Private ruling: Fringe benefits tax
Date of advice: 26 May 2021
Published: July 2021
Ruling period: Year ended 31 March 2017 | Year ended 31 March 2018 | Year ended 31 March 2019 | Year ended 31 March 2020
Date scheme commenced: 1 April 20XX

Ruling: Q1: Is X your employee for the purpose of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes | Q2: If X is your employee, have you provided a fringe benefit to X for the purpose of subsection 136(1) of the FBTAA during the years ended 31 March 2017, 31 March 2018, 31 March 2019 and 31 March 2020 (inclusive)? | A2: Yes | Q3: If a fringe benefit has been provided to X during the 2017 to 2020 FBT years, is the fringe benefit provided to X a housing fringe benefit pursuant to Part III, Division 6 of the FBTAA? | A3: Yes | Q4: If a fringe benefit has been provided to X during the 2017 to 2020 FBT years, and that fringe benefit is not a housing fringe benefit, what type of fringe benefit has been provided to X? | A4: Not applicable

Relevant facts and circumstances: You are an Australian resident individual and you are not engaged in employment. In November 20XX you acquired a property (the Property). You are the sole registered owner of the Property. When the Property was purchased there were two dwellings on it. The first dwelling (the First Dwelling), whilst modest, was liveable. The second dwelling was not liveable but was well located on the Property (the Second Dwelling). In December 20XX you moved into the Property. You planned to live in the First Dwelling whilst a new house was designed and built on the site of the Second Dwelling which was to be demolished. Once the new house was completed, you intended to have an experienced horse-minder live in the First Dwelling who would help care for your horses if you were unable to. You are aged in your late XX's and although your spouse lives on the Property with you, your spouse has no experience in caring for horses or horse-minding. The Property is prone to flooding. The new house was completed and moved into in December 20XX by you and your spouse. You own several horses which live on the Property. The horses are kept for personal recreational purposes only and there is no business, involving the horses, conducted by you. Upon moving onto the Property, you decided that you needed someone to reside on the Property to look after your horses if you are to be away for a period in excess of 18 hours as: (a) The horses need attention every day. In addition to the usual tasks of general care, feed preparation and stable cleaning, the high rainfall at the Property creates tasks in dealing with the horses' skin and hooves. Because of this you spend at least an hour each morning and afternoon looking after the horses. (b) The Property is remote. It is over XXX acres in an area whereas the typical property size is over 50 acres. It is more than a 30 minute drive to the closest supermarket, petrol station or area with a population of any real size. (c) Access to the Property can be cut off at short notice. Access to the Property is via a road. Three to four times a year high rainfall will cause the bridge to be submerged and impassable. Typically access will be affected for less than 24 hours, but in the thirteen and a half years you have lived on the Property there have been various occasions where access has been affected for the best part of a week due to unexpected environmental factors such as flooding. In early to mid-September 20XX, the Property was affected by the bushfires that ravaged Australia during spring and summer in 20XX-20XX and got within one and a half kilometres of your home. An evacuation plan was put in place for the horses, should the fires encroach the Property which you could not have implemented without the assistance of an additional person on the Property. For the reasons given above, you were keen for someone to reside in the First Dwelling to care for the horses from time to time and provide peace of mind of having a close neighbour. You did not believe there would be many appropriate candidates based on the location and requirements of the role. Horse-minder - X You decided to ask X, who was working as a Farm Manager for XYZ, if X would like to live in the First Dwelling and help care for the horses from time to time. X had an interest in horses and had the preferred experience with horses. With respect to XYZ: a) XYZ is an Australian incorporated proprietary limited company. b) You are a shareholder and company secretary of XYZ. c) Your spouse is a director and shareholder of XYZ. d) The business of XYZ can be described as small-scale farming of organic fruit and vegetable for sale at local growers' markets. e) X had been working as the Farm Manager on a full time basis for XYZ for just over six months in 20xx. During this time, X had shown to be an honest and trustworthy individual in this role. f) The tasks to be undertaken by X when assisting you with horse-minding are distinctly different, separate and independent from X's duties as a Farm Manager for XYZ. g) The current commercial status of XYZ is dormant as it stopped selling produce at local growers' markets from approximately mid 20xx. h) X is still employed with XYZ. In December 20xx, X accepted your offer to stay in the First Dwelling with the family. At the time X moved into the First Dwelling, X resided with the family. By moving into the First Dwelling, X agreed to help you with horse minding if required from time to time. Any horse minding done by X was always in X own personal time. There was no set timetable or schedule as to how often or when X was required to care for the horses but instead it was based on if you required X to assist and if X had availability to assist. By staying on the Property, X did not become the primary carer for your horses or was X to be 'on-call' for whenever you needed assistance with the horses. X is simply potentially available should you need assistance with the horses and any assistance was subject to X's availability to do so. X is not under your control. X has discretion as to what is required to be done to meet the needs of the horses each time X was asked to mind them on the Property. It is expected that in doing so, X maintains the routine of care as established by you. You do not make specific demands as to what is to be done or how and where it is to be done. On two to three occasions per year, you would feed the pets and chickens owned by X. You did not charge X to stay in the First Dwelling and you did not pay X any form of payment for the occasions when X did the horse-minding. There is no lease or any other documentation with respect to X occupying the First Dwelling. In the event X cease employment with XYZ, you would wish for X and the family to remain living in the First Dwelling. X currently remains on the Property in the First Dwelling with the family. X does not conduct a horse minding business of their own. You consider the nature of the arrangement to care for the horses between you and X to be private and domestic. Your requests for X to care for the horses from time to time are not in priority to X's personal matters. Any requests for horse minding must be suitable to X and X's own employment with XYZ and personal commitments. The Property where the horse minding activities are carried out and the location of XYZ are adjacent properties. Absences from the property The occasions in which X assisted you with your horses during your absences from the Property were infrequent and irregular: a) In 20XX, you were away on three occasions, ranging from a period of a weekend to three weeks. b) In 20XX, you were away on four occasions for a weekend on each occasion. c) In 20XX, you were away on six occasions, ranging from a period of a weekend to eleven days. d) In 20XX, you were away on seven occasions, ranging from a period of a weekend to a few days. e) In 20XX, you were away on six occasions, ranging from a period of a weekend to a week and a half. f) In 20XX, you were away on seven occasions, ranging from a period of a weekend to a week. g) In 20XX, you were away on ten occasions, ranging from a period of a weekend to two weeks. h) In 20XX, you were away on four occasions, ranging from a period of a weekend to a week and a half. In addition to the above, X has cared for the horses on short notice an average of ten or so occasions in each of the years from 20XX to 20XX. When there were instances where you needed to leave the Property and X was unavailable, you would reschedule to suit the needs of the horses.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Subsection 136(1), | Fringe Benefits Tax Assessment Act 1986 Section 137, | Fringe Benefits Tax Assessment Act 1986 Section 25, | Taxation Administration Act 1953 Section 12-35 of Schedule 1. | Superannuation Guarantee (Administration) Act 1992 (SGAA) subsection 12(11)

Reasons for decision: Summary: X is your current employee for the purpose of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 ( FBTAA). Section 137 of the FBTAA also includes as an employee a person who would have been treated as an employee if a benefit is received by the person and such benefit if paid by way of a cash payment, would constitute salary or wage. | Detailed Reasoning - Detailed reasoning: An employee is defined in subsection 136(1) of the FBTAA to be: (a) a current employee (b) a future employee, or (c) a former employee. Subsection 136(1) of the FBTAA also sets out that a current employee is someone who receives, or is entitled to receive, salary or wages. Section 137 of the FBTAA further expands this to include persons who receive non-cash remuneration in circumstances where the person would have been treated as an employee if the non-cash remuneration had been received by way of a cash payment. Subsection 137(1) states: For the purpose only of ascertaining whether a person is an employee or an employer within the meaning of this Act, where: (a) a benefit is provided by a person (in this subsection referred to as the first person ) to, or to an associate of, another person (in this subsection referred to as the second person ); (b) but for this subsection, the benefit would not be regarded as having been provided in respect of the employment of the second person; and (c) either of the following conditions is satisfied: (i) if the benefit were provided by the first person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the first person to the second person; (ii) all of the following conditions are satisfied: (A) subparagraph (i) does not apply in relation to the benefit; (B) the first person is an associate of a third person or the benefit is provided under an arrangement between the first person and a third person; (C) if the benefit were provided by the third person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the third person to the second person; a definition in subsection 136(1) applies as if the benefit were salary or wages paid to the second person by: (d) in a case to which subparagraph (c)(i) applies - the first person; or (e) in a case to which subparagraph (c)(ii) applies - the third person. You have allowed X to occupy the First Dwelling as a result of X caring for your horses. This is a 'benefit' as defined in subsection 136(1) of the FBTAA provided under an arrangement or in relation to the performance of work. If it were not for subsection 137(1) of the FBTAA the benefit would not be regarded as having been provided in respect of employment as X does not receive salary or wages. The next question to consider is if you were to make cash payments to rather than providing the accommodation, would those payments constitute salary or wages? If so, subsection 136(1) will apply as if the benefit were salary or wages paid by you to X. Salary or wages is defined in subsection 136(1) of the FBTAA to mean: (a)a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; ... The relevant provision in Schedule 1 to the Taxation Administration Act 1953 (TAA) is section 12-35, Payment to Employee, which states: An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity). As noted in Taxation Ruling TR 2005/16: Pay As You Go - withholding from payments to employees the term 'employee' is not defined in the TAA and that for the purposes of withholding under section 12-35 has its ordinary meaning. Paragraph 7 of TR 2005/16 states: Whether a person is an employee 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 expressed in the relevant case law. Defining the contractual relationship is often a process of examining a number of factors and evaluating those factors within the context of the relationship between the parties. No one indicator of itself is determinative of that relationship. The totality of the relationship between the parties must be considered. The relationship between employee and employer is said to be a contract of service and has been referred to as a master/servant relationship. The contract between you and X is not a written contract, however, you do have an agreement with X that X provides services to you and you allow X and X's family to reside in the First Dwelling. X receives no compensation from you other than to reside in that dwelling. X looks after your horses when you are not available. X would need to follow your directions and instructions in order to do this in a manner that is acceptable to you. In addition to this X's presence on the Property provides you with peace of mind in case of an emergency. Whilst these services may be of a private or domestic nature, this does not exclude X from being an employee and you an employer. For the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) subsection 12(11) of that Act provides that: A person who is paid to do work wholly or principally of a domestic or private nature for not more than 30 hours per week is not regarded as an employee in relation to that work. The existence of this exemption implies that it is possible for a person who is undertaking work that is wholly or principally of a domestic or private nature to be an employee. For the purposes of Schedule 1 to the TAA, no similar exemption from pay as you go (PAYG) withholding exists that would exempt a person who is undertaking work that is domestic or private in nature from being an employee. Although X undertakes duties that are of a domestic or private nature, X is still an employee as X is providing you with a service in accordance with your requirements. X is living in the First Dwelling as a result of providing these services to you. If X had received a cash payment rather than the occupancy of the First Dwelling, you would be required to withhold under section 12-35 of Schedule 1 to the TAA. Therefore, for the purposes of subsection 136(1) of the FBTAA X is an employee. | Summary: You have provided a fringe benefit to X during the years ended 31 March 2017, 31 March 2018, 31 March 2019, and 31 March 2020. Detailed reasoning A fringe benefit is defined in subsection 136(1) of the FBTAA to mean: 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)... (ea)... ...in respect of the employment of the employee You are the registered owner of the Property where the First Dwelling is located and have allowed X to live there. Therefore, the provision of the accommodation is a benefit provided to your employee and is a fringe benefit if it is provided in respect of the employment. The phrase 'in respect of' in relation to the employment of an employee is defined in subsection 136(1) of the FBTAA to include 'by reason of, by virtue of, for or in relation directly or indirectly to, that employment'. The meaning of 'in respect of employment' was considered by the Federal Court in J & G Knowles v Federal Commissioner of Taxation [2000] 96 FCR 402; 2000 ATC 4151; 44 ATR 22 (Knowles). In Knowles, the Full Federal Court concluded that there needs to be a sufficient or material, rather than a causal connection or relationship between the benefit and the employment. The following facts indicate that there is a material connection between the provision of accommodation in the First Dwelling and X's duties for you as a horse-minder: • X is occupying the First Dwelling to enable X to take care of your horses when necessary and to provide peace of mind to you, • X's wage and employment conditions with XYZ would not change if X chose to stop taking care of your horses and move out of the dwelling, • X's occupancy of the First Dwelling is not in respect of X's employment with XYZ, and • You would continue to allow X to live in the First Dwelling even if X ceased employment with XYZ because X is very experienced in taking care of your horses. As X is your employee and you have provided X with the accommodation in the First Dwelling in respect of X's employment, the provision of that accommodation will be a fringe benefit. | Summary: The fringe benefit provided to X is a housing fringe benefit pursuant to Part III, Division 6 of the FBTAA. | Detailed Reasoning - Detailed reasoning: A housing fringe benefit is defined to mean a fringe benefit that is a housing benefit. Housing benefit is defined in subsection 136(1) of the FBTAA as meaning a benefit referred to in section 25 of the FBTAA. Under section 25 a benefit will arise where a person grants a 'housing right' to another person. 'Housing right' is defined in subsection 136(1) of the FBTAA as meaning a lease or licence being granted to a person to occupy a unit of accommodation as that person's current usual place of residence. Although there is no lease or other documentation with respect to X occupying the First Dwelling, you have allowed X to occupy it as X's usual place of residence with X's family since 20XX. Therefore, the provision of the fringe benefit will constitute a housing benefit

Reasons for decision: These reasons for decision accompany the Notice of private ruling for the applicant. | While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.