Private ruling: Fringe benefits tax - Internally Funded Scholarships
Date of advice: 16 June 2016
Published: August 2016
Ruling period: FBT year ended 31 March 2016 | FBT year ended 31 March 2017 | FBT year ended 31 March 2018 | FBT year ended 31 March 2019
Date scheme commenced: 1 April 2015

Ruling: Q1: Is the provision of internally funded scholarships by an educational institution to specified employees who undertake a specified course a residual benefit under section 45 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes. | Q2: If the answer to (1) above is yes, is the provision of the scholarship further classified as an in-house period residual fringe benefit under section 49 of the FBTAA? | A2: Yes.

Relevant facts and circumstances: The educational institution was established to carry on a business of providing a wide range of higher education courses to students. The educational institution offers a course designed specifically for specific staff members but is also open to the public. The admission criteria are that applicants to the course must normally hold an approved Bachelor degree or equivalent qualification from an approved tertiary institution. Each year the educational institution offers a number of internally-funded scholarships to eligible employees. Eligible students are selected by academic merit, being an employee of the institution and having a current relevant responsibility. These eligible employees do not incur any obligation to make any payment for the course, that is, there is a full waiver of the tuition fee. Students not awarded a scholarship have to pay the student contribution amount. There are no additional charges.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 subsection 136(1) | Fringe Benefits Tax Assessment Act 1986 section 45 | Fringe Benefits Tax Assessment Act 1986 section 49

Reasons for decision: Summary: Is the provision of internally funded scholarships by the educational institution to specified employees who undertake a specified course a residual benefit under section 45 of the FBTAA? | Detailed Reasoning - Detailed reasoning: Under subsection 136(1), fringe benefit is defined as: in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit: (a) provided at any time during the year of tax; or (b) provided in respect of the year of tax; being a benefit provided to the employee or to an associate of the employee by: (c) the employer; or (d) an associate of the employer; or (e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between: (i) the employer or an associate of the employer; and (ii) the arranger or another person; or (ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer: (i) participates in or facilitates the provision or receipt of the benefit; or (ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so; in respect of the employment of the employee, but does not include: [paragraphs (f) to (s)]. The elements from this definition are: | Detailed Reasoning - 1. A benefit: According to the Fringe benefits tax - a guide for employers , benefits include rights, privileges or services. The provision of the course gives something of value to the employee and therefore satisfies the definition of the term benefit as defined in the FBTAA. | Detailed Reasoning - 2. Provided to the employee or an associate of the employee: The benefit is to be provided to selected employees. Therefore this condition is met. | Detailed Reasoning - 3. Provided by the employer, an associate of the employer or an arranger: The benefit is to be provided by the educational institution as the employer. Therefore this condition is met. | Detailed Reasoning - 4. Be provided in respect of employment: The scholarships are provided only to selected employees of the educational institution. They are not offered to individuals who are not employees. Therefore this condition is met. | Detailed Reasoning - 5. Not listed in paragraphs (f) to (s) of the definition of a fringe benefit: Paragraphs (f) to (s) in subsection 136(1) contain a number of benefits which do not qualify as a fringe benefit for the purposes of the FBTAA. The scholarships do not fall under paragraphs (f) to (s), and therefore, this condition is met. As all of the conditions have been met, the benefit provided comes within the definition of fringe benefit under subsection 136(1) of the FBTAA. As the benefit in question is a fringe benefit, we need to determine if the benefit is a residual benefit or another type of benefit. | Detailed Reasoning - Type of fringe benefit: Any fringe benefit that does not fall within any of the specific categories of fringe benefit is a residual fringe benefit. Essentially, these are the fringe benefits that remain or are left over because they are not one of the more specific categories of fringe benefit. Subsection 136(1) provides that a residual benefit means a benefit that is a residual benefit by virtue of section 45. Section 45 of the FBTAA provides that: A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). These categories include: • Car fringe benefit • Debt waiver fringe benefit • Loan fringe benefit • Expense payment fringe benefit • Housing fringe benefit • Living-away-from-home allowance fringe benefit • Board fringe benefit • Meal entertainment fringe benefit • Tax-exempt body entertainment fringe benefit • Car parking fringe benefit • Property fringe benefit In these circumstances, employees do not incur any financial liability in respect to the course and therefore the benefit could not be classified as an expense payment fringe benefit under Division 5 or a debt waiver benefit under Division 3 of the FBTAA. No property passes to the employees as would be required under Division 11. No other Divisions have application. As the provision of a scholarship which provides a free course of education does not fall within any of the specific categories of benefits within Subdivision A of Divisions 2 to 11 (inclusive), it is therefore classified as a residual fringe benefit. | Detailed Reasoning - Question 2: If the answer to (1) above is yes, is the provision of the scholarship further classified as an in-house period residual fringe benefit under section 49 of the FBTAA? | Detailed Reasoning - Detailed reasoning: As is relevant in the circumstances, an in-house residual fringe benefit is defined in subsection 136(1) as: 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 … In these circumstances, as the educational institution is both the provider and the employer, paragraph (a)(i) is met. In addition, in accordance with subparagraph (a)(ii) it needs to be determined whether at or about the comparison time, the educational institution carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders. | Detailed Reasoning - Comparison time: Under subsection 136(1) comparison time in relation to a residual fringe benefit, means: (a) if the fringe benefit is constituted by a benefit to which subsection 46(2) applies - the start of the billing period referred to in that subsection in relation to the benefit; or (b) if the fringe benefit is a period residual fringe benefit - the time when the recipients overall benefit started to be provided; or (c) if the fringe benefit is an airline transport fringe benefit - the time when the transport starts; or (d) otherwise - the time when the benefit is provided. Therefore, if the fringe benefit is a period residual fringe benefit (see later in these reasons), the comparison time is when the recipients overall benefit started to be provided. | Detailed Reasoning - Carried on a business: The educational institution is carrying on a business | Detailed Reasoning - Provision of identical or similar benefits principally to outsiders: Subsection 136(1) defines outsider to mean: in relation to the employment of an employee of an employer, means a person not being: (a) an employee of the employer; (b) an employee of an associate of the employer; (c) an employee of a person (in this definition referred to as the provider) other than the employer or an associate of the employer who provides benefits to, or to associates of, employees of the employer or an associate of the employer under an arrangement between: (i) the employer or an associate of the employer; and (ii) the provider or another person; or (d) an associate of an employee to whom any of the preceding paragraphs apply. An identical benefit in relation to a residual fringe benefit is defined in subsection 136(1) of the FBTAA and further clarified at paragraphs 215 to 217 of Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12) as follows: 215. The term 'identical benefit' as defined in section 136(1) of the FBTAA, in relation to residual fringe benefits, to mean: another benefit that is the same in all respects, except for differences (if any) that are minimal or insignificant and do not affect the value of the other benefit. 216. Although this definition does not apply to section 58P, it assists in understanding the meaning of the term and is not inconsistent with the ordinary (dictionary) meaning of 'identical'. 217. In giving meaning to the words 'identical' and 'similar', it is clear that the dictionary meanings, in the context of section 58P and its intended operation, are both appropriate and applicable. The term 'similar benefit' is not defined within the FBTAA. The Macquarie Dictionary , [Online], viewed mid June 20xx, www.macquariedictionary.com.au defines 'similar' as 'having likeness or resemblance, especially in a general way'. The educational institution's business activity is the provision of tertiary education through the provision of a wide range of courses to students. The Commissioner accepts that these courses are similar benefits to the course that is specifically designed for relevant staff members as they provide knowledge and, in most cases, a qualification upon successful completion. Therefore, this part of subparagraph (a)(ii) is satisfied. As such, all of the parts of paragraph (a) are satisfied, and the benefit meets the definition of in-house residual fringe benefit. Therefore, the provision of internally-funded scholarships by the educational institution to specific employees who undertake the relevant course is an in-house residual benefit as defined in subsection 136(1) of the FBTAA. | Detailed Reasoning - Period or non-period: The method used to value an in-house residual fringe benefit depends upon whether it is an 'in-house period residual fringe benefit', or an 'in-house non-period residual fringe benefit'. Both of these terms are defined in subsection 136(1) of the FBTAA. An in-house non-period residual fringe benefit is defined to mean 'an in-house residual fringe benefit that is not provided during a period' while an in-house period residual fringe benefit is defined to mean 'an in-house residual fringe benefit that is provided during a period'. In determining whether the benefit was provided during a period subsection 149(1) of the FBTAA provides that a benefit will be taken to be provided during a period if it is provided for a period of more than 1 day and is not deemed by a provision of the FBTAA to be provided at a particular time, or on a particular day. In these circumstances, as the benefit is provided for a period of more than 1 day, it will be an in-house period residual fringe benefit unless it is deemed by a provision of the FBTAA to be provided at a particular time, or on a particular day. Section 49 of the FBTAA defines the taxable value of in-house period residual fringe benefit as follows: Subject to this Part, the taxable value of an in-house period residual fringe benefit in relation to a year of tax is: (a) if … at or about the comparison time, identical overall benefits were provided by the provider: (i) in the ordinary course of business to members of the public under an arm's length transaction or arm's length transactions; and (ii) in similar circumstances and subject to identical terms and conditions (other than as to price) as those that applied in relation to the provision of the recipients overall benefit; an amount equal to 75% of the lowest amount paid or payable by any such member of the public in respect of the current identical benefit in relation to an identical overall benefit so provided; or (b) in any other case - an amount equal to 75% of the notional value of the recipients current benefit; reduced by the amount of the recipients contribution insofar as it relates to the recipients current benefit. Recipients overall benefit is defined in subsection 136(1) in relation to a period residual fringe benefit to mean the benefit to which the fringe benefit relates, including that benefit as it was or will be provided at any time outside the year of tax. Identical overall benefit is defined in subsection 136(1), in relation to a recipient's overall benefit, in relation to a period residual fringe benefit to mean a benefit that is the same in all respects as the recipient's overall benefit (except for any differences that are minimal or insignificant and do not affect the value of the benefit). Current identical benefit is defined in subsection 136(1) of the FBTAA in relation to an identical overall benefit in relation to a year of tax to mean that identical overall benefit insofar as it was provided during the year of tax. The employee recipients overall benefit is the benefit that arises from the provision of the relevant course to employees of the educational institution. Identical overall benefits were provided by the educational institution in the ordinary course of business to members of the public under an arm's length transaction and in similar circumstances and subject to identical terms and conditions (other than price) to the employee recipients overall benefits. Therefore, the taxable value of the in-house period residual fringe benefit that arises from the provision of the relevant course to employees of the educational institution, will be an amount equal to 75 per cent of the lowest amount charged for the identical delivery of that course of education to members of the public insofar as it was provided during the year of tax. The taxable value may be able to be reduced under section 62 of the FBTAA which provides for the sum of the taxable values of the in-house fringe benefits provided to a particular employee to be reduced by $1,000.