Edited version of private advice

Authorisation Number: 1052386874359

Date of advice: 15 May 2025

Ruling

Subject: Fringe benefit tax, expense payment, otherwise deductible rule

Question 1

Will reimbursement of the costs of a concurrent passport required for business travel paid by the employer on behalf of the employee constitute an 'expense payment fringe benefit' as per the definition in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

If the answer to question 1 is yes, will the 'otherwise deductible' rule in section 24 of the FBTAA apply to reduce the taxable value of the expense payment fringe benefit to nil?

Answer

Yes

This ruling applies for the following periods:

Fringe Benefits Tax (FBT) Year Ending 31 March 20XX

FBT Year Ending 31 March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

The employer is a mining company.

The employer requires some key Australian resident employees to travel on short business trips to different countries.

The employee remains on the Australian payroll and is not paid any travel or living allowances.

The employer pays for all travel costs such as flights, hotels and meals.

Each employee is required to have an Australian passport, which they self-fund ("original passport").

In addition to the employee's original passport, the employee is required for business purposes to obtain a concurrent Australian passport.

The employer reimburses the employee for the cost of the concurrent passport via an expense claim.

The business purposes for requiring a concurrent Australian passport are:

   • The Australian Passport Office will only provide a concurrent passport in limited circumstances, including business travel.

   • Urgent travel is sometimes required for Government negotiations and other short notice business reasons.

   • There can be lengthy processes to obtain vias and other travel approval.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 24

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 148(1)

Income Tax Assessment Actsection 8-1

Reasons for decision

Question 1

Will reimbursement of the costs of a concurrent passport required for business travel paid by the employer on behalf of the employee constitute an 'expense payment fringe benefit' as per the definition under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

Yes, reimbursement of the concurrent passport is an expense payment fringe benefit as per the definition in subsection 136(1) of the FBTAA

Detailed reasoning

Expense payment fringe benefit

An expense payment fringe benefit is a fringe benefit that is an expense payment benefit as defined in subsection 136(1) of the FBTAA.

Fringe benefit

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

   (a) a benefit is provided at any time during the year of tax.

   (b) the benefit is provided to an employee or an associate of the employee.

   (c) the benefit is provided by:

      (i) their employer; or

      (ii) an associate of the employer; or

      (iii) 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

      (iv) a third party other than the employer or an associate of the employer, if the employer or an associate of the employer:

         A. participates in or facilitates the provision or receipt of the benefit; or

         B. 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;

   (d) the benefit is provided in respect of the employment of the employee.

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

A discussion is provided below in respect of whether each element or condition of the definition of a fringe benefit is satisfied.

A benefit is provided

A 'benefit' is defined within subsection 136(1) of the FBTAA to include:

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;..."

It is considered that reimbursement of the costs of the concurrent passport paid by the employer on behalf of the employee constitutes a benefit. As such the first condition is satisfied.

The benefit is provided by the employer or an associate of the employer

The employer reimburses the employee for the cost of the concurrent passport via an expense claim. Therefore, the benefit is provided by the employer. As such this condition is satisfied.

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

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

The definition of a 'current employee' in subsection 136(1) of the FBTAA includes a person who receives 'salary or wages'.

'Salary or wages' is defined in subsection 136(1) of the FBTAA to mean:

   (a) a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; and....

The individuals are on the Australian payroll and therefore receiving salary and wages and would be considered to be employees.

As the benefit (reimbursement of the costs of the concurrent passport) is provided to the current employee, this condition is satisfied.

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

Subsection 136(1) of the FBTAA defines the term 'in respect of' in relation to the employment of an employee as including 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment'.

Subsection 148(1) of the FBTAA stipulates that:

the provision of a benefit to a person in respect of the employment of an employee is a reference to the provision of such a benefit:

   (a) whether or not the benefit is also provided in respect of, by reason of, by virtue of, or for or in relation directly or indirectly to, any other matter or thing;

   (b) whether the employment will occur, is occurring, or has occurred;

   (c) whether or not the benefit is surplus to the needs or wants of the recipient;

   (d) whether or not the benefit is also provided to another person;

   (e) whether or not the benefit is, to any extent, offset by any inconvenience or disadvantage;

   (f) whether or not the benefit is provided or used, or required to be provided or used, in connection with that employment;

   (g) whether or not the provision of the benefit is, or is in the nature of, income; and

   (h) whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

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'.

Based on the facts, the benefit being the reimbursement of the costs of the concurrent passport has a substantial connection to the employment of the employee.

As such, the condition of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is not specifically 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.

The benefit (reimbursement of the costs of the concurrent passport) is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA. As such, this condition is satisfied.

Expense payment benefit

Section 20 of the FBTAA sets out the circumstances in which a payment or reimbursement will be an 'expense payment benefit'. Paragraphs 20(a) and 20(b) state:

Where a person (in this section referred to as the provider):

   (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

   (b) reimburses another person (in this section also referred to as the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

In this case the employer either reimburses the cost of obtaining a concurrent passport or directly pays for it, this transaction falls within the scope of an expense payment fringe benefit.

The employer reimburses the employee for the costs of a concurrent passport required for business travel.

As such, the payment is considered to be an 'expense payment benefit' under section 20 of FBTAA.

Based on the above discussion, the definitions of a 'fringe benefit' and an 'expense payment benefit' are satisfied, which in turn satisfies the definition of an 'expense payment fringe benefit' as defined in subsection 136(1) of the FBTAA.

Question 2

If the answer to question 1 is yes, will the 'otherwise deductible' rule in section 24 of FBTAA apply to reduce the taxable value of the expense payment fringe benefit to nil?

Summary

Yes, the 'otherwise deductible' rule in section 24 of the FBTAA will apply to reduce the taxable value of the expense payment fringe benefit to nil as the employee could have claimed the expense as an income tax deduction had the employee personally incurred it.

Detailed Reasoning

The 'otherwise deductible' rule in section 24 of the FBTAA operates to reduce the taxable value of an expense payment fringe benefit where the recipient of the benefit is an employee, and the employee would have been entitled to a once-only deduction under either the Income Tax Assessment Act 1936 (ITAA 1936) or the Income Tax Assessment Act 1997 (ITAA 1997) for the expense had they personally incurred it.

A 'once-only' deduction is defined in subsection 136(1) of the FBTAA as follows:

once-only deduction, in relation to expenditure, means a deduction in a year of income in respect of a percentage of the expenditure where no deduction is allowable in respect of a percentage of the expenditure in any other year of income.

Section 8-1 of the ITAA 1997 allows a deduction for a loss or outgoing incurred in gaining or producing assessable income. However, no deduction is allowed for losses or outgoings to the extent to which they are of a capital, private or domestic nature, or are incurred in gaining or producing exempt income, or are otherwise prevented from being deductible by a specific provision of the ITAA 1997.

For any deduction to be allowable under section 8-1 of the ITAA 1997, an employee must be able to demonstrate that there is a real and direct connection between an outgoing (in this case, the cost of the concurrent passport) and the gaining of assessable income.

In this case, the concurrent passport used for business purposes would be deductible by the employee under 8-1 of the ITAA 1997 as the expense is incurred in gaining or producing assessable income.

The deduction would be a 'once-only deduction' as defined in subsection 136(1) of the FBTAA as no percentage of the expense would be allowable as a deduction in any other year of income.

Therefore, it is considered that the 'otherwise deductible' rule would apply to reduce the taxable value of the expense payment fringe benefit to nil under section 24 of the FBTAA.

Other matters for your consideration

Records and the otherwise deductible rule

If you use the 'otherwise deductible' rule, you must have certain documents to demonstrate the extent to which the expense would be deductible to the employee. This is a substantiation requirement. They may include a travel diary kept by the employee or an employee declaration.

Or you can choose to rely on FBT alternative record keeping for expense payment fringe benefits as detailed in LI 2024/6 legislative instrument and LI 2024/6 explanatory statement.