Edited version of private advice

Authorisation Number: 1052330724584

Date of advice: 27 November 2024

Ruling

Subject: FBT - group insurance

Question 1

Is the provision of an insurance policy related to death, terminal illness or total and permanent disability considered a 'benefit' as defined within subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Is the Insurance Policy held by the Company, where the Company is the Policy owner and beneficiary, considered to be 'provided' to an employee as defined within subsection 136(1) of the FBTAA?

Answer

No.

Question 3

If the answer to question 2 is yes, is the benefit provided a 'contingent right' to salary and wages and thus is excluded from the definition of a 'fringe benefit' pursuant to subsection 136(1) of the FBTAA?

Answer

Not applicable.

This ruling applies for the following periods:

Fringe Benefits Tax (FBT) year ending 31 March 2023

FBT year ending 31 March 2024

FBT year ending 31 March 2025

FBT year ending 31 March 2026

FBT year ending 31 March 2027

The scheme commenced on:

1 April 2022

Relevant facts and circumstances

Insurance Policy Details

The Company holds a group life insurance policy which provides cover to all Eligible Persons for death, terminal illness, and total and permanent disablement (TPD) (herein referred to as the 'Insurance Policy'). The Insurance Policy has been held since 27 July 2005, noting that the form of the Insurance Policy has been amended over time.

The Company is the policy owner and the beneficiary of the Insurance Policy. The Company is invoiced and pays the annual Insurance Policy premium.

The Product Disclosure Statement (PDS) reads as follows:

The policy owner

All Benefits payable under the Policy are paid to the Policy Owner, unless otherwise instructed in writing by the Policy Owner. We refer to the Policy Owner as 'you' or 'your'.

The Company expects to continue the Insurance Policy indefinitely but reserves the right to suspend, discontinue, or amend all or part of the Insurance Policy at any time.

The Insurance Policy provides that the Eligible Persons are not entitled to receive any payments directly from the insurer under the terms of the Insurance Policy. Claims under the Insurance Policy must be made and are managed by the Company. As such, employees have no right of claim under the Insurance Policy.

The Insurance Policy owner (i.e., the Company) may, at will, terminate the policy by issuing written notice 30 days prior.

All insurance proceeds received in respect of claims submitted under the Insurance Policy are received by the Company from the insurer. The Company is then responsible for making payments to the relevant Eligible Persons or their estate.

The Company's group life Insurance Policy is currently communicated to eligible employees through a flyer contained within their on-boarding pack at commencement of employment.

Relevant legislative provisions

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

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidancerule for income tax'.

Reasons for decision

Question 1

Is the provision of an insurance policy related to death, terminal illness or total and permanent disability considered a 'benefit' as defined within subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The provision of insurance cover under the insurance policy paid for by the Company constitutes a benefit under the FBTAA.

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 agreement 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 insurance policy by the Company 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, terminal illness and TPD Insurance satisfies the definition of a benefit.

Conclusion

The provision of the group insurance for employees meets the definition of a benefit under the FBTAA.

Question 2

Is the Insurance Policy held by the Company, where the Company is the Policy owner and beneficiary, considered to be 'provided' to an employee as defined within subsection 136(1) of the FBTAA?

Summary

The provision of insurance cover under the group insurance policy by the Company is a benefit that is not provided to the employees or their associates. The employee is not the policy holder and has no beneficial rights in relation to the benefits or right to claim.

Detailed reasoning

Following on from the definition of a fringe benefit in question 1 we need to determine if the benefit is being provided to the employees.

'Provide' is defined in subsection 136(1) of the FBTAA as "in relation to a benefit--includes allow, confer, give, grant or perform".

As per the definition, 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 per clause 3.2 of the PDS, as the Company is the party paying a sum of money for group insurance coverage and it is the Company 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. The policy owner (the Company) is the sole beneficiary of any claim that is payable by the insurer. Therefore, although ordinarily this insurance would be considered a benefit, in this case it is not the employee who is being provided the benefit of insurance; rather, it is the employer.

Conclusion

The insurance benefit is not provided for an employee or their associate. The insurance benefit is provided to the policy owner, who in this instance is the Company.

Question 3

If the answer to question 2 is yes, is the benefit provided a 'contingent right' to salary and wages and thus is excluded from the definition of a 'fringe benefit' pursuant to subsection 136(1) of the FBTAA?

Summary

As we have determined in question 2 a benefit is not being provided to the employees by the Company, therefore question 3 is not required to be answered.