Edited version of private advice

Authorisation Number: 1051919522747

Date of advice: 24 November 2021

Ruling

Subject: Reduction in taxable value of fringe benefits provided to an overseas employee

Question

Where the employer reimburses the school tuition costs incurred by the employee, who has been seconded by the employer's overseas parent, will the taxable value of the fringe benefit provided be reduced under section 65A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes, where the employer reimburses the school tuition costs incurred by the employee, who has been seconded by its overseas parent, the taxable value of the fringe benefit provided will be reduced under section 65A of the FBTAA.

This ruling applies for the following periods:

FBT years 1 April 202x to 31 March 202x

The scheme commences on:

1 April 202x

Relevant facts and circumstances

The employer operates a business in Australia. The employer is a subsidiary of a parent company which is incorporated in and resident of another country.

To ensure the effective management of current projects and a balanced team in Australia, a key employee was seconded by the overseas parent company to the employer on a four-year Visa.

The employee's usual place of residence is overseas. However, to fulfil his employment duties, the employee is required to live and work in Australia (with his family joining him in Australia). The employee's children, who are under the age of 25 years old, are receiving full-time education in Australian schools, the costs of which will be reimbursed by the employer to the employee.

Documentary evidence of the tuition costs incurred by the employee is supplied by the employee to the employer for a reimbursement of the expenditure incurred before the date by which the employer's fringe benefits tax return for each of the relevant years has to be lodged.

The employer considers that most employers in the industry provide a similar level of financial support for the education of dependents of overseas employees on secondment.

The posting period in Australia for the employee is for more than 28 days and all the tuition costs will only be incurred after the posting period began.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 65A

Fringe Benefits Tax Assessment Act 1986 section 136

Fringe Benefits Tax Assessment Act 1986 section 143B

Reasons for decision

Summary

Section 65A of the Fringe Benefit Tax Assessment Act 1986 (FBTAA) will apply to reduce the taxable value of the fringe benefit provided to the employee where the employer reimburses the school tuition costs incurred by the employee, who has been seconded by the employer's overseas parent to Australia.

Detailed reasoning

Under section 65A of the FBTAA, the taxable value of a fringe benefit provided to an overseas employee in respect of the education of their children will qualify for reduction where all the following five conditions are satisfied:

Condition one

The fringe benefit (being either a car fringe benefit, an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit) must be provided in respect of, or solely for, the full-time education of the employee's child under the age of 25 years before the day the benefit was provided (subsection 65A(a) of the FBTAA).

Condition two

The full-time education must be at an educational institution or by a tutor (subsection 65A(b) of the FBTAA). An educational institution is defined in subsection 136(1) of the FBTAA to include a school, college or university.

Condition three

The whole or part of the full-time education of the child must be undertaken while the employee is an "overseas employee" (subsection 65A(c) of the FBTAA). Under section 143B of the FBTAA, an employee will be treated as an overseas employee where:

•         the employee's usual place of residence is in a particular country (the home country);

•         the employee performs their employment duties at a place outside the home country; and

•         the employee is required to live outside the home country in order to perform those duties at their overseas workplace.

Condition four

The benefit is provided under an:

•         "industrial instrument" (which is defined in subsection 136(1) of the FBTAA to mean a law of the Commonwealth or of a state or territory or an award, order, determination or industrial agreement in force under any such law); or

•         in accordance with "industry custom" - that is, it is customary for employers in the industry in which the employee is employed to provide benefits of the same kind and in similar circumstances (subsection 65A(d) of the FBTAA).

With reference to the industry custom requirement, Taxation Determination TD 94/97 states at paragraph 4 that:

A benefit will be accepted as being customary where it is normal or common for employees of that class or job description in that industry to be provided with the same or similar benefits. It is not necessary that all or even the majority of employees in the industry receive the benefit. Where the provision of the benefit is unique, rare or unusual within an industry it would not be accepted as being customary.

TD 94/97 also has the following example:

Example

Oil Driller Pty Ltd regularly employs expatriate technicians on secondment from the parent company in the United Kingdom. These employees are provided with return travel to their UK home for themselves and their families twice a year during their secondment. It is accepted that it is customary for employees of that type to be provided with such benefits, notwithstanding that industry employees generally do not receive similar benefits.

Condition five

Where the benefit is an expense payment fringe benefit, it is necessary that documentary evidence of the recipients' expenditure is provided by the recipient to the employer before the declaration date (which is defined in subsection 136(1) of the FBTAA as the date by which the employer's fringe benefits tax return for the year has to be lodged (21 May) or such later date as the Commissioner allows) (subsection 65A(e) of the FBTAA).

The taxable value of a fringe benefit that meets all the five conditions in subsections 65A(a) to (e) of the FBTAA will be reduced to the extent that it is attributable to the education of the child during a specified qualifying period under subsection 65A(f) of the FBTAA.

We consider that all the five conditions for a reduction of the taxable value of the fringe benefits to be provided by the employer to the employee of its parent company on secondment in Australia in respect of the education of their children will be satisfied under section 65A for the following reasons:

Condition one

An expense payment fringe benefit will be provided in respect of the full-time education of the employee's children who will be under the age of 25 years before the day the benefit will be provided, (being the reimbursement by the employer of the tuition fees incurred by the employee in respect of the full-time education of their children) (subsection 65A(a) of the FBTAA).

Condition two

The full-time education will be received by the children at Australian schools, which are educational institutions (subsection 65A(b) of the FBTAA).

Condition three

The employee on secondment will be an overseas employee under subsection 65A(c) of the FBTAA as:

•         The employee maintains a home in another country where they usually resides;

•         The employee has been seconded to Australia to perform their employment duties; and

•         As a result, the employee is required to live in Australia to perform those employment duties.

Condition four

We consider the benefit provided by the employer to the employee on secondment in Australia is provided in accordance with "industry custom" - that is, it is customary for employers in the industry in which the employee is employed to provide benefits of the same kind and in similar circumstances (subsection 65A(d) of the FBTAA).

We accept that the benefit provided by the employer to the employee on secondment in Australia is customary as it is normal or common for employees of that class or job description in the industry (being overseas employees on secondment) to be provided with the same or similar benefits. It is not necessary that all or even the majority of employees in the industry receive the benefit. We do not consider that provision of the benefit to employees on secondment is unique, rare or unusual within the industry so that it would not be accepted as being customary (paragraph 4 of TD 94/97). We also consider that the example in TD 94/97 for Oil Driller Pty Ltd is relevant and applicable here.

Condition five

Documentary evidence of the recipient employees' expenditure will be provided by the employees to the employer before the date by which the employer fringe benefits tax return for the relevant FBT year has to be lodged.

As the five conditions are all satisfied, the taxable value of the expense payment fringe benefit to be provided to the employee can be reduced under section 65A of the FBTAA.