Private ruling: Fringe benefits tax: Expense payment benefits
Published: March 2013
Ruling period: Year ended 31 March 2013 | Year ended 31 March 2014 | Year ended 31 March 2015
Date scheme commenced: 1 April 2012

Ruling: Q1: Will a fringe benefit arise from the payment of the employee's expenses? | A1: Yes | Q2: If the answer to question 1 above is yes, will an expense payment fringe benefit be provided? | A2: Yes | Q3: If the answer to question 2 above is yes, will the benefit be an in-house residual expense payment fringe benefit? | A3: Yes | Q4: If the answer to question 2 above is yes, will the taxable value be calculated in accordance with section 49 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A4: The taxable value will be calculated under subsection 22A(2) of the FBTAA using the calculation method contained in section 48 of the FBTAA and the recipients contribution calculation contained in paragraph 22A(2)(b) of the FBTAA.

Relevant facts and circumstances: You are considering a proposal to pay the expenses incurred by your employees in obtaining a service from a related company that provides the services purchased by the employee to the general public.


Reasons for decision: Detailed Reasoning - 1. Will a fringe benefit arise from the payment of an employee's expenses?: Broadly, the definition of a fringe benefit in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides that a fringe benefit will arise when: · a benefit; · is provided to an employee, or an associate of an employee; · by the employer, an associate of the employer, or a third party under an arrangement involving either the employer, or an associate of the employer; · if the benefit is provided in respect of the employment of the employee; and · the benefit is not one of the benefits listed in paragraphs (f) to (s) of the fringe benefit definition. Each of these conditions is considered below: | Detailed Reasoning - Is there a benefit?: The definition of the term 'benefit' in subsection 136(1) of the FBTAA provides that a benefit includes: any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under: (a) an arrangement for or in relation to: (i) the performance of work (including work of a professional nature), whether with or without the provision of property; (ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or (iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; (b) a contract of insurance; or (c) an arrangement for or in relation to the lending of money. In addition to this general definition of benefit, section 20 of the FBTAA provides that a benefit will be provided when: … a person (in this section referred to as the "provider"): (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the "recipient") to pay an amount to a third person in respect of expenditure incurred by the recipient; or (b) reimburses another person (in this section also referred to as the "recipient"), in whole or in part, in respect of an amount of expenditure incurred by the recipient; Under the arrangement you will make a payment to the company to discharge the obligation of the employee to the company. This will be a benefit under paragraph 20(a) of the FBTAA. | Detailed Reasoning - Is the benefit provided to an employee or an associate of an employee?: The benefit will be provided to the employee as you are making a payment to discharge the obligation of an employee. Is the benefit provided by the employer, an associate of the employer, or a third party under an arrangement involving either the employer, or an associate of the employer? The benefit will be provided by the employer. | Detailed Reasoning - Is the benefit provided in respect of the employment of the employee?: The definition of 'in respect of' in subsection 136(1) of the FBTAA provides that 'in respect of' includes '… by reason of, by virtue of, or for or in relation directly or indirectly to, that employment'. As you will only be paying the health insurance premiums of employees the payments will be in respect of the employment of the employee as the employment is the reason for the payment being made. | Detailed Reasoning - Is the benefit one of the benefits listed in paragraphs (f) to (s) of the fringe benefit definition?: Paragraphs (f) to (s) of the fringe benefit definition list benefits that are not considered to be a fringe benefit. The payment of an obligation of the employee is not one of the listed benefits. | Detailed Reasoning - Conclusion: As each of the conditions contained within the fringe benefit definition are met a fringe benefit will arise from the payment of the expenses of an employee. | Detailed Reasoning - 2. Is the fringe benefit an expense payment fringe benefit?: The definitions of 'expense payment benefit' and 'expense payment fringe benefit' provide that a fringe benefit will be an expense payment fringe benefit if the benefit comes within section 20. As discussed above, this requirement is met as the payment of the expenses comes within paragraph 20(a) of the FBTAA. | Detailed Reasoning - 3. Will the expense payment fringe benefit be an in-house residual expense payment fringe benefit?: Subsection 136(1) of the FBTAA defines an in-house residual expense payment fringe benefit to mean: an expense payment fringe benefit in relation to an employer where: (a) the recipients expenditure was incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance) by a person (in this definition called the " residual benefit provider "); (b) if the residual benefit provider is the employer or an associate of the employer - at or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, the residual benefit provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; (c) if the residual benefit provider is not the employer or an associate of the employer: (i) the residual benefit provider purchased the benefit from the employer or associate of the employer (which employer or associate is in this definition called the " seller" ; and (ii) at or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, both the residual benefit provider and the seller carried on business that consisted of or included the provision of identical or similar benefits principally to outsiders: and (d) documentary evidence of the recipients' expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date. Therefore, the expense payment fringe benefit that arises from the payment of the expenses will be an in-house residual expense payment fringe benefit if the following conditions are met: · The fringe benefit is an 'expense payment fringe benefit'; · The employee's expenditure is incurred on the provision of a residual benefit (other than a benefit provided under a contract of investment insurance); · Either the residual benefit provider: Ø is the employer or the employer's associate who carried on a business that consisted of, or included, the provision of identical or similar benefits principally to outsiders; or Ø the provider purchased the benefit from the employer or the employer's associate and both the residual benefit provider and the employer or the employer's associate carried on a business that consisted of, or included, the provision of identical or similar benefits principally to outsiders. · The required documentary evidence is given to the employer at the required time. These criteria are discussed below. | Detailed Reasoning - Will the employee's expenditure be incurred in respect of the provision of a residual benefit?: For the benefit to be an in-house residual expense payment fringe benefit the expenditure must be incurred in respect of the provision of a residual benefit. Section 45 of the FBTAA provides that a benefit will be a residual benefit if it is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA. The expenditure is for the provision of a service that is a benefit as defined in subsection 136(1) of the FBTAA, but it is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 of the FBTAA. Therefore, it is a residual benefit. | Detailed Reasoning - Is the residual benefit provided by the employer or an associate of the employer?: The company which provides the service is a related company. Paragraph 159(2)(a) of the FBTAA provides that a company that is related to another company is deemed to be an associate of the other company. Therefore, as the company is a related company it will be an associate of the employer. Does the residual benefit provider carry on a business that consisted of, or included, the provision of identical or similar benefits principally to outsiders? This condition is met as the company that provides the service provides the same service to members of the public. | Detailed Reasoning - Will the required documentary evidence be given to you at the required time?: The necessary documentation will be provided as the employee will provide you with details of the amount that is due and payable. | Detailed Reasoning - Conclusion: As each of the conditions, are met the expense payment fringe benefit will be an in-house residual expense payment fringe benefit. | Detailed Reasoning - 4. Will the taxable value be calculated in accordance with section 49 of the FBTAA?: The method for calculating the taxable value of an in-house residual expense payment fringe benefit is contained within subsection 22A(2) of the FBTAA. Subsection 22A(2) of the FBTAA applies the valuation principles that apply to the calculation of an in-house residual fringe benefit to the calculation of an in-house residual expense payment fringe benefit. Subsection 22A(2) states: Subject to this Part, the taxable value in relation to a year of tax of an in-house residual expense payment fringe benefit (in this subsection called the ``actual fringe benefit'') provided during the year of tax is the amount that, if: (a) the provision of the residual benefit to which the actual fringe benefit relates were an in-house residual fringe benefit (in this subsection called the ``notional fringe benefit''); and (b) the recipients contribution in relation to the notional fringe benefit were equal to the recipients expenditure reduced by whichever of the following amounts is applicable: (i) the amount of the payment referred to in paragraph 20(a) reduced by the amount of the recipients contribution in relation to the actual fringe benefit; (ii) the amount of the reimbursement referred to in paragraph 20(b); would have been calculated under whichever of sections 48 and 49 is applicable as the taxable value, but for section 52 and Division 14, of the notional fringe benefit in relation to the year of tax. The valuation principles that are used to calculate the taxable value of an in-house residual fringe benefit are contained within sections 48 and 49 of the FBTAA. The relevant section depends upon whether the benefit is one that is provided during a period. If the benefit is provided throughout a period benefit the relevant section is section 49, but if the benefit is not provided throughout a period the relevant section is section 48. As the service is not provided throughout a period the benefit will be a non-period residual benefit and the relevant calculation method is that contained within section 48 of the FBTAA.