Edited version of your written advice

Authorisation Number: 1013122897939

Date of advice: 15 November 2016

Ruling

Subject: Exemption from Fringe Benefits Tax

Question 1

Will the proposed Bus Travel Benefit Card arrangements provided to the employees of A, for travel on buses between their place of residence and their place of employment, be eligible for exemption under subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

This ruling applies for the following period

1 April 20XX - 31 March 20YY

The scheme commenced on

1 April 20XX

Relevant facts and circumstances

The employer, A, is proposing to supply benefits (the bus travel benefit) to its current employees utilising electronic technology for travel on buses between the employees' place of residence and their place of employment. The benefit will only be available to employees who enter into a salary sacrificing arrangement. The bus travel benefit scheme will be administered by salary packaging providers contracted to A.

The electronic card is a publically available product. The card is a pre-paid electronic fare collection system which enables users to access and transfer between all forms of transport.

The card, on which data can be stored, including a travel log and user details. The electronic card is currently able to be used on the public transport network run by a transport provider, B. Each mode of transport provides a point at which cardholders may “touch on” or “touch off” the card. The fare for each trip is deducted each time the cardholder “touches off” at the end of their journey. If the cardholder does not “touch off” within a reasonable period, then a fixed amount is deducted from the balance.

The electronic card can be purchased from a number of retailers, where credit can be added. Cardholders may also add credit at certain ticket machines, relevant transport offices and online. The electronic card may be registered to a specific user using a unique identification number and credit may be set to top up automatically.

Administration of the bus travel benefit

Under the proposed arrangement, employees of A must sign up to a salary sacrifice arrangement with one of A's contracted salary packaging providers (Providers). B will provide A with a special type of electronic card, the Bus Travel Benefit card (Bus card) which is linked to the employer, A. The Providers will assign A's cards to the employees with a uniquely assigned number and load it with the particular employee's pre-tax salary. Once funds are available on the card, the card will be on loan from A to that employee to travel by bus. Each employee will be issued with only a single active Bus card. The Providers must retain and manage separate records linking the employee and A. This particular type of Bus card will not be available from regular retail outlets.

The employee may use the Bus card only for travel on buses between the employee's place of residence and his or her place of employment as defined in the FBTAA. The Bus card may not be extended for travel that is private in nature and does not meet the requirements in the FBTAA.

The Bus card may only be used for transport by bus. The terms and conditions for the use of the Bus card do not extend to other modes of transport such as trains, ferries and trams even though the card is compatible with their ticketing systems. Employees who require the use of a bus and another mode of transport to travel between their place of employment and their place of residence are not eligible to use the Bus card.

Like the regular electronic card, users of the Bus card are required to “touch on” and “touch off”. The fares associated with the Bus card will be the same as a regular electronic card and include off peak and other discounts where applicable. Fixed fares will also apply for not touching on and or touching off correctly.

When the balance of the Bus card falls below a certain level, the card is topped up automatically from the available funds in the particular employee's benefit account. If there are insufficient funds, the card will not function until additional funds are added by the Providers.

It is possible to top up manually at fare machines and electronic card retail locations using post-tax funds. However, these funds will merge with pre-tax funds and cannot be refunded as post-tax dollars at a later time.

Employees can monitor their travel, top-ups and funds available via the electronic card website. Refunds will only be available upon exiting the bus travel benefit scheme or at the end of their employment. Only Providers can cancel and request for a refund of any remaining funds on the employees go Bus card and return the funds to the employees' benefit account. Any unused credit will be returned either in the employee's salary packaging account to use for other benefits or to the employee via payroll as gross salary less PAYG withholding.

Safeguards and Monitoring of Bus Travel Benefit

A number of reasonable safeguards will be made by the Providers to ensure the Bus card meets the conditions required for it to qualify for the relevant fringe benefits tax (FBT) exemption provided under subsection 47(6) of the FBTAA.

The employee must sign a declaration prior to the commencement of use of the Bus card, annually thereafter and at other times as may reasonably be requested. The declaration states, amongst other things, that the Bus card will only be used for work-related travel, comprising bus transport between their place of residence and place of employment, as defined in the FBTAA.

B will furnish Providers with scheduled regular reports including but not limited to:

(a) funds allocated to employee's benefit account;

(b) funds loaded onto the Bus card,

(c) transaction reports of trips taken on the electronic card network;

(d) exception reporting for non-bus travel; and

(e) cards which have been blocked due to insignificant funds, or which have been lost or stolen.

The Providers will be responsible for monitoring employee card usage and non-compliance, and contacting employees in the event of suspected non-compliance. Providers will recover the cost of any non-compliant travel from the employee in after-tax salary as one option. Where that is not possible, FBT will be charged and either recovered from the employee from pre-tax salary or offset using the FBT exemption cap (if applicable). A will be notified of any non-compliance. If an employee uses the Bus card for three non-compliant trips, the card account will be cancelled and the employee will become ineligible to take further part in the bus travel benefit scheme.

If the Bus card is lost or stolen or there is evidence of misuse, B will cancel the card at the request of the Providers, on behalf of A.

Providers will undertake periodic audits to ensure the employees are using the benefit only for travel between their place of residence and place of employment.

When A's employee's employment has ended, on notification, Providers will deactivate the Bus card and ensure that the cost of any travel undertaken after the employee's termination date is recovered or FBT is applied. On deactivation, the employee's account will be reconciled, and any used credit will be returned to the employee via payroll as gross salary less PAYG withholding.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Subsection 47(6) of the FBTAA provides an exemption for the private use of certain motor vehicles where certain conditions are met. Subsection 47(6) of the FBTAA states:

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.

Therefore, the provision of travel to employees of A will be an exempt benefit where:

(i) the benefit is a residual benefit

(ii) the benefit consists of the provision or use of a motor vehicle

(iii) the motor vehicle is not one of the above listed exclusions

(iv) the benefit is provided to a current employee

(v) the only private use of the motor vehicle is:

● work related travel of the employee and

● other private use by the employee or an associate of the employee is minor, infrequent and irregular.

(i) the benefit is a residual benefit

Subsection 136(1) of the FBTAA defines a residual benefit to mean a benefit that is a residual benefit by virtue of section 45.

Section 45 of the FBTAA states that a benefit is a residual benefit for the purposes of the FBTAA if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). In basic terms, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA.

Divisions 3 to 10 are not relevant to the arrangement subject to this ruling. Division 2 and Division 11 may be relevant and are discussed below.

Division 2 of the FBTAA applies to car fringe benefits. The definition of a car in subsection 136(1) refers to section 995-1 of the ITAA 1997. Under section 995-1 of the ITAA 1997, a car is defined as a 'motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers'. Therefore, a bus does not fall within the definition of 'car' and is therefore not covered by Division 2 of the FBTAA.

Division 11 applies to property fringe benefits. Section 40 of the FBTAA states that:

Where, at a particular time, a person (in this section referred to as the provider) provides property to another person (in this section referred to as the recipient), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

The definition of 'provide' in subsection 136(1) of the FBTAA is:

(a) in relation to a benefit - includes allow, confer, give, grant or perform; and

(b) in relation to property - means dispose of (whether by sale, gift, declaration of trust or otherwise);

(i) if the property is a beneficial interest in property but does not include legal ownership - the beneficial interest; or

(ii) in any other case - the legal owner of the property.

Division 11 of the FBTAA deals with property fringe benefits and with respect to the definition of 'provide' in relation to property, there has been no disposal of the legal ownership or beneficial interest of the bus. Therefore, the bus has not been provided by the employer, A, for the purposes of Division 11 of the FBTAA.

Therefore, the benefit provided by the employer does not fall within any of the provisions of Subdivision A of Division 2 to 11 of the FBTAA and the provision of the bus transport is therefore a residual benefit under section 45 of the FBTAA.

(ii) the benefit consists of the provision or use of a motor vehicle

Motor vehicles as defined under subsection 136(1) of the FBTAA uses the definition of that term in subsection 995-1(1) of the ITAA 1997 being, namely, any motor-powered road vehicle (including a 4-wheel drive vehicle). Therefore a bus is a motor vehicle and the employees use of the bus satisfies one of the conditions in paragraph 47(6)(a) of the FBTAA. This is in accordance with the ATO view provided in ATO Interpretative Decision ATO ID 2001/313 Fringe Benefits Tax: exempt residual benefit which concluded that the use of a bus benefit included "the use of a motor vehicle".

(iii) the motor vehicle is not one of the listed exclusions

Paragraph 47(6)(aa) of the FBTAA requires that:

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).

A bus is not a taxi let on hire to the Providers and a bus does not fit into the definition of a car. It is a vehicle designed for the principal purpose of carrying passengers. Therefore, it is not in the excluded list.

(iv) the benefit is provided to current employees

Paragraph 47(6)(a) of the FBTAA contextualises the residual benefit as being provided “in respect of the employment of a current employee”. Under the declaration signed by the employee, the Bus card must be returned to the employer when their employment ends and the card cancelled.

The only relevant individuals who can obtain access to the bus transportation are those under salary sacrifice arrangement between themselves and the Providers, acting on behalf of A.

Each of the individuals is a current employee of A.

Therefore, the relevant bus transportation is being used in respect of the employment of a current employee.

Accordingly, this requirement is met.

(v) the only private use of the motor vehicle is:

○ work related travel of the employee and

○ other private use by the employee or an associate of the employee is minor, infrequent and irregular.

Paragraph 47(6)(b) of the FBTAA provides that the exemption will only apply if:

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;

…

Subsection 136(1) of the FBTAA defines 'private use' as:

Private use, in relation to a motor vehicle, in relation to an employee or an associate of an employee, means any use of the motor vehicle by the employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee.

Subsection 136(1) of the FBTAA defines 'work-related travel' 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.

Each employee will be required to complete and sign the 'No Private Use Declaration' certifying the user and travel limits of the A provided Bus card. The only private use permitted under the declaration is between the employee's places of residence and employment. This satisfies the definition of work-related travel provided in subsection 136(1) of the FBTAA. Therefore, subparagraph 47(6)(b)(i) is satisfied.

Subparagraph 47(6)(b)(ii) of the FBTAA requires that other private use of the motor vehicle by the employee or an associate of the employee be minor, infrequent or irregular. Under the proposed arrangement, other private use of the motor vehicle that is not work-related, or use by anyone other than the employee, is expressly prohibited, whether infrequent, minor or irregular.

During the FBT year and at the time the employee is provided with the residual benefit, there is no private use of the Bus card other than for work-related travel. As such, this satisfies subparagraph 47(6)(b)(ii) of the FBTAA.

Conclusion

As all the conditions listed under subsection 47(6) of the FBTAA are satisfied, the residual benefit which consists of the use of the Bus card for work-related travel on the bus, satisfies subsection 47(6) of the FBTAA and is therefore an exempt benefit.