Edited version of private advice

Authorisation Number: 1052305177700

Date of advice: 20 September 2024

Ruling

Subject: FBT - education

Question 1

Should the taxable value of the benefits provided to employees, whose children attend the school, be calculated on the total fee of the education, being the tuition fee and a fixed charge less the eligible employee's contribution under Section 49 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Will the taxable value of the in-house residual fringe benefit be reduced under section 62 of the FBTAA?

Summary

Yes.

This ruling applies for the following period:

FBT year ending 31 March 20YY

FBT year ending 31 March 20YY

FBT year ending 31 March 20YY

FBT year ending 31 March 20YY

FBT year ending 31 March 20YY

FBT year ending 31 March 20YY

The scheme commenced on:

1 April 20YY

Relevant facts and circumstances

XXXX (The school) is an independent secondary school which carries on a business of providing education to children who are students at the school.

The school charges a composite fee for education provided to a student by the school over the term of the school year. That composite fee consists of two components that are a tuition fee and a fixed charge.

The tuition fee is to cover the teaching service. The fixed charge is to offset many of the various small charges incurred during the year such as student accident insurance cover, excursions, class/tutorial photographs and other relevant items.

Despite there being two underlying components, it is a single fee payable by those who have their children attend the school. Both components of the fee are compulsory.

The school provides eligible staff with a discount on the composite fee. That discount is calculated as a percentage of the tuition component only. That percentage varies depending on whether staff are full time or part time.

The benefit to eligible staff is the provision of education services for their children.

The benefit to eligible staff is not provided under a salary packaging arrangement.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 section 49

Fringe Benefits Tax Assessment Act 1986 section 62

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 section 149

Reasons for decision

A 'fringe benefit' as defined in subsection 136(1) of the FBTAA is a benefit provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employee's employment and such benefit is not otherwise exempted.

A residual benefit is defined under section 45 of the FBTAA and arises where an employer provides a benefit that does not fall within any of the specific categories of benefit.

An 'in-house residual fringe benefit' is defined in subsection 136(1) of the FBTAA as follows:

In-house residual fringe benefit, in relation to an employer, means a residual fringe benefit in relation to the employer:

(a) where both of the following conditions are satisfied:

(i) the provider is the employer or an associate of the employer;

(ii) at or about the comparison time, the provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders;

In this case, the school is the employer and provides the same education services to both the children of employees and to children of members of the public.

As described in ATO Interpretative Decision ATO ID 2004/487 In-house period residual fringe benefits: valuation of education provided by independent school - similar circumstances and identical terms and conditions, the education provided to the child of the employee over the school year is an 'in-house period residual fringe benefit' as described in section 136(1) of the FBTAA.

Therefore the benefit provided to employees who have children in the school will be an in-house period residual fringe benefit.

Section 49 of the FBTAA contains the valuation rules which determine the taxable value of an in-house period residual fringe benefit. Paragraph 49(a) values an in-house period residual fringe benefit where an identical benefit is provided to a member of the public.

Section 49 provides:>

Subject to this Part, the taxable value of an in-house period residual fringe benefit in relation to a year of tax is:

(a) if neither paragraph (aa) or (ab) applies and, at or about the comparison time, identical overall benefits were provided by the provider:

(i) in the ordinary course of business to members of the public under an arm's length transaction or arm's length transactions; and

(ii) in similar circumstances and subject to identical terms and conditions (other than as to price) as those that applied in relation to the provision of the recipients overall benefit;

an amount equal to 75% of the lowest amount paid or payable by any such member of the public in respect of the current identical benefit in relation to an identical overall benefit so provided; or

(b) in any other case - an amount equal to 75% of the notional value of the recipients current benefit; reduced by the amount of the recipients contribution insofar as it relates to the recipients current benefit.

Subparagraph 49(a)(ii) of the FBTAA requires that, at or about the comparison time, identical overall benefits be provided by the provider in similar circumstances and subject to identical terms and conditions (other than as to price), as those that applied in relation to the provision of the recipient's overall benefit.

The benefit is the provision of education services. The recipient's contribution is in respect of those services.

For the purposes of paragraph 49(a) of the FBTAA, when comparing the benefit provided to the child of the employee to the benefit provided to members of the public under an arm's length transaction, at or about the comparison time, the benefits are identical overall benefits. The school provides the same education services to both the children of employees and children of members of the public.

The benefit was not provided to the recipient under a salary packaging arrangement and the benefit is not an airline transport fringe benefit. Therefore, paragraphs 49(aa) and (ab) of the FBTAA do not apply.

Under section 136(1) of the FBTAA, recipients current benefit, in relation to a period residual fringe benefit in relation to a year of tax, means the benefit to which the fringe benefit relates, insofar as that benefit was provided during the year of tax.

The taxable value of an in-house residual fringe benefit will be calculated under section 49 of the FBTAA where the benefit is provided during a period.

Section 149 of the FBTAA provides that a benefit shall be taken to be provided during a period if the benefit is provided, or subsists during a period of more than one day and is not deemed by a provision of the FBTAA to be provided at a particular time or on a particular day.

Despite the different components that make up the education fee for the year, or the manner in which the discount to eligible staff is calculated, all components make up the compulsory fee payable by those who have their children attend the school. There is no ability to pay one fee and not the other.

Accordingly, the taxable value of the in-house period residual fringe benefit calculated as an amount equal to 75% of the lowest amount paid or payable by any such member of the public in respect of the current identical benefit under paragraph 49(a) of the FBTAA, should be based on the total education fee for the year less the eligible employee's contribution.

Question 2

Will the taxable value of the in-house residual fringe benefit be reduced under section 62 of the FBTAA?

Summary

Yes.

Detailed reasoning

Section 62 of the FBTAA provides:

62(1) Where one or more in-house fringe benefits in relation to an employer in relation to an employer in relation to a year of tax relate to a particular employee of the employer, the taxable value of that fringe benefit, or the sum of the taxable values of those fringe benefits, as the case may be, in relation to that year shall be reduced by:

(a) if the taxable value or the sum of the taxable values does not exceed $1,000 - an amount equal to the taxable value or the sum of the taxable values; or

(b) in any other case - $1,000.

62(2) Subsection (1) does not apply to an in-house fringe benefit provided under a salary packaging arrangement.

Subsection 136(1) of the FBTAA defines 'in-house fringe benefit' to mean:

(a) an in-house expense payment fringe benefit;

(b) an in-house property fringe benefit; or

(c) an in-house residual fringe benefit.

As the benefit is an in-house residual benefit which is not provided under a salary packaging arrangement, section 62 of the FBTAA will apply to reduce the taxable value.

Conclusion

The taxable value of the in-house period residual fringe benefit under paragraph 49(a) of the FBTAA can be based on the total education fee for the year, which can be reduced under section 62 of the FBTAA.