Edited version of your written advice

Authorisation Number: 1013006226312

Date of advice: 5 May 2016

Ruling

Subject: Fringe benefits tax - exempt residual benefits

Question

Is the tuition fee discount provided to employees of the school for their children attending the school's early learning centre for three and four year old children and the beginner year of the school's primary education programs for five year old children, an exempt residual benefit under subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No.

This ruling applies for the following periods:

FBT year ended 31 March 2015

The scheme commences on:

The scheme has commenced.

Relevant facts and circumstances

The school is a recognised education organisation by the education authority of the State in which the school operates ('the State education authority'). It provides education courses to school aged children. In addition, the school also operates an early learning centre, for pre-school aged children in the three and four year old group.

The operation of the early learning centre was approved by the State education authority. The approval provides that, among others, the school must comply with the provisions of the Education and Care Services National Law Act 2010 and the Education and Care Services National Regulations 2011.

The relevant national law and regulations for education and care services is also known as a National Quality Framework that applies to most long day care, family day care, outside school hours care and preschools/kindergartens in Australia.

The school charges tuition fees and student activity fees for education services provided to enrolled students

Employees of the school who have children that attend the school are entitled to a reduction in tuition fees under the terms of the school's Enterprise Agreement.

The primary object of the school is to conduct a school that is open to pupils regardless of their religious or other beliefs; and to provide for pupils of the school, among others, a general education.

The early learning centre of the school

The early learning centre is registered with the State education authority. It is approved to run an early childhood educational program for children in the age between three and four years old and regulated under the National Quality Framework.

The early childhood educational program is delivered in accordance with a curriculum for pre-school education recognised by the State education authority. The pre-school education program is conducted by teachers with tertiary qualifications in education, particularly early childhood and primary education.

The early learning centre operates a number of full time classes during school terms and hours. Sessional classes are available for the three year old groups only.

Tuition fees and student activity fees will be charged for the sessions in which the child enrols.

After school care is available from 3:00 until 6:00pm at the site of the school.

The early learning centre follows the National Early Years Learning Framework. It has an extensive curriculum including language, literacy and communication, health, wellbeing and physical development, numeracy and problem solving, science and technology etc.

The beginner year of the school's primary education programs ('the beginner year')

The school's beginner year provides a full time primary education course to pupils in accordance with a primary curriculum recognised by the State education authority which includes English, mathematics, physical education and health, music, art, etc.

Enrolment at the beginner year is generally available for 5 year old children.

Relevant legislative provisions

Fringe Benefits Tax Act 1986

Section 45

Section 47

subsection 136(1)

Reasons for decision

Summary

The tuition fee discount provided to school's employees for their children attending the school's early learning centre for three and four year old children and the beginner year of the school's primary education programs for five year old children, is not an exempt residual benefit under subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA').

Detailed reasoning

Subsection 47(2) of the FBTAA provides an exemption from fringe benefits tax for the provision of child care when certain conditions are satisfied. It states:

Where:

(a) a residual benefit provided to a current employee in respect of his or her employment consists of

(i) the provision, or use, of a recreational facility; or

(ii) the care of children of the employee in a child care facility; and

(b) the recreational facility or child care facility, as the case may be, is located on business premises of

(i) the employer; or

(ii) if the employer is a company, of the employer or of an company that is related to the employer,

the benefit is an exempt benefit.

Therefore, the provision of child care will be an exempt benefit under subsection 47(2) of the FBTAA if all of the following conditions are satisfied:

1. the benefit is a residual benefit

2. the benefit is provided to a current employee

3. the benefit consists of the care of the children of the employee in a child care facility

4. the childcare facility is located on the business premises of the employer (or a related company if the employer is a company).

Application to your circumstances

1. Is the benefit a residual benefit?

Section 45 of the FBTAA defines a residual benefit as:

A benefit is a residual benefit for the purpose of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

The school provides educational programs to students enrolling with the school.

The school provides discounted tuition fees to employees who have a child/children attending the school.

As the benefit relates to the provision of an educational program it is not considered to be a benefit by any provision in of Subdivision A of Divisions 2 to 11 (inclusive) of the FBTAA. Therefore, such benefit constitutes a residual fringe benefit pursuant to section 45 of the FBTAA.

Accordingly, this condition is satisfied.

2. Is the benefit provided to a current employee?

Subsection 136(1) of the FBTAA defines a 'current employee' as:

"means a person who receives, or is entitled to receive, salary or wages."

The benefit is provided to the school's current employees. Therefore, this condition is satisfied.

3. Does the benefit consist of the care of children in a child care facility?

In the present case, it is necessary to determine whether the provision of education by the school with regard to the early learning centre and the beginner year falls within the scope of child care for the purpose of subsection 47(2) of the FBTAA.

The FBT exemption in subsection 47(2) of the FBTAA can only apply to an employer where, among others, the benefit is provided to an employee in the form of child care.

Subsection 136(1) of the FBTAA defines a 'child care facility' as follow:

"means a facility at which a person receives, or is ready to receive, 2 or more children under the age of 6, not being associates of the person, for the purpose of minding, caring for or educating them for a day or part of a day without provision for residential care but does not include a facility at the place of residence of any of those children."

The Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986 provides that:

"By sub-clause 47(2) the provision of recreational or child care facilities on an employer's premises for the benefit of employees will not give rise to a taxable fringe benefit.

For these purposes, 'child' is defined in sub-clause 36(1) to include an adopted child, step-child or ex-nuptial child of the employee. 'Child care facility' is also defined in that sub-clause and, broadly, means a facility where children under the age of 6 are provided with care or education, but not with residential care."

The intention of the Explanatory Memorandum is that, to be exempt from FBT, the child care facility must be one that provides child care to children. Therefore, an entity may not qualify as a child care facility as intended in the Explanatory Memorandum where it primarily involves the provision of formal education to pre-school aged children in a school like manner.

Furthermore, it is not considered that the legislation is intended for the provision of primary education to school aged children in a school.

The Commissioner's view as to what constitutes a "school" is discussed in the following public rulings:

• Goods and Services Tax Ruling GSTR 2000/30 - Goods and services tax: supplies that are GST-free for pre-school, primary and secondary education courses. (GSTR 2000/30)

• Taxation Ruling TR 2013/2 Income tax: school or college building funds (TR 2013/2)

GSTR 2000/30 discusses the term "education course" which may include a pre-school course, a primary course or a secondary course. It also provides explanation of what constitutes a "school" for the purposes of the GST Act.

Relevantly, paragraphs 13 to 18 of GSTR 2000/30 state:

"13. The term 'education course' is defined in the GST Act to include (amongst other things):

• a pre-school course;

• a primary course; or

• a secondary course.

14. The term 'school' means an institution that supplies pre-school courses, primary courses, secondary courses or special education courses. "

15. A pre-school course means a course that is delivered:

(a)  in accordance with a pre-school curriculum recognised by:

(i) the education authority of the State or Territory in which the course is delivered; or

(ii) a State or Territory body that has the responsibility for recognising pre-school curricula for courses delivered in that State or Territory; and

(b)  by a school that is recognised as a pre-school under the law of the State or Territory."

16. A pre-school curriculum includes programs for the development and education of children in the years prior to the commencement of a primary school course.

17. The term 'pre-school curriculum' used in the definition of a pre-school course includes curriculum guidelines, curriculum frameworks and similar terms used by the relevant authorities of the State or Territory.

18. A pre-school course must be delivered by a school. A school, for the purposes of the GST Act, is an institution that is approved by the relevant state or territory body, to conduct a pre-school course."

With regard to primary course, GSTR 2000/30 states at paragraphs 19 to 22:

"19. A primary course means:

(a)  a course of study or instruction that is delivered:

(i)   in accordance with a primary curriculum recognised by the education authority of the State or Territory in which the course is delivered; and

(ii)   by a school that is recognised as a primary school under the law of the State or Territory; or

(b)   any other course of study or instruction that the Education Minister has determined is a primary course for the purposes of this Act.²¹

20. A primary course is any course delivered by a school in accordance with the primary curriculum recognised by the education authority of the State or Territory. A school, as defined in the GST Act, is an institution approved by the education authority of a state or territory, to conduct a primary course.

21. In practice, schools may vary the delivery of the primary curriculum. In these circumstances, the school curriculum is still a primary course.

22. Regardless of whether a course of study or instruction meets the requirements of paragraph (a) of the definition of primary course, the Education Minister can determine that a course is a primary course for the purposes of the GST Act.²³ "

The term 'school' is also discussed in Taxation Ruling TR 2013/2. It provides guidance as to whether a pre-school can be a school. Relevantly, paragraphs 14 to 19 states:

"14. In order for there to be a school for the purposes of Item 2.1.10, there must also be an educational organisation which:

• has a distinct identity; and

• provides regular, ongoing and systematic instruction in a course of non-recreational education.

15. In this Ruling, such an organisation is referred to as a school organisation.

Distinct identity

16. A school organisation must have its own distinct identity. It will ordinarily have its own name. It will ordinarily be an institution in its own right, being an organisation which:

• is established for the promotion, pursuit and achievement of one or more defined purposes;

• has a quality of permanence; and

• has a governing body which controls its affairs.

Regular, ongoing and systematic instruction in a course of non-recreational education

"17. For the purposes of Item 2.1.10, a school is an organisation whose primary function or essential purpose is the provision of regular, ongoing and systematic instruction in a course of education.

18. The presence of the following factors indicates that an organisation is providing instruction as a school for the purposes of Item 2.1.10:

• a set curriculum;

• instruction or training provided by suitably qualified persons;

• the enrolment of students;

• some form of assessment and correction; and

• the creation of a qualification or status which is recognised outside of the organisation.

19. The instruction provided by a school must not be, or must not be more than incidentally, recreational in character. "

Furthermore, paragraph 145 of TR 2013/2 differentiates a child care centre and a pre-school kindergarten, it states:

"A child care centre is not a school for the purposes of Item 2.1.10 as it lacks the element of regular, ongoing and systematic instruction and lacks the purpose of systematically imparting a course of education as such. However, a pre-school kindergarten may qualify as a school where it involves regular and systematic instruction and these are its primary function or essential purpose."

Essentially where a pre-school kindergarten is being conducted in a school like manner, it cannot be said that the pre-school kindergarten amounts to a child care centre.

The early learning centre

The issue at hand is, for the purpose of subsection 47(2) of the FBTAA, whether the provision of a pre-school education to children aged between three and four years old constitutes a child care service. In this regard, it is necessary to examine the purpose of the early learning centre and the activities it undertakes.

The school's primary object is to conduct a school to provide education services for pupils of the school The establishment of the early learning centre is to provide an early childhood education program for children prior entering primary education.

The operation of the early learning centre is approved by the State education authority and is regulated under the National Quality Framework for education and care services. In this regard, the early learning centre delivers a curriculum according to the National Early Years Leaning Framework. It is a pre-school program for the development and education of children in the years prior to the commencement of a primary course.

The early learning centre's curriculum is extensive that consists of language, literacy and communication, health, wellbeing and physical development, numeracy and problem solving, science and technology, etc.

Hence, in this instance, the early learning centre is delivering a pre-school course that is recognised by the education authority of the State in which the course is delivered.

The supply of a pre-school course falls within the term "school" according to paragraph 14 of GSTR 2000/30. Therefore, as a recognised early learning centre supplying a pre-school course the centre qualifies as a school.

Further, paragraph 145 of TR 2013/2 provides that a pre-school kindergarten may qualify as a school where it primarily involves regular and systematic instruction.

The operation of the early learning centre involves the provision of a national recognised pre-school program for early childhood education. The centre runs a number of classes and offers enrolment in the pre-school program to children between three and four years old. The early learning centre is conducted during school terms and hours at the school where pupils will be required to undertake a set pre-school curriculum suitable for their age group. In delivering the program, the school engages qualified teachers to provide instruction to pupils in accordance with the curriculum of the early learning centre.

Essentially the early learning centre runs a curriculum based education course. The conduct of the centre indicates that it is providing instruction as a school in accordance with the school's object to conduct a school. Therefore it is considered that the early learning centre constitutes a school in line with paragraph 145 of TR 2013/2.

As explained above with regard to the intention of the Explanatory Memorandum concerning subsection 47(2) of the FBTAA, the FBT exemption is intended for services that provide child care to children. Thus it is not accepted that a kindergarten or pre-school operates as a school that provides formal education to pre-school aged children falls within the intent of the legislation.

Given that a school is not within the intent of the legislation, the early learning centre is not considered to fall within the meaning of "child care facility" as defined in subsection 136(1) of the FBTAA.

Accordingly, the early learning centre is not providing child care with regard to providing a pre-school course to children, for the purposes of subsection 47(2) of the FBTAA.

Therefore, the early learning centre does not meet this condition.

The beginner year

As a general background, primary education system in Australia provides full time education to school aged children between 5 and 12 years old.

The school is a recognised education organisation. The education program delivered by the school for the beginner year is regulated by the State Government in which the education program is delivered. As such, five year old children that enrol in the school's beginner year of the primary courses are receiving full time education provided by the school as part of the State primary education system.

As stated in paragraph 14 of GSTR 2000/30 an institution that supplies, among others, primary courses, is a school.

The intention of the Explanatory Memorandum is that, to be exempt from FBT, the child care facility must be one that provides child care to children. Therefore, an education organisation for school aged children, such as a primary school, is not a child care place.

Accordingly, it is not accepted that the provision of a primary course by the beginner year to five year old children falls within the scope of child care for the purpose of subsection 47(2) of the FBTAA, nor is the beginner year a child care facility as defined in subsection 136(1) of the FBTAA.

Therefore, the beginner year of the primary education does not meet this condition.

4. Is the child care facility located on the business premises of the employer (or a related company if the employer is a company).

As it has been concluded at condition 3 above that the early learning centre and the beginner year of the school would not be regarded as a child care facility as defined in subsection 136(1) of the FBTAA, this condition is not satisfied.

Conclusion

The school is providing a benefit to employees in the form of education services at a reduced cost for their children attending the school's early learning centre and the beginner year of the school's primary education. The benefit provided by the school is not a benefit for child care and therefore is not an exempt residual benefit under subsection 47(2) of the FBTAA.