ATO ID 2001/758: Fringe Benefits Tax - Recipients Contribution
Date of decision: 2 November 2001
Year of income: Year ended 31 March 1998
Business line: Superannuation and Employer Obligations

Issue
Whether an employer who pays the income tax liability of an expatriate employee is able to treat the employee's income tax refund as a "recipient's contribution" under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Decision
No. A refund of the expatriate employee's income tax, paid by the employer, is not a "recipients contribution" under subsection 136(1) of the FBTAA. However, the refund will reduce the taxable value of the residual fringe benefit that arose from the payment of the employee's income tax under section 50 of the FBTAA.

Facts
The employer was the host entity of a number of expatriate employees. The expatriate employees were remunerated on a net salary basis with the host entity paying the employee's income tax obligations. A formal agreement with the expatriate employees provided for income tax refunds to be returned to the host entity. No tax instalments were deducted from salary paid to the expatriate employee, but provisional tax instalments were paid. The employer received an income tax refund from the final income tax return lodged by the expatriate employee.

Reasons for decision
Summary: The term "recipients contribution" is defined in subsection 136(1) of the FBTAA as the amount of any consideration paid to the employer in respect of the provision of the recipients benefit. A refund resulted from the lodgement of the final income tax return of the employee as the provisional tax instalments paid exceeded the employee's income tax liability for the year. The refund does not constitute consideration paid by the employee to the employer, so it will not be a "recipients contribution". However, the income tax refund will reduce the taxable value of the residual fringe benefit that arose from the payment of the employee's income tax liability under section 50 of the FBTAA.

Legislative references: Fringe Benefits Tax Assessment Act 1986 subsection 136(1) section 50
Subject references: Fringe benefits tax Expense payment fringe benefits Residual fringe benefits Double tax agreements Objections Overseas employees