Private ruling: FBT - In house residual expense payment fringe benefits
Published: July 2012
Ruling period: 31 March 2013 | 31 March 2014 | 31 March 2015 | 31 March 2016
Date scheme commenced: 1 April 2012

Ruling: Q1: Does the payment or reimbursement by you for the private electricity expenses incurred by your employees (or their associates) constitute an expense payment fringe benefit for the purposes of section 20 of the Fringe Benefits Tax Assessment Act 1986 ? | A1: Yes | Q2: If the answer to Question 1 is "yes", does the payment or reimbursement by you in the manner contemplated constitute an in-house residual payment benefit for the purposes of subsection 22A(2) of the Fringe Benefits Tax Assessment Act 1986 ? | A2: Yes | Q3: If the answer to Question 2 is "yes," is the taxable value under subsection 22A(2) of the Fringe Benefits Tax Assessment Act 1986 determined in accordance with section 48 of the FBTAA at 75% of the lowest amount paid or payable by a member of the public in respect of a current identical benefit? | A3: Yes | Q4: If the answer to Question 3 is "yes," are any resultant fringe benefits, eligible fringe benefits, and eligible for a further reduction of up to $1,000 per employee per year in accordance section 62 of the Fringe Benefits Tax Assessment Act 1986 ? | A4: Yes

Relevant facts and circumstances: The employer is proposing to reimburse private expenses incurred by its employees in respect of a product being supplied to these employees (or associates) by retailers. The relevant intended reimbursements by the employer will be made on the presentation to them of the employee's (or associate's) invoice as evidence of the employee's (or associate's) payment. The relevant retailers originally purchase the product from a wholesale market. An associate of the employer is a producer in this market. Once the retailer acquires the goods from various producers it is not able to distinguish, at the time of sale, which producer's goods have been sold to particular customers. None of the relevant retailers are associates of the employer. All of the relevant retailers sell the relevant product to the public at large.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Section 20 | Fringe Benefits Tax Assessment Act 1986 Subsection 22A(2) | Fringe Benefits Tax Assessment Act 1986 Section 42 | Fringe Benefits Tax Assessment Act 1986 Section 45 | Fringe Benefits Tax Assessment Act 1986 Subsection 46(2) | Fringe Benefits Tax Assessment Act 1986 Section 48 | 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 144 | Fringe Benefits Tax Assessment Act 1986 Section 147 | Fringe Benefits Tax Assessment Act 1986 Section 149 | Fringe Benefits Tax Assessment Act 1986 Section 156 | Fringe Benefits Tax Assessment Act 1986 Section 158 | Fringe Benefits Tax Assessment Act 1986 Section 159 | Income Tax Assessment Act 1936 Section 6 | Income Tax Assessment Act 1936 Section 262A | Income Tax Assessment Act 1936 Section 317 | Income Tax Assessment Act 1936 Section 318 | Income Tax Assessment Act 1997 Section 900-115 | Income Tax Assessment Act 1997 Subsection 995-1(1) | Taxation Laws Amendment (Fringe Benefits and Substantiation) Act 1987 at Part A- Main Features: In-house fringe benefits, clauses 15, 17, 40, 48

Reasons for decision: Summary: It is considered that the reimbursements and payments of the employees' (or associates') private expense will constitute expense payment fringe benefits as defined in section 20 of the Fringe Benefits Tax assessment Act 1986 (FBTAA). | Detailed Reasoning - Detailed reasoning: An expense payment fringe benefit under section 20 of the FBTAA arises where an employer (or associate) reimburses an employee (or associate) for expenses incurred by the employee (or associate) or, where an employer (or associate) pays a third party in satisfaction of expenses incurred by an employee (or associate). Under the proposed arrangement the employer intends to reimburse their employee's private expenses. The reimbursement will be made upon presentation of the account. The proposed arrangement will constitute as expense payment benefit as described in section 20 of the FBTAA. A fringe benefit is defined in subsection 136(1) of the FBTAA to be a benefit provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employee's employment and such benefit is not otherwise exempted. The proposal to pay or reimburse the private expenses of current employees (or their associates) will, when acted upon, only arise due to the employer and employee relationship between those current employees and the employer. Therefore, the proposal to pay or to reimburse the private expenses of employees (or associates) will, when acted upon, constitute expense payment fringe benefits. | Summary: The proposed payments or reimbursements of the private expenses of employees (or associates) will be in-house residual expense payment fringe benefits as defined in subsection 136(1) of the FBTAA | Detailed Reasoning - Detailed reasoning: Section 22 of the FBTAA determines the taxable value of an in-house expense payment fringe benefit with subsection 22A(2) describing how the taxable of an in-house residual expense payment benefit is determined. An in-house residual expense payment benefit is defined in subsection 136(1) of the FBTAA as: 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 investment 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"); and (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 recipient's expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date. As the provider of the residual benefit is not the employer or an associate of the employer we do not need to look at whether paragraph (b) of the definition applies. However in respect of paragraphs (b) and (c) of the definition only one of these paragraphs need to be satisfied (providing both paragraphs (a) and (d) are also satisfied). (a) Expense payment fringe benefit As determined in Question 1, this condition has been satisfied. (b) Employee's expenditure incurred in respect of a residual benefit Section 45 of the FBTAA describes what constitutes a residual benefit. Under that description a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA. It is considered that the relevant employee's (or associate's) expenditure incurred will be in respect of a residual benefit as such a supply is deemed not to be a property benefit and also that such supply does not otherwise fall within one of the other more specific benefit types contained in the FBTAA. This condition has been satisfied. (c) The employer (or associate) is not the residual benefit provider but the residual benefit provider purchased the benefit from the employer or an associate of the employer As the benefit provider is neither the employer nor an associate of the employer the following two conditions need to be satisfied, these being: · the retailers must have purchased the item from either the employer or an associate of the employer; and · both the retailers and the employer or the employer's associate (as relevant) must have carried on a business that consisted of, or included, the provision of identical or similar benefits principally to outsiders at the relevant times. The retailers did not purchase the product from the employer, therefore, we need to determine if the product was purchased from an associate of the employer. An associate is defined in subsection 136(1) of the FBTAA to have the same meaning as that contained in section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). Subsection 318(2) of the ITAA 1936 looks at associates of companies and it states: For the purposes of this Part, the following are associates of a company (in this subsection called 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). Therefore for the purposes of determining whether someone is an associate of the employer is the 'primary entity' for the purposes of the definition of an associate in subsection 318(2) of the ITAA 1936. Based on the facts of the case it was concluded the retailers purchased the product from an associate of the employer. This condition has been satisfied. 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 In this case we need to determine whether the benefit provider (being the entity providing the item to the employee) and, the seller (the employer's associate) carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders at the time the benefit was provided to the employees. 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 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 Based on the facts of the case it was concluded that at the time the benefits will be provided, the benefit provider and the associate will be carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders at the time the benefit was provided to the employees. This condition has been satisfied. (d) Required documentary evidence given to employer at the required time This condition is satisfied as the required documentary evidence will be given to the employer at the required time. | Summary: Section 48 of the FBTAA gives rise to a valuation of 75% of the lowest amount paid or payable by a member of the public to acquire the benefits. | Detailed Reasoning - Detailed reasoning: Under subsection 22A(2) of the FBTAA the taxable value of an in-house residual expense payment fringe benefit is equal to the taxable value of the notional residual fringe benefit calculated under whichever of sections 48 or 49 of the FBTAA is applicable. Section 49 of the FBTAA deals with the taxable value of an in-house period residual fringe benefit. An 'in-house period residual fringe benefit' is defined, in subsection 136(1) of the FBTAA, to mean an in-house residual fringe benefit that is provided during a period. Section 149 of the FBTAA sets out when a benefit may be regarded as one 'that is provided during a period'. The relevant two main requirements, under section 149 of the FBTAA, are that the benefit: (a) is provided, or subsists, during a period of more than 1 day; and (b) is not deemed by a provision of the FBTAA to be provided at a particular time or on a particular day. However, subsection 46(2) of the FBTAA deals with benefits provided in regular billing periods, which is the case here. Under this subsection the provision of the relevant benefit during each billing period constitutes a separate benefit which is deemed to have been provided at the time the payment for billing period becomes due and payable. As the benefits in this case will be deemed, under subsection 46(2)(d) of the FBTAA, to be provided at the time when the payment in respect of that period is due and payable they fall within the specific exclusion of what is a 'period benefit' in section 149 of the FBTAA. As the relevant benefits are not period benefits then they cannot be 'in-house period residual fringe benefit' under section 49 of the FBTAA. Therefore, the relevant benefits will be valued under section 48 of the FBTAA as 'in-house non-period residual fringe benefits' as all the necessary requirements are met. However it should be noted that whether the taxable value of the benefits are, in fact, calculated under section 48 of the FBTAA or under section 49 of the FBTAA would be effectively immaterial to the final result. | Summary: Section 62 of the FBTAA gives rise to a reduction of the taxable value of the fringe benefit provided by ERM is to be reduced by the lesser of the taxable value of the benefit or $1,000. | Detailed Reasoning - Detailed reasoning: Section 62 of the FBTAA provides for a reduction in the taxable values of 'eligible fringe benefits'. The reduction is the lesser of the aggregated taxable value of all relevant benefits or $1,000. The reduction applies separately to the relevant benefits provided to each employee. If the benefits are provided to both employees and associates of employees (As pointed out in Miscellaneous Tax Ruling MT 2044, Fringe Benefits Tax: Reduction of Aggregate Taxable Value of Fringe Benefits - Application to Associates), the reduction applies in respect of the total benefits provided to each employee and his or her associates in a particular year. Under paragraph 62(2)(a) of the FBTAA, an 'in-house fringe benefit' is an 'eligible fringe benefit'. An 'in-house fringe benefit' is defined in subsection 136(1) of the FBTAA as including an in-house expense payment fringe benefit. In turn, an 'in-house expense payment fringe benefit' is defined, in subsection 136(1) of the FBTAA as including an 'in-house residual expense payment fringe benefit'. Therefore, as it has already been determined that the benefits in this case are 'in-house residual expense payment fringe benefits' they will qualify as being 'eligible fringe benefits' for the purposes of section 62 of the FBTAA.

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