ATO ID 2008/30: In-house residual expense payment fringe benefit
Date of decision: 6 February 2008
Year of income: Year ended 31 March 2008
Business line: Superannuation and Employer Obligations

Issue
Has the employee who is invoiced for and pays their water service charges, incurred recipients expenditure in respect of the provision of a residual benefit in accordance with paragraph (a) of the definition of 'in-house residual expense payment fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
Yes. The employee has incurred the expenditure in respect of the provision of a residual benefit being the provision of water services by the employer in accordance with paragraph (a) of the definition of 'in-house residual expense payment fringe benefit' in subsection 136(1) of the FBTAA.

Facts
The employer is a water service provider whose function is to provide water, sewerage and other services to residential and business customers in a State of Australia. The employer is a body corporate which has been established under a State Act. The State Government is the sole shareholder. The employer includes provision of water services in its pricing structure. It derives revenue for these services from its customers. The employer is required to and is able to recover all costs in association with the provision of its functions. The employer provides its residential customers, including employees, with water services. These water services are the provision of a right to a supply of water to the land and the provision of sewerage and drainage services. The employer invoices its residential customers for water service charges which are payable for the right to a supply of water to the land and for sewerage and drainage services. The employer provides its employees with the same water services it provides to its residential customers. The employer charges its employees for water services on the same basis as for residential customers. As part of a salary packaging arrangement, the employer reimburses its employees for costs incurred in respect of invoiced water service charges. These reimbursements are provided as expense payment fringe benefits as defined in subsection 136(1) of the FBTAA.

Reasons for decision
Summary: Subsection 136(1) of the FBTAA defines 'in-house residual expense payment fringe benefit', relevantly as follows: "in-house residual expense payment fringe benefit", in relation to an employer, means an expense payment fringe benefit in relation to the employer where: (a) the recipients expenditure was incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance) by a person (in this definition called the "residual benefit provider"); The employee is invoiced for and pays their water service charges. The employee has incurred an expense. This expense incurred is 'recipients expenditure' under subsection 136(1) and paragraph 20(b) of the FBTAA. The employer reimburses this expense under a salary sacrifice arrangement as an 'expense payment fringe benefit' under subsection 136(1) of the FBTAA. The recipients expenditure is in respect of the water services provided to the employee by the employer. Residual benefits are those benefits which do not fall within Divisions 2 to 11 of Part III of the FBTAA. The provision of a right to a supply of water to the land and the provision of sewerage and drainage services are not the provision of property benefits or any other form of benefit as provided for in Divisions 2 to 11 of Part III of the FBTAA. These benefits are residual benefits as defined in subsection 136(1) of the FBTAA. The residual benefits are provided by the employer. The employee who is invoiced for and pays their water service charges, incurs recipients expenditure in respect of the provision of a residual benefit in accordance with paragraph (a) of the definition of 'in-house residual expense payment fringe benefit' in subsection 136(1) of the FBTAA.

Legislative references: Fringe Benefits Tax Assessment Act 1986 paragraph 20(b) subsection 136(1)
Subject references: Fringe benefits Fringe benefits tax In-house residual expense payment fringe benefits