Private ruling: Fringe benefits tax; non monetary gifts
Published: March 2012
Ruling period: Year ending 31 March 2008 | Year ending 31 March 2009 | Year ending 31 March 2010 | Year ending 31 March 2011 | Year ending 31 March 2012 | Year ending 31 March 2013 | Year ending 31 March 2014 | Year ending 31 March 2015

Ruling: Q1: Are non monetary gifts received by employees of the employer from third party government entity fringe benefits as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ? | A1: Yes | Q2: Are non monetary gifts received by employees of the employer from a third party company fringe benefits as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ? | A2: Yes | Q3: Are gifts received by employees of the employer from members of the community fringe benefits as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ? | A3: Yes | Q4: When employees of the employer are also board members of the third party government entity, are benefits they receive because of their board position provided in respect of their employment with the employer? | A4: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The employer is a government entity. It is customary for employees to receive non monetary gifts from businesses and members of the public to thank them for hard work done on a certain project or when they attend events as a representative of the employer. The policy of the employer is that the offer of gifts is to be declared by employees and the employer has a formal approval process to be followed before an employee can accept the gift. Most non monetary gifts received by employees are from a third party government entity and a third party company. The remaining gifts are received by employees from members of the community.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 subsection 136(1), | Fringe Benefits Tax Assessment Act 1986 section 159, | Income Tax Assessment Act 1936 section 6, | Income Tax Assessment Act 1936 section 318 and | Income Tax Assessment Act 1997 section 995-1.

Reasons for decision: Summary: Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) defines 'fringe benefit' as a benefit provided to an employee or an associate of an employee in respect of the employment of the employee by: · the employer · an associate of the employer · a person other than the employer or associate of the employer under an arrangement with the employer or associate and the provider, or · a person other than the employer or associate of the employer if the employer or associate: o participates in or facilitates the provision or receipt of the benefit, or o 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. | Detailed Reasoning - Benefits provided in respect of employment: The term 'benefit' as defined in subsection 136(1) of the FBTAA includes any right, privilege service or facility. The definition of 'in respect of' in subsection 136(1) of the FBTAA, in relation to the employment of an employee, includes by reason of, by virtue of, or for or in relation directly or indirectly to that employment. When employees of the employer receive non monetary gifts from the third party government entity to thank them for work done on a project, or to attend events as representatives of the employer, the employees are provided with benefits in respect of their employment with employer. | Detailed Reasoning - Provider of the benefits: Where the provider of benefits is not the employer, the benefits are fringe benefits if they are provided by an associate of the employer. Section 159 of the FBTAA ensures that certain entities are associates of each other for the purposes of the FBTAA. Paragraph (e) of subsection 159(2) of the FBTAA deems an authority of a State to be an associate of each other authority of the State. In the High Court decision in Committee of Direction of Fruit Marketing v Australian Postal Commission (1980) 144 CLR 577 at 580 it was held by Gibb J that: The expression 'authority of a state' refers to a body which exercises power derived from or delegated by the state… and that The words authority of the State naturally mean a body which is given by the State the power to direct or control the affairs of others on behalf of the State - i.e., for the purposes of and in the interests of the community or some section of it. The employer is an authority of the State as it has been given power by the State to direct or control the affairs of others in the interests of a section of the community on behalf of the State. The third party government entity is also an authority of the State as it has been delegated powers by the State to perform functions on behalf of the State. This means that the employer and the government entity are deemed to be associates of each other under paragraph 159(2)(e) of the FBTAA and the benefits received by employees of the employer are fringe benefits under subsection 136(1) of the FBTAA. | Detailed Reasoning - Benefits provided in respect of employment: For the same reasons given in relation to Question 1, when employees of the employer receive non monetary gifts such from the third party company to thank them for work done on a project or to attend events as representatives of the employer, the employees are provided with benefits in respect of their employment with the employer. | Detailed Reasoning - Provider of the benefits: Where the provider of benefits is not the employer, the benefits are fringe benefits if they are provided by an associate of the employer or, in some circumstances, by a third party. The third party company is a community based organisation and is not an authority of the State so it is not an associate of the employer under section 159 of the FBTAA. Subsection 136(1) of the FBTAA defines 'associate' as having the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). Section 318 of the ITAA 1936 describes associates of the following entities: · a natural person · a company · a trustee, and · a partnership. The employer is not a natural person, trustee or partnership. For the third party company to be an associate of the employer, the employer must be a company and the third party company must be an associate as described in subsection 318(2) of the ITAA 1936. | Detailed Reasoning - The legal status of the employer: A 'company' is defined in section 6 of the ITAA 1936 as having the meaning given in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). Subsection 995-1(1) of the ITAA 1997 defines 'company' to include a body corporate. 'Body corporate' is not a defined term. Guidance on the meaning of 'body corporate' is provided in paragraphs 30 to 34 of Taxation Ruling MT 2006/1. 'Body corporate' is a general term to describe an artificial entity having a separate legal existence. It has the ability to continue in existence indefinitely and to keep its identity regardless of changes to its membership. It also has the power to act, hold property, enter into legal contracts, sue and be sued in its own name. A body corporate may be created by common law, by statute or by registration pursuant to statute. MT 2006/1 gives examples of bodies corporate. Because of the way that the employer was established and changes that have occurred to the law under which it was established there is some uncertainty about whether or not the employer should be regarded as a body corporate and, therefore, a company for the purposes of subsection 318(2) of the ITAA 1936. | Detailed Reasoning - Can the third party company be an associate of the employer?: If the employer was a company, the third party company would be its associate if there was a relationship between them that fits the description of an associate of a company under subsection 318(2) of the ITAA 1936. Paragraphs (d) and (e) of subsection 318(2) of the ITAA 1936 sets out the circumstances in which a company is an associate of another company. They are: · one of the companies is sufficiently influenced by the other company, alone, or together with associates of the controlling company, and · one of the companies, alone, or together with an associate of the controlling company has a majority voting interest in the other company. In accordance with paragraph 318(6)(b) of the ITAA 1936 a company is sufficiently influenced by another company and its associates if the company or its directors, are accustomed, under an obligation, or might reasonably be expected to act in accordance with directions, instructions or wishes of the other company and its associates. In accordance with paragraph 318(6)(c) of the ITAA 1936 a majority voting interest is more than 50% of the maximum number of votes that might be cast at a general meeting of the company. The employer was established to perform functions on behalf of the State. It is not subject to any directions, instructions or wishes of the third party company and the company does not have any voting interests in the employer. A clear majority of the Directors of the third party company are members of the community with no connection to the employer so the Board of Directors is under no obligation to act in accordance with any directions, instructions or wishes of the employer and it would not be expected to do so. The company operates independently of the employer to achieve the objects for which it was established. The third party company is not a member of a corporate group and is owned by its members who have all voting rights. Therefore, if the employer was a company, the third party company would not be its associate as neither company would be sufficiently influenced by the other and neither company would have the major voting interest in the other. | Detailed Reasoning - Third party provider: Where benefits are not provided by the employer or by an associate of the employer, in certain circumstances, the benefits are fringe benefits if they are provided by a third party. Under paragraph (e) in the definition of 'fringe benefit' in subsection 136(1) of the FBTAA, a fringe benefit arises if the benefit is provided by a third party under an arrangement covered by paragraph (a) of the definition of 'arrangement' between the employer (or their associate) and the provider of the benefit or another person. Paragraph (a) of the definition of 'arrangement' in subsection 136(1) of the FBTAA covers: any agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable by legal proceedings. The benefits received by employees of the employer from the third party company are not provided under any form of arrangement or understanding between the employer and the company or any other person. The benefits are not provided under an arrangement covered by paragraph (a) of the definition of 'arrangement' in subsection 136(1) of the FBTAA. Under paragraph (ea) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA, a fringe benefit arises when a benefit is provided by a third party if: · the employer (or their associate) participates in, or facilitates the provision or receipt of the benefit, or participates in, facilitates or promotes a scheme or plan involving the provision of the benefit, and · the employer (or their associate) knows or ought reasonably to know that the employer (or associate) is doing so. The Macquarie Dictionary Multimedia Version 5.0.0 - 01/10/01 includes the following definitions: Participate : to take or have a part or share, as with others; share. Facilitate : to make easier or less difficult; help forward (an action, a process, etc.) The definition of fringe benefit in subsection 136(1) of the FBTAA was amended to include paragraph (ea) by Taxation Laws Amendment Bill (No 2) 1998 Taxation Laws Amendment Act (No 1) 1999 . The Explanatory Memorandum to that Bill states the following: 2.43 An employer will not be liable for FBT in respect of a third party benefit if the employer did not agree and is not involved in relation to the provision or receipt of the benefit, regardless of whether the employer knew that the benefit had been provided. For example, entertainment by way of meals provided to employees by a third party would not give rise to a fringe benefit unless the employer agreed to the benefit being provided or the employer was involved in a relevant way in providing the benefit. 2.44 An employer would not necessarily be liable for FBT for a third party benefit merely because the employer was involved in relation to the benefit. A third party benefit would be a fringe benefit only if the employer knew, or ought to have known, that he or she was involved in relation to a third party benefit. For example, an employer will not be able to avoid liability for a third party benefit simply by claiming that he or she did not know or realise that their involvement resulted in a third party providing benefits to the employer's employees or associates of employees and that any involvement in the provision or receipt of the benefit was unintentional. If it would be reasonable to conclude that the employer or associate of the employer should have known that he or she was involved in relation to the benefit because for example it is customary in the industry concerned, a fringe benefit would arise. 2.45 On the other hand, an employer would not be liable for FBT for a third party benefit if the employer was involved in relation to the benefit but did not realise that he or she was involved and could not reasonably be expected to know that he or she was involved. It is customary for employees to be offered non monetary gifts by members of the community and the policy of the employer is to allow its employees to receive such gifts subject to its approval process. By approving gifts rather than preventing employees from accepting them the employer makes it easier for employees to accept them. This means that the employer is knowingly participating in, and facilitating, the receipt of gifts that are provided to its employees. Accordingly, non monetary gifts provided to the employer's employees by the third party company in respect of the employees' employment are 'fringe benefits' as defined in subsection 136(1) of the FBTAA. | Detailed Reasoning - Benefits provided in respect of employment: For the same reasons given in relation to Question 1, when employees of the employer receive gifts from members of the community to thank them for work done on a project or to attend events as representatives of the employer, the employees are provided with benefits in respect of their employment with the employer. | Detailed Reasoning - Providers of the benefits: As explained in the reasons for decision given in relation to Question 2, where benefits are not provided by the employer or by associates of the employer, in certain circumstances, the benefits are fringe benefits if they are provided by a third party. Those circumstances are where the benefits are provided under the arranger provisions referred to in paragraph (e) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA and, under paragraph (ea) of the definition, where there is no arrangement but the employer knowingly participates in or facilitates the provision of the benefits. The benefits received by employees of the employer from members of the community are not provided under any form of arrangement or understanding that would be covered by paragraph (a) of the definition of 'arrangement' in subsection 136(1) of the FBTAA. However, for the same reasons given for the answer to Question 2, the employer is knowingly participating in, and facilitating, the receipt of gifts that are provided to its employees by members of the community. Accordingly, gifts provided to employees by members of the community in respect of their employment with the employer are 'fringe benefits' as defined in subsection 136(1) of the FBTAA. | Detailed Reasoning - Question 4: An employer is generally liable for fringe benefits tax on the taxable value of fringe benefits that are provided to its employees. In accordance with the definition of 'fringe benefit' in subsection 136(1) of the FBTAA, a benefit is a fringe benefit if it is provided 'in respect of' the employment of the employee. The definition of 'in respect of' in subsection 136(1) of the FBTAA, in relation to the employment of an employee, includes by reason of, by virtue of, or for or in relation directly or indirectly to that employment. When employees of the employer receive gifts that are given to them because of their position as a board member of the third party government entity, those gifts are not provided in respect of their employment with the employer. | Detailed Reasoning - Further issues for you to consider: If the taxable value of a benefit is less than $300 consideration can be given to whether the benefit is an exempt minor benefit under section 58P of the FBTAA. The application of section 58P of the FBTAA is explained in Taxation Ruling TR 2007/12.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.