Private ruling: Fringe benefits tax: use of records of previous employer by new employer
Published: June 2014

Ruling: Q1: In calculating the fringe benefits tax liability (if any) that arises from the provision of the benefits listed in subsection 135X(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to an employee transferred between employers under a Notice, can the new employer use the records that would have been used by the original employer if the transfer had not been made? | A1: The records that would have been used by the original employer can be used where the transfer only involved a change of employer. The records of the original employer cannot be used where the transfer changed the employee's circumstances. For example, the employee's duties or work location. In agreeing to this concession for the new employers where the transfer only involved a change of employers, there is an expectation that the new employers will adjust their notional tax for the year ending 31 March 20YY to include the amount of fringe benefits tax paid in relation to the transferred employees by the original employers during the portion of the year ended 31 March 20XX for which they were the employer.

Relevant facts and circumstances: During the year a number of Notices were issued which transferred functions and the associated employees from a nominated State or Territory body to another nominated State or Territory body. Each of the Notices advised that the employees will be employed on the same basis they were employed prior to the transfer.

Relevant legislative provisions: Fringe Benefits tax Assessment Act 1986 subsection 123B(1) | Fringe Benefits tax Assessment Act 1986 subsection 123B(3) | Fringe Benefits tax Assessment Act 1986 section 135 X

Reasons for decision: Summary: During the year a number of Notices were issued which changed the employer of the relevant employees for the purpose of the FBTAA. In certain situations a change of employers can affect the calculation of the taxable value of certain fringe benefits and alter the character of other benefits. To ensure this does not occur when a transitional event occurs, section 135X of the FBTAA enables the Commissioner to enter into a written agreement with a State or Territory to enable: • a year of tax prior to the change of employers to be treated as a log book year for the purpose of calculating the taxable value of a car fringe benefit using the cost basis after the change occurs; • a year of tax prior to the change of employers to be treated as a base year of tax for the purpose of calculating the taxable value of a housing fringe benefit after the change occurs; • a register kept in relation to the calculation of car parking fringe benefits prior to the change of employers to be used to calculate the taxable value of car parking fringe benefits after the change occurs; • a benefit that would have been an exempt benefit under sections 58B, 58C or 58D if the change of employers had not occurred as an exempt benefit; • a benefit relating to trainees engaged under the Australian traineeship system that would have been exempt under section 58S of the FBTAA if the change of employers had not occurred as an exempt benefit; • the end date that would have been used for the purpose of calculating the amortisation of the taxable value of fringe benefits relating to a remote area home ownership scheme under section 65CA of the FBTAA if the change of employers had not occurred to be used; and • a recurring fringe benefit declaration which would have been applied if the employer had not changed to be used. Subsection 135X(2) of the FBTAA provides that a transitional event occurs if: (a) a State or Territory makes a nomination under section 135S; or (b) a State or Territory varies a nomination under section 135S; or (c) a State or Territory revokes a nomination under section 135S; or (d) a nominated State or Territory body ceases to exist. In the situation being considered, none of these events occurred as the Notices did not create an eligible State or Territory body. Nor did they vary or revoke a nomination or abolish a nominated State or Territory body. Therefore, a transitional event has not occurred and it is not possible to enter into an agreement under section 135X. However, it is recognised that although a transitional event has not occurred, the issues which section 135X was intended to address may arise. That is, the treatment of a benefit may change as a result of the employer being changed for the purposes of the FBTAA by a Ministerial Notice, even though the circumstances in which the benefit is provided have not changed. Although, it is not possible to enter into an agreement under section 135X, it is relevant to consider whether the discretion contained in subsection 123B of the FBTAA would be exercised if the new employer was to lodge an FBT return using records kept by the original employer that would be covered by a section 135X agreement if a transitional event had occurred. In general terms, subsection 123B(1) of the FBTAA provides the Commissioner with a discretion not to apply the substantiation rules if the nature and quality of evidence that a person has satisfies the Commissioner that the value of the benefit is not greater than the amount specified in the FBT return as the taxable value of the benefit. However, the exercise of this discretion is limited by subsection 123B(3) to situations in which the Commissioner is: • reviewing the affairs of the employer; or • considering an objection or amendment request lodged by the employer. As neither of these events are currently occurring, it is not possible for the discretion to be exercised at this time. However, it is possible to provide advice as to whether the discretion will be exercised if one of these events occurs. In considering whether section 123B will be applied, it is relevant to refer to the circumstances in which section 135X was introduced. Prior to the introduction of Part XIC of the FBTAA, each State and Territory lodged a single FBT return. In practice, each department kept separate records which were used to prepare a notional departmental return. The notional departmental returns were then aggregated to produce a return for the State or Territory. At the time Part XIC was introduced, it was envisaged that a reorganisation would apply on a department wide basis. That is, the department as a whole would be nominated to be an employer (which would change the employer from the Crown to the nominated body), or the whole department would be abolished (with the employer changing from the nominated body to the Crown). In either situation, there was no change in record keeping, as the department as a whole operated from the same premises with the same car fleet, etc. Therefore, in introducing section 135X, the intention was to ensure that the FBT calculation would not be affected by a nomination, or a change of nomination which only changed the employer for the purposes of the FBTAA. It was never intended for a section 135X agreement to be entered into where there was a change in the employee's circumstances. For example, the employee's duties or work location. Therefore, in considering the exercise of the section 123B discretion in the context of the Notices, the discretion will be exercised where the Notice only changes the employer. It will not be exercised where the Notice changes the employee's circumstances. In reviewing the changes that occurred the changes can be classified as follows: | Detailed Reasoning - Change in employee's circumstances: …. … In accordance with the above discussion, if the Commissioner as part of a review of an employer to which employees have been transferred considers the benefits provided to the transferred employees where there was only a change of employers (i.e. the employers listed in the column on the left hand side) the Commissioner will: • treat a year which would have been a log book year for the previous employer as a log book year for the purpose of using section 10 of the FBTAA to calculate the taxable value of a car fringe benefit; • treat a year of tax that would have been a base year of tax for the previous employer as a base year for the purpose of calculating the taxable value of a housing fringe benefit under section 26 of the FBTAA; • treat a register that would have been a valid register for the previous employer as a valid register for the purpose of using the 12 week record keeping method in Subdivision D of Division 10A of the FBTAA to calculate the taxable value of car parking fringe benefits; • treat a benefit relating to the relocation of an employee that would have been an exempt benefit under sections 58B, 58C or 58D of the FBTAA as an exempt benefit; • treat a benefit relating to trainees engaged under the Australian traineeship system that would have been an exempt benefit for the previous employer under section 58S of the FBTAA as an exempt benefit; • use the end date that would have been used by the previous employer for the purpose of calculating the amortisation of the taxable value of fringe benefits relating to a remote area home ownership scheme under section 65CA of the FBTAA, and • accept a recurring fringe benefit declaration which would have applied if the employer had not changed. However, it should be noted that an agreement under section 135X is only part of the nomination process. The nomination process also requires the State or Territory to determine the notional tax where a nomination is made, varied or revoked and to advise the ATO of this amount. Given the concession made by the Commissioner in enabling the new employers to use the records of the original employer, there is an expectation that the new employers will adjust their notional tax for the year ending 31 March 20YY to include the fringe benefits tax paid in relation to the relevant employees by the original employer during the portion of the year ended 31 March 20XX for which they were the employer.

This advice applies for the following period: This advice applies for the year ended 31 March 20XX and subsequent years in which the original employers would have been able to use the relevant records.