Private ruling: Fringe benefits tax and insurance premiums
Date of advice: 15 October 2018
Published: December 2018
Ruling period: FBT year ending 31 March 2015 | FBT year ending 31 March 2016 | FBT year ending 31 March 2017 | FBT year ending 31 March 2018 | FBT year ending 31 March 2019
Date scheme commenced: 1 April 2014

Ruling: Q1: Are the payments of life insurance premiums to a ‘benefit’ as defined within subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes | Q2: Are the life insurance premiums considered to be paid ‘in respect of’ employment as defined within subsection 136(1) of the FBTAA 1986 and detailed in section 138B of the FBTAA 1986? | A2: Yes | Q3: Are the payments of life insurance premiums specifically excluded from the definition of a ‘fringe benefit’ as per subsection 136(1) of the FBTAA 1986? | A3: No | Q4: Is there a separate exemption, concession or reduction in taxable value within the FBTAA 1986 that applies to these benefits? | A4: No | Q5: Is the benefit considered to be ‘provided’ to an employee as defined within subsection 136(1) of the FBTAA 1986? | A5: No | Q6: Should FBT apply to the payment of life insurance premiums? | A6: No

Relevant facts and circumstances: The Company is a global company with a large number of employees and has a few associated entities that will also rely on this ruling as the facts remain the same for all entities. The Company held a Group Life Insurance policy. The Company provides various employment benefits for its employees. The Insurance Policy is intended to provide group life cover for when an employee dies, is totally & permanently disabled (TPD) or is diagnosed as being terminally ill. The Company is considered the “Policy Owner”. Employees are not given any entitlements to or under the policies. The policies are merely the employer’s mechanism for funding employment termination payments. The Company expects to continue life insurance arrangements indefinitely but reserves the right to suspend, discontinue, or amend all or part of the Insurance Policy at any time. Once the employee ceases employment the policy is cancelled. The general information provided on the policy states that the insurance cover under the policy for insured members will cease sixty days after the date the insured member retires or ceases to be employed. The policy also ceases when the employee turns 65 years of age. The Company is beneficially entitled to all payments made under the Insurance Policy. The insurer pays the insured amount of approved claims to the employer. The Contract of insurance is between the employer and the insurer. Insured Members are not entitled to receive any payments directly from the insurer under the terms of the Insurance Policy. Employees have not right of claim under the policy. Employees are entitled to receive up to two time annual gross base salary as a lump sum for death or TPD. The employer pays the insurance premiums on a yearly basis. There are different categories of insured members under the policy. There are maximum insurance benefit that may be offered for death cover and TPD. If an employee retires or ceases employment they no longer qualify as an insured member under that insurance policy.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 (FBTAA) Subsection 136(1) of the FBTAA 1986 | Section 138B of the FBTAA 1986 | Section 148(4) of the FBTAA 1986

Reasons for decision: Detailed Reasoning - Question 1: Are the payments of life insurance premiums a ‘benefit’ as defined within subsection 136(1) of the FBTAA 1986? | Summary: The definition of a benefit in subsection 136(1) of the FBTAA specifically includes rights, benefits and privileges provided under an insurance contract. Accordingly, the arrangement that a participating employer will have with the insurer to provide insurance cover to its employees is clearly a benefit for the purposes of subsection 136(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: The term fringe benefit is defined in subsection 136(1) of the FBTAA and that definition states in part: in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit: (a) Provided at any time during the year of tax; or (b) Provided in respect of the year of tax; being a benefit provided to the employee or to an associate of the employee by: (c) The employer; or (d) An associate of the employer; or (e) A person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between: (i) The employer or an associate of the employer, and (ii) The arranger or another person; or (ea) a person other than the employer or an associate of the employer, If the employer or an associate of the employer: (i) Participates in or facilitates the provision or receipt of the benefit; or (ii) Participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate Is doing so; In respect of the employment of the employee... Subsection 136(1) also defines the term “benefit”: "Benefit” includes any right…, 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: (a) an arrangement for or in relation to: (i) the performance of work (including work of a professional nature), whether with or without the provision of property; (ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or (iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction; (b) a contract of insurance; or (c) an arrangement for or in relation to the lending of money. In order to determine if the Life and TPD Insurance policy gives rise to a fringe benefit, it is necessary to determine whether it satisfies the definition of a fringe benefit in subsection 136(1) of the FBTAA. This definition provides that a fringe benefit must first be a benefit, which is separately defined in subsection 136(1). The definition of “benefit” in subsection 136(1) as outlined above includes ‘a contract of insurance’ at paragraph (b). | Detailed Reasoning - Your circumstances: As an employer, you have entered into a policy with the insurer for Life and TPD insurance coverage for your employees in the event of their death or permanent disability. This policy is held between you, as the employer, and the insurer, as the policy owner. Under this policy, you pay yearly premiums to the insurance provider. As a contract of insurance is specifically mentioned in the definition of fringe benefit as outlined above we can conclude that a contract for Life and TPD Insurance satisfies the definition of a benefit. | Detailed Reasoning - Question 2: Are the life insurance premiums considered to be paid ‘in respect of’ employment as defined within subsection 136(1) of the FBTAA 1986 and detailed in section 138B of the FBTAA 1986? | Summary: The Company provides the insurance coverage to their employees as part of their employment contract. The provision of the benefit is therefore in respect of their employment. | Detailed Reasoning - Detailed reasoning: The term “in respect of’ is defined within section 136(1) of the FBTAA as outlined in question 1. Miscellaneous Taxation Ruling MT 2016 Fringe benefits tax: benefits not taxable unless provided in respect of employment (MT 2016 ) states that this is an essential element of the definition of "fringe benefit" and that the benefit must be one provided in respect of the employment of the employee. This effectively means a benefit is provided to somebody because they are an employee. The ATO publication, Fringe benefits tax – a guide for employers , suggests that as a guide to whether a benefit is provided in respect of employment, ask yourself whether you would have provided the benefit if the person had not been an employee. Section 138B states the following:- | Detailed Reasoning - Benefit provided in respect of the employment of an employee: A reference in this Act to a benefit provided in respect of the employment of an employee is a reference to a benefit provided, or originally provided, as the case may be, in respect of that employment. If by definition you are considered to be an employee of an entity that is providing you with benefits other than salary and wages it is considered that any benefits received are in respect of your employment. | Detailed Reasoning - Your circumstances: The Company provides for their employee’s life and TPD insurance policies. If an employee retires or ceases employment, 60 days later they are no longer entitled to participate in the Insurance Policy. This indicates to us that there is a strong nexus between the provision of the policy and employment. We consider that this part of the definition is satisfied as you must be employed to be eligible for the insurance policy. | Detailed Reasoning - Question 3: Are the payments of life insurance premiums specifically excluded from the definition of a ‘fringe benefit’ as per subsection 136(1) of the FBTAA 1986? | Summary: There are various benefit types that are specifically excluded from the definition of a “fringe benefit”. No exclusions from the definition of fringe benefits apply to the payment of premiums relating to Life and TPD policies. | Detailed Reasoning - Detailed reasoning: There are a number of benefits that under section 136(1) of the FBTAA that are expressly excluded as fringe benefits and do not give rise to any FBT liability. The main exclusions are:- 1. Salary and wages 2. Exempt benefits 3. Employee share schemes 4. Employee share trusts 5. Superannuation contributions 6. Superannuation payments 7. Deemed dividends 8. Other Payment of insurance premiums is not specifically excluded from the definition of a fringe benefit. | Detailed Reasoning - Your Circumstances: You currently pay premiums for Life and TPD insurance for your employees. These premium payments may therefore be considered a fringe benefit. | Detailed Reasoning - Question 4: Is there a separate exemption, concession or reduction in taxable value within the FBTAA 1986 that applies to these benefits? | Summary: There are various benefit types that are specifically exempt or attract a concession or reduction in taxable value from the definition of a “fringe benefit”. In this situation no exemptions, concessions or reductions apply to the payment of premiums relating to Life and TPD policies. | Detailed Reasoning - Detailed reasoning: There are a number of exemptions or concessional treatment of fringe benefits. For example, no FBT is payable on certain work related benefits that are used mainly in the employee's employment such as mobile phones, a laptop or tablet. Some minor benefits that are provided to employees are also exempt. There are specific FBT concessions for: ● charitable institutions and rebateable employers, and ● health promotion charities and public benevolent institutions (PBI ) . However, there are no separate exemptions or concessions or reductions in the taxable value of the fringe benefit specifically set aside for the payment of insurance premiums for employees. | Detailed Reasoning - Your Circumstances: You currently pay premiums for Life and TPD insurance for your employees. There are no relevant separate exemptions in the FBT act that could give rise to the insurance premium payments being exempt. Nor are there any relevant sections in the act that would consider a concession or reduction in the taxable value of the fringe benefit. These premium payments may therefore be considered a fringe benefit. | Detailed Reasoning - Question 5: Is the benefit considered to be ‘provided’ to an employee as defined within subsection 136(1) of the FBTAA 1986? | Summary: The situation at present sees a benefit being provided on the basis that the employer pays an amount to the insurer under the terms of the policy. The benefit is not however provided to the employees as the employer is entitled to receive any payment made under the terms of the policy as they are the policy owner. | Detailed Reasoning - Detailed Reasoning: The term ‘provide’ is defined within section 136(1) of the FBTAA: “…(a) in relation to a benefit - includes allow, confer, give, grant or perform; and (b) in relation to property - means dispose of (whether by sale, gift, declaration of trust or otherwise): (i) if the property is a beneficial interest in property but does not include legal ownership - the beneficial interest; or (ii) in any other case - the legal ownership of the property…” A benefit that is received or obtained by an employee in respect of employment is deemed to be “provided” under section 148(4) of the FBTAA. Section 148(4) states the following:- | Detailed Reasoning - Employment benefits deemed provided: For the purposes of this Act, a benefit that is received or obtained by an employee, or by an associate of an employee, in respect of the employment of the employee shall be deemed to have been provided by the provider in respect of that employment. This ensures that fringe benefits that are supplied to an employee by a party other than the employer are nonetheless “provided” by the employer. | Detailed Reasoning - Your circumstances: In this situation an insurance policy is being provided for the employees and paid for by the employer. However the employee has no beneficial right to the policy as the policy is in the name of the employer. In applying the definition as outlined in question 1 of a fringe benefit in respect of payments into the policy (as a benefit) the payment does not satisfy paragraph (b) because any benefit received from the insurance contract is received by the employer not the employee. In other words the beneficiary (or the recipient of the benefit) is the employer (even though the lives insured are those of the employees). Although the benefit received by the employer under the policy and the payment received by the employee from the employer have similar triggers, the payment under the employment agreement is not contingent on the employer receiving a payout from the insurer, nor is the employer required to pass any payment they receive under the policy onto the employee. Part of the benefits program is the Life and Permanent Disablement Insurance where employees are entitled to receive up to two times the annual gross base salary as a lump sum for death or TPD. The specific insurance policy or name of the insurer is not noted or mentioned in the employment contract, i.e. the employee has no details of the policy. Further, this document continues to outline that the employer reserves the right to amend, revoke or replace any benefits at their discretion, including the value of the benefit to be provided to the employee. It is evident that all decisions in relation to the insurance policy are at the discretion of the employer. The decision making is out of the hands of the employee. Therefore the benefit (being the insurance policy) is not a benefit being provided to the employee. | Detailed Reasoning - Question 6: Will FBT apply to the payment of life insurance premiums? | Summary: No, FBT will not apply to the payment of the insurance policy premiums paid by the employer as the employees are not a party to the insurance contract. | Detailed Reasoning - Detailed Reasoning: FBT is a tax employers pay on certain benefits they provide to their employees, their families or other associates. The benefit may be in addition to, or part of, their salary package. A fringe benefit may be provided by an associate of the employer or under an arrangement between a third party and the employer. For FBT to apply their must be a benefit provided to the employee and it must be in respect of their employment. | Detailed Reasoning - Your Circumstances: The analysis of the meaning of a fringe benefit in the above questions has determined that in this case while there is a benefit that is in respect of the employee’s employment, the benefit is not actually being provided to the employees and therefore will not constitute a fringe benefit. This is view is supported by the following facts:- ● The company is the beneficial owner of the Insurance Policy; ● The terms of the insurance policy ensures that payments are only ever made to the owner of the policy (the employer); ● Under the terms of the employment contract the employer has the authority to alter entitlements to benefits including the Insurance Policy at their discretion; We can conclude that FBT will not apply in this situation so long as the employees are not provided a right to the insurance policy.