Edited version of private advice

Authorisation Number: 1051606497544

Date of advice: 8 November 2019

Ruling

Subject: Excluded fringe benefits - utility expenses

Question

Will an amount paid or reimbursed by the Employer in respect of an employee's utility expenses whilst the employee is on an overseas posting constitute an 'excluded fringe benefit' pursuant to paragraph 5E(3)(i) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

1 April 2018 to 31 March 2022.

The scheme commenced on:

1 April 2018.

Relevant facts and circumstances

The Employer covers the cost of utilities for its employees when these employees are required to work overseas on a long-term posting at the direction of the Commonwealth. For each of these employees, such costs are either paid directly to the utilities provider by the Employer, or the Employer reimburses the employee for the costs incurred.

A long-term posting is a period of more than six months.

The payment for, or reimbursement of, utilities does not include a component for the cost of accommodation.

Employees may also be provided with accommodation while on long-term posting overseas. Accommodation is provided by way of either a housing fringe benefit or living away from home allowance fringe benefit. Employees are either reimbursed or provided with housing or they are provided an allowance to cover the cost of accommodation overseas. The cost of accommodation does not include a component for the cost of utilities for long-term posting employees where the utilities are separately reimbursed.

Employees make contributions towards a portion of the cost of the housing, and also make contributions towards the cost of the utilities by way of a reduction in pay.

The payment for, or reimbursement of, an employee's utilities is only provided where the employee is also provided with accommodation in a scenario outlined above. The payment for, or reimbursement of, utilities always relates to the same accommodation as they are provided.

Relevant legislative provisions

Fringe Benefits Tax (Application to the Commonwealth) Act 1986 Subsection 3(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 5E(3)

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 21

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Subsection 47(5)

Fringe Benefits Tax Assessment Act 1986 Subsection 135P(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 148(1)

Taxation Administration Act 1953 Section 16-155

Reasons for decision

Summary

An amount that is paid or reimbursed by the Employer in respect of an employee's utility expenses whilst the employee is on an overseas posting is an excluded fringe benefit. Such a benefit is prescribed by either paragraph 11(2)(b) or paragraph 11(2)(c) of the Fringe Benefits Tax Assessment Regulations 2018 for the purposes of paragraph 5E(3)(i) of the FBTAA.

Detailed reasoning

Fringe benefits

An amount paid or reimbursed by the Employer in respect of an employee's utility expenses is a 'fringe benefit' as defined in subsection 136(1) of the FBTAA for the following reasons:

• the amount paid or reimbursed in respect of an employee's utility expenses whilst working overseas constitutes a 'benefit' (as that term is defined in subsection 136(1) of the FBTAA) which is provided during the year of tax;

·        the benefit is provided by the Employer to an employee;

·        the benefit is provided in respect of the employee's employment as it is provided while the employee is working overseas on a long-term posting at the direction of the Commonwealth; and

·        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 - with particular regard to paragraph (g), the benefit is not exempt under any provision of the FBTAA.

The reimbursement of an employee's utility expenses by the Employer whilst the employee is required to work overseas constitutes an 'expense payment benefit' pursuant to section 20 of the FBTAA.

In circumstances where the Employer pays for an employee's utility expenses whilst the employee is required to work overseas, this benefit will be a 'residual benefit' under section 45 of the FBTAA.

Reportable fringe benefits amount

We consider that the provision of the expense payment or residual benefit by the Employer to its employee for utility expenses in the circumstances described in this ruling is an 'excluded fringe benefit' for the purposes of paragraph 5E(3)(i) of the FBTAA and is not required to be included in the employee's 'reportable fringe benefits amount' .

The benefits are described in subsection 11(1) of the Fringe Benefits Tax Assessment Regulations 2018 (FBTAR) which specify a number of fringe benefits that are an 'excluded fringe benefit' for the purposes of paragraph 5E(3)(i) of the FBTAA.

Paragraphs 11(2)(b) and 11(2)(c) of the FBTAR provide that certain expense payment fringe benefits and residual fringe benefits provided to a 'Commonwealth employee' will be a prescribed benefit for the purposes of paragraph 5E(3)(i) of the FBTAA and will, therefore, be an 'excluded fringe benefit':

11(2)

A fringe benefit provided to an employee of the Commonwealth is covered by this subsection if the benefit:

...

(b)   is an expense payment fringe benefit that:

                                                         i.          is not exempt under section 21 of the Act; and

                                                        ii.          relates to accommodation that is required solely because the duties of the employee ' s employment require the employee to live away from the employee ' s normal residence; or

(c)   is a residual fringe benefit that:

                                                         i.          is not exempt under subsection 47(5) of the Act; and

                                                        ii.          relates to accommodation that is required solely because the duties of the employee ' s employment require the employee to live away from the employee ' s normal residence.

...

It is noted that none of the other fringe benefits specified in the FBTAR are relevant to the fringe benefits that are the subject of this ruling.

'Relates to accommodation'

The term 'relates to accommodation' or 'in respect of accommodation' and the word 'accommodation' are not defined in the FBTAA.

Given no definition is available in the FBTAA, guidance can be sought regarding the intention of the provisions from the Explanatory Statement.

The Explanatory Statement to the Fringe Benefits Tax Amendment Regulation 2013 (No. 1) accompanied the introduction of former paragraphs 9(2)(b) and 9(2)(c) [now paragraphs 11(2)(b) and 11(2)(c)] of the FBTAR into the regulations. This Explanatory Statement notes that, for employees, this regulation ensures that certain benefits are not included in their payment summaries as reportable fringe benefits (for the purpose of determining their entitlement to access a number of government concessions/benefits) after reforms to the living-away-from-home allowance and benefits.

Therefore, the regulations seek to exclude both living-away-from-home benefits paid as an allowance, and benefits that relate to accommodation, whether they be expense payment or residual fringe benefits. The intention of the regulations is to ensure there are not unintended and inequitable outcomes for employees who are required to live away from their normal residence in order to undertake their official duties of employment.

Whilst the term 'relates to' is broad, it does require an examination of the relationship between the accommodation and the expense in question. In these instances, we are satisfied that there is a sufficient relationship between the accommodation and the utility costs that are paid in relation to that accommodation. Therefore, in these instances, the Commissioner accepts utility costs do 'relate to' accommodation.

Conclusion

In circumstances where either an expense payment benefit or a residual benefit arises when the Employer pays for, or reimburses, an employee's utility expenses whilst the employee is required to live away from their normal residence, paragraphs 11(2)(b) or 11(2)(c) of the FBTAR respectively would be satisfied.

As such, an amount paid or reimbursed by the Employer in respect of an employee's utility expenses whilst the employee is on an overseas posting will constitute an 'excluded fringe benefit' pursuant to paragraph 5E(3)(i) of the FBTAA.