Edited version of your written advice

Authorisation Number: 1013067366964

Date of advice: 22 August 2016

Ruling

Subject: Fringe Benefits Tax - Exempt Residual Benefits

Question 1

Will transport provided under a Salary Sacrifice Arrangement (SSA) for employees based in Queensland, Western Australia, Victoria, New South Wales and South Australia in accordance with the Arrangement constitute an exempt residual benefit under subsection 47(6) of the FBTAA, where the transport provided is on buses only?

Answer

Yes

This ruling applies for the following periods:

Year ending 31 March 2016

Year ending 31 March 2017

Year ending 31 March 2018

Year ending 31 March 2019

Year ending 31 March 2020

The scheme commences on:

1 April 2015

Relevant facts and circumstances

The employer has employees in Queensland, Western Australia, Victoria, New South Wales, and South Australia.

The employer provides its employees with transportation benefits between their place of residence and their place of employment. It facilitates this by offering employees the option to enter into an effective SSA, to package the value of the employee's public transport travel between home and work. This is currently being offered to employees in Queensland and is proposed to be implemented in the other states in accordance with the Arrangement outlined below.

1. The Arrangement

Provision of travel to employees working in Queensland, Western Australia, Victoria, New South Wales and South Australia is administered by the use of a Go Card, SmartRider, myki, Opal or metrocard respectively. The cards are purchased and registered by the employer where available and provided to the employees for their use. Payment by the employer for the employees transport costs is facilitated under an effective SSA.

The provision of transport to these employees is provided as a residual benefit via a predetermined top up amount on the Go Card, SmartRider, myki, Opal or metrocard.

The employer implements a policy which restricts employee travel to buses only.

The employer has a policy in place which prohibits private travel (other than travel between home and work). Additionally, employees are required to sign a declaration acknowledging that the card is the property of the employer under the SSA. An example template declaration was provided with the private ruling application.

Employees determine an annual amount to salary sacrifice on a prospective basis. This amount is calculated with reference to the number of zones and trips taken by the employee each week. This amount is then divided by the number of pay cycles and paid periodically onto the card by the employer.

A, reconciliation, is prepared at the end of employment and any unused balance is returned to the employee as salary and wages less the relevant PAYG withholdings.

In the event of an employee losing their GoCard, SmartRider, myki, Opal or metrocard, a replacement card is provided with the balance of the original card to be transferred to the replacement card.

A Go Card, SmartRider, myki, Opal or metrocard provided to an employee under this Arrangement is only cashed out in the event of the cessation of employment of the employee, the employee no longer requiring the transport benefit (e.g. moving residence), the employee requests for the unused balance to be cashed out at year end, or upon the employee's death. In this case, any unused balance is returned to the employee as salary and wages less the relevant PAYG withholding.

The employer incorporates in its policies the rules and accountabilities applicable to packaging the transport benefit. The policies are enforced in accordance with other employment conditions. If the policy is breached and an employee is found to have used the card for non-complying purposes, their salary sacrificed benefit for the relevant portion of travel will be adjusted via salary and wages deducting the additional Fringe Benefits Tax thereon. Any further breaches of the policy will result in termination of the benefit.

1.1 Queensland - Go Card

Queensland offers commuters the electronic 'Go Card' ticketing option.

The Go Card is equivalent in size to a credit card and contains microprocessors and memory that allows the card to be programmed for fare collection for the public transport network.

The cardholder touches the card on a card reader at the start and end of a journey. When the card is touched on a card reader at the start of the journey a fixed amount will be deducted from the card's balance. When the card is touched off at the end of the journey the correct fare is calculated and the balance is adjusted accordingly.

A Go Card allows the passenger to travel on all modes of transportation (i.e. buses, trains and ferries). A Go Card can be purchased on-line or at a Go Card retailer or on-board a Brisbane City Council Ferry. A person who purchases (holds) the Go Card is the cardholder (the employer). A person who uses the Go Card is known as the authorised user (the employee). The employer can register the Go card for protection purposes.

A travel history report can be obtained via the online Go Card facility, which can be used to ensure that the Go Card is used solely for bus travel between home and work.

As the employer will be making payments via the online system, only the cardholder (i.e. the employer) may cancel the card.

1.2 Western Australia - SmartRider

Western Australia offers commuters the electronic SmartRider ticketing option. SmartRider is comparable to Queensland's Go Card ticketing system, offering travellers an integrated, electronic ticket. The SmartRider is equivalent in size to a credit card and contains microprocessors and memory that allows the card to be programmed for fare collection for the public transport network.

The card allows passengers to travel from destination to destination without discriminating as to the mode of transportation used to arrive at a particular destination.

The cardholder must swipe their card against the processors at the start and end of a journey. When the card is touched on a card reader at the start of the journey, the system will record the location where the passenger boarded, the date and time and stop and zone where boarded. When the card is touched off at the end of the journey, the system then records where the passenger has alighted, the time and date and the stop and zone. The lowest fare possible for that trip is calculated and deducted from the balance stored on the SmartRider card. If the cardholder fails to touch off at the end of a journey, a default fare is calculated equal to the cash fare on the assumed basis that the passenger travelled to the final destination of that particular bus, train or ferry service. The default fare is calculated at the time of the passenger's next tag-on.

The employer registers the SmartRider card and set-up an online account for the Smart Rider cards. Each card will be registered to the employer under the Corporate SmartRider scheme.

The employer has full access to the online system which provides instant access to travel history reports and card balances. The SmartRider card can also be hot-listed which disables the card from further use and enables the value on a lost or stolen card to be transferred to a replacement card.

1.3 Victoria - Myki money

Victoria offers commuters the electronic myki ticketing option.

The myki is a reusable plastic smart card that is used to store value for payment of fares on metropolitan and regional transport services.

The employer can register the myki as the account holder either online or via telephone. Once registered, value can be added to the myki card via the online top-up facility or alternatively, via telephone or through authorised retail outlets.

The employer has full access to the online system which provides instant access to travel history reports and card balances, as well as the mode of transport (i.e. bus, train, ferry).

The myki system is available across the metropolitan train, bus and tram network and also extends to suburban and regional centres. The correct fare for each trip is calculated after a passenger touches on and subsequently touches off. Fares are calculated according to where and when you travel, and the correct fare is automatically deducted from the myki money balance.

Under the myki pass system, fares are based on the zone(s) of travel and the numbers of days of travel. Comparatively, myki money calculates fares based on a dollar amount and is not restricted to any specific zones travelled.

The myki can be hot-listed which disables the card from further use and enables the value on a lost or stolen card to be transferred to a replacement card.

1.4 New South Wales - Opal

New South Wales offers commuters the electronic Opal ticketing option.

The Opal card is a free reusable plastic smart card and is used to store value for payment of fares on all public transport in the greater Sydney area.

To use the Opal card, the cardholder must tap at an Opal card reader to start their journey, and tap off at the end of their journey. The system will automatically calculate the fare and deduct it from the value stored on the Opal card.

Registered Opal cards can be ordered online, at selected Transport Customer Service Centres and Shops and selected Service NSW locations. Unregistered cards can also be ordered from other Opal retailers.

The person who purchases (holds) the Opal card is known as the 'cardholder' (e.g. the employer). The person who uses the Opal card is known as the 'authorised user' (e.g. the employee). When purchased online the card is automatically registered and an authorised user (i.e. employee) nickname can be assigned to the Opal card.

The available balance for the Opal card can be topped up as required or via an automatic top up facility. If a registered Opal card is lost or stolen, the balance remaining on the card can be transferred onto a replacement card. An activity statement can be obtained online, which can be used to track journeys undertaken by the user of the Opal card. The report provides a summary of locations travelled by the user of the Opal card and identifies if the travel is via bus, train or ferry.

1.5 South Australia - metrocard

South Australia offers commuters the electronic metrocard ticketing option. The metrocard is a reusable plastic smart card and is used to store value for payment of fares on all public transport in the greater Adelaide area.

The two relevant types of metrocard are, a regular metrocard for all areas, and a 2-Section metrocard, offering a cheaper fare for travel within a two section area.

The employer can register the metrocard online at an InfoCentre or via telephone. Once registered, a transaction history report can be obtained online, which can be used to track journeys undertaken. The reports provide a summary of locations travelled by the user of the metrocard and identifies if the travel is via bus, train or ferry.

In the case of a lost or stolen metrocard, the card can be cancelled and the balance transferred to a new metrocard .The metrocard can be assigned to an employee on the basis of the identification number written on the back side of the metrocard.

Both the regular metrocard and 2-Section metrocard recognises the time of travel and deducts the appropriate peak or interpeak fare.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 995-1

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 subsection 47(6)(a)

Fringe Benefits Tax Assessment Act 1986 subsection 47(6)(aa)

Fringe Benefits Tax Assessment Act 1986 subsection 47(6)(b)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

Section 47 deems a number of residual benefits to be exempt benefits and thus not taxable under the FBTAA. All of the residual benefits exempted by section 47 must be provided in respect of the employment of an employee.

Subsection 47(6) of the FBTAA provides an exemption for the use of a motor vehicle that is not a car in certain circumstances.

Subsection 47(6) provides:

'where:

(a) a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee

(aa)   the motor vehicle is not:

(i)  a taxi let on hire to the provider; or

(ii)  a car, not being:

(A)  a panel van or utility truck; or

(B)  any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

(b)   there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than:

(i)  work-related travel of the employee; and

(ii)  other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular

the benefit is an exempt benefit in relation to the year of tax.'

Paragraph 47(6)(a)

Paragraph 46(a) uses the following terms (most of which are defined terms): "residual benefit", "provision or use", "motor vehicle", "in respect of", and a "current employee".

A "residual benefit" is defined in subsection 136(1) of the FBTAA as a benefit that is a residual benefit by virtue of section 45 of the FBTAA. Section 45 of the FBTAA specifies that any benefit that is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive) is a residual benefit. In other words, a residual benefit is one that does not fall within one of the other more specific types contained in the FBTAA.

In National Australia Bank v FCT (1993) 46 FCR; 93 ATC 4914; (1993) 26 ATR 503 (NAB Case), the taxpayer provided Cabcharge facilities to employees working certain shifts, for taxi travel between the employee's home and work. Briefly, it was held that the transport by cab was not an expense payment fringe benefit but rather a residual benefit.

At ATC 4939 Ryan J stated: 'What I regard as the preferable view, is that the contract is between the taxi cab operator and the Bank………… the employee can be regarded as the agent of the Bank, having actual authority, evidenced by the possession of the Cabcharge voucher, to conclude a contract with the taxi cab operator on behalf of the Bank'.

Therefore, as indicated in the NAB Case, in determining whether the transport provided is a residual benefit under the FBTAA, it is important to establish whether the contractual obligation for the particular transport arrangements is between the employer and the transport entity, or is alternatively, (say) merely the discharge or reimbursement of an obligation incurred by the employee.

In the present case, it is considered that the proposed transport arrangements in respect of the Queensland Go Card, the Western Australian SmartRider, the Victorian myki, the New South Wales Opal and the South Australian metrocard are similar to the arrangements entered into in the NAB Case in that the employer will be the purchaser/cardholder and registered owner of those cards, so that the primary contractual arrangement for the transport is between the employer and the entity supplying the transport.

The term "provision or use" is not defined in the FBTAA. The term "provide" in relation to a benefit is defined in subsection 136(1) of the FBTAA to include allow, confer, give, grant or perform. ATO Interpretative Decision ID 2001/313 is of assistance in that it provides that the word "use" has a broad meaning, and is not restricted to situations where the employee has control of a vehicle. Additionally, in the NAB case, at 4940 Ryan J stated: 'the ``use of a motor vehicle'' in paragraph (a) was regarded by the legislature as capable of comprehending a passenger's travel in a taxi.' A passenger's travel in a bus is considered to be comparable to a passengers travel in a taxi. And as such, a passenger's travel in a bus constitutes the use of that bus.

A "motor vehicle" as defined in subsection 136(1) of the FBTAA, uses the definition of that term in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), that being: any motor-powered road vehicle (including a 4 wheel drive vehicle). It is considered that a bus satisfies the definition of a motor vehicle.

The term "in respect of" is widely defined in subsection 136(1), in relation to the employment of an employee, to include by reason of, by virtue of, or for or in relation directly or indirectly to, that employment. For a benefit to be provided in respect of employment there must be a sufficient or material link between the benefit and the employment of the employee: J & G Knowles & Associates Pty Ltd v FCT (2000) 44 ATR 22 at 28-29.

Subsection 136(1) of the FBTAA provides that a "current employee" is a person who receives, or is entitled to receive, salary or wages. In the present case, the transportation benefits are offered to employees via a SSA. Accordingly, such employees satisfy the aforementioned definition.

Summary

The transport provided on buses in Queensland, Western Australia, Victoria, New South Wales, and South Australia via the use of a Go Card, SmartRider, myki, Opal or metrocard respectively is considered to be a residual benefit. The employee's travel as passengers on a bus is the use of a bus. The bus satisfies the definition of a motor vehicle as per subsection 136(1). Travel is undertaken by current employees in respect of their employment whilst using the employer's transportation card. The provision of transport occurs under the employment Arrangement to travel on public transport, which the employer restricts to travel on buses only. Therefore, paragraph 47(6)(a) of the FBTAA is satisfied.

Paragraph 47(6)(aa)

Subsection 136(1) of the FBTAA refers us to subsection 995-1 of the ITAA 1997 for definition of a 'car'. Under the definition, a bus is not a car.

A bus is also not a 'taxi let on hire'.

Paragraph 47(6)(aa) of the FBTAA is satisfied.

Paragraph 47(6)(b)

Paragraph 47(6)(b) uses the defined terms: "private use" and "work-related travel".

"Private use" is defined in subsection 136(1) of the FBTAA, in relation to a motor vehicle, in relation to an employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee.

"Work-related travel" is defined in subsection 136(1) of the FBTAA, in relation to an employee, to mean:

'(a)  travel by the employee between:

(i)  the place of residence of the employee; and

(ii)  the place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or

(b) travel by the employee that is incidental to travel in the course of performing the duties of his or her employment.'

The terms "minor", "infrequent", and "irregular" are not defined and therefore take their ordinary meanings, according to, for example, the Macquarie Dictionary 6^th Ed: "minor" is defined to mean lesser, as in size, extent or importance; "infrequent" is defined to mean, not constant, habitual or regular, and "irregular" means not characterised by any fixed principle, method or rate. All three of the above descriptions are required to be satisfied for the purposes of subparagraph 47(6)(b)(ii).

ATO Interpretative Decision ID 2009/140 (ATOID 2009/140) is presently relevant, as it considers whether an employee travelling between home and work on a bus owned by the employer, under an employment arrangement, will constitute a residual benefit which is an exempt benefit under subsection 47(6) of the FBTAA.

ATOID 2009/140 provides that private use, as defined, in relation to a bus, in relation to an employee or an associate of an employee, means any use of the bus by the employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee, so that, in the present matter, private use only occurs when the employee is travelling between home and work using the employer's ticket. Any associate of the employee does not have access to the employer's ticket. This private use by the employee occurs during the year of tax and at a time when the (residual) benefit was provided.

It is concluded in ATOID 2009/140 that during the FBT year and at the time the employee is provided with the residual benefit there is no private use of the bus other than for work-related travel. This is supported by the fact that the employer has implemented a policy to ensure that the employee limits travel to between home and work when under this employment arrangement. As such, the residual benefit consisting of the use of the bus when the employee only travels between home and work, under the employment arrangement, is an exempt benefit under subsection 47(6) of the FBTAA.

Summary

Similarly, in the present case employees in Queensland, Western Australia, Victoria, New South Wales, and South Australia use the employer supplied travel card, which is purchased and registered (where available) by the employer for travel by bus between home and work under the SSA, it is considered that there is no private use in relation to the year of tax and a time when the benefit is provided, other than for work related travel.

The only use of the bus that is in respect of the employment of the employees will be when the employees use the employer supplied Go Card, SmartRider, myki, Opal or metrocard to travel between home and work. Additionally, the employer implements rules and accountabilities to ensure that the cards are not used for non-complying purposes. As such it is considered that there is no private use of the bus during the year of tax and at a time when the benefit is provided other than private use by the employee being work-related travel or other private use by the employee or associate being use that is minor, infrequent and irregular. Consequently, the provisions of paragraph 47(6)(b) are satisfied.

Conclusion

The bus transport arrangements involving the Queensland Go Card, the Western Australian SmartRider the Victorian myki, the New South Wales Opal, and the South Australian metrocard are considered to be residual benefits provided by the employer to the employees.

The bus transport provided under SSA's for the employees based in Queensland, Western Australia, Victoria, New South Wales, and South Australia, will be exempt residual benefits under subsection 47(6) of the FBTAA as all the necessary requirements are met.