Private ruling: Fringe benefits tax - excluded fringe benefit
Date of advice: 28 February 2020
Published: April 2020
Ruling period: Year ended 31 March 2021 | Year ended 31 March 2022 | Year ended 31 March 2023 | Year ended 31 March 2024
Date scheme commenced: 1 April 2020

Ruling: Q1: Will an amount paid or reimbursed by a Commonwealth agency in respect of an employee's utility expense whilst the employee is on an overseas posting constitute an 'excluded fringe benefit' pursuant to paragraph 5E(3)(i) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes


Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Subsection 5E(3) | Fringe Benefits Tax Assessment Act 1986 Section 20 | Fringe Benefits Tax Assessment Act 1986 Section 21 | Fringe Benefits Tax Assessment Act 1986 Subsection 135P(1) | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1) | Fringe Benefits Tax Assessment Regulations 2018 Regulation 11(2)

Reasons for decision: Summary: Will an amount paid or reimbursed by a Commonwealth agency in respect of an employee's utility expense whilst the employee is on an overseas posting constitute an 'excluded fringe benefit' pursuant to paragraph 5E(3)(i) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? Fringe benefit An amount paid directly to utility providers, or reimbursed by a Commonwealth agency in respect of an employee's utility expenses will be a 'fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), if it is The amount paid or reimbursed in respect of an employee's utility expenses whilst working overseas constitutes a 'benefit' which is provided during the year of tax. The benefit is provided by a Commonwealth agency (as an employer) to an employee. The benefit is provided in respect of the Commonwealth agency employee's employment as it is provided while the employee is working overseas on a long-term posting at the direction of the Commonwealth agency. The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA. The reimbursement of a Commonwealth agency employee's utility expenses by the Commonwealth agency whilst the employee is required to work overseas constitutes an expense payment benefit pursuant to section 20 of the FBTAA. Excluded fringe benefits What constitutes an excluded benefit is set out in subsection 5E(3) of the FBTAA., Paragraph (i) provides that an excluded fringe benefit includes: that is a benefit prescribed by the regulations for the purposes of this paragraph: Regulation 11 of the Fringe Benefits Tax Assessment Regulations 2018 (FBTAR) states: 11(1) Each fringe benefit covered by a subsection of this section is prescribed for the purposes of paragraph 5E(3)(i) of the Act. 11(2) A fringe benefit provided to an employee of the Commonwealth is covered by this subsection if the benefit: ... (b) is an expense payment fringe benefit that: (i) is not exempt under section 21 of the Act; and (ii) relates to accommodation that is required solely because the duties of the employee's employment require the employee to live away from the employee's normal residence; or The benefits in this instance will be expense payment fringe benefits. The exemption under section 21 of the FBTAA does not apply as this provision relates to the payment or reimbursement of the employee for accommodation expenses where the employee's duties of employment require them to live away from their normal residence. It is therefore necessary to determine if the benefits relate to the accommodation provided to the employee because their duties of employment required them to live away from their normal residence. It is satisfied that the provision of accommodation is because the employee's duties required them to live away from their normal residence. The question is whether the payment or reimbursement of the utilities costs incurred by the employee relate to the accommodation provided to the employee. 'Relates to accommodation' The phrase 'relates to accommodation' is not defined in the FBTAA. The meaning of 'relates to' has been discussed at common law. It was common ground in Tooheys Ltd v. Commissioner of Stamp Duties (NSW) (1960) 105 CLR 602 at 620 per Taylor J; Joye v. Beach Petroleum NL & Anor (1996) 14 ACLC 1174 at 1181-1182; (1996) 67 FCR 275 at 285 per Beaumont and Lehane JJ; Australian Competition and Consumer Commission v. Maritime Union of Australia (2002) ATPR 41-849 at 44,514; (2001) 114 FCR 472 at 487 per Hill J; North Sydney Council v. Ligon 302 Pty Ltd (1996) 185 CLR 470; Project Blue Sky Inc v. Australian Broadcasting Authority (1998) 194 CLR 355 at 387; O'Grady v. Northern Queensland Co Ltd (1990) 169 CLR 356 at 374 per Toohey and Gaudron JJ; and HP Mercantile Pty Limited v. FC of T 2005 ATC 4571 at 35; that the term 'relates to' was extremely wide requiring the existence of an association or connection between two subject matters. That connection or association may be direct or indirect, substantial or real, depending on the context in which the words are used. However, the connection or association must be relevant and a remote relationship would generally not suffice. It is considered that there is a direct connection or association between the accommodation and the utility costs that are paid in relation to that accommodation. It is therefore accepted that the benefits 'relate to accommodation'. This is consistent with the intention of the amendments to the law in the Explanatory Statement to the Fringe Benefits Tax Amendment Regulations 2013 (No. 1) that accompanied the introduction of former paragraph 9(2)(b) [now paragraph 11(2)(b)]. The Explanatory Statement notes that, for employees, this regulation ensures that certain benefits are not included in determining their entitlement to access a number of government concessions / benefits after reforms to the living-away-from-home allowance and benefits. Specifically, it was noted: ... Paragraph 5E(3)(i) of the Act provides that an excluded fringe benefit is a fringe benefit that is prescribed by the regulations for the purposes of this paragraph. The purpose of this Regulation is to exclude living-away-from-home (LAFH) allowances and benefits, including certain expense payment and residual benefits, from being reportable fringe benefits for Commonwealth employees posted both overseas and domestically. The 2011-12 Mid-Year Economic and Fiscal Outlook (MYEFO) included reforms to the LAFH allowances and benefits, which came into effect on 1 October 2012, subject to transitional rules. The reforms removed the concessional tax treatment for employers who provide LAFH allowances and benefits to employees unless those employees maintain a home in Australia for their personal use and enjoyment at all times that they are required to live away for work, and limit the concession to a maximum period of 12 months in respect of an individual employee for any particular work location. A number of Commonwealth departments and agencies have employees in receipt of LAFH allowances and benefits, including certain expense payment benefits and residual benefits, both in Australia (including in an external territory) and overseas. Many Commonwealth employees, due to the unique nature of their deployment, will not meet the new requirements, meaning that, without amendment to the Fringe Benefits Tax Regulations 1992 (FBT Regulations), taxable LAFH allowances or benefits would be reported on the employees' payment summaries as reportable fringe benefits. This amendment to the FBT Regulations treats LAFH fringe benefits, including certain expense payment benefits and residual benefits, as excluded fringe benefits for Commonwealth employees, where those employees are required to live away from their normal residence in order to undertake their official duties of employment. The Regulation ensures that the unique nature of Commonwealth deployments, such as Defence and Foreign Affairs deployments, do not result in unintended and inequitable outcomes for those employees, such as exceeding income thresholds relating to government benefits. The amendments apply in relation to benefits provided on or after 1 October 2012, to align with the MYEFO amendments to LAFH allowances and benefits. ... Given the nature of domestic and overseas postings of Commonwealth employees, and the fact that they are often required to live away from home for periods longer than 12 months to carry out their official duties, the Government has amended the FBT Regulations so that the LAFH allowance, expense payment benefits and residual benefits are not included on their payment summaries as reportable fringe benefits. Therefore, the regulations seek to exclude both living-away-from-home benefits paid as an allowance, and benefits that relate to accommodation, whether they be expense payment or residual fringe benefits. The intention of the regulations is to ensure there are not unintended and inequitable outcomes for Commonwealth employees on overseas postings, where they are required to live away from their normal residence. | Detailed Reasoning - Conclusion: In the current situation, where expense payment benefits arise when the AFP pays for, or reimburses, an AFP employee's utility expenses whilst the employee is required to live away from their normal residence, paragraph 11(2)(b) of the FBTAR would be satisfied. The provision of such benefits will constitute an 'excluded fringe benefit' pursuant to paragraph 5E(3)(i) of the FBTAA. An 'excluded fringe benefit' is not required to be included in an employee's individual fringe benefits amount under subsection 5E(2) of the FBTAA. It follows that an 'excluded fringe benefit' is not included in an employee's reportable fringe benefits amount under subsection 135P(1) of the FBTAA and not shown on an employee's payment summary or income statement in myGov.

Relevant facts: A Commonwealth agency will cover the cost of utilities incurred by an employee required to work overseas on a long-term posting at the direction of the Commonwealth agency. Such utilities costs are either paid directly to the utilities provider by the Commonwealth agency, or the Commonwealth agency reimburses the employee for the costs incurred. | The utilities that are covered can include the following: | other fuel for ordinary household purposes | The value of the utilities costs can change due to a number of variables, including: | whether the particular Commonwealth agency employee is accompanied by their family | the location of the posting | the quality of the housing, and | The payment for, or reimbursement of, utilities costs does not include a component for the cost of accommodation in the overseas location. | Employees may also be provided with accommodation while on long-term posting overseas. Accommodation is provided by way of a living away from home allowance fringe benefit. The cost of accommodation does not include a component for the cost of utilities for long-term postings where the utilities are separately reimbursed. | The payment for, or reimbursement of, an employee's utilities is only provided where the Commonwealth agency employee is also provided with accommodation in a scenario outlined above. The payment for, or reimbursement of, utilities costs always is in respect of the same accommodation as the employee is provided. | a benefit provided at any time during the year of tax; | a benefit provided to the employee or to an associate of an employee, by the employer, or an associate of the employer, or a third party in an arrangement with the employer; | in respect of employment; and | not excluded by paragraphs (f) to (s).