ATO ID 2004/487: In-house period residual fringe benefits: valuation of education provided by independent school - similar circumstances and identical terms and conditions
Date of decision: 13 February 2004
Year of income: Year ending 31 March 2004
Business line: Superannuation and Employer Obligations

Issue
For the purposes of paragraph 49(a) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), where a school provides education to an employee's child, can the taxable value of the in-house period residual fringe benefit be ascertained using the amount paid or payable by a person holding a school scholarship?

Decision
No. As the child of the employee is not a person who is a holder of a school scholarship, the identical overall benefit is not provided in similar circumstances and subject to identical terms and conditions (other than as to price) as the recipients overall benefit. Therefore, the amount paid or payable by a person who holds a school scholarship cannot be used as the basis for ascertaining the taxable value of the in-house period residual fringe benefit.

Facts
An independent secondary school carries on a business of providing education to children who are students at the school. The school generally charges a full annual tuition fee for education provided to a student by the school over the term of the school year (January to December). Over the term of the school year, the school provides education to a student who is a child of an employee of the school. The fee payable for this child is less than the full annual tuition fee. The school provides scholarship awards including scholarships that are based upon academic achievement and financial hardship criteria. Each school scholarship contains specific selection criteria. Each school scholarship has ongoing requirements in relation to maintaining the scholarship throughout the school year or school years. Different school scholarships provide different levels of fee remission. The child of the employee does not hold a school scholarship. The education provided to the child of the employee over the school year is an 'in-house period residual fringe benefit' as described in section 136(1) of the FBTAA. For the purposes of paragraph 49(a) of the FBTAA, when comparing the benefit provided to the child of the employee to the benefit provided to a person who holds a school scholarship, at or about the comparison time, the benefits were identical overall benefits. The benefit was not provided to the recipient under a salary packaging arrangement, and the benefit is not an airline transport fringe benefit. Therefore, paragraphs 49(aa) and (ab) of the FBTAA do not apply.

Reasons for decision
Summary: Section 49 of the FBTAA contains the valuation rules which determine the taxable value of an in-house period residual fringe benefit. Paragraph 49(a) values an in-house period residual fringe benefit where an identical benefit is provided to a member of the public. Section 49 provides as follows: 49 Subject to this Part, the taxable value of an in-house period residual fringe benefit in relation to a year of tax is: (a) if neither paragraph (aa) or (ab) applies and, at or about the comparison time, identical overall benefits were provided by the provider: (i) in the ordinary course of business to members of the public under an arm's length transaction or arm's length transactions; and (ii) in similar circumstances and subject to identical terms and conditions (other than as to price) as those that applied in relation to the provision of the recipients overall benefit; Subparagraph 49(a)(ii) of the FBTAA requires that, at or about the comparison time, identical overall benefits be provided by the provider in similar circumstances and subject to identical terms and conditions (other than as to price), as those that applied in relation to the provision of the recipient's overall benefit. In order to satisfy subparagraph 49(a)(ii), the child of the employee would need to be a person who was the holder of a comparable school scholarship. That is, a school scholarship that was the same in all respects as that held by the recipient of the identical overall benefit. As the child of the employee is not a person who is a holder of a school scholarship, the fringe benefit is not provided 'in similar circumstances and subject to identical terms and conditions (other than as to price)' as required by subparagraph 49(a)(ii). Accordingly, the taxable value of the in-house period residual fringe benefit under paragraph 49(a) of the FBTAA cannot be based on the amount paid or payable by a person who holds a school scholarship.

Legislative references: Fringe Benefits Tax Assessment Act 1986 section 49 paragraph 49(a) paragraph 49(aa) paragraph 49(ab) subparagraph 49(a)(ii) subsection 136(1)
Subject references: Fringe benefits tax Fringe benefits Residual fringe benefits In-house fringe benefit In-house residual fringe benefits