contributions are made by X in respect of the employee's employment, as they are made to an account of the employee (not the employee's spouse or other associate) the superannuation contributions are not a fringe benefit as defined in subsection 136(1) of the FBTAA.

The superannuation contributions made by X are not included in the grossed-up taxable value of fringe benefits provided to the employee, and are not included when working out X's aggregate non-exempt amount under subsection 5B(1E) of the FBTAA.

Question 3

Summary

Yes. The payments made by X are expense payment fringe benefits. The taxable value of the payments is included in the employee's 'individual fringe benefit amount', and in working out X's aggregate non-exempt amount under subsection 5B(1E) of the FBTAA.

Detailed reasoning

Subsection 5B(1E) of the FBTAA provides the method for working out the total amount by which the grossed-up taxable value of fringe benefits provided to each employee exceeds the FBT exemption capping threshold of each employee, the employer's 'aggregate non-exempt amount'.

The employer's 'aggregate non-exempt amount' in subsection 5B(1E) of the FBTAA takes into account each employees' 'individual fringe benefits amount', as though the capping concession was not available (section 135Q).

The 'individual fringe benefits amount' is the sum of the employee's share of the taxable value of each fringe benefit that relates to the year of tax and is provided in respect of the employee's employment, other than excluded fringe benefits¹ (section 5E of the FBTAA).

Payments an employer makes to an employee's mortgage account are expense payment fringe benefits. However, payments made into an employee's home mortgage offset facility are not expense payment fringe benefits, but rather payments of salary and wages (the FBT guide at 9.9).

A payment an employer makes to an employee's mortgage account is not an excluded fringe benefit under subsection 5E(3) of the FBTAA

As provided in the facts, X pays mortgage loan repayments on behalf of an employee as part of a SSA with the employee. The payments are made to a loan account, and not a mortgage offset facility.

The payments made by X are expense payment fringe benefits. The taxable value of the payments is included in the employee's 'individual fringe benefit amount', and in working out X's aggregate non-exempt amount under subsection 5B(1E) of the FBTAA.

Note: Excluded fringe benefits are benefits that are excluded from the reportable fringe benefits arrangements. They are still taxable benefits, and are included in the method for working out an employer's 'aggregate non-exempt amount' separately under subsection 5B(1L) of the FBTAA.

Question 4

Summary

No. X's FBT exemption capping threshold for the year ending 31 March 2016 is $31,177. The concessional contributions cap does not affect the FBT liability of employers making contributions on behalf of employees.

If an individual's superannuation contributions in an income tax year exceed the concessional contributions cap, the individual becomes liable to additional income tax and other charges. Individuals must take this into consideration when entering SSAs.

Detailed reasoning

Chapter 6 of the FBT guide at 6.3 explains that public benevolent institutions (PBIs) are exempt from FBT where the grossed-up taxable values of certain benefits provided to each employee is equal to or less than the capping threshold in relation to each employee.

Superannuation concessional contributions cap

As discussed in question 1 (above), an employer can make contributions to an employee's superannuation account as part of a SSA.

Division 291 of the Income Tax Assessment Act 1997 (ITAA 1997) caps the amount of superannuation contributions made by, or on behalf of, an individual in a financial year that can receive concessional tax treatment.

For the income tax year ending 30 June 2016, subsection 291-20(1) of the Income Tax (Transitional Provisions) Act 1997 provides that the concessional contributions cap is $35,000 for individuals 49 years or over on the 30 June 2015. If contributions to the individual's superannuation exceed the concessional contribution cap, the individual becomes liable to additional income tax and other charges (section 291-15 of the ITAA 1997).

The concessional superannuation cap only applies to individuals. The concessional superannuation cap is not applied by employers' when making contributions on behalf of employees.

FBT exemption capping threshold

Subsection 5B(1E) of the FBTAA provides the method for working out the employer's 'aggregate non-exempt amount' This is the total amount by which the grossed-up taxable value of fringe benefits provided exceeds the FBT exemption capping threshold for each employee.

The FBT exemption capping threshold for PBIs, in Step 3 of the method, is $30,000. However, section 135Y of the FBTAA modifies subsection 5B(1E) for the years ending 31 March 2016 and 31 March 2017, by changing the $30,000 capping threshold to $31,177.

As detailed in the facts, X makes payments to an employee's mortgage loan account and contributions to the employee's superannuation fund as part of a SSA.

For the purposes of calculating X's 'aggregate non-exempt amount', the FBT exemption capping threshold in relation to the employee is $31,177 for the year ending 31 March 2016. The employee's individual superannuation concessional contributions cap does not affect the FBT liability of employers making contributions on behalf of the employee.