Action item 111110/52 Interaction between the Otherwise Deductible Rule and the Non Commercial Loss rules

At the 11 November 2010 meeting, the ATO undertook to advise members of the progress of the internal review.  At the 17 February 2011 meeting the ATO advised that this matter is being managed as a Priority Technical Issue (PTI) and a resolution time frame was yet to be confirmed.

At the 12 May 2011 meeting the ATO advised members that final approvals were still required in relation to the PTI.  The Chair will follow up the progress of the approval to prepare an ATO view position with relevant ATO stakeholders.

At the 11 August 2011 meeting the ATO advised members that approvals were being finalised, however other priorities had meant this had again been delayed.  The Chair undertook to follow this up.

The Chair provided an update at the 10 November 2011 meeting that, given other priorities and the risk associated with this matter had been mitigated; work on preparing a public ruling had not yet commenced. Members were advised that it is likely final approvals will be obtained and work will commence early in 2012.

Action item carried over.

Action item 110512/58 Living-away-from-home declarations in advance

At the 12 May 2011 meeting, the IPA queried whether an employee can make a single ‘living-away-from-home’ (LAFH) declaration’ that covers the current year and a number of future years?

The ATO will ensure that the position stated at the meeting and recorded in the minutes, being that an employer could not rely on a LAFH declaration that was provided by an employee where the declaration purports to set out facts about future years, will be included in the next update of the Fringe benefits tax: a guide for employers.

At the 11 August 2011 meeting the ATO advised that an update to chapter 11: Living-away-from-home fringe benefits of the Fringe benefits tax: a guide for employers has incorporated responses provided on LAFHA issues raised at previous meetings including the declarations in advance matter.

At the 10 November 2011 meeting the ATO advised that an update to chapter 11: Living-away-from-home fringe benefits of the Fringe benefits tax: a guide for employers was almost complete, pending final approvals.

The Chair agreed that the updated chapter could be circulated to members after final approvals but before publishing to ato.gov.au if there was significant hold up in getting the update published following approvals being obtained.

(Note: Given the Government’s announcement in the Mid Year Economic and Fiscal Outlook on 29 November 2011 to reform the living-away-from-home allowance and benefits, this update to the Fringe benefits tax: a guide for employers has been put on hold pending the outcome of the consultation being undertaken and the introduction of the proposed new laws).

Action item carried over as an aged open action item.

Action item 110811/60 FBT Lodgment Program

At the 11 August meeting Emma Haines, Assistant Commissioner, Tax Practitioner and Lodgment Strategy, attended to address the member’s concerns.

In particular the impact of the ATO’s decision on the ‘Big 4’ was discussed at length.

The outcome of this discussion was to form a sub-group of 6 members (including 3 representatives of the ‘Big 4’).  The purpose of forming the sub-group was to progress the matter out of session by way of further discussion with the ATO.

Following the meeting of 11 August, two hook-ups have been organised with the sub-group to discuss and progress the issues of concern for members.

The hook-ups were held on 22 September and 26 October 2011.  A further meeting of the sub-group is planned at which the ATO expects to provide considered options to the sub-group nominees. 

Members requested that a decision on this matter be given some urgency as they need to advise their clients in December of the lodgment requirements.

This matter is ongoing.  Action item carried over.

Action item 110811/61 FBT risk and compliance update

At the 11 August 2011 meeting the ATO reported on an intelligence gathering project focussing on LAFHA.  Members requested a further update on this project to be given at the next meeting.

At the 10 November 2011 meeting, the ATO provided an update in relation to LAFHA compliance activities; refer agenda items 10 and 14.

Action item 120810/43 No private use declaration for business travel greater than 5 nights

This action has been recorded on the register of aged open action items from previous meetings.

At the 12 August 2010 meeting, the ATO undertook to review the references in the Fringe benefits tax: a guide for employers relating to section 20A and 47A and update same to provide clearer guidance in relation to the making of no-private-use declarations.

The ATO advised members at the meeting that the current review of the Fringe Benefits Tax: A guide for employers has already been completed; therefore this issue will be carried over for consideration in the next review.

The ATO advised that the Fringe benefits tax: a guide for employers has now been updated.  The update is available here:

Expense payment fringe benefits – chapter 9.5 substantive requirements, travel diary

Residual fringe benefits – chapter 18.8 substantive requirements

The following is an extract from chapter 9.5:

If the provision of the expense payment or residual benefit is covered by an annual 'no private use declaration' (refer to section 20.3 of Fringe benefits tax exempt benefits), the requirement to obtain a travel diary will be waived. That is, if the expense payment benefit is subject to a consistently enforced prohibition on private use and which would result in a taxable value of nil, you will then be able to make an annual no private use declaration.

Such a declaration would state that the benefits were provided only for employment related purposes and that there was no private portion.

 Action item now finalised.

TRs/TDs, class rulings, LAPS and ATO IDS issued since the previous meeting

FBT related taxation rulings, taxation determinations and class rulings

The ATO advised that the following FBT related taxation rulings have issued since the last meeting.

• Taxation Ruling TR 2011/3: Fringe benefits tax: meaning of ‘cost price’ of a car for the purpose of calculating the taxable value of car fringe benefits
• Taxation Ruling TR 2011/4: Income tax and fringe benefits tax: charities
• This Ruling provides the Commissioner's views on the meaning of 'charitable' in the terms 'charitable institution ' and 'fund established for public charitable purposes' wherever those terms are used in the Income Tax Assessment Act 1997 (ITAA 1997), the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and the Income Tax Assessment Act 1936 (ITAA 1936). The ruling is significant as it provides the ATO view as to the application of two  adverse High Court decisions - Federal Commissioner of Taxation v. Word Investments Limited (2008) 236 CLR 204; [2008] HCA 55 and Aid/Watch Incorporated v. FC of T [2010] HCA 42; 2010 ATC 20-227; (2010) 77 ATR 195.  In addition, this Ruling has been updated to provide further guidance that will assist entities in determining their status.  

There are currently no FBT related rulings listed on the Public Rulings Program (as at 20 October 2011).

FBT related ATO interpretive decisions

• No FBT related ATO Interpretative Decisions have issued since the last meeting.

FBT related law administration practice statements

• No FBT related law administration practice statements have issued since the last meeting.

News from the ATO

Legislation and regulation

• Tax Laws Amendment (2011 Measures No. 6) Bill 2011 received Royal Assent on 3 November 2011.

Extension of fringe benefits tax exemption for fly-in fly-out arrangements

Schedule 2 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 to provide an exemption from fringe benefits tax for transport, from an employee’s usual place of residence to their usual place of employment, where the employee is an Australian resident employed in a remote area overseas, under what is commonly known as a fly-in fly-out arrangement.

Date of effect:  These amendments apply to fringe benefits provided after 1 July 2009.

Cases

• Yip v .Federal Commissioner of Taxation [2011] AATA 785 – employee share purchase plan – salary sacrifice –whether an amount equivalent to sacrificed amount – assessable income – objection decision affirmed.
• This was a decision of the Administrative Appeals Tribunal handed down on 4 November 2011.
• The taxpayer has lodged an appeal to the Federal Court.
• The case involved appeals lodged by the applicant against the Commissioner’s decisions set out in a ruling and a related ruling in respect of the 2010-2012 financial years concerning an employee share trust arrangement and involves FBT and income tax interactions, a consideration of salary sacrifice arrangements as well as Part IVA.

Meeting discussion

CPA Aust queried the effect of the Tribunal’s comments set out, for example, at paragraph 49 of its decision, on the Commissioner’s views on the effectiveness of salary sacrifice arrangements and the requirement to distinguish between a ‘request’ and a ’direction’. At paragraph 49 (on the facts) the Tribunal states that the taxpayer’s ‘request must be viewed as a direction to Ambassador to pay part of her remuneration to her in monetary form that would acquire her a ‘benefit’. Therefore, she has asked Ambassador to apply or deal with that part of her remuneration on her behalf and as she has directed’.

The ATO advised members that given the matter may be appealed to Federal Court and the decision is some 67 pages long, the statements at paragraph 49 need to be read in the context of the case that was before the Tribunal.  As the issues are likely to be further considered by the Federal Court, at this stage, no further comment is required.

Note: subsequent to the meeting an appeal was been lodged by the taxpayer.

Cases in the public domain where a decision has not been handed down

There have been no changes to the cases currently before the Administrative Appeals Tribunal since reported at the August meeting. 

FBT Products

New/updated web products

The following products have been updated on ato.gov.au:

Fringe benefits tax – rates and thresholds

Better practices for managing specific fringe benefit types

Fringe benefits tax for small business

Approved worker entitlement funds has been reviewed and updated to incorporate information relating to the approved worker entitlement funds endorsement process.

The following chapters of the Fringe benefits tax: a guide for employers have been updated:

Chapter 4 – Fringe benefits tax record keeping

Chapter 7 – Car fringe benefits

Chapter 9 – Expense payment fringe benefits

Chapter 10 – Housing fringe benefits

Chapter 11 – Living-away-from-home allowance fringe benefits

Chapter 12 – Airline transport fringe benefits

Chapter 15 – Tax-exempt body entertainment fringe benefits

Chapter 16 – Car parking fringe benefits

Chapter 17 – Property fringe benefits

Chapter 18 – Residual fringe benefits

Chapter 19 – Reductions in fringe benefit taxable value

Chapter 20 – Fringe benefits tax exempt benefits

Chapter 21 – Employee cars – applying the ‘otherwise deductible’ rule

Meeting discussion

Given the statements made at carried forward action item 3.3, members queried the advice here that Chapter 11 – Living-away-from-home allowance fringe benefits has in fact been updated.  The ATO  advised members that the changes to Chapter 11 – Living-away-from-home allowance fringe benefits simply incorporates the updated threshold amounts from the most recent taxation determinations and has removed references to older taxation determination rates.

Tax practitioner research program

Each year we conduct a tax practitioner research program. This year the program consisted of:

• tax agent perceptions survey – in field March 2011
• tax agent services survey – in field March 2011
• tax agent technology survey – in field November-December 2010
• BAS agent survey – in field November-December 2010 (New).

Our latest survey results ‘Tax agent perceptions survey 2011’ and ‘Tax agent services survey 2011’ show that there has been a decline in satisfaction, since the last reported survey results in 2010. Overall results from the BAS agent and tax agent technology survey were generally positive.

To better understand the results and shift in satisfaction and perceptions, we commissioned a research company to undertake further in-depth interviews with tax agents.

Preliminary themes of this research suggest that this change in satisfaction is a reflection of tax agents’ experiences associated with issues related to implementation of new systems in 2010. Tax agents are also rating our services as ‘neutral’ or ‘neither satisfied nor dissatisfied’, rather than positive. This is because while we continually work to make incremental improvements to our services, we have not delivered major technology improvements specifically for agents since we introduced the portal or fast key codes for calling us.

There is also an underlying concern about the inherent complexity associated with the work done by tax practitioners.

We have found that the intensive work we did with the ATO tax practitioner forum and professional associations in the lead up to and during Tax Time 2011, coupled with our focus on improving our service during this time, has also had a positive effect on our involvement and engagement with tax practitioners and professional associations.

In addition to Tax Time, we have also been working with our consultative forums to identify key and practical ways to address concerns that have appeared in the survey results. Some of these initiatives have included:

• decreasing call wait times for tax agents by increasing the number of staff and increasing their skills and capability through training, particularly during Tax Time
• continuing to work closely with our consultative forums to raise the awareness of our differentiated and balanced approach to the collection of tax and superannuation debt
• working with tax practitioners, including use of site visits, to understand how agents use the portal and areas where we can improve its usability
• looking at practical ways to manage any unplanned or planned outages of ATO systems with tax practitioners at our ATO Tax Practitioner Forum (e.g. piloting SMS alerts)
• extending the professional-to-professional service for tax agents to approved auditors of superannuation funds and legal practitioners, enabling greater access to specialised and timely advice for practitioners.

The research currently underway, together with the work we do with tax practitioners and their professional associations will help us to further understand practitioners’ concerns. This is important to us because of the valuable role which tax practitioners have in the smooth operation of our tax and superannuation systems.

For further information, please refer to the Tax Practitioner Research program 2011 link.

Meeting discussion

The ATO provided members with an overview of the Tax Practitioner Research program and noted that the ATO conducts regular surveys, the ATO values feedback and the ATO appreciates the contact, access and consultation that these opportunities provide including working with members of the consultative forums. The link above provides access to the surveys undertaken by the ATO under the program this year as well as an opportunity to provide feedback.

Electronic declarations  (ICAA)

Issue

The FBT legislation requires that employees provide declarations to substantiate a number of different fringe benefits, including closing odometer readings for car fringe benefits, Living-Away-From-Home (‘LAFH’) declarations for LAFH benefits, otherwise deductible declarations for work related expense payments or residual fringe benefits and travel diaries to name a few. 

The legislation requires that declarations must be provided in a form that is approved by the Commissioner (which are available on the ATO website) and received by the employer before the FBT return is lodged.

A recent update to the ATO online publication Fringe benefits tax: a guide for employers indicates that the ATO will allow an employer to receive employee declarations electronically for FBT purposes. However, the declaration must still be signed by the employee using an electronic signature.

We wish to raise the following queries for discussion regarding the format of the declaration and the form of the electronic signature:

1. Declarations sent as attachments to email
2. Can the declaration/document be sent as an attachment to an email or must it form part of the body of the email? If the declaration or document can be sent as an attachment is the employee also required to endorse the attached document or is the endorsement provided via the electronic signature sufficient?
3. For example, where an employee completes a travel diary or log book and then sends the document to their employer in an attachment, are they required to endorse on the document itself (either by physically signing or by including their name somewhere on the document) or is the electronic signature in the email sufficient?
4. Declarations completed online via employee intranet
5. Can an electronic declaration be provided in an online form completed via an employer’s online intranet (which would require secure logon)?
6. For example, an employee logs on to their employee intranet using their employer ID and password. This allows employees to provide the same information online as required by paper declarations.
7. The information collected from the employees is stored and can be extracted from the intranet by system generated report. The report, if run, will have the same information as per the Commissioner approved declaration and will have the employee’s name attached to the information.
8. Declarations sent from personal email addresses
9. Can declarations sent from personal email addresses that can be accessed from any location (such as Yahoo, Gmail or Hotmail) etc be considered to have been sent via a secure system?
10. For example, an employee can access their email account by entering their email address and a password via their mobile phone (which may or may not be ‘locked’ and require a password).
11. An employee can access their email account using their email address and password from a home computer (that may or may not require login).

Background

We refer to the guidance provided by the ATO in the electronic publications accessible via the ATO website entitled Fringe benefits tax: a guide for employers. However, we note this guidance does not extend to cover the situation above.

Please see below.

4.8 Electronic declarations

You can receive employee declarations electronically. However, the declaration still must be signed by the employee using an electronic signature.

• This means that employees can provide employee declarations to you, in the format approved by the Commissioner, electronically with their electronic signature if:
• you consented to the method of electronic signature
• the electronic declaration is readily accessible and understandable, and convertible into written English, in order to determine your FBT liability.

Format of declaration and form of electronic signature

The electronic declaration must contain the same information as is required for approved paper declarations.

The electronic declaration must be provided using a secure system, and in a way that clearly identifies the employee and indicates their approval of the information being provided. A secure system could be a system that requires a personal identification number, access code or password to use.

Example: electronic declaration provided from work email address

An employer agrees to an employee declaration being provided to them electronically in the body of an email or as an attachment to an email. This is an acceptable method of receiving the declaration where:

• the employees have work email addresses that are password protected
• the employee's name appears either in the 'From' line or in the body of the email, or both, as the method for identifying the person and indicating the person's approval of the information communicated.

Example: electronic declaration provided through payroll system

An employer has an electronic form available through their payroll system that allows employees to provide the same information as required by paper declarations. This is an acceptable method of receiving employee declarations where:

• the employer agrees to employees providing electronic declarations through this system
• in order to complete the form, employees must log on to their account using a password
• completion of the form is linked to the employee's user identification or their name, as the method for identifying the person and indicating their approval of the information communicated.

Example: electronic declaration provided from employee's home email address

An employer agrees to an employee providing their employee declaration from their home email address. This would be an acceptable method of receiving an employee declaration where the employer is satisfied that the declaration was provided by the employee, using a secure system.

Example: electronic declaration provided on behalf of another employee using their work email address

An employer has an email system that allows employees to action emails on behalf of other employees. Pam Smith, an employee, is given permission by her manager Jim Jones, to action emails on Jim's behalf while Jim is on leave. The 'From' line of emails actioned for Jim appears as 'Pam Smith on behalf of Jim Jones'. An employee declaration received via email with the 'From' line 'Pam Smith on behalf of Jim Jones' would not be acceptable because it doesn't contain the employee's approval of the information communicated.

Industry view/Suggested Treatment

1. 1. Declarations sent as attachments to email

With reference to the guidance provided at section 4.8 of the Fringe benefits tax: a guide for employers we note that declarations can be submitted electronically provided the declaration is signed using an electronic signature.

The Fringe benefits tax: a guide for employers indicates that an electronic signature must be provided using a secure system and in a way that clearly identifies the employee and indicates their approval of the information being provided. A secure system is outlined as a system that requires a personal identification number, access code or password to use.

Assuming the email is sent from a ‘secure system’ for the purposes of this point, the question that remains is how far does the electronic signature extend - does it extend to all documents and/or declarations attached to the email or is it limited to the content contained within the body of the email?

Provided the attached declaration is in a format that is readily accessible, understandable and convertible into written English, if it is sent via email (albeit as an attachment) from a secure system and with the employee’s electronic signature it would appear that all the criteria are met. 

•  
• 2. Declarations completed online via employee intranet

The Fringe benefits tax: a guide for employers uses an example of declarations completed online via a payroll system. In the example, this method is accepted provided the following criteria are met:

• The employer agrees to employees providing electronic declarations through this system
• In order to complete the form, employees must log on to their account using a password
• Completion of the form is linked to the employee’s user identification or their name, as the   method for identifying the persons and indicating their approval of the information communicated.
•  

In our example, declarations are completed via an employer’s online intranet which employees are required to log into using a user name and password to gain access.

Therefore the criteria appear to be met and the submission of declarations online via an employer’s online intranet appears to be a valid method of submission.

With respect to the output of the system, the information collected from the employees is stored and can be extracted from the intranet by system generated report. The report, if run, will have the same information as per the Commissioner approved declaration and will have the employee’s name attached to the information.

Section 4.5 of the Fringe benefits tax: a guide for employers - Electronic Records states that electronic records can be maintained provided the information is made readily accessible and can be convertible into written English. The information must also be retained for 5 years and secure from unauthorised access and data alterations. On this basis, provided these criteria are met, it is not necessary for the report to be printed and a hard copy kept on file, an electronic copy of the output is sufficient.

•  
• 3. Declarations sent from personal email addresses

The Fringe benefits tax: a guide for employers indicates that a secure system is a system that requires a personal identification number, access code or password to use.

On this basis, even though personal email addresses (from accounts such as Yahoo, Gmail and Hotmail) have the potential to be accessed from any terminal with internet access, because the user must log in with a username and password before they are granted access we propose that the system is a secure system.

Technical references

Not applicable

Impact on clients

Given the nature of technological advancements in recent years and the prevalence of email, we welcome the recent ATO guidance on electronic declarations.

The declaration collection process is expected to be far easier for employers declarations can be obtained more efficiently

Priority of issue where ATO view is required

Medium priority.  Neither low nor high.

Has previous advice been sought from the ATO?

Not to our knowledge

Has this issue been discussed at any other ATO consultative forum?

Not to our knowledge.

Meeting discussion

Members acknowledged that given the nature of technological advancements in recent years and in particular the use of email, the recent ATO guidance on electronic declarations set out in the Fringe benefits tax: a guide for employers is both appreciated and is practically beneficial.

The guidance provided will allow for the declaration collection process to be far easier for employers and declarations will be able to be obtained more efficiently.

ATO response

1. Declarations sent as attachments to email

The Fringe benefits tax: a guide for employers at section 4.8 states that where the employer agrees to an employee declaration being provided to them electronically in the body of an email or as an attachment to an email this is acceptable where:

• the employees have work email addresses that are password protected
• the employee's name appears either in the 'From' line or in the body of the email, or both.

The ATO stated there is no further requirement that the attachment itself be endorsed, although the name of the employee is required on the document in the approved format.

2. Declarations completed online via employee intranet

The Fringe benefits tax: a guide for employers at section 4.8 allows for the provision of any electronic declaration with an electronic signature if:

• the employer consented to the method of electronic signature, and
• the electronic declaration is readily accessible and understandable, and convertible into written English, in order to determine their FBT liability.

The ATO advised members that where an employer consents to the use of an online employee intranet system for the lodgement of an employee declaration this is acceptable provided it is a secure system that clearly identifies the employee and their approval of the information being provided. A secure system could be a system that requires a personal identification number, access code or password to use.

3. Declarations sent from personal email addresses

The ATO indicated that where an employer consents to the lodgment of electronic declarations through the use of personal email accounts such as Yahoo, Gmail and Hotmail, the employer needs to be satisfied that the declaration is provided by the employee, using a secure system as stipulated in the Fringe benefits tax: a guide for employers at section 4.8.

It is not an issue that personal email addresses can be accessed from any location, but rather that the system used is secured and that the employer is satisfied that this meets the requirements set out in the guidance provided in the Fringe benefits tax: a guide for employers at section 4.8. This requires the use of a personal identification number, access code or password whereby the employer has satisfied itself that the email address has in fact been set up by and can only be accessed by the particular employee. Where such a system is in place then an employer could consent to the use of personal emails to provide employee declarations.

 Credit card processing fees (ICAA)

Issue

Do credit card processing fees that are incurred by an employer as part of the provision of a fringe benefit (either directly or as part of a reimbursement) constitute part of the taxable value of a fringe benefit?

Background

A number of vendors such as airlines, ticketing companies, restaurants, taxis etc commonly charge customers a surcharge if purchasing their goods/ services using a credit card. The fees are generally referred to as processing fees or credit card surcharges and are usually disclosed separately on the invoice. The fees can be a fixed fee or a percentage of the transaction.

The credit card processing fees may be incurred directly when expenditure is incurred by an employee of the employer using an employer liability credit card in providing property, meal entertainment or residual fringe benefits. The fees may also be incurred indirectly when providing expense payment fringe benefits (that is the employee has incurred the credit card processing fees and subsequently seeks reimbursement from their employer, whether via an employee liability corporate card or a personal credit card).

The taxable value of a fringe benefit is generally calculated using the actual amount incurred or reimbursed unless there are concessional valuation rules.

We wish to submit for discussion whether the amount incurred either directly or indirectly by the employer as credit card processing fees form part of the cost of the provision of the fringe benefit.

Industry view/suggested treatment

1. Costs incurred indirectly by the employer

Where an employee is reimbursed for the total costs incurred (including the transaction fee), it is our suggested treatment that at the time the underlying benefit is purchased or funded, a separate benefit can be seen to have arisen, being the reimbursement of the credit card fee, however this benefit is reduced to nil by the otherwise deductible rule because the underlying benefit was purchased as a function of employment.

The surcharge is not connected to the benefit; it is merely the means by which it is funded. This is further reinforced by the fact that if the same benefit was purchased using cash, cheque or another credit card type which does not attract processing fees, the total cost of the product or service changes even though the product or service is identical.

Additionally because the employee has purchased the underling product or service in connection with their employment (whether it be a taxi, flights, accommodation, stationery, meal entertainment etc), the costs are arguably otherwise deductible and therefore reduced to nil on the basis the employee would be entitled to a deduction in their personal tax return.

2. Costs incurred directly by the employer

Similar to above, it is our suggestion that if the costs are incurred directly by the employer and the employer is charged a credit card processing fee, a separate transaction has occurred, however no “benefit” has arisen to an employee. The cost incurred is merely a financial fee incurred to facilitate the provision of the underlying benefit and is done so at the employers cost.

These costs can be likened to the administration costs incurred by an employer in administering a salary sacrifice arrangement; i.e. where an employer provides fringe benefits to employees by way of a salary packaging arrangement and consequently incurs administrative costs either internally or externally to another company. ATO ID 2001/333 outlines that in this scenario, no “benefit” as defined under section 136 (1) of the FBTAA has been provided.

Summary

On this basis, it is suggested that the credit card processing fee should not give rise to an FBT liability whether the employer has incurred the fees directly or indirectly.

Technical references

Fringe Benefits Tax Assessment Act (FBTAA) 1986:

Section 23 Taxable value of external expense payment fringe benefits

Section 37BA Taxable value of meal entertainment fringe benefits

Section 43 Taxable value of external property fringe benefit

Section 50 Taxable value of external non period residual fringe benefits

Section 51 Taxable value of external period residual fringe benefits

Impact on clients

The impact on clients is in calculating the correct taxable value for benefits provided.

Should the ATO determine that the credit card processing fees should form part of the taxable value; some clients may be under calculating the taxable value of fringe benefits. Alternatively if it is determined that the credit card processing fees can be excluded some clients may be over calculating the taxable value.

Priority

Medium priority.  Neither low nor high

Has previous advice been sought from the ATO?

Not to our knowledge.

Has this issue been discussed at any other consultative forum?

Not to our knowledge.

Meeting discussion

Following an analysis of the relevant FBT provisions and the general intent of valuing ‘benefits’ under the FBTAA, and discussing generally the issue raised, members agreed that in practical terms a credit card surcharge is not treated as a separate ‘benefit’.

It was also agreed that in a practical sense there could be administrative and compliance issues in tracking and treating credit card surcharges as a separate benefit.

The ICAA acknowledged that the issue had been raised from the point of the ATO providing some guidance and clarity on the matter.

ATO response

In discussing this issue, the ATO stated that credit card processing fees form part of the price for a merchant's supply of goods or services to a card holder. For GST purposes, credit card processing fees are considered to be a component of the consideration in respect of the supply.  (Waverley Council v FCT 2009 AATA 442).

The Tax Office view on the treatment of the credit card surcharge is set out in Issue 15.1 of the Financial services - questions and answers

Similarly for FBT purposes, credit card processing fees that are incurred by an employer as part of the provision of a fringe benefit will constitute part of the taxable value of a fringe benefit.  This is consistent with the policy of the FBTAA that the taxable value of benefits should generally be calculated by reference to the expenditure incurred by the employer rather than the value of the fringe benefit to the employee.  (See for example the comments of Wilson J in Queensland v. The Commonwealth of Australia (1987) 162 CLR 74; 87 ATC 4029; 18 ATR 158, "In substance it [FBT] is a tax on the cost to the employer of providing the benefit.")

Car parking fees fly-in/fly-out situations (ICAA)

Subject

Can the cost of car parking fees at the airport constitute the provision of transport under sub-section 47(7) of the FBTAA?

 Issue

Where an employee drives his or her car to the airport and then flies to a remote area under a fly-in fly-out (FIFO) arrangement, we would like the Commissioner to consider whether the costs of car parking at the airport may constitute a residual benefit which would be exempt as being in connection with transport for the purposes of sub-section 47(7) of the FBTAA.

Background

Many employers who have business operations in remote areas require their employees to work regular FIFO shift rotations in these locations. Employees in some cases will drive to the airport to fly to the remote area and pay for long term parking at the airport.

In considering the exemption under sub-section 47(7) of the FBTAA 1986, the provision of transport (commonly known as FIFO transport) between the employee’s usual place of residence and his or her usual place of employment in a remote area is exempt from FBT where certain conditions are satisfied. Sub-section 142A(1) of the FBTAA provides that transport may consist of:

1. “accident insurance, airport or departure tax, passenger movement charge, a passport, a visa or a vaccination; or
2. any similar matter or thing;

in connection with transport shall be taken to be in respect of the provision of, or to consist of, transport.”

We note that the Commissioner has considered whether an employee that is required to work regular FIFO rotations would be entitled to an income tax deduction for the cost of car parking at the airport. It was noted in Private Rulings 37105 and 80342 that an employee under a FIFO arrangement would not be entitled to a deduction and, as such, the expense would not be otherwise deductible to the employee. However, our issue is whether the car parking fee would fall under sub-section 47(7) of the FBTAA.

Having regard to the above, we request confirmation as to whether the cost of car parking at the airport to fly to a remote area for work can be considered to be in connection with the provision of FIFO transport for the purposes of sub-section 47(7) of the FBTAA.

Industry view/suggested treatment

The cost of car parking at the airport should constitute a residual benefit in connection with the provision of transport for employees that are required to work regular FIFO rotations and therefore exempt from FBT.

Technical references

Sub-section 47(7) of the FBTAA 1986

Sub-section 142A(1) of the FBTAA 1986

Impact on clients

Employers which require its employees to work in remote areas e.g. mining industry

Priority

Low priority. 

Has previous advice been sought from the ATO?

No

Has this issue been discussed at any other consultative forum?

No

Meeting discussion

As noted in the agenda item, the ATO has considered whether an employee that is required to work regular FIFO rotations would be entitled to an income tax deduction for the cost of car parking at the airport. It has been noted that an employee under a FIFO arrangement would not be entitled to a deduction and, as such, the expense would not be otherwise deductible to the employee, if the employer reimbursed the employee’s expenditure. Given the views expressed by the ATO as to the income tax position, the opportunity to access an exemption in the FBTAA was discussed at some length.

It was acknowledged that to come within the exemption provided by subsection 47(7) the benefit provided to an employee must be a residual and not an expense payment benefit.

While the agenda item suggests that it may be possible to apply subsection 47(7) in such circumstances, TTI advised that the more appropriate exemption provision would be section 58G – motor vehicle parking.

ATO response

In terms of subsection 47(7) where an employee is provided with regular transport from their usual place of residence to their usual place of employment in a remote area or to an oil rig or other installation at sea and return, the provision of transport will be an exempt residual benefit.

However, clearly subsection 47(7) can not apply to expense payment benefits, for example where an employer reimburses an employee for car parking expenses as set out in the background/facts to this agenda item.

A response by the ATO as to whether, in cases where an employer organises for employee parking at an airport that results in a residual benefit in FIFO arrangements, can be exempt under subsection 47(7) was not required as it was agreed that the preferred position is to look at the application of subsection 58G(1) in these circumstances.

Where an employer reimburses an employee for parking their motor vehicle at the local airport whilst the employee is working interstate at a remote location that reimbursement could constitute an exempt benefit in terms of subsection 58G(1).

In terms of paragraph 58(G)(1)(a) an expense payment benefit will be an exempt benefit where

(i)- the recipients expenditure is in respect of the provision of motor vehicle parking facilities and

(ii)- the benefit is not an eligible car parking expense payment benefit.

In these circumstances, where an employee has paid for parking their own car at an airport car park the employee has incurred expenditure in respect of the provision of a motor vehicle parking facility and would accordingly satisfy the requirements of subparagraph 58(G)(1)(a)(i).

On the facts presented in the agenda it would also appear that the expense payment benefit would not be an ‘eligible car parking expense payment benefit’, as defined. Accordingly the expense payment benefit is an exempt benefit under subsection 58G(1) as subparagraph 58(G)(1)(a)(ii) has also been satisfied.

The ATO also stated that the exemption provided by subsection 58G(1) can also apply to certain residual benefits where the benefit consists of ‘motor vehicle parking facilities’ – refer paragraph 58G(1)(b). The ATO noted that the exemption is not available where the requirements of Division 10A – car parking fringe benefits is satisfied as subsection 58G(1) only applies to certain expense payment or residual benefits.

Penalties – FBT mis-allocations within a group (CTA)

Issue

For various reasons, benefits may be mis-allocated to employers within the same group of companies.  The result being that the affected FBT returns are incorrect but the correct FBT is paid overall.  Technically this may expose companies to penalties, etc. for incorrect returns and underpayment even though the correct FBT has been paid by the group.

Background

At the February 2011 meeting, the ATO advised that consolidated FBT returns are not legislatively possible and that, in the foreseeable future, there was little prospect of any law change to allow consolidated FBT returns.  Apart from reducing compliance burdens associated with preparing multiple FBT returns, issues such as mis-allocation of benefits would not arise under a consolidated FBT return regime. 

Industry view/suggested treatment

To provide comfort to those signing off FBT returns, could the ATO issue a statement advising that penalties and interest would not be applied in the case of mis-allocation unless total tax paid was incorrect.  This would be subject to there being no deliberate movement of employees (benefits) between entities to achieve benefits such as reduced quarterly payments, etc.

Technical references

Not applicable

Impact on clients

Reduced administrative effort and consequential reduced costs of compliance.

Priority

Medium priority. 

Has previous advice been sought from the ATO?

Partially in terms of consolidated FBT returns.  Other than that, not to our knowledge

Has this issue been discussed at any other consultative forum?

Not to our knowledge

ATO response

The ATO advised that ATO Law Administration Practice Statement PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods provides for the remission of penalties and interest in situations where benefits are mis-allocated between employers within a group of companies. 

Paragraph 94 of PSLA 2006/8 addresses the situation where income is incorrectly apportioned between taxpayers, stating; 

“Where income has been incorrectly apportioned between taxpayers and one taxpayer has paid the tax on that income, some remission may be appropriate when the amendment to correct the error occurs”

Paragraph 95 goes on to note that;

“Any remission will be for the period in which the revenue has not been disadvantaged” and “Remission in these cases would be to the extent of neutralising the disadvantage, if any, to the revenue”.

The ATO advised members that while these paragraphs deal specifically with the mis-allocation of income between taxpayers, the principles will apply equally to situations where benefits are misallocated between employers. 

The key consideration for the ATO in determining a request for remission where benefits have been mis-allocated is that the revenue is not disadvantaged, requiring therefore that the correct amount of tax had been paid by the original (incorrect) employer and that it had been paid on time.

Living Away From Home Allowance Review (CTA)

Issue

Feedback on ATO review of LAFHA.

Background

Earlier this year, the ATO sent letters to some employers requesting details of LAFHA paid to employees.  The letters were followed by telephone contact where certain information was provided.  We understand that the ATO would advise whether or not a detailed compliance review was to be undertaken, following receipt of the requested information.  In the case of at least one member, despite providing all the requested information some time ago, they have not yet been advised whether or not there is to be any further compliance action.

Industry view/suggested treatment

It is requested that the ATO provide feedback on the status of this review including:

• the findings of this ‘telephone” program;
• the nature of advice employers are to receive relating to future compliance activity and when;
• the incidence of any detailed compliance reviews; and
• if employers can expect any published direction from the ATO on LAFHA’s prior to the end of the 2012 FBT year.

Technical references

Not applicable

Impact on clients

For FBT year-end planning purposes, employers need to be aware of any changes to FBT reporting, etc. well in advance of the close of the FBT year.

Priority

Medium priority.  To enable the impact of any changes to be properly considered and, if necessary, implemented into systems to minimise compliance costs and ensure correct reporting, etc.

Has previous advice been sought from the ATO?

No

Has this issue been discussed at any other consultative forum?

Not to our knowledge.

ATO response

The ATO response to this item is covered in the ATO’s FBT Risk and Compliance update at agenda item 14.

The ATO advised members that, in relation to this project, subsequent contact as appropriate had been undertaken with employers. It was also stated that this particular project has been finalised.  However, if an employer remained concerned they can contact the ATO’s Mr Glenn Smith on (03) 9275 4849 or at glennh.smith@ato.gov.au in the first instance.

Review of Tax Office Management of Complex Issues – Case Study on LAFHA; Inspector General of Taxation report (TTI)

Subject

ATO response to Inspector-General of Taxation’s Report on his “Review of Tax Office Management of Complex Issues - Case Study on Living Away From Home Allowance” 

Issue

In May 2010, The Tax Institute raised for consideration at this Forum the ATO’s actions and responses following the recommendations of the Inspector-General of Taxation in his Report on his “Review of Tax Office Management of Complex Issues - Case Study on Living Away From Home Allowance”.  

The ATO’s response to this query at that meeting is set out in the minutes to that meeting .

In that response the ATO noted that the Office had “reached a corporate view on LAFH allowances and had formally advised the Treasury of those views” and was working formally with Treasury in relation to the same. The response to this item also notes that this issue may be affected by the Government’s response to Recommendation 9 of the AFTS Review (in relation to the inclusion of fringe benefits in the employee’s taxable income).  

Can the ATO please provide an update on this matter?

Background

Set out above in “Issue” and also in our agenda item submitted to the NTLG FBT Sub-committee in May 2010 as recorded in the minutes of that meeting.

Impact on clients

The impact on taxpayers seeking to rely on the ATO’s view is significant.

Priority

Medium priority. This item is an update on an ATO’s response to an Inspector-General’s report that was released by the Government over 4 years ago.

Has this issue been discussed at any other consultative forum?

No. However, as noted above, this issue was discussed at the May 2010 meeting of the NTLG FBT Sub-committee.

Meeting discussion

Treasury confirmed that the ATO had formally advised it of the ATO’s concerns in relation to living-away-from home benefits.

Treasury also noted that living-away-from home benefit was an issue raised at the recent Tax Forum.

Overseas remote area list (TTI)

Subject

Update from the ATO regarding publication of an overseas remote area list on the ATO website.

Issue

The Tax Laws Amendment (2011 Measures No 6) Bill 2011, at the time of writing this Agenda item, is awaiting Royal Assent.

Schedule 2 to this Bill proposes to amend the Fringe Benefits Tax Assessment Act 1986 to provide an exemption from fringe benefits tax for transport, from an employee’s usual place of residence to their usual place of employment, where the employee is an Australian resident employed to work in a remote area overseas, under what is commonly known as a fly-in fly-out arrangement. The exemption extends the current exemption for employees working in remote areas of Australia, to include Australian resident employees working in remote areas overseas. Whether a location overseas is remote will need to be considered on a case-by-case basis, having regard to the location of the work place and a number of related factors.

The EM to Bill below mentions at item 2.46:

“The Australian Taxation Office will give consideration to publishing a list of locations on its website (based on requests received), as determined by the Commissioner of Taxation, as remote or not remote to assist employers.”

Can the ATO please provide an update on its progress in preparing and publishing this list of locations?

Background

Set out above in “Issue”.

Industry view/suggested treatment

Not applicable.

Technical references

Set out above in “Issue”.

Impact on clients

The lack of certainty regarding overseas remote area locations, together with the significant value of the flights typically provided, means this issue is of particular importance to affected clients.

Priority

Medium priority. 

Has previous advice been sought from the ATO?

Not applicable.

Has this issue been discussed at any other consultative forum?

Not to our knowledge.

ATO response

Tax Laws Amendment (2011 Measures No. 6) Bill 2011 received Royal Assent on 3 November 2011.

A listing of overseas remote and non-remote locations under Fly-in Fly-Out has now been published on ato.gov.au.

The initial listing is based on the locations set out in paragraphs 2.48 and 2.49 of the Explanatory Memorandum.

As noted on ato.gov.au, this listing will be updated based on private ruling decisions where it has been determined that an area is remote or non-remote.

In addition, chapter 20 of the Fringe benefits tax; a guide for employers:has been updated to reflect the changes introduced by this measure as it that relates to Fly-in Fly-out overseas arrangements.

Standing agenda items – governance

Tax Issues Entry System (TIES) register (ATO)

TIES provides an opportunity for members of the community to raise issues about the operation of the current tax and superannuation laws. TIES only deals with 'care and maintenance' issues whereas NTLG sub-committees deal with more substantive issues.

Care and maintenance issues are about making sure the existing law operates in the way it was intended, by correcting technical or drafting defects, removing anomalies and addressing unintended outcomes. Care and maintenance issues could involve minor policy changes, though they typically would not have a significant revenue impact. TIES does not deal with interpretative issues as there are existing procedures in place to obtain interpretative advice. So it is not a process for resolving differing opinions about how the law should be interpreted. The TIES website provides examples of the issues that TIES can deal with.

At the18 October 2010 NTLG meeting, the Commissioner stressed to members the importance of using the TIES register and all NTLG sub-committees are to have a standard agenda item to review all issues raised for consideration of inclusion onto the TIES register.

Meeting discussion

As a standing agenda item, members were asked to consider whether any matters raised at the meeting would be appropriate for consideration as a TIES issue.

It was agreed that there were no TIES issues raised at this meeting.

As advised by Treasury at carried forward action item 3.1, TIES issue 21/2010 will now be finalised

Priority issues identified at meeting

At the 22 June 2011 NTLG meeting a new agenda item regarding “Top 3” items of significance in the sub-committees was introduced. The purpose of this item is to ensure that Professional Bodies are clear about the issues that are arising within the sub-committees. Professional Bodies are then given the opportunity to identify any gaps. If any “gaps” cannot be addressed within the sub-committee, those items will form agenda topics for future NTLG agendas.

Sub-committees are to include a standard agenda item to discuss the "Top 3" items of significance. There will be a section included within the regular reporting template for the September NTLG meeting as well as for all future NTLG meetings so that the "Top 3" remains as a standing agenda item.

Meeting discussion

As a standing agenda item, members considered and discussed the ‘Top 3’ items of significance currently before the sub-committee.

Members agreed that, for this meeting, there were only 2 significant issues identified:

1. FBT Lodgment Program, and

2. Section 23AG changes and consequential impacts for FBT, treatment of non-cash benefits which do not fall within FBT.

FBT risk and compliance update (ATO)

The ATO provided the following update on FBT compliance activities:

Review of the ATO’s FBT Compliance Work Program during 2010 - 11

Since the start of the 2010-11 FBT year the ATO’s FBT compliance strategy has been;

“To facilitate willing participation and leverage self correction by providing the necessary support and guidance and by being visibly active”

One of the key features of the strategy is the ATO’s intention to be ‘visibly active’ i.e. to increase the volume of the ATO’s compliance work and to inform the community about what the ATO is doing, how this is being done and the results being seen.  The NTLG FBT Sub-committee is one of the primary communication channels for this and compliance updates such as this are provided with this specific purpose in mind.  It’s been an effective channel which has enabled an increase in the level of awareness in the tax practitioner population as well as the broader community.

Over the course of the past year the ATO has told you about the areas of concern regarding compliance risk and where the ATO has been focusing attention and these have included;

• Non / late lodgment;
• Investment allowance / cars
• Exempt vehicles
• Employee contributions – agent and self-preparers
• Not for profit concessions; and
• Living away from home allowances

The ATO applied a range of tactical approaches while undertaking these compliance projects including bulk correspondence for educational campaigns (e.g. employee contributions), outbound phone campaigns for ‘low-level’ compliance contacts (e.g. investment allowance), desk audit verifications and field review / audits for more significant compliance risks.

As a result of the ATO’s work program the level of direct client contact has increased 12 fold, rising from 750 contacts in 2009-10 to more than 9,000 in 2010-11.

So, what impact did all of this have on compliance?

• As of early October, the number of FBT returns lodged was up 2.4% compared to the same time last year and the value of FBT payable as reported on FBT returns had increased by 14%.
• Improvement in lodgment performance occurred in all market segments;
• We saw a 4% change in behaviour in relation to the correct reporting of employee contributions in income tax returns.

These are positive results and they support our view that our strategic approach to FBT compliance is sound.  However, at the tactical level we see opportunities for improvement.

What compliance activities is the ATO undertaking/planning in 2011 – 12?

The ATO will continue to focus attention on the same risk areas addressed last year, however the tactical approach will change in some areas and additional project based compliance work e.g. luxury car project will be undertaken.  The ATO has already commenced another phone campaign focusing on non lodgment, in this instance specifically targeting large market segment employers who have failed to lodge. 

The ATO has also increased the level of resources available to undertake field review and audit work, with a new team having been established in the Moonee Ponds tax office in Victoria.  This team’s first area of focus will be the luxury car project.  The ATO’s Employer Obligations workforce will also continue to apply greater scrutiny to FBT obligations as part of their field work.

Living Away From Home Allowances

The ATO has undertaken / is undertaking two separate streams of work in relation to living away from home allowances.   The first is a specific compliance project which focuses (initially) on a small number of clients identified as high risk and potentially providing excessive exempt living away from home allowances.  The project involved direct contact with clients and / or their representatives, assessment of relevant documentation and a determination as to whether exempt amounts provided can be considered ‘reasonable’ given the specific circumstances of those clients.  This project is on-going.

In addition to this project, the ATO has completed a major risk assessment which was undertaken with the purpose of gaining a more detailed understanding of how the living away from home allowance provisions are being applied and informing the on-going development / refinement of our compliance treatment strategy for this particular risk area.

The methodology employed for this risk assessment involved us contacting a large number of employers and intermediaries who provide or administer living away from home allowances and requesting that they provide us with specified information regarding their payment of living away from home allowances.  This information was aggregated and analysed with the purpose of identifying common practices and trends including but not limited to;

• How employers determine ‘reasonable compensation’ amounts;
• The value of exempt living away from home allowances as a proportion of total remuneration; and
•  The extent to which living away from home allowances feature in the remuneration of temporary residents relative to permanent residents.
• Industries and occupations where LAFHA is a common feature of remuneration packaging.
•  There are clear indications that living away from home allowances are being used more as a recruitment incentive than as a compensatory payment.
•  The overall percentage ratio of living away from home allowances to salary / wages is 26.5%, allowing over a quarter of employees’ remuneration to be provided tax free.
•  46.9% of all employees receiving living away from home allowance who were analysed for this project were foreign workers holding an Australian entry visa.  However this group accounted for 61.0% of the total value of exempt living away from home allowances paid.
•  Payment of living away from home allowances to foreign workers holding a working holiday (s417) visa is heavily promoted by labour hire firms, some of whom specialise in this area.  The analysis showed that 96.3% of all working holiday makers received more than 55% of their total remuneration as exempt living away from home allowances.
• Examples:
•  An employer is paying an employee $957,000 in salary and providing an exempt accommodation allowance of $5,250 per week ($273,000 per annum).  The basis for the exempt accommodation amount is the actual accommodation cost incurred by the tenant and this is substantiated by a tenancy agreement.  The legislation does not limit the value of exempt accommodation amounts.
•  An employer is paying their Chief Executive Officer a salary package totalling $350,000, $210,000 of which is exempt accommodation allowance, the remaining $165,000 being salary / wages.  The employer has based the payment of this amount on the actual cost of rental accommodation incurred by the employee and is able to provide tenancy agreements which substantiate these costs.  In this case, the owner of the property leased to the employee is an associated company of the employer.
•  The Chief Financial Officer of a company is receiving a salary package of $105,000 per annum including $71,185 in nine months of exempt living away from home allowance.  It appears likely that the spouse of this employee is also being paid a living away from home allowance by his employer and living in the same property, that is, exempt accommodation components paid to both spouses living in the same premises.

Annual review of forum (ATO)

The following documents were provided with the agenda to facilitate the review of the forum for the period 1 January 2011 to 31 December 2011.

• Forum Charter
• Forum Review Template

As advised at the 12 May 2011 meeting (agenda item 19), the charter had been reviewed to ensure it was current and met the on going needs of the forum.  At that time, “housekeeping’ alterations were made.  For example, the member list and some references were updated to reflect current ATO administrative requirements.

Following a discussion with members about the new template, members agreed to complete the 2011 forum review out of session and return it, via email, to the Secretariat by close of business 25 November 2011.

Meeting dates for 2012

The following meeting dates were agreed upon:

Date                                        Host                                         Place

16 February 2012                   ATO                                        Sydney

10 May 2012                           CPA Aust                                Melbourne

9 August 2012                         TTI                                           Sydney

8 November 2012                   IPA                                          Melbourne

Close of meeting

The next meeting will be held on Thursday, 16 February 2012 at Hurstville Tax Office, 12 Woniora Road, Hurstville, NSW.  

NTLG FBT Sub-committee action items and issues log items (standing item)

i) Summary of action items from 10 November 2011 meeting

ii)                  Register of aged open action items from previous meetings