Private ruling: Fringe benefits tax - in-house residual fringe benefits
Date of advice: 25 March 2020
Published: May 2020
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is a transport pass issued to employees an in-house residual fringe benefit where the taxable value is calculated under section 49 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), and its taxable value reduced under section 62 of the FBTAA? | A1: Yes

Relevant facts and circumstances: The transport pass entitles the pass holder to travel on the state's public transport network. The transport pass enables the pass holder to travel on: The transport pass remains the property of the state government department. The transport pass is essentially similar to the pass issued to the public - both are cards that enable the holder to travel on services and to enter into a designated area. The differences are: The transport pass is a 'ticket' as defined in the relevant regulation. A person who is travelling in a passenger vehicle or is in a designated ticket area has an obligation to hold a valid ticket.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 20 | Fringe Benefits Tax Assessment Act 1986 section 40 | Fringe Benefits Tax Assessment Act 1986 section 45 | Fringe Benefits Tax Assessment Act 1986 section 49 | Fringe Benefits Tax Assessment Act 1986 section 62 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1) | Fringe Benefits Tax Assessment Act 1986 section 149

Reasons for decision: Summary: The term 'in-house residual fringe benefit' is defined in subsection 136(1) of the FBTAA to mean: ...a residual fringe benefit in relation to the employer: (a) where both of the following conditions are satisfied: (i) the provider is the employer or an associate of the employer; (ii) at or about the comparison time, the provider carried on a business that consisted of or included the provision of the identical or similar benefits principally to outsiders; or (b) where all the following conditions are satisfied: (i) the provider is not the employer or an associate of the employer; (ii) the provider purchased the benefit from the employer or an associate of the employer (which employer or associate is in this definition called the seller ); (iii) at or about the comparison time, both the provider and the seller carried on a business that consisted of or included the provision of identical or similar property principally to outsiders; but does not include a benefit provided under a contract of investment insurance. In considering the application of this definition it is necessary to consider the following questions: (a) Is the benefit a fringe benefit? (b) Is the benefit a residual fringe benefit? (c) Is the benefit an in-house residual fringe benefit? | Detailed Reasoning - Is the entitlement to travel a fringe benefit?: In general terms, the definition of 'fringe benefit' in subsection 136(1) of the FBTAA provides that a fringe benefit will arise: - to an employee or an associate of an employee; - by the employer, an associate of the employer or a third person under an arrangement with the employer (or associate) or in a situation that comes within paragraph (ea) of the fringe benefit definition; A benefit includes any right, privilege, service or facility provided under an arrangement for, or in relation to, the performance of work. The benefit provided is the transport pass. The provision of a benefit in your proposed arrangement fits within the definition of a fringe benefit. | Detailed Reasoning - (b) Is the benefit a residual fringe benefit?: A benefit will be a residual benefit under section 45 of the FBTAA if it comes within the definition of 'benefit' in subsection 136(1) of FBTAA, but is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). For the purpose of this ruling, the relevant Divisions are Division 5 which deals with expense payment benefits and Division 10 which deals with property benefits. A benefit will be an expense payment benefit under section 20 of the FBTAA if the employee is reimbursed for expenses the employee has incurred, or if the employer pays a third party in satisfaction of expenses incurred by an employee. Neither of these applies to the arrangement being considered as the employee pass is provided to employees without charge, therefore the benefit is not an expense payment benefit. A property benefit will arise under section 40 of the FBTAA if the employee receives property. Section 40 of the FBTAA states: Where, at a particular time, a person (in this section referred to as the provider) provides property to another person (in this section referred to as the recipient ), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time. Subsection 136(1) of the FBTAA defines property as intangible property and tangible property. Tangible property is defined in subsection 136(1) of the FBTAA to mean: · goods and includes: - (a) animals, including fish; and - (b) gas and electricity. The entitlement to use public transport does not come within this definition. Intangible property is defined in subsection 136(1) of the FBTAA to mean: (a) real property; (b) a chose in action; and (c) any other kind of property other than tangible property; but does not include: (d) a right arising under a contract of insurance; or (e) a lease or licence in respect of real property or tangible property. A licence is an authority or permission to do something which otherwise would be inoperative, wrongful or illegal. A licence to occupy land passes no interest in the land, in contrast with a lease. Under various regulations, a person cannot travel in a passenger vehicle or enter a designated ticket area without a valid ticket. Therefore, the employee pass is considered to be a licence as it provides a formal permission to do something the employee would otherwise not be able to do (travel in a passenger vehicle and enter a designated area). The licence is in respect of real property (the designated ticket area) and tangible property (the bus or train) so is excluded from the definition of intangible property. Therefore, as the entitlement to travel is neither tangible property, nor intangible property, a property benefit will not arise when the entitlement is provided to an employee. As the provision of the entitlement does not come within Divisions 2 to 11 of the FBTAA, it will be a residual benefit. | Detailed Reasoning - (c) Is the benefit an in-house residual fringe benefit?: Subsection 136(1) of the FBTAA states that an in-house residual fringe benefit includes a residual fringe benefit where the provider is the employer or an associate and the provider carried on a business that consisted of provision of identical or similar benefits, principally to outsiders. A government department provided the pass to their employees that entitled them to travel on public transport. Accordingly, they were the provider of the benefit. The term 'business' is not defined in the FBTAA. However, the term 'business operations' is defined in subsection 136(1) of the FBTAA in relation to a government body or a non-profit company to include 'any operations or activities carried out by that body or company'. Further guidance is provided in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? Paragraph 13 of TR 97/11 lists the following indicators that are relevant in determining whether the activities constitute the carrying on of a business: The relevant benefit is the provision of the entitlement to enter a designated ticket area and travel on public transport services. The department provides this entitlement to members of the general public for payment at a range of outlets. The activities of the state government department have a significant commercial character, there is repetition and regularity, there is permanency in the activities and the activities are planned, organised and carried on in a similar manner to that of public transport operators in other Australian and international cities. Given these factors, it is accepted that the state government department carried on a business that includes the provision of identical or similar benefits principally to outsiders. Will the taxable value of the in-house residual fringe benefit be calculated under section 49 of the FBTAA? The taxable value of an in-house residual fringe benefit will be calculated under section 49 of the FBTAA where the benefit is provided during a period. Alternatively, where the benefit is not provided during a period, the taxable value will be determined under section 50 of the FBTAA. Section 149 of the FBTAA provides that a benefit shall be taken to be provided during a period if the benefit is provided, or subsists during a period of more than one day and is not deemed by a provision of the FBTAA to be provided at a particular time or on a particular day. Therefore, as the entitlement to travel will be provided on an ongoing basis for the period that the recipient is an employee, section 49 of the FBTAA is the relevant section for determining the taxable value. Section 49 of the FBTAA states: Subject to this Part, the taxable value of an in-house period fringe benefit in relation to a year of tax is: (aa) if the benefit was provided to the recipient under a salary packaging arrangement - an amount equal to the notional value of the benefit ta the comparison time; or (ab) if paragraph (aa) does not apply and the benefit is an airline transport fringe benefit - an amount equal to 75% of the stand-by airline travel value of the benefit at the comparison time; or (a) if neither paragraph (aa) nor (ab) applies and, at or about the comparison time, identical overall benefits were provided by the provider: (i) in the ordinary course of business to members of the public under an arm's length transaction or arm's length transactions; and (ii) in similar circumstances and subject to identical terms and conditions (other than as to price) as those that applied in relation to the provision of the recipients overall benefit; an amount equal to 75% of the lowest amount paid or payable by any such member of the public in respect of the current identical benefit in relation to an identical overall benefit so provided; or (b) in any other case - an amount equal to 75% of the notional value of the recipients current benefit; reduced by the amount of the recipients contribution insofar as it relates to the recipients current benefit. Subsection 136(1) of the FBTAA defines 'identical overall benefit' to mean: a benefit that is the same in all respects as the recipients overall benefit (except for any differences that are minimal or insignificant and do not affect the value of the benefit). Although you issue a variety of passes to members of the public under an arm's length transaction, paragraph (a) will not apply as the passes are not the same in all respects (there are variations in period of validity, available services and zone access). Therefore, the relevant paragraph is paragraph (b) which calculates the taxable value as being 75% of the notional value of the recipients current benefit. The taxable value of the in-house residual fringe benefit will be calculated under paragraph 49(b) of the FBTAA. | Detailed Reasoning - Will the taxable value of the in-house residual fringe benefit be reduced under section 62 of the FBTAA?: Section 62 of the FBTAA states: 62(1) Where one or more in-house fringe benefits in relation to an employer in relation to an employer in relation to a year of tax relate to a particular employee of the employer, the taxable value of that fringe benefit, or the sum of the taxable values of those fringe benefits, as the case may be, in relation to that year shall be reduced by: (a) if the taxable value or the sum of the taxable values does not exceed $1,000 - an amount equal to the taxable value or the sum of the taxable values; or (b) in any other case - $1,000. 62(2) Subsection (1) does not apply to an in-house fringe benefit provided under a salary packaging arrangement. Subsection 136(1) of the FBTAA defines 'in-house fringe benefit' to mean: (a) an in-house expense payment fringe benefit; (b) an in-house property fringe benefit; or (c) an in-house residual fringe benefit. As the benefit is an in-house residual benefit which is not provided under a salary packaging arrangement, section 62 of the FBTAA will apply to reduce the taxable value. | Detailed Reasoning - Conclusion: The transport pass is an in-house residual fringe benefit whose taxable value will be calculated under paragraph 49(b) of the FBTAA, which can be reduced under section 62 of the FBTAA.

train and bus passenger services operating in the metropolitan area; | train and bus passenger services operated throughout regional areas; and | other public transport services operated under contract or service agreement with the state government department. | the transport pass is valid for the period the holder is employed, whereas the pass issued to the public is valid for use for a set period of time | the transport pass can be used for travel on certain services, whereas the other pass is restricted to use in the specified zones. | when a benefit is provided: | if the benefit is provided in respect of the employment of the employee; and | if paragraphs (f) to (s) of the fringe benefit definition do not apply. | whether the activity has a significant commercial purpose or character, | whether the taxpayer has more than just an intention to engage in business, | whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity, | whether there is repetition and regularity of the activity, | whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business, | whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making profit, | the size, scale and permanency of the activity, and | whether the activity is better described as a hobby, a form of recreation or a sporting activity.