Edited version of private advice

Authorisation Number: 1051994519399

Date of advice: 6 July 2022

Ruling

Subject: PAYG withholding

Question 1

Is the payment of the allowance subject to Pay-As-You-Go (PAYG) withholding under Schedule 1 sections 12-35 or 12-40 of the Taxation Administration Act 1953 (TAA)?

Answer

Yes.

Question 2

Is the provision of private health insurance a residual fringe benefit for the purposes of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 3

Is the payment by the employee to the employer a recipient's contribution for the purposes of section 136 of the FBTAA?

Answer

Yes.

Question 4

Will section 67 of the FBTAA apply to the proposed arrangement?

Answer

No.

Question 5

Will Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the proposed arrangement?

Answer

No.

This ruling applies for the following periods:

For the income tax year ending 30 June 20XX

For the income tax year ending 30 June 20XX

For the income tax year ending 30 June 20XX

For the income tax year ending 30 June 20XX

For the FBT year ending 31 March 20XX

For the FBT year ending 31 March 20XX

For the FBT year ending 31 March 20XX

For the FBT year ending 31 March 20XX

The scheme commences on:

1 July 20XX

1 April 20XX

Relevant facts and circumstances

1.   The Applicant is a company in Australia and abroad and is listed on the Australian Stock Exchange (ASX).

2.   The Applicant has various subsidiary entities carrying on operations in Australia and abroad.

3.   The Applicant and its subsidiaries are committed to the safety and wellbeing of their employees.

4.   All employees have a duty to take reasonable care of their own physical and mental health

5.            To support employees in maintaining peak physical and mental health, and as part of its duty of care to its employees, the Applicant and its subsidiary entities provide financial assistance to employees to obtain premium levels of private health insurance, that enable employees to take appropriate care of themselves.

6.            The Applicants proposed new remuneration structure is intended to significantly increase the number of eligible employees with access to premium health insurance and provides for a consistent and equitable approach across all employees working for entities within the group.

Insurance contract

7.            There will be no contractual arrangement for the provision of health insurance between the health insurer and a participating employee. The Applicant or one of its subsidiaries will negotiate and enter into the contract for the provision of group health insurance to its eligible employees, being those in receipt of the health insurance payment/allowance.

8.            Insurance premiums under the insurance policy will be invoiced to, and paid by, The Applicant or one of its subsidiaries, unless an employee is not entitled to the full private health insurance rebate and/or Lifetime Health Cover (LHC) loading applies. In these instances, the employee is effectively personally responsible for the payment of any additional insurance premiums that are payable to the health insurer which are not already covered by the Applicant or one of its subsidiaries (the liability can be met by either paying the insurer directly or by paying it through the tax system).

Health insurance payment/allowance

9.            The Applicant or one of its subsidiaries will pay all eligible employees a health insurance payment/allowance via payroll.

10.          Only employees participating in the proposed arrangement will receive the private health insurance payment/allowance from the Applicant or one of its subsidiaries, that is, employees who do not participate in the proposed arrangement, do not want private health insurance cover, or want to obtain their own private health insurance cover from a different health insurer will not receive the private health insurance payment/allowance from the Applicant or from one of its subsidiaries.

11.          For administrative ease, the current preference is to pay the health insurance payment/allowance to employees annually (in March), giving time to reconcile the recipient contribution amounts for the FBT year to ensure there is no over/under payments. However, as the payroll arrangements are yet to be fixed, there is a possibility the private health insurance payment/allowance could be made quarterly based on the exact individual amounts from the insurer invoice after it becomes payable.

10. The private health insurance payment/allowance amount the Applicant or one of its subsidiaries will make to employees will be based on the health insurance premium amount the Applicant or one of its subsidiaries will be required to pay to the health insurer, but grossed-up to account for any additional tax the employee is expected to have to pay on the private health insurance payment/allowance on the presumption the amount being paid is taxable in the hands of employees receiving such payments.

Recipient's contribution

11.         Employees in receipt of the health insurance payment/allowance will be required to make an after-tax contribution toward the cost of the group private health insurance policy that the Applicant or one of its subsidiaries will purchase and maintain and that will provide a premium level of cover to the employee (this payment by the employee to the employer is known as a recipient's contribution).

12.         The amount employees will be required to pay to the Applicant or one of its subsidiaries as a recipient's contribution will equal the total premiums paid by the Applicant or one of its subsidiaries between 1 April and 31 March (the Fringe Benefits Tax (FBT) year) that are attributable to that employee, as itemised by the health insurer.

13.         For administrative ease, the recipient's contribution will be due and payable to the Applicant or one of its subsidiaries annually before the end of the FBT year (or before for terminated employees) and prior to the FBT return being lodged for the year in which the benefit is provided.

14.         Illustrative example of how the proposed arrangement will work

Arrangement between Applicant or one of its subsidiaries and the health insurer

The private health insurance rebate is an amount the government contributes towards the cost of private health insurance premiums.

The rebate is income tested, and can be claimed either:

•         through the private health insurance provider - the private health insurance provider will apply the rebate to reduce private health insurance premiums; or

•         when an individual lodges their tax return - as a refundable tax offset.

To limit the cost of the benefit, and to ensure that employees cannot claim tax offsets on premiums paid by the Applicant or one of its subsidiaries, the Applicant or one of its subsidiaries has agreed with the insurer to fund the following:

•         Residents: Policy funded net of a full government rebate (i.e., base tier income threshold (all aged under 65 years)) and excluding any Lifetime Health Cover (LHC) loading; and

•         Overseas visitors (temporary visa holders): Fully funded due to not being eligible for the government PHI rebate.

For the purposes of this Ruling, the level of funding met by the Applicant or one of its subsidiaries (for Residents and Overseas visitors) under this arrangement will be referred to as the Net Premium.

Arrangement between the Applicant or one of its subsidiaries, the health insurer, and the employee

If an employee is not entitled to the full private health insurance rebate and/or LHC loading applies, the employee is effectively personally responsible for any insurance premiums not covered by the Applicant or one of its subsidiaries.

This liability will be met either:

•         by the employee nominating to the health insurer a tier other than the Base Tier, and making payments to the health insurer directly to cover the difference between the Base Tier funded by the Applicant or one of its subsidiaries and the nominated tier and/or any LCH loading that applies; or

•         If the employee does not inform the health insurer that a tier other than the Base Tier applies, the ATO recovers the shortfall in premiums as a tax liability via the tax return Notice of Assessment as an 'Excess private health insurance refund or reduction'.

The following table illustrates how the application of the rebate works in practice, where an employee is eligible only for a Tier 1 rebate (all figures are fictional):

Arrangement between the Applicant or one of its subsidiaries and the employee

To determine the amount of the private health insurance payment/allowance that will be paid to an employee, the Applicant or one of its subsidiaries' cost of private health insurance premiums attributable to that employee (the Net Premium) will be grossed up for taxes (on the presumption that the private health insurance payment/allowance is taxable), taking into account the employee's marginal tax rate and Medicare levy.

The Net Premiums attributed to each employee are itemised by the health insurer as part of its invoicing arrangements with the Applicant or one of its subsidiaries.

The private health insurance payment/allowance will be paid via payroll and itemised on the employee's pay slip.

The employee will be required to make an after-tax contribution (recipient's contribution) to the Applicant or one of its subsidiaries to be eligible to be covered by the Applicant or one of its subsidiaries' group private health insurance policy.

The employee's contribution (recipient's contribution) will equal the cost of the Net Premium attributable to that employee.

15.         Under the proposed arrangement, employees will be no worse off than they were under all historical private health insurance arrangements.

For example, where the Net Premium attributable to an employee is $x, the amount of the private health insurance payment to be paid is to be determined as follows:

16.         The ATO has separately issued administratively binding advice (ABA) in relation to this matter and has determined that payment of the private health insurance allowance falls within the meaning of Ordinary Time Earnings (OTE) for Superannuation Guarantee (SG) purposes and therefore the Applicant or one of its subsidiaries will be required to make additional super contributions on the private health insurance allowance amount that is paid to employees.

Relevant legislative provisions

Schedule 1 sections 12-35 of the Taxation Administration Act 1953

Schedule 1 sections 12-40 of the Taxation Administration Act 1953

Section 45 of the Fringe Benefits Tax Assessment Act 1986

section 47 of the Fringe Benefits Tax Assessment Act 1986

Section 67 of the Fringe Benefits Tax Assessment Act 1986

Section 136 of the Fringe Benefits Tax Assessment Act 1986

Part IVA of the Income Tax Assessment Act 1936

Reasons for decision

Question 1

Is the payment of the allowance subject to Pay-As-You-Go (PAYG) withholding under Schedule 1 sections 12-35 or 12-40 of the TAA?

Summary

Yes. The payment is considered an allowance on which PAYG withholding is applied.

Detailed reasoning

Section 12-35 of the TAA state that:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

Section 12-40 of the TAA states that:

A company must withhold an amount from a payment of remuneration it makes to an individual:

(b)   If the company is incorporated - as a director of the company, or as a person who performs the duties of a director of the company; or

(c)   If the company is not incorporated - as a member of the committee of management of the company, or as a person who performs the duties of such a member

An amount paid to an employee to satisfy a cost paid will either be considered an allowance or a reimbursement.

PAYG withholding will only be required where the amounts paid are an allowance.

The term 'allowance is not defined in the ITAA 1997 or the ITAA 1936, Taxation Ruling 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement states at paragraph 6:

The word "allowance" is defined in the Macquarie dictionary as "a definite sum of money allotted or granted to meet expenses or requirements". An allowance will usually consist of the payment of a definite predetermined amount to cover an estimated expense and will be paid regardless of whether the recipient incurs the expected expense.

Paragraph 10 of TR 92/15 defines reimbursement to mean:

The ordinary meaning of the word "reimburse" implies that the recipient is to be compensated exactly for an expense already incurred although not necessarily disbursed. The definition of "reimburse" under subsection 136(1) of the FBTAA is wide enough to include payments made before expenses are incurred. However, whether payment is made before or after expenses are incurred by the recipient, it qualifies as a reimbursement when the provider considers the expense to be its own and the recipient incurs the expense on behalf of the provider. As a result, a requirement that the recipient vouch or substantiate expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A further indication of a reimbursement is where the recipient is required to refund unexpended amounts to the provider.

Under the proposed arrangement, the Applicant or one of its subsidiaries will pay eligible employees a private health insurance payment/allowance.

In order to become eligible to receive the private health insurance payment/allowance from the Applicant the employees must agree to:

•         take part in and abide by the conditions outlined in the private health insurance arrangement, including being exclusively covered by a particular health insurer,

•         pay any additional private health insurance premiums that are payable directly to the insurer,

•         make a recipient's contribution to the Applicant or one of its subsidiaries equivalent to the cost of the private health insurance premiums that Applicant or one of its subsidiaries pays to the health insurer.

Under the proposed arrangement the following will occur:

•         The private health insurance contract will be between the Applicant or one of its subsidiaries and the insurer,

•         All invoices under the contract will be issued to the Applicant or one of its subsidiaries,

•         The employee will not incur any expenses from the insurer,

•         The employee is not required to substantiate actual expenditure to receive the allowance

Is the private health insurance payment/allowance considered to be an allowance for tax purposes?

As discussed above TR 92/15 explains the difference between an allowance and a reimbursement for the purposes of determining whether a payment is a fringe benefit under the FBTAA or whether it is assessable income under the ITAA 1936. The Applicant or one of its subsidiaries will be treating the private health insurance payment as an allowance, as it meets the definition, and will subsequently be grossing-up the amount they plan to pay employees (i.e., the recipient's contribution amount/private health insurance premium amount) to account for any additional tax the employee is expected to have to pay on that payment.

The decision in the proposed arrangement to gross-up the payment amount to account for any additional tax the employee is expected to have to pay on that payment effectively results in the private health insurance payment amount being different from the amount employees are expected to pay back to the Applicant or one of its subsidiaries as a recipient's contribution.

The proposed arrangement would be considered an allowance on which PAYG must be withheld for the purposes of the TAA.

Question 2

Is the provision of private health insurance a residual fringe benefit for the purposes of subsection 136(1) of the FBTAA?

Summary

Yes. The provision of private health insurance coverage is a residual fringe benefit under subsection 136(1) of the FBTAA as it meets the definition.

Detailed reasoning

The term benefit is very broadly defined in subsection 136 (1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). It includes any right, privilege, services, or facility.

The term fringe benefit is defined in subsection 136 (1) of the FBTAA to include a benefit provided to an employee by the employer, or a third party under an arrangement with the employer, of the employee in respect of the employment of the employee. Certain benefits are specifically excluded from the definition of fringe benefit.

The expression residual fringe benefit is defined in subsection 136(1) of the FBTAA to mean a fringe benefit that is a residual benefit.

By virtue of section 45 of the FBTAA, residual fringe benefits are fringe benefits that do not meet the requirements of one of the 12 specific types of fringe benefits outlined in Subdivision A of Divisions 2 to 11 of the FBTAA. Section 47 of the FBTAA outlines residual benefits that are exempt under the Act.

The provision of private health insurance to employees does not fall under the provisions of Subdivision A of Division 2 to 11 and so is a residual benefit. The benefit is provided by the employer or a third party under an arrangement with the employer in respect of the employment of the employee. It is not an exempt benefit under section 47 or any other provision and is not otherwise excluded from the definition of fringe benefit; therefore, it is a residual fringe benefit for the purposes of subsection 136(1) of the FBTAA.

Question 3

Is the payment by the employee to the employer a recipient's contribution for the purposes of section 136 of the FBTAA?

Summary

Yes. Payment by the employee to the employer is a recipient's contribution for the purposes of section 136 of the FBTAA.

Detailed reasoning

In most cases, an organisation can reduce their FBT liability by obtaining a payment from an employee towards the cost of providing a fringe benefit. The payment is commonly called an employee contribution.

Section 136 of the FBTAA defines a recipient contribution in relation to a residual fringe benefit as the amount of any consideration paid to the provider or to the employer by the recipient, reduced by any reimbursement paid to the recipient in respect of that consideration.

Generally, the payment made by an employee is a cash payment made to the organisation or the person who provides the benefit. Important points to note about employee contributions are:

• Employee contributions must be paid out of the employees after tax income;
• An employee contribution towards a particular fringe benefit cannot be used to reduce the taxable value of another fringe benefit;
• In certain circumstances, journal entries in the organisation's accounts can be an employee contribution;
• An employee contribution paid directly to the organisation (including those received by journal entry) is included in the organisation's assessable income.

Under the proposed arrangement, the participating employees will pay to the employer an amount to cover the private health insurance premium the employer pays to the insurer. As the provision of the private health insurance by the employer is a residual benefit, any payment by the employee to the employer in respect of the private health insurance is a recipient contribution.

Question 4

Will Section 67 of the FBTAA apply to the proposed arrangement?

Summary

No. Section 67 of the FBTAA does not apply to the proposed arrangement.

Detailed reasoning

Section 67 of the FBTAA outlines that if an employer has obtained or, but for this section, would obtain, a tax benefit in connection with an arrangement under which a benefit is or was provided to a person and the arrangement was for the sole or dominant purpose of enabling the employer to obtain a tax benefit in connection with that benefit, the Commissioner may determine that aggregate fringe benefits of the employer be increased.

Subsection 67(3) of the FBTAA provides that an employer does not obtain a tax benefit under this section if the aggregated fringe benefits are reduced by consideration provided by a person in respect of the benefit.

In this case, the amount of aggregate fringe benefits is reduced by the recipient's contribution by participating employees. There is no arrangement to reduce the amount of fringe benefits attributable to the Applicant or its subsidiaries. Therefore, section 67 of the FBTAA does not apply to this arrangement.

Question 5

Will Part IVA of the ITAA 1936 apply to the proposed arrangement?

Summary

No. Part IVA of the ITAA 1936 does not apply to the proposed arrangement as none of the factors considered indicated a Part IVA arrangement.

Detailed reasoning

Part IVA of the ITAA 1936 is a general anti-avoidance provision that can apply in certain circumstances if a tax benefit is obtained in connection with a scheme, and it can be concluded that the scheme, or any part of it, was entered into for the dominant purpose of enabling a tax benefit to be obtained. Part IVA is a provision of last resort.

The application of Part IVA depends on the facts of the particular case.

For Part IVA to apply, the following questions must be addressed:

1. Is there a scheme as defined by section 177A of the ITAA 1936?

2. Is there a tax benefit which was obtained in connection with the scheme as defined by section 177C of the ITAA 1936?

3. Is the scheme a scheme to which Part IVA applies, as determined by section 177D of the ITAA 1936, where it would be concluded that your main or dominant purpose of entering into the scheme was to obtain the tax benefit?

Scheme

For Part IVA to apply, the identified scheme must fall within the following wide definition of 'scheme'.

A scheme is defined in subsection 177A (1) to mean:

• An agreement, arrangement, understanding, promise or undertaking whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and
• Any scheme, plan, proposal, action, course of action or course of conduct

In the present case, there is a 'scheme' as defined in section 177A of the ITAA 1936, being the following arrangement. Employees will be paid an allowance from which after tax contributions will be made by the employee to the employer to reduce the taxable value of the residual fringe benefit provided. Therefore, the broad definition of the term scheme is satisfied.

Tax benefit

For Part IVA to apply, a taxpayer must have obtained, or would, but for section 177F of the ITAA 1936 obtain, a tax benefit in connection with a scheme. Subsection 177C(1) of the ITAA1936 defines four kinds of tax benefits, relating broadly to:

•         An amount not being included in the assessable income of the taxpayer of a year of income

•         A deduction being allowable to the taxpayer in relation to a year of income

•         A capital loss being incurred by the taxpayer during a year of income, and

•         A foreign tax credit being allowable to the taxpayer.

The identification of a tax benefit necessarily requires consideration of the income tax consequences, but for the operation of Part IVA, of an 'alternative hypothesis' or a 'counterfactual. This is what would have happened or might reasonably be expected to have happened if the particular scheme had not been entered into or carried out. This alternative arrangement also forms the background against which the objective ascertainment of the dominant purpose of a person occurs in accordance with section 177D of the ITAA.

Specifically, a tax benefit must be obtained by the relevant taxpayer in connection with the scheme and having regard to the factors listed in paragraph 177D(b), of the ITAA 1936 it can be concluded that the taxpayer entered into the scheme to obtain a tax benefit. Paragraph 177D(c) of the ITAA 1936 sets out the circumstances in which a tax benefit is obtained by a taxpayer in connection with a scheme.

Tax consequences of the arrangement and the alternative (all figures used are fictional)

Assuming the average salary is $x.

The marginal tax rate for $x is x cents, plus 2% Medicare Levy.

Using the net premium insurance cost of $x as shown in the example provided above results in a gross private health insurance allowance payable to an employee of $x.

The tax consequences between the existing arrangement (no private health insurance allowance) and the proposed arrangement (a private health insurance allowance is paid to eligible employees) is as follows:

Employee

Company/Employer

Impact the proposed arrangement will have on the employer

As shown in the example outlined above, the overall result is that a greater amount of tax will be paid by the Applicant or one of its subsidiaries under the proposed arrangement in comparison to the existing arrangement. This is because the recipient contributions received by the Applicant or one of its subsidiaries will be included in their assessable income under the proposed arrangement which would not have been included otherwise.

Therefore, a tax benefit will not be obtained by the Applicant or one of its subsidiaries in relation to the proposed arrangement. For completeness, other requirements of Part IVA have been considered.

Objective purpose test

Section 177D of the ITAA 1936 provides that Part IVA applies to a scheme in connection with which you have obtained a tax benefit if, after having regard to eight specified factors, it would be concluded that a person who entered into or carried out the scheme, or any part of it, did so for the purpose of enabling you to obtain the tax benefit.

Section 177D of the ITAA 1936 refers to 'the purpose' of the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme. The person need not be you.

The objective test in paragraph 177D(b) of the ITAA 1936 is the core of Part IVA and has been described by the High Court as the 'pivot' or 'fulcrum' on which Part IVA turns. It is frequently referred to as the 'statutory predication test'.

The consideration of purpose or dominant purpose under paragraph 177D(b) of the ITAA 1936 requires an objective conclusion to be drawn. The conclusion required by section 177D of the ITAA 1936 is not about a person's actual, i.e., subjective, dominant purpose or motive. It is possible for Part IVA to apply notwithstanding that the dominant objective purpose of obtaining the tax benefit was consistent with the pursuit of commercial gain.

A conclusion about a relevant person's purpose for section 177D of the ITAA 1936 is the conclusion of a reasonable person based on all the facts and evidence that are relevant to considering the eight factors for the scheme. However, not all of the factors will be equally relevant in every case. Provided the eight factors are each taken into account, it is possible to arrive at the conclusion as to purpose by making a global assessment of purpose.

Consideration of the eight factors involves comparison of the scheme with the alternative arrangements (counterfactuals). In other words, the conclusion about the dominant purpose of a person entering into or carrying out the scheme, or any part of it, necessarily requires consideration of what may otherwise have occurred.

These eight factors are as follows:

(i) the manner in which the scheme was entered into or carried out

There is no artificiality in the arrangement. The transactions that are proposed are legitimate in their workings and no tax advantage is obvious. This points against the application of Part IVA.

The Applicant will hold a corporate private health insurance policy that provides private health insurance coverage for nominated employees. The insurance premium for this policy is paid by the Applicant in the first instance.

The nominated employees will be paid an annual allowance which will be used to reimburse the Applicant for the cost of the private health insurance.

The Applicant will withhold PAYG withholding from the allowance and remit same to the ATO.

The allowance will fall within the meaning of Ordinary Time Earnings (OTE) for superannuation guarantee (SG) purposes (this issue is subject to a separate administrative binding advice request) and as such the Applicant will be required to make additional superannuation contributions on the allowance that is paid to employees.

The reimbursement from employees to the Applicant for the cost of the private health insurance cover will be made by way of an after-tax payroll deduction.

The reimbursement by the employees will be treated as an employee contribution for FBT purposes and will be included as part of the Applicants taxable income.

(ii) the form and substance of the scheme

The form is that all eligible employees will receive an allowance from their employer for their private health insurance premiums. The Applicant will pay both for the private health insurance premiums on behalf of the employee and the private health insurance allowance to employees. Employees in turn will reimburse the Applicant this amount out of their salary. There is no contrivance or artificiality present, the arrangement does exactly what it appears to do, and nothing else. Hence, the substance is consistent with the form. This would point against the application of Part IVA.

(iii) the time at which the scheme was entered into and the length of the period during which the scheme was carried out

The arrangement will be ongoing on a yearly basis. The private health insurance premiums will either be paid on a quarterly or yearly basis. The employee will make contributions back to the employer in a lump sum every March in line with the end of the FBT year. The timing of the arrangement is within normal requirements of this type of benefit and therefore this point would not indicate the application of Part IVA.

The arrangement will form part of the remuneration package for employees.

(iv) the result in relation to the operation of this Act that, but for this Part, would be achieved by this scheme

The tax result is that the Applicant will no longer have a FBT liability with regards to the private health insurance residual benefit it provides to employees. In addition, the Applicant will incur a taxation liability on the income received from the employees and will also be required to pay superannuation contributions on the private health insurance allowance amounts they pay to employees. This result does not point to the application of Part IVA.

The employees covered by this arrangement will receive a taxable allowance which is subject to income tax/PAYG withholding. Additional superannuation contributions will also be received on the private health insurance allowance amounts. The contribution they make to their employer is not tax deductible because private health insurance is considered a private expense which is not related to producing assessable income.

The result for the Applicant is the following:

•         The Applicant will pay for the private health insurance premiums for employees directly to the insurer;

•         The Applicant will also pay a tax-deductible allowance to its employees that decide to participate in the arrangement;

•         A PAYG withholding amount is deducted from the employees' allowance and paid to the ATO; this amount is then credited to the employee upon lodgment of their personal income tax return;

•         Additional deductible superannuation contributions are paid for employees;

•         The FBT normally payable on the provision of private health insurance benefits is reduced to nil as a result of employees making contributions towards their benefit;

•         The reimbursements received from employees are included as taxable income of the Applicant.

(v) any change in the financial position of the relevant taxpayer that has resulted, or will result, or may reasonably be expected to result, from the scheme

As outlined above the Applicant will incur a decrease in their FBT liability but an increase in their income tax liability. As these financial changes are consistent with what would be expected from such an arrangement, this factor is therefore neutral as to the application of Part IVA.

The net effect for the Applicant is to reduce the deductible expenses by an amount of the cost of the private health insurance. Hence, the Applicant will pay more income tax as a result of this arrangement.

(vi) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result, or may reasonably be expected to result, from the scheme

There are no additional persons connected to the taxpayer who will be affected by the arrangement. This factor will therefore have no effect on the application of Part IVA.

The employees' overall financial position is improved by virtue of the additional superannuation contributions that are paid in respect of the private health insurance allowance (the financial benefit of receiving the private health insurance allowance amount, for which they are taxed on, is offset by the requirement to make recipient contributions to their employer for the exact same amount).

(vii) any other consequence for the relevant taxpayer or for any person referred to in subparagraph (vi), of the scheme having been entered into or carried out

There is no indication of any other consequence as a result of entering into the proposed scheme.

The employees will no longer have an amount relating to the private health insurance included in any reportable fringe benefit amount on their annual payment summary. Instead, they will have a taxable allowance included.

(viii) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in subparagraph (vi)

There are no additional persons connected to the taxpayer who will be affected by this arrangement.

This is purely an employer/employee relationship only.

Conclusion

Based on all the relevant facts and evidence the Commissioner is satisfied that Part IVA will not apply to the proposed arrangement. A tax benefit will not be obtained by the Applicant or one of its subsidiaries and additionally, all the factors above either point against the application of Part IVA or are neutral.