Private ruling: Childcare facility
Published: April 2014
Ruling period: 1 April 2014 - 31 March 2015 | 1 April 2015 - 31 March 2016 | 1 April 2016 - 31 March 2017
Date scheme commenced: 1 April 2014

Ruling: Q1: Is the provision of childcare by the entity to its employees under a salary sacrifice arrangement an exempt benefit under subsection 47(2) of the Fringe Benefits Assessment Act 1986 (FBTAA)? | A1: Yes

Relevant facts and circumstances: • The entity (the employer) owns and operates childcare facilities. • Each childcare facility provides childcare to at least two children under the age of six years old. • Each childcare facility centre is operated as a business and is open to the general public as well as the employees. • No childcare places are put aside for the employees. • All employees employed at each of the childcare facilities are employees of the entity and are on the entity's payroll. • The provision of childcare is provided to current employees of the entity under a salary sacrifice arrangement. • The entity is the owner and operator of the childcare facilities and owns the premises on which the childcare facilities are located.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 subsection 47(2) | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Summary: Subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides that: Where (a) A residual benefit provided to a current employee in respect of his or her employment consists of: i. The provision, or use, of a recreational facility; or ii. The care of children of the employee in a childcare facility; and (b) The recreational facility or childcare facility, as the case may be, is located on business premises of: i. The employer; or ii. If the employer is a company, of the employer or of a company that is related to the employer; The benefit is an exempt benefit Therefore the provision of childcare facilities to employees will be an exempt benefit under subsection 47(2) of the FBTAA when all of the following conditions are satisfied: • The benefit is a residual benefit • The benefit is provided to current employees • The benefit consist of childcare to the employee's children • The care of children is in a childcare facility; and • The childcare facility is located on the business premises of the employer (or a related company if the employer is a company). | Detailed Reasoning - The benefit is a residual benefit: Section 45 of the FBTAA defines a 'residual benefit' as: A benefit is a residual benefit for the purpose of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Division 2 to 11 (inclusive) Provision of childcare facilities does not fit within any of the specific benefits in Divisions 2 to 11 of the FBTAA. Therefore, it is considered to be a residual benefit. | Detailed Reasoning - The benefit is provided to current employees: The definition of 'current employee' is contained in subsection 136(1) of the FBTTA and states: current employee means a person who received, or is entitled to receive, salary or wages'. The employer has advised that only current employees who have entered into a valid salary sacrifice arrangement can access the benefit. | Detailed Reasoning - The benefit consists of the care of the employee's children: The benefit will consist of the provision of childcare services for the employee's children. Therefore, this requirement is satisfied. | Detailed Reasoning - The care of the children is in a childcare facility: Subsection 136(1) of the FBTAA defined a 'child-care facility' as: Means a facility at which a person receives, or is ready to receive, 2 or more children under the age of 6, not being associates of the person, for the purpose of minding, caring for or educating them for a day or part of a day without provision for residential care buy does not include a facility at the place of residence of any of these children. The entity owns and operates X childcare facilities within its community area. Each childcare centre caters for more than two children under the age of six and therefore would meet the definition of a childcare facility above. | Detailed Reasoning - The childcare facility is located on the business premises of the employer: Subsection 136(1) of the FBTAA defines 'business premises' as: 'business premises', in relation to a person, means premises, or a part of premises, of the person used , in whole or in part, for the purposes of business operations of the person, but does not include: a) Premises, or a part of premises used as a place of residence of an employee of the person or an employee of an associate of the person; or b) A corporate box; or c) Boats or plans used primarily for the purpose of providing entertainment unless the boat or plane is used in the person's business of providing entertainment; or d) Other premises used primarily for the purpose of providing entertainment unless the premises are use in the persons business of providing entertainment. This definition contains a two-fold test for determining whether the premises are 'business premises' for the purposes of the FBTAA. The first requirement is that the premises or part of premises are of the person. Secondly, the premises or part of premises must be used by the person, in whole or in part, for the purposes of their business operations. The question of what constitutes 'business premises' for the purpose of the FBTAA has been considered in Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises' . Guidance on the 'first requirement' on the meaning of 'premises, or a part of premises, of a person' is given in paragraphs 7 and 8 of TR 2000/4: 7. If a person has ownership of premises, or has exclusive occupancy rights as lessee of premises, the premises would ordinarily be described as premises of the person. 8. In other circumstances, for example, where a person has non-exclusive possession of premises, the person satisfies this requirement if they have a right to possession of the premises, at least to the extent necessary to enable the conduct thereon of their business operations. Guidance on the 'second requirement' is given in paragraphs 9 and 10 of TR 2000/4: 9. The term 'business operations' in the definition of 'business premises' includes a wide range of activities. The activities include those undertaken by a person in the ordinary course of carrying on a business. They also include those activities that, although not undertaken in the ordinary course of carrying on a business, are nevertheless undertaken in the course of carrying on a business. Profit making activities that fall short of being a business are also included in 'business operations' if they have a business or commercial character. 10. Important to this Ruling is the question of whether the operations of facilities, such as childcare facilities, are operations that would fall within the term 'business operations'. In this context, the provision of benefits to current employees in the form of childcare would be an important factor in recruiting, retaining and otherwise rewarding employees. Activities undertaken in connection with the provision of those benefits to employees would be 'business operations' of the employer. Paragraphs 11 and 12 of TR 2000/4 provide that there is no absolute or conclusive test of whether premises are business premises. In determining whether the premises are premises of the employer and are used for the business operations of the employer, it is relevant to consider the following two factors: • the control the employer has over the premises; and • the consistency of an employer's actions and activities on the premises with those of normal business practices. Paragraph 13 of TR 2000/4 states that having regards to the two factors, where a person is carrying on business operations on premises, the premises are their business premises where in form and substance the person bears the rights and risks of possession of the premises associated with the conduct of the business operations. Paragraph 54 of TR 2000/4 states that the control question requires an objective consideration of both the form and the substance of the arrangement and specifically, whether the employer has a sufficient interest in the premises to carry on its business operations. Merkel J in Esso Australia Ltd v. FC of T 98 ATC 4953 at 4958; 40 ATR 76, (1998) 157 ALR 652 ( Esso ) considered this issue and stated: It seems to me that, under s47(2), for the relevant business premises to be those of an employer, the employer must have a right to possession of the premises, at least to the extent necessary to enable the conduct thereon of the relevant recreational or childcare facility. If the employer has the requisite possessory entitlement in respect of the premises it does not appear to matter that entitlement is one of ownership, exclusive possession or non-exclusive possession. Following the judgement in Esso and TR 2000/4, the employer must have a right to possession of the premises even if it does not have ownership of the premises The entity owns and operates the childcare facilities and is the owner of the premises on which the childcare facilities are located. Therefore the entity has the right of possession and control over the use of the relevant premises. In addition, the running of the childcare facilities is performed by the entity and all staff are employed by the entity. It is therefore considered that the entity has the requisite possessory entitlement and degree of control over the premises necessary to conduct the business operations of the childcare facilities. Consequently, the premises of the three childcare facilities are considered to be business premises of the entity for the purposes of the FBTAA. | Detailed Reasoning - Conclusion: It is considered that all the required conditions under subsection 47(2) of the FBTAA have been met. Therefore pursuant to subsection 47(2) of the FBTAA, the provision of childcare to current employees under a salary sacrifice arrangement by the entity will be an exempt benefit.