ATO ID 2012/86: Taxable value of in-house residual expense payment fringe benefits - effect of a rebate under the Private Health Insurance Incentives Act 2007
Date of decision: 10 October 2012
Year of income: Year ending 31 March 2013
Business line: Superannuation and Employer Obligations

Issue
In determining the taxable value of an in-house residual expense payment fringe benefit under subsection 22A(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), will the lowest price at which an identical benefit is sold to a member of the public in terms of section 48 of the FBTAA reflect any Commonwealth Government rebate provided to the employee under the Private Health Insurance Incentives Act 2007 ?

Decision
No. In determining the 'lowest price' in terms of section 48 of the FBTAA, such rebates will constitute recipients contributions and will not be included in that process.

Facts
In the terms of an agreement with its employee an employer agrees to pay the employee's liability under a private health insurance policy with a related company. In his capacity as an employee, the employee receives a 12% discount from the full premium which would otherwise be payable under the policy. The related company offers the same discount to employees of unrelated employers. The Commonwealth Government provides a rebate in respect of private health insurance cover for which the employee qualifies. The rebate is a percentage of the discounted premium which is otherwise payable. To claim the rebate the employee must complete a claim form and attach a receipt from the health insurer. Under their agreement, the employee agrees to pay the amount of the rebate received to the employer in the same FBT year. Where the full premium payable is $3,000 and a 30% Commonwealth Government rebate is paid the rebate received by the employee will be $792.

Reasons for decision
Summary: The payment of the employee's private health insurance premium by the employer is an in-house residual expense payment fringe benefit in terms of subsection 136(1) of the FBTAA. In determining the taxable value of the benefit under subsection 22A(2) of the FBTAA it is necessary to refer to section 48 of the FBTAA on the basis that if the service had been provided as a residual benefit, it would have constituted an in-house non period residual fringe benefit. Under section 48 of the FBTAA the taxable value is calculated in relation to an employer in relation to a year of tax as being: If the amount paid by the employee to the employer is a 'recipients contribution', it will be deducted from 75% of the 'lowest price' and therefore cannot take part in the determination of the lowest price. If it were, then this amount would be taken into account twice. The relevant definition of 'recipients contribution' in subsection 136(1) of the FBTAA is: In using the method in section 48 of the FBTAA to calculate the taxable value of an 'in-house residual fringe benefit', paragraph 22A(2)(b) of the FBTAA provides the calculation of 'recipients contribution'. However, the amount of the recipients contribution as defined in subsection 136(1) of the FBTAA, in relation to the actual fringe benefit is still taken into account in this calculation. As the amount equal to the rebate was paid by the employee to the employer pursuant to their agreement in respect of the fringe benefit it will be a recipients contribution and will not be taken into account in determining the 'lowest price' in section 48 of the FBTAA. The lowest price at which an identical benefit would be offered to the public by the employer is the amount of the obligation to the insurer prior to any rebates or reductions to which a particular individual may be entitled under the Private Health Insurance Incentives Act 2007 . This situation may be contrasted with a manufacturer's rebate in relation to the cost price of a car which is dealt with in Taxation Ruling TR 2011/3 Fringe benefits tax : meaning of ' cost price' of a car, for the purpose of calculating the taxable value of car fringe benefits . Subsection 136(1) of the FBTAA, defines 'cost price of a car' as being: Paragraph 77 of TR 2011/3, states that 'expenditure incurred' in relation to the 'cost price of a car' is intended to reflect the net expenditure borne in acquiring a car. Therefore, a manufacturer's rebate will reduce the 'cost price of a car'. Manufacturer rebates are provided by the person trying to affect the sale, up to the point of delivery and as such would have a positive impact on the calculation of 'expenditure incurred'. 'Price' is not defined in the FBTAA and takes on its ordinary meaning. The Macquarie Dictionary [MultiMedia], version 5.0.0, 1/10/01, defines price as being 'the sum of money or its equivalent for which anything is bought, sold or offered for sale'. The Commonwealth Government rebate is provided to the individual under the Private Health Insurance Incentives Act 2007 . It is not relevant to the process of determining the price at which a similar policy is to be offered for sale. Accordingly, for these reasons, the lowest price would be $2,640.

Legislative references: Fringe Benefits Tax Assessment Act 1986 subsection 22A(2) section 48 subsection 136(1)
Related public rulings and determinations: Taxation Ruling TR 2011/3
Related ATO interpretative decisions: ATO ID 2012/85
Other references: The Macquarie Dictionary [MultiMedia], version 5.0.0, 1/10/01
Subject references: Fringe benefits tax Expense payment fringe benefits In-house expense payment fringe benefits In-house residual expense payment fringe benefits FBT taxable value FBT employee contribution Recipients contributions