Private ruling: FBT - total and permanent disability Insurance
Date of advice: 4 July 2025
Published: 1 September 2025
Ruling period: Year ending 31 March 20XX | Year ending 31 March 20XX | Year ending 31 March 20XX | Year ending 31 March 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the provision of an insurance policy related to death and total and permanent disability (TPD) considered a 'benefit' as defined within subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA')? | A1: Yes. | Q2: Is the Insurance Policy held by the Company and relevant subsidiaries, where the Company and relevant subsidiaries are the Policy owner and beneficiary, considered to be 'provided' to an employee as defined within subsection 136(1) of the FBTAA? | A2: No. | Q3: If the answer to question 2 is no, does the contingent right to receive a life insurance/TPD payment from the Company gives rise to FBT? | A3: No.

Relevant facts and circumstances: Employee benefits The Company provides death and total & permanent disability ('TPD') payments to employees as part of its overall employee benefits program. Under the Plan, which is incorporated into employee contracts, the Company agrees to make payments to its employees or their family in the event of an employee's death, TPD, or terminal illness diagnosis. In order to fund these payments, the Company takes out TPD/Death cover insurance under which the Company is the Policy Owner. The insurance cover allows the Company to make payments to its employees or their family in the event of an employee's death, TPD, or terminal illness diagnosis. Life Policy • The Company is the Policy Owner. • In accordance with the Policy, all benefits due as payable are paid to the Policy Owner (or a person nominated by the Policy Owner). That is, the Company is the only entity with a beneficial entitlement to payment(s) under the Policy. • All employees of the Company are an "Insured member under the policy, in respect of whom a claim is to be made in the event of an Insured Event arising. • Insured members (i.e., employees), are not beneficiaries under the Policy and have no personal right of claim under the Policy and are not entitled to receive any payments directly from the insurer. The Policy is merely the employer's mechanism for funding payments under its Plan. • Whilst Insured members are able to initiate a claim and provide information directly to the Insurer in relation to the claim, this is for administration ease purposes only and at no time do Insured members have an entitlement to payment. • The Company has the right to vary and terminate the Policy at any time with 30 days written notice. • When a claim is made under the Policy, the procedure for making a claim requires the Policy Owner or Insured member to notify the insurer of an event entitling the Policy Owner to a benefit. • All payments made for approved claims are paid to the Company or to persons nominated by the Company. • Any subsequent payment to an employee is paid via the employer's payroll system and taxed as normal income or termination payments (as applicable).

Relevant legislative provisions: Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision: Summary: The provision of insurance cover under the insurance policy paid for by the Company constitutes a benefit under the FBTAA. | Detailed Reasoning - Detailed reasoning: The definition of a fringe benefit within subsection 136(1) of the FBTAA 1986: 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: ... (g) a benefit that is an exempt benefit in relation to the year of tax; In summary a fringe benefit is essentially a benefit provided to an employee (or their associate) in relation to their employment by an employer (or their associates) or via a third-party agreement unless otherwise excluded. | Detailed Reasoning - What is a benefit, as defined in subsection 136(1)?: A 'benefit' is defined in subsection 136(1) of the FBTAA as: ...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; (b) a contract of insurance; or (c) an arrangement for or in relation to the lending of money. In your circumstances, the provision of insurance cover under the insurance policy is a benefit as defined in subsection 136(1). This is because a contract of insurance is specifically mentioned in the definition of fringe benefit as outlined above. Therefore, we can conclude that a contract for life and TPD Insurance satisfies the definition of a benefit. | Detailed Reasoning - Conclusion: The provision of the insurance for employees meets the definition of a benefit under the FBTAA. | Detailed Reasoning - Question 2: Is the Insurance Policy held by that Company and relevant subsidiaries, where the Company and relevant subsidiaries are the Policy owner and beneficiary, considered to be 'provided' to an employee as defined under subsection 136(1) of the FBTAA? | Summary: The provision of insurance cover under the group insurance policy by the Company is a benefit that is not provided to the employees or their associates. The employee is not the policy holder and has no beneficial rights in relation to the benefits or right to claim. | Detailed Reasoning - Detailed reasoning: Following on from the definition of a fringe benefit in Question 1 we need to determine if the benefit is being provided to the employees. 'Provide' is defined in subsection 136(1) of the FBTAA as "in relation to a benefit includes allow, confer, give, grant or perform". As per the definition, the benefit must be provided to either the employee or to an associate of the employee during or in respect of the year of tax. In this case, the Company pays a premium to the Insurer in return for the insurance cover provided and any payments claimed under the insurance Policy are payable to the Policy Owner, the Company (or its nominee). Therefore, the Company is the only entity with a beneficial entitlement to payment(s) under the Policy. Therefore, the insurance benefit is not provided to an employee | Detailed Reasoning - Conclusion: The benefit is not provided to an employee as defined under subsection 136(1) of the FBTAA? | Detailed Reasoning - Question 3: If the answer to question 2 is no, does the "contingent right" to receive a life insurance/TPD payment from the Company gives rise to FBT? | Summary: No, FBT does not apply as the benefit is excluded from being a fringe benefit. | Detailed Reasoning - Detailed reasoning: In this arrangement, the employer is providing the employees or their associate with a benefit in the form of a 'contingent right ' to receive a payment on the happening of the event (e.g. the employee's death or TPD). Where this 'contingent right' is provided to the employee 'in respect of' an employee's employment, because the right is contained in the employee's employment contract, the benefit has a sufficient and material connection to an employee's employment (Knowles case), satisfying those elements of the definition of 'fringe benefit'. As noted in the facts, the Company has a separate agreement with the employee under the Plan, and under this plan, any payment to the employee is made via payroll system and taxed as normal income or termination payments where applicable. Therefore, the payment the Company receives from the Life and TPD insurance policy is merely a mechanism to fund the payments where employees or their associates become eligible for life and TPD payments under the Plan and their employment contracts. In Taxation Ruling TR 2010/6 Income tax: Pay As You Go Withholding and fringe benefits tax: tax consequences on the issue, holding and redemption of bonus units as part of an employee benefits trust arrangement (TR 2010/6), the Commissioner concludes a right granted to an employee to receive 'salary or wages' is a 'benefit' for the purposes of the FBTAA, but it is not a 'fringe benefit' as defined in the FBTAA. That is because it ultimately results in the employee receiving 'salary or wages' and the payment of 'salary or wages' is specifically excluded from being a 'fringe benefit' by paragraph 136(1) of the definition of 'fringe benefit'. Under the Plan, employees are granted a contingent right to potentially receive Death & TPD payments which are considered an employment termination payment under the Income Tax Assessment Act 1997 (ITAA 1997), and specifically excluded from the definition of 'fringe benefit' by paragraph 136(1)(lc) of the FBTAA. Alternatively, the payments might be considered to be consideration of a capital nature of payments in respect of personal injury, which are also excluded from the definition of fringe benefit by virtue of para (m) of the definition of fringe benefit. Given these types of payments are specifically excluded from being a 'fringe benefit' by virtue of the definition of 'fringe benefit' as outlined above, we accept, for the reasons outlined in TR 2010/6, that the contingent right provided to the employees, while being a 'benefit' provided 'in respect of' an employee's employment is specifically excluded from being a 'fringe benefit' for the purposes of the FBTAA.

Is the provision of an insurance policy related to death and total and permanent disability considered a 'benefit' as defined within subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA')?