Edited version of your written advice

Authorisation Number: 1051471595717

Date of advice: 21 February 2019

Ruling

Subject: FBT car benefits and expense payments provided to directors of a community services entity

All legislative references are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise stated.

Question 1

Does a ‘fringe benefit’ arise in relation to the provision of motor vehicles to Executive Directors of X under subsection 136(1) for benefits provided pre-February 2017?

Answer

Yes

Question 2

Does a ‘fringe benefit’ arise in relation to the provision of motor vehicles to Executive Directors under subsection 136(1) for benefits provided post February 2017?

Answer

No

Question 3

Does a ‘fringe benefit’ arise in relation to the provision of motor vehicles to Non-Executive Directors/District Presidents under subsection 136(1) for benefits provided pre February 2017?

Answer

Yes

Question 4

Does a ‘fringe benefit’ arise in relation to the provision of motor vehicles to Non-Executive Directors/District Presidents under subsection 136(1) for benefits provided post February 2017?

Answer

No

This ruling applies for the following periods:

FBT year ending 30 March 2016

FBT year ending 30 March 2017

FBT year ending 30 March 2018

FBT year ending 30 March 2019

FBT year ending 30 March 2020

FBT year ending 30 March 2021

The scheme commences on:

FBT year ending 30 March 2011

Relevant facts and circumstances

1. X is a body corporate that operates in the community services sector in Australia.

2. X has a board of directors, comprised of Executive Directors and Non-Executive Directors/District Presidents.

3. All Directors of X are volunteers and are not employees of X as specified under its rules.

4. Although permitted under its rules, X’s Directors do not receive directors’ fees for the performance of their director duties.

5. However, under X’s rules, Directors are entitled to be reimbursed for out of pocket expenses, reasonably and properly incurred in connection with X’s business (including travel and accommodation expenses).

6. The Board of X determined that monthly payments should be made to Directors for the purposes of covering any out of pocket expenses that Directors may have incurred in undertaking their role as a Director for X.

7. Board approved payments have been made between July 2010 and February 2017. The payments ceased in February 2017 when all Directors were issued with credit cards to pay for business expenses incurred.

8. All Directors have confirmed in writing to X that they did not rely on the payments received during the period for their day to day living expenses.

9. The duties of X’s Directors include, but are not limited to the following:

● Travel to and attending board meetings (generally held at least once a month);

● Preparing and reading board papers to be presented at board meetings;

● Travel to and attending other committee meetings.

10. In their role as Director of X with effect from July 2015, Directors have access to the following resources:

● Mobile phone and laptop (replaced approximately every 3 years);

● Travel expenses to meetings;

● Meals whilst on travel;

● Uniforms;

● Memberships to Australian Institute of Management and Australian Institute of Company Directors;

● Membership to one airline lounge;

● Credit cards with a maximum $5,000 limit.

11. Directors are provided access to motor vehicles owned by X, in performing their duties. The motor vehicles are used predominantly for business purposes.

12. All Directors are retired from full time employment, and in receipt of superannuation and/or military pensions for covering everyday expenses.

13. No PAYG withholding has been made, on any Out of Pocket expense payments made to Directors.

14. X applied to the ATO for a Private Ruling to clarify whether PAYG Withholding was required to be made on these payments.

15. The ATO responded with a private ruling in 2018 stating that X is required to withhold amounts from the payments made to all Directors under Section 12-40 of Schedule 1 of the Taxation Administration Act 1953 (‘TAA’). The ATO private ruling applied to the years ended 30 June 2011 to 30 June 2017 (noting that the payments to Directors ceased in February 2017).

16. The motor vehicles are cars for FBT purposes.

17. For years up to and including the FBT year ending 30 March 2018 the directors have kept log looks to record their travel in the motor vehicles. For the 2019 FBT year, the vehicles are fitted with electronic devices, which are used to record travel undertaken.

18. Credit cards provided to directors are generally used for travel related costs for example meals, and incidental expenses, and is also available to pay for welfare associated costs for clients such as emergency accommodation or food vouchers.

19. The credit cards bear the name of X and are issued to each individual director.

20. X has an extensive review, approval and acquittal process in place, involving ensuring appropriate documentation is provided to prove that the expenditure has been incurred in the conduct of their activities as a director of X.

21. There is a monthly limit on the credit card. There is an extensive review and approval process to ensure that any expenditure of a private nature is identified and then invoiced back to the director. Historically instances of personal expenditure are minimal, as the guidelines are clear and the review process is robust.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 136(1)

Fringe Benefits Tax Assessment Act 1986 section 137

Fringe Benefits Tax Assessment Act 1986 section 148

Taxation Administration Act 1953 Schedule 1 section 12-40

Reasons for decision

Question 1

Does a ‘fringe benefit’ arise in relation to the provision of motor vehicles to Executive Directors under subsection 136(1) for benefits provided pre February 2017?

Answer

Yes

Summary

A fringe benefit arises in relation to the provision of motor vehicles to Executive Directors under subsection 136(1) for benefits provided pre February 2017.

Detailed reasoning

The definition of ‘fringe benefit’ in subsection 136(1) provides that a fringe benefit arises where:

● a benefit is provided;

● by an employer;

● to an employee;

● in respect of the employment of that employee.

Benefit

The provision of the right to use a motor vehicle to a director constitutes a ‘benefit’ as per its definition in subsection 136(1).

Employer

‘Employer’ in subsection 136(1) means a current employer, a future employer or a former employer.

‘Current employer’ in subsection 136(1) means a person who pays, or is liable to pay, salary or wages.

‘Salary or wages’ in subsection 136(1) is defined to include a payment from which an amount must be withheld (even if the amount is not withheld) under a provision to Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) listed in the table, to the extent that the payment is assessable income.

Item 2 of the table lists payments to company directors as a payment from which an amount must be withheld under section 12-40 of Schedule 1 to the TAA 1953.

In your case, we have already confirmed in a private ruling that the payments for out of pocket expenses made by X to the directors up to February 2017 are subject to withholding under section 12-40 of Schedule 1 to the TAA 1953.

X is then taken to be the ‘current employer’ in subsection 136(1) as they are taken to pay, or to be liable to pay, ‘salary or wages’.

Employee

‘Employee’ in subsection 136(1) means a current employee, a future employee or a former employee.

‘Current employee’ in subsection 136(1) means a person who receives, or is entitled to receive, salary or wages.

‘Salary or wages’ in subsection 136(1) is defined to include a payment from which an amount must be withheld (even if the amount is not withheld) under a provision to Schedule 1 to the TAA 1953 listed in the table, to the extent that the payment is assessable income.

Item 2 of the table lists payments to company directors as a payment from which an amount must be withheld under section 12-40 of Schedule 1 to the TAA 1953.

In your case, we have confirmed in a prior private ruling that the payments for out of pocket expenses made by X to the directors up to February 2017 are subject to withholding under section 12-40 of Schedule 1 to the TAA 1953.

The directors of X who receive a right to use a motor vehicle are each then taken to be the ‘current employee’ in subsection 136(1) as they are taken to receive, or to be entitled to receive, ‘salary or wages’.

In respect of

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

(a) Whether or not the benefit also relates to some other matter or thing;

(b) Whether the employment is past, present or future;

(c) Whether or not the benefit is surplus to the recipient’s requirements;

(d) Whether or not the benefit is also provided to another person;

(e) Whether or not the benefit is offset by any inconvenience or disadvantage;

(f) Whether or not the benefit is provided or use, or required to be provided or used, in connection with any employment;

(g) Whether or not the provision of the benefit is in the nature of income; and

(h) Whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

The term ‘in respect of’, in relation to the employment of an employee, is defined in subsection 136(1) to include ‘by reason of, by virtue of, or for or in relation directly or indirectly to, that employment’.

‘Employment’ is defined in subsection 136(1) as: ‘in relation to a person, means the holding of any office or appointment, the performance of any functions or duties, the engaging of any work, or the doing of any acts or things that results, will result or has resulted in the person being treated as an employee.’

Based on the facts, there is a material and sufficient, and not merely causal, connection between the car benefits being received by the employees and their employment with X. The provision of the car benefit to directors is a product or incident of their employment (J&G Knowles & Associates Pty Ltd v Federal Commissioner or Taxation (2000) 96 FCR 402).

The provision of the right to use a motor vehicle by X to its directors is then taken to be provided ‘in respect of’ the employment of the directors as employees.

Conclusion

In these circumstances, the provision of the right to use a motor vehicle to a director is a ‘fringe benefit’ under subsection 136(1) as all the elements of the definition of ‘fringe benefit’ will be satisfied. Nor is it excluded from the meaning of fringe benefit under paragraphs (f) to (s) of the meaning of fringe benefit in subsection 136(1).

Question 2

Does a ‘fringe benefit’ arise in relation to the provision of motor vehicles to Executive Directors under subsection 136(1) for benefits provided post February 2017?

Answer

No

Summary

A fringe benefit does not arise in relation to the provision of motor vehicles to Executive Directors under subsection 136(1) for benefits provided post February 2017.

Detailed Reasoning

The definition of ‘fringe benefit’ in subsection 136(1) provides that a fringe benefit arises where:

● a benefit is provided;

● by an employer;

● to an employee;

● in respect of the employment of that employee.

Benefit

The provision of the right to use a motor vehicle and a credit card to a director are both considered a ‘benefit’ as per its definition in subsection 136(1).

Employer

‘Employer’ in subsection 136(1) means a current employer, a future employer or a former employer.

‘Current employer’ in subsection 136(1) means a person who pays, or is liable to pay, salary or wages.

‘Salary or wages’ in subsection 136(1) is defined to include a payment from which an amount must be withheld (even if the amount is not withheld) under a provision to Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) listed in the table, to the extent that the payment is assessable income.

Item 2 of the table lists payments to company directors as a payment from which an amount must be withheld under section 12-40 of Schedule 1 to the TAA 1953.

In this case, post February 2017, X does not pay and is not liable to pay an amount to the directors to cover their expenses, as it had done prior to that date. It therefore does not pay and is not liable to make a payment from which an amount must be withheld under section 12-40 of Schedule 1 to the TAA 1953 or under any other relevant provision. In these circumstances, X is not a ‘current employer’.

Employee

‘Employee’ in subsection 136(1) means a current employee, a future employee or a former employee.

‘Current employee’ in subsection 136(1) means a person who receives, or is entitled to receive, salary or wages.

‘Salary or wages’ in subsection 136(1) is defined to include a payment from which an amount must be withheld (even if the amount is not withheld) under a provision to Schedule 1 to the TAA 1953 listed in the table, to the extent that the payment is assessable income.

Item 2 of the table lists payments to company directors as a payment from which an amount must be withheld under section 12-40 of Schedule 1 to the TAA 1953.

In this case, post February 2017, a director does not receive and is not entitled to receive an amount to cover their expenses, as they had prior to that date. Instead, the director is given a credit card to pay for their expenses incurred in the course of their duties. They therefore do not receive and are not entitled to receive a payment from which an amount must be withheld under section 12-40 of Schedule 1 to the TAA 1953 or under any other relevant provision. In these circumstances, a director is not a ‘current employee’ of X.

Section 137

However, section 137 extends the meaning of salary or wages to create an employment relationship for the purposes of the FBTAA where a benefit is provided that would have been classified as salary or wages if it had been a cash payment. That is, had the benefit been provided by way of a cash payment, the payment would be a payment from which an amount must be withheld under one of the provisions of the TAA listed in the definition of salary or wages.

Subsection 137(1) states:

For the purpose only of ascertaining whether a person is an employee or an employer within the meaning of this Act, where:

(a) a benefit is provided by a person (in this subsection referred to as the first person) to, or to an associate of, another person (in this subsection referred to as the second person);

(b) but for this subsection, the benefit would not be regarded as having been provided in respect of the employment of the second person; and

(c) either of the following conditions is satisfied:

(i) if the benefit were provided by the first person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the first person to the second person;

(ii) all of the following conditions are satisfied:

(A) subparagraph (i) does not apply in relation to the benefit;

(B) the first person is an associate of a third person or the benefit is provided under an arrangement between the first person and a third person;

(C) if the benefit were provided by the third person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the third person to the second person;

a definition in subsection 136(1) applies as if the benefit were salary or wages paid to the second person by:

(d) in a case to which subparagraph (c)(i) applies - the first person; or

(e) in a case to which subparagraph (c)(ii) applies - the third person.

In considering whether the relevant withholding provisions would apply if the use of the car and other benefits had been provided as a cash payment it is necessary to consider whether the Directors are volunteers. Guidance for considering this question is provided in the ATO publication, Paying volunteers (QC 46350), as follows:

Generally, receipts that are earned, expected, relied upon and have an element of periodicity, recurrence or regularity are treated as assessable income of a volunteer.

…

A payment to a volunteer that is not assessable will have many of the following characteristics.

● The payment is to meet incurred or anticipated expenses.

● The payment has no connection to the recipient’s income-producing activities or services.

● The payment is not received as remuneration or as a consequence of employment.

● The payment is not relied upon or expected by the recipient for day-to-day living.

● The payment is not legally required or expected.

● There is no obligation on the part of the payer to make the payment.

● The payment is a token amount compared to the services provided or expenses incurred by the recipient. Whether the payment is token depends on the full facts surrounding the payment and recipient’s circumstances.

Your volunteers (QC16184) also has guidance in distinguishing volunteers from employees:

Although there is no legal definition of ‘volunteer’ for tax purposes, a volunteer does not work under a contractual obligation for remuneration and would not be an employee or independent contractor. So, if any of your workers are not employees or independent contractors, they will be volunteers.

Further guidance is provided in Miscellaneous Taxation Ruling MT 2032 Fringe benefits tax: sporting clubs (MT 2032). In discussing whether a benefit provided to a player will be a fringe benefit, paragraph 3 of MT 2032 states:

a taxable fringe benefit will only arise in relation to benefits given to players if the players are "employees" of the club.

In discussing when players will be considered to be employees of the club paragraph 4 notes there is a range of situations. The situations at both ends of the range are discussed in paragraphs 4 and 6 of MT 2032. Paragraph 4 of MT 2032 states:

At one end there are the professional clubs of the major football competitions in each State. The players in these typically are under contract, are well remunerated, and there is a clear employer-employee relationship for FBT purposes. If such a club provides an overseas trip or similar reward to its players there is clearly a taxable fringe benefit

By contrast, paragraph 6 of MT 2032 states:

It is equally clear that at the other end of the spectrum an employer-employee relationship does not exist in the case of minor competitions where the players do not receive match payments from the club.

In providing a guideline as to the approach to be adopted where the situation is between these two situations paragraph 8 of MT 2032 states:

Where the level of payments to players is such as to do little more than offset the training and travelling expenses of the players this tends towards a conclusion that the players are not employees for FBT purposes.

In applying these guidelines, a director who only receives the use of a motor vehicle to travel in undertaking business related duties will clearly not be regarded as being an employee as the use of the car is merely offsetting travel expenses that would otherwise be incurred in carrying out the duties as a director. The same reasoning applies with the expenses paid for on the credit card.

This finding is also supported by the following facts:

● Electronic log books are used in each motor vehicle to monitor usage of the vehicle.

● Usage of credit cards is subject to a stringent review process, with directors being invoiced back for private purchases.

A director is then a volunteer and section 137 will not apply to extend the meaning of salary or wages to create an employment relationship.

Conclusion

In these circumstances, X is not an employer and a director is not an employee for the purposes of the definition of fringe benefit in subsection 136(1). The benefit cannot then be provided in respect of the employment of the director. A fringe benefit will not arise in these circumstances.

Question 3

Does a ‘fringe benefit’ arise in relation to the provision of motor vehicles to Non-Executive Directors/District Presidents under subsection 136(1) for benefits provided pre February 2017?

Answer

Yes

Summary

For the same reasons given to Question 1, a fringe benefit arises in relation to the provision of motor vehicles to Non-Executive Directors/District Presidents under subsection 136(1) for benefits provided pre February 2017.

Question 4

Does a ‘fringe benefit’ arise in relation to the provision of motor vehicles to Non-Executive Directors/District Presidents under subsection 136(1) for benefits provided post February 2017?

Answer

No

Summary

For the same reasons given to Question 2, a fringe benefit does not arise in relate to the provision of motor vehicles to Non-Executive Directors/District Presidents under subsection 136(1) for benefits provided post February 2017.