Edited version of your written advice

Authorisation Number: 1051453202346

Date of advice: 12 November 2018

Ruling

Subject: Fringe benefits tax – exempt residual benefits

Question

Is the provision of child care as part of a salary sacrifice arrangement an exempt benefit in accordance with subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

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

You will continue to provide childcare to your employees as part of your wider remuneration and retention of staff strategy.

Employees will continue to be able to obtain child care through salary sacrifice arrangements (SSA). You have provided relevant details of the SSA.

The premises upon which the child care centre is operated have been leased. You have provided relevant details.

A child care provider (Supplier) has been engaged and the provision of the services is regulated by the Child Care Management Agreement (MA) with the Supplier. You have provided relevant details of the MA.

The Supplier’s right to enter and use the premises for the provision of the child care services is granted through a licence under the Site Licence Agreement. You have provided relevant details.

You have previously been granted private rulings on this matter.

The circumstances have not changed.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(2)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

Summary

The provision of child care as part of a salary sacrifice arrangement is an exempt benefit in accordance with subsection 47(2).

Detailed reasoning

Subsection 47(2) provides an exemption from fringe benefits tax for the provision of child care when certain conditions are satisfied. It states:

Where:

(a) a residual benefit provided to a current employee in respect of his or her employment consists of:

(i) the provision, or use, of a recreational facility; or

(ii) the care of children of the employee in a child care facility; and

(b) the recreational facility or child care facility, as the case may be, is located on business premises of:

(i) the employer, or

(ii) if the employer is a company, of the employer or of a company that is related to the employer,

the benefit is an exempt benefit.

Section 45 defines a residual benefit as:

A benefit is a residual benefit for the purpose of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Division 2 to 11 (inclusive).

You have:

● the MA with the Supplier to manage the services and care for employees' children and

● a salary sacrifice arrangement with employees who wish to utilise the child care services.

Under the terms of these agreements:

● you will pay the Supplier child care fees that relate to the children of employees and

● the employee’s salary will be reduced by the amount that is paid to the Supplier for the care of their children prior to the employee earning that salary.

In such a situation you are providing employees with a benefit which is the care of their children. As this does not come within Divisions 2 to 11 it will be a residual benefit.

The facility at which the children are provided with child care is a child care facility as defined in subsection 136(1) and the employees who receive the child care are current employees. Therefore paragraph 47(2)(a) is satisfied.

To satisfy paragraph 47(2)(b) the child care facility must be located on the employer’s business premises or the business premises of a related company.

The term business premises is defined in subsection 136(1) as being;

premises, or part of premises, of the person used, in whole or in part, for the purposes of business operations of the person, but does not include…..

The question of what constitutes business premises for the purposes of the Fringe Benefits Tax Assessment Act 1986 was considered in Taxation Ruling TR 2000/4 Fringe Benefits tax; meaning of ‘business premises’ (TR 2000/4).

Paragraph 4 of TR 2000/4 states there are two requirements that need to be met for premises to be business premises of a person:

1. the premises or part of premises are of the person.

2. the premises or part of premises must be used by the person, in whole or part, for the purposes of their business operations.

In determining whether the premises are premises of the person and are used for the business operations of the person, it is relevant to consider:

● the control the person has over the premises, and

● the consistency of a person’s actions and activities on the premises with those of normal business practices.

Paragraph 7 of TR 2000/4 states that where a person has ownership of premises or exclusive occupancy rights as lessee, the premises would ordinarily be described as premises of the person.

Paragraph 20 of TR 2000/4 states

…What is important for an employer seeking to establish that premises are its ‘business premises’ is that the employer's child care activities amount to its ‘business operations’ on its premises…

In situations where an employer engages an independent child care operator under a management agreement to care for employee’s children, paragraph 57 of TR 2000/4 provides the minimum requirements to be incorporated into the arrangement for the operations to be considered the business operations of the employer.

We have previously considered these requirements and consider that paragraph 47(2)(b) is satisfied.

In conclusion, the provision of child care to employees as part of a SSA will be an exempt residual benefit under subsection 47(2) as all of the requirements are met.