Private ruling: Fringe benefits tax
Published: February 2014
Ruling period: 1 April 2013 - 31 March 2014
Date scheme commenced: 1 April 2013

Ruling: Q1: As a result of the employees transferring from AA Co will the taxable value of car fringe benefits be calculated under the new rate in section 9 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) because it is considered to be a change to a pre-existing commitment? | A1: Yes | Q2: As a result of the employees transferring from AA Co will the company be unable to reduce its employees' aggregate taxable value of in-house fringe benefits under section 62 of the FBTAA because it is considered to be a material variation? | A2: Yes

Relevant facts and circumstances: · AA Co and ZZ Co are two separate legal entities that merged to form one entity in the 2014 FBT year. · ZZ Co was the continuing entity and continued the operations of both ZZ Co and AA Co. · ZZ Co subsequently changed its name to AZ Co. · The employees of AA Co were transferred to AZ Co on the date AA Co and ZZ Co merged. AZ Co maintained the transferred employee's existing remuneration, rights and employment conditions. · AA Co provided its employees with car fringe benefits which were entered into prior to 10 May 2011. AZ Co continued to provide these benefits after the employees were transferred. · AA Co provided its employees with in-house fringe benefits which were entered into prior to 22 October 2012. The benefits are provided under salary packaging arrangements. AZ Co continued to provide these benefits after the employees were transferred.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 9 | Fringe Benefits Tax Assessment Act 1986 section 62

Reasons for decision: Summary: Subsection 62(1) of the FBTAA allows the aggregate taxable value of in-house fringe benefits to be reduced by $1000. From 22 October 2012, the $1,000 annual reduction will not apply to in-house benefits where the employee accesses the benefit under a salary packaging arrangement (subsection 62(2) of the FBTAA). However, under the transitional arrangements, the $1000 reduction will continue to apply to an existing salary packaging arrangement until the earlier of: · 1 April 2014, or · The date it was materially varied. An existing salary packaging arrangement is a salary packaging arrangement entered into by the employer and employee before 22 October 2012. In this case, AA Co employees received in-house fringe benefits under a salary packaging arrangement which were entered into prior to 22 October 2012. AZ Co will continue to provide these benefits after the employees are transferred. In determining whether an alteration or variation is material to the existing salary packaging arrangement, regard must be had to the particular wording of the agreement. What is considered material will often depend on the facts and circumstances of the arrangement. According to the Explanatory Memorandum to the Tax Laws Amendment (2012 Measures No. 6) Bill 2012 paragraph 7.48 states: 7.48 Alterations or variations of an existing salary packaging arrangement that would more than likely be considered material include, but are not limited to: · a change of employer; · alteration of the fixed end date of the arrangement; and · variation to the types of benefits covered under the arrangement. The transitional rules will not apply, as the employees have commenced employment with a new employer (AZ Co). Therefore, a material variation occurs on the date the employees commence employment with AZ Co and the $1,000 reduction in the aggregate taxable value of in-house fringe benefits cannot be applied.

Reasons for decision: In the 2014 FBT year, AA Co and ZZ Co merged to form one entity. ZZ Co is the continuing entity and will take over the operations of AA Co. ZZ Co subsequently changed its name to AZ Co. | The employees of AA Co were transferred to AZ Co as a result of the amalgamation. However, the employee's remuneration, rights and conditions were preserved. | Subsection 9(1) of the FBTAA sets out the statutory formula that applies to determine the taxable value of car fringe benefits under section 7 of the FBTAA. Subsection 9(1) is amended by Schedule 5 of Tax Laws Amendment (2011 Measures No.5) Act 2011 and applies to car fringe benefits that commenced after 7:30pm AEST on 10 May 2011. The amendments replace the former range of statutory rates with a single statutory rate. | The amendments apply to all car fringe benefits after 7:30pm AEST on 10 May 2011 unless it can be provided that there was a pre-existing commitment in place to provide a car. In that case the transitional arrangements will apply to phase in the single statutory rate. A commitment is considered entered into at the point of time there is commitment to the transaction and it cannot be back out of. | The Explanatory Memorandum to Tax Laws Amendment (2011 Measures No. 5) Act 2011 (EM) states: | 5.52 Changes made after 7:30 pm, AEST on 10 May 2011 to commitments made prior to 7:30 pm, AEST on 10 May 2011, such as re-financing a car, altering the duration of an existing contract or changing employers, are new commitments and will therefore be subject to the new arrangements. | 5.53 If, however, the amendments do not apply in relation to a car, in relation to an employer, at the start of an FBT year (or from the time the car was first held if that happens after the beginning of the year), and the amendments begin to apply in relation to that car, in relation to that employer during that FBT year, the amendments will instead begin to apply from the start of the next FBT year. | The EM provides an example of when an employee changes employers: | Anna works for X Co, and enters into a novated lease arrangement with her employer in January 2010. The lease runs until January 2013. The car fringe benefit is valued under the statutory formula method. | On 12 November 2011, Y Co. officially takes over X Co, and Anna is now an employee of Y Co. | From 12 November 2011, any car benefits provided to Anna will come under the new arrangements. | In this case, AA Co provided its employees with car fringe benefits which were entered into prior to 10 May 2011. It is considered that these are pre-existing commitments. However, when the employees changed employers, this triggered a new commitment and will be subject to the amendments. The new rate will apply from the date the new employment commences.