Edited version of private advice

Authorisation Number: 1051779277396

Date of advice: 8 December 2020

Ruling

Subject: Excluded fringe benefits

Question

Will an amount paid or reimbursed by a Commonwealth agency on behalf of an employee, on a long-term posting overseas, for the following types of expenditure, constitute an 'excluded fringe benefit' pursuant to paragraph 5E(3)(1) of the Fringe Benefits Tax Assessment Act 1986:

•         caretaker costs;

•         furniture rental;

•         garden maintenance;

•         pool maintenance; and

•         utilities including water services, gas services, electricity services, other fuel for ordinary household purposes, garbage services and sewerage?

Answer

Yes

This ruling applies for the following periods

Year ended 31 March 20XX

Year ended 31 March 20XX

Year ended 31 March 20XX

Year ended 31 March 20XX

The scheme commenced on

1 April 20XX

Relevant facts

A Commonwealth agency will cover the cost of a range of expenses for its employees when those employees are required to work overseas on a long-term posting at the direction of the Commonwealth. In most instances the Commonwealth agency pays these expenses directly. Occasionally, the Commonwealth agency will reimburse an employee for the costs incurred.

A long-term posting is a period of duty overseas for 12 months or longer, as determined by the Delegate, at either one or multiple posts.

The Commonwealth agency policies behind the reimbursement of these costs are contained in their Policy Statement.

The expenses covered include:

•         caretaker costs;

•         furniture rental;

•         garden maintenance;

•         pool maintenance; and

•         utilities including water services, gas services, electricity services, other fuel for ordinary household purposes, garbage services and sewerage.

The type of costs incurred, and the amount paid or reimbursed, varies depending on a range of factors including:

•         whether the property is leased furnished or unfurnished;

•         whether the lease requires the tenant to maintain a garden or a pool;

•         whether the employee is accompanied by their family and the size of the family;

•         the location of the posting;

•         the quality of the accommodation; and

•         the climate in the location that the employee has been posted.

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

Employees will also be provided with accommodation while on long-term postings overseas. The cost of accommodation does not include a component for the costs listed above for employees on long-term postings where the costs listed above are invoiced separately.

The Commonwealth agency only pays for, or reimburses the costs listed above for an employee where the employee is also provided with accommodation.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Paragraph 5E(3)(i)

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 Regulations 2018 Paragraph 11(1)

Fringe Benefits Tax Assessment Regulations 2018 Paragraph 11(2)(b)

Fringe Benefits Tax Assessment Regulations 2018 Paragraph 11(2)(c)

Reasons for decision

Will an amount paid or reimbursed by a Commonwealth agency on behalf of an employee, on a long-term posting overseas, for the following types of expenditure, constitute an 'excluded fringe benefit' pursuant to paragraph 5E(3)(1) of the Fringe Benefits Tax Assessment Act 1986:

•         caretaker costs;

•         furniture rental;

•         garden maintenance;

•         pool maintenance; and

•         utilities including water services, gas services, electricity services, other fuel for ordinary household purposes, garbage services and sewerage?

Fringe benefit

An amount paid directly to utility providers, or reimbursed by a Commonwealth agency in respect of an employee's utility expenses will be a 'fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), if it is

•         a benefit provided at any time during the year of tax;

•         a benefit provided to the employee or to an associate of an employee, by the employer, or an associate of the employer, or a third party in an arrangement with the employer;

•         in respect of employment; and

•         not excluded by paragraphs (f) to (s).

In the current case, a fringe benefit is provided for the following reasons:

•         the amount paid or reimbursed in relating of an employee's utility expenses whilst working overseas constitutes a benefit which is provided during the year of tax;

•         the benefit is provided by a Commonwealth agency, 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 overseas at the direction of the Commonwealth; and

•         the benefit is not one that is specifically excluded by paragraphs (f) to (s) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA.

The reimbursement of an employee's caretaker costs, furniture rental, garden maintenance, pool maintenance and utilities by a Commonwealth agency whilst the employee is required to work overseas constitutes an 'expense payment benefit' under section 20 of the FBTAA.

Where a Commonwealth agency pays for an employee's caretaker costs, furniture rental, garden maintenance, pool maintenance, and utilities whilst the employee is required to work overseas is a 'residual benefit' under section 45 of the FBTAA.

Excluded fringe benefit

Subsection 5E(3) of the FBTAA states that an excluded fringe benefit is a fringe benefit:

...

(i)            that is a benefit prescribed by the regulations for the purposes of this paragraph;

Excluded fringe benefits, in relation to various benefits to Commonwealth employees, which are prescribed are discussed in section 11 of the Fringe Benefits Tax Assessment Regulations 2018 (FBTAR 2018):

11(1) Each fringe benefit covered by a subsection of this section is prescribed for the purposes of paragraph 5E(3)(i) of the Act.

11(2) A fringe benefit provided to an employee of the Commonwealth is covered by this subsection if the benefit:

(a)  is a living-away-from-home allowance fringe benefit; or

(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.

The benefits in this instance will be either expense payment fringe benefits or residual fringe benefits. The exemption under sections 21 and 47(5) of the FBTAA do not apply as this provision relates to the payment or reimbursement of the employee for accommodation expenses where the employee's duties of employment require them to live away from their normal residence.

It is therefore necessary to determine if the benefits relate to the accommodation provided to the employee because their duties of employment required them to live away from their normal residence. It is satisfied that the provision of accommodation is because the employee's duties required them to live away from their normal residence. The question is whether the payment or reimbursement of the utilities costs incurred by the employee relate to the accommodation provided to the employee.

'Relates to accommodation'

The phrase 'relates to accommodation' is not defined in the FBTAA. The meaning of 'relates to' has been discussed at common law.

It was common ground in Tooheys Ltd v. Commissioner of Stamp Duties (NSW) (1960) 105 CLR 602 at 620 per Taylor J; Joye v. Beach Petroleum NL & Anor (1996) 14 ACLC 1174 at 1181-1182; (1996) 67 FCR 275 at 285 per Beaumont and Lehane JJ; Australian Competition and Consumer Commission v. Maritime Union of Australia (2002) ATPR 41-849 at 44,514; (2001) 114 FCR 472 at 487 per Hill J; North Sydney Council v. Ligon 302 Pty Ltd (1996) 185 CLR 470; Project Blue Sky Inc v. Australian Broadcasting Authority (1998) 194 CLR 355 at 387; O'Grady v. Northern Queensland Co Ltd (1990) 169 CLR 356 at 374 per Toohey and Gaudron JJ; and HP Mercantile Pty Limited v. FC of T 2005 ATC 4571 at 35; that the term 'relates to' was extremely wide requiring the existence of an association or connection between two subject matters. That connection or association may be direct or indirect, substantial or real, depending on the context in which the words are used. However, the connection or association must be relevant and a remote relationship would generally not suffice.

It is considered that there is a direct connection or association between the accommodation and the utility costs that are paid in relation to that accommodation. It is therefore accepted that the benefits 'relate to accommodation'.

This is consistent with the intention of the amendments to the law in the Explanatory Statement to the Fringe Benefits Tax Amendment Regulations 2013 (No. 1) that accompanied the introduction of former paragraph 9(2)(b) [now paragraph 11(2)(b)]. The Explanatory Statement notes that, for employees, this regulation ensures that certain benefits are not included in determining their entitlement to access a number of government concessions / benefits after reforms to the living-away-from-home allowance and benefits. Specifically, it was noted:

...

Paragraph 5E(3)(i) of the Act provides that an excluded fringe benefit is a fringe benefit that is prescribed by the regulations for the purposes of this paragraph.

The purpose of this Regulation is to exclude living-away-from-home (LAFH) allowances and benefits, including certain expense payment and residual benefits, from being reportable fringe benefits for Commonwealth employees posted both overseas and domestically.

The 2011-12 Mid-Year Economic and Fiscal Outlook (MYEFO) included reforms to the LAFH allowances and benefits, which came into effect on 1 October 2012, subject to transitional rules. The reforms removed the concessional tax treatment for employers who provide LAFH allowances and benefits to employees unless those employees maintain a home in Australia for their personal use and enjoyment at all times that they are required to live away for work, and limit the concession to a maximum period of 12 months in respect of an individual employee for any particular work location.

A number of Commonwealth departments and agencies have employees in receipt of LAFH allowances and benefits, including certain expense payment benefits and residual benefits, both in Australia (including in an external territory) and overseas. Many Commonwealth employees, due to the unique nature of their deployment, will not meet the new requirements, meaning that, without amendment to the Fringe Benefits Tax Regulations 1992 (FBT Regulations), taxable LAFH allowances or benefits would be reported on the employees' payment summaries as reportable fringe benefits.

This amendment to the FBT Regulations treats LAFH fringe benefits, including certain expense payment benefits and residual benefits, as excluded fringe benefits for Commonwealth employees, where those employees are required to live away from their normal residence in order to undertake their official duties of employment.

The Regulation ensures that the unique nature of Commonwealth deployments, such as Defence and Foreign Affairs deployments, do not result in unintended and inequitable outcomes for those employees, such as exceeding income thresholds relating to government benefits. The amendments apply in relation to benefits provided on or after 1 October 2012, to align with the MYEFO amendments to LAFH allowances and benefits.

...

Given the nature of domestic and overseas postings of Commonwealth employees, and the fact that they are often required to live away from home for periods longer than 12 months to carry out their official duties, the Government has amended the FBT Regulations so that the LAFH allowance, expense payment benefits and residual benefits are not included on their payment summaries as reportable fringe 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 Commonwealth employees on overseas postings, where they are required to live away from their normal residence.

Conclusion

In the current situation, where expense payment benefits or residual benefits arise when a Commonwealth agency pays for, or reimburses a Commonwealth agency employee's utility expenses whilst the employee is required to live away from their normal residence, paragraphs 11(2)(b) and 11(3)(c) of the FBTAR 2018 would be satisfied.

The provision of such benefits will constitute an 'excluded fringe benefit' pursuant to paragraph 5E(3)(i) of the FBTAA.

An 'excluded fringe benefit' is not required to be included in an employee's individual fringe benefits amount under subsection 5E(2) of the FBTAA. It follows that an 'excluded fringe benefit' is not included in an employee's reportable fringe benefits amount under subsection 135P(1) of the FBTAA and not shown on an employee's payment summary or income statement in myGov.