Edited version of your written advice

Authorisation Number: 1013044760506

Date of advice: 5 July 2016

Ruling

Subject: Fringe benefits tax - Types of benefits - Debt waiver benefits

Question 1

Are you providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario one?

Answer

No

Question 2

Are you providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario two?

Answer

No

Question 3

Are you providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario three?

Answer

Yes

Question 4

Are you providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario four?

Answer

Yes

Question 5

Are you providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario five?

Answer

No

Question 6

Are you providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario six?

Answer

No

Question 7

Are you providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario seven?

Answer

Yes

Question 8

Are you providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario eight?

Answer

Yes

Question 9

Are you providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario nine?

Answer

Yes

Question 10

Are you providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario 10?

Answer

No

Question 11

Are you providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario 11?

Answer

No

This ruling applies for the following periods:

For a number of fringe benefits tax years commencing in the year ending 31 March 2016

The scheme commences on:

During the year ended 31 March 2016

Relevant facts and circumstances

Policies and Guidelines

You generally write off debts owed by employees and non-employees on a commercial basis when it is uneconomical to pursue the debt.

You have internal guidelines which provide that employees are liable to repay an overpayment to you that they are not legally entitled to.

You have a set of further guidelines that you apply when considering whether the waive debts owed by employees or former employees due to overpayments of salary.

Scenarios

You have provided details of the following scenarios and asked whether you are providing the employee in any of the scenarios with a debt waiver fringe benefit:

Scenario one

An employee is overpaid as a result of a clerical or administrative error. The employee repays the amount.

Scenario two

You reimburse an employee at a higher rate than you believe you are required to.

You knowingly and intentionally reimburse your employees at the higher rate. The rate paid is not paid by accident or mistake and you have no intention to recoup any part of the amount paid at a later date.

Scenario three

An employee is employed to work for you at a certain hourly rate of pay. From the commencement of their service you have mistakenly paid the employee at a higher rate of pay than they were entitled to under their employment arrangement. This results in an overpayment of salary and wages to the employee.

Scenario four

You overpaid an employee for a period of time exceeding x number of years.

Throughout the period of overpayment and at the time the overpayment was discovered the employee was not aware of the overpayment.

The employee did not give any incorrect or misleading information which may have caused the overpayment.

You made a decision to only require the employee to repay the most recent x number of years of the overpayment

Scenario five

A current employee takes up a temporary higher duties position for six months while the original employee is not working in that position. The employee works in the higher duties position for four months at which time the original employee returns to their original position. The new employee on higher duties keeps performing duties at the higher level for the remaining two months and keeps getting paid at that higher level. The new employee then returns to their previous position at the end of the six month period.

You do not require any repayment from the employee.

You submit that as additional higher duties have been performed, no salary overpayment exists and therefore no debt waiver benefit arises in this scenario.

Scenario six

An employee who is employed to work a certain number of hours per fortnight is required to work some overtime hours in addition to their normal hours.

The overtime is scheduled and the employee is paid in advance for the overtime hours.

On the day the overtime is scheduled the employee is sick and unable to work their normal working day or overtime hours for that day. The employee uses sick leave for the normal working hours.

As the employee has been paid in advance for their overtime it is too late to amend payment for their overtime.

You record an adjustment regarding the overtime so that the next time the employee is scheduled to work overtime it is recorded that the number of overtime hours have already been paid and those hours are not paid again.

Scenario seven

You make an overpayment of pay in lieu of long service leave to your employee.

You do not require the employee to repay the overpayment.

Scenario eight

While working for you a previous employee was overpaid an amount that they were not legally entitled to.

The employee is no longer working for you and in receipt of little or no income.

You consider that enforcing repayment of the overpayment would result in severe financial hardship to the former employee and decide not to require the employee to repay the overpayment.

Scenario nine

Your employee is overpaid an amount that they are not legally entitled to.

You make a decision to not require the employee to repay the overpayment due to compassionate grounds.

Scenario 10

Your former employee is deceased and prior to their death had been overpaid an amount that they were not legally entitled to and were obligated to repay.

You make a decision not to recover the overpayment after the employee had died.

Scenario 11

Your former employee was overpaid an amount that they are not legally entitled to.

You do not have correct contact details for your former employee and have been unable to contact them.

You follow your internal procedures in relation to attempting to locate the previous employee, including requesting a debt collection agency, take further action.

Neither you nor the debt collection agency can locate the former employee.

You make a decision to write off the debt on a commercial basis.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 14

Fringe Benefits Tax Assessment Act 1986 section 58P

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

Issue 1

Question 1 - Scenario one

Summary

You are not providing a debt waiver fringe benefit in the circumstances outlined in scenario one as you have not waived the employees obligation to pay or repay an amount to you.

Detailed reasoning

Section 14 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) sets out the circumstances in which a debt waiver benefit will be provided. Section 14 states:

Where, at a particular time, a person (in this section referred to as the provider) waives the obligation of another person (in this section referred to as the recipient) to pay or repay to the provider an amount, the waiver shall be taken to constitute a benefit provided at that time by the provider to the recipient.

Subsection 136(1) defines 'waive' to include release and defines 'obligation' as follows:

obligation, in relation to the payment or repayment of an amount, includes an obligation that is not enforceable by legal proceedings.

Taxation Determination TD 2008/11 Fringe benefits tax: where an employer mistakenly pays to their employee an amount that the employee is not legally entitled to, but is obliged to repay, does the employer's subsequent waiver of that obligation constitute a 'debt waiver benefit' under section 14 of the Fringe Benefits Tax Assessment Act 1986? (TD 2008/11) confirms that where an employer mistakenly pays an amount to an employee that the employee is not legally entitled to but is obliged to repay, a subsequent waiver of the obligation to repay the amount is a debt waiver benefit in accordance with section 14 of the FBTAA.

Paragraphs 2 and 3 of TD 2008/11 provide the following example:

2. Sam works as a public servant in a government department (the employer). Sam is paid her salary on a fortnightly basis by direct credit into her bank account. During the period July 2007 through to February 2008 (2007-08 FBT Year) Sam temporarily performed duties at a higher pay scale level. A review during March 2008 of the higher duty payments made to Sam was undertaken by the employer's human resources section. The review established that Sam had, in error, been mistakenly paid three amounts of $500 to which she was not legally entitled. The circumstances are such that Sam has an obligation to repay the three amounts paid by mistake. In April 2008, the following FBT year, Sam's employer waives her obligation to repay the three mistakenly paid amounts of $500.

3. Each waiver gives rise to a ' debt waiver benefit' under section 14 provided by Sam's employer to Sam at the time of the waiver.

A debt waiver benefit will only be a debt waiver fringe benefit where it satisfies the definition of 'fringe benefit' contained in subsection 136(1) of the FBTAA.

Therefore, you will have provided your employee with a debt waiver fringe benefit if:

1. your employee had an obligation to pay or repay an amount to you,

2. you waived the employee's obligation to pay or repay the amount, and

3. the waiver (the benefit) is a 'fringe benefit'.

1. Did your employee have an obligation to pay or repay an amount to you?

In this scenario you overpay an employee as a result of a clerical or administrative error.

Whether your employee has an obligation to repay this amount to you depends on whether the employee was entitled to receive the money.

The ATO fact sheet Repayment of income - overpayment of salary or a benefit (QC 23057) draws a distinction between situations in which employees are legally entitled to receive an overpayment of income and situations where they are not. In general terms, an employee is legally entitled to receive an overpayment of income if the employee correctly received an amount, but later events meant the amount had to be repaid. Conversely an employee is not entitled to receive overpaid income if the employee received the payment due to an error or mistake. Taxation Determination TD 2008/9 Income tax: are amounts mistakenly paid as salary or wages to employees(or as income support payments or worker's compensation amounts to persons), to which they are not beneficially entitled, but are obliged to repay, 'ordinary income' under section 6-5 of the Income Tax Assessment Act 1997? (TD 2008/9) also provides further information on this topic.

The Repayment of income - overpayment of salary or a benefit fact sheet provides the following example of an overpaid amount an employee was not entitled to receive:

Hannah is in receipt of a social security payment. A review of her circumstances established that she had been mistakenly paid amounts totalling $825 during the 2006-07 income year due to an incorrect income declaration by Hannah. The circumstances are such that Hannah has an obligation to repay the amounts paid by mistake…

As stated above, you overpaid your employee due to a clerical or administrative error. This resulted in the employee being paid money that they were not entitled to.

As your employee was not entitled to receive this income and according to your internal guidelines the employee was liable to repay the overpayment.

2. Did you waive your employee's obligation to pay or repay the amount to you?

Where you require your employee to repay the amount they received in error and they do repay that amount in full you are not waiving their obligation to pay or repay the amount to you.

As you have not waived their obligation you have not provided your employee with a debt waiver benefit or subsequently, a debt waiver fringe benefit.

Question 2 - Scenario two

Summary

You are not providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario two as the employee did not have an obligation to pay or repay an amount to you.

Detailed reasoning

As outlined in question 1 above, a debt waiver fringe benefit will arise where:

1. your employee had an obligation to pay or repay an amount to you,

2. you waived the employee's obligation to pay or repay the amount to you and

3. the waiver (the benefit) is a 'fringe benefit'.

1. Did your employee have an obligation to pay or repay an amount to you?

In this situation you reimburse your employee for an expense they incur at a set rate. You reimburse your employee at this rate even though you know that you are entitled to reimburse them for the expense at a lower rate. The higher rate is not paid by mistake or error. You intend to reimburse your employee at this higher rate and at the time of reimbursement you have no intention to recoup any of the amount paid at a later date.

The employee is entitled to the money paid to them. As the employee is entitled to the money that they received the employee is under no obligation to pay or repay an amount to you.

As the employee is not under an obligation to pay or repay an amount to you, you have not provided your employee with a debt waiver benefit or subsequently, a debt waiver fringe benefit.

Question 3 - Scenario three

Summary

Unless the benefit is a minor benefit and as such exempt from being a fringe benefit, you are providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario three - your employee had an obligation to pay or repay an amount to you, you waived the employee's obligation to pay or repay the amount to you and the decision to waive the amount was made in respect of the employee's employment.

Detailed reasoning

As discussed above, a debt waiver fringe benefit will arise where:

1. your employee had an obligation to pay or repay an amount to you,

2. you waived the employee's obligation to pay or repay the amount to you and

3. the waiver (the benefit) is a 'fringe benefit'.

1. Did your employee have an obligation to pay or repay an amount to you?

In this situation, from the commencement of your employee's employment you mistakenly paid the employee at a higher rate of pay than they were entitled to under their employment agreement. This resulted in an overpayment of salary and wages to your employee.

Considering the guidance provided by the fact sheet Repayment of income - overpayment of salary or a benefit discussed above, it is considered that when you mistakenly paid your employee at a higher pay rate than they were entitled to be paid, the employee was paid money that they were not entitled to.

As your employee was not entitled to receive this income and according to your internal guidelines the employee was liable to repay the overpayment.

2. Did you waive your employee's obligation to pay or repay the amount to you?

As confirmed by TD 2008/11 a debt waiver benefit arises at the time you waive the employee's obligation to repay the debt to you:

6. … Pursuant to section 14, a debt waiver benefit arises at the time a person waives the obligation of another person to pay or repay an amount to the first person.

As stated above, the employee was not entitled to the money they were overpaid and was liable to repay the overpayment. When you waived the employee's obligation you provided the employee with a debt waiver benefit.

3. Is the debt waiver benefit a 'fringe benefit'?

A fringe benefits tax obligation will only arise where the debt waiver benefit is a 'fringe benefit' according to the FBTAA. The definition of 'fringe benefit' provided by subsection 136(1) of the FBTAA requires, amongst other things, that for a benefit to be a fringe benefit, the benefit must be provided 'in respect of the employment of the employee' and must not be an 'exempt benefit'. The definition relevantly states:

fringe benefit, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means 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

….

in respect of the employment of the employee, but does not include:

…

(g) a benefit that is an exempt benefit in relation to the year of tax; or

…

Subsection 136(1) of the FBTAA defines 'employee' to include current, future and former employees. A 'current employee' is defined as 'a person who receives, or is entitled to receive, salary or wages' and a 'former employee' is defined as 'a person who has been a current employee'. Therefore, even if an employee has since ceased employment with you they are considered to be an employee for the purposes of the FBTAA.

Therefore, a debt waiver benefit provided to an employee when you waive their obligation to repay their debt will not be a fringe benefit if the benefit is not provided in respect of the employee's employment, or is an exempt benefit. Note that there are other types of exempt benefits however based on the information provided none of those exemptions are relevant to the questions of this ruling.

In respect of employment

Subsection 136(1) provides the following definition of the term 'in respect of' in this context:

in respect of, in relation to the employment of an employee, includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

The phrase 'in respect of the employment of the employee' was considered by the Full Federal Court in J & G Knowles & Associates Pty Ltd v. Commissioner of Taxation (2000) 96 FCR 402. In that case the Full Federal Court held that:

…the phrase requires a 'nexus, some discernible and rational link, between the benefit and employment'. That, however, does not take the matter far enough. For what is required is a sufficient link for the purpose of the particular legislation… It cannot be said that any causal relationship between the benefit and the employment is a sufficient link so as to result in a taxable transaction. (at FCT 408) … what must be established is whether there is sufficient or material, rather than a, causal connection or relationship between the benefit and the employment. (at FCR 410)

In the context of waiving a debt owed by an employee, TD 2008/11 states that unless there are facts that indicate a contrary conclusion, where an employer mistakenly pays an amount to an employee that they are not legally entitled to and subsequently waives their obligation to repay the amount, the circumstances are likely to have the 'sufficient or material' connection with the employee's employment that is required for the benefit to be considered a fringe benefit. Guidance in relation to the circumstances in which a debt waiver benefit will not be considered to be provided in respect of the employment of the employee is provided in paragraphs 10 to 12 of TD 2008/11 which state:

10. Unless there are facts indicating a contrary conclusion (such as some capacity other than as employee in respect of which the benefit was provided by the employer to their employee), the debt waiver benefit taken under section 14 to be provided by the employer to the employee in the circumstances that are the subject of this ruling is likely to possess a 'sufficient or material' connection with the employee's employment and is therefore considered to be a benefit provided by the employer to the employee 'in respect of the employment of the employee'. However, whether this is the case is a question of fact to be decided on the circumstances of each case.

11. Facts that may indicate such a contrary conclusion would include where the employee's obligation to repay the amount of the payment made by mistake is waived because it is a bad debt (for example, the amount cannot be recovered because the employee has no assets) rather than by reason of the employment relationship. That fact could be established by showing that reasonable efforts were made to recover the amount from the employee but that was unsuccessful and that the waiver was in line with the employer's policy in relation to the waiver of bad debts owing by non-employees.

12. Other facts that may also indicate a contrary conclusion would include where the employee's obligation to repay the amount of the payment made by mistake is waived because it is uneconomic to recover the amount from the employee. That fact could be established by showing that the employer adheres to a policy of not pursuing any debts owed to it that are below a certain amount (because the employer has reasonably assessed that it is uneconomic for them to do so) and that the waiver of the employee's obligation to repay the amount of the payment made by mistake occurs under that policy, rather than by reason of the employment relationship. Such a policy would have to apply to all debts owed to it, not only debts owed by employees.

Whether a debt waiver benefit provided to an employee, when you waive their obligation to repay an overpayment of salary is provided in respect of their employment is a question of fact dependant on the specific circumstances of the case.

As discussed above, TD 2008/11 provides that unless there are facts that indicate a contrary conclusion, where an employer waives a debt that an employee is obliged to repay, the waiver is generally taken to be provided in respect of the employee's employment. From the facts provided, it appears that the debt is waived because the employee is your employee. That is, the debt waiver benefit is provided in respect of the employee's employment. No other facts such as those listed in paragraphs 11 and 12 of TD 2008/11 exist to indicate that a conclusion should be drawn contrary to the conclusion that the benefit is provided in respect of the employee's employment and it is considered that if it weren't for the employment relationship you would not waive a debt like this in similar circumstances. Therefore the benefit is a debt waiver benefit that is provided in respect of employment.

As such the benefit will be a debt waiver fringe benefit unless it is an exempt benefit (as the definition of fringe benefit specifically states that exempt benefits are not considered to be fringe benefits).

Minor benefits exemption

The relevant exemption to consider is the minor benefits exemption contained in section 58P of the FBTAA. Broadly speaking, the minor benefits exemption exempts benefits from being fringe benefits if the value of the benefit is less than $300 and it is considered unreasonable to treat the benefit as a fringe benefit according to the factors provided in paragraph 58P(1)(f) of the FBTAA.

Whether the benefit is a minor benefit will be determined on a case by case basis. Further guidance to assist you in determining whether a benefit is a minor benefit can be found in Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12).

Where the benefit is a minor benefit it will be an exempt debt waiver benefit and therefore not a fringe benefit and where the benefit is not a minor benefit it will be a debt waiver fringe benefit.

Question 4 - Scenario four

Summary

Unless the benefit is a minor benefit and as such, exempt from being a fringe benefit, you are providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario four - your employee had an obligation to pay or repay an amount to you, you waived the employee's obligation to pay or repay the amount to you and the decision to waive the amount was made in respect of the employee's employment.

Detailed reasoning

As discussed above, a debt waiver fringe benefit will arise where:

1. your employee had an obligation to pay or repay an amount to you,

2. you waived the employee's obligation to pay or repay the amount to you and

3. the waiver (the benefit) is a 'fringe benefit'.

1. Did your employee have an obligation to pay or repay an amount to you?

In this situation you overpaid your employee for a period of time exceeding x number of years. The employee who was overpaid was not aware of the overpayment and did not provide incorrect or misleading information leading to the overpayment.

You made a decision to only require the employee to repay the most recent x number of years of the overpayment

Given you required your employee to repay some of the overpaid amount, we consider based on the information provided that the employee is not entitled to any of the overpaid amount.

As your employee was not entitled to receive the amount and according to your internal guidelines the employee is liable to repay the whole overpayment.

2. Did you waive your employee's obligation to pay or repay the amount to you?

Your employee had an obligation to repay the whole amount to you including the years prior to the most recent x number of years. In these circumstances you accepted repayment of the most recent x number of years of the overpayment in satisfaction of the whole overpaid amount. In doing so you waived the employee's obligation to repay some of the debt.

As your employee had an obligation to repay an amount to you and you waived part of that obligation you provided your employee with a, debt waiver benefit.

3. Is the debt waiver benefit, a 'fringe benefit'?

Refer to the reasoning in question three above.

The same reasoning can be applied to conclude that based on the information provided the benefit (the waiver of the debt) is provided in respect of the employee's employment and as such will be a debt waiver fringe benefit unless it is exempt as a minor benefit according to section 58P of the FBTAA.

Question 5 - Scenario five

Summary

You are not providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario five as the employee did not have an obligation to pay or repay an amount to you.

Detailed reasoning

As discussed above, in order for a debt waiver benefit to arise an employee must have an obligation to pay or repay an amount to you.

1. Did your employee have an obligation to pay or repay an amount to you?

In this scenario the employee is 'overpaid' a higher duties allowance. The employee takes up a temporary higher duties position for six months while the original employee is not working in that position. The employee works in the higher duties position for four months at which time the original employee returns to their original position. The new employee on higher duties keeps performing duties at the higher level for the remaining two months and keeps getting paid at that higher level. The new employee then returns to their previous position at the end of the six month period.

As your employee is being paid at the appropriate pay rate for the duties they are performing they are legally entitled to the income they received and there is no 'overpayment'. As the employee is entitled to the income received the employee does not have an obligation to pay or repay any of that income to you and therefore no debt waiver benefit arises.

Question 6 - Scenario six

Summary

You are not providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario six as you have not waived the employee's obligation to pay or repay an amount to you.

Detailed reasoning

As discussed above, a debt waiver fringe benefit will arise where:

1. your employee had an obligation to pay or repay an amount to you,

2. you waived the employee's obligation to pay or repay the amount to you and

3. the waiver (the benefit) is a 'fringe benefit'.

1. Did your employee have an obligation to pay or repay an amount to you?

In this scenario an employee who is employed to work a certain number of hours per fortnight is required to work overtime hours in addition to their normal hours. The overtime work is scheduled and the employee is paid in advance for the overtime hours. On the day the overtime is scheduled the employee is sick and unable to work their normal working day or overtime hours for that day. The employee uses sick leave for the normal working hours.

As the employee has been paid in advance for their overtime it is too late to amend payment for their overtime.

Your employee has been paid overtime pay for overtime that they have not worked. Based on the guidance provided by the ATO fact sheet Repayment of income - overpayment of a salary or a benefit your employee has been paid an amount that they are not legally entitled to.

As your employee was not entitled to receive this income and according to your internal guidelines the employee is liable to repay the overpayment.

2. Did you waive your employee's obligation to pay or repay the amount to you?

In this scenario you do not waive the employee's obligation to repay the overpaid overtime pay. You record an adjustment regarding the overtime and the next time the employee is scheduled to work overtime it is recorded that the number of overtime hours have already been paid and those hours are not paid again.

You have not waived your employee's obligation to repay the overtime pay.

As a debt waiver benefit only arises at the time you waive the employee's obligation to repay an amount and you have not waived their obligation, you have not provided your employee with a debt waiver benefit or subsequently, a debt waiver fringe benefit.

Question 7 - Scenario seven

Summary

Unless the benefit is a minor benefit and as such, exempt from being a fringe benefit, you are providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario seven - your employee had an obligation to pay or repay an amount to you, you waived the employee's obligation to pay or repay the amount to you and the decision to waive the amount was made in respect of the employee's employment.

Detailed reasoning

As discussed, a debt waiver fringe benefit will arise where:

1. your employee had an obligation to pay or repay an amount to you,

2. you waived the employee's obligation to pay or repay the amount to you and

3. the waiver (the benefit) is a 'fringe benefit'.

1. Did your employee have an obligation to pay or repay an amount to you?

You mistakenly overpaid your employee in lieu of long service leave. The employee had not accrued the amount that was paid. Based on the guidance provided by the ATO fact sheet Repayment of income - overpayment of a salary or a benefit your employee has been paid an amount that they are not legally entitled to.

As your employee was not entitled to receive this income and according to your internal guidelines the employee is liable to repay the overpayment.

2. Did you waive the employee's obligation to pay or repay the amount to you?

According to the facts in this scenario you waived the employee's obligation to repay the amount to you.

As your employee had an obligation to repay an amount to you and you waived their obligation, you have provided your employee with a debt waiver benefit.

3. Is the debt waiver benefit, a 'fringe benefit'?

The debt waiver benefit will be a fringe benefit where the benefit is provided in respect of the employee's employment and is not an exempt benefit.

Refer to question three above. The same reasoning can be applied in this case to conclude that the debt waiver benefit was provided in respect of the employee's employment.

Question 8 - Scenario eight

Summary

Unless the benefit is a minor benefit and as such, exempt from being a fringe benefit, you are providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario eight - your employee had an obligation to pay or repay an amount to you, you waived the employee's obligation to pay or repay the amount to you and the decision to waive the amount was made in respect of the employee's employment.

Detailed reasoning

A debt waiver fringe benefit will arise where:

1. your employee had an obligation to pay or repay an amount to you,

2. you waived the employee's obligation to pay or repay the amount to you and

3. the waiver (the benefit) is a 'fringe benefit'.

1. Did your employee have an obligation to pay or repay an amount to you?

In this scenario your employee is overpaid an amount that they are not legally entitled to. As previously discussed, under the circumstances your employee has an obligation to repay an amount overpaid that they are not legally entitled to.

2. Did you waive the employee's obligation to pay or repay the amount to you?

According to the facts in this scenario you waived the employee's obligation to repay the amount to you.

As your employee had an obligation to repay an amount to you and you waived their obligation, you have provided your employee with a debt waiver benefit.

3. Is the debt waiver benefit, a 'fringe benefit'?

As previously discussed the debt waiver benefit will be a fringe benefit where the benefit is provided in respect of the employee's employment and is not an exempt benefit.

You have provided that the requirement to repay the overpaid amount is waived in these circumstances because enforcing recovery of the debt would result in severe financial hardship to the former employee.

As discussed in question three above, TD 2008/11 provides an example of where the benefit would not be considered to be provided in respect of the employee's employment where the amount cannot be recovered because the employee has no assets. Relevantly TD 2008/11 states:

11. Facts that may indicate such a contrary conclusion would include where the employee's obligation to repay the amount of the payment made by mistake is waived because it is a bad debt (for example, the amount cannot be recovered because the employee has no assets) rather than by reason of the employment relationship. That fact could be established by showing that reasonable efforts were made to recover the amount from the employee but that was unsuccessful and that the waiver was in line with the employer's policy in relation to the waiver of bad debts owing by non-employees.

You waived the employee's obligation to repay the debt because you considered that enforcing the repayment would result in severe financial hardship for the former employee. This is not the same as being unable to recover the debt because the employee has no assets, that is being unable to recover the debt and the debt being a bad debt in accordance with the example provided in TD 2008/11.

There are no other facts to suggest that any of the other reasons provided by TD 2008/11 exist to indicate that the benefit was not provided in respect of the employee's employment.

Based on the information provided and TD 2008/11 we consider that the benefit was provided to the employee in respect of the employee's employment.

The benefit will therefore be a fringe benefit unless the benefit is an exempt benefit. As previously discussed the minor benefits exemption contained in section 58P of the FBTAA may be a relevant exemption to consider.

Where the benefit is a minor benefit it will be an exempt debt waiver benefit and therefore not a fringe benefit and where the benefit is not a minor benefit it will be a debt waiver fringe benefit.

Question 9 - Scenario nine

Summary

Unless the benefit is a minor benefit and as such, exempt from being a fringe benefit, you are providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario three - your employee had an obligation to pay or repay an amount to you, you waived the employee's obligation to pay or repay the amount to you and the decision to waive the amount was made in respect of the employee's employment.

Detailed reasoning

A debt waiver fringe benefit will arise where:

1. your employee had an obligation to pay or repay an amount to you,

2. you waived the employee's obligation to pay or repay the amount to you and

3. the waiver (the benefit) is a 'fringe benefit'.

1. Did your employee have an obligation to pay or repay an amount to you?

In this scenario your employee was overpaid an amount that they are not legally entitled to. As previously discussed, under the circumstances your employee has an obligation to repay an amount overpaid that they are not legally entitled to.

2. Did you waive the employee's obligation to pay or repay the amount to you?

According to the facts in this scenario you waived the employee's obligation to repay the amount to you.

As your employee had an obligation to repay an amount to you and you waived their obligation, you have provided your employee with a debt waiver benefit.

3. Is the debt waiver benefit, a 'fringe benefit'?

You waived the employee's obligation to repay the amount to you on compassionate grounds.

Refer to question three above. Applying the reasoning discussed in question three above and the guidance provided by TD 2008/11, there is nothing in the information provided which supports any conclusion being drawn other than that the benefit was provided in respect of the employee's employment.

Therefore the benefit will be a fringe benefit unless it is an exempt benefit. As previously discussed the minor benefits exemption contained in section 58P of the FBTAA may be a relevant exemption to consider.

Where the benefit is a minor benefit it will be an exempt debt waiver benefit and therefore not a fringe benefit and where the benefit is not a minor benefit it will be a debt waiver fringe benefit.

Question 10 - Scenario 10

Summary

You are not providing your employee with a debt waiver fringe benefit in the circumstances outlined in scenario 10 as you cannot provide a benefit to a deceased person.

Detailed Reasoning

A debt waiver fringe benefit will arise where:

1. your employee had an obligation to pay or repay an amount to you,

2. you waived the employee's obligation to pay or repay the amount to you and

3. the waiver (the benefit) is a 'fringe benefit'.

1. Did your employee have an obligation to pay or repay an amount to you?

In this scenario your former employee is deceased and prior to their death had been overpaid an amount that they were not legally entitled to and were obligated to repay.

2. Did you waive the employee's obligation to pay or repay the amount to you?

A debt waiver benefit arises at the time you waive the employee's obligation to repay the debt to you, which in this scenario is after the employee's death.

However, you cannot provide a benefit to a deceased person. The Fringe benefits tax - a guide for employers (NAT 1054) states at paragraph 1.1:

An employee is a person who is entitled, or has been entitled to receive salary or wages. Benefits provided in respect of someone who has died are not fringe benefits as a deceased person does not meet the definition of 'employee' in the FBT legislation.

Therefore, in these circumstances you are not providing the former employee with a debt waiver benefit. You are therefore not providing the employee with a debt waiver fringe benefit.

Question 11 - Scenario 11

Summary

You are providing your employee with a debt waiver benefit in the circumstances outlined in scenario 1. However the benefit will not be a debt waiver fringe benefit as it is not provided in respect of the employee's employment.

Detailed Reasoning

A debt waiver fringe benefit will arise where:

1. your employee had an obligation to pay or repay an amount to you,

2. you waived the employee's obligation to pay or repay the amount to you and

3. the waiver (the benefit) is a 'fringe benefit'.

1. Did your employee have an obligation to pay or repay an amount to you?

In this scenario your former employee has been overpaid an amount that they were not legally entitled to and were obligated to repay.

2. Did you waive the employee's obligation to pay or repay the amount to you?

When you cannot locate the employee you make a decision to write off their debt. In doing so you waived the employee's obligation to repay the amount and provide them with a debt waiver benefit.

3. Is the debt waiver benefit, a 'fringe benefit'?

You follow your internal procedures provided with your ruling application in relation to attempting to locate the previous employee, including requesting a debt collection agency to take further action.

Neither you nor the debt collection agency can locate the former employee. You make a decision to waive the debt because you cannot locate the former employee to enforce repayment.

Although this scenario isn't specifically considered by TD 2008/11, we consider that in light of the policies you have provided to us, where you make a genuine attempt to locate the former employee following your internal guidelines including engaging an external debt collector to attempt to locate the former employee, the decision to waive the debt does not have the 'sufficient or material' connection with the employee's employment for it to be considered that the benefit was provided in respect of the employee's employment.

As the benefit was not provided in respect of the employee's employment the debt waiver benefit is not a debt waiver fringe benefit.

Further issues for you to consider

Where there has been an overpayment of salary, wages or some other amount by an employer and the employee is required to repay the overpayment, the allowance of time to repay may be a loan benefit in accordance with subsection 16(1) of the Fringe Benefits Tax Assessment Act 1986. Guidance can be found in Taxation Determination TD 2008/10 Fringe Benefits Tax: where an employer recognises they mistakenly paid to their employee an amount that the employee is not legally entitled to, but is obliged to repay, and afterwards allows the employee time to repay the amount, is there a 'loan benefit' under subsection 16(1) of the Fringe Benefits Tax Assessment Act 1986? (TD 2008/10).