Private ruling: Fringe benefits tax - exempt benefits - public benevolent institutions
Date of advice: 22 April 2016
Published: June 2016
Ruling period: Fringe benefits tax year ending 31 March 2017 | Fringe benefits tax year ending 31 March 2018
Date scheme commenced: 1 April 2013

Ruling: Q1: Are benefits provided to employees who transfer from Y to Z under the proposed business transfer exempt benefits under subsection 57A(1) of the Fringe Benefits Tax Assessment Act 1986 ? | A1: Yes

Relevant facts and circumstances: Z is a wholly owned subsidiary of the Y. Y is a not-for-profit community organisation and currently provides X services to the community. Z is registered as a charity and a public benevolent institution with the Australian Charities and Not-for-Profits Commission, and is endorsed as a public benevolent institution under section 123C of the Fringe Benefits Tax Assessment Act 1986 . Y proposes to transfer its X services business to Z, involving the following arrangements: • Y will sub-contract with Z to provide the X services previously provided by Y. • All employees currently employed by Y and performing the X services, including administrative and support staff, will be transferred to Z. • The transferring employees will cease to be employees of Y. • Z will enter into contracts with each transferring employee. The sample employment contract provided indicates: • The contract is a contract of employment. • Z is the "Employer". • Individuals will be remunerated via either 'per hour' or 'per annum' rates of pay, and salary packaging of fringe benefits will be available. • Hours of work will be no more than 152 hours in any four week period, worked between the hours of 6.00 am to 5 pm. • The Employer will be responsible for payment of superannuation. • The Employee shall carry out his/her duties under the supervision and direction of the General Manager via his/her supervisor. • Overtime shall be paid in accordance with the Award. • After a probationary period, the Employee will be eligible to take paid annual leave. An annual leave loading will also be payable. • The Employee will be entitled to sick leave on full pay, and other leave. • The Employee will be entitled to paid long service leave in accordance with the Long Service Leave Act 1955 . • The fringe benefits may include payment (or reimbursement) of: • loans, • credit cards, • health insurance premiums, • meal entertainment, and • other living expenses. • All existing employer obligations of Y in respect of the transferring employees, including pay-as-you-go withholding and superannuation, will terminate and be taken up by Z as the new employer. • All existing statutory entitlements of the transferring employees under Y, such as annual leave, long service leave and superannuation will be transferred to Z as the new employer. • Funding currently received by Y in respect of the X services will be paid to Z for the X services, including remuneration of the transferred employees.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 subsection 57A(1) | Fringe Benefits Tax Assessment Act 1986 section 123C | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Summary: As Z is endorsed as a PBI under section 123C of the FBTAA and the proposed benefits will be provided by Z 'in respect of the employment' of the relevant employee, the benefit will be an exempt benefit under subsection 57A(1). | Detailed Reasoning - Detailed reasoning: Subsection 57A(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides that where the employer of an employee is a registered public benevolent institution (PBI) endorsed under section 123C, a benefit provided in respect of the employment of the employee is an exempt benefit. Taxation ruling TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees (TR 2005/16) explains that the relationship between an employee and employer is a contractual one, and identifies various key indicators to clarify the distinction between an employee and an independent contractor. Whether a person is an employee of an employer is a question of fact to be determined by examining the terms and circumstances of the contract between them, having regard to the key indicators. The totality of the relationship between the parties must be considered (TR 2005/16 paragraph 7). Subsection 136(1) of the FBTAA provides the following: • A 'benefit' includes any right, privilege, service or facility, including a right relating to real or personal property, provided under an arrangement relating to: • performance of work, • provision or use of facilities for entertainment, recreation or instruction, or • conferring rights, benefits or privileges for which remuneration is payable by way of a royalty, tribute, or levy, and also includes an insurance contract or a money lending arrangement. • A 'salary packaging arrangement' is an arrangement under which a benefit is provided to an employee if: (a) the benefit is provided in return for the employee agreeing to a reduction in the employee's salary or wages that would not have happened apart from the arrangement; or (b) the arrangement is part of the employee's remuneration package, and the benefit is provided in circumstances where it is reasonable to conclude that the employee's salary or wages would be greater if the benefit were not provided. • The phrase 'in respect of', in relation to the employment of an employee, includes 'by reason of', 'by virtue of', or 'for or in relation directly or indirectly to' the employment. As detailed in the facts, under the proposed arrangement Z will enter into contracts with individuals formerly employed by Y to perform X services, and administrative and support functions for Z. The terms and conditions within the sample contract provided clearly indicate that the contractual relationship between the contracting parties will be one of employer and employee. Under the proposed arrangement, as part of the employee's remuneration, salary packaging will be available to employees whereby Z may pay or reimburse an employee's loan repayments, credit cards debts, meal entertainment expenses, and/or other living expense. These payments and/or reimbursements are 'benefits' under the FBTAA, and will be made available to the employee as a result of, or by virtue of, their employment with Z under the proposed contract. As Z is endorsed as a PBI under section 123C of the FBTAA and the proposed benefits will be provided by Z 'in respect of the employment' of the relevant employee, the benefit will be an exempt benefit under subsection 57A(1).