Private ruling: FBT - Expense payment fringe benefits
Published: November 2012
Ruling period: 1 July 2012 - 31 March 2013 | 1 April 2013 - 31 March 2014 | 1 April 2014 - 31 March 2015 | 1 April 2015 - 31 March 2016 | 1 April 2016 - 31 March 2017 | This ruling is based on the in-house fringe benefit provisions that are currently contained in the Fringe Benefits Tax Assessment Act 1986 (FBTAA). As part of the Mid-Year Economic and Fiscal Outlook 2012-13, the Treasurer announced that the government will remove the concessional fringe benefits tax treatment for in-house fringe benefits if they are accessed by way of a salary sacrifice arrangement. If enacted, these proposed reforms will apply from the 22 nd October 2012 for salary sacrifice arrangements entered into from its announcement on 22 October 2012, and from 1 April 2014 for salary sacrifice arrangements entered into before its announcement on 22 nd October 2012. | You should note that if the law is substantively changed, the part of the private ruling dealing with the changed law ceases to apply. | More information regarding the proposed reforms is available from the Mid-Year Economic and Fiscal Outlook 2012-13 , Appendix A (accessible on the internet at http://www.budget.gov.au/2012-13/content/myefo/html/08_appendix_a_revenue-07.htm ).
Date scheme commenced: During income year 1 July 2012 to 2013

Ruling: Q3: Will section 62 of the FBTAA reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of a State government departments' employees' or their associates, private public transport under the terms of valid SSAs? Advice/Answers Yes

Relevant facts and circumstances: Statutory body The employer is a State owned statutory body established pursuant to a legislative Act. The public train transport provider is a government owned corporation (GOC). The electricity providers are GOC's. The public transport provider is a local government authority. The employer intends to enter into valid salary sacrifice arrangements (SSAs) with their employees whereby the employer will either pay or reimburse their employees (and/or the employee's associates) for their private expenditure incurred on public transport and the supply of electricity. The taxable values, or the sum of the taxable values, of any fringe benefits resulting from the provision of benefits under the terms of the SSA will either be equal to or not exceed $1,000. The employees will provide the employer with any required documentary evidence of the relevant expenditures incurred by any required time for the purposes of the FBTAA.

Relevant legislative provisions: Divisions 2 - 11 of the Fringe Benefits Tax Assessment Act 1986 | Section 20 of the Fringe Benefits Tax Assessment Act 1986 | Section 45 of the Fringe Benefits Tax Assessment Act 1986 | Section 62 of the Fringe Benefits Tax Assessment Act 1986 | Subsection 62(1) of the Fringe Benefits Tax Assessment Act 1986 | Paragraph 62(1)(a) of the Fringe Benefits Tax Assessment Act 1986 | Paragraph 62(1)(b) of the Fringe Benefits Tax Assessment Act 1986 Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 | Section 136 of the Fringe Benefits Tax Assessment Act 1986 | Section 159 of the Section 20 of the Fringe Benefits Tax Assessment Act 1986 | Subsection 159(1) of the Fringe Benefits Tax Assessment Act 1986 | Subsection 159(2) of the Fringe Benefits Tax Assessment Act 1986 | Subsection 159(3) of the Fringe Benefits Tax Assessment Act 1986 | Subsection 159(4) of the Fringe Benefits Tax Assessment Act 1986 | Subsection 317(1) of the Income Tax Assessment Act 1936 | Section 318 of the Income Tax Assessment Act 1936 | Subsection 318(2) of the Income Tax Assessment Act 1936 | Subsection 318(6) of the Income Tax Assessment Act 1936 | Issue 1 | Question 1 | Summary | Yes, section 62 of the FBTAA will apply to reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of the State government departments' employees' or their associates private public train transport under the terms of valid salary sacrifice agreements? | Detailed reasoning | Section 62 of the FBTAA permits a reduction of the taxable values of certain 'eligible fringe benefits' including 'in-house fringe benefits'. | Subsection 62(1) states: | 62(1) [Amount of reduction] Where one or more eligible fringe benefits in relation to an employer in relation to a year of tax relate to a particular employee of the employer, the taxable value of that fringe benefit, or the sum of the taxable values of those fringe benefits, as the case may be, in relation to that year shall be reduced by: | (a) if the taxable value or the sum of the taxable values does not exceed $1,000 - an amount equal to the taxable value or the sum of the taxable values; or | (b) in any other case - $1,000 | Subsection 136(1) of the FBTAA provides the following definitions: | in-house fringe benefit means: | (a) an in-house expense payment fringe benefit; | (b) an in-house property fringe benefit; or | (c) an in-house residual fringe benefit. | in-house expense payment fringe benefit means: | (a) an in-house property expense payment fringe benefit; or | (b) an in-house residual expense payment fringe benefit. | in-house residual expense payment fringe benefit , in relation to an employer, means an expense payment fringe benefit in relation to the employer where: | (a) the recipients expenditure was incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance) by a person (in this definition called the residual benefit provider ); | (b) if the residual benefit provider is the employer or an associate of the employer - at or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, the residual benefit provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; | (c) if the residual benefit provider is not the employer or an associate of the employer: | (i) the residual benefit provider purchased the benefit from the employer or an associate of the employer (which employer or associate is in this definition called the seller ); and | (ii) at or about the time that, if the residual benefit had been a residual fringe benefit, would have been the comparison time, both the residual benefit provider and the seller carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; and | (d) documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date. | recipients expenditure , in relation to an expense payment benefit, means the expenditure incurred by the recipient as mentioned in paragraph 20(a) or (b), as the case requires. | Further, section 156 of the FBTAA states 'the supply of electricity or gas through a reticulation system shall be deemed not to constitute the provision of property. | Therefore, an 'in-house residual expense payment fringe benefit', as defined, requires the following conditions to be satisfied: | (a) the reimbursement by the employer (as is applicable in this case) is an 'expense payment fringe benefit'; and | (b) the recipients expenditure (the employee's expenditure as applicable in this case) is incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance) by the 'residual benefit provider'; and | (c) either the requirements of paragraph (b) are satisfied (if the 'residual benefit provider' is the employer or an associate of the employer), or the requirements of paragraph (c) are satisfied (if the 'residual benefit provider' is not the employer or an associate of the employer); and | (d) the employee obtains 'documentary evidence' of his or her expenditure and provides that 'documentary evidence' or a copy, thereof, to the employer before the relevant 'declaration date'. | (a) expense payment fringe benefit | An expense payment benefit under section 20 of the FBTAA, is either: | · where an employer (or associate) reimburses an employee (or associate) for expenses incurred by the employee (or associate) or | · where an employer (or associate) pays a third party in satisfaction of expenses incurred by an employee (or associate). | Subsection 136(1) of the FBTAA defines the term 'expense payment fringe benefit' as meaning 'a fringe benefit that is an expense payment fringe benefit.' | A fringe benefit as defined in subsection 136(1) of the FBTAA as a benefit provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employees employment and such benefit is not otherwise exempted. | The proposal by the employer to reimburse the public transport expenses of its employees will only arise due to the entering into of effective salary sacrifice arrangements between the employer and its relevant employees. | Therefore, the proposed reimbursement of the employees' public train transport expenses will be in respect of their employment and, consequently, when acted upon will constitute expense payment fringe benefits. | This condition is satisfied. | (b) employees expenditure incurred in respect of a residual benefit | Section 45 of the FBTAA states that a residual benefit is one that is not a benefit by virtue of any provision of Subdivision A of Division 2 to 11 of the FBTAA. Therefore, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA. | The provision of transport does not fall within any of the specific benefit types in Subdivison A of Divisions 2 to 11 inclusive of the FBTAA and therefore, the expenditure incurred by the employees on public transport is a residual benefit. | This condition is satisfied. | (c) are the requirements of either paragraph (b) or paragraph (c) of the definition satisfied? | Paragraph (b) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, requires, firstly, that the residual benefit provider be either the employer or an associate of the employer. | The transport will be provided by the transport provider to the State government department's employees or their associates so, therefore, the relevant residual benefit provider in this case is the transport provider. As the transport provider is not the employer it is necessary to then determine whether the transport provider is an associate of the employer. | Is the employer an associate of the State Government? | Section 159 of the FBTAA states: | 159(1) | (Repealed by No 101 of 2006) | 159(2) [Particular associates] | For the purposes of this Act, but without limiting the generality of the expression ``associate'' : (a) … | (b) … | (c) … | (d) a State shall be deemed to be an associate of each authority of the State; | (e) an authority of a State shall be deemed to be an associate of each other authority of the State; | (f) … | (g) … | 159(3) [Treated as related companies] | Where a person is an associate of another person by virtue of paragraph (2)…(d), (e)…Part III has effect as if those persons were companies and were related to each other. | 159(4) [Income tax definition of associate] | … | Authority of the State | The FBTAA does not define the term 'authority of the State' and there are no cases which have directly considered this term for the purposes of the FBTAA. However, there are a number of cases which have considered this term in the context of other legislation. In this regard, the courts show a consistent approach in applying the meaning derived from 'authority', 'public authority' and 'authority of the State' from one statue in the context of another statue. | Gibb J in the High Court decision in Committee of direction of Fruit Marketing v. Australian Postal Commission (1980) 144 CLR 577 ( Committee of Direction of Fruit Marketing ) at 580 states: | The expression 'authority of a State' refers to a body which exercises power derived from or delegated by the State, but the fact that a body is established under State law and possesses power conferred upon it by State law will not necessarily mean the body is an authority of a State. For example, a private company, such as a gas supply company, which provides a public service for profit, may be set up under the company laws of a State, and may be given special statutory powers to enable it to carry on its undertaking, but it does not thereby become an authority of a State. The words 'authority of State' naturally mean a body which is given by the State the power to direct or control the affairs of others on behalf of the State - ie., for the purposes of and in the interests of the community or some section of it. In some cases it may be decisive that the body concerned is given exceptional powers of a kind not ordinarily possessed by an individual or a company, and that those powers are intended to be exercised for a purpose that would ordinarily be regarded as a purpose of government. On the other hand, in some cases it may be decisive that the body is conducted in the interest and for the profit of its members. In all cases, however, it is necessary to have regard to all the relevant circumstances in order to determine the character of the body in question. | Also, in FC of T v. Bank of Western Australia Limited: FC of T v. State Bank of New South Wales Limited 133 ALR 599; 96 ATC 4009 ( Bank of Western Australia ), the Full Federal Court as expressed through the judgment of Hill J at ALR618 and ATC 4027, made the following statements when determining whether an entity qualified as an 'authority' of the State or Commonwealth: | ...4. For a body to be an authority of a State or of the Commonwealth, the body in question must be an agency or instrument of government set up to exercise control or execute a function in the public interest. It must be an instrument of government existing to achieve a government purpose: the Fruit Marketing case at 580. | 5. The body in question must perform a traditional or inalienable function of government and have governmental authority for so doing: Renmark Hotel at ATD 428; CLR 16 per Rich J, General Steel per Barwick CJ at 134, Anti-Cancer Council case at 450-451 per Mason CJ, Brennan and Gaudron JJ'. | The employer is an 'authority of the State' because it: | · is a State owned statutory body | · represents the state, and | · is subject to the Minister's direction. | The transport provider is an 'authority of the State' because it: | · is a GOC | · it's only shareholders are the State | Under paragraph 159(2)(d) of the FBTAA the State is deemed to be an associate of each authority of the State, therefore, the State Government is an associate of the employer and the transport provider. That is, the State Government, the employer and the transport provider are all associates of one another for the purposes of the FBTAA. | Paragraph (b) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, also requires that the residual benefit provider carries on a business providing identical or similar benefits principally to outsiders. | As the transport provider provides services to the public in general it is accepted that it is carrying on a business consisting of the provision of identical or similar benefits principally to outsiders. | Therefore, paragraph (b) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, is met. As paragraph (b) of the definition is met, it is unnecessary to determine whether paragraph (c) of that definition is met. | This requirement is satisfied. | (d) Will documentary evidence of the employee's expenditure be provided? | Subsection 136(1) of the FBTAA provides that the term 'documentary evidence' means: | documentary evidence , in relation to an expense incurred by a person, means a document that would constitute written evidence of the expense obtained in a way described in Subdivision 900-E of the Income Tax Assessment Act 1997 if the expense were a work expense, and Division 900 of that Act applied to the person. The employer has stated that 'copies of invoices will be supplied to the employer with the reimbursement requests.' | It is accepted that this requirement is satisfied. | Conclusion | The reimbursement of the employees' or their associates public transport travel expenses incurred on the service provider will be in-house residual expense payment fringe benefits as all the required conditions are met for the purposes of paragraph 62(2)(a) of the FBTAA. | Therefore, in accordance with subsection 62(1) of the FBTAA the taxable value of expenses incurred by the State government department employees' or their associates on the transport provider's services due to the entering into effective SSAs will be reduced to nil as the taxable values of any fringe benefits provided under the terms of the SSA will either be equal to or not exceed $1,000. | Employees' associates | Miscellaneous Taxation Ruling MT 2044 Fringe benefits tax: reduction of aggregate taxable value of fringe benefits - application to associates (MT 2044), discusses whether the reduction of the taxable value available under section 62 of the FBTAA applies to associates. | Paragraph 5 of MT 2044 states: | Section 62 applies to benefits which 'relate to a particular employee'. The word 'relate' is not specifically defined in the Act and therefore has its ordinary meaning. The Concise Oxford Dictionary defines 'relate' to mean '...establish relation between; connected; allied'. The Macquarie Dictionary, in so far as is relevant, defines 'relate' to mean 'to bring into or establish association, connection, or relation'. It is therefore considered that a benefit will 'relate' to an employee if the provision of that benefit is connected to or associated with the employee. As a benefit provided to an associate of an employee must be in respect of the employment of the employee, the provision of the benefit is therefore connected to or associated with the employee. In other words it relates to the employee. | Paragraph 6 of MT 2044 concludes that in view of the above the reduction available under section 62 applies in respect of the total benefits provided to each employee and their associates. | However, it should be noted that where an employee and their associates receive more than one eligible benefit the reduction is not applied to each benefit. Rather, the reduction applies to the total value of the eligible fringe benefits provided to an employee and their associates. | Question 2 | Summary | Yes, section 62 of the FBTAA will reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of State government department employees' or their associates private electricity bills from the electricity providers under the terms of valid SSAs? | Detailed reasoning | Electricity Retailers | The electricity providers are registered as GOCs | The supply of domestic electricity is sold by various electricity companies licensed by the State Government. These companies (energy retailers) are mainly independent private companies which are otherwise unassociated with the State Government. However, the electricity providers, provide retail services to non-market customers. | The generators of electricity supplies comprise publicly owned and partially or fully privately owned generators. The Government has full ownership of power stations operated by electricity generators (entities). GOCs, (electricity distributors), are the electricity distributors for most of the State. The supply of electricity is transmitted by another entity which is also a GOC. | The National Electricity Market (NEM) is the market for the wholesale supply and purchase of electricity for various States and Territories. The administrator of the NEM is Australian Energy Market Operator Limited (AEMO). | The electricity generators sell their supply of electricity into the NEM and the electricity retailers then make bulk purchases from this wholesale market to on-sell to their own residential (and commercial) customers. | ATO Interpretative Decision ATO ID 2006/196 Fringe Benefits Tax: in house residual expense payment fringe benefit - meaning of 'associate' determines that an electricity producer company which sells electricity to an unrelated third party electricity retailer is an associate of an employer company that re-imburses their employee's electricity expenses which are incurred to the third party electricity retailer for the purposes of subsection 136(1) of the FBTAA. This is because the employer and the electricity producer are controlled by the same company. | The employer is controlled by the State Government. Therefore, the electricity providers and the employer are associates of each other for the purposes of subsection 136(1) of the FBTAA. | For similar reasons to those used above for the reimbursement of the public train travel expenses, the proposal by the employer to reimburse the private electricity expenses of its employees or their associates will, when acted upon, be eligible fringe benefits, under paragraph 62(2)(a) of the FBTAA. | Therefore, in accordance with subsection 62(1) of the FBTAA the taxable value of expenses incurred by the State government department employees' on employees or their associates private electricity expenses from the electricity providers due to the entering into effective SSAs will be reduced to nil as the taxable values of any fringe benefits provided under the terms of the SSA will either be equal to or not exceed $1,000. | However, as stated in question 1 above, in accordance with MT 2044 it should be noted that if an employee or the employee's associates receive more than one eligible benefit in any one FBT year the reduction is not applied to each of the eligible benefits separately. Rather the reduction applies to the total value of the eligible fringe benefits provided in that FBT year to the employee and the employee's associates. | Question 3 | Summary | Yes, section 62 of the FBTAA will apply to reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of the State government department employees' or their associates, private public transport on under the terms of valid SSAs. | Detailed reasoning | The public transport provider is a local government authority. | As stated in question 1, section 62 will apply to reduce the taxable value of the expense payment fringe benefits where the benefit is an eligible benefit that is an in-house fringe benefit. Further it was determined that the relevant definition applicable for the purpose of this ruling is 'in-house residual expense payment fringe benefit.' | To fall within the definition of an in-house residual expense payment fringe benefit, the following conditions must be met: | (a) the reimbursement by the employer (as is applicable in this case) is an 'expense payment fringe benefit'; and | (b) the recipients expenditure (the employee's expenditure as applicable in this case) is incurred in respect of the provision of a residual benefit (other than a benefit provided under a contract of investment insurance) by the 'residual benefit provider'; and | (c) either the requirements of paragraph (b) are satisfied (if the 'residual benefit provider' is the employer or an associate of the employer), or the requirements of paragraph (c) are satisfied (if the 'residual benefit provider' is not the employer or an associate of the employer); and | (d) the employee obtains 'documentary evidence' of his or her expenditure and provides that 'documentary evidence' or a copy, thereof, to the employer before the relevant 'declaration date'. | (a) expense payment fringe benefit | As stated in question 1, an expense payment will arise where you reimburse an employee for expenses they incur. | As you will reimburse your employees for the cost of their travel on public transport the reimbursement will be an expense payment fringe benefit. | This condition is satisfied. | (b) employee's expenditure incurred in respect of a residual benefit | As stated in question 1, the residual benefit is one that is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 of the FBTAA, the expenditure incurred by the State government departments' employee's of on public transport is a residual benefit. | This condition is satisfied. | (c) are the requirements of either paragraph (b) or (c) of the definition satisfied? | Paragraph (b) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, requires, firstly, that the residual benefit provider be either the employer or an associate of the employer. | As stated in question 1, under paragraph 159(2)(d) for the FBTAA, the employer is an associate of the State Government for the purposes of the FBTAA. | Is the transport provider an associate of the employer? | The transport will be provided by the transport provider to the State government department employees and their associates so, therefore, the relevant residual benefit provider in this case is the transport provider. As the transport provider is not the employer it is necessary to then determine whether the transport provider is an associate of the employer for the purposes of the FBTAA. | Further to the cases identified in question 1, ATO Interpretative Decision 2012/94 Associate: Authority of the State (ATO ID 2012/94) supports the view that a local government council may be an 'authority of the State' for the purposes of the extended definition of 'associate' in subsection 159(2) of the FBTAA. | Paragraph (b) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, also requires that the residual benefit provider carries on a business providing identical or similar benefits principally to outsiders. | As the transport provider provides transport services to the public in general it is accepted that it is carrying on a business consisting of the provision of identical or similar benefits principally to outsiders. | Therefore, paragraph (b) of the definition of 'in-house residual expense payment fringe benefit', in subsection 136(1) of the FBTAA, is met. As paragraph (b) of the definition is met, it is unnecessary to determine whether paragraph (c) of that definition is met. | This requirement is satisfied. | (d) Will documentary evidence of the employee's expenditure be provided? | Subsection 136(1) of the FBTAA provides that the term 'documentary evidence' means: | documentary evidence , in relation to an expense incurred by a person, means a document that would constitute written evidence of the expense obtained in a way described in Subdivision 900-E of the Income Tax Assessment Act 1997 if the expense were a work expense, and Division 900 of that Act applied to the person. The employer has stated that 'copies of invoices will be supplied to the employer with the reimbursement requests.' | It is accepted that this requirement is satisfied. | Conclusion | The reimbursement of the State government department's employees' or their associates public transport expenses incurred on the transport provider's services will be in-house residual expense payment fringe benefits as all the required conditions are met. | Therefore, in accordance with subsection 62(1) of the FBTAA the taxable value of expenses incurred by the State government department's employees' or their associates on the transport provider's services due to the entering into effective SSAs will be reduced to nil as the taxable values of any fringe benefits provided under the terms of the SSA will either be equal to or not exceed $1,000. | However, as stated in question 1 above, in accordance with MT 2044 it should be noted that if an employee or the employee's associates receive more than one eligible benefit in any one FBT year the reduction is not applied to each of the eligible benefits separately. Rather the reduction applies to the total value of the eligible fringe benefits provided in that FBT year to the employee and the employee's associates.


Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Will section 62 of the FBTAA reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of a State government departments' employees or their associates, private public train transport expenses under the terms of valid salary sacrifice agreements (SSAs)? | Will section 62 of the FBTAA reduce the taxable values of expense payment fringe benefits arising from the payment or reimbursement of a State government departments employees' or their associates, private electricity bills under the terms of valid SSAs?