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Edited version of your written advice
Authorisation Number: 1013096837870
Date of advice: 27 September 2016
Ruling
Subject: FBT and provision of health insurance
Question
Is the expense of medical insurance for the taxpayer's employee that was paid by a related company included in the taxpayer's FBT returns for the 2014 and 2015 FBT years?
Answer
Yes
This ruling applies for the following periods:
FBT year 1/04/2014 to 31/03/2015
FBT year 1/04/2015 to 31/03/2016
The scheme commences on:
Not applicable.
Relevant facts and circumstances
P Ltd (the taxpayer) is part of X Ltd, which is headquartered overseas.
In 20xx, an Australian resident was hired by X Ltd as the Divisional CFO based overseas. The assignment is for a term of 24 months.
The individual chose to be paid in $AUD in Australia. The taxpayer agreed to pay the individual employee in Australia and it rebills the costs and X% mark up to the host country legal entity - C Ltd.
It is X Ltd's policy to purchase medical insurance for all employees on international assignments.
X Ltd purchased medical insurance to cover the employee during the term of their overseas assignment. This is X Ltd's standard practice and X Ltd views it as an ordinary business expense to reimburse all medical costs incurred while an employee is travelling.
For the 2016 FBT year, the total premium paid was $AUD xx. X Ltd does not rebill this expense to the taxpayer.
The taxpayer included this premium in their 2016 FBT return.
The employee maintained their own private medical health cover in Australia for the period while on assignment.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986 Section 136.
Fringe Benefits Tax Assessment Act 1986 Section 45.
Income Tax Assessment Act 1936 Section 318.
Reasons for decision
The relevant law
The definition of "fringe benefit" in subsection 136(1) provides that a fringe benefit will only arise in relation to an employer where it is provided by one of the following persons:
• The employer (paragraph (c) of the definition);
• An associate of the employer (paragraph (d) of the definition). The term "associate" is defined in subsection 136(1); or
• A third party (paragraph (e) and (ea) of the definition).
Associates of a company are defined in section 318 of the Income Tax Assessment Act 1936 to include another company that controls the first company or that is controlled by the first company.
A fringe benefit may arise where a benefit is provided by a third party (i.e. a person other than the employer or an associate of the employer) in either of the following circumstances:
1. The benefit is provided by a third party "arranger" under an arrangement between:
• the employer or an associate of the employer; and
• the arranger or some other person (paragraph (e) of the definition); or
2. The benefit is provided by a third party, and the employer or an associate of the employer:
• participated in or facilitated the provision or receipt of the benefit; or
• participated in, facilitated or promoted a scheme or plan involving the provision of the benefit
and the employer or associate knew or ought reasonably to have known that it was doing so (paragraph (ea) of the definition).
Where a benefit is provided by an associate or by a third party, it is still the employer who is liable for any fringe benefits tax arising from it. The benefit is a fringe benefit in relation to the employer, and any taxable value of the fringe benefit will be included in the fringe benefits taxable amount of the employer in its annual fringe benefits tax return.
Your circumstances
In your circumstances, X Ltd is an associate of the taxpayer as it is likely to be the company that controls the taxpayer or that is controlled by the taxpayer.
X Ltd then entered into an arrangement with a medical insurance provider to provide the medical insurance cover to the employee. A fringe benefit arises here as a benefit has been provided by a third party "arranger" under an arrangement between an associate of the employer and the arranger.
The taxpayer as employer of the employee is liable for the FBT arising from the provision of the benefit. The benefit is a fringe benefit in relation to the employer and the taxable value of the fringe benefit will be included in the fringe benefits taxable amount of the employer in its annual fringe benefits tax return.
The provision of the medical insurance cover under the agreement between X Ltd as associate of the taxpayer and the insurance provider is a "residual benefit" under section 45 as it is not a benefit that falls within one of the specific categories of benefit.