Edited version of private advice

Authorisation Number: 1052224544210

Date of advice: 1 March 2024

Ruling

Subject: Residual Childcare Fringe Benefit Exemption

Question

Will the benefits provided under a salary sacrifice arrangement with employees of the employer for the childcare fees where children attend the childcare facility's day care program or approved Kindergarten program ("The Childcare Services"), be exempt fringe benefits under subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

This ruling applies for the following periods:

DD MMMM 20YY - 31 March 20YY

1 April 20YY - 31 March 20YY

1 April 20YY- 31 March 20YY

1 April 20YY - 31 March 20YY

The scheme commenced on:

DD MMMM 20YY

Relevant facts and circumstances

The employer is a Company Limited by Guarantee. It is an endorsed ACNC charity.

The employer is a recognised education organisation and operates several school campuses, for children from childcare age to year 12.

It also operates early learning centres from three campuses. These are also the same premises from which the primary and secondary schools operate, however, the early learning centres and the schools have separate, designated spaces at each site.

The employer owns these premises.

In order to obtain Kindergarten funding, the early learning centres must satisfy the following:

•        Be an approved kindergarten program provider, that is, the program must be:

•        Provided for children in the year before prep (i.e., children who are at least four years old by 30 June in the year they start).

•        Provided for at least 600 hours a year, or at least 15 hours a week for 40 weeks.

•        Delivered by a qualified early childhood teacher, and

•        The learning program must be a state accredited kindergarten learning program based on the kindergarten learning guideline.

•        Hold a current service approval under the states' Education and Care Services National Law and Education and Care Services National Regulations.

•        Hold appropriate public liability insurance of $10 million.

•        Offer an approved kindergarten program delivered by an eligible early childhood teacher.

•        Have a fee structure that demonstrates that cost is not a barrier to access.

•        Be a member of a central governing body.

The early learning centres display the "Kindy tick" which demonstrates that they meet the above criteria.

A state government approved kindergarten program is play-based, non-compulsory, and delivered by a qualified early childhood teacher.

The early learning centres must also comply with the national quality standards of the regulatory body. These are regulated through an approved learning framework for children from birth to five years of age. These standards focus on children's learning, development and wellbeing. The principles under this framework are also reflected in the kindergarten learning guideline.

The early learning centres do not have any type of assessments (whether formal or informal) they give to the individual children (there is no marking or grading). The early learning centres do not work to a structured curriculum. There are no requirements under the National legislation which direct the early learning centres to provide structured learning. The learning is predominantly play based.

Each early childhood teacher at the early learning centres is free to determine their own schedule to work learning areas based on the individual children under their care. The only requirement for the organisation to provide a transition statement at the end of the year to the child's parents and their future school for their prep year. It is intended to help schools to:

•        Understand each child's learning progress, and

•        Support each child's successful transition in school.

To assist with the annual statement, the early learning centres prepare a half yearly transition statement as an interim progress report to encourage a smoother transition to school (or as a starting point for parents who might want to consider re-enrolling their child for another year of pre-prep at the organisation).

From 2024, the employer proposes to allow its employees to salary sacrifice their early learning centre fees (for both childcare and pre-prep enrolments), subject to the confirmation of the FBT status of this program.

Relevant legislative provisions

Subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986

Section 45 of the Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) of the FBTAA Fringe Benefits Tax Assessment Act 1986

Reasons for decision

You will offer your employees childcare services through a salary sacrifice agreement. The childcare services will be located on the business premises of the childcare provider.

Subsection 47(2) of the FBTAA provides that this will be an exempt benefit:

Where:

(a)          a residual benefit provided to a current employee in respect of his or her employment consists of:

(i)            the provision, or use, of a recreational facility; or

(ii)           the care of children of the employee in a childcare facility; and

(b)          the recreational facility or childcare facility, as the case may be, is located on business premises of:

(i)            the employer, or

(ii)           if the employer is a company, of the employer or of a company that is related to the employer,

the benefit is an exempt benefit.

Therefore, the provision of childcare will be an exempt benefit under subsection 47(2) of the FBTAA if the following conditions are satisfied:

1.            the benefit is a residual benefit

2.            the benefit is provided to a current employee

3.            the benefit consists of the care of the children of the employee

4.            the care of the children is in a childcare facility

5.            the childcare facility is located on the business premises of the employer

Is the benefit a residual benefit?

A benefit is a residual benefit under section 45 of the FBTAA if the benefit does not fit into any of the specific categories of benefits under a provision of Subdivision A of Divisions 2 to 11 of the FBTAA.

The employer will be providing the childcare services to the employees as part of a salary sacrifice arrangement.

The employer will incur the expense in respect of childcare fees and will have the obligation to pay those fees to the employer.

As the employee will not have an obligation to pay those fees, the payment will not be an expense payment fringe benefit. Nor will the benefit fit into any other category of benefit. The benefit will be a residual benefit.

Is the benefit provided to a current employee?

A current employee is defined in subsection 136(1) of the FBTAA as 'a person who receives, or is entitled to receive, salary or wages'.

The employer will provide the childcare benefits to the employees under salary sacrifice arrangements. As these arrangements require the individual to be entitled to receive salary or wages, the benefit will be provided to current employees.

Does the benefit consist of the care of children in a childcare facility?

As discussed above, the benefit consists of the care of the children of the employee.

Subsection 136(1) of the FBTAA outlines 'childcare facility' to mean:

"a facility at which a person receives, or is ready to receive, 2 or more children under the age of 6, not being associates of the person, for the purpose of minding, caring for or educating them for a day or part of a day without provision for residential care but does not include a facility at the place of residence of any of those children".

As the childcare facility is, at a minimum, ready to provide care to two or more children under six years of age, and exists to mind, care and/or educate the children for a day or part of the day, it meets this definition.

Is the childcare facility located on the business premises of the employer (or a related company if the employer is a company)?

The term 'business premises' is defined in subsection 136(1) of the FBTAA as being:

"...premises, or part of premises, of the person used, in whole or in part, for the purposes of business operations of the person..."

The employer owns the business premises on which both its schools and the childcare facility operates. As such, the childcare facility will be located on the business premises of the employer.

(a)     Will the premises, or part of the premises, be premises of the employer?

The employer owns the premises, and therefore, has right of possession and control over the use of the premises during the course of the business operations.

(b)     Will the premises be used for the business operations of the employer?

As the employer operates the childcare centre and owns the premises on which it operates, the childcare facilities are located on business premises for these purposes.

Conclusion

As discussed above, the elements of subsection 47(2) of the FBTAA are satisfied, and therefore, the benefits being provided to current employees by the employer, that consist of the care of children in a childcare facility, are exempt benefits for the purposes of subsection 47(2) of the FBTAA.