Lake Fox Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2011/0407)
Judgment date: 4 May 2012
Date published: 6 July 2012

Summary of decision:
Outlines the ATO's response to this case which concerns whether a benefit provided by an employer to its employees (the payment of the employees' private health insurance premium) was an exempt benefit under the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Overview of facts:
The taxpayer operates a major road transport business. It specialises in carrying high explosives for the mining industry and also has a general freight operation. The taxpayer has various statutory obligations regarding managing heavy vehicle driver fatigue including the monitoring and assessment of the health of such drivers. | As part of managing heavy vehicle driver fatigue, including by having in place an 'Advanced Fatigue Management system', the taxpayer determined to 'offer a health scheme arrangement to employees'. | The taxpayer entered into a Corporate Health and Wellbeing Agreement (the Plan) with MBF Australia Pty Ltd (MBF). There were two aspects to the Plan, access for employees to health insurance cover and what is described as a 'wellness program'. It was common ground that for the year of tax ending 31 March 2010 that only the former part of the Plan was entered into so that all of the costs that the taxpayer incurred relevant to the Plan were in the payment of premiums payable by permanent employees on health insurance with MBF. | Under the Plan with MBF each of its employees was able to take out an MBF health insurance product, choose the level of cover and whether it be single, family or some other rate. The taxpayer initially funded the entire premium and it later recovered from each employee any proportion that it did not subsidise for that particular employee. The amount of the subsidy paid by the employer was dependent on the years of service of an employee, with a person employed for more than 5 years being eligible for a 100 percent subsidy of the premium (i.e. no cost to the employee). The employee is the policyholder and is responsible for ensuring the premiums are paid. | The cover provided by MBF to the employees under the Plan is typical of the health insurance cover ordinarily provided to other policy holders who were not party to a corporate health plan. These plans were described to typically provide hospital cover and 'extras' cover. | For the FBT assessment in relation to the year ended 31 March 2010, the Commissioner concluded that: • The taxpayer's payments were benefits provided in respect of the employee's employment and that the payments satisfied the definition of 'expense payment benefit'; • There is no sufficient connection between the 'expense payment benefit' (i.e. the taxpayer paying the health insurance premium on behalf of the employee) and health services within subparagraph (i) - (iv) of s58M(1)(a) of the FBTAA; • That subsection 58M(2) of the FBTAA is directed to matters which are not covered by subsection 58M(1) of the FBTAA, viz. it is directed to certain incidental expenses; • That the benefit provided by the taxpayer (the payment of the health insurance premiums), was not an exempt benefit. | • The taxpayer's payments were benefits provided in respect of the employee's employment and that the payments satisfied the definition of 'expense payment benefit'; • There is no sufficient connection between the 'expense payment benefit' (i.e. the taxpayer paying the health insurance premium on behalf of the employee) and health services within subparagraph (i) - (iv) of s58M(1)(a) of the FBTAA; • That subsection 58M(2) of the FBTAA is directed to matters which are not covered by subsection 58M(1) of the FBTAA, viz. it is directed to certain incidental expenses; • That the benefit provided by the taxpayer (the payment of the health insurance premiums), was not an exempt benefit. | The taxpayer contended the payments were provided in respect of the employment of the employee and were expense payment benefits in respect of one of the matters in subparagraph (i) to (iv) of s58M(1)(a) of the FBTAA. Alternatively, the payments were 'associated' benefits within subsection 58M(2) of the FBTAA. | The matter was funded under the Test Case Litigation Program. | Issues decided by the court | The Tribunal held that no part of the payments made by the employer for its employee's health insurance was exempt under s58M of the FBTAA. | The Tribunal noted, however, that the present assessment is for an incorrect amount (it was under stated). The Tribunal set aside the assessment and remitted the matter to the Commissioner to reassess on the basis that no part of the payments was an exempt benefit. The Tribunal confirmed the decision could not be considered as favourable to the taxpayer. | In regards to subsection 58M(1) of the FBTAA, at paragraph 28 of the reasons for decision, Deputy President Hack stated that: 'The question is one of characterisation - what is the nature of the expenditure in question? The answer must be that it is expenditure to acquire health insurance, that is, it is expenditure "in respect of" health insurance. The fact that the insurance might, in turn, cover the employee for the cost of expenditure on what might be capable of being characterised as expenditure on work-related medical screening or work-related preventative health care does not change the character of the expenditure as expenditure in respect of medical insurance.' | In regards to subsection 58M(2) of the FBTAA, at paragraph 33 of the reasons for decision: 'The alternative argument, that based on s58M(2), also fails. It is, as the Commissioner submits, directed to incidental expenses associated with obtaining the direct benefits contemplated by s58M(1).' | The decision of the Tribunal affirmed the Commissioner's view that expenditure by an employer on private health insurance for an employee did not quality for exemption under either subsections 58M(1) or 58M(2) of the FBTAA.

Issues decided:
The Tribunal held that no part of the payments made by the employer for its employee's health insurance was exempt under s58M of the FBTAA. The Tribunal noted, however, that the present assessment is for an incorrect amount (it was under stated). The Tribunal set aside the assessment and remitted the matter to the Commissioner to reassess on the basis that no part of the payments was an exempt benefit. The Tribunal confirmed the decision could not be considered as favourable to the taxpayer. In regards to subsection 58M(1) of the FBTAA, at paragraph 28 of the reasons for decision, Deputy President Hack stated that: 'The question is one of characterisation - what is the nature of the expenditure in question? The answer must be that it is expenditure to acquire health insurance, that is, it is expenditure "in respect of" health insurance. The fact that the insurance might, in turn, cover the employee for the cost of expenditure on what might be capable of being characterised as expenditure on work-related medical screening or work-related preventative health care does not change the character of the expenditure as expenditure in respect of medical insurance.' In regards to subsection 58M(2) of the FBTAA, at paragraph 33 of the reasons for decision: 'The alternative argument, that based on s58M(2), also fails. It is, as the Commissioner submits, directed to incidental expenses associated with obtaining the direct benefits contemplated by s58M(1).' The decision of the Tribunal affirmed the Commissioner's view that expenditure by an employer on private health insurance for an employee did not quality for exemption under either subsections 58M(1) or 58M(2) of the FBTAA.

ATO view of decision:
Deputy President Hack's conclusions on the application of the FBT exemption to the taxpayer's expenditure on private health insurance, under subsection 58M(1) and subsection 58M(2), are consistent with the ATO's submissions in the case. | The case has provided law clarification on the scope of the FBT exemption and whether it extends to private health insurance payments.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | None

Legislative references: Fringe Benefits Tax Assessment Act 1986 (Cth) 20 58M 58M(1) 58M(1)(a) 58M(1)(a)(i) 58M(1)(a)(ii) 58M(1)(a)(iii) 58M(1)(a)(iv) 58M(2) 136(1)
Subject references: Exempt benefits FBT expense payment FBT work-related counselling FBT work-related medical screening FBT work-related preventative healthcare FBT work-related trauma