Private ruling: Fringe Benefits Tax ~~ Expense payment fringe benefits
Published: December 2013
Ruling period: Year ended 31 March 2014 | Year ended 31 March 2015 | Year ended 31 March 2016 | Year ended 31 March 2017
Date scheme commenced: 1 April 2013

Ruling: Q1: For the purposes of establishing the extent to which a benefit is provided before 1 April 2014, are the taxpayer's 'Scenario 1' benefits provided when it credits to the retailer the salary sacrificed amount to the retailer? | A1: Yes. | Q2: For the purposes of establishing the extent to which a benefit is provided before 1 April 2014, are the taxpayer's 'Scenario 2' benefits provided when it reimburses its employee? | A2: Yes. | Q3: Where, pursuant to a salary packaging arrangement entered into before 22 October 2012, the taxpayer credits an amount to the employee's retailer before 31 March 2014, or reimburses an amount to the employee before 31 March 2014, is the taxable value of the fringe benefit an amount equal to 75% of the lowest price charged by the retailer to the public (as calculated under section 48 of the FBTAA) and further reduced by up to $1,000 per employee per year (as per section 62 of the FBTAA)? | A3: Yes. | Q4: Where, pursuant to a salary packaging arrangement entered into before 22 October 2012, the taxpayer credits an amount to the employee's retailer after 31 March 2014, or reimburses an amount to the employee after 31 March 2014, is the taxable value of the fringe benefit the 'notional value' in accordance with paragraph 48(aa) of the FBTAA? | A4: Yes.

Relevant facts and circumstances: The taxpayer allows its employees to salary sacrifice each FBT year towards the payment of their private expense accounts. The arrangement is an 'effective salary sacrifice' with the employee voluntarily choosing in advance to sacrifice an amount of future earnings. The taxpayer has provided the benefit in substantially the same way for many years. All current arrangements with employees have been entered prior to 22 October 2012. No material alteration or variation has been made to any arrangement since 22 October 2012. The benefit is administered in one of two ways. Scenario 1: · The employee enters the salary sacrifice arrangement and authorises the taxpayer to access their private account information. · The taxpayer deducts an amount from the employee's fortnightly salary. · Each fortnight, the taxpayer pays or credits to the retailer the total of all amounts deducted from participating employee's fortnightly salaries. · The retailer applies the amounts to each respective employee's (or associate's) retail account, such that when the retailer issues an invoice to the employee (typically every 3 months), the salary sacrificed amounts appear as credit line items. · The employee, as customer of the retailer, is required to pay the net remaining balance (if any) of the invoice. · Any 'unused' accumulated credits held by the retailer are carried forward on the employee/customer account to be applied to future invoices. · The retailer maintains computerised records of its invoiced charges including credits applied to employee customer accounts funded by salary sacrifice deductions, and these records are accessible by the taxpayer. Scenario 2: · The employee enters the salary sacrifice arrangement. · The taxpayer deducts an amount from the employee's fortnightly salary. · The amounts deducted are recorded in a suspense account in the taxpayer's records. · When the employee is issued with an invoice from their retailer, the employee presents the invoice to the taxpayer to claim reimbursement of the charges. · The taxpayer pays to the employee's bank account the amount of charges invoiced to the employee up to a maximum amount. · Any amounts reimbursed to the employee are deducted from the balance recorded in the suspense account. · Any 'unused' accumulated credits held by the taxpayer in its suspense account are retained for future invoices presented by the employee for reimbursement. · The taxpayer retains a copy of the employee's tax invoice. · The employee is required to pay their retailer the amount on the tax invoice. The taxpayer currently treats the benefits in both scenarios above as 'in-house residual expense payment fringe benefits', with a taxable value reduced to nil through the operation of sections 48 and 62 of the FBTAA. This position has previously been confirmed in previously issued private binding rulings (PBR's). No new salary packaging arrangements have been entered into since 22 October 2012 when amendments under Tax Law Amendment (2012 Measures No.6) Act 2013 were first announced. However, benefits as detailed in the two scenarios above continue to be provided for all existing salary packaging arrangements that were in place as at 22 October 2012. As at 31 March 2014, it is expected that the majority of employees receiving 'Scenario 1' benefits will have an accumulated balance of 'unused' credits held by the retailer in their customer accounts. Similarly, as at 31 March 2014, employees receiving 'Scenario 2' benefits will have 'unused' credits accumulated by way of fortnightly salary deductions made prior to 31 March 2014. The taxpayer is likely to cease its benefit arrangements with employees from 1 April 2014.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 - section 20 | Fringe Benefits Tax Assessment Act 1986 - section 48 | Fringe Benefits Tax Assessment Act 1986 - section 62 | Fringe Benefits Tax Assessment Act 1986 - section 147

Reasons for decision: Summary: The taxpayer's 'Scenario 1' benefits are provided at the times when the taxpayer credits to the retailer amounts deducted from participating employees' fortnightly salaries. | Detailed Reasoning - Detailed reasoning: Section 20 of the FBTAA states: Where a person (in this section referred to as the provider ): (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient ) to pay an amount to a third person in respect of expenditure incurred by the recipient; or (b) reimburses another person (in this section also referred to as the recipient ), in whole or in part, in respect of an amount of expenditure incurred by the recipient; the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient. In the context of "… makes a payment in discharge, in whole or in part, of an obligation of another person …" under paragraph 20(a) of the FBTAA, section 147 of the FBTAA relevantly states: ... a person shall be deemed to be under an obligation to pay or repay an amount notwithstanding that the amount is not due for payment or repayment. Every time the taxpayer arranges for a participating employee's account to be credited with an instalment amount paid out of funds provided by it, a payment in discharge of an obligation of another person (either the relevant employee or their associate) is made. By virtue of section 147 of the FBTAA, and for the purposes of paragraph 20(a) of the FBTAA, a credit by the taxpayer to the retailer does not need to relate to an amount of expenditure incurred by the participating employee that is currently due for payment. Therefore, for the purposes of paragraph 20(a) of the FBTAA, the taxpayer provides an expense payment benefit at the time it arranges for a participating employee's account to be credited with instalment amounts paid out of funds provided by it. | Summary: The taxpayer's 'Scenario 2' benefits are provided at the times when it reimburses its participating employees. | Detailed Reasoning - Detailed reasoning: Section 20 of the FBTAA states: Where a person (in this section referred to as the provider ): (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient ) to pay an amount to a third person in respect of expenditure incurred by the recipient; or (b) reimburses another person (in this section also referred to as the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient; the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient. Paragraph 20(b) of the FBTAA is self-explanatory in that the taxpayer provides an expense payment benefit at the time it pays to (reimburses) the participating employee's bank account the amount of electricity charges they have been invoiced. | Summary: Where, pursuant to a salary packaging arrangement entered into before 22 October 2012, the taxpayer credits an amount to the employee's retailer before 31 March 2014, or reimburses an amount to the employee before 31 March 2014, the taxable value of the fringe benefit is an amount equal to 75% of the lowest price charge by the retailer to the public (as calculated under section 48 of the FBTAA) that is further reduced by up to $1,000 per employee per year (as per section 62 of the FBTAA)? | Detailed Reasoning - Detailed reasoning: The effect of the transitional provisions included at Item 13 of Schedule 7 of the Tax Laws Amendment (2012 Measures No. 6) Act 2013, as relevantly stated below, are that in-house residual expense payment fringe benefits provided before 1 April 2014, pursuant to an existing salary packaging arrangement entered into by the employer and employee before 22 October 2012, continue to apply the law as it applied before the amendments were inserted into the FBTAA by the Tax Laws Amendment (2012 Measures No. 6) Bill 2012: 13 Application of amendments … (2) However, the amendments made by items 1 to 11 do not apply in relation to benefits provided to an employee under an existing salary packaging arrangement to the extent that the benefits are provided before the earlier of: (a) 1 April 2014; and (b) the first time on or after 22 October 2012 that the existing salary packaging arrangement is varied in a material way. (3) For the purposes of subitem (2), an existing salary packaging arrangement is a salary packaging arrangement entered into by the employer and employee before 22 October 2012. Therefore with respect to the in-house residual expense payment fringe benefits provided by the taxpayer to its participating employees before 31 March 2014, pursuant to existing salary packaging arrangements entered into before 22 October 2012: · paragraph 48(a) of the FBTAA will continue to apply so that the taxable value of those fringe benefits for the year ended 31 March 2014 will be an amount equal to 75% of the lowest price at which an identical benefit was sold to a member of the public, and · subsection 62(1) of the FBTAA will continue to apply to further reduce the taxable value of those fringe benefits calculated under paragraph 48(a) of the FBTAA by up to $1,000 per employee for the year ended 31 March 2014. | Summary: Where, pursuant to a salary packaging arrangement entered into before 22 October 2012, the taxpayer credits an amount to the employee's retailer after 31 March 2014, or reimburses an amount to the employee after 31 March 2014, the taxable value of the fringe benefit is the 'notional value' in accordance with paragraph 48(aa) of the FBTAA? | Detailed Reasoning - Detailed reasoning: As explained in the detailed reasoning under Question 3, the transitional provisions only apply to those in-house residual expense payment fringe benefits that are provided by the taxpayer before 31 March 2014 to its participating employees pursuant to existing salary packaging arrangements entered into before 22 October 2012. In other words, the amendments were inserted into the FBTAA by the Tax Laws Amendment (2012 Measures No. 6) Bill 2012 will apply to those fringe benefits provided by Company X after 31 March 2014. More specifically: · paragraph 48(aa) of the FBTAA will apply so that the taxable value of those fringe benefits for the years subsequent to the year ended 31 March 2014 will be their notional value, and · subsection 62(2) of the FBTAA will apply to not allow subsection 62(1) of the FBTAA to reduce the taxable value of those fringe benefits by up to $1,000 per employee for the years ended subsequent to the year ended 31 March 2014.