Private ruling: Fringe Benefits Tax Expense Payment Fringe Benefits Otherwise Deductible Rule
Published: February 2014
Ruling period: · 1 July 2013 to 30 June 2014 | · 1 July 2014 to 30 June 2015 | · 1 July 2015 to 30 June 2016 | · 1 July 2016 to 30 June 2017 | · 1 July 2017 to 30 June 2018 | · 1 July 2018 to 30 June 2019 | · 1 July 2019 to 30 June 2020 | The scheme commences on: | 1 July 2013

Ruling: Q1: Does the 'otherwise deductible rule' in section 24 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to reduce the taxable value relating to financial advice paid for on your behalf by your employer to nil, where the expenditure would otherwise be wholly deductible by you for income tax purposes? | A1: Yes | Q2: Do you need to provide a declaration, in the approved form, to your employer to allow your employer to reduce the taxable value of an expense payment fringe benefit provided to you under the 'otherwise deductible rule' in section 24 of the FBTAA? | A2: Yes

Relevant facts and circumstances: 1. You wish to engage a financial advisor to provide ongoing advice in relation to your superannuation, retirement planning and other investments. This engagement will continue for a number of years. 2. Your financial advisor will apportion the fees charged between advice on your investments which generate your assessable income (Deductible Advice) and other advice which does not generate assessable income (Non-Deductible Advice). 3. Your financial advisor will provide you with a separate invoice for Deductible Advice and Non-Deductible Advice, with you as the recipient of both invoices. 4. You will forward the invoice relating to Deductible Advice to your employer and they will pay it for you. 5. You will pay the invoice relating to Non-Deductible Advice. 6. You will enter into an effective salary sacrifice arrangement with your employer for the amount of the Deductible Advice paid on your behalf by them.

Relevant legislative provisions: Income Tax Assessment Act 1997, section 8-1 | Fringe Benefits Tax Assessment Act 1986, section 20 | Fringe Benefits Tax Assessment Act 1986, section 24 | Fringe Benefits Tax Assessment Act 1986, section 152A

Reasons for decision: Summary: You propose to provide your employer with a tax invoice from your financial advisor that solely relates to advice given on your income producing investments, which your employer will pay on your behalf. In these circumstances the 'otherwise deductible rule' in section 24 of the FBTAA would operate to reduce the taxable value of the associated expense payment fringe benefit to nil. | Detailed Reasoning - Detailed reasoning: Under section 20 of the FBTAA an 'expense payment fringe benefit' may arise in either of two ways: · where your employer reimburses an employee for expenses incurred by the employee, or · where an employer pays a third party in satisfaction of expenses incurred by their employee. In either case, the expenses may: · relate to you gaining or producing your assessable income, · your business expenses, · capital outgoings, · private or domestic outgoings, or · a combination of the above. Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction against your assessable income where you incur expenditure which relates to you gaining or producing your assessable income or is necessarily incurred in carrying on your business. Where expenditure is a capital outgoing or private or domestic in nature, section 8-1 of the ITAA 1997 specifically denies a deduction. Section 24 of the FBTAA allows your employer to reduce the value of an expense payment fringe benefit they provide to you by the amount you would have otherwise been entitled to claim as an income tax deduction. The rule in section 24 of the FBTAA is often referred to as the 'otherwise deductible rule'. Thus in circumstances where expenditure solely relates to you gaining or producing your assessable income you would be able to claim the full amount as an income tax deduction. Under the 'otherwise deductible rule'; if your employer reimbursed you for this expenditure, or paid a third party on your behalf; the taxable value of the expense payment fringe benefit would be reduced to nil. Paragraph 5 of Taxation Determination TD 95/60 Income tax: are fees paid for obtaining investment advice an allowable deduction under section 8-1 of the ITAA 1997 for taxpayers who are not carrying on an investment business? provides that: On-going management fees or retainers are deductible under section 8-1 of the ITAA 1997. In Taxation Ruling IT 39 we discussed expenditure incurred in 'servicing' an investment portfolio. The Ruling discussed the decision in F C of T v. Green (1950) 81 CLR 313 which allowed a taxpayer a deduction in relation to the management of the income producing enterprises of the taxpayer. The Ruling concluded that expenditure in 'servicing' the portfolio should be regarded as incurred in relation to the management of income producing investments and thus as having an intrinsically revenue character. However, to be wholly deductible, all of a management fee must relate to gaining or producing assessable income. If the advice covers other matters or relates in part to investments that do not produce assessable income, only a proportion of the fee is deductible. In your case you propose to provide your employer with a tax invoice from your financial advisor that solely relates to advice given on your income producing investments, which your employer will pay on your behalf. In these circumstances the 'otherwise deductible rule' in section 24 of the FBTAA would operate to reduce the taxable value of the associated expense payment fringe benefit to nil. | Summary: You will need to provide a declaration, in the approved form, to your employer to allow your employer to substantiate the reduction in the taxable value of an expense payment fringe benefit provided to you under the 'otherwise deductible rule' in section 24 of the FBTAA. | Detailed Reasoning - Detailed reasoning: In order to apply the 'otherwise deductible rule' in section 24 of the FBTAA your employer will need a declaration, in the approved form, to substantiate the reduction of the taxable value of the benefit. Your employer must obtain the declaration from you before they lodge the relevant fringe benefits tax (FBT) return or if they do not need to lodge an FBT return by the 21 May each year. You do not need to provide an annual declaration in circumstances where you are covered by a recurring fringe benefit declaration. A recurring fringe benefit declaration is valid if: · it is provided no later than five years after the day the declaration was made · the deductible proportion of the benefit is not significantly less than the deductible proportion of the benefit for which the declaration was first provided (a difference of more than 10 percentage points is regarded as being significant) · it is 'identical' to the fringe benefit for which the declaration was first made. Benefits are to be treated as being identical if they are the same in all respects except for any differences that: · are minimal or insignificant · relate to the value of the benefits, or · relate to the deductible proportion of the benefits.