Private ruling: whether a benefit is considered as being in respect of employment?
Published: January 2013
Ruling period: 1 September 2012 to 31 March 2013
Date scheme commenced: 1 September 2012

Ruling: Q1: Is the provision of a car to a former employee under an agreement between an employer and a former employee considered to be a fringe benefit pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: No.

Relevant facts and circumstances: Arrangement The context of the deed of arrangement under which the cars were provided to the former employee is stated in the deed of arrangement to be in respect of the ownership of the business following divorce. No remuneration was outstanding to the former employee at the date of termination of employment.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 136(1)

Reasons for decision: Summary: The benefit provided is not considered to have been provided in respect to the employment of an employee, as such the benefit is not considered to be a fringe benefit. | Detailed Reasoning - Detailed reasoning: A fringe benefit is defined in subsection 136(1) of the FBTAA as follows: fringe benefit , 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 (r) contain a number of exclusions from this definition. Therefore in considering whether the benefit was a fringe benefit it is necessary to consider the following issues: (a) Was the benefit provided to an employee, or an associate of an employee? (b) Was the benefit provided by the employer or an associate of the employer, or by another person under an arrangement between the employer, or an associate of the employer and the other person? (c) Was the benefit provided in respect of the employment of the employee? (d) Was the benefit one of the benefits listed in paragraphs (f) to (r) of the fringe benefit definition? | Detailed Reasoning - (a) Was the benefit provided to an employee, or an associate of an employee?: In the circumstances of this case the benefits, the use of the cars has been provided to a former employee of the employer. The term employee is defined in subsection 136(1) of the FBTAA as follows: employee means: (a) a current employee; (b) a future employee; or (c) a former employee. On the basis of the above, clearly the benefits have been provided to an employee. (b) Was the benefit provided by the employer or an associate of the employer, or by another person under an arrangement between the employer, or an associate of the employer and the other person? Benefits have been provided by the employer to a former employee under a deed of arrangement. | Detailed Reasoning - (c) Was the benefit provided in respect of the employment of the employee?: The phrase 'in respect of, in relation to the employment of an employee' is defined in subsection 136(1) of the FBTAA as follows: in respect of, 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. The meaning of this phrase was considered by the federal court in J & G Knowles v. Federal Commissioner of Taxation [2002] 96 FCR 402; 2000 ATC 4151; 44 ATR 22 (Knowles) and Starrim Pty Ltd v. Federal Commission of Taxation [2000] FCA 952; 2000 ATC 4460; 44 ATR 487 (Starrim). In Knowles the Full Federal Court considered the judgements in Smith v. FCT (1987) 164 CLR 513; 19 ATR 274; 87 ATC 4883 and Federal Commissioner of Taxation v. Rowe (1995) 60 FCR 99; 31 ATR 392; 95 ATC 4691 before concluding that it is not sufficient for the purposes of the FBTAA to conclude that there is a causal connection between the benefit and the employment. At paragraph 26 the Court said: Whatever question is to be asked, it must be remembered that what must be established is whether there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment At paragraphs 28 and 29 the Court said: Whilst the width of the definition of fringe benefit was designed to capture benefits that, in truth, were other than remuneration, the stated purpose suggests that asking whether the benefit is a product or incident of the employment will be helpful. If it is not then the benefit is likely to be extraneous to the employment and will not bear FBT, notwithstanding that the employment might have been a causal factor in the provision of the benefit. In particular, the fact that a benefit is provided to a director because it was authorised by that director will not, of itself, be sufficient to characterise the benefit as one which is in respect of the employment. Without more, it is not a product or incident of that office. To put the matter another way, although the process of characterising the benefit provided in a particular case can involve questions of fact and degree, it is not sufficient for the purposes of the FBTAA merely to enquire whether there is some causal connection between the benefit and the employment… In Starrim Lindgren J. further considered the phrase in respect of in relation to a private company which provided benefits to a husband and wife who were its only shareholders and directors. In considering whether the benefits were provided in respect of their employment as directors, Lindgren J said at paragraph 52: Fourthly, the decision of the full court in Knowles establishes that the required relationship between the provision of a benefit and the employment is not established merely by the existence of some or a causal relationship, and, in particular, that it is not established by nothing more than the fact that the employee has been able to cause the benefit to be provided to him by reason of his or her office as a director of the employer. There must be a sufficient or material relationship between the employment and the provision of the benefit. The context of the deed of arrangement under which the cars were provided to the former employee is stated in the deed of arrangement to be in respect of the ownership of the business following divorce. Further, no remuneration was outstanding to the former employee at the date of termination. On the basis of the above, there is not a sufficient or material relationship between the employment and the provision of the benefit. Rather, the benefit has been provided in respect to the splitting of the ownership of the business following the divorce of the owners. | Detailed Reasoning - (d) Was the benefit one of the benefits listed in paragraphs (f) to (r) of the fringe benefit definition?: None of the exclusion provided in paragraphs (f) to (r) of the fringe benefit definition have application to the circumstances in this case.

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