Edited version of your written advice

Authorisation Number: 1051482169669

Date of advice: 14 February 2019

Ruling

Subject: Fringe benefits tax and the definition of an employee

Question

Do the seconded employees of X Corp come within the definition of ‘employee’ in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No. The seconded employees of X Corp do not come within the definition of ‘employee’ in subsection 136(1) of the FBTAA.

This ruling applies for the following periods:

Year ended 31 March 2020

Year ended 31 March 2021

Year ended 31 March 2022

The scheme commences on:

April 2019

Relevant facts and circumstances

1. X Corp is wholly owned, controlled and funded by the Country X Government. The main functions of X Corp are to carry out activities for the benefit of Country X.

2. The Australian branch office of X Corp carries out the above functions in Australia in furtherance of the primary goal of carrying out activities for the benefit of Country X. The Australian branch office does not carry on any profit-making activities nor does it intend to carry on any profit-making activities in the future.

3. X Corp regularly seconds Country X employees to its Australian office. The seconded employees all have the following characteristics:

(a) all individuals are employees of X Corp and only render services to X Corp in the course of their employment - they do not render independent personal services to the Country X Government;

(b) all are citizens of Country X;

(c) no such employees are citizens of Australia or permanent residents of Australia nor do they intend to become citizens of Australia or permanent residents of Australia during their secondment in Australia;

(d) all employees will hold a temporary visa;

(e) all employees are in Australia only by reason of their secondment by X Corp to its Australian branch office and all are, or will be, present in Australia only temporarily;

(f) at the end of their temporary secondment in Australia, all employees intend to relocate overseas (most likely to Country X);

(g) no such employees intend to stay in Australia or to take up residence here once their duties at the Australian branch office of X Corp have been completed;

(h) all employees seconded to Australia are remunerated only by the Country X Government, through X Corp, and

(i) the seconded employees are not in receipt of payments in respect of paid parental leave under the Paid Parental Leave Act 2010.

Relevant legislative provisions

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

International Tax Agreements Act 1953, Section 3AAA

International Tax Agreements Act 1953, Section 5

Paid Parental Leave Act 2010

Taxation Administration Act 1953, Schedule 1, Subsection 12-1(1)

Taxation Administration Act 1953, Schedule 1, Section 12-35

Taxation Administration Act 1953, Schedule 1, Section 12-110(1)(ca)

Reasons for decision

Summary

4. The seconded employees of X Corp do not come within the definition of ‘employee’ in subsection 136(1) of the FBTAA because their remuneration is exempt from Australian income tax. Hence, non-cash benefits which are provided to those employees are not subject to fringe benefits tax.

Detailed reasoning

5. The definition of a ‘fringe benefit’ contained within subsection 136(1) of the FBTAA has the broad effect that a fringe benefit will be provided when a benefit is provided to an employee by an employer in respect of the employment of the employee, unless the benefit is one of the benefits specifically exempted from being a fringe benefit.

6. The term ‘employee’ means current, future and former employees with the definition of each of these terms being based on the definition of a ‘current employee’ in subsection 136(1) of the FBTAA. The term ‘current employee’ means ’a person who receives or is entitled to receive, salary or wages’.

7. The term ‘salary or wages’ within the meaning of subsection 136(1) refers to:

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...

8. Thus, in order to qualify as an employee for the purposes of the FBTAA, the employee must receive assessable income (income that is subject to income tax) from the employer.

9. The Country X treaty provides that remuneration paid by the Country X government ‘in the discharge of functions of a governmental nature’ will be taxable in Australia if the services are performed in Australia by an Australian resident who is either an Australian national or did not become an Australian resident solely for the purpose of rendering the services. The remuneration may also be taxed in Australia if the Country X government is carrying on business operations.

10. X Corp is an entity, wholly owned, controlled and funded by the Country X government. Its main functions are to carry out activities for the benefit of Country X.

11. All employees seconded to Australia are remunerated only by the Country X government through X Corp.

12. The employees seconded by X Corp to Australia are all Country X citizens. None of these employees are citizens of Australia, nor do they intend to become citizens of Australia or permanent residents of Australia during their secondment here. Every employee holds a temporary work visa. All employees are here only by reason of their secondment by X Corp and are, or, will be, present in Australia only temporarily.

13. The Country X treaty provides that Article Y of that treaty does not apply to remuneration in respect of services rendered in connection with a business carried on by the Country X government.

14. X Corp is wholly owned, controlled and funded by the Country X government and it does not carry on any profit-making activities nor does it intend to carry on any profit-making activities in the future.

Conclusion

15. As the employees of X Corp are discharging governmental functions for the Country X government and are not Australian citizens and did not become Australian residents for a purpose other than to render services to X Corp in Australia, the Country X treaty will exempt the remuneration paid by X Corp to its employees from Australian income tax.

16. As the employees of X Corp are not in receipt of assessable income they are not employees for the purposes of the FBTAA. Thus, any non-cash benefits received will not be subject to fringe benefits tax.

Note

This ruling will not apply if any employee’s circumstances change so that the employee no longer satisfies Article 18(1) of the Country X treaty, or, the employee is entitled to ‘parental leave pay’.