Private ruling: Exempt residual benefits
Published: November 2014
Ruling period: 1 April 2014 - 31 March 2018
Date scheme commenced: 1 April 2014

Ruling: Q1: Where the employer authorises an employee to book their own transport on the employer's behalf and the employee is later recompensed, does the provision of transport satisfy paragraph 47(7)(d) of the Fringe Benefits Tax Assessment Act (FBTAA)? | A1: No

Relevant facts and circumstances: Employees of the employer are employed to work at sites which are located in remote areas which are locations that are not in, or adjacent to, eligible urban areas for the purposes of subparagraph 47(7)(a)(ii) of the FBTAA and section 140 of the FBTAA (remote area site(s)). Current arrangement It is a current term of employment that the point of employment for an employee is the remote area site. In these circumstances the employee bears the cost of travel from the employee's usual place of residence to the remote area site. Where a rostered employee works in a remote area site and lives in the employer's accommodation the following can occur • The employee applies for a salary sacrifice of the costs of flights and requests flights for a minimum 12 week period; • The employer's travel team books and pays for the flights; • The employee has a standard amount sacrificed each pay; • At the end of each quarter the sacrificed amounts are reconciled with the actual cost of flights and the employee either salary sacrifices extra if they owe more, or is refunded he difference if the salary sacrifice is too much The employer is of the view that the provision of the flights to and from the remote area site is the provision of an exempt benefit under subsection 47(7) of the FBTAA. Thus the Employer does not pay fringe benefits tax in respect of the provision of the flights under the current arrangement. Proposed arrangement Under the proposed arrangement it will continue to be a term of employment that the point of employment for an employee is the remote area site. The employee continues to bear the cost of travel from the employee's usual place of residence to the remote area site. In order to shift the administrative burden of the employer booking and paying for flights the employer has proposed the following arrangement: • The employer retains the services of a salary packaging provider; • The employee applies to the salary packaging provider for a salary sacrifice of the costs of flights and nominates payroll deduction amounts; • The employer requires the employee to accept an authorisation to book the employee's flights on the employer's behalf; • The salary packaging provider establishes an account and reports to the employer the amounts to be sacrificed; • The employer deposits the salary sacrificed amounts from the employee's pre-tax remuneration into the salary packaging provider's trust account (on trust for the employer) and it is attached to the employee's salary packaging account; • The employee books and pays for the flights directly to the airline or a travel agent; • The employee claims recompense from the pre-tax salary sacrificed amounts through the salary packaging provider; • The employee receives from the salary packaging provider funds equal to the cost of the flights into their nominated account; • Expenditure reports are provided by the salary packaging provider to the employer monthly.

Relevant legislative provisions: Section 20, Fringe Benefits Assessment Act 1986 . | Section 45, Fringe Benefits Assessment Act 1986 | Subsection 136(1), Fringe Benefits Assessment Act 1986 | Subsection 47(7), Fringe Benefits Assessment Act 1986

Reasons for decision: Summary: A 'benefit' is defined in subsection 136(1) of the FBTAA, as: benefit includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under: (a) an arrangement for or in relation to: (i) the performance of work (including work of a professional nature), whether with or without the provision of property; (ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or (iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; The proposed arrangement will result in the employer providing the employee with a benefit. The question arises as to what type of benefit is provided. Does the proposed arrangement result in an expense payment benefit under section 20 of the FBTAA? Alternatively, does the proposed arrangement result in an exempt residual benefit under subsection 47(7) of the FBTAA? | Detailed Reasoning - Expense payment benefit: Section 20 of the FBTAA states: Where a person (in this section referred to as the ' provider '): (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the ' recipient ') to pay an amount to a third person in respect of expenditure incurred by the recipient; or (b) reimburses another person (in this section also referred to as the ' recipient ') in whole or in part, in respect of an amount of expenditure incurred by the recipient; the making of the payment referred to in paragraph (a), or in the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient. In this case, under the contract of employment, the employee (in terms of section 20 of the FBTAA, the recipient) will have an obligation to the third party to pay the cost of their flights between their home and the remote area site. The employer (in terms of section 20 of the FBTAA, the provider) will make a payment in discharge of that obligation. According to the terms of the contract of employment, the employee themselves bears the costs of transport (flights) between their home and the remote area site. The employer will be making the expense payment because the employer will be required to reimburse the employee under an effective salary sacrifice arrangement between the employer and the employee. The employee bears the cost of the flights (albeit from pre-tax income). In these circumstances, the Commissioner is of the view that the benefit that will be provided by the employer under the proposed arrangement is an expense payment benefit under section 20 of the FBTAA. | Detailed Reasoning - Exempt residual benefit: If the conditions set out in subsection 47(7) of the FBTAA 1986 are satisfied, the provision of transport between the usual place of residence of an employee and their usual place of employment in a remote area is an exempt residual benefit. In this case, in determining whether there will be the provision of an exempt residual benefit under the proposed arrangement, the issue is whether paragraph 47(7)(d) can apply, namely whether the employee will be provided with transport by the employer (or an associate of the employer or an arranger). Paragraph 47(7)(d) of the FBTAA states: (d) the employee is provided with transport on a regular basis in connection with the travel referred to in subparagraph (c)(ii) and that transport is provided by: (i) the employer; or (ii) an associate of the employer; or (iii) a person (in this subparagraph referred to as the "arranger" ) other than the employer or an associate of the employer under an arrangement between: (A) the employer or an associate of the employer; and (B) the arranger or another person; … Subsection 136(1) of the FBTAA defines a 'residual benefit' as 'a benefit that is a residual benefit by virtue of section 45.' According to section 45 of the FBTAA, a benefit is a residual benefit for the purposes of the FBTAA if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive) of the FBTAA. Under the proposed arrangement it is a term of employment that the employee will bear the costs of the flights between their usual place of residence and the remote area site and the employee sources and pays for those flights. When the employee books the flights, they themselves are liable to pay for the cost of the flights at that time and not the employer. It is the Commissioner's view that the proposed acceptance by the employee of an authorisation to book flights on their employer's behalf does not change or circumvent the term of employment that the employee is responsible for the costs of flights between their home and the remote area site. As explained above, the benefit is an expense payment benefit under section 20 (Division 5) of the FBTAA. As such, the benefit cannot be a residual benefit as defined in subsection 136(1) of the FBTAA and is not an exempt residual benefit under subsection 47(7) of the FBAA.