Private ruling: Expense payment fringe benefits
Published: January 2013
Ruling period: Year ended 31 March 2012
Date scheme commenced: On or after 1 Januaryl 2011.

Ruling: Q1: Is withdrawal A by Electronic Funds Transfer at Point of Sale (EFTPOS) an expense payment benefit as described in section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: No | Q2: Is withdrawal B from an automatic teller machine (ATM) an expense payment benefit as described in section 20 of the FBTAA? | A2: No | Q3: Is withdrawal C by EFTPOS an expense payment benefit as described in section 20 of FBTAA? | A3: No | Q4: Is withdrawal D by EFTPOS an expense payment benefit as described in section 20 of the FBTAA? | A4: No | Q5: Is withdrawal D from an ATM an expense payment benefit as described in section 20 of the FBTAA? | A5: No | Q6: Is withdrawal E by cheque an expense payment benefit as described in section 20 of the FBTAA? | A6: No | Q7: Is withdrawal F by cheque an expense payment benefit as described in section 20 of FBTAA? | A7: No | Q8: Is withdrawal G by cheque an expense payment benefit as described in section 20 of the FBTAA? | A8: No | Q9: Is withdrawal H by cheque an expense payment benefit as described in section 20 of the FBTAA? | A9: No | Q10: Is withdrawal J by cheque an expense payment benefit as described in section 20 of the FBTAA? | A10: No | Q11: Is withdrawal K from an ATM an expense payment benefit as described in section 20 of the FBTAA? | A11: No | Q12: Is the balance of the account being retained by the employee at the end of the FBT year an expense payment benefit as described in section 20 of the FBTAA? | A12: No | Q13: Does the capping threshold of $30,000 per employee apply to the employer as per CR 2012/86 paragraph 59? | A13: No

Relevant facts and circumstances: The employer is endorsed by the Commissioner as a charitable institution for the purposes of the rebate contained in section 65J of the FBTAA. Each week an amount is paid into a cheque of the employers. The employee has access to this account and can draw cheques, use the card issued by the bank for the account, and is able to authorise automatic payments from the account . The only records maintained by the employer is, the cheque account statement, which provides a brief detail of the transaction. In addition a hand written note of one or two words has been added to some of the transactions. No other records which detail the expenditure have been provided at any stage. The employer has stated on a number of occasions that they do not want to know how the money is expended. Cash Advances are regularly drawn from the account. No other deposits (except interest) are made into the account A number of regular automatic debits are made from the account. Copies of account statements have been provided.

Relevant legislative provisions: FBTAA section 20 | FBTAA section 38 | FBTAA section 40 | FBTAA section 45 | FBTAA section 57 | FBTAA section 57A | FBTAA section 65J | FBTAA subsection 132(1) | FBTAA subsection 136(1) | ITAA 1936 section 23L | TAA Schedule 1subsection 12-5(2) | TAA Schedule 1subsection 12-35 | TAA Schedule 1subsection 12-47

Reasons for decision: Detailed Reasoning - Question 1: Is withdrawal A by EFTPOS an expense payment benefit as described in section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | Summary: The withdrawal is not an expense payment benefit but there is insufficient evidence to determine the benefit type and the extent to which the FBTAA applies to the EFTPOS transaction. | Detailed Reasoning - Detailed reasoning: An expense payment benefit arises under section 20 of the FBTAA where an employer reimburses an employee for an expense they have incurred or pays a third party in satisfaction of expenses incurred by an employee. In this case the employee used an account of the employer to make a withdrawal using EFTPOS. Schedule 1 of Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions describes EFTPOS as: A computerised system whereby a customer can electronically transfer funds from its account where the proceeds are immediately credited to the supplier's account with a financial institution in consideration for goods and services purchased from the supplier. The transaction involves the customer utilising a plastic card to activate the transfer of funds. In using EFTPOS the employee has electronically transferred funds from the employer's cheque account to the supplier in consideration for goods and services purchased from them. This is similar to the use of a PayCard as described in paragraph 42 of Class Ruling CR 2012/86 Fringe benefits tax: employer clients of Baptist Financial Services Australia who are subject to the provisions of section 57, section 57A or section 65J of the Fringe Benefits Tax Assessment Act 1986 and who make use of the BFS Visa Prepaid PayCard facility , which states: When the PayCard is used in respect of goods or services the debt to the merchant or to the other suppliers of goods or services is met from the funds then held in the employer's account and made available (loaded) on to the Paycard. The difference in this case is the plastic card allows direct access to the employer's account rather than being loaded onto the card itself. Paragraphs 43 to 45 of CR 2012/86 then go on to say: The employer is liable (in the first instance) for all transactions arising from the use of the PayCard. Therefore, when the employee (as the Cardholder) uses the PayCard in respect of goods or services it is, nonetheless, the employer, in the first instance, who is incurring such expenditure. As the employer is discharging the employer's own obligation the employer is, therefore, not discharging an obligation of another person to pay a third person nor providing a reimbursement to another person in respect of expenditure incurred by that person. Consequently, when the PayCard is used to pay merchants or the other suppliers of goods and services this will not give rise to expense payment benefits, under section 20, as none of the required conditions of that section are met. It could be concluded that where the employee uses the card issued with the cheque account that the employer is incurring an expense in the same way the employer in CR 2012/86 is. As explained in CR 2012/86 an expense payment benefit cannot arise as the employer is effectively discharging their own obligation but a benefit will arise and paragraph 48 of CR 2012/86 states: The benefits so provided by the employer to the employee may include tax-exempt body entertainment benefits under section 38, property benefits under section 40 and residual benefits under section 45, as applicable, unless otherwise exempt. However, as stated above (at paragraph 45) any such benefits will not include expense payment benefits. The cheque account statement only states that an amount was withdrawn by EFTPOS and this raises the question of whether the cheque account statement alone satisfies the record keeping requirements contained in subsection 132(1) of the FBTAA, which states: An employer shall: (a) keep records that record and explain all transactions and other acts engaged in by the employer or any other person that are relevant for the purpose of ascertaining the employer's liability under this Act; and (b) retain those records, and any records given to the employer under paragraph (2)(b), for a period of 5 years after the completion of the transactions or acts to which they relate. A record of withdrawal does not explain the goods or service that has been purchased it only explains that an amount was withdrawn from the account. In addition EFTPOS allows for cash to be withdrawn from an account and there is no prohibition on employee withdrawing cash from the account (as evidenced by the fact that cash is withdrawn at ATMs). This means that without a receipt explaining what goods or services were purchased there is insufficient records to explain the transaction to the extent that the Commissioner could ascertain the extent of the employer's liability (if any) under the FBTAA from the withdrawal. The employer stated that they do not want to know how the money is expended and the result is that the employee has had unmonitored access to the account. This means the employee has effectively been able to treat the account as if it was their own. In order to satisfy subsection 132(1) of the FBTAA and confirm that a fringe benefit has arisen the employer will need to obtain from the employee a receipt or invoice showing exactly what goods and services were purchased via the transaction. The receipt will also be able to be used to determine whether a tax-exempt body entertainment benefit under section 38, a property benefit under section 40 or a residual benefit under section 45 benefit of the FBTAA may have arisen. All we can conclude at this stage is that an expense payment benefit has not arisen, but we are unable to determine the benefit type that would arise from the information contained on the bank statement. The benefit type can only be determined by examining the good and/or service provided. If (once the receipt is obtained), the receipt shows that the EFTPOS transaction includes a cash withdrawn, that cash would be considered to be a payment of salary or wages and fall outside of the FBTAA. Why a cash withdrawal would fall outside the application of the FBTAA is explained in the detailed reasoning for our answer to question 2. Note: To avoid the double taxation of a fringe benefit section 23L of the Income Tax Assessment Act 1936 (ITAA 1936) stops income received by an employee by way of a fringe benefit from being assessable income of the employee. For section 23L of the ITAA 1997 to apply the employer must determine the extent to which the FBTAA applies to a transaction. If the employee does not provide sufficient evidence to determine the extent to an EFTPOS transaction is a fringe benefit then they will have difficulty in applying section 23L to that transaction. In addition if the employer is registered for goods and services tax, then depending on the goods and service being purchased, they would need a tax invoice to claim any input tax credits included in the EFTPOS transaction. | Detailed Reasoning - Question 2: Is withdrawal B from an automatic teller machine (ATM) an expense payment benefit as described in section 20 of the FBTAA? | Summary: The payment constitutes salary or wages and is assessable income of the employee. | Detailed Reasoning - Detailed reasoning: The definition of a fringe benefit under subsection 136(1) of the FBTAA excludes a payment of salary or wages and salary or wages is defined in subsection 136(1) of the FBTAA to mean: a) a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the T axation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; and (aa) a payment from which an amount must be withheld (even if the amount is not withheld) under paragraph 12-110(1)(ca) (about parental leave pay) in Schedule 1 to the Taxation Administration Act 1953, other than a payment under Part 3-3 of the Paid Parental Leave Act 2010 (Payment of instalments by Secretary); and (b) a payment from which an amount must be withheld (even if the amount is not withheld) under section 12-47 in Schedule 1 to the Taxation Administration Act 1953 where: (i) the payment is made to a religious practitioner by a religious institution; and (ii) the activity, or series of activities, for which the payment is made is done by the religious practitioner as a member of the religious institution. | Detailed Reasoning - Item Provision Subject matter: 1 Section 12-35 Payment to employee 2 Section 12-40 Payment to company director 3 Section 12-45 Payment to office holder 4 Section 12-115 Commonwealth education or training payment 5 Section 12-120 Compensation, sickness or accident payment Section 12-35 of Schedule 1 to the TAA states: An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity). The fact that an amount may not have been withheld does not stop the payment meeting the definition of salary or wages in subsection 136(1) of the FBTAA. An employee withdrawing cash from an employer's account is receiving a payment from their employer. That payment would constitute salary or wages and would be assessable income of that employee. It is also a withholding event to which the employer should be withholding an amount from that payment. If we return to CR 2012/86 paragraph 26 states: The PayCard cannot be used to withdraw cash at Automatic Teller Machines (ATMs) or Electronic Banking Terminals (EFTPOS devices). A similar restriction is not in place as evidenced by the fact that the employee has withdrawn cash from an ATM. For a fringe benefit to arise that withdrawal would need to be considered to be a reimbursement Paragraph 9 and 10 of Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement state: The word "reimburse" is defined under subsection 136(1) of the FBTAA to include any act having the effect or result, direct or indirect, of a reimbursement. Since neither the FBTAA nor the ITAA provides a more descriptive definition beyond that, the ordinary meaning of the word applies. The Macquarie dictionary defines the word "reimburse" as a repayment for expense or loss incurred, or a refund. The ordinary meaning of the word "reimburse" implies that the recipient is to be compensated exactly for an expense already incurred although not necessarily disbursed. The definition of "reimburse" under subsection 136(1) of the FBTAA is wide enough to include payments made before expenses are incurred. However, whether payment is made before or after expenses are incurred by the recipient, it qualifies as a reimbursement when the provider considers the expense to be its own and the recipient incurs the expense on behalf of the provider. As a result, a requirement that the recipient voucher or substantiate expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A further indication of a reimbursement is where the recipient is required to refund unexpended amounts to the provider. As the employer does not wish to know how the money is spent it cannot be said that the payment is reimbursement of an expense. This is because the employee does not have to provide any evidence that the money was spent on expenses incurred. Nor is the employee required to return any amount not spent on Therefore any cash amount withdrawn from the ATM will form part of the assessable income of the employee. | Detailed Reasoning - Question 3: Is withdrawal C by EFTPOS an expense payment benefit as described in section 20 of FBTAA? | Summary: The withdrawal is not an expense payment benefit but there is insufficient evidence to determine the extent to which the FBTAA applies to the EFTPOS transaction. For detailed reasoning see our answer to question 1 | Detailed Reasoning - Question 4: Is withdrawal D by EFTPOS an expense payment benefit as described in section 20 of the FBTAA? | Summary: The withdrawal is not an expense payment benefit but there is insufficient evidence to determine the extent to which the FBTAA applies to the EFTPOS transaction. For detailed reasoning see our answer to question 1 | Detailed Reasoning - Question 5: Is withdrawal D from an ATM an expense payment benefit as described in section 20 of the FBTAA? | Summary: The payment constitutes salary or wages and is assessable income of the employee. For detailed reasoning see our answer to question 2 | Detailed Reasoning - Question 6: Is withdrawal E by cheque an expense payment benefit as described in section 20 of the FBTAA? | Summary: The withdrawal is not an expense payment benefit but there is insufficient evidence to determine the extent to which the FBTAA applies to the cheque withdrawal. | Detailed Reasoning - Detailed reasoning: The reasons for decision in ATO Interpretative Decision ATO ID 2003/347 Fringe Benefits Tax Loan Fringe Benefits - advance of money by cheque describes a cheque as: A cheque represents a written instrument that embodies a right to be paid and is generally regarded as payment of cash unless and until it has been presented and refused. In Tilley v. The Official Receiver (1960) 103 CLR 529 at 535 Kitto J, in a general observation concerning payment by cheque, stated that There can be no doubt that the acceptance of a payment by cheque implies, if there be nothing to the contrary, an agreement that it shall be considered as payment, subject to the condition subsequent that if the cheque be dishonoured it shall no longer be so considered. The transaction record on the account is only evidence that a withdrawal via cheque was made from the account. As explained in respect of EFTPOS transactions to determine the extent to which the FBTAA might apply to the withdrawal documents that show the goods or service were purchased using the cheque are required to be obtained. Unlike an EFTPOS withdrawal the statement does not provide details of the supplier receiving the payment. All it does is show that a cheque was presented and honoured. Although a written notation has been made on the bank statement, this notation does not meet the documentary evidence requirements contained in subsection 132(1) of the FBTAA. Without the secondary documentation all that can be accepted is that an amount was withdrawn from the account. In order to satisfy subsection 132(1) of the FBTAA and confirm that a fringe benefit has arisen, the employer will need to obtain from the employee a receipt or invoice showing exactly what goods and services were purchased via the cheque. Otherwise there is no evidence to demonstrate that a fringe benefit has arisen. | Detailed Reasoning - Question 7: Is withdrawal F by cheque an expense payment benefit as described in section 20 of FBTAA? | Summary: The withdrawal is not an expense payment benefit but there is insufficient evidence to determine the extent to which the FBTAA applies to the cheque withdrawal. For detailed reasoning see our answer to question 6. | Detailed Reasoning - Question 8: Is withdrawal G by cheque an expense payment benefit as described in section 20 of FBTAA? | Summary: The withdrawal is not an expense payment benefit but there is insufficient evidence to determine the extent to which the FBTAA applies to the cheque withdrawal. For detailed reasoning see our answer to question 6. | Detailed Reasoning - Question 9: Is withdrawal H by cheque an expense payment benefit as described in section 20 of FBTAA? | Summary: The withdrawal is not an expense payment benefit but there is insufficient evidence to determine the extent to which the FBTAA applies to the cheque withdrawal. For detailed reasoning see our answer to question 6. | Detailed Reasoning - Question 10: Is withdrawal J by cheque an expense payment benefit as described in section 20 of FBTAA? | Summary: The withdrawal is not an expense payment benefit but there is insufficient evidence to determine the extent to which the FBTAA applies to the cheque withdrawal. For detailed reasoning see our answer to question 6. | Detailed Reasoning - Question 11: Is withdrawal K from an ATM an expense payment benefit as described in section 20 of the FBTAA? | Summary: The payment constitutes salary or wages and is assessable income of the employee. For detailed reasoning see our answer to question 2 | Detailed Reasoning - Question 12: Is the balance of the account being retained by the employee at the end of the FBT year an expense payment benefit as described in section 20 of the FBTAA? | Summary: A benefit can only arise when a transaction that reduces the balance takes place. While money remains in the account it is still considered to be the employer's money. | Detailed Reasoning - Detailed reasoning: The account is held by the employer and this means that the balance held in the account is held by the employer. This is similar to the deposits made by the employer in CR 2012/86 and in respect of deposits paragraph 53 states: The deposits by the employer into the employer's account and also the subsequent loading of funds on to the PayCard do not give rise to any kind of 'benefit' as that term is defined in sub-section 136(1). A benefit will only arise when the employee uses the account. Whether a fringe benefit arisen will depend on how the employee used the account. If the employee withdraws or transfers the balance to their own account then that withdraw or transfer would be assessable income of the employee. This is detailed in paragraph 100 of Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements, which states: A SSA may provide that the employee remains entitled to any unspent portion of any benefit entitlement of their remuneration package. Such an arrangement is an effective SSA to the extent that the employee has benefits provided to him or her, or for his or her benefit, by the employers. The benefits, when provided, do not form part of the assessable income of the employee under section 6-5 or 6-10 of the ITAA 1997. Benefit entitlements satisfied by the payment of cash will form part of the employee's salary or wages under section 6-5. | Detailed Reasoning - Question 13: Does the capping threshold of $30,000 per employee apply to the employer as per CR 2012/86 paragraph 59? | Summary: Paragraph 59 of CR 2012/86 deals with employers who are exempt under section 57A of the FBTAA, you are a rebatable employer under subsection 65J(1) of the FBTAA | Detailed Reasoning - Detailed reasoning: Paragraph 59 of CR 2012/86 states: All other employers to which section 57A applies will have a capping threshold of $30,000 grossed-up taxable value per employee under the capping limitations imposed by subsection 5B(1E). Such employers are liable for FBT on the value of benefits provided in excess of this threshold. However paragraph 56 of CR 2012/86 states: Section 57A provides that certain employers are generally exempt from fringe benefits tax. This section applies to employers who are an endorsed public benevolent institution, certain hospitals, an employer who provides public ambulance services (or services that support those service) where the employee is predominantly involved in connection with the provision of those services, or an endorsed health promotion charity. The employer is endorsed by the Commissioner as a charitable institution which and not as either a public benevolent institution or a health promotion charity. As an endorsed charitable institution the employer is endorsed for the purposes of the rebate contained in section 65J of the FBTAA but not the exemption contained in section 57A of the FBTAA. In respect of CR 2012/86, paragraphs 64 to 72 explain how a rebatable employer calculates their rebate and in respect of capping paragraph 66 states: Rebatable employers have a capping threshold of $30,000 grossed-up taxable value per employee per paragraph (b) of Step 2 subsection 65J(2B). If the total grossed-up taxable value of benefits is more than $30,000 a rebate cannot be claimed for the FBT liability on the excess amount (or on the aggregate non-rebatable amount).

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