Private ruling: FBT - reimbursement of relocation expenses
Published: March 2012
Ruling period: Year ending 31 March 2012 | Year ending 31 March 2013 | Year ending 31 March 2014

Ruling: Q1: Would the reimbursement of relocation expenses incurred by the employee by the employer under a salary sacrifice arrangement give rise to fringe benefits as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ? | A1: No

Relevant facts and circumstances: The employee commenced employment with the employer prior to relocating. The employee chose to relocate permanently to another country with his family to gain family support with raising children. The employee's relocation is permanent and it is not envisaged that he will return to Australia. The employee sold the family residence in Australia and all personal effects and belongings were shipped to the other country. The employee has purchased a family home at the new location where he and his family now reside and are domiciled. It is planned that the employee will return to Australia for four business trips per year with duration of around seven days each time. On the basis of domicile, residence, family ties, location of permanent place of abode and intention to remain in the new country of residence indefinitely and not return to Australia, the employee became a tax resident of that country when the relocation took place. The employer continues to employ the employee, who completes his duties in a workspace in his new country of residence via the internet. The employee wishes to enter into a salary sacrifice arrangement whereby he sacrifices salary and the employer will reimburse relocation expenses to the value of the salary sacrificed, upon provision of appropriate receipts, invoices and other documentation. The employer will only enter into this arrangement if no fringe benefits tax (FBT) liability arises from it.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 subsection 136(1), | Fringe Benefits Tax Assessment Act 1986 subsection 148(1), | Income Tax Assessment Act 1997 section 6-5, | Income Tax Assessment Act 1997 section 6-20 and | Taxation Administration Act 1953 Schedule 1.

Reasons for decision: Summary: While these reasons for decision are not part of the private ruling, we provide them to help you to understand how we reached our decision. To satisfy the definition of fringe benefit in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) there must be a benefit that is provided to an employee (or an associate) and the benefit must be provided in respect of the employment of the employee. Subsection 136(1) of the FBTAA defines 'benefit' to include any right, benefit, privilege, service or facility. Under section 20 of the FBTAA the reimbursement of expenditure incurred by a person constitutes an expense payment benefit. If the employer reimbursed the employee for the relocation expenses incurred in relation to his relocation, the employer would be providing expense payment benefits. Therefore the reimbursement of the relocation expenses will be fringe benefits if they satisfy the requirement that a benefit must be provided 'in respect of the employment of the employee'. The fringe benefits tax (FBT) legislation was introduced with the intention that FBT would apply to benefits provided in relation to an employee who is a resident of Australia, except where the relevant salary or wage of the employee is exempt from income tax. To give effect to this policy, the definitions of the relevant terms used in the interpretation provisions of the FBTAA ensure that benefits provided in these circumstances do not fall within the definition of 'fringe benefit' in subsection 136(1) of the FBTAA. In particular, 'employment' is defined in subsection 136(1) of the FBTAA to mean the holding of any office, etc, that will result in the person being treated as an 'employee'. The subsection defines 'employee' to mean a current, future or former employee and defines 'current employee' to mean a person who receives, or is entitled to receive, 'salary or wages'. The definitions of future and former employee apply to a person who has been or will be a current employee. 'Salary or wages' is defined to include in its meaning payments to employees, company directors and office holders from which Pay As You Go (PAYG) amounts must be withheld under Schedule 1 to the Taxation Administration Act 1953 (TAA), to the extent that the payments are assessable income. Under section 12-1 of Schedule 1 to the TAA such payments are not subject to PAYG if they are exempt income of the recipient. The effect of the definitions in subsection 136(1) of the FBTAA in relation to the meaning of 'fringe benefit' is that, if a person is receiving payments in return for services and those payments are exempt income, the person is not an 'employee' for the purposes of the FBTAA and any benefits they receive in respect of those services cannot be fringe benefits because they are not in respect of the employment of an 'employee'. Under subsection 6-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997) ordinary income is exempt income to the extent that is expressly, or by implication, excluded from being assessable income. In accordance with section 6-5 of the ITAA 1997 the assessable income of an Australian resident includes ordinary income derived from all sources whether in or out of Australia. The assessable income of a non resident generally includes ordinary income derived from Australian sources. This means that, by implication, ordinary income which is not derived by a non resident from Australian sources is not assessable income. The source of remuneration for services rendered is generally the place where those services are performed: see Federal Commissioner of Taxation v. French (1957) 98 CLR 398; (1957) 11 ATD 288; (1957) 7 AITR 76 where Williams J stated at CLR 414; ATD 296; AITR 85 that: …the locality of the source of income derived from personal exertion in the capacity of employee or in relation to any services rendered surely must be where such personal exertion took place, and the locality of the source of the proceeds of any business where the activities of the business are carried on. While the employee was a resident of Australia his salary was assessable income subject to PAYG and he was an employee for FBT purposes. The employee is now a non resident and continues to perform his duties for the employer. On this basis the salary the employee derives from his work for the employer is ordinary income from a foreign source and is exempt income under subsection 6-20(2) of the ITAA 1997. Therefore, the employee is no longer an 'employee' for FBT purposes because his salary is not subject to PAYG under Schedule 1 to the TAA. However the employee is a 'former employee' for FBT purposes and whether the reimbursement of relocation expenses would be provided in respect of former employment must be considered. Taxation Ruling MT 2016 discusses the application of subsection 148(1) of the FBTAA which qualifies the meaning to be given to references in the FBTAA to benefits provided in respect of the employment of an employee. Paragraph 10 of MT 2016 states that, when seen in context, the reference in the FBTAA to former and future employees is only to ensure that a benefit provided in respect of employment activities does not escape FBT merely by virtue of the fact that it is given in advance of the employment commencing or after the employment ceases. For example, the inclusion of former employee ensures that a benefit remains subject to FBT where an employee ceases employment and continues to be provided with the benefit by virtue of their former employment. Although the employee is not an 'employee' for FBT purposes now that he is performing his duties for the employer in another country, the performance of his duties is a continuation of his service with the employer which commenced in Australia. The employee will enter into a salary sacrifice arrangement (SSA) under which his salary will be reduced in return for the reimbursement of relocation costs that were incurred in order to allow him to move to the new country and continue working for the employer. The benefits will arise at the time of the reimbursement and will be provided in connection with his service with the employer in his new country of residence. As the benefits will not be provided in respect of the employee's employment in Australia as a former employee, they will not be provided in respect of the employment of an employee for FBT purposes. Accordingly, the reimbursement by the employer of relocation expenses incurred by the employee will not be fringe benefits as defined in subsection 136(1) of the FBTAA.

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