Private ruling: Fringe benefits tax – expense payment benefits
Date of advice: 26 February 2019
Published: May 2019
Ruling period: Year ending 31 March 2019 | Year ending 31 March 2020 | Year ending 31 March 2021 | Year ending 31 March 2022
Date scheme commenced: 1 April 2018

Ruling: Q1: Does the reimbursement or direct payment of income protection insurance premiums for employees give rise in full or in part to an expense payment fringe benefit under section 20 and subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where: (a) the employer reimburses the employee on a fortnightly basis (i.e. on average, 26 reimbursements of $a each in a financial year), for payments made to an insurance provider, or (b) the employer directly pays the insurance provider on a fortnightly basis (26 times at $a each time per annum)? | A1: Yes | Q2: If the answer to question 1 is ‘Yes’, would fewer payments – for example nine payments per annum of less than $300 each per employee – be able to be classified as minor benefits because they are infrequently provided and therefore exempt benefits under section 58P of the FBTAA? | A2: No | Q3: If the payment of income protection insurance premiums constitutes an expense payment fringe benefit, (and they cannot be classified as minor benefits), can the ‘otherwise deductible’ rule contained in section 24 of the FBTAA be applied to reduce the value of such a benefit to a lesser amount, or even to zero? | A3: Yes, to the portion of the premium that relates to benefits that are assessable income | Q4: Are income protection insurance premiums subject to GST as a taxable supply? | A4: Yes


Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 Division 38 | A New Tax System (Goods and Services Tax) Act 1999 Division 40 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1 | A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 40-5.09 | A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 40-5.10 | Fringe Benefits Tax Assessment Act 1986 Section 20 | Fringe Benefits Tax Assessment Act 1986 Section 23 | Fringe Benefits Tax Assessment Act 1986 Section 24 | Fringe Benefits Tax Assessment Act 1986 Section 58P | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1) | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Does the reimbursement or direct payment of income protection insurance premiums for employees give rise in full or in part to an expense payment fringe benefit under section 20 and subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where: (a) the employer reimburses the employee on a fortnightly basis (i.e. on average, 26 reimbursements of $a each in a financial year), for payments made to an insurance provider, or | Detailed Reasoning - (b) the employer directly pays the insurance provider on a fortnightly basis (26 times at $a each time per annum)?: An expense payment fringe benefit arises under section 20 of the FBTAA where either an employer pays a third party in satisfaction of expenditure incurred by an employee, or where an employer reimburses an employee for expenditure incurred by the employee, as follows: 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 the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient. The employer will either make payments up to $b per week in relation to their employees with respect to income protection insurance to the insurer, or another insurance provider chosen by the employee, or reimburse their employees with respect to income protection insurance up to $b per week. Employees are paid fortnightly. The payment by the employer to insurance providers, or reimbursement to employees, is up to $a per fortnight. The arrangement satisfies section 20 of the FBTAA. The provider, the employer, makes a payment fortnightly to discharge an obligation of another person, their employee, to pay an amount to a third person, an insurance provider, in respect of expenditure incurred by the employer. Alternatively, the provider, the employer, reimburses their employees fortnightly in respect of expenditure incurred by the employee with respect to personal income protection insurance premiums. The reimbursement to employees with respect to personal income protection insurance premiums, or direct payments to insurance providers on a fortnightly basis constitutes an expense payment fringe benefit. | Detailed Reasoning - Question 2: If the answer to question 1 is ‘Yes’, would fewer payments – for example nine payments per annum of less than $300 each per employee – be able to be classified as minor benefits because they are infrequently provided and therefore exempt benefits under section 58P of the FBTAA? The fringe benefit may be either an in-house expense payment fringe benefit, or an external expense payment fringe benefit. In the definition of either an in-house property expense payment fringe benefit, or in-house residual expense payment fringe benefit in subsection 136(1) of the FBTAA, where the employer is the provider, to be an in-house benefit the provider needs to carry on a business that consists of or included the provision of identical or similar benefits principally to outsiders. The provider, the employer, does not provide insurance policies principally to members of the public. The benefit is not an in-house benefit. The taxable value of an external expense payment fringe benefit under section 23 of the FBTAA is the amount of the payment to third parties, or reimbursement, less the amount of the recipient’s contribution. In this case, the payment, or reimbursement, is up to $a per fortnight. As each benefit is below $300, the benefit may be an exempt minor benefit under section 58P of the FBTAA. Criteria in subsection 58P(1)(f)(i) to (v) of the FBTAA needs to be considered to determine if it unreasonable to treat the benefit as a fringe benefit. | Detailed Reasoning - The criteria used to determine if it is unreasonable to treat the benefit as a fringe benefit: The infrequency and irregularity with which associated identical or similar benefits are provided Paragraphs 187 to 189 of Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12) discuss what is meant by ‘associated benefits’. Paragraph 188 states: For the purposes of the minor benefits exemption the term ‘associated benefits’ is defined in subsection 58P(2) to mean a benefit that is any of the following: ● identical or similar to the minor benefit; ● provided in connection with the provision of the minor benefit; or ● identical or similar to a benefit provided in connection with the provision of the minor benefit. Paragraph 189 goes on to state: In addition: ● the associated benefit and the minor benefit must relate to the same employment of a particular employee, and ● an associated benefit does not include a benefit that is an exempt benefit under any provision of the FBTAA other than this section (that is, section 58P). Paragraph 190 explains what is meant by the phrase ‘in connection with’ as follows: A benefit that is provided ‘in connection with’ the minor benefit is one that is provided in conjunction with the minor benefit. For example if accommodation, board and electricity benefits are provided in conjunction with the payment of minor telephone expenses, these benefits are provided in connection with the telephone expenses payment benefit. Paragraphs 200 to 208 discuss the terms ‘infrequent and irregular’ and ‘identical’ and ‘similar’ as follows: 200. The first criterion to be considered is the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to the minor benefit or benefits that are given in connection with the minor benefit, are provided, or can reasonably be expected to be provided. 201. It is important to note that although this is the first criterion listed, it is not the main, or only, criterion and ‘regard must be had to all factors, even if only to consider that a particular factor is irrelevant in the circumstances’. 202. ‘Infrequency and irregularity’ and ‘identical or similar’ are not defined in the FBTAA and therefore take their ordinary meaning. 203. The Macquarie Dictionary defines ‘infrequent’ as: 1. happening or occurring at long intervals or not often 2. not constant, habitual or regular and ‘irregular’ as: 2. not characterised by any fixed principle, method or rate: irregular intervals 204. The Macquarie Dictionary defines ‘identical’ as: 1. (something followed by to or with ) corresponding exactly in nature, appearance, manner, etc.: this leaf is identical to that . 2. The very same: I almost bought the identical dress you are wearing and ‘similar’ as: 1. having a likeness or resemblance, especially in a general way. 205. The decision in the NAB case is of some assistance in interpreting the meaning of the words ‘infrequency and irregularity’, as they are used in section 58P. In reaching a conclusion under section 58P, Ryan J said that the notional taxable value of the minor benefit, being the travel by taxi on a particular day was ‘small’. Ryan J then held that: … on a broad view of the matters specified in paragraphs (F) of s58P(i) of the Act I am not able to conclude that it would be unreasonable to treat the presumptively minor benefit provided to Mr Brewster on 29 March 1988 as a fringe benefit in relation to the relevant year of tax. 206. Ryan J was able to find, on the evidence, that the associated benefits, being each journey by taxi cab undertaken in similar circumstances in the relevant tax year, were provided infrequently or irregularly to the employee. This was based on the facts before Court, including the facts that the employees were ‘shift workers’ and that they were entitled to the provision of transport by taxi cab at the end of afternoon shifts, both before and after night shifts, and before and after weekend shifts. 207. In Case 2/96 the term ‘infrequent and irregular’ was considered further. The AAT stated: 27. We do not think that the examples set out in the Draft Taxation Determination TD 94/D33 are of much assistance. Those examples focus on the ‘infrequency and irregularity’ factors set out in the section. Example 1 would have it that one taxi fare home (costing between $10 and $15) in each month would be sufficiently frequent and regular [sic] we think that this example is unlikely to be correct. It seems to us that there is a clear distinction to be drawn between benefits which are isolated or rare and benefits which are infrequent and irregular, and that the worked examples may have equated these concepts. 28. Taxation Determination TD 93/76 issued on 29 April 1993 focus [sic] on each of the tests in 58P(1)(f) in relation to redeemable vouchers; we do not think that the worked examples are of assistance in the present case. 29. Nor do we consider that, while accepting that the relevant employees are not shift workers, the ‘balance of probabilities’ test contended for by the applicant can be the correct test; the wording of paragraph (f)(i) does not suggest to us that such a test was intended for this purpose. There were some employees who performed overtime work regularly, and must reasonably have expected that taxi fares would be provided; they would naturally have been aware of the fact that they were covered for this purpose by a relevant award. … 34. The Tribunal has come to the conclusion having regard to the test laid down in section 58P(1) that a benefit and its associated like benefits will be minor if, in relation to any given employee and in respect of each FBT year, the number of Total Trips is less than 48, or, on a monthly averaging basis, less than 4 per month. This view (which is inevitably somewhat arbitrary) is based on the view that that number of trips is likely to be infrequent, and having regard to the evidence as to the ad hoc nature of the applicant’s requirements, irregular; further the employee could not reasonably have expected them. 208. Having regard to the above, it is clear that the words ‘infrequent and irregular’ do not mean ‘isolated or rare’. The benefit is currently being provided fortnightly, i.e. 26 times a year. The benefit is being provided regularly, once a fortnight, and 26 times a year, which is considered to be frequently. If the benefit was provided nine times a year, the taxable value of each benefit will be below $300. A benefit provided nine times a year may still be regarded as both regular and frequent. The sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit in the current year of tax or any other year of tax This criterion is discussed at paragraphs 218 to 224 of TR 2007/12 which state: 218. The second criterion to be considered is the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of the minor benefit and any associated benefits, being benefits that are identical or similar to the minor benefit, in relation to the current year or any other year of tax. 219. This criterion addresses the situation where there are multiple occasions where identical or similar benefits are provided to an employee. 220. In the NAB case Ryan J found that: The sum of the presumptively minor benefit and all the associated benefits to Mr Brewster both in the current year of tax (amounting on the evidence to about $8,000) was substantial in the current tax years and might reasonably be expected to be similarly substantial in subsequent tax years. 221. The greater the value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will qualify as an exempt benefit. 222. The value of the benefits in the current year as well as in any other year must be taken into account when determining the total value of benefits for the purposes of this criterion. 223. This will apply to identical or similar benefits that have been provided in the past and are likely to be provided in the future. 224. Even if the value of each benefit is below the minor benefits threshold, the sum of the values of the benefits provided, being identical benefits in the current year of tax, the previous year and those that are reasonably expected to be provided in the future, are all taken into consideration under this criterion. In relation to the initial minor benefit, each of the subsequent 25 fortnightly payments or reimbursements is identical or similar to the minor benefit. The sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit in the current year is significantly in excess of the minor benefit threshold of $300. This will remain the case whether the benefit is provided 26 times, nine times, or any other number. This criterion also considers the sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit in the current year and any other year of tax. The benefit is being provided under an industrial enterprise agreement which is likely to apply for several years. The taxable value of the benefit will be significantly in excess of the minor benefit threshold of $300, multiplied by the number of years that the benefit is provided. The sum of the notional taxable values of any other associated benefits in the current year of tax or any other year of tax This criterion is discussed at paragraphs 225 to 231 of TR 2007/12 which state: 225. The third criterion to be considered is the amount that is, or might reasonably be expected to be, the sum of the notional taxable of any other associated benefits provided in relation to be current year of tax or any other year of tax. 226. Other associated benefits will include benefits which themselves may also be minor benefits. 227. This criterion has regard to any other associated benefits; that is, associated benefits which are not identical or similar to the minor benefit. This will include those associated benefits which are provided in connection with the minor benefits and benefits which are identical or similar to a benefit provided in connection with the minor benefit. | Detailed Reasoning - Example 16: other associated benefits: 228. A meal, which is a minor benefit, is provided in connection with a night’s accommodation and taxi travel. Each benefit under these circumstances is a separate benefit. 229. The total of the taxable values of the night’s accommodation and taxi travel, and any other accommodation or taxi travel provided in the current year, in a previous year and those that are reasonably expected to be provided in the future must be considered. 230. The ‘any other accommodation and taxi travel’ being identified as associated benefits for this purpose do not have to be provided in connection with meals. They only have to be identical or similar benefits to the accommodation and taxi travel that is provided in connection with the meal (minor benefit). 231. The greater the total value of the other associated benefits, in this case being the accommodation and the taxi travel, the less likely it is that the minor benefit, being the meal, will qualify as an exempt benefit. The other criteria used to determine if it is unreasonable to treat the minor benefit as a fringe benefit would need to be considered before any conclusion could be reached that the benefit is a minor benefit. There are no other associated benefits in the current year of tax or any other year of tax. The practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits There is no practical difficulty in determining the notional values of the minor benefit and any associated benefits as the taxable value is either the amount of the payment to the insurance provider, or the amount of the reimbursement to the employee. The circumstances surrounding the provision of the minor benefit and any associated benefits, including whether it was provided to the employee to assist with an unexpected event, and whether it was wholly or principally as a reward for services rendered by the employee The provision of payments to insurance providers, or reimbursements to employees, is not being done to assist an employee to deal with an unexpected event. Where an employee enters into a salary sacrifice arrangement (SSA), the provision of benefits through a SSA forms part of the total remuneration package of the employee. Under these arrangements, benefits (together with salary) are provided wholly or principally as a reward for services rendered. The provision of payments to insurance providers, or reimbursements to employees, is not provided under a SSA. Therefore, the benefit was not provided wholly or principally as a reward for services rendered. Conclusion A benefit provided fortnightly is provided both frequently and regularly. The notional taxable value of the minor benefit and associated benefit that are identical or similar to the minor benefit in the current year of tax and any other year of tax is significantly in excess of the minor benefit threshold of $300, multiplied by the number of years that the benefit is provided. The annual notional taxable value, as well as the notional taxable value calculated over several years, are both significantly above the minor benefit threshold of $300. There is no practical difficulty in determining the notional taxable value of the minor benefit and associated benefits. The benefit was not provided to assist an employee to deal with an unexpected event, or provided under a SSA. In view of the frequency and regularity of the benefit, and the high notional taxable value of the minor benefit and associated benefit that are identical or similar to the minor benefit in the current year of tax and any other year of tax, it is not unreasonable to treat the benefit as a fringe benefit. If the benefit was provided less frequently, say nine times a year, it is still considered not unreasonable to treat the benefit as a fringe benefit. A benefit provided nine times a year may still be regarded as either regular or frequent. The notional taxable value of the minor benefit and associated benefit that are identical or similar to the minor benefit in the current year of tax and any other year of tax would continue to be significantly in excess of the minor benefit threshold of $300 in the current year of tax, multiplied by the number of years that the benefit is provided. Reducing the number of times that the benefit is provided does not alter the view that it is not unreasonable to treat the benefit as a fringe benefit. | Detailed Reasoning - Question 3: If the payment of income protection insurance premiums constitutes an expense payment fringe benefit, (and they cannot be classified as minor benefits), can the ‘otherwise deductible’ rule contained in section 24 of the FBTAA be applied to reduce the value of such a benefit to a lesser amount, or even to zero? The ‘otherwise deductible’ rule in section 24 of the FBTAA allows the taxable value of an expense payment fringe benefit to be reduced by the hypothetical income tax deduction the employee would have been entitled to if they had incurred the expense. Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out general income tax deductibility: 8-1(1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. 8-1(2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your exempt income or your non-assessable non-exempt income: or (d) a provision of the Act prevents you from deducting it. If the employee incurred the expense of an insurance premium, the expense would be income tax deductible where the benefits, when paid, would be assessable income under section 6-5 of the ITAA 1997. If the employee incurred the expense of an insurance premium, the expense would not be income tax deductible where the benefits, when paid, would be capital in nature, and denied a deduction by subsection 8-1(2)(a) of the ITAA 1997 The deductibility of a premium when the benefits would be assessable was ruled on in FC of T v. D. P. Smith 81 ATC 4114; 11 ATR 538 in relation to the former section 51 of the Income Tax Assessment Act 1936 (ITAA 1936) where it was held that: The section does not require that the purpose of the expenditure shall be the gaining of the income of that year, so long as it was made in the given year and is incidental and relevant to the operations or activities regularly carried on for the production of income. What is incidental and relevant in the sense mentioned falls to be determined not by reference to the certainty or likelihood of the outgoing resulting in the generation of income but to its nature and character and generally to its connection with the operations which more directly gain or produce the assessable income. It is true that the payment of the premium…did not result in the generation of any income in that year, but there is a sufficient connection between the purchase of the cover against the loss of ability to earn and the consequent earning of assessable income to bring the premium within the first limb of sec. 51(1). The relevant document lists several types of benefits that are payable, which include both weekly payments, and capital payments. The benefits payable by the insurer as weekly injury or sickness benefits under the Income protection insurance policy are intended to compensate for the loss of earnings of the employee, and are assessable income of the employee. The premiums in respect of the income protection insurance, excluding the portion of any premiums that relates to capital benefits, are incurred in gaining or producing assessable income and are deductible under section 8-1 of the ITAA 1997. The benefits provided include a weekly payment of a percentage of the employee’s income. The benefits replace the employee’s income, are paid weekly, and are assessable income in the same manner as the employee’s income prior to receiving the benefits. The portion of the premium which would have been paid by an employee with respect to benefits which provided a weekly payment would have been tax deductible as the benefits are assessable income. The ‘otherwise deductible’ rule under section 24 of the FBTAA applies to reduce the taxable value of an expense payment fringe benefit by the amount of the hypothetical income tax deduction. As the benefits provided as capital benefits payable by the insurer are not intended to compensate for the loss of earnings by the employee, and are treated as capital, the premiums in respect of the income protection insurance are not incurred in gaining or producing assessable income to the extent that they relate to capital benefits, and are not deductible under section 8-1 of the ITAA 1997. The benefits provided as capital proceeds, and are not assessable income. If an employee incurred the expense of an insurance premium in relation to benefits which were capital proceeds, the expense would not be tax deductible, as the expense was not incurred in earning assessable income, but would be an outgoing of a capital nature. A reduction in the taxable value of an expense payment fringe benefit would not apply. The taxable value of the expense payment fringe can be reduced under the ’otherwise deductible’ rule by the portion of the premium which relates to providing weekly payments, but not with respect to providing capital payments. Section 8-1 of the ITAA 1997 does not prescribe any method of apportioning expenditure. The portion of the income protection insurance premiums that is not deductible should be determined pursuant to a method of apportionment that is both fair and reasonable in the circumstances. | Detailed Reasoning - GST-free and input taxed supplies: A supply is GST-free if the supply comes within any of the provisions under Division 38 of the GST Act. Similarly, a supply is input taxed if the supply comes within any of the provisions under Division 40 of the GST Act. | Detailed Reasoning - GST-free provisions: The relevant GST-free provision to consider here is section 38-55 which provides the following: (1) A supply of *private health insurance is GST-free . (2) A supply of insurance against liability to pay for services supplied by ambulance is GST-free . (3) … (terms marked with asterisks (*) are defined in section 195-1 of the GST Act). The income protection insurance product in the current case is neither a private health insurance product nor insurance against liability to pay for services supplied by an ambulance. The product is not GST-free under any other provision of the GST Act. Therefore, is not GST-free. | Detailed Reasoning - Input taxed provisions: The GST Act provides that financial supplies are input taxed. A financial supply has the meaning given by the GST regulations. GST regulations identify those supplies that are financial supplies by inclusion or exclusion. Therefore, something is a financial supply only if it is mentioned as a financial supply in regulation 40-5.09 or is an incidental financial supply under regulation 40-5.10. Relevantly, item 6 of sub-regulation 40-5.09(3) of the GST Regulations (item 6), lists certain life insurance products that may be considered a financial supply. Item 6 is as follows: 6 Life insurance business to which subsection 9(1) of the Life Insurance Act 1995 , or a declaration under subsection 12(2) or section 12A of that Act, applies, or related reinsurance business The income protection insurance product discussed in this ruling is not a life insurance business to which subsection 9(1) of the Life Insurance Act 1995 , or a declaration under subsection 12(2) or section 12A of that Act, applies, or related reinsurance business. Therefore, the product is not a financial supply. Further, Schedule 2 of goods and services tax ruling, Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) provides a list of financial interest and related supplies with their GST status. Salary continuance insurance is listed in line I15 of Schedule 2 as follows: | Detailed Reasoning - Notes: I15 A contract of insurance that provides for the payment of income benefits during the absence of a person from work due to temporary disability (e.g., salary continuance insurance Φ ) Section 9-5 40-5.12 Item 10 Taxable Υ Salary continuance insurance Φ is not continuous disability insurance within the meaning of the Life Insurance Act 1995. Salary Continuance Insurance is defined in GSTR 2002/2 as follows: A contract of insurance that provides for the payment of income benefits during the absence of a person from work due to temporary disability. Sometimes referred to as income disability cover, income protection cover or temporary disablement cover. Consequently, income protection insurances where they are not supplied as part of a life insurance business are not considered as financial supplies and hence are not input taxed supplies. The income protection insurance product in the present case does not come under any other input taxed provision of the GST Act either; thus is not an input taxed supply. It follows that the supplier of the income protection insurance will make a taxable supply if: a) the supply is made for consideration; and b) the supply is made in the course or furtherance of an enterprise that the supplier carries on; and c) the supply is connected with the indirect tax zone; and d) the supplier is registered for GST.

Relevant facts: Pursuant to an industrial enterprise agreement, and following negotiations between the employer and the union, income protection insurance is available to certain eligible employees from 2018. The employer’s Payroll Department will commence processing claims in 2019. This will include back payments to either 2018 or the date of commencement of each policy, whichever occurs later. All ‘operational staff’ covered by the industrial enterprise agreement, who have personal income protection, can claim up to $b per week. In total, there are over 1,000 operational staff. | The insurer has advised the employer that their premiums include Goods and Services Tax (GST). The employer is seeking clarification whether GST is applicable to income protection insurance premiums.