Private ruling: Bus transport and the FBTAA
Published: December 2011
Ruling period: Year ended 31 March 2012 | Year ended 31 March 2013 | Year ended 31 March 2014 | Year ended 31 March 2015
Date scheme commenced: 1 April 2011

Ruling: Q1: Does section 62 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to reduce the taxable value of the fringe benefits provided under arrangement 1? | A1: Yes | Q2: Does subsection 47(6) of the FBTAA apply to exempt the fringe benefits provided arrangement 2? | A2: Yes

Relevant facts and circumstances: Entity A provides the use of buses as part of its business. Entity A is 100% owned by Entity B. Entity C (the employer) is consideration providing transport on buses owned by Entity A. Under the first arrangement employees (and their associates) would be able to use the buses whenever they wish. Under the second arrangement the buses will only be able to be used for home to work travel. Both arrangements will be via a salary sacrifice arrangement and details of the arrangement were provided.

Relevant legislative provisions: FBTAA section 45 | FBTAA subsection 47(6) | FBTAA section 62 | FBTAA subsection 136(1) | FBTAA section 159 | Income Tax Assessment Act 1936 (ITAA 1936) section 318

Reasons for decision: Summary: Section 62 of the FBTAA will apply to arrangement 1 to reduce the taxable value of the total taxable value of benefits as described in subsection 62(2) of the FBTAA provided to each employee and that employee's associates by a maximum of $1,000. | Detailed Reasoning - Detailed reasoning: Subsection 62(1) of the FBTAA states : Where one or more eligible fringe benefits in relation to an employer in a year of tax, apply to a particular employee of the employer, the taxable value of that fringe benefit or the sum of the taxable values of those fringe benefits, as the case may be, in relation to that year shall be reduced by: (a) if the taxable value or the sum of the taxable values does not exceed $1,000- an amount equal to the taxable value or the sum of the taxable values; or (b) in any other case - $1,000. An eligible fringe benefit, for the purposes of section 62 of the FBTAA is defined in subsection 62(2) of the FBTAA to be an in-house fringe benefit or an airline transport fringe benefit. As the benefit in this case does not involve airline transport for section 62 of the FBTAA to apply the benefit will need to be an in-house fringe benefit. An in-house fringe benefit is defined in subsection 136(1) of the FBTAA to mean: (a) an in-house expense payment benefit; (b) an in-house property fringe benefit; or (c) an in-house residual fringe benefit In this case the benefit is transport on a bus which would constitute a residual fringe benefit. Therefore for section 62 of the FBTAA to apply the benefit must be an in-house residual fringe benefit which is defined under subsection 136(1) of the FBTAA to be: in relation to an employer, means a residual fringe benefit in relation to the employer: (a) where both of the following conditions are satisfied: (i) the provider is the employer or an associate of the employer; (ii) at or about the comparison time, the provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; or (b) where all of the following conditions are satisfied: (i) the provider is not the employer or an associate of the employer; (ii) the provider purchased the benefit from the employer or an associate of the employer (which employer or associate is in this definition called the seller ); (iii) at or about the comparison time, both the provider and the seller carried on a business that consisted of or included the provision of identical or similar property principally to outsiders; but does not include a benefit provided under a contract of investment insurance. Subsection 136(1) of the FBTAA defines an associate to have the same meaning as that given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). In respect of the application of section 318 of the ITAA 1936 and section 159 of the FBTAA, subsection 159(4) of the FBTAA states: For the purposes of this Act, section 318 of the Income Tax Assessment Act 1936 has effect as if "a partnership in which the primary entity is a partner" were omitted from paragraphs (1)(b) and (2)(a) of that section and "a partnership in which the primary entity is or was a partner (whether or not the partnership still exists)" were substituted. Taking subsection 159(4) of the FBTAA into account, for the purposes of the FBTAA subsection 318(2) of the ITAA 1936 now states: For the purposes of this Part, the following are associates of a company (in this subsection called the "primary entity"): (a) a partnership in which the primary entity is or was a partner (whether or not the partnership still exists); (b) if a partner of the primary entity is a natural person otherwise than in the capacity of trustee - the spouse or a child of that partner; (c) a trustee of a trust where the primary entity, or another entity that is an associate of the primary entity because of another paragraph of this subsection, benefits under the trust; (d) another entity (in this paragraph called the "controlling entity") where: (i) the primary entity is sufficiently influenced by: (A) the controlling entity; or (B) the controlling entity and another entity or entities; or (ii) a majority voting interest in the primary entity is held by: (A) the controlling entity; or (B) the controlling entity and the entities that, if the controlling entity were the primary entity, would be associates of the controlling entity because of subsection (1), because of subparagraph (i) of this paragraph, because of another paragraph of this subsection or because of subsection (3); (e) another company (in this paragraph called the "controlled company") where: (i) the controlled company is sufficiently influenced by: (A) the primary entity; or (B) another entity that is an associate of the primary entity because of another paragraph of this sub bsection; or (C) a company that is an associate of the primary entity because of another application of this paragraph; or (D) 2 or more entities covered by the preceding sub-subparagraphs; or (ii) a majority voting interest in the controlled company is held by: (A) the primary entity; or (B) the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection; or (C) the primary entity and the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection; (f) any other entity that, if a third entity that is an associate of the primary entity because of paragraph (d) of this subsection were the primary entity, would be an associate of that third entity because of subsection (1), because of another paragraph of this subsection or because of subsection (3). In applying subsection 318(2) of the ITAA 1936 to the facts provided, all three entities are considered to be associates of each other. As the employer is an associate of the transport provider (who provides transport as part of their business) the benefit is an in-house residual fringe benefit to the employee per subsection 136(1) of the FBTAA. As the benefit is an in-house residual fringe benefit it is an in-house benefit as defined under subsection 136(1) and section 62(1) of the FBTAA will apply to the provision of these benefits. The maximum allowable reduction to the taxable value of benefits under this section is $1,000 per employee. Any benefits provided to an associate of an employee would form part of this $1,000. Although issued when the reduction was capped at $500 this is explained in paragraphs 4 to 6 in Miscellaneous Taxation Ruling MT 2044 Fringe benefits tax: reduction of aggregate taxable value of fringe benefits - application to associates which state: The term "eligible fringe benefit" in section 62 is defined to mean an in-house fringe benefit or an airline transport fringe benefit. These terms, which are defined in subsection 136(1), rely on the meaning of the term "fringe benefit" which is also defined in subsection 136(1). As far as is relevant a "fringe benefit" is defined to mean a benefit provided to an employee or to an associate of the employee in respect of the employment of the employee. It follows that "eligible fringe benefits" in section 62 includes benefits provided to associates of an employee. Section 62 applies to benefits which "relate to a particular employee". The word "relate" is not specifically defined in the Act and therefore has its ordinary meaning. The Concise Oxford Dictionary defines "relate" to mean "...establish relation between; connected; allied". The Macquarie Dictionary, in so far as is relevant, defines "relate" to mean "to bring into or establish association, connection, or relation". It is therefore considered that a benefit will "relate" to an employee if the provision of that benefit is connected to or associated with the employee. As a benefit provided to an associate of an employee must be in respect of the employment of the employee, the provision of the benefit is therefore connected to or associated with the employee. In other words it relates to the employee. In view of the above it follows that the exemption under section 62 of the first $500 of the taxable value of "eligible fringe benefits" applies in respect of the total benefits provided to each employee and his or her associates in a particular year. | Summary: Subsection 47(6) of the FBTAA will apply to exempt the benefits provided to employees under arrangement 2 as private use is limited to work related travel. | Detailed Reasoning - Detailed reasoning: Subsection 47(6) of the FBTAA states: Where: (a) a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee (aa) the motor vehicle is not: (i) a taxi let on hire to the provider; or (ii) a car, not being: (A) a panel van or utility truck; or (B) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and (b) there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than: (i) work-related travel of the employee; and (ii) other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular. the benefit is an exempt benefit in relation to the year of tax. Work related travel is defined in subsection 136(1) of the FBTAA as: in relation to an employee, means: (a) travel by the employee between: (i) the place of residence of the employee; and (ii) the place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or (b) travel by the employee that is incidental to travel in the course of performing the duties of his or her employment. As explained in the answer to question 1, the benefit being provided is a residual benefit and as it is being made under a SSA it is being provided to a current employee. ATO Interpretative Decision ATO ID 2001/313 Fringe benefits tax Fringe Benefits Tax: Exempt Residual Benefit concluded that travel on a bus involves the use of a motor vehicle. So this condition is satisfied. In addition the facts to ATO Interpretative Decision ATO ID 2009/140 Fringe Benefits Tax Exempt benefits: free travel on bus - private use which looked at the application of subsection 47(6), stated in part: . . .The employee is provided with free transport on the buses under the employment arrangement. The employment arrangement is facilitated through the employer providing the employee with the use of a pre-paid ticket. The tickets and credits on each ticket are purchased by the employer from the third party entity, remain the property of the employer, and are held in the employer's name. Under the employment arrangement the employee is only permitted to use this ticket for travel between the employee's place of residence and the employee's place of employment (between home and work). Any other form of use, including any use by an associate of the employee, is expressly prohibited. . . . In ATO ID 2009/140 it was concluded that subsection 47(6) of the FBTAA would apply and the facts in arrangement 2 are similar to those in the ATO ID being: · Private travel is restricted to home to work trave (which is work-related travel as defined)l; · employees will be required to sign a "no private use" declaration (other than for travel between home and work); and · employees will be made to reimburse the employer if they use the card for any trips outside of home to work travel. Therefore based on the decisions in both ATO ID 2001/313 and ATO ID 2009/140 subsection 47(6) of the FBTAA applies to exempt the benefits under arrangement 2.

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