Edited version of your written advice

Authorisation Number: 1051361949547

Date of advice: 17 April 2018

Ruling

Subject: Fringe benefits tax

Question 1

Is Entity 1 the employer of the seconded employees during the secondment period for Fringe benefits tax (FBT) purposes?

Answer

No

Question 2

On the basis that Entity 1 is the employer of the seconded employees, are benefits provided to seconded employees eligible to be exempt benefits?

Answer

Not applicable

This ruling applies for the following periods:

Year ended 31 March 20XX

Year ended 31 March 20XX

Year ended 31 March 20XX

The scheme commences on:

20XX

Relevant facts and circumstances

Employees of Entity 2 will be seconded to Entity 1. The Secondment Period will be for a fixed period (the Secondment Period).

The workforce transfer and relevant conditions of the services transfer will be governed by a Deed. Details of this arrangement have been provided by Entity 1.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986, section 57A

Fringe Benefits Tax Assessment Act 1986, subsection 136(1)

Taxation Administration Act 1953, section 12-1 of Schedule 1

Taxation Administration Act 1953, section 12-35 of Schedule 1

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

All references made in these reasons for decision are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise stated.

Summary

Entity 1 is not the employer for FBT purposes of the seconded employees during the Secondment Period.

Detailed reasoning

Employer is defined in subsection 136(1) and means:

(a) a current employer;

(b) a future employer; or

(c) a former employer…

Current employer ‘means a person (including a government body) who pays, or is liable to pay, salary or wages’…

As is relevant, salary or wages is defined in subsection 136(1) to mean:

(a) a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; …

Withholding payments covered in the table include section 12-35 in Schedule 1 to the Taxation Administration Act 1953 (TAA) a payment to an employee.

Section 12-35 in Schedule 1 to the TAA provides that:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

Exceptions to this are contained in section 12-1 of Schedule 1 to the TAA. An entity need not withhold under section 12-35 from a payment if the whole of the payment is exempt income of the entity receiving the payment or is a LAFHA or is an expense payment benefit.

In explaining section 12-35 of Schedule 1 to the TAA, Taxation Ruling TR 2005/16 Income tax: Pay As You Go – withholding from payments to employees states:

14. For the provision to apply, there must be an employee, a payment of salary, wages etc to an employee as a consequence of his/her employment and finally, the payment must be made by an entity…

16. The term ‘employee’ is not defined in the TAA 1953, therefore it has its ordinary meaning. In most cases, it will be self-evident whether an employer/employee or principal/independent contractor relationship exists. However, it is sometimes difficult to discern the true character of the relationship from the facts of the case as the intentions of the parties may be unclear or ambiguous, such as where the terms of the contract are disputed by the parties or are otherwise in apparent conflict. Because of these difficulties, the ordinary meaning of employee has been the subject of a significant amount of judicial consideration…

17. The relationship between an employer and employee is a contractual one. It is often referred to as a contract of service…

TR 2005/16 goes on to look at the indicators of whether an individual is an employee or independent contractor. The focus of the ruling is on addressing the issue of whether there is an actual employer and employee relationship as opposed to a principal and independent contractor relationship.

There is no doubt in this arrangement that there is an employer and employee relationship. It is more a question of identifying who the employer is.

There is an actual employment contract between the seconded employees and Entity 2 which continues to exist during the secondment period. As part of that employment the seconded employees will be made available to Entity 1 for the secondment period under the terms of the Deed.

Although Entity 1 will undertake a number of functions that may be indicative of being the employer, the facts lend more weight to the conclusion that the employer of the seconded employees will continue to be Entity 2.

Entity 1 is therefore not the employer for FBT purposes of the seconded employees during the Secondment Period rather Entity 2 is their employer.