Edited version of private advice

Authorisation Number: 1052002328425

Date of advice: 25 July 2022

Ruling

Subject: Fringe benefits tax

Question

Does the provision of insurance cover under the Corporate Group Life Insurance Policy by the employer constitute a 'fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?".

This ruling applies for the following periods:

Fringe benefits tax (FBT) year ended 31 March 20XX

FBT year ended 31 March 20XX

FBT year ended 31 March 20XX

FBT year ended 31 March 20XX

FBT year ended 31 March 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

The Policy

The employer entered into a corporate group life policy (the Policy) with the Insurer in relation to employees of employer.

The Policy provided group life cover for the employees in the event of death, terminal illness and total and permanent disablement (TPD).

The Policy commenced on 1 July 20XX and was renewed annually until 20XX.

Insured Persons, that is employees, had no personal right of claim under the Policy and were not entitled to receive any payments directly from the Insurer. The Policy is merely the employer's mechanism for funding employment termination payments.

The maximum benefit payable under the Policy was:

•         Death Benefit - Unlimited

•         TPD Benefit - $3,000,000

•         Terminal Illness - Unlimited

The employer, as the Policy Owner, had the right to terminate or amend all or part of the Policy at any time.

If a claim is made under the Policy, the procedure for making a claim required the employer, as the Policy Owner, to notify the Insurer of an event entitling the employer to a benefit.

Any benefits payable under the Policy were paid to the Policy Owner, being the employer, unless the Insurer was otherwise instructed in writing by the Policy Owner. That is, under the terms and conditions of the Policy, the employer was beneficially entitled to all payments made under the Policy.

The employer had made a claim once since taking out the Policy. The claim was made after the death of an employee. The employer subsequently paid an amount to the deceased estate of the employee and treated the payment as a Death Benefit Employment Termination Payment.

If any payments were made from the employer to an employee, they were intended to be paid via the employer's payroll system and taxed as normal income or termination payments (if relevant).

Employee Flyer

The employer provided their employees with a flyer containing a simplified summary of the insurance arrangements that the employer had established for its employees in the event of serious injury, illness, or death.

Relevant legislative provisions

Subsection 136(1) of the FBTAA

Subsection 148(4) of the FBTAA

Reasons for decision

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA which states, in part, that:

in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

(i) the employer or an associate of the employer, and

(ii) the arranger or another person; or

(ea) a person other than the employer or an associate of the employer, If the employer or an associate of the employer:

(i) participates in or facilitates the provision or receipt of the benefit; or

(ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;

and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

In respect of the employment of the employee...

Does the provision of insurance cover under the Policy constitute a 'benefit'?

A 'benefit' is defined in subsection 136(1) of the FBTAA to include:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

a.    an arrangement for or in relation to:

b.    (i) the performance of work (including work of a professional nature), whether with or without the provision of property;

c.    (ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

d.    (iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

e.    a contract of insurance; or

f.     ...

The employer entered into the Policy with the Insurer effective from 1 July 2011 to 1 February 2021, providing group life insurance coverage for the employees in the event of their death, permanent disability or terminal illness. The employer y was the legal and beneficiary owner of the Policy.

The Policy constituted a legal 'contract of insurance'. Therefore, insurance cover provided under the Policy satisfies the definition of a 'benefit' in subsection 136(1) of the FBTAA.

Was the benefit provided to an employee (or an associate of an employee)?

The term 'provide' is defined in subsection 136(1) of the FBTAA to mean:

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

An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current employee, a future employee or a former employee.

In this case, the employer made the premium payments for the Policy which provided insurance cover for all of their employees. However, the employees had no legal or beneficial right to the Policy as the employer was the owner and beneficiary of the Policy. Despite being named 'Eligible Person' or the 'Insured' on the Policy, the employees were not entitled to any payments under the Policy. Any right to receive a payment upon an employee's injury or death arose as a result of the employer's internal policies related to the employee's employment rather than from the Policy that the employer entered into with the Insurer. All payment entitlements from the Policy resided with the employer as the legal and beneficial owner of the Policy.

Whilst a benefit received by the employer under the Policy and a subsequent payment made by the employer to an employee may have similar triggers, the payment under the employment agreement was not contingent on the employer receiving a payout from the Insurer, nor was the employer required to pass any payment received under the Policy on to the employee.

It is evident that all decisions in relation to the Policy were at the employer's discretion as the legal and beneficiary owner of the Policy. Other than being named as the 'Insured' or 'Eligible persons' on the Policy, the employees had no right to make any claim under the Policy, nor were they entitled to receive any payment from the Insurer.

On this basis, the Commissioner considers that the benefit (being the insurance cover provided under the Policy) was not provided to the employees or their associates. Rather, the insurance coverage was a benefit that was provided to the employer (who paid the Insurer a premium in exchange for the provision of insurance coverage), as only the employer could make a claim on the Policy and receive the benefit.

Conclusion

For the provision of insurance cover under the Policy to constitute a 'fringe benefit', each of the conditions in the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA must be satisfied. The Commissioner considers that, whilst the insurance cover provided under the Policy constitutes a 'benefit' (as defined in subsection 136(1)), the benefit was not provided to the employees. Therefore, as all of the conditions in the definition of a 'fringe benefit' in subsection 136(1) are not satisfied, the provision by the employer of insurance cover under the Policy does not constitute a fringe benefit.