Edited version of private advice

Authorisation Number: 1052264514430

Date of advice: 11 November 2024

Ruling

Subject: FBT - section 135X agreement

Question

Will the Commissioner enter into an agreement with a State or Territory Government under subsection 135X(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

1 April 20XX to 31 March 20XX

1 April 20XX to 31 March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

A State or Territory government seeks to enter into an agreement with the Commissioner of Taxation under subsection 135X(3) of the FBTAA to:

• ensure the calculation of the taxable value of certain fringe benefits previously provided by the original employers is not affected as a result of a break in the continuity of certain compliant record keeping requirements solely because of a transitional event; and

• preserve the character of certain benefits where the character would otherwise be lost solely because of a transitional event.

In particular, the agreement is sought to enable the new employers to:

• treat a year which would have been a logbook year of tax for the previous employer as a logbook year for the purpose of using section 10 of the FBTAA to calculate the taxable value of a car fringe benefit;
• treat a year of tax that would have been a base year of tax for the previous employer as a base year for the purpose of calculating the taxable value of a housing fringe benefit under section 26 of the FBTAA;
• treat a register that would have been a valid register for the previous employer as a valid register for the purpose of using the 12-week record keeping method in subdivision D of division 10A of the FBTAA to calculate the taxable value of car parking fringe benefits;
• treat a benefit relating to the relocation of an employee that would have been an exempt benefit for the previous employer under sections 58B, 58C or 58D of the FBTAA as an exempt benefit;
• treat a benefit relating to trainees engaged under the Australian traineeship system that would have been an exempt benefit for the previous employer under section 58S of the FBTAA as an exempt benefit;
• use the end date that would have been used by the previous employer for the purpose of calculating the amortisation of the taxable value of fringe benefits relating to a remote area home ownership scheme under section 65CA of the FBTAA; and
• use a recurring fringe benefit declaration which would have applied if the employer had not changed under section 152A of the FBTAA.

Assumptions

•         A State or Territory government previously lodged section 135S nomination forms in respect of the receipting departments prior to 21 May 2023 or 21 May 2022 as appropriate.

•         None of the transferring departments listed in the application have ceased to exist.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Part XIC

Fringe Benefits Tax Assessment Act 1986 Section 135S

Fringe Benefits Tax Assessment Act 1986 Section 135T

Fringe Benefits Tax Assessment Act 1986 Section 135U

Fringe Benefits Tax Assessment Act 1986 Section 135X

Reasons for decision

Part XIC of the FBTAA enables State and Territory governments to transfer the administration and payment of fringe benefits tax (FBT) to a departmental level.

To transfer its FBT responsibility, a State or Territory government must, pursuant to subsection 135S(1) of the FBTAA, nominate an eligible State or Territory body as an employer. Each new employer listed in the State or Territory government private ruling application meets this definition and is thus an 'eligible State or Territory body' for the purposes of Part XIC of the FBTAA.

As per subsections 135S(2) to 135S(4) of the FBTAA, a nomination:

• must be in the approved form
• must specify the first FBT year in which the nomination as an employer is to have effect
• must be given to the Commissioner by 21 May in the first FBT year in which the nomination is to have effect
• may be for more than one nominated body
• can be made at different times (including different FBT years), and
• does not have to be effective from the same FBT year (where there is more than one nominated body).

In accordance with subsections 135U(1) and 135U(3) of the FBTAA, once a nomination has been made, the nominated body is treated as the employer of each employee who has a sufficient connection with that body. An employee is considered to have sufficient connection with a nominated body if the employee performs duties wholly and principally for that body and not for any other body or is of a class of employees that the State or Territory has specified as part of the nomination.

As a change in employer will affect the calculation of the taxable value of certain fringe benefits, section 135X of the FBTAA allows the Commissioner to enter into an agreement with the State or Territory to:

• ensure that the calculation of the taxable value of certain fringe benefits is not affected where continuity in the fulfilment of certain record-keeping provisions is broken solely because of a transitional event, and
• preserve the character of certain benefits where that character would otherwise be lost solely because of a transitional event.

Subsection 135X(2) of the FBTAA States that a 'transitional event' occurs if a State or Territory government makes, varies or revokes a nomination made under section 135S, or a nominated State or Territory government body ceases to exist.

The State or Territory government department in the current circumstances made nominations in the approved form by the due date; thus, relevant transitional events occurred.

Technically, a transitional event under subsection 135X(2) of the FBTAA does not occur when employees transfer from one existing nominated State or Territory body to another, or when employees transfer from a nominated State or Territory body to a statutory authority or between statutory authorities. Nevertheless, it is accepted that the changes occur as part of Machinery Of Government (MOG) changes that are similar to those technically covered by subsection 135X(2).

Additionally, subsection 135U(4) of the FBTAA States that any right that would be conferred, or obligation that would be imposed on the nominated State or Territory body resulting from a change in employer, is instead conferred or imposed on the State or the Territory. As such, regardless of the transfer of employers, the ultimate legal entity responsible for the employees, the State government, has remained unchanged.

Further, there is nothing to indicate that the taxable values will differ provided the records that are kept are the same as the records that would have been kept if the transfer had not occurred.

Therefore, it is considered appropriate for an agreement to be entered into with a State or Territory government under subsection 135X(3) of the FBTAA to enable the bodies nominated as an employer (the new employers) to:

• treat a year which would have been a logbook year of tax for the previous employer as a logbook year for the purpose of using section 10 of the FBTAA to calculate the taxable value of a car fringe benefit;
• treat a year of tax that would have been a base year of tax for the previous employer as a base year for the purpose of calculating the taxable value of a housing fringe benefit under section 26 of the FBTAA;
• treat a register that would have been a valid register for the previous employer as a valid register for the purpose of using the 12-week record keeping method in Subdivision D of Division 10A of the FBTAA to calculate the taxable value of car parking fringe benefits;
• treat a benefit relating to the relocation of an employee that would have been an exempt benefit for the previous employer under sections 58B, 58C or 58D of the FBTAA as an exempt benefit;
• treat a benefit relating to trainees engaged under the Australian traineeship system that would have been an exempt benefit for the previous employer under section 58S of the FBTAA as an exempt benefit;
• use the end date that would have been used by the previous employer for the purpose of calculating the amortisation of the taxable value of fringe benefits relating to a remote area home ownership scheme under section 65CA of the FBTAA; and
• use a recurring fringe benefit declaration which would have applied if the employer had not changed under section 152A of the FBTAA.

However, it is expected that the nominated bodies to which the employees were transferred ensure their notional tax for the 20XX and 20XX FBT years includes the notional tax that would otherwise be paid by the original nominated bodies if a change had not occurred.