Edited version of private advice

Authorisation Number: 1052201465589

Date of advice: 11 December 2023

Ruling

Subject: Fringe benefit tax

Question 1

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

Answer

No.

This ruling applies for the following periods:

Year ending 31 March 2020

Year ending 31 March 2021

Year ending 31 March 2022

Year ending 31 March 2023

The scheme commenced on:

1 April 2019

Relevant facts and circumstances

Company A offers services that are built for Information Technology (IT) environments. All employees aged 15-64 of Company A are covered under the Policy provided by Company A.

Company A entered the Policy with Insurance Company B, effective DD February 20YY in relation to employees of Company A.

The Policy provides group life cover for Company A employees in the event of death, terminal illness, and total and permanent disablement (TPD) as per the Insurance Company B, group life insurance product disclosure statement. The following features apply:

•         Company A is the Policy Owner.

•         In accordance with the Policy, all benefits to be paid are paid to the Policy Owner.

•         The policy commenced on DD February 20YY and has been renewed annually ever since.

•         Insured Persons, that is employees, have no personal right of claim under the Policy and are not

entitled to receive any payments directly from Insurance Company B. The Policy is a mechanism which allows Company A to fund employment termination payments. Additionally, Company A employees have no right to claim or beneficial rights under their contract of employment.

•         Company A has the right to terminate, suspend, discontinue, or amend all or part of the Policy at any time.

•         When a claim is made under the Policy, the procedure for making a claim requires the Policy Owner,

Company A, to notify Insurance Company B when they become aware of a claim or potential claim for the Policy Owner to a Benefit.

•         Any benefits payable under the policy are paid to the policy owner being Company A. That is, Company A is beneficially entitled to any and all payments made under the Policy.

•         Company A has not made a claim under the Policy since it has been taken out.

•         If Company A were to make a claim, any subsequent payment to an employee would be paid via Company A's payroll system and taxed as normal income or as a termination payment (if relevant).

•         Company A has no requirement to pass on any payment(s) received under the policy to the employee.

•         The Policy covers all employees (aged 15 to 64) for things like death, terminal illness, and total and permanent disablement (TPD)

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

These reasons for decision accompany the Notice of private ruling for Company A.

This is to explain how we reached our decision. This is not part of the private ruling.

Question 1

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

Summary

Fringe benefits tax does not apply to the provision of insurance cover under the Life Insurance Policy (the Policy) by Company A, as the benefit (insurance cover) is provided to the employer and the employee(s) have no beneficial rights in relation to the benefit or right to claim.

Detailed reasoning

The definition of a fringe benefit within subsection 136(1) of the FBTAA 1986:

fringe benefit, 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, but does not include:

...

(g) a benefit that is an exempt benefit in relation to the year of tax;

In summary a fringe benefit is essentially a benefit provided to an employee (or their associate) in relation to their employment by an employer (or their associates) or via a third party unless otherwise excluded.

What is a benefit, as defined in subsection 136(1)?

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

...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:

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

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

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

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money.

In your circumstances, the provision of insurance cover under the Policy by Company A is a benefit as defined in subsection 136(1). This is because a contract of insurance is specifically mentioned in the definition of fringe benefit as outlined above. Thus, we can conclude that a contract for Life and TPD Insurance satisfies the definition of a benefit. However, as per the definition of a fringe benefit as defined in subsection 136(1) of the FBTAA, the benefit must be provided to either the employee or to an associate of the employee during or in respect of the year of tax.

As Company A is the party paying Insurance Company B a sum of money for group insurance coverage and it is Company A who is solely receiving the benefit of insurance rather than its employees, we can conclude that it is not provided in a way that meets the definition of a fringe benefit as defined within subsection 136(1). This is because the employee has no right of claim or potential payable benefit directly relating to the insurance coverage. Therefore, although ordinarily this insurance would be considered a benefit, the key factor is that it is not the employee who is receiving the benefit of insurance; rather, it is the employer. This means that in this instance, the provision of insurance does not amount to a fringe benefit and fringe benefits tax does not apply to the cover.