Edited version of private advice

Authorisation Number: 1052269778625

Date of advice: 26 September 2024

Ruling

Subject: FBT - cash payments made to employee's spouse

Question 1

Were the cash payments of $XXX made to the employee's spouse a fringe benefit under subsection 136(1) 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

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

For a number of years, the employer held an annual Christmas party for employees and their spouses were invited to attend.

As the business grew and headcount grew to almost XXX, also inviting spouses became an event-planning/logistical problem and it was decided that the Christmas party was limited to employees only and spouses were no longer invited, however:

•         in recognition of the fact that they were no longer invited to the Christmas party (a situation in relation to which many were disappointed); and

•         due to the fact that since the Employer ran a 24/7 business throughout the year, with employees working long hours throughout the day and night disrupting family life,

the employer decided based on discussions in the lead up to each Christmas period, all employees received:

•         a bonus (added to their assessable income in the ordinary course); and

•         a cash gift of $XXX but not for them, for their spouse (Gift).

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 40

Fringe Benefit Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1936 Subsection 318(1)

Reasons for decision

These reasons for decision accompany the Notice of private ruling for the organisation.

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

Question 1

Were the cash payments of $XXX made to the employee's spouse a fringe benefit under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986( FBTAA)?

Answer

Yes.

Detailed reasoning

The definition of a 'fringe benefit' in subsection 136(1) of the FBTAA requires that the following conditions are satisfied:

1.    A benefit is provided at any time during the year of tax.

2.    The benefit is provided to an employee or an associate of the employee.

3.    The benefit is provided by:

a.    their employer; or

b.    an associate of the employer; or

c.     a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or

d.    a third party 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.

4.    The benefit is provided in respect of the employment of the employee.

5.    The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of the fringe benefit in subsection 136(1) of the FBTAA.

Is a benefit provided?

Subsection 136(1) of the FBTAA provides a broad definition of 'benefit' as including:

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 recognition of the fact that the employee's spouse was no longer invited to the Christmas party and as an acknowledgement of the disruption to their family due to the employment conditions of the employee, you made a decision to provide a cash gift of $XXX to the spouse. This constitutes a benefit as per the definition in 136(1) of the FBTAA.

Is the benefit provided to an employee or an associate of an employee?

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

Subsection 136(1) of the FBTAA defines the term 'associate' as having the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936).

A relative of a natural person is an associate as per the definition in paragraph 318(1)(a) of the ITAA 1936.

Section 995.1 of the Income Tax Assessment Act 1997 defines a "relative" of a person to mean:

(a) the person's spouse

Therefore, the benefit was provided to the to the employee's spouse being an associate as per paragraph 318(1)(b) of the ITAA 1936.

Is the benefit provided by the employer, an associate of the employer or a third party?

Yes, the employer provided the employee's spouse a cash gift of $XXX in recognition of the fact that they were no longer invited to the Christmas party.

Is the benefit provided in respect of the employee's employment?

In considering whether a benefit is provided to an employee 'in respect of' their employment, subsection 136(1) of the FBTAA defines 'in respect of', in relation to the employment of an employee, to include 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.'

In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22, the full Federal Court - in examining the meaning of 'in respect of' an employee's employment - held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'.

In your case, the benefit is provided in respect of employment as there is a sufficient and material connection to the provision of the benefit being the $XXX given to the employee's spouse at Christmas and the employment of the employee. The payment is provided to acknowledge the disruption to their family due to the employment conditions there is no other reason it is paid other than the link to the employee's employment.

Is the benefit excluded from the definition of a fringe benefit?

With respect to paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA, the relevant paragraph to consider is paragraph (g) which provides that an exempt benefit will not be a fringe benefit.

In considering whether the benefits provided to an associate of the employee would fall within any of the exempt benefits listed in Part III of the FBTAA, it is necessary to initially determine the type(s) of fringe benefits that are applicable under the FBTAA.

Section 40 of the FBTAA provides that where a person (the 'provider') provides property to another person (the recipient), the provision of property 'shall be taken to constitute a benefit provided by the provider to the recipient'.

'Property' is defined in subsection 136(1) of the FBTAA as 'intangible property' and 'tangible property'. Tangible property is in turn defined as 'goods and includes animals, including fish; and gas and electricity'.

Intangible property' is defined as:

(a) real property;

(b) a chose in action; and

(c) any other kind of property other than tangible property,

but does not include:

(d) a right under a contract of insurance; or

(e) a lease or licence in respect of real property or tangible property.

ATOID 2007/204 states that money is or may be a form of exchange, but even when regarded as currency; money is still a form of property.

Therefore, the cash payment you made to an associate of an employee in respect of the employment of the employee is a property fringe benefit under section 40 of the FBTAA.