Edited version of private advice

Authorisation Number: 1051971848968

Date of advice: 28 April 2022

Ruling

Subject: FBT - exemption

Question

Will transport provided on buses operated by relevant contracted operators for employees using the Bus Travel Benefit card for travel between their place of residence and their place of employment be eligible for exemption of FBT under subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following period:

1 April 20XX to 31 March 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

The employer is supplying benefits (the bus travel benefit) to its current employees utilising smart card technology for travel on buses between the employee's place of residence and their place of employment. The benefit is only available to current employees through a salary packaging agreement. The bus travel benefit scheme is administered by salary packaging providers contracted by the employer

The smartcard is publicly available. The card is a pre-paid electronic fare collection system which enables users to access and transfer between all forms of transport. The smartcard contains a micro-processor and memory, on which data can be stored, including a travel log and user details. Each mode of transport provides a point at which cardholders may "touch on" or "touch off" the card. The fare for each trip is deducted each time the cardholder "touches off" at the end of their journey. If the cardholder does not "touch off" within a reasonable period, then a fixed amount is deducted from the balance.

The smart card can be purchased from a number of retailers, where credit can be added. Cardholders may also add credit at certain ticket machines, rail offices and online. The card may be registered to a specific user using a unique identification number and credit may be set to top up automatically.

Administration of the bus travel benefit

Employees must sign up for a salary sacrifice agreement with one of the employers contracted salary packaging providers (Provider). To access the bus travel benefit, employees are provided with a special type of card, the Bus Travel Benefit Card (the Bus Card) which is linked to the employer.

The Providers assign the employer's card to their employees with a uniquely assigned number and load it with their employee's pre-tax salary. Once funds are available on the card, it is on loan from the employer to the employee to enable the employee to travel by bus. Each employee is issued with a single active Bus Card. The Provider must retain and manage separate employee records linking the employee and the employer. These Bus cards are not available from regular retail outlets.

The employee may use the card only for travel between their place of residence and their place of employment as defined in the FBTAA. The Bus Benefit Card may not be extended for use on travel that is private in nature and does not meet the requirements of the FBTAA.

The Bus Card may only be used for transport by bus. The terms and conditions for the use of the Bus Benefit Card do not extend to other modes of transport, such as trains, ferries and trams even though the cards are compatible with their ticketing systems. Employees who require the use of a bus and another mode of transport to travel between their place of employment and their place of residence are required to use the Bus Card for their bus travel and their separate personal card for any other mode of transport used in their journey.

Like the regular cards, users of the Bus Card are required to "touch on" and "touch off". The fares associated with the Bus Card are the same as the regular card and include off peak and other discounts where applicable. Fixed fares also apply for not touching on or off correctly.

When the balance of the Bus Card falls below a certain point, the card is topped up automatically from the available funds in the employee's benefit account. If there are insufficient funds, the card does not function until additional funds are added by the provider.

While it is possible to top up the Bus Card manually at fare machines and smartcard retail locations using post-tax funds, these funds merge with pre-taxed funds and cannot be refunded as post-tax dollars at a later time.

Employees are able to monitor their travel, top-ups and funds available in their bus travel benefit account via the smartcard website. Refunds are only available upon exiting the bus Travel benefit scheme or at the end of their employment. Only Providers can cancel and refund any remaining funds on the employee's bus card and in their benefit account. Any unused credit is returned to either the employee's salary packaging account to use for other benefits, or to the employee via payroll as gross salary less PAYG withholding.

How the Bus Travel Benefit is Monitored

A number of safeguards have been put in place by the Providers to ensure that the Bus Card meets the conditions required for the FBT bus travel benefit exemption in the FBTAA.

The employee must sign a declaration prior to the commencement of the use of the bus benefit card, annually thereafter and at other times as reasonably requested. The declaration states, among other things, that the card will be used only for travel, comprising bus transport between their place of residence and their place of employment, as defined in the FBTAA.

Providers receive scheduled regular reports including but not limited to the following:

•         Funds loaded into an employee's benefit account

•         Funds loaded onto the Bus Card

•         Transaction reports of trips taken on the smartcard network

•         Exception reporting for non-bus travel

•         Cards which have been blocked due to insufficient funds, or which have been lost or stolen.

The Providers are responsible for monitoring employee card usage and non-compliance and contacting employers in the event of suspected non-compliance. The Provider recovers the cost of any non-compliant travel from the employee in after-tax salary as one option. Where that is not possible, FBT is charged and either recovered from the employee from pre-tax salary or offset using the FBT exemption cap (if applicable). If an employee uses the Bus Card for three non-compliant trips, the employee account may be suspended or closed, and the employee may become ineligible to take further part in the bus travel benefit scheme.

If there is evidence of misuse of the Bus Card, the card is cancelled at the request of the Provider, following instructions from the employer.

Providers undertake periodic audits to ensure that employees are using the benefit only for bus travel between their place of residence and place of employment.

When an employee's employment has ended, on notification, Providers deactivate the Smartcard and ensure that the cost of any travel undertaken after the employee's termination is recovered or FBT is applied. On deactivation, the employee's account is reconciled, and any unused credit is returned to the employee via payroll as gross salary less PAYG withholding

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Subsection 47(6) of the FBTAA allows an exemption for the private use of certain motor vehicles where certain conditions are met. Subsection 47(6) of the FBTAA states:

Where:

(a)      a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee;

(aa) the motor vehicle is not:

(i) a vehicle used for taxi travel (other than a limousine) let on hire to the provider; or

(ii) a car, not being:

(A) a panel van or utility truck; or

(B) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

(b) there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than:

(i) work-related travel of the employee; and

(ii) other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular

The benefit is an exempt benefit in relation to the year of tax.

Therefore, the provision of travel to employees will be an exempt benefit where:

1. The benefit is a residual benefit.

2. The benefit consists of the provision or use of a motor vehicle

3. The motor vehicle is not one of the above listed exclusions

4. The benefit is provided to a current employee

5. The only private use of the motor vehicle is:

a. Work-related travel of the employee; and

b. Other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular;

Under Subsection 136(1) of the FBTAA, work-related travel in relation to an employee is defined as;

(a) Travel by the employee between:

(i) The place of residence of the employee; and

(ii) The place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or

(b) Travel by the employee that is incidental to travel in the course of performing the duties of his or her employment.

1. The benefit is a residual benefit

Subsection 136(1) of the FBTAA defines a residual benefit to mean a benefit that is a residual benefit by virtue of section 45.

Section 45 of the FBTAA states that a benefit is a residual benefit for the purposes of the FBTAA if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). In basic terms, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA.

Division 3 to 10 are not relevant to the arrangement subject to this ruling. Division 2 and Division 11 may be relevant and are discussed below.

Division 2 of the FBTAA applies to car fringe benefits. The definition of a car in subsection 136(1) refers to section 995-1 of the ITAA 1997. Under section 995-1 of the ITAA 1997, a car is defined as a 'motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers'. Therefore, a bus does not fall within the definition of 'car' and is therefore not covered by Division 2 of the FBTAA.

Division 11 applies to property fringe benefits. Section 40 of the FBTAA states that:

Where, at a particular time, a person (in this section referred to as the provider) provides property to another person (in this section referred to as the recipient), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

The definition of 'provide' in subsection 136(1) of the FBTAA is:

(a) in relation to a benefit - includes allow, confer, give, grant or perform; and

(b) in relation to property - means dispose of (whether by sale, gift, declaration of trust or otherwise);

(i) if the property is a beneficial interest in property but does not include legal ownership - the beneficial interest; or

(ii) in any other case - the legal owner of the property.

Therefore, the benefit provided by the employer does not fall within any of the provisions of Subdivision A of Division 2 to 11 of the FBTAA and the provision of the bus transport is therefore a residual benefit under section 45 of the FBTAA.

2. The benefit consists of the provision or use of a motor vehicle

Motor vehicles as defined under subsection 136(1) of the FBTAA uses the definition of that term in subsection 995-1(1) of the ITAA 1997 being, namely, any motor-powered road vehicle (including a 4-wheel drive vehicle). Therefore, a bus is a motor vehicle, and the employees use of the bus satisfies one of the conditions in paragraph 47(6)(a) of the FBTAA. This is in accordance with the ATO view provided in ATO Interpretative Decision ATO ID 2001/313 Fringe Benefits Tax: exempt residual benefit which concluded that the use of a bus benefit included "the use of a motor vehicle".

3. The motor vehicle is not one of the listed exclusions

Paragraph 47(6)(aa) of the FBTAA requires that:

the motor vehicle is not:

(i) a taxi let on hire to the provider; or

(ii) a car, not being;

(A) a panel van or utility truck; or

(B) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers).

A bus is not a taxi let on hire to the Providers and a bus does not fit into the definition of a car. It is a vehicle designed for the principal purpose of carrying passengers. Therefore, it is not in the excluded list.

4. The benefit is provided to current employees

Paragraph 47(6)(a) of the FBTAA contextualises the residual benefit as being provided "in respect of the employment of a current employee". Under the declaration signed by the employee, the Bus card must be returned to the employer when their employment ends and the card cancelled.

The only relevant individuals who can obtain access to the bus transportation are those under salary sacrifice arrangement between themselves and the Providers, acting on behalf of the employer.

Each of the individuals is a current employee of the employer.

Therefore, the relevant bus transportation is being used in respect of the employment of a current employee.

Accordingly, this requirement is met.

5. The only private use of the motor vehicle is:

o work related travel of the employee and

o other private use by the employee or an associate of the employee is minor, infrequent and irregular.

Paragraph 47(6)(b) of the FBTAA provides that the exemption will only apply if:

there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than:

(i) work-related travel of the employee; and

(ii) other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular;

Subsection 136(1) of the FBTAA defines 'private use' as:

Private use, in relation to a motor vehicle, in relation to an employee or an associate of an employee, means any use of the motor vehicle by the employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee.

Subsection 136(1) of the FBTAA defines 'work-related travel' to mean:

(a) travel by the employee between:

(i) the place of residence of the employee; and

(ii) the place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or

(b) travel by the employee that is incidental to travel in the course of performing the duties of his or her employment.

Each employee will be required to complete and sign the 'No Private Use Declaration' certifying the user and travel limits of the provided Bus card. The only private use permitted under the declaration is between the employee's places of residence and employment. This satisfies the definition of work-related travel provided in subsection 136(1) of the FBTAA. Therefore, subparagraph 47(6)(b)(i) is satisfied.

Subparagraph 47(6)(b)(ii) of the FBTAA requires that other private use of the motor vehicle by the employee or an associate of the employee be minor, infrequent or irregular. Under the proposed arrangement, other private use of the motor vehicle that is not work-related, or use by anyone other than the employee, is expressly prohibited, whether infrequent, minor or irregular.

During the FBT year and at the time the employee is provided with the residual benefit, there is no private use of the Bus card other than for work-related travel. As such, this satisfies subparagraph 47(6)(b)(ii) of the FBTAA.

Conclusion

As all the conditions listed under subsection 47(6) of the FBTAA are satisfied, the residual benefit which consists of the use of the smartcard for travel on the bus between their place of residence and their place of employment, satisfies subsection 47(6) of the FBTAA and is therefore an exempt benefit.