Edited version of private advice

Authorisation Number: 4140081772551

Date of advice: 07 April 2020

Ruling

Subject: Work-related preventative health care

Question 1

Will the purchase by the Company of the blood sugar sensors used by its director X in the course of his work duties be exempt from FBT under section 58M of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as work-related preventative health care?

Answer

Yes

Question 2

Will the purchase by the Company of the blood sugar sensors used by its director X in the course of his work duties be deductible to the Company under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods

Income years ended 30 June 20XX and 30 June 20XX

FBT years ended 31 March 20XX and 31 March 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

Facts

The Company provides technical services to business. It provides chemicals and advises on how to maximise effectiveness from the products provided, primarily in the metal pre-treatment area. The Company also provides services in high vacuum systems.

The Company has two employees, X and Y, who are husband and wife.

X is the director/employee of the Company who completes the technical and field work for the Company. His qualifications are in petrochemical and mechanical engineering. He enters clients' factories and works in close proximity to chemical processes (primarily acids and caustics), manufacturing and heavy equipment. When working with high vacuum systems, X is required to wear decontamination suits.

Y completes the bookwork and administration for the Company. Her qualifications are in business administration and she is an experienced senior executive assistant. Y does not have the qualifications and experience in the technical and field work necessary to undertake field duties for the Company and has no role in those duties.

X has type one diabetes which requires that he regularly checks his blood sugar and, if necessary, takes action to prevent symptoms that would endanger him and others in the workplace, including specifically the onset of hypoglycaemia.

X uses a blood sugar sensor which provides a non-intrusive assessment of his blood sugar levels prior to working on his customer's sites. The 'finger prick' method of testing is available in some workplaces, however it would be higher risk in the dirty environment of a factory. This option is also not practicable when wearing a decontamination suit.

X's treating endocrinologist has provided written advice that other prominent warning symptoms are not effective in the work environment, particularly when wearing a decontamination suit, and a recommendation that the specified system is more appropriate for work as it is effective and much safer.

One of X's clients has provided a statement on the hazardous nature of the workplace and X's responsibilities in monitoring his fitness for work while on site. X has advised this is representative of his clients who require assessments of his blood sugar status to meet their workplace health and safety responsibilities.

The Company proposes to purchase the blood sugar sensors as required for use in X's work and provide them as a fringe benefit. In particular, the Company plans to transfer ownership of the blood sugar sensors to X. The Company seeks advice on whether these benefits would be considered work-related preventative health care benefits and, therefore, exempt benefits under section 58M of the FBTAA. The Company also seeks advice on which the purchase price of the blood sugar sensors for transfer to X for use in his work would be allowable as a deduction under the general deductions provision in section 8-1 of the ITAA 1997 or a specific deduction provided in the ITAA 1997 (section 8-5).

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 58M

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 8-5

Reasons for decision

Summary

Question 1

Is the purchase and provision of the blood sugar sensors by the Company to its employee X for use in performing his duties in client site visits exempt from FBT as work-related preventative health care under section 58M of the FBTAA?

Question 2

Is the purchase and provision of the blood sugar sensors by the Company for transfer to its employee X for use in performing his duties in client site visits is a deductible expense to the Company under section 8-1 of the ITAA 1997?

Detailed reasoning

Question 1

Fringe benefits

Subsection 136(1) defines a 'fringe benefit' as a benefit provided by an employer to an employee where that benefit is provided in respect of employment.

It is clear that if the Company purchases and provides a blood sugar monitor to X they are providing a benefit and that it is provided by an employer to an employee.

In respect of employment

X's doctor advises detecting hypoglycaemia is important to preserving X's health in the workplace which impacts the health and safety of those around him. The particular blood sugar sensor discussed is recommended due to the nature of X's work environment. The information provided indicates that the employer does not currently purchase blood sugar sensors and would do so only to facilitate a safe and healthy work environment. These factors show that the benefit is in respect of employment so the benefit will be a fringe benefit.

This would normally mean FBT would be payable by the employer when supplying the sensor to X, however an FBT exemption exists for supply of work-related preventative health care.

Work-related preventative health care (WRPHC)

Any form of health care provided by a doctor to all employees at risk of suffering from work-related trauma is an exempt benefit under section 58M of the FBTAA. The benefit may take a variety of forms, including a property benefit. Work-related preventative health care must be provided to the employee. The preventative health care must be wholly or principally to prevent the employee from suffering work-related trauma. The preventative health care must be made available to all employees at risk of suffering work-related trauma.

Property benefit

A property fringe benefit may arise when an employer provides an employee with property either free or at a discount. For FBT purposes, property includes goods, such as, in this case, an item of medical equipment.

WRPHC

Where a property benefit is provided, this must be solely for the purpose of WRPHC of the employee. WRPHC is any form of health care provided by a legally qualified medical practitioner. Preventative health care is not defined, however health care is defined in subsection 136(1) of the FBTAA as:

any examination, test or form of care (whether therapeutic, preventative or rehabilitative) that is related to the physiological or psychological health of a person and, without limiting the generality of the foregoing, includes:

(a) the supply, maintenance or repair of:

(i) an artificial limb or other artificial substitute; or

(ii) a medical, surgical or similar aid or appliance used by a person; and

(b) the supply of drugs or other property in connection with such an examination, test or form of care.

The exemption under section 58M of the FBTAA extends to a wide range of health-related services including the provision of diagnostic services and facilities. In this case, there is a medical aid (the blood sugar sensor) to conduct testing, used by a person related to his physiological health on the advice of a legally qualified medical practitioner so health care is provided.

Work-related trauma

WRPHC must be provided wholly or principally in order to prevent the employee from suffering work-related trauma. Work-related trauma, in relation to an employee, includes the aggravation, acceleration or recurrence of a disease of the employee. The employee is not required to have suffered from work-related trauma.

Diabetes is a condition that can be controlled with appropriate prevention measures. Hypoglycaemia may occur as a consequence of having diabetes and refers to a low blood sugar level. The Department of Health HealthDirect website, viewed 1 April 2020, identifies symptoms of hypoglycaemia, provides treatment options for mild hypoglycaemia and recommends ringing for an ambulance if severe symptoms are identified.

Measuring blood sugar aids in preventing damage to health as treatment can be administered early and further symptoms do not develop. In the predominant work environment of the Company, hypoglycaemia would present risks to X, as an employee of the Company, and also to the employees of their clients. These clients require X to monitor his blood sugar on entering their premises and during his work to ensure a safe and healthy work environment is maintained.

Given the blood sugar monitor is preventative health care, we must consider whether it is work-related. Provision of free flu vaccinations qualifies as work-related preventative health care and is therefore an exempt benefit (provided the relevant conditions are satisfied). Provision of optical aids to an employee who uses screen based equipment over certain time limits, where an optometrist certifies that the employee needs optical aids, qualifies as exempt WRPHC if all the relevant conditions are satisfied. These examples demonstrate that while a benefit may have application to employees' health outside the work place, a benefit principally given by the employer to prevent work-related trauma meets the criterion of work-related.

Other diagnostic tools to detect blood sugar levels may be available outside the workplace but the doctor's recommendation is that the nominated blood sugar monitor is the most suitable tool for use in the employee's workplace. This means provision of the blood sugar monitor is a work-related benefit.

Availability to other employees

In order to meet the criteria of a WRPHC benefit, the preventative health care must be made available to all employees at risk of suffering work-related trauma. The employer must make the benefit available to all employees:

·   who are likely to have suffered, be suffering, or be at risk of suffering from similar work-related trauma;

·   who perform the duties of their employment at or near the place where the employee performs the duties of his or her employment; and

·   whose duties of employment are similar to those of the employee.

In this case, there are two employees: X who travels to client factories to complete his duties on-site and his wife, Y, who completes the bookkeeping.

We are advised that Y does not suffer from diabetes or a similar medical condition, nor is she at risk of suffering from a similar medical condition, so the ruling provided is on the basis that Y does not have and is not at risk of having diabetes.

While both employees may reasonably be assumed to engage in some office work in the same location, X's work requires him to complete significantly different duties of employment in separate, client locations. No other employees are qualified or experienced to perform the same work as X.

Based on these assumptions, the Company would not be required to offer the benefit to other employees as no other employee has the qualifications and ability to perform similar duties at the same locations. Even if the benefit were offered, there is no other employee with a similar condition who would require the benefit to prevent work-related trauma.

The benefit is a WRPHC benefit and is, therefore, an exempt benefit under section 58M of the FBTAA. Having identified that the benefit is exempt, there is no need to consider whether section 58P of the FBTAA, Exempt benefits - minor benefits, applies.

Question 2

No specific deductions under section 8-5 of the ITAA 1997 for the cost of providing blood sugar sensors to the employee are relevant in this case. Therefore, we consider the general deductions provision under section 8-1 of the ITAA 1997.

An employer is entitled to a deduction under section 8-1 of the ITAA 1997 for a benefit provided to their employee to the extent that is either incurred in gaining or producing the employer's assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing the employer's assessable income ('positive limbs').

However, a deduction is not allowed under subsection 8-1(2) of the ITAA 1997 to the extent that the loss or outgoing is a loss or outgoing of capital, or of a capital nature, is a loss or outgoing of a private or a domestic nature, is incurred in gaining or producing exempt income or non-assessable non-exempt income, or is prevented from being deductible under a specific provision of the ITAA 1997 or the Income Tax Assessment Act 1936 ('negative limbs').

In looking at multiple roles and deductibility paragraphs 7, 8 and 9 of Miscellaneous Taxation Ruling MT 2019 Fringe benefits tax: Shareholder employees of family companies and directors of corporate trustees states:

7. The question whether a benefit is provided for employment-related reasons is one that also arises under the income tax law. The income tax position is that expenses incurred in respect of benefits provided for employment-related reasons are generally deductible to the company even where the recipient is also a shareholder. However, if the benefit is not employment-related but, in effect, represents a distribution of income to shareholders, the expenses incurred in providing the benefit are not deductible...

8. Where a benefit is provided to a shareholder/employee of a family company in connection with the performance of his or her duties as an employee, it is considered that the benefit is provided in respect of the person's employment...

9. In relation to benefits that are not expressly linked to the carrying out of the employee's duties, it is necessary to examine all the facts and circumstances of the case to establish whether the benefit is fairly to be regarded as having been granted to the shareholder/employee in his or her capacity as an employee or as a shareholder. Factors such as the nature of the benefit, any cash remuneration paid, the nature and extent of any trading activities of the company, the extent of any services rendered by the shareholder/employee and the extent of his or her shareholding may be relevant in concluding whether a non-cash benefit was provided as remuneration for services or in the capacity of shareholder.

These paragraphs have the effect of saying that where a person has a dual role there has to be a clear link between the benefit and the production of assessable income to be deductible. In other words the benefits have to be in respect of employment.

Whether a benefit was in respect of employment was later clarified in J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22, (Knowles), and the full Federal Court in examining its meaning in relation to FBT 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...

The Court also suggested that it would be useful to ask 'whether the benefit is a product or incident of the employment'.

The effect of Knowles is that where an individual has more than one relationship with an entity then there has to be sufficient evidence available to demonstrate that the benefits they receive are in respect of an employment relationship. If insufficient evidence exists then it has to be concluded that the benefit is provided in a capacity other than as their role as employee.

Remuneration is a payment or other benefit that is provided to an employee in respect of, for or in relation directly or indirectly to, any employment (Mutual Acceptance Company v. Federal Commissioner of Taxation (1944) 69 CLR 389; [1944] HCA 34; (1944) 7 ATD 506).

Paragraph 10 of TR 2018/7 states the following:

10. Where a family company incurs expenditure in respect of the provision of a benefit to a shareholder/employee and claims an income tax deduction in respect of that expenditure, the company is, in effect, contending that the benefit was provided by way of remuneration. Where the total remuneration (including non-cash remuneration) claimed to have been paid to the shareholder/employee is reasonable having regard to the services rendered, it would generally be accepted that the company is entitled to a deduction for the cost of providing the benefit. In those circumstances, it follows that the benefit is provided in respect of employment and thus subject to FBT.

Application to the facts

In this case, X is both the director and an employee of the Company who will purchase the blood sugar sensors that will be transferred to X.

Based on the information provided:

·   It is a requirement for X to check his glucose levels on a regular basis due to his medical condition

·   The Company will incur the costs to purchase the blood sugar sensors which it will give to X to use while undertaking his employment activities to ensure that he is in a fit condition to able to complete the Company's business activities

·   The clients work sites are not suitable for the 'finger prick method' given their conditions, with the blood sugar sensors providing a quick and safer method of obtaining the relevant test results

·   X assists the Company's clients to comply with their safety responsibilities by scanning his glucose levels using the blood sugar sensors prior to commencing of any activities at the client's work sites; and

·   X's use of the blood sugar sensors assists him in his performance when undertaking his employment activities and it is reasonable for the Company to expect their business to benefit from his use of the blood sugar sensors and his ability to perform activities on their behalf by ensuring that he is in a fit condition to undertake the business activities.

After reviewing the information provided it is viewed that the costs of purchasing the sensors will have the relevant connection to X's employment when undertaking the business activities undertaken by the Company. Therefore, those costs will satisfy the nexus of being necessarily incurred in carrying on the Company's business for the purpose of gaining, or producing, the Company's assessable income.

Therefore, the Company can claim a deduction for the costs of the blood sugar sensors purchased for X that he will use when undertaking the business activities of the Company.