Case: Walstern Pty Ltd v Commissioner of Taxation [2003] FCA 1428 ; (2003) 138 FCR 1; (2003) 54 ATR 423
Outcome: followed
I have referred to four cases in which this interpretation has been applied. These cases are: 1. Essenbourne Pty Ltd v Commissioner of Taxation [2002] FCA 1577 ; (2002) ATC 5201; (2002) 51 ATR 629 (a decision of Kiefel J); 2. Walstern Pty Ltd v Commissioner of Taxation [2003] FCA 1428 ; (2003) 138 FCR 1; (2003) 54 ATR 423 (a decision of Hill J); 3. Spotlight Stores Pty Ltd v Commissioner of Taxation [2004] FCA 650 ; (2004) 55 ATR 745; (2004) ATC 4674 (a decision of Merkel J); and 4. Caelli Constructions (Vic) Pty Ltd v Commissioner of Taxation [2005] FCA 1467 ; [2005] 147 FCR 449; (2005) 60 ATR 542; (2005) ATC 4938 (a decision of Kenny J). 45 In each of the Federal Court decisions Walstern , Spotlight Stores and Caelli Constructions , the learned judge followed and applied the principles decided by Kiefel J in Essenbourne . 46 In Walstern , Hill J decisively and unambiguously agreed with Kiefel J in Essenbourne on this issue. His Honour said: '(at 22) As I have already noted, I would, as a matter of comity, follow the decision of Kiefel J in Essenbourne unless the case was either distinguishable or I was of the view that the decision was clearly wrong. On this point the case is not distinguishable. Further, far from being of the view that her Honour was clearly wrong, I am of the view that her Honour was clearly right. The definition of "fringe benefit" in s 136(1) of the FBTA Act makes clear the importance of identification of the employee. The benefit itself is one which is said to be "in relation to an employee". The benefit is required to have been provided to the employee (or associate of the employee) and is required to be in respect of the employment of the employee. The definition of "property fringe benefit" (if that is the kind of benefit relied upon) requires relevantly provision of property to a particular person there referred to as "the recipient". The valuation formula relevantly here requires that there be a benefit provided "to a person" in respect of the employment of an employee. Any contribution made by an individual employee is taken into account in determining the taxable value of the benefit. Although not relevant in the present case, the exclusion of a benefit otherwise deductible to an employee contemplates taking into account the specific circumstances of the employee himself or herself. It is not surprising that the legislation requires a link between the benefit and a particular employee (or associate of a particular employee) because historically the purpose of the Fringe Benefits Tax Act 1986 (Cth) is to provide a specific means of taxing benefits which are a substitute for income to an employee and in respect of which the provisions of the 1936 Act and particular s 26(e) were thought to be defective. Income tax is a tax upon the taxable income of a particular employee. While fringe benefits tax is a tax for which an employer is made liable and is payable at the maximum personal income tax rate, the theory of fringe benefits tax legislation is that it operates as a final withholding tax payable by the employer on amounts that essentially are or would be income of the employee...' 49 As I have already noted, in Walstern (at FCA par 87 per Hill J) and Caelli Constructions (at FCA par 61 per Kenny J) their Honours stated their views that the decision of Kiefel J in Essenbourne was correct, and stated the law. Merkel J in Spotlight Stores did not need to discuss the Essenbourne case in great detail, however his Honour observed that he proposed to follow Essenbourne and Walstern as, notwithstanding the submissions of the Commissioner in Spotlight Stores , his Honour was not satisfied that those decisions were clearly wrong (at FCA par 121). Hill J in Walstern had also indicated that, as a matter of comity, he would have followed the decision of Kiefel J in Essenbourne unless he had formed the view either it was distinguishable or that the decision was clearly wrong, neither of which was the case (at par 87). 53 Notwithstanding powerful submissions by the Commissioner, I am not satisfied that the principle articulated by Kiefel J in Essenbourne is clearly wrong. With respect, there is little to add to the reasons provided by Kiefel J in Essenbourne or Hill J in Walstern which have been repeated in this judgment. I agree with the four judges in Essenbourne, Walstern, Spotlight Stores and Caelli Constructions that the identification of particular employees is a requisite element in the application of the definition of 'fringe benefit' under the FBTAA . Like the judges in Walstern , Spotlight Stores and Caelli Constructions I propose to follow the Essenbourne decision and, to the extent it is applicable to the facts of the case before me, apply it. 66 On the other hand, the facts of the case before me may be contrasted with those in Walstern and Caelli Constructions , where the Courts found against the respective applicants. In Walstern , Hill J found that a fringe benefit had been provided to each of two employees at the time allocation was made by the trustee of the contribution made by the employer, in circumstances where: &#8226; the trustee was clearly an 'arranger' within the meaning of par (e) of the definition of 'fringe benefit'; and &#8226; the arrangement in question was one which involved the employer making the contribution on the understanding that all relevant steps would be taken culminating in the trustee ultimately allocating the employer's contribution equally to each of the two employees. 67 In this respect, as his Honour noted, the two employees who were the beneficiaries under the trust in Walstern were clearly identified by the arrangement in place. The arrangement was for their benefit. This may be contrasted with the circumstances in the case before me, where, despite guidelines provided in the CSP Deed, several steps involving satisfaction of criteria and the exercise by the trustee of its discretion required completion, before a selection of potential beneficiaries could be made from the large group of existing (and future) employees of the RMCs.