Private ruling: FBT - exempt benefits
Date of advice: 12 August 2025
Published: 20 October 2025
Ruling period: Fringe Benefits Tax (FBT) Year Ended 31 March 20XX | 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: Is the Employer entitled to an exemption from Fringe Benefits Tax (FBT) in respect of its provision of childcare services (whether discounted or in full) to its employees pursuant to subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes.

Relevant facts and circumstances: The Employer is a private company operating facilities that provide child day care services to the public at large. As part of its business, the Employer offers access to its childcare facilities to employees who wish to have their children minded on the Employer's business premises. Under the current arrangement with its employees, the Employer offers a discount on the market value which is normally charged to the public. The discount amounts to XX% of the out-of-pocket gap fee. Currently, approximately X employees are being provided discounted childcare.

Relevant legislative provisions: Fringe Benefit Tax Assessment Act 1986 (FBTAA) section 45 | Fringe Benefit Tax Assessment Act 1986 (FBTAA) subsection 47(2) | Fringe Benefit Tax Assessment Act 1986 (FBTAA) subsection 136(1) | Taxation Administration Act 1953 section 12-35 of schedule 1

Reasons for decision: Summary: Is the Employer entitled to an exemption from Fringe Benefits Tax (FBT) in respect of its provision of childcare services (whether discounted or in full) to its employees pursuant to subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? Yes, the provision of discount childcare services by the Employer to its employees is an exempt residual benefit under subsection 47(2) of the FBTAA. | Detailed Reasoning - Detailed reasoning: Subsection 47(2) of the FBTAA provides an exemption from FBT for the provision of childcare services when certain conditions are satisfied. Subsection 47(2) states: Where: (a) a residual benefit provided to a current employee in respect of his or her employment consists of: (i) the provision, or use, of a recreational facility; or (ii) the care of children of the employee in a childcare facility; and (b) the recreational facility or childcare facility, as the case may be, is located on business premises of: (i) the employer, or (ii) if the employer is a company, of the employer or of a company that is related to the employer, the benefit is an exempt benefit. Subsection 136(1) of the FBTAA defines a 'childcare facility' as: ...a facility at which a person receives, or is ready to receive, 2 or more children under the age of 6, not being associates of the person, for the purpose of minding, caring for or educating them for a day or part of a day without provision for residential care but does not include a facility at the place of residence of any of those children. Therefore, the provision of childcare will be an exempt benefit under subsection 47(2) of the FBTAA if the following conditions are satisfied: • the benefit is a residual benefit • the benefit is provided to a current employee • the benefit consists of the care of the children of the employees in a 'childcare facility', and • the childcare facility is located on the business premises of the employer. | Detailed Reasoning - Is the benefit a residual benefit?: Section 45 of the FBTAA defines a 'residual benefit' as follows: A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). Residual fringe benefits can be separated under 4 different categories under subsection 136(1) of the FBTAA as: • In-house non-period residual fringe benefits; • In-house period residual fringe benefits; • External non-period residual fringe benefits • External period residual fringe benefits Broadly, an 'in-house residual fringe benefit' is a residual benefit provided by an employer or associate of the employer as part of their business activities. An 'external residual fringe benefit' is a benefit that is not an in-house residual fringe benefit. The distinction between a 'period' and a 'non-period' residual fringe benefit depends on the definition of 'period residual fringe benefit' in subsection 136(1) and section 149 of the FBTAA. A 'period residual fringe benefit' is defined as a residual fringe benefit that is provided during a period. Under subsection 149(1), a benefit is taken to be provided during a 'period' if, and only if, it is provided and subsists during a period of more than one day and is not deemed to be provided at a particular time or on a particular day. The effect of this is that, generally, where a residual fringe benefit is provided and subsists for more than one day, it is a period residual fringe benefit. The provision of childcare services at a discounted rate by the Employer to their employees does not fit within any of the specific benefits in Subdivision A of Divisions 2 to 11 (inclusive) of the FBTAA. Such a benefit constitutes a residual benefit pursuant to section 45 of the FBTAA, namely, an in-house period residual fringe benefit. Accordingly, this condition is satisfied. | Detailed Reasoning - Is the benefit provided to a current employee?: An 'employee' is defined in subsection 136(1) of the FBTAA to include a current, future and former employee. Subsection 136(1) defines a 'current employee' to mean 'a person who receives, or is entitled to receive, salary or wages'. 'Salary or wages', as defined in subsection 136(1), means payments from which an amount must be withheld under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 . The Employer pays its employees amounts that constitute 'salary and wages' as defined in the FBTAA. The employees are therefore the Employer's current employees. Accordingly, this condition is satisfied. | Detailed Reasoning - Does the benefit consist of the care of the children of the employee in a childcare facility?: A 'childcare facility' is defined within subsection 136(1) of the FBTAA as: a facility at which a person receives, or is ready to receive, 2 or more children under the age of 6, not being associates of the person, for the purpose of minding, caring for or educating them for a day or part of a day without provision for residential care but does not include a facility at the place of residence of any of those children. The Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986 provides that: By sub-clause 47(2) the provision recreational or childcare facilities on an employer's premises for the benefit of employees will not give rise to a taxable fringe benefit. For these purposes, 'child' is defined in sub-clause 136(1) to include an adopted child, stepchild or ex-nuptial child of the employee. 'Childcare facility' is also defined in that sub-clause, and, broadly, means a facility where children under the age of 5 are provided with care or education, but not with residential care. The intention of the Explanatory Memorandum is that to be exempt from FBT, the childcare facility must be one that provides care to children. Therefore, an entity may not qualify as a childcare facility as intended in the Explanatory Memorandum where it primarily involves the provision of formal education to pre-school aged children in a school-like manner. Furthermore, paragraph 145 of Taxation Ruling TR 2013/2 Income tax: school or college building funds differentiates between a childcare centre and a pre-school kindergarten by stating: A childcare centre is not a school...as it lacks the element of regular, ongoing and systematic instruction and lacks the purpose of systematically imparting a course of education as such. However, a pre-school kindergarten may qualify as a school where it involves regular and systematic instruction, and these are its primary function or essential purpose. The Employer provides childcare services to the public at large at their facilities. There is no indication that these services include formal education of pre-school aged children in a school-like manner. Accordingly, it is accepted that the Employer operates childcare facilities. The residual benefit consists of the care of the children of the employees in a childcare facility by way of discounted fees. Accordingly, this condition is satisfied. | Detailed Reasoning - Is the childcare facility located on the business premises of the Employer?: To meet the criteria for exemption under paragraph 47(2)(b) of the FBTAA, the childcare facility must be located on the business premises of: (i) the employer, or (ii) a company that is related to an employer provided the employer is also a company The term 'business premises' is defined in subsection 136(1) of the FBTAA as being, ...premises, or part of premises, of the person used, in whole or in part, for the purposes of business operations of the person... This definition contains a two-fold test for determining whether the premises are business premises for the purposes of the FBTAA: • The first requirement is that the premises or part of premises are of the person. • The second requirement is that the premises or part of premises must be used by the person, in whole or in part, for the purposes of their business operations. | Detailed Reasoning - Business premises of a person: Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises' (TR 2000/4) considers the question of what constitutes 'business premises' for the purposes of the FBTAA. Pursuant to paragraph 12 of TR 2000/4, in determining whether the premises are premises of the employer and are used for the business operations of the employer, it is relevant to consider: • the control the employer has over the premises, and • the consistency of an employer's actions and activities on the premises with those of normal business practices. Paragraph 48 of TR 2000/4 states: The employer must have a right of possession and control over the use of the premises during the course of its business operations. The absence of a right of possession and control may indicate the premises are not 'of the person', or the activities being carried on the premises are not truly 'business operations' of the person. Merkel J in Esso Australia Ltd v. Federal Commissioner of Taxation 40 ATR 76; (1998) 157 ALR 652; 98 ATC 4953 ( Esso ) considered this issue and stated: Under subsection 47(2), for the relevant business premises to be those of an employer, the employer must have a right to possession of the premises, at least to the extent necessary to enable the conduct thereon of the relevant recreational or childcare facility. If the employer has the requisite entitlement in respect of the premises it does not appear to matter that entitlement is one of ownership, exclusive possession or non-exclusive possession. Paragraph 20 of TR2000/4 states that what is important for an employer seeking to establish that premises are its 'business premises' is that the employer's activities amount to its 'business operations' on its premises. In this case, the Employer has the occupancy and control of the 4 childcare facilities. Accordingly, the 4 childcare facilities are business premises of the Employer in alignment with TR 2000/4 and the Esso decision. | Detailed Reasoning - Is the premise being used for the employer's business operations?: The meaning of 'business operations' is discussed in paragraphs 9 and 10 of TR 2000/4. In addition to including activities undertaken by a person in the ordinary course of carrying on a business, they also include those activities that, although not undertaken in the ordinary course of carrying on a business, are nevertheless undertaken in the course of carrying on a business. Paragraph 42 of TR 2000/4 states: Where a business exists, the term 'business operations' would include a wide range of activities undertaken by the person carrying on the business. Support for this view can be found in the judgment of Merkel J in Esso Australia Ltd v. FC of T 98 ATC 4953, at 4957; (1998) 40 ATR 76, at 80; 157 ALR 652, at 656. In this context, the provision of benefits to current employees in the form of childcare would be an important factor in recruiting, retaining and otherwise rewarding employees. Activities undertaken in connection with the provision of these benefits to employees would be business operations of the employer. Accordingly, the business premises are being used in the Employer's business. | Detailed Reasoning - Conclusion regarding the conditions in subsection 47(2) of the FBTAA: The facts provide that the Employer provides a benefit in the form of discounted care of employees' children in a childcare facility operated by the Employer. This benefit is a residual benefit as it is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). The benefit is an exempt benefit as it satisfies the conditions under subsection 47(2) of the FBTAA as: • the Employer provides discounted care of employees' children in a childcare facility, and • the childcare facility is located on the business premises of the Employer. Therefore, the benefit of discounted childcare provided to employees is an exempt benefit.