Published: March 2014
Ruling period: 1 April 2013 - 31 March 2014
Date scheme commenced: 1 April 2013

Ruling: Q1: Will a fringe benefits tax liability arise from the reimbursement of the costs incurred in obtaining a Licence if the amount of the reimbursement is at least $300? | A1: Yes. | Q2: Will a fringe benefits tax liability arise from the reimbursement of the costs incurred in obtaining a Licence if the total amount reimbursed is less than $300? | A2: No.

Relevant facts and circumstances: You require certain employees to have a licence. To assist potential employees to obtain the necessary licence you reimburse the costs incurred in: • attending lessons; • sitting the examination; and • obtaining a licence endorsement.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 20 | Fringe Benefits Tax Assessment Act 1986 section 22A | Fringe Benefits Tax Assessment Act 1986 section 23 | Fringe Benefits Tax Assessment Act 1986 section 58P | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Summary: Will a fringe benefits tax liability arise from the reimbursement of the costs incurred in obtaining a Licence? In general terms a fringe benefits tax liability will arise when a fringe benefit is provided to an employee. The definition of 'fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides that a fringe benefit will arise when the following conditions are met: i. a benefit is provided; ii. to an employee or an associate of an employee; iii. by the employer, an associate of the employer or a third party under an arrangement with the employer or an associate; iv. the benefit is provided in respect of the employment of the employee; and v. the benefit is not a benefit excluded from being a fringe benefit under paragraphs (f) to (s) of the fringe benefit definition. | Detailed Reasoning - i. Is the reimbursement a benefit?: Paragraph 20(b) of the FBTAA provides that a reimbursement will be a benefit. Paragraph 20(b) states: Where a person (in this section referred to as the "provider" ): (a) …; 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 reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient. | Detailed Reasoning - ii. Is the reimbursement paid to an employee or an associate of an employee?: An employee is defined in subsection 136(1) of the FBTAA to mean: (a) a current employee; (b) a future employee; or (c) a former employee. A current employee is defined in subsection 136(1) of the FBTAA to mean: a person who receives, or is entitled to receive, salary or wages A future employee is defined in subsection 136(1) of the FBTAA to mean: a person who will become a current employee As the reimbursement is paid on the commencement date of employment, the recipient will be either a current employee, or a future employee. | Detailed Reasoning - iii. Who pays the reimbursement?: The reimbursement is paid by the employer. | Detailed Reasoning - iv. Is the reimbursement paid in respect of the employment of the employee?: Subsection 136(1) of the FBTAA provides that in respect of 'includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment'. As the reimbursement is paid under the terms of the offer of employment, the employment is the reason for the reimbursement being paid. | Detailed Reasoning - v. Is the reimbursement a benefit excluded from being a fringe benefit under paragraphs (f) to (s) of the fringe benefit definition?: For the purposes of this ruling the relevant paragraph is paragraph (g) which provides that an exempt benefit will not be a fringe benefit. The FBTAA specifies that certain benefits are exempt benefits. For the purposes of this ruling, the relevant exemption is contained within section 58P of the FBTAA which provides that a benefit will be an exempt benefit when specified tests are met. Section 58P states: Where: (a) a benefit (in this section called a "minor benefit'') is provided in, or in respect of, a year of tax (in this section called the "current year of tax'') in respect of the employment of an employee of an employer; (b) the benefit is not an airline transport benefit; (c) in the case of an expense payment benefit, a property benefit or a residual benefit - if the minor benefit were an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit, as the case may be, in relation to the employer, the expense payment fringe benefit, the property fringe benefit or the residual fringe benefit, as the case requires, would not be an in-house fringe benefit; (d) in the case of a tax-exempt body entertainment benefit …; (e) the notional taxable value of the minor benefit in relation to the current year of tax is less than $300; and (f) having regard to: (i) the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to: (A) the minor benefit; or (B) benefits provided in connection with the provision of the minor benefit; have been or can reasonably be expected to be provided; (ii) 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 of tax or any other year of tax; (iii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of any other associated benefits in relation to the current year of tax or any other year of tax; (iv) the practical difficulty for the employer in determining the notional taxable values in relation to the current year of tax of: (A) if the minor benefit is not a car benefit - the minor benefit; and (B) if there are any associated benefits that are not car benefits - those associated benefits; and (v) the circumstances surrounding the provision of the minor benefit and any associated benefits including, but without limiting the generality of the foregoing: (A) whether the benefit concerned was provided to assist the employee to deal with an unexpected event; and (B) whether the benefit concerned was provided otherwise than wholly or principally by way of a reward for services rendered, or to be rendered, by the employee; it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefit in relation to the employer in relation to the current year of tax; the minor benefit is an exempt benefit in relation to the current year of tax. In considering these conditions in relation to the reimbursements that are paid it is accepted that the requirements of paragraphs 58P(1)(a) to (d) are met. Therefore, in considering whether the reimbursements are an exempt minor benefit under section 58P it is necessary to consider the following questions: 1. Is the notional taxable value of the reimbursement less than $300? 2. If the notional taxable value of the reimbursement is less than $300 can it be concluded that it is unreasonable to treat the reimbursement as a fringe benefit on the basis of the criteria in paragraph 58P(1)(f) of the FBTAA? | Detailed Reasoning - 1. Is the notional taxable value of the benefit less than $300?: The term 'notional taxable value' is defined in subsection 136(1) of the FBTAA to mean: in relation to a benefit provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer, means the amount that, if it were assumed that: (a) in the case of a car benefit …; and (b) in all cases - the benefit was a fringe benefit in relation to the employer in relation to the year of tax; would be the taxable value of the fringe benefit in relation to the year of tax. The notional taxable value as it applies to an exempt benefit is therefore the amount that would be the taxable value if it was a fringe benefit. This value will depend upon whether the employee could have claimed an income tax deduction for the expenditure if it had not been reimbursed. Where the employee would not be able to claim an income tax deduction for the expense if it had not been reimbursed, the notional taxable value is the amount of the reimbursement under section 23 of the FBTAA. However, where an income tax deduction could have been claimed, this amount is reduced by the amount the employee could have claimed as an income tax deduction. For example, if the employee could have claimed a deduction for the full amount expended the notional taxable value will be nil. In the arrangement being considered you may reimburse the following expenses: • attending lessons; • sitting the examination; and • obtaining a licence endorsement. Guidance for determining whether the employee would have been able to obtain an income tax deduction for these expenses is provided in: • Taxation Ruling TR 95/18 Income tax: employee truck drivers-allowances, reimbursements and work related deductions (TR 95/18); • Taxation Determination TD 93/108 Income tax: are taxpayers entitled to a deduction for the cost of renewing a driver's licence (TD 93/108); and • Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR 98/9). In discussing whether an income tax deduction can be claimed for the cost of a driver's licence paragraphs 76 to 79 of TR 95/18 state: 76. A deduction is not allowable for the cost of obtaining or renewing a driver's licence. The cost associated with obtaining a driver's licence is a capital or private expense. The cost of renewing a licence is a private expense. 77. In Case R49 84 ATC 387; 27 CTBR(NS) Case 104 , it was held that even though travel was an essential element of the work to be performed by the taxpayer, a driver's licence was still an expense that was private in nature and the cost was not an allowable deduction under subsection 51(1) of the Act. 78. This principle is not altered if the holding of a driver's licence is a condition of employment (Taxation Determination TD 93/108) 79. Some truck drivers may need an endorsed licence to perform their duties. In some states, these types of endorsements do not add to the cost of the licence. However, a deduction is allowable only for the cost of a premium if any, that is paid for an endorsed licence, in addition to the cost of a standard licence, if the endorsed licence is required for income-earning purposes. These paragraphs apply the view expressed in TD 93/108 which states: | Detailed Reasoning - Income tax: are taxpayers entitled to a deduction for the cost of renewing a driver's licence?: 1. No. While the holding of a driver's licence may be a condition of employment, it does not follow that the licence fees are deductible. They are private in nature and accordingly not deductible under subsection 51(1) of the Income Tax Assessment Act 1936 . 2. The right to drive on the public roads does not cease to be a private right merely because the taxpayer is employed in some capacity which involves the use of the public road system. (See Case R49 84 ATC 387; Case 104 (1984) 27 CTBR(NS) 836 ) Examples: (a) A police officer in the highway patrol is required to have a driver's licence for duty. The cost of renewing the licence is not deductible. (b) A travelling salesman requires a drivers licence to perform his duties. The cost of the licence is not deductible. (c) A truck driver needs an endorsed licence to perform duties. As in the normal course of events these types of endorsements do not add to the cost of the licence, the expenditure is not deductible. Only the payment of a premium on top of the cost of the standard licence would be an allowable deduction. Guidance in relation to the lessons is provided in TR 98/9. In considering whether a deduction can be claimed for study which enables a taxpayer to get employment or obtain new employment paragraph 15 of TR 98/9 states: The fact that the study will enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the taxpayer's current employment) is not a sufficient basis in itself for self-education expenses to be deductible. This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. Further guidance is provided in paragraphs 48 to 62 of TR 98/9 which state: 48. The decision of the High Court in FC of T v. Maddalena 71 ATC 4161 ; (1971) 2 ATR 541 establishes the principle that no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to get employment or to obtain new employment. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. 49. The Federal Court in FC of T v. M I Roberts 92 ATC 4787 ; (1992) 24 ATR 479 applied the principle in Maddalena when it overturned an AAT decision allowing a mine manager a deduction for expenses associated with a Master of Business Administration degree. Mr Roberts was retrenched by his employer in Australia and then undertook an MBA course in the US for two years. On his return to Australia, he was re-employed as a mine manager by another company at a significantly increased salary when compared with his previous position. 50. The AAT had relied on Kropp to allow a deduction for his MBA studies, based on a finding that there was a sufficient connection between the expenses and the income derived on the taxpayer's return to Australia. In overturning the AAT decision, Cooper J considered that moneys were spent to obtain a new employment, albeit one in a better position and on higher wages, rather than in the course of employment and that Maddalena clearly applied. 51. In the course of his judgement, Cooper J considered the decision in Kropp where an accountant resigned from his employment with an Australian accounting firm to take up a two-year development appointment with an associated firm in Canada. Mr Kropp later returned to Australia and recommenced work with his old employer at an increased salary. Waddell J allowed a deduction for the cost of the taxpayer's air fare to Canada on the basis that there was a perceived connection between the expenditure and the gaining of increased income on Mr Kropp's return to Australia. Cooper J considered that 'the principles enunciated by the High Court in Maddalena were not applicable ...' on the facts of Kropp. 52. Despite the view expressed by Cooper J, we regard the decision in Kropp as in error. The decision fails to recognise that, because of the break in employment, the expenses in issue were incurred at a point too soon to be regarded as incurred in gaining or producing income. 53. Example: After finishing her final year of school, Sarah enrols in a full-time fashion photography course at a technical college. She is supported by her parents during her studies and does not receive any government assistance, but does some casual sales work on weekends. 54. Sarah cannot claim the costs associated with the course against her casual work income because her study costs were incurred at a point too soon to be regarded as incurred in gaining or producing income from her future employment in the fashion photography industry. 55. Example: Stuart wants to be the manager of a hotel. He enrols in a hotel management course, one semester of which involves an industry placement to gain work experience. Stuart is placed with a major hotel where he gains experience in all facets of hotel management, including catering, housekeeping and bar work. He claims a deduction for the cost of the course against income earned during the placement. 56. A deduction is not allowable because the study is designed to get Stuart employment as a hotel manager, not derive income from work experience. It is incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. 57. Example: Shannon, who is undertaking a 4-year university degree in mining engineering, takes a job as a casual employee with a mining company during the end of year holiday period. It is the company's policy to take only students who are pursuing relevant studies. Shannon is not entitled to a deduction for the cost of the course because the study is designed to get future employment in the field. It is incurred at a point too soon. 58. We believe that Maddalena also supports our view that no deduction is allowable for self-education expenses if the study is designed to enable a taxpayer to open up a new income-earning activity, whether in business or in the taxpayer's current employment. In Case Z1 92 ATC 101; AAT Case 7541 (1991) 22 ATR 3549, a public service clerk studying for a law degree later obtained a legal officer position in the public service. Such expenses of self-education were incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. 59. Example: Joseph is currently employed as a clerk in a public service department. He would like to transfer to a position in another section of the department and undertakes a course of study designed to equip him with the skills needed in that position. The study is unrelated to the skills required in his current position and is not likely to lead to an increase in income. As the study is designed to enable Joseph to enter a new income-earning activity, no deduction is allowable. 60. We also believe that obiter comments of Lee J in FC of T v. Highfield 82 ATC 4463; (1982) 13 ATR 426 are consistent with the views discussed in paragraph 58. Although not necessary to decide, his Honour discussed whether expenses incurred by a dentist in general practice on a post-graduate degree in periodontics would have been allowable if the study had been undertaken to become a specialist periodontist. 61. His Honour came to no final conclusion on the matter, but recognised that there were equally competing views. On the one hand, such expenses could be said to be allowable on the basis that the dentist was an independent contractor who was attempting to obtain contracts. On the other hand, the expenses would not be allowable because the dentist was attempting to carry on a different income-earning activity or business and would be in no different position from a person who undertakes study to obtain a job (82 ATC at 4474; 13 ATR at 439). We believe that the latter view is the correct application of section 8-1. 62. Example: Desiree is a general medical practitioner in partnership with two other general practitioners in a large regional town. She undertakes further study in dermatology in order to set herself up independently as a specialist dermatologist. The expenses related to the study are not allowable as the study is designed to open up a new income-earning activity as a specialist. In applying this guidance, the cost of the lessons will not be deductible as the lessons are designed to allow the individual to enter a new field of employment. Therefore, the expenses are incurred at a point too soon to be regarded as being incurred in gaining or producing assessable income. Similarly, the expense associated with the test is incurred at a point too soon to be regarded as being incurred in gaining or producing assessable income. However, the cost of endorsing the licence may be deductible if it is a premium paid in addition to the cost of a standard licence. 2. If the notional taxable value of the reimbursement is less than $300 can it be concluded that it is unreasonable to treat the reimbursement as a fringe benefit on the basis of the criteria in paragraph 58P(1)(f) of the FBTAA? The criteria which paragraph 58P(1)(f) of the FBTAA requires to be considered are: • the infrequency and irregularity with which associated benefits, being identical or similar benefits are provided; • the sum of the notional taxable values of the benefit and any associated benefits which are identical or similar to the minor benefit in relation to the current year of tax or any other year of tax; • the sum of the notional taxable values of any other associated benefits in relation to the current year of tax or any other year of tax; • the practical difficulty in determining the notional taxable values of the benefit and any associated benefits; and • the circumstances surrounding the provision of the benefit and any associated benefits. These criteria are only considered where the notional taxable value of the benefit is less than $300. If the notional taxable value is at least $300 the benefit cannot be an exempt minor benefit. | Detailed Reasoning - Infrequency and irregularity with which associated benefits that are identical or similar are provided: For the purposes of the minor benefit exemption, the term 'associated benefit' is defined in subsection 58P(2) of the FBTAA to mean: For the purposes of this section, a benefit is an associated benefit in relation to a minor benefit if, and only if: (a) any of the following subparagraphs applies: (i) the benefit is identical or similar to the minor benefit; (ii) the benefit is provided in connection with the provision of the minor benefit; (iii) the benefit is identical or similar to a benefit provided in connection with the provision of the minor benefit; (b) the benefit and the minor benefit both relate to the same employment of a particular employee; and (c) the benefit is not an exempt benefit by virtue of a provision of this Act other than this section. Depending upon how the reimbursement is paid there may not be any associated benefits. For example, if only one single reimbursement is paid there will not be any associated benefits. If more than one reimbursement is paid, each of the reimbursements will be associated benefits on the basis of either being similar to the benefit, or being a benefit provided in connection with the reimbursement being considered. Therefore, as only one or maybe two reimbursements will be paid, the benefits are not provided frequently or regularly. | Detailed Reasoning - The sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar: As detailed above, the notional taxable value as it applies to an exempt benefit is the amount that would be the taxable value if it was a fringe benefit. The sum of these values may be a value between $110 and $1,800. The lower the value the more likely the benefit is to be an exempt minor benefit. | Detailed Reasoning - The sum of the notional taxable values of any other associated benefits: As discussed above, there are no other associated benefits. | Detailed Reasoning - The practical difficulties in valuing the minor benefit and associated benefits: Each employee is directed by you to keep their receipts of the expenditure incurred in obtaining a HR licence, and to bring them on day one of recruit course in order to have the expenditure reimbursed. You will only reimburse the expenditure incurred on presentation of the supporting documentation. There are therefore no practical difficulties in valuing the minor and associated benefits. | Detailed Reasoning - The circumstances surrounding the provision of the benefits: In considering the circumstances surrounding the provision of the benefit, subparagraph 58P(1)(f)(v) provides that it is necessary to consider whether: • the benefit was provided to assist the employee deal with an unexpected event; and • whether the benefit was provided as a reward for services. In considering these two criteria, the reimbursement of the cost of obtaining a HR licence is not provided as a result of an unexpected event and is not a reward for service. | Detailed Reasoning - Conclusion: On balance, having regard to the criteria detailed in subparagraphs of 58P(1)(f)(i) - 58P(1)(f)(v) of the FBTAA, it can be concluded that it would be unreasonable to treat a benefit that arises from the reimbursement of the expenses incurred by your employee in obtaining a licence as a fringe benefit where the total notional taxable value of the reimbursements is less than $300.