Edited version of private advice

Authorisation Number: 5010093480056

Date of advice: 22 May 2023

Ruling

Subject: Salary sacrifice - exempt fringe benefits

Question

Does the provision by the Employer of a travel card to an employee and/or their associate, under a salary sacrifice arrangement with the employee, to enable travel on public transport operated by Entity A where the private use is restricted to travel between home and work, constitute an exempt residual benefit under subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

Fringe Benefits Tax (FBT) year ending 31 March 20XX

FBT year ending 31 March 20XX

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

The Employer provides their employees and/or their employees' associates with a travel card, through a salary

sacrifice arrangement, to enable its employees to travel on public transport operated by Entity A between their home and work.

Entity A

Entity A provides suburban public transport services, in the major population areas of the State. Payment for the public transport services can be made through the use of transport cards, which are akin to a debit charge card for public transport services.

Salary sacrifice arrangement

The Employer wishes to continue to provide their employees with FBT exempt travel on Entity A's services. Under the arrangement, which the Employer intends to continue, the Employer will allow its employees to salary sacrifice to pay for the use of public transport.

The arrangement allows employees to salary sacrifice an amount to be placed on a travel card to use

for travel between home and work. Under this arrangement:

• The travel cards are issued in the Employer's name and have a unique number identifier as a suffix.
• Use of the travel cards is restricted to Entity A services only where travel is between home and work
• Employees are required to sign a 'no private use' declaration which the Employer relies on to ensure that the travel card is only used for exempted Entity A's services.
• Where a travel card is lost, the unused balance is transferred to a replacement travel card.
• The employee elects a prospective amount to salary sacrifice. This amount is paid periodically over the number of pay periods in the financial year.
• Any unused balance is rolled forward to the next financial year for continuing employees or cashed out with the appropriate adjustment to salary and PAYG withholding for employees not continuing the scheme.
• Entity A cancels the travel cards and refunds any unexpended credit to the Employer when notified by the Employer that an employee has ceased employment. Unused bonus credits are not refunded. Unused bonus credits refer to an additional X% credit that is added to travel cards when they are topped up. Therefore, the terminating employee will be refunded the amount of any unused salary sacrifice
• When the travel cards are cancelled and excess credits refunded, the appropriate adjustments are made to salary and Pay As You Go (PAYG) withholding.
• The Employer has incorporated into its existing salary sacrifice policies, the rules and accountabilities applicable to packaging the transport arrangements. The policies are able to be enforced in accordance with the employer's other employment conditions and any breaches of the policy can be effectively enforced.

To monitor their employees' 'no private use' condition of the arrangement, employees agree to the following terms and conditions:

• The travel card issued under the scheme remains the property of the Employer.
• The travel card will be used for the sole purpose of commuting to and from work and only on public transport services provided by Entity A.
• Misuse of the travel card may result in fortnightly salary being adjusted accordingly to reflect the non-compliance of the scheme.
• Ongoing misuse may result in the scheme being cancelled. If cancelled any unused amount will be returned via the payroll with an adjustment to fortnightly salary.
• In the event of travel card loss, any unused credit will be transferred to a replacement travel card.
• Access to the travel card scheme is dependent on continued employment with the Employer. Upon separation from the Employer, any unused credit will be returned via payroll with fortnightly salary being adjusted accordingly.
• To read and understand the travel card policy document.

Relevant legislative provisions

Subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986

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

Subsection 995-1(1) of the Income Tax Assessment Act 1997

Reasons for decision

Question

Does the provision by the Employer of a travel card to an employee and/or their associate, under a salary sacrifice arrangement with the employee, to enable travel on public transport operated by Entity A where the private use is restricted to travel between home and work, constitute an exempt residual benefit under subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

Yes. The provision by the Employer of a travel card to an employee and/or their associate, under a salary sacrifice arrangement with the employee, to enable travel on public transport operated by Entity A where the private use is restricted to travel between home and work, constitutes an exempt residual benefit under subsection 47(6) of the FBTAA.

Detailed reasoning

Subsection 47(6) of the FBTAA states that the provision or use of a motor vehicle provided to a current employee will be an exempt benefit where:

(a) a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee;

(aa) the motor vehicle is not:

(i) a vehicle used for taxi travel (other than a limousine) let on hire to the provider; or

(ii) a car, not being:

(A) a panel van or utility truck; or

(B) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

(b) there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than:

(i) work-related travel of the employee; and

(ii) other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular;

The requirements of subsection 47(6) of the FBTAA will therefore be met where:

•         there is a residual benefit;

•         there is the provision or use of a motor vehicle to a current employee;

•         the motor vehicle is provided or used in respect of the employment of a current employee;

•         the motor vehicle is of a type not otherwise excluded under paragraph 47(6)(aa) of the FBTAA; and

•         the only private use of the motor vehicle is work-related travel by the employee and any other private use by the employee (or associate) that is minor, infrequent and irregular.

A residual benefit

A 'residual benefit' is defined in subsection 136(1) of the FBTAA as a benefit that is a residual benefit by virtue of section 45 of the FBTAA. Section 45 of the FBTAA specifies that any benefit that is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive) is a residual benefit. A residual benefit is one that does not fall within one of the other more specific types contained in the FBTAA.

The benefit provided by the Employer to their employees is a residual fringe benefit. This condition is satisfied.

Provision or use of a motor vehicle to an employee

The term 'provision or use' is not defined in the FBTAA. The term 'provide' in relation to a benefit is defined in subsection 136(1) of the FBTAA to 'include, allow, confer, give, grant or perform'. ATO Interpretative Decision ATO ID 2001/313 Fringe Benefits Tax: Exempt Residual Benefit provides that the word 'use' has a broad meaning and is not restricted to situations where the employee has control of a vehicle. As such, a passenger's travel on public transport involves the use of a motor vehicle.

A 'motor vehicle' is defined in subsection 136(1) of the FBTAA with reference to Division 995 of the Income Tax Assessment Act 1997 (ITAA 1997), which defines a motor vehicle as any motor-powered road vehicle (including a four-wheel drive vehicle).

Entity A specifically provides transport services to the public at large and also provides the use of such mode of public transport to the Employers' employees. Specifically, a prepaid travel card is utilised to facilitate payment of the home to work fare. Accordingly, this condition is satisfied.

Motor vehicle is used in respect of the employment of a current employee

The term 'in respect of' is widely defined in subsection 136(1) of the FBTAA, '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'. For a benefit to be provided in respect of employment there must be a sufficient or material link between the benefit and the employment of the employee: see J & G Knowles & Associates Pty Ltd v FCT (2000) 44 ATR 22 at 28-29.

Provided that the employees are current employees, and all other private travel is purchased under a separate arrangement not connected to the Employer, the public transport travel provided by the Employer will be deemed to be 'used in respect of the employment of a current employee' and this requirement will be met.

Motor vehicle is of a type not otherwise excluded

Subsection 136(1) of the FBTAA provides that the definition of a 'car' has the meaning given by subsection 995-1 of the ITAA 1997. Under that definition, the mode of public transport used in these circumstances is not a car.

The mode of public transport used in these circumstances is not considered a 'taxi' or 'car' under paragraph 47(6)(aa) of the FBTAA, It is not otherwise excluded from being a residual benefit and will be regarded as the provision or use of a motor vehicle. Therefore, this condition is satisfied.

'Private use' and 'work-related travel'

As per subsection 136(1) of the FBTAA, the term 'private use' in relation to a motor vehicle, in relation to an employee or an associate of an employee, means any use of the motor vehicle by the employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee.

Subsection 136(1) of the FBTAA defines 'work-related travel' in relation to an employee as:

(a)  travel by the employee between:

(i)    the place of residence of the employee; and

(ii)   the place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or

(b)  travel by the employee that is incidental to travel in the course of performing the duties of his or her employment.

In ATO ID 2009/140, it was concluded that subsection 47(6) of the FBTAA would apply. The facts in the Employers' arrangement with its employees are similar to those in ATO ID 2009/140, being that:

•         private travel is restricted to home to work travel (which is 'work-related travel' as defined);

•         employees will be required to sign a 'no private use' declaration (other than for travel between home and work); and

•         employees will be made to reimburse the employer if they use the card for any trips outside of home to work travel.

The Employer obtains assurance from employees participating in the salary sacrifice scheme by agreeing to a set of terms and conditions constrained to the above points. Therefore, this condition is satisfied.

Conclusion

The provision of public transport on Entity A's services by the Employer to its employees under a SSA, by way of provision of the travel card, will be an exempt residual benefit under subsection 47(6) of the FBTAA, as all the necessary requirements are met.