Private ruling: Fringe Benefits Tax
Published: July 2012
Ruling period: 1 April 2009 to 31March 2013
Date scheme commenced: 1 April 2009

Ruling: Q1: Does the provision of a lifetime travel pass (Pass) to employees constitute a property fringe benefit under section 40 of the Fringe Benefits Tax Assessment Act 1986? | A1: No. | Q2: If the answer to question 1 is yes, does the benefit arise at the time the Pass is provided to the employee? | A2: Not applicable.

Relevant facts and circumstances: The employer provides lifetime passes (Pass) to eligible employees (and their partners) via a service agreement with a service provider upon the employee's retirement or cessation of employment. In order to be eligible for a Pass, permanent employees must meet certain eligibility requirements. The Pass entitles the holder to unlimited free transportation on various forms of transport services within a State in Australia for the life of the employee. Where a Pass holder is required to book a seat and obtain a ticket in order to travel as a passenger on a particular service, the Pass identifies the holder as eligible to make that booking obtain the relevant ticket and travel without having to make a payment.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 40 | Fringe Benefits Tax Assessment Act 1986 section 45 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1).

Reasons for decision: Summary: The Pass does not satisfy the definition of tangible property. The Pass does not satisfy the definition of intangible property as it is excluded by the negative limb of the definition in paragraph 136(1)(e) of the FBTAA. The provision of a Pass to an employee does not constitute a property fringe benefit under section 40 of the FBTAA. | Detailed Reasoning - Detailed reasoning: The identification of the actual benefit is a central issue raised in this application for private ruling. Before doing so, it is necessary to set out the legislation which determines what a property benefit is, what a residual benefit is and the relevant definitions. | Detailed Reasoning - Property benefit: Section 40 of the FBTAA deals with property benefits and states: Where, at a particular time, a person (in this section referred to as the "provider") provides property to another person (in this section referred to as the "recipient"), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time. Subsection 136(1) of the FBTAA defines the terms used in section 40 of the FBTAA. The definitions of those terms are as follows: "benefit" includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under: an arrangement for or in relation to: · the performance of work (including work of a professional nature), whether with or without the provision of property; · the provision of, or of the use of facilities for, entertainment, recreation or instruction; or · the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; · a contract of insurance; or · an arrangement for or in relation to the lending of money. · "person" includes: · a body politic; · a partnership; · any other unincorporated association or body of persons; and · a person in the capacity of trustee. · "property" means: · intangible property; and · tangible property. · "provide": · in relation to a benefit - includes allow, confer, give, grant or perform; and · in relation to property - means dispose of (whether by sale, gift, declaration of trust or otherwise): · if the property is a beneficial interest in property but does not include legal ownership - the beneficial interest; or · in any other case - the legal ownership of the property. · "provider", in relation to a benefit, means the person who provides the benefit. · "recipient", in relation to a benefit, means the person to whom the benefit is provided. Subsection 136(1) of the FBTAA defines intangible property as follows: "intangible property" means: · real property; · a chose in action; and · any other kind of property other than tangible property; · but does not include: · a right arising under a contract of insurance; or · a lease or licence in respect of real property or tangible property. Subsection 136(1) of the FBTAA defines tangible property as follows: "tangible property" means goods and includes: · animals, including fish; and · gas and electricity. The term "goods" is not defined in the FBTAA and therefore takes its ordinary meaning. The Macquarie Dictionary defines the term "good" relevantly at paragraphs 27 through 29 as: 27. (plural) possessions, especially movable effect or personal chattels. 28. (plural) articles of trade; wares; merchandise, especially that which is transported by land. 29. an item of merchandise. In relation to a property benefit, subsection 136(1) of the FBTAA states: "property benefit" means a benefit referred to in section 40, but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III. | Detailed Reasoning - Residual benefit: In respect of a residual benefit, subsection 136(1) of the FBTAA states: "residual benefit" means a benefit that is a residual benefit by virtue of section 45. Section 45 of the FBTAA states: 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). Therefore, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA. | Detailed Reasoning - Property benefit or residual benefit: To be a property benefit, the Pass must fall within the definition of the term "tangible property" or the term "intangible property" as defined in subsection 136(1) of the FBTAA. The Pass does not fall within the term "goods" and is therefore not tangible property. If the Pass falls outside the definition of intangible property, then the provision of the Pass will not constitute a property benefit. Paragraph 136(1)(e) of the FBTAA relevantly excludes from the definition of intangible property leases or licences in respect of real property or tangible property. Whilst the Pass falls within the positive limb of the definition, the negative limb of the definition in paragraph 136(1)(e) excludes it from the definition as it is a license in respect of tangible property being the trains, buses and ferries. Licence is not defined in the FBTAA, the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997. It therefore takes its ordinary meaning. The Macquarie dictionary Multimedia edition 5.0.0 01 October 2001 defines the term "licence" as: · licence · noun 1. formal permission or leave to do or not to do something. 2. formal permission from a constituted authority to do something, as to carry on some business or profession, to be released from jail for part of one's sentence under specific restrictions, etc. 3. a certificate of such permission; an official permit. ... As relevant to the Pass, we consider that the meaning of 'licence' for the purposes of the negative limb of the definition of the term "intangible property" in subsection 136(1) should be confined to its meaning in the context of tangible property, that is, not its meaning in the context of real property. The Pass permits the holder of the Pass to receive free transportation service(s) on a number of different forms of transport. As the Pass gives the holder the permission (right) to do something, it fits within the ordinary meaning of licence. The purpose of the arrangement between the employer and the service provider is the carriage of the employer nominated Pass holders by the relevant forms of transport. The benefit is the travel received in relation to each use of the Pass. | Detailed Reasoning - The fact that a Pass:: · is a lifetime pass as distinct from a relatively shorter period or a specified number of journeys · facilitates the holder's transportation on various transport services as distinct from only one service · does not alter our conclusion that the Pass is a licence in respect of tangible property. The tangible property being the bus, train or ferry as relevant. It falls outside of the definition of intangible property as defined in the FBTAA. Regardless of how broad the rights of a Pass holder are, this does not alter the fact that the benefit provided is the carriage of the Pass holder as a passenger on the relevant transportation service and not the Pass itself. Where a Pass holder is required to book a seat and obtain a ticket in order to travel as a passenger on a particular service, the Pass identifies the holder as eligible to make that booking obtain the relevant ticket and travel without having to make a payment. The right to book and obtain a ticket for interstate train travel is not a separate right. It is an unavoidable step in the process of the employee receiving the travel benefit. The benefit is the carriage of the Pass holder as a passenger on the relevant transportation service. Taxation Ruling TR 1999/10 Income Tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits deductions and recoupments considered the income tax and FBT consequences of providing a Life Gold Pass to Members of Parliament. The ruling concludes that the travel benefits received by the Gold Pass holder are residual benefits. Our conclusion is in line with the view expressed in paragraph 86 of Taxation Ruling TR 1999/10 and travel benefits in relation to each use of the Life Gold Pass gives rise to a residual benefit within the meaning of section 45 of Division 12 of the FBTAA, to the provider of the Life Gold Pass. | Detailed Reasoning - Conclusion: A Pass does not satisfy the definition of intangible property as it is excluded by the negative limb of the definition in paragraph 136(1)(e) of the FBTAA. Therefore, any benefit arising from their provision to an employee cannot be considered a property benefit under section 40 of the FBTAA. The travel benefit received by the cardholder in relation to each use of the Pass is a residual benefit within the meaning of section 45 of Division 12 of the FBTAA as it is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). | Summary: As the answer to question 1 is no, it is not necessary to answer question 2.

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