Private ruling: Fringe benefits tax - expense payment benefits
Published: July 2014
Ruling period: Year ended 31 March 2014 | Year ending 31 March 2015

Ruling: Q1: Did you provide your employee with a benefit in a particular fringe benefits tax (FBT) year when you agreed, during that year, to reimburse the employee for an expense incurred during that year but to pay the reimbursement in the following FBT year? | A1: No

Relevant facts and circumstances: During the particular FBT year you agreed to reimburse an employee for an expense incurred and paid for during that year. You and the employee agreed that the reimbursement would be paid in the following FBT year.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Division 5A | Fringe Benefits Tax Assessment Act 1986 section 20 | Fringe Benefits Tax Assessment Act 1986 subsection 20(b) | Fringe Benefits Tax Assessment Act 1986 subsection 57A(1)

Reasons for decision: Summary: Did you provide your employee with a benefit in a particular fringe benefits tax (FBT) year when you agreed, during that year, to reimburse the employee for an expense incurred during that year but to pay the reimbursement in the following FBT year? An employer's liability for fringe benefits tax is assessed on an annual basis, with the year of tax being the period 1 April to 31 March. Division 5A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) sets out how to work out an employer's fringe benefits taxable amount for the year of tax. This is the amount on which the employer must pay fringe benefits tax. In order to calculate the employer's fringe benefits taxable amount the employer must work out for each of their employees the employee's share of the taxable value of fringe benefits provided in respect of their employment. The FBTAA is divided into 13 categories of benefits and each category contains different rules regarding when the benefit will arise and how the taxable value of the benefit is calculated. In order to identify which category a benefit falls into, it is necessary to firstly identify what is the benefit that is being provided to the employee. When you agree to reimburse an employee for expenses incurred by them, the benefit that is being provided to the employee is the reimbursement of the expenses. The agreement to reimburse the employee does not in itself constitute a benefit. Section 20 of the FBTAA discusses the benefits that arise in relation to reimbursements. Section 20 states: SECTION 20 EXPENSE PAYMENT BENEFITS 20 Where a person (in this section referred to as the "provider" ): (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the "recipient" ) to pay an amount to a third person in respect of expenditure incurred by the recipient; or (b) reimburses another person (in this section also referred to as the "recipient" ), in whole or in part, in respect of an amount of expenditure incurred by the recipient; or the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient. According to subsection 20(b) of the FBTAA, the benefit arises at the time you reimburse the employee for the expenses. Subsection 20(b) effectively states: Where a person…reimburses another person…the reimbursement…shall be taken to constitute the provision of a benefit by the provider to the recipient. That is, a benefit is not provided at the time a decision or agreement is made to reimburse an expense. It is the reimbursement itself that constitutes the provision of the benefit. During the particular FBT year, you did not reimburse the employee but made an agreement with the employee that you would in the future (specifically in the following FBT year) reimburse the employee and amount for expenses incurred. You and the employee intended that when the reimbursement is made in the following FBT year it would be attributed to the prior year during which the agreement was made. As discussed above, the rules governing the different categories of benefits specify when a benefit is considered to have been provided. The benefit that will be provided under this arrangement is the reimbursement of the expense. The reimbursement is an expense payment benefit and according to the provisions that govern expense payment benefits contained in section 20 of the FBTAA, the benefit is taken to be provided at the time the reimbursement occurs. The benefit will be taken to be provided in the fringe benefits tax year that it is paid.