Private ruling: Fringe benefits tax
Published: April 2012
Ruling period: Year ending 31 March 2013 | Year ending 31 March 2014 | Year ending 31 March 2015
Date scheme commenced: 1 April 2012

Ruling: Q1: Will the reimbursement of electricity expenses incurred by an employee be an in-house expense payment fringe benefit? | A1: Yes | Q2: Will the reimbursement of expenses incurred by an employee using public transport provided by entity A be an in-house expense payment fringe benefit? | A2: Yes | Q3: Will the reimbursement of expenses incurred by an employee using public transport provided by entity B be an in-house expense payment fringe benefit? | A3: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The employer is established under legislation and is a body corporate. It is a statutory body. The employer also wants to make benefits available to its employees and wants to know if they will qualify for the in-house fringe benefit reductions. The employer will provide the benefits as part of a salary sacrifice arrangement administered by one of a number of specific salary packaging providers. The benefits will be provided within the guidelines and processes administered by those salary packaging providers. Electricity According to the guidelines the electricity must be provided through electricity retailers sourcing electricity from particular generators. Electricity provided from another source is unable to be salary packaged. Only electricity invoices issued by an appropriately licensed electricity retailer which provides an itemised breakdown of amounts can be reimbursed. A copy of all sides of electricity bills and proof of payment is required. The particular electricity generators are companies. Generators supply electricity to the National Electricity Market (NEM). The following information was obtained from the Australian Energy Market Operator (AEMO) publication An Introduction to Australia's National Electricity Market July 2010 : The NEM is a wholesale market for the supply of electricity to retailers and end-users. It is managed by the AEMO, which is responsible for balancing the demand and supply of electricity by dispatching the generation necessary to meet demand. The NEM facilitates exchange between electricity producers and consumers through a pooled system where output from all generators is aggregated and scheduled to meet consumer demand. Electricity cannot be stored for future use, so supply must vary dynamically with changing demand. One unit of electricity is indistinguishable from all other units, it is impossible to determine which generator produced which electricity. Public Transport Expenses that may be reimbursed are those in relation to public transport provided by certain providers. The reimbursement of public transport expenses is by the reimbursement of expenses incurred travelling on various public transport services. Specific records will be required before reimbursement takes place. The providers of the public transport are entity A which is a company and entity B that is also a company.

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 subsection 136(1), | Fringe Benefits Tax Assessment Act 1986 section 156, | Income Tax Assessment Act 1936 section 318, | Income Tax Assessment Act 1936 subsection 6(1) and | Income Tax Assessment Act 1997 section 96-100.

Reasons for decision: Summary: The reimbursement of electricity expenses incurred by an employee will be an in-house expense payment fringe benefit as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). | Detailed Reasoning - Detailed reasoning: The reimbursement of expenses incurred by an employee is an expense payment benefit. Under section 20 of the FBTAA an expense payment benefit arises where a person (the provider): (a) makes a payment of the obligation of another person (the recipient) to a third person in respect of expenditure incurred by the recipient; or (b) reimburses the recipient expenditure incurred by the recipient. The taxable value of an expense payment fringe benefit that is an in-house expense payment fringe benefit may be reduced in accordance with section 22A of the FBTAA. An in-house expense payment fringe benefit is defined in subsection 136(1) to mean: (a) an in-house property expense payment fringe benefit; or (b) an in-house residual expense payment fringe benefit. Where the expense incurred by the employee is in respect of property paragraph (a) will apply. Where the expense incurred by the employee is in respect of a residual benefit paragraph (b) will apply. In considering the provision of electricity section 156 of the FBTAA provides that the supply of electricity or gas through a reticulation system shall be deemed not to constitute the provision of property. As electricity is being supplied through a reticulation system, the reimbursement of electricity expenses is not an in-house property expense payment fringe benefit. Subsection 136(1) defines an in-house residual expense payment fringe benefit: …in relation to an employer, means an expense payment fringe benefit in relation to the employer where: (a) the recipients expenditure was incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of insurance) by a person (in this definition called the residual benefit provider); (b) if the residual benefit provider is the employer or an associate of the employer - at or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, the residual benefit provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders. (c) If the residual benefit provider is not the employer or an associate of the employer: (i) The residual benefit provider purchased the benefit from the employer or an associate of the employer (which employer or associate is in this definition called the seller); (ii) At or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, both the residual benefit provider and the seller carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; and (d) documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date. As the employees' expenditure will be incurred on the provision of a residual benefit. The reimbursement will be an in-house residual expense payment fringe benefit if either of paragraphs (b) or (c) and paragraph (d) of the definition are met. The electricity must be provided through electricity retailers sourcing electricity from particular electricity generators. Therefore paragraph (c) of the definition has been considered first. Will the provider of the electricity purchase the electricity from the employer or an associate of the employer at the relevant time? The particular generators are companies. It is necessary to consider whether they are associates of the employer. Subsection 136(1) of the FBTAA provides that the term associate has the same meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). Section 318 of the ITAA 1936 defines the term associate in relation to a natural person, a company, a trustee and a partnership. The employer is a body corporate. A company in accordance with section 317 of the ITAA 1936 does not include a company in the capacity of trustee. The definition of a company in subsection 6(1) of the ITAA 1936 has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). (a) a body corporate; or (b) any other unincorporated association or body of persons; but does not include a partnership or a non-entity joint venture. As the employer is a body corporate it is a company for the purposes of section 318 of the ITAA. As the employer is a company the relevant subsection to consider is subsection 318(2) of the ITAA which sets out who is an associate of a company. It provides that the following are associates of a company (the primary entity): (a) a partner of the primary entity or a partnership in which the primary entity is a partner; (b) if a partner of the primary entity is a natural person otherwise than in the capacity of trustee - the spouse or a child of that partner; (c) a trustee of a trust where the primary entity, or another entity that is an associate of the primary entity because of another paragraph of this subsection, benefits under the trust; (d) another entity (in this paragraph called the ``controlling entity'') where: (i) the primary entity is sufficiently influenced by: (A) the controlling entity; or (B) the controlling entity and another entity or entities; or (ii) a majority voting interest in the primary entity is held by: (A) the controlling entity; or (B) the controlling entity and the entities that, if the controlling entity were the primary entity, would be associates of the controlling entity because of subsection (1), because of subparagraph (i) of this paragraph, because of another paragraph of this subsection or because of subsection (3); (e) another company (in this paragraph called the ``controlled company'') where: (i) the controlled company is sufficiently influenced by: (A) the primary entity; or (B) another entity that is an associate of the primary entity because of another paragraph of this subsection; or (C) a company that is an associate of the primary entity because of another application of this paragraph; or (D) 2 or more entities covered by the preceding sub-subparagraphs; or (ii) a majority voting interest in the controlled company is held by: (A) the primary entity; or (B) the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection; or (C) the primary entity and the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection; (f) any other entity that, if a third entity that is an associate of the primary entity because of paragraph (d) of this subsection were the primary entity, would be an associate of that third entity because of subsection (1), because of another paragraph of this subsection or because of subsection (3). In order to determine whether the electricity generators are associates of the employer, the applicable paragraph is 318(e) of the ITAA 1936 as they are also companies. Under subparagraph 318(2)(e)(i) of the ITAA 1936, the electricity generators will be associates of the employer if they are sufficiently influenced by any of the following: · the employer · another entity that is an associate of the employer because of another paragraph of subsection 318(2) · a company that is an associate of the employer because of another application of paragraph 318(2)(e) · two or more entities covered by sub-subparagraphs 318(2)(e)(i)(A), (B) and (C). According to paragraph 318(6)(b) of the ITAA 1936, for the purposes of section 318: A company is sufficiently influenced by an entity or entities if the company, or its directors, are accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the entity or entities (whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed companies, partnerships or trusts)… The electricity generators would not be sufficiently influenced by the employer. Next we must consider whether each of the electricity generators is sufficiently influenced by another entity that is an associate of the employer because of another paragraph of 318(2). The electricity generators are sufficiently influenced by another entity who is an associate of the employer under paragraph 318(2)(d) of the ITAA 1936, therefore they will be associates of the employer in accordance with subparagraph 318(2)(e)(i)(B). The next issue to address is whether the provider of the electricity (the retailer) will purchase the electricity from the electricity generators at the relevant time. The electricity generators generate and sell electricity to the NEM facilitates exchange between electricity producers and consumers through a pooled system where output from all generators is aggregated. The issue of how pooled electricity is treated in respect of determining when an in-house residual expense payment fringe benefit has been provided was addressed in ATO Interpretative Decision ATO ID 2006/197. The explanation of the ATO ID states in part: …it is therefore necessary to determine that the electricity retailer (residual benefit provider) has purchased the electricity from the electricity generator (associate of the employer). Because of the nature of the electricity industry it is impossible to distinguish which generator actually produced the electricity that is consumed by the employer's employees… …The wholesale electricity market is distinctive because all electricity output from the generators is centrally pooled. In essence, the pool administrator merely acts as a facilitator by ensuring that electricity is supplied reliably and at the best market price… …To deny access to the in-house provisions for participants in the Australian electricity industry because of the nature of the product and the method of delivery would not be the intention of the fringe benefits tax provisions. It is therefore accepted that the electricity generator sells electricity to the electricity retailer that was in turn provided by the electricity retailer to the employees of the employer as residual benefits. Therefore following the explanation given in ATO ID 2006/197 it is accepted that the provider of the electricity to the employer's employees will be purchasing the electricity from the electricity generators. Consequently, the residual benefit provider (the retailer) will always be purchasing the relevant benefits from an associate of the employer. Will both the residual benefit provider and the seller be carrying on a business that consists of or includes the provision of identical or similar benefits principally to outsiders at the relevant time? The next step is to consider whether both the retailer and the electricity generators will be carrying on a business of providing identical or similar benefits principally to outsiders. An outsider is defined in subsection 136(1) of the FBTAA to mean a person other than either: (a) an employee of the relevant employer; or (b) an associate of the relevant employer; or (c) an employee (or associate) of a third party where the third party, under an arrangement between the employer (or associate), provides benefits to employees (or associates) of the employer. It is accepted that the electricity retailers will be carrying on businesses where they supply to electricity principally to outsiders. The electricity generators provide electricity to the NEM where it can be purchased by any market customer. It is accepted that notwithstanding that some market customers may be persons otherwise associated to either electricity generators, the supply of electricity is principally to outsiders. Therefore both the residual benefit provider and seller will be carrying on a business that consists of the provision of electricity to outsiders. Since we have established that the provider of the benefit will purchase the electricity from an associate of the employer and both the provider and the seller of the electricity will be carrying on a business of providing electricity principally to outsiders, paragraph (c) of the definition of in-house residual benefit will be met. Will documentary evidence of the expenditure be provided to the employer before the declaration date? Having established that paragraph (c) of the definition of in-house residual expense payment fringe benefit has been satisfied, we must consider paragraph (d). The declaration date is defined in subsection 136(1) of the FBTAA: …in relation to an employer in relation to a year of tax, means the date of lodgement of the return of the fringe benefits taxable amount of the employer of the year of tax, or such later date as the Commissioner allows. Thus the declaration date will generally be no later than 21 May following in the next year of tax. The employer intends to use a salary packaging provider in order to provide fringe benefits to its employees. The salary packaging providers have certain guidelines for employees. One of the requirements is that employees claiming a reimbursement must provide a copy of all sides of a valid tax invoice and proof of payment to substantiate their claim. Since this will happen prior to the actual reimbursement, the appropriate documentary evidence will be provided before the declaration date. Therefore paragraph (d) of the definition of in-house residual expense payment fringe benefit will be met. Since paragraphs (c) and (d) of the definition of in-house residual expense payment fringe benefit will be met, the reimbursement will be an in-house expense payment fringe benefit. | Summary: The reimbursement of expenses incurred by an employee using public transport provided by entity A will be an in-house expense payment fringe benefit. | Detailed Reasoning - Detailed reasoning: The employer is considering reimbursing expenses employees incur travelling on public transport provided by entity A. The reimbursement of the expenses incurred by an employee is an expense payment benefit. As noted above in the reasons for decision for question one, in order to determine whether the expense payment fringe benefit is an in-house expense payment fringe benefit we must consider whether it is: (a) an in-house property expense payment fringe benefit; or (b) an in-house residual expense payment fringe benefit. Where the expense incurred by the employee is in respect of property paragraph (a) will apply. Where the expense incurred by the employee is in respect of a residual benefit paragraph (b) will apply. Property means: (a) intangible property; and (b) tangible property Intangible property means real property, a chose in action and any other kind of intangible property and tangible property means goods. The provision of transportation is neither intangible nor tangible property and is therefore a residual benefit. It is necessary to determine, therefore, whether the reimbursement of travel on public transport is an in-house residual expense payment. The reimbursement will be an in-house residual expense payment fringe benefit if either of paragraphs (b) or (c), and paragraph (d) of the definition are met. The expenses the will be reimbursed are those incurred by the employee travelling on transport provided by entity A. We have considered therefore, whether paragraph (b) of the definition will be met in relation to the reimbursement of expenses incurred using Will the employer or an associate of the employer provide the transport at the relevant time? Under paragraph (b) of the definition of in-house residual expense payment fringe benefit, the provider of the residual benefit must be either the employer or an associate of the employer. The relevant residual benefits will be passenger transport services provided by entity A. As the employer is not the provider of those services, it is necessary to establish whether entity A is an associate of the employer. Entity A is a body corporate. As explained in the reasons for decision for question one, the definition of associate for FBT purposes is taken from section 318 of the ITAA 1936. Since the employer is a body corporate the relevant paragraph will be 318(2)(e) of the ITAA 1936. As entity A is a body corporate, the relevant subparagraph will be subparagraph 318(2)(e)(i) of the ITAA 1936. Entity A will be an associate of the employer if it is sufficiently influenced by any of the following: · the employer · another entity that is an associate of the employer because of another paragraph of subsection 318(2) · a company that is an associate of the employer because of another application of paragraph 318(2)(e) · two or more entities covered by sub-subparagraphs 318(2)(e)(i)(A), (B) and (C). Entity A would not be sufficiently influenced by the employer. We have already established that there is an associate of the employer because of paragraph 318(2)(d) of the ITAA. The question therefore is whether entity A is sufficiently influenced by that associate of the employer. As explained in the reasons for decision for question one, the meaning of the term sufficiently influenced is found in paragraph 318(6)(b) of the ITAA 1936. It is considered that entity A is sufficiently influenced by the associate of the employer for it to be regarded as the employer's associate under subparagraph 318(2)(e)(i) of the ITAA 1936. Therefore an associate of the employer will be the residual benefit provider. Will the residual benefit provider be carrying on a business that consists of or includes the provision of identical or similar benefits principally to outsiders? Having established that the employer and entity A are associates, it is necessary to consider whether entity A is carrying on a business that provides identical or similar benefits principally to outsiders. It is accepted that entity A carries on the business, by providing public passenger transport throughout its area. Since it is accepted that entity A carries on the business of providing public passenger transport, it is also accepted that such passenger transport services will be principally provided to individuals who are not the employees of entity A or of the associate of the employer. Will documentary evidence of the expenditure be provided to the employer before the declaration date? Having established that paragraph (b) of the definition of in-house residual expense payment fringe benefit has been satisfied, we must consider paragraph (d). One of the requirements is that employees claiming a reimbursement must provide particular documentation. Since this will happen prior to the actual reimbursement, the appropriate documentary evidence will be provided before the declaration date. Therefore paragraph (d) of the definition of in-house residual expense payment fringe benefit will be met. Since paragraphs (b) and (d) of the definition of in-house residual expense payment fringe benefit will be met, the reimbursement will be an in-house expense payment fringe benefit. | Summary: The reimbursement of expenses incurred by an employee using public transport provided by entity B will be an in-house expense payment fringe benefit. | Detailed Reasoning - Detailed reasoning: The employer is considering reimbursing expenses employees incur in travelling on public transport provided by entity B. The reimbursement of the expenses incurred by an employee is an expense payment benefit. In order to determine whether the expense payment fringe benefit is an in-house expense payment fringe benefit we must consider whether it is: (a) an in-house property expense payment fringe benefit; or (b) an in-house residual expense payment fringe benefit. As stated above, transport is a residual benefit therefore the employee's expenditure will be incurred on the provision of a residual benefit. The reimbursement will be an in-house residual expense payment fringe benefit if either of paragraphs (b) or (c) and paragraph (d) of the definition are met. The expenses that will be reimbursed are those incurred by employees travelling on transport provided by entity B. We have considered therefore, whether paragraph (b) of the definition will be met in relation to the reimbursement of expenses incurred using Will the employer or an associate of the employer provide the transport at the relevant time? The provider of the transport is not the employer but is entity B. Entity B is a company. Based on the reasoning in relation question one, entity B is an associate of the employer in accordance with subparagraph 381(2)(e)(i) of the ITAA 1936. Will the residual benefit provider be carrying on a business that consists of or includes the provision of identical or similar benefits principally to outsiders? As entity B is an associate of the employer and is the provider of the residual benefit, the next thing to consider is whether it will be carrying on a business that consists of or includes identical or similar benefits principally to outsiders. Since entity B carries on the business of providing public passenger transport, it is accepted that such passenger transport services will be principally provided to individuals who are not the employees of entity B or of the associated entity. Therefore paragraph (b) of the definition of an in-house residual expense payment fringe benefit will be met. Will documentary evidence of the expenditure be provided to the employer before the declaration date? Having established that paragraph (b) of the definition of in-house residual expense payment fringe benefit has been satisfied, we must consider paragraph (d). The declaration date will generally be no later than 21 May following in the next year of tax. One of the requirements is that employees claiming a reimbursement must provide particular documentation. Since this will happen prior to the actual reimbursement, the appropriate documentary evidence will be provided before the declaration. Therefore paragraph (d) of the definition of in-house residual expense payment fringe benefit will be met. Since paragraphs (b) and (d) of the definition of in-house residual expense payment fringe benefit will be met, the reimbursement will be an in-house expense payment fringe benefit.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.