Edited version of your written advice

Authorisation Number: 1051218649338

Date of advice: 2 May 2017

Ruling

Subject: Fringe Benefits Tax - Reportable fringe benefits amount

Question

Does the provision by the Employer of housing assistance to employees employed under an Specific Employment Program using grant funds provided by a government agency result in a 'reportable fringe benefits amount' to the employees under section 135P of the Fringe Benefits Tax Assessment Act 1986?

Answer

No.

This ruling applies for the following period(s)

1 April 20XX to 31 March 20YY

The scheme commences on

1 April 20XX

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

A government body (the Government) operates an initiative which aims to increase the employment of Specific Australians and their participation in economic activities, and contribute to the Government's commitment to halving the gap between the employment of Specific and non-Specific Australians by 20YY.

The Employer, through an agreement with the Government, receives an Employment Parity Initiative Grant to help achieve the objective of this government initiative.

In order to achieve the outcomes of the agreement, the Employer operates a Specific Employment Program (the Program), whereby the Employer uses the funds granted by the Government to hire additional staff, provide appropriate training activities, and provide mobility assistance such as housing and rental support to Specific Australians.

Details of the purpose and use of grant funding are contained in a funding agreement between the Government and the Employer (the Agreement) and an accompanying Project Schedule. The Agreement specifies that the relevant project supports the Employer in increasing Specific employment through undertaking recruitment and selection processes, induction and training programs, mobility rental assistance, employment placement, mentoring and retention activities. The Employer was specifically required by the Agreement to provide mobility assistance in the form of rental support and associated requirements for a period of up to six months.

Grant funding provides tailored assistance to support activities for Specific Australians that will overcome disadvantage in the labour market, connect them to real and sustainable jobs and address barriers to recruitment and retention.

One of the key barriers is the lack of accommodation near the workplace. Therefore, providing accommodation assistance directly enables the Program's objectives.

The mobility assistance provided by the Employer includes paying the rent for a housing facility for particular employees under the Program who, without assistance, may not be in a financial position to maintain their employment. The recipient of any funds or assistance is also governed by criteria set out in the Agreement.

The Agreement stipulates that the Employer is required to be accountable for all funds provided by the Government and are bound by the terms and conditions of the Agreement.

The Employer must submit reports detailing the outcomes of the deliverables under the Agreement. If the Employer has not spent the grant funding in accordance with the Agreement, the Government may by notice require repayment of an amount.

Relevant legislative provisions

Section 5E Fringe Benefits Tax Assessment Act 1986

Section135P Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Summary

The provision by the Employer of housing assistance to its employees who are employed under the Program will not result in a 'reportable fringe benefits amount' to the employees under section 135P of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Detailed reasoning

Pursuant to section 135P of the FBTAA, an employee has a 'reportable fringe benefits amount' for a year of income in respect of their employment by an employer if the employee's individual fringe benefits amount is more than $2,000.

An employee's 'individual fringe benefits amount' is defined in section 5E of the FBTAA as the sum of the employee's share of the taxable value of each fringe benefit that relates to the year of tax and is provided in respect of the employment other than an excluded fringe benefit.

In order to determine whether or not the provision by the Employer of housing assistance to employees in accordance with the Program will result in a 'reportable fringe benefits amount' to these employees under section 135P of the FBTAA, it is necessary to consider whether the arrangements in question result in a fringe benefit.

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA, which holds that the following conditions must be satisfied:

1. A benefit is provided at any time during the year of tax.

2. The benefit is provided to an employee or an associate of the employee.

3. The benefit is provided by:

a. their employer; or

b. an associate of the employer; or

c. a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or

d. a third party other than the employer or an associate of the employer, if the employer or an associate of the employer:

i. participates in or facilitates the provision or receipt of the benefit; or

ii. participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

2. The benefit is provided in respect of the employment of the employee.

3. The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

A discussion is provided below in respect of whether each element or condition of the definition of a fringe benefit is satisfied in the current circumstances.

A benefit is provided

Subsection 136(1) of the FBTAA provides a broad definition of a 'benefit' as including:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:


(i) the performance of work (including work of a professional nature), whether with or without the provision of property; …

Given the provision of housing assistance to employees employed under the Program constitutes an arrangement for or in relation to the performance of work, such an arrangement falls within the definition of a 'benefit' in subsection 136(1) of the FBTAA.

As such, the first condition (i.e. the provision of a 'benefit') of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is provided to an employee or an associate of the employee

An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee.

As the benefit (the provision of housing assistance) is provided to the Employer's employees employed under the Program, the second condition (i.e. a benefit is provided to an employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is provided by an employer, an associate of the employer or a third party

'Employer' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer.

Subsection 136(1) of the FBTAA provides that the term 'associate' adopts the meaning of that term as given in section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). The list of the associates of a company (the 'Primary Entity') is contained in subsection 318(2) of the ITAA 1936. Associates of a Primary Entity include the following:

● Another entity which has 'sufficient influence' over the Primary Entity, either in its own right or in conjunction with other entities.

● Another entity which holds a majority voting interest in the Primary Entity, either in its own right or in conjunction with other entities which would be treated as its associates under any of the other tests described in subsections 318(1), (2) or (3) of the ITAA 1936.

● A company which is sufficiently influenced by: (a) the Primary Entity; (b) another company, partnership, trustee or other person classed as an associate of the Primary Entity by virtue of subparagraph 318(2)(e)(i)(B) of the ITAA 1936; (c) a company which is itself classed as an associate of the Primary Entity by reason of the application of the rules in paragraphs 318(2)(a), (b), (c) or (d) of the ITAA 1936; or (d) two or more of the above entities.

● A company where a majority voting interest is held by: (a) the Primary Entity; (b) entities which are classed as associates of the Primary Entity under any of the other rules in subsection 318(2) of the ITAA 1936; or (c) the Primary Entity and entities which are classed as associates of the Primary Entity under any of the other rules in subsection 318(2) of the ITAA 1936.

A company is 'sufficiently influenced' by others if, according to paragraph 318(6)(b) of the ITAA 1936, the company or its directors are accustomed to act in accordance with the directions, instructions or wishes of those others, or are under an obligation (formal or informal) to do so, or might reasonably be expected to do so.

The Employer is an employer as defined in subsection 136(1) of the ITAA 1936.

Based on the facts, the benefit (the provision of housing assistance) is provided by the Employer to its employees employed under the Program using the grant funds provided by the Government pursuant to the Agreement.

Therefore, the housing assistance benefit is provided by either the Employer as an employer, or by the Government as a third party under an arrangement it has with the Employer (as stipulated in the Agreement), or through the Employer facilitating the provision of the benefit provided by the Government as a third party.

As such, the third condition (i.e. a benefit is provided by an employer, an associate of the employer or a third party under an arrangement with an employer) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is provided in respect of the employment of the employee

As per subsection 136(1) of the FBTAA, the term '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.

Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee:

● whether or not the benefit also relates to some other matter or thing

● whether the employment is past, present or future

● whether or not the benefit is surplus to the recipient's requirements

● whether or not the benefit is also provided to another person

● whether or not the benefit is offset by any inconvenience or disadvantage

● whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment

● whether or not the provision of the benefit is in the nature of income, and

● whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

The full Federal Court in J and G Knowles and Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles) examined the meaning of 'in respect of' an employee's employment. It was held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'. A similar view was also held in Essenbourne Pty Ltd v FC of T 2002 ATC 5201 and Starrim Pty Ltd v FCT (2000) 102 FCR 194; [2000] FCA 952; 2000 ATC 4460; (2000) 44 ATR 487.

It was also suggested by the full Federal Court in Knowles that it would be useful to ask 'whether the benefit is a product or incident of the employment'.

To establish whether a sufficient or material connection exists between the provision of the housing assistance and the employment of the employees employed under the Program, it is necessary to consider the circumstances in which it has been provided.

As provided in the facts, whilst the benefit (the provision of housing assistance to employees employed under the Program) is provided by the Employer, it is not funded by the Employer. The benefit is instead funded by the Government under the terms of the Agreement for the purpose of meeting the objectives of a government initiative. The Employer is accountable to the Government with respect to how the funds are utilised in order to meet the objectives prescribed in the Agreement.

The benefit is not connected to services provided by the employees employed under the Program in the sense that it does not represent remuneration for those services, nor is it a substitute for salary sacrificed amounts. It is provided solely to enable the Employer to meet the requirements of the Program.

Hence, there is no 'sufficient and material connection' between the provision of the benefit and the applicable employees' employment. The provision of the benefit is an incident of the Program and the Employer's obligations to provide the necessary housing assistance.

On this basis, the benefit (the provision of housing assistance) provided to the Employer's employees employed under the Program would not be considered to be 'in respect of the employee's employment'. Rather, it is in respect of the Agreement between the Government and the Employer.

As such, the fourth condition (i.e. a benefit is provided in respect of the employment of the employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is not satisfied. Consequently, it is not necessary to consider the last element of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.

The provision by the Employer of housing assistance to its employees who are employed under the Program will therefore not give rise to a 'fringe benefit' as defined in subsection 136(1) of the FBTAA. It follows that such a benefit will not result in a 'reportable fringe benefits amount' to the employees under section 135P of the FBTAA.