Private ruling: Fringe benefits tax
Date of advice: 1 September 2022
Published: November 2022
Ruling period: Fringe Benefits Tax (FBT) year ending 31 March 20XX | FBT year ending 31 March 20XX | FBT year ending 31 March 20XX
Date scheme commenced: 1 April 20XX

Ruling: Q1: Do seconded employees of Company X meet the definition of employee under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)? | A1: No

Relevant facts and circumstances: Company X is wholly owned, controlled and funded by an overseas Government. Company X has a branch office in Australia. The Australian branch office does not carry on any profit-making activities and nor does it intend to carry on any profit-making activities in the future. Company X regularly seconds employees to its Australian office from abroad. Company X's secondment of its employees to Australia all exhibit similar characteristics, including the following: • all individuals are employees of Company X and only provide services to Company X in the course of their employment - they do not render independent personal services to the overseas Government; • all are citizens of the overseas country; • no such employees are citizens of Australia or permanent residents of Australia and nor do they intend to become citizens of Australia or permanent residents of Australia during their secondment. All employees hold a Temporary Work (International Relations) visa (subclass 403), being a temporary visa. One of the conditions of this visa is the employee is only allowed to stay in Australia for up to 4 years. All employees are here only by reason of their secondment by Company X to its Australian office and are, or will be, present in Australia temporarily. At the end of their temporary secondment, in Australia, all employees plan to relocate overseas. No such employees ever plan to stay in Australia or to take up residence here once their duties at Company X's Australian office have been completed. All employees seconded to Australia are remunerated by the overseas Government, through Company X. None of the employees seconded to Australia by Company X are entitled to parental leave pay.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 , subsection 136(1) | International Tax Agreements Act 1953 , section 3AAA | International Tax Agreements Act 1953 , section 5 | Paid Parental Leave Act 2010 | Taxation Administration Act 1953 , Schedule 1, subsection 12-1(1) | Taxation Administration Act 1953 , Schedule 1, section 12-35 | Taxation Administration Act 1953 , Schedule 1,section 12-110(1)(ca)

Reasons for decision: Summary: The definition of 'fringe benefit' contained in subsection 136(1) of the FBTAA has the broad effect that a fringe benefit will be provided when a benefit is provided to an employee by an employer in respect of the employment of the employee, unless the benefit is one of the benefits specifically exempted from being a fringe benefit. Subsection 136(1) of the FBTAA defines 'employee' as a current, future, and former employee. The term 'current employee' means 'a person who receives or is entitled to receive, salary or wages. The term 'salary or wages' within the meaning of subsection 136(1) refers to: a payment from which an amount must be withheld (even if the amount is not withheld under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income. Thus, in order to qualify as an 'employee' for the purposes of the FBTAA, the employee must receive assessable income (income that is subject to income tax) from the employer. The overseas country treaty provides that remuneration paid by the overseas Government 'in the discharge of functions of a governmental nature' will be taxable in Australia if the services are performed in Australia by an Australian resident who is either an Australian national or did not become an Australian resident solely for the purpose of rendering the services. The remuneration may also be taxed in Australia if the overseas Government is carrying on business operations. All employees seconded to Australia are remunerated only by the overseas Government through Company X. Company X is an entity, wholly owned, controlled and funded by the overseas Government. Employees seconded to the Australian branch office of Company X render services in furtherance of these functions. The salary and wage income derived by seconded employees may, therefore, be attributed to services in discharge of governmental functions. The employees seconded by Company X to Australia are all overseas citizens. None of these employees are citizens of Australia, nor do they intend to become citizens of Australia or permanent residents of Australia during their secondment here. Each employee holds a Temporary Work (International Relations) visa (subclass 403) which entitles them to stay in Australia for the duration of four years. All employees are staying in Australia solely for the purpose of rendering services to Company X. Any remuneration paid by Company X, therefore, is not assessable income in Australia. As the overseas Government does not carry on any profit-making activities through Company X, nor does it intend to carry on any profit-making activities through Company X in the future, the seconded employees will not render services in connection with a business carried on by the overseas Government. Accordingly, Article does not apply. | Detailed Reasoning - Conclusion: The overseas treaty will exempt remuneration paid by Company X from Australian income tax as the seconded employees are rendering services in discharge of governmental functions and the employees are overseas citizens and did not become Australian residents for a purpose other than to render services to Company X in Australia. As the seconded employees are not in receipt of assessable income and no amount from their remuneration is required to be withheld by Company X under Schedule 1 to the TAA 1953, the employees of Company X are not employees for the purposes of the FBTAA. Thus, any benefit provided to seconded employees of Company X will not be subject to fringe benefits tax. | Detailed Reasoning - Note: This ruling will not apply if any employee's circumstances change so that the employee no longer satisfies the overseas treaty, or the employee is entitled to 'parental leave pay'.