Private ruling: Fringe benefits tax and benefits provided to a blogger
Published: January 2014
Ruling period: Year ended 31 March 2014 | Year ended 31 March 2015 | Year ended 31 March 2016 | Year ended 31 March 2017 | Year ended 31 March 2018
Date scheme commenced: 1 July 2013

Ruling: Q1: Does a fringe benefit arise in respect of the benefits provided by the employer to an individual under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: No. | Q2: If the answer to question 1 is yes, would the relevant otherwise deductible rule apply to reduce the taxable value of the fringe benefits to nil? | A2: This question is not answered as the answer to Question 1 is no.

Relevant facts and circumstances: The Company is planning to expand into a new activity unrelated to its existing income producing activities. A private ruling was issued which concluded that the activities that these new activities will not constitute the carrying on a business and that the Company was not entitled to claim income tax deductions in respects of these new activities. As part of these activities an individual is provided with a number of benefits. This individual is an owner of the Company and also works in the existing income producing activities of the Company.

Relevant legislative provisions: FBTAA subsection 136(1)

Reasons for decision: Summary: A fringe benefit does not arise as these benefits are not provided in respect of employment. If they were provided in respect of employment, as the new activities are not considered to be the carrying on of a business, then the benefits provided would be subject to FBT as there will no reduction in the taxable value under the otherwise deductible rule. | Detailed Reasoning - Detailed reasoning: A benefit is defined in subsection 136(1) of the FBTAA as: benefit includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under: (a) an arrangement for or in relation to: (i) the performance of work (including work of a professional nature), whether with or without the provision of property; (ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or (iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; (b) a contract of insurance; or (c) an arrangement for or in relation to the lending of money. Based on this definition the benefits received would meet this definition. For a benefit to be a fringe benefit it must meet the definition of a fringe benefit in subsection 136(1) of the FBTAA. This definition requires that the benefit must be 'in respect of the employment of the employee'. In J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 ( Knowles) , the full Federal Court in examining the meaning of the phrase in 'in respect of the employment of the employee' in respect of the definition of a fringe benefit noted that: ... what must be established is whether there is a sufficient or material, rather than a causal connection or relationship between the benefit and the employment... The Court also suggested that it would be useful to ask 'whether the benefit is a product or incident of the employment'. The fact that the individual may be an employee of the Company is not enough to conclude that a fringe benefit will arise. What is required is sufficient or material link to his employment and the provision of those benefits. The new activities are separate from the income producing activities already being undertaken of the Company and duties performed in respect of the Company's existing income producing activities would result in individual being considered to be an employee of the Company. If we look at the ruling issued in respect of whether the Company was carrying on a business in respect of the new activities, it was concluded that the new activities did not constitute the carrying on of a business. As a result the activities the individual undertakes do not form part of the income producing activities of the Company. It could be concluded that the reason the Company is undertaking activities is as a result of a decision made by the individual and the owner of the Company to conduct these activities through the Company. As a result the necessary connection between the benefits related to the new activities is as a result of ownership of the Company. It is not as a consequence of the individual being an employee producing the assessable income from the existing business of the Company. Therefore following the decision in Knowles the benefits are not provided in respect of employment and do not meet the definition of a fringe benefit | Detailed Reasoning - If an employment nexus could be established: If the nexus between employment and the provision of these benefits were established the benefits would be deductible as an employment expense in respect of the income producing activities from the existing business rather than the blogging activities. The otherwise deductible rule reduces the taxable value of a fringe benefit by the amount the employee would have been entitled to an income tax deduction if they have paid for the benefit themselves. The conclusion reached that the new activities do not meet the requirement of carrying a business of the Company would equally apply to the individual if they were conducted outside of the Company. Therefore the individual would be denied income tax deductions respect of the expenses incurred in respect of the new activities. However a detailed review of the specifics of each benefit might result in an exemption applying to that benefit but the otherwise deductible rule would not apply to any of benefit that was not exempt.