Action item 100507/28 Forward compliance arrangements (Tax Office)

The Tax Office advised that forward compliance arrangements (FCAs) have been discussed at this forum at a number of meetings and as requested at the 13 November 2008 meeting members were provided with a paper copy of a sanitised version of an FBT FCA.  In this arrangement there was an existing GST FCA in place and the FBT FCA (Schedule 3 of the template) was incorporated as an attachment to be read in conjunction with the GST FCA.

The template is able to be adapted to deal with different sets of circumstances of suitable employers.  That is a suitable employer should have sufficient size to make the exercise effective.  The Tax Office acknowledged that FCAs require a sizable investment for both the Tax Office and the employer, they run for up to three years and there is a large amount of work required for both the employer and the Tax Office to ensure the corporate governance issues can be signed off.  The Tax Office will only enter into an FCA where the Tax Office considers that the employer is a compliant employer in respect of not only their FBT obligations, but also other taxes, and other statutory and listing requirements. Further information on FCAs is available on the Tax Office website.

The Tax Office is starting to look at Annual Compliance Arrangements (ACAs) as a preferred way forward for suitable employers and the Tax Office. This initiative was introduced by the Commissioner in his speech ‘A New Dimension’ to the Corporate Tax Association Convention in Sydney on 12 May 2008.

Meeting discussion:

The LCA asked if schedule 2 of the sanitised FCA was a separate agreement.

The Tax Office advised that schedule 1 is the Memorandum of Understanding between the parties; Schedule 2 is the forward compliance arrangement for a particular tax (in the sanitised template this was GST) and Schedule 3 is the FBT forward compliance arrangement.

The NIA asked what was the difference between a FCA and ACA.

The Tax Office advised that there are subtle differences. The main difference is that a FCA runs for three years and an ACA for one year.  Clearly there is more time and effort involved in developing a three year agreement.

The LCA asked if any clients have accepted an ACA.

The Tax Office advised that there are several annual compliance arrangements in place and the Tax Office has received a number of enquiries.

Annual review (Tax Office)

The chair thanked members for contributing to the review process. A copy of the amalgamated responses was provided to all members at the meeting. The chair also advised members that a copy of the review document will be emailed to them following the meeting. 

The feedback and comments provided indicated continuing support for the forum. All members indicated support for the continuance of the forum. 

The chair will complete a forum assurance review recommending that the forum continue for a further 12 months. The recommendation would be forwarded by the chair for approval in accordance with Committee Management Practice Statement PS CM 2006/6.

TRs/TDs, class rulings, LAPS and ATOIDS issued since the November meeting

FBT related taxation rulings, taxation determinations, class rulings and law administration practice statements

The following class rulings have issued:

·        Class Ruling CR 2008/83 Fringe benefits tax: contributions to an approved worker entitlement fund: Australian Construction Industry Redundancy Trust

·        Class Ruling CR 2008/86 Fringe benefits tax: employers who use the SG Fleet Australia Pty Limited telematics system

·        Class Ruling CR 2009/3 Fringe benefits tax: - employers who are clients of Sydney Airport Corporation Limited and who enter into the Sydney Airport Commercial Car Parking Agreement.

FBT related ATO interpretative decisions

The following FBT ATO interpretative decisions (ATO IDs) have issued:

·        ATO Interpretative Decision ATO ID 2008/158 - Exempt benefits: work related items - portable electronic device - upgrades made at the time of purchase

·        ATO Interpretative Decision ATO ID 2008/159 - Exempt benefits: work related items - expense payment made earlier in an FBT year

·        ATO Interpretative Decision ATO ID 2008/160 -  Exempt benefits: work related items - loan arrangements

The following ATO IDs have been withdrawn:

·        ATO Interpretative Decision ATO ID 2005/68 (Withdrawn) - Exempt Benefits: laptop computers - loan arrangements

·        ATO Interpretative Decision ATO ID 2005/149 (Withdrawn) - Exempt Benefits: laptop or similar portable computer - expense payment made earlier in the FBT year

·        ATO Interpretative Decision ATO ID 2006/237 (Withdrawn) - Exempt benefits: work related items - laptop computer or similar portable computer - computer upgrades

The ATO IDs are withdrawn from the database because they contain a view in respect of a provision of the FBTAA that does not apply after the 13 May 2008. Despite its withdrawal from the database, the ATO IDs continue to be a precedential view in respect of decisions with regards to the operation of this provision up to, and including, the 13 May 2008.

(Tax Laws Amendment (Budget Measures) Act 2008 amended section 58X of the FBTAA.  The amendment removed a reference to paragraph 58X(2)(h) ‘a notebook computer, a laptop computer or a similar portable computer.  The ATO IDs have been withdrawn and replaced with ATO IDs that use the same facts but refer to a ‘portable electronic device’ and also make reference to the new requirement regarding ‘primarily for use in the employee’s employment’).

The following ATO ID has been amended:

·        ATO Interpretative Decision 2006/248 Fringe benefits tax: Exempt benefits: work related item – tool of trade

This ATO ID has been amended to include in the Reasons for decision the ‘primarily for use in an employee’s employment’ condition and a Note at the end of Reasons that a consideration of subsections 58X(3) and 58X(4) needs to be made before an exemption is given.

FBT related rulings on the public rulings program (Tax Office)

The following taxation ruling is on the public rulings program:

·        Income tax and fringe benefits tax:  what is the tax treatment of the receipt of bonus units by an employee as part of a remuneration arrangement?

The matter was considered by the Public Rulings Panel on 11 December 2008 together with two related income tax taxation determinations dealing with the arrangements described in Taxpayer Alert TA 2008/13 and Taxpayer Alert TA 2008/14. 

The anticipated release date for the draft taxation ruling and two draft taxation determinations is 6 May 2009.

News from the Tax Office

Cases

·        Overseas Aircrew Basing Limited v Commissioner of Taxation (2009) FCA 7

The Federal Court held that income derived by international pilots based in Australia was not exempt under section 23AG of Income Tax Assessment Act 1936 (ITAA 1936). 

The avenue of appeal in this case was through the Fringe Benefits Tax Assessment Act 1986 (FBTAA), however, it turned upon the Federal Court making a decision on the application of section 23AG of the ITAA 1936.

FBT mailout

This years FBT mailout is due to commence early March.  As usual the mailpack will include a copy of the FBT return, return instructions and notice of non-lodgment.  These products have been updated and you should note that:

·        Direct debit is not available this year as a payment option

·        The amendment address has changed to GPO Box 5056 Sydney NSW 2001

·        The process for requesting a refund has changed.  Refund requests should be sent through the Tax Agent’s Portal with the subject ‘FBT refund request’ stating the following:

Once the 2009 FBT assessment issues please refund any available credit for the following client(s)….

Include the relevant client names(s) and tax file number details.

If you do not have portal access or have problems with the portal:

Phone 13 72 86, or

Send a written request to:

Australian Taxation Office

PO Box 1032

ALBURY NSW 2640

Note: The FBT mailout was delayed and issued early April.  An insert was included in mailpacks sent to disaster affected taxpayers advising them that they had extra time to lodge and pay FBT.

2009 FBT lodgment presentations

Experienced speakers are available to deliver 2009 FBT lodgment information relevant to tax professionals and organisations. You can use the Tax Office online form to request a speaker for a 2009 FBT lodgment presentation.  The presentation runs for two hours and covers:

·        lodging the 2009 FBT return

·        FBT payments

·        FBT mistakes – return and amendments

·        common FBT errors

·        FBT law changes

·        2008–09 Tax Office activities.

When requesting a speaker for this presentation, please note that we require an audience of 15 or more people and a suitable venue.

March tax agent webcast

Our March tax agent webcast (due to be available late March) will include information around car benefits and FBT, and what should be taken into account when calculating employee contributions for each car.

FBT products

·        Update on the Administration of Fringe Benefits Tax Better Practice Guide

Following the 13 November 2008 meeting the Tax Office provided members with a set of focusing questions on the Administration of Fringe Benefits Better Practice Guide.   The Tax Office thanked members who provided feedback on the guide and advised that the information is being considered during the update of the guide.

·        Update on the FBT: A guide for employers

The Tax Office advised that the update of the FBT: A guide for employers is continuing.

Meeting discussion:

The LCA advised that it appears that the electronic version of the FBT; guide for employers has not been updated since September 2006. It is out of date.

The LCA cited as examples, three critical changes that are required:

The Tax Office stated that it was aware that the electronic (HTML) web based version of the guide has not been updated since September 2006 and advised that full review is currently being undertaken. 

In conjunction with this major update a table will be prepared listing the changes/differences between the web (HTML) document and the electronic (PDF)/hardcopy of the guide following publication of the new hardcopy. 

·        Update on the FBT car calculator & PBI, HPC and rebatable calculator

The yearly update of both of these calculators is underway.  The calculators will be available shortly and will be applicable for the 2009 FBT lodgement.

Change program update

The Tax Office has progressively increased the functionality within the new Integrated Core Processing system.  FBT refunds have been accompanied by a statement of account and the Tax Office expects that this will also occur for debit and nil balances in the 2009 years.  In previous years clients have not received a statement of account for FBT.

The are still some issues with processing amendments for 2000 and prior years, however, the Tax Office expects to process 2009 original assessments within usual standards.

Disaster relief appeals

Submission by CPA Aust

Submission by CTA 

(Note the CTA submission is not included as it contained issues also included in the CPA submission)

There have recently been concerns expressed by advisors in relation to the statements on the Tax Office website that (effective) salary sacrifice arrangements, whereby employers make donations to deductible gift recipients (DGR), (can) result in the employer having an FBT liability.

The Tax Office's reasoning seems to be that subsection 148(2) results in the DGR, which receives a benefit, being cash, being an associate of the employee.

The Tax Office also seems to consider that the taxable value of the benefit, which we understand that the Tax Office considers to be an external property fringe benefit under section 43(c), is the cash amount that the DGR receives. It seems that the outcome would be the same, applying the Tax Office's reasoning, whether the benefit be a property or residual fringe benefit.

The Tax Office has been reluctant to read down section 148(2) in these circumstances. Would the Tax Office please advise it latest thinking on this issue.

Furthermore, it is noted that the otherwise deductible rules do not apply unless the recipient of the benefit is an employee (rather than an associate).

However, the rules for the valuation of the benefit, in particular the definition of the term notional value in section 136(1), would seem to result in there being no taxable value and therefore no FBT liability.

More particularly, the amount that a DGR could reasonably be expected to pay to obtain the donation under an arm's length transaction is nil. DGR's simply do not buy donations, so it is not open to the Tax Office to argue that the notional value is the cash payment. With respect, that is not the test.

In our view, this analysis does not strain the ordinary meaning of these terms and it is the correct analysis. Moreover, a contrary intention could hardly have been anticipated by the draftsman.

Given that this is contrary to the Tax Office's position to date, would the Tax Office kindly indicate its current view on this issue.

A further issue is that we understand that the Tax Office might not impose FBT on matching employer contributions. While this is to be welcomed, would the Tax Office please advise on what basis it would not impose FBT, given our understanding of its application of the provisions outlined above.

More particularly, if section 148(2) operates as the Tax Office contends above and given the definition of the term arrangement in section 136(1), it seems to be inconsistent of the Tax Office not to impose FBT on matching employer contributions. Having said that, in our view, the correct interpretation is that there should be no FBT on either salary sacrificed donations or matching employer donations.

Finally, we understand that the Tax Office is concerned that employees might, misunderstanding how salary sacrifice arrangements work, seek to claim deductions for the salary sacrificed amounts. In our view, this is a separate compliance and enforcement issue which should have no bearing on the technical analysis above.

Would the Tax Office please advise its latest thinking on these issues?

Salary sacrifice donations to Bushfire Appeal (FCAI)

Issue

Employee’s salary sacrifice on a prospective basis donations to the Red Cross Victorian Bush Fire Appeal.  Employer pays the Red Cross the amount sacrificed.  As a result employee will not claim a tax deduction for the donation. Tax deduction will be claimed by employer.

Tax Office guidelines

Tax Office advice in respect to salary sacrifice arrangements is included in the Tax Office publication Fundraising which is available on ato.gov.au.

The publication discusses Tax deductible gifts – fundraising and addresses the ATO view of making gifts via salary sacrifice arrangements.  The following points are raised:

Salary sacrifice arrangements

Employees may also arrange for gifts to be made to DGRs through their employer under salary sacrifice arrangements.

In this situation:

·   the employee agrees with their employer that a certain amount of their pre-tax pay will be paid to a DGR

·   the employee pays income tax on the reduced salary or wages

·   the employer claims the tax deduction for the payment to the DGR, not the employee

·   the payment to the DGR is a fringe benefit and – as the recipient is not the employee – the ‘otherwise deductible’ rule does not apply, and

·   the employer may be liable to pay fringe benefits tax (FBT).

Fringe Benefits Tax Assessment Act 1986 (FBTAA)

Is there a  ‘benefit’

Section 148 Provision of Benefits states as follows:

(2)(a) Where, in respect of the employment of an employee, a benefit is provided … to a person other than:

(a) the employee;...

A ‘benefit’ is defined in section 136 of the FBTAA to include any right….privilege, service or facility and without limiting the generality … includes a right benefit or privilege, service or facility….Provided under: ….an arrangement for or in relation to: (i) the performance of work.

It is arguable that a donation to the Red Cross would not be a ‘benefit’ to either the Red Cross or the employee for the purposes of the definition. Further it was never intended by the legislature that donations to charitable organisations would be captured.  Reference is made to the Second Reading Speech by the Treasurer when the FBT Bill was tabled in the House of Representatives in 1986 at page 3 as follows:

There has over the years been a very strong movement towards the remuneration of employees – especially higher income earners – by fringe benefit packages which allowed tax to be avoided on substantial parts of overall remuneration. So called tax-free perks came to dominate salary package negotiations and packages were openly advertised in the market place.

Accordingly, the Bill was introduced to ensure that ‘tax free perks’ were to be subject to tax. There was no suggestion in the Bill that the definition of ‘benefit’ would be so wide as to capture donations to charities.

Value of benefit

In addition, even if the term ‘benefit’ was interpreted extremely broadly it would need to be valued.

·      Value of property fringe benefits - Section 43(c) of the FBTAA provides that that the taxable value of the benefit is ‘notional value’ of the recipients benefit.  Section 136(1) defines the ‘notional value’ to mean the amount that the recipient could have reasonably been expected to pay to obtain the property under an ‘arm's length transaction’.  As the Red Cross never pays for its donations then the ‘notional value’ is nil.

·      Value of residual fringe benefit – Section 51 (c) of the FBTAA that that the taxable value of the benefit is ‘notional value’ of the recipients benefit.  Section 136(1) defines the ‘notional value’ to mean the amount that the recipient could have reasonably been expected to pay to obtain the property under an ‘arm's length transaction’.  As the Red Cross never pays for its donations then the ‘notional value’ is nil.

Conclusion

Accordingly, it is our contention, there would be no FBT payable by the employer as the ‘benefit’ has no value.

Meeting discussion:

Members expressed a degree of confusion following the release of the Assistant Treasurers Press Release on 24 February 2009.

There was general discussion of the issues and numerous questions were raised.

The CPA queried whether the amendment to the law will apply to the Victorian bushfires only or will it have a wider application?

The LCA stated that the proposed amendment must be undertaken by considering other issues that could arise involving subsection 148(2) and the otherwise deductible rule. It was suggested that what needs to be put in place is the wider principal so that the law is clear and it does not have to be administered on a case by case basis.

The CPA questioned the Tax Office analysis of subsection 148(2) which results in the DGR being an associate of the employee.

The TIA advised the Tax Office that employers have set up salary sacrifice arrangements to provide donations to sponsor children in third world countries and asked if the proposed legislative changes would apply to those arrangements?

The TIA also mentioned that, notwithstanding the ATO position that FBT may arise, employers may also have had salary sacrifice arrangements involving donations in place in previous years and may not have been aware of the FBT implications.  The TIA noted that the announcement only has retrospective effect from 1 April 2008.

The TIA further noted that some employers who have had their own employees directly impacted by the recent bushfires in Victoria, have made arrangements for other employees, and in some cases other third parties, to make donations (for example bucket collections) that are then passed directly on to the affected employees. In the cases seen to date, there have not been any contributions made by the employer itself. The employer may, in some cases, have facilitated the provision of the donations to the affected employees, and this may be to varying extents – for example setting up a separate bank account and appointing independent individuals to determine the allocation of the funds, or simply allowing the collection to occur. However, it seems obvious that the donations are not provided in respect of the employee's employment, but rather, are in respect of the terrible hardship they have suffered and therefore, no FBT would apply.

Further, if the employer did make a contribution to such a cause, this would seem not to alter the reason for the provision of the funds – that is in respect of the hardship suffered, rather than employment. This conclusion would be supported by the continuing payment of the employee's usual remuneration and any associated benefit as in respect of their employment and quite separate to the donations passed on.

The CPA stated that the Tax Office should consider putting something in the market place that expresses the ATO view on the consequences of an employer matching employee’s contributions to a disaster fund.

Tax Office response

On 24 February 2009, The Assistant Treasurer issued media release No. 10; ‘Donations to 2009 Victorian bushfire appeals’.  The media release covered both income tax and FBT.

In relation to FBT, the following was stated;

The Assistant Treasurer also announced today that the Government will amend the Fringe Benefits Tax (FBT) law from the beginning of the 2008-09 FBT year to ensure that donations made under salary sacrificing arrangements do not result in an employer incurring a FBT liability.

To facilitate the collection of donations to those affected by the 2009 Victorian bushfires, a number of employers have entered into salary sacrificing arrangements with their employees. These arrangements may result in a potential FBT liability under the current FBT provisions arrangements. In contrast, donations collected through an employer's Workplace Giving arrangements are made from an employee's post tax dollars and do not result in a FBT liability.

The Australian Government will continue to work closely with the Victorian Government to ensure those affected by these devastating bushfires receive all the support and assistance they need.

The Government thanks all the charities involved for their timely assistance during these difficult times. Our thoughts and prayers continue to be with the families and communities ravaged by these devastating events.

It was noted that this announcement was made on the eve of this forum’s meeting.  The agenda items had obviously been prepared prior to this announcement.

The Tax Office advised that the media release states ‘the Government will amend the Fringe Benefits Tax (FBT) law from the beginning of the 2008-09 FBT year to ensure that donations made under salary sacrificing arrangements do not result in an employer incurring a FBT liability.’ 

Although the context is the Victorian bushfires, the announcement does not appear to be limited to that disaster only.

There was some discussion on this point and in particular whether the proposal will only apply to the Victorian Bushfire Appeal. The Tax Office advised that it can only refer to the announcement made by the Assistant Treasurer, as noted above.

The Tax Office also advised members that it had acted quickly to advise Government of the FBT consequences of an employer and employee entering into a salary sacrifice arrangement for donations in relation to the natural disasters in both Victoria (bushfires) and Queensland (floods).  This was acted upon when the magnitude of the disasters became apparent and the Tax Office became aware that a number of large employers had entered, or were considering entering, into such arrangements.

The Government’s announcement ensures the FBTAA will be amended to ensure that donations made under salary sacrifice arrangements from 1 April 2008 will not result in an employer incurring an FBT liability.

The Tax Office confirmed its current view that in circumstances involving a salary sacrifice arrangement, subsection 148(2) would be triggered to deem a recipient of the benefit as an associate for the purposes of the FBTAA. 

The Tax Office referred to Taxation Ruling TR 1999/5; Fringe benefits tax: employee benefit trusts and non-complying superannuation funds-meaning of ‘associate’-property fringe benefits. Although TR 1999/5 has been withdrawn, the Tax Office view was expressed at paragraphs 24 to 28 as follows;

24. Where, in respect of the employment of an employee, a benefit is provided by a person - ‘the provider’ - to another person (other than the employee or an associate of an employee) - ‘the third party recipient’ - subsection 148(2) deems the third party recipient of the benefit to be an associate of the employee where the benefit is provided under ‘an arrangement’ between the provider and the employee or an associate of the employee.

25. ‘Arrangement’ is defined in subsection 136(1) as:

(a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

(b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

26. Subsection 148(2) provides that the arrangement be between:

(c) the provider, the employer or an associate of the employer; and

(d) the employee or a person who, but for this subsection, is an associate of the employee;

27. It is considered that an arrangement between a provider who is also an employer, and an employee (or associate of the employee), satisfies the terms of subsection 148(2).

28. Whether or not there is an arrangement pursuant to subsection 148(2) will depend upon the circumstances of each case. However, it is considered that there will be an arrangement where the employee or employees who become beneficiaries also control, or have the ability to control the employer. In the circumstance where the employee or employees do not control the employer, there will be an arrangement where the benefits under the employee benefit trust or non-complying superannuation fund are expressly or impliedly included in the employee’s remuneration package.

This broad position was supported by the Full Federal Court decision in J & G Knowles and Associates Pty Ltd v. FC of T 2000 ATC 4145.  At paragraph 15 of the decision, the following is stated;

By s 148(2) where a benefit is provided by a person, other than the employee or an associate of the employee, under an agreement between the provider and the employee, the recipient shall be deemed an associate.

The consequence of an employer and employee entering into a salary sacrifice arrangement in these circumstances will be that there is an agreement between the employer and the employee which will satisfy the definition of ‘arrangement’ is subsection 136(1).  Subsection 148(2) is satisfied and the benefit will be the money provided to the deemed associate. In this case the DGR.

The submissions contend that even if the recipient DGR was a deemed associate, the ‘gift’ would be valued as having ‘nil’ value’.

The Tax Office did not accept that the outcome was that the provision of money had a value of ‘nil’, notwithstanding the reasons for the benefit being provided.

The Tax Office referred to the view that it has expressed over a period of time that money is valued at its face value. 

For example in Taxation Ruling TR 1999/5, although this has been withdrawn, the following was stated;

Taxable value

50. Where the payment of money constitutes a property fringe benefit, the taxable value of the benefit will be determined by section 43.

51. Section 43 provides that the taxable value of an external property fringe benefit is:

(a) where the provider was the employer or an associate of the employer and the recipients property was purchased by the provider under an arm’s length transaction at or about the provision time - the cost price of the recipients property to the provider;

(b) where the provider was not the employer or an associate of the employer and the employer, or an associate of the employer, incurred expenditure to the provider under an arm’s length transaction in respect of the provision of the property - the amount of that expenditure; or

(c) in any other case - the notional value of the recipients property at the provision time,

reduced by the amount of the recipients contribution.

52. The provision of money will not involve the ‘purchase’ of the property that is provided to the recipient. Therefore, in the case where an employer or an associate of the employer makes the payment of money, paragraph 43(c) will apply.

53. ‘Notional value’ is defined in subsection 136(1) as ‘the amount that the person could reasonably be expected to have been required to pay to obtain the property from the provider under an arm’s length transaction’.

54. In the case of money, the notional value will be the face value of the money paid by the provider. That is the amount that would reasonably be expected to have been paid in the open market.

Although TR 1999/5 has been withdrawn, as stated in the notice of withdrawal,

the ‘Commissioner’s views on other matters discussed in TR 1999/5 were supported by the decision in Caelli Constructions (Vic) Pty Ltd v. FC of T (2005) 147 FCR 449,……that the payment of money by an employer to the trustee of a trust in respect of the employment of an employee is the provision of a property benefit.

The Tax Office also noted that ATO Interpretative Decision ATO ID 2007/204 - Fringe benefits tax: Property fringe benefit: status of money as a fringe benefit provides the current ATO view.  ATO ID 2007/204 refers to the decision of Kenny J in Caelli.

Kenny J in Caelli, at paragraphs 69 to 72, when discussing the ‘notional value’ of money provided to an associate, stated the following;

69. Section 43(c) relevantly provides that the taxable value of an external property fringe benefit is ‘the notional value of the recipient's property at the provision time’' reduced by the amount of the recipient's contribution. Section 136(1) defines ‘notional value’  ‘in relation to the provision of property or another benefit to a person’' as ‘the amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arm's length transaction’'.

70. Caelli's argument was, in effect, that, if its payments to Incolink amounted to a fringe benefit, then the notional value of these payments was nil, as the trustee could not reasonably have been expected to pay for the benefit.

71. The definition of ‘notional value’ is not, however, concerned with whether the person would in fact have purchased the benefit in an arm's length transaction. It is concerned with valuing the amount of the benefit by reference to an objective value of the benefit. It is misreading s 43(c) to say that Incolink would not be expected to pay anything in order to receive a contribution to the Fund and therefore the notional value is nil. The question is how much Incolink could reasonably have been expected to pay to obtain the benefit in an arm's length transaction. The question is based on the hypothesis that Incolink and Caelli are in a market transaction for the benefit. The fact that Incolink gains no beneficial entitlement is irrelevant.

72. This conclusion is reinforced by the Commissioner's submissions concerning the exclusions in s 136(1) in relation to trusts and superannuation funds, and by reference to the purpose of the FBTA Act itself. It is hardly likely that Parliament intended that the provision of benefits were to be free from fringe benefits tax when payments of money were made to a trustee and not directly to an employee, and it is particularly unlikely that it would evince such an intention in a section dealing merely with the valuation of the benefit.

In the CPA submission, a further issue that was raised was whether FBT would apply to ‘matching employer contributions’, for example, where the employer undertakes to contribute a dollar for dollar amount to the DGR, sometimes up to a specified limit.

While acknowledging that there should be no FBT on these matching employer donations, the CPA considered that the same interpretation has to apply as that taken in relation to the salary sacrifice arrangements.

The Tax Office advised that it considered that there was clearly an agreement between the employer (provider) and the employee where there is a salary sacrifice arrangement such that the recipient (DGR) is deemed an associate by subsection 148(2).

Broadly, however, where there is simply a matching of amounts donated by employees and the employer makes a donation using that as the method by which it will determine the value of its donation, the Tax Office advised it did not consider FBT would apply to the employer’s contribution.

While acknowledging the wide meaning of the defined term ‘arrangement’ in subsection 136(1), it is not considered that there is an ‘agreement or understanding’ in place such that subsection 148(2) would be triggered.  This outcome was reconcilable with the different outcome where there is a salary sacrifice arrangement in place.  The fundamental difference is that the agreements that must be in place where there is a salary sacrifice arrangement clearly satisfy the term ‘arrangement’.  The employer’s decision to simply donate a matching amount may not satisfy the term ‘arrangement’ and it is considered that subsection 148(2) is not triggered.  In context this is an appropriate and correct outcome.

As was stated in paragraph 28 of TR 1999/5, whether or not there is an arrangement pursuant to subsection 148(2) will depend upon the circumstances of each case.

A further issue was raised by the TIA at the meeting concerning situations where employers have employees who are directly impacted by a natural disaster.  The query was raised whether FBT would apply where a ‘bucket collection’ has taken place and the employer subsequently facilitates the ‘passing on’ of the donation to the employee (who has been impacted by a natural disaster). 

It was clear that there will always be variations to arrangements that are in place, as raised in the discussion.  Again the outcome would depend on the circumstances of each case.  The Tax Office advised that, generally, FBT would not apply in such scenarios.  In cases where there has been a ‘bucket collection’ and the employer simply passes the ‘donation’ to the person, the ‘donation’ has been made to that person in that capacity and not in ‘respect of the employee’s employment’.

Such a scenario is different to one where an employer provides direct assistance to an employee who has been impacted by a natural disaster. In those circumstances the employer would have to consider the application of the FBTAA.  Generally such assistance would be exempt by virtue of section 58N – emergency assistance

Joint benefits and the ‘otherwise deductible rule’ (NTAA)

Taxation Laws Amendment (2008 Measures No. 5) Act 2008 recently made amendments to the FBT legislation in relation to the application of the ‘otherwise deductible rule’ to joint benefits (that is, benefits provided jointly to an employee and their associate). 

More specifically, the amendments effectively ensure that the ‘otherwise deductible rule’ will not apply (that is, FBT will be payable by an employer) in respect of the associate’s share of a joint benefit.

The amendments apply to benefits (that is, loan benefits, expense payment benefits, property benefits and residual benefits) provided after 7.30pm AEST on 13 May 2008. 

Furthermore, transitional rules were introduced to ensure the following:

(a) For loans entered into before 7:30 pm (AEST) on 13 May 2008, the existing law will continues to apply to loan benefits provided before 1 April 2009; and

(b) For expense payment benefits, property benefits and residual benefits provided under a salary sacrifice arrangement entered into before 7:30 pm (AEST) on 13 May 2008, employees will be able to utilise the current law until 1 April 2009.

Issues for Tax Office clarification

In relation to the application of the transitional rules up until 1 April 2009, the NTAA seeks the Tax Office’s clarification on the following two issues:

1. In relation to a salary packaging agreement entered into before 13 May 2008 for the payment by an employer of deductible expenses related to a jointly held rental property, will the transitional rule continue to apply if there is a variation (that is, increase or decrease) to the salary sacrifice amount during the transitional period?

Example

Bart is an employee.  On 1 April 2008, Bart arranges with his employer to salary package deductible expenses related to a rental property that is jointly owned by Bart and his wife (Marge).  Bart estimates that the deductible expenses for the 2009 FBT year related to the property (apart from depreciation) will be $30,000. 

Accordingly, the salary sacrifice amount for Bart (that is, the amount by which Bart’s fortnightly salary would be reduced) was calculated by reference to this amount.

In October 2008, the variable interest rate on a joint loan taken out by Bart and Marge to purchase the property was reduced from 9.5% p.a. down to 8.5% p.a.  This resulted in the monthly interest expense for Bart and Marge being reduced by $500.  Accordingly, Bart’s fortnightly salary sacrifice amount was also reduced.

Could the Tax Office please clarify whether the transitional rule would continue to apply to the above arrangement, up until 1 April 2009, if the employer continued to pay for the interest expenses incurred by Bart and Marge (and other joint expenses related to the property) after the variable rate reduction.

2. If an employer only pays for an employee’s share of a deductible expense (for example, an interest expense) related to a rental property that is jointly owned by the employee and their associate, will the ‘otherwise deductible rule’ apply to reduce the taxable value of the benefit to ‘nil’ under the proposed amendments?

Example

Helen is an employee who owns a rental property jointly with her husband.  The couple originally took out a joint loan in April 2007 (at a 5-year fixed interest rate) in order to purchase the property.

At the time the property was acquired, Helen arranged for her employer to pay for the deductible interest expenses incurred in relation to the joint loan.  Assume that the monthly interest expense is $4,000. 

Helen is advised by her accountant about the proposed change to the ‘otherwise deductible rule’ for joint benefits, and makes enquiries with her bank about re-financing the existing loan into two separate loans (that is, one in her name and one in her husband’s name) from 1 April 2009. The bank advises her that penalties will apply if the existing loan is re-financed.

Helen decides to keep the existing joint loan, but arranges for her employer to pay for her share only (that is, 50%) of the interest incurred (that is, $2,000) from 1 April 2009.

Could the Tax Office please clarify whether the taxable value of this expense payment fringe benefit can be reduced to ‘nil’ under the proposed amendments?

NTAA views

1. On a literal reading of the transitional rule, it could be argued that the transitional rule does not apply where the employee in the above example (that is, Bart) arranges for his employer to pay the reduced interest expenses in return for a (lower) reduction in his gross salary.

However, the NTAA believes that the transitional rule should continue to apply, as the variation in the reduction in Bart’s gross salary relates to the existing agreement which was entered into before 13 May 2008. 

If the transitional rule did not apply in these circumstances, the NTAA believes that this would have an adverse impact on many such salary packaging arrangements, as the initial salary sacrifice amount in these circumstances would normally be determined by reference to an estimate of the amount of deductible expenses an employee (and their associate) are likely to incur over an income year or FBT year.

2. In the circumstances of the example put forward, on a literal reading of section.24(1)(l) and section 24(9), as the benefit being provided is still a joint benefit and section 138(3) applies, the taxable value of the benefit is reduced only by the employee’s share of the benefit.  Therefore, on this basis, it would appear that the taxable value of the joint benefit would only be reduced by 50% or $1,000 (that is, the employee’s share), resulting in a taxable value of $1,000 (that is, $2,000 - $1,000 reduction).

Tax Office response

Taxation Laws Amendment (2008 Measures No. 5) Act 2008 as is relevant, corrects the FBT law that was considered to be incorrect at a policy level following a recent review of the Federal Court’s decision in National Australia Bank v FCT (1993) 46 FCR 252, 26 ATR 503,93 ATC 4914 (NAB case).

The relevant amendments ensure that the 'otherwise deductible rule' (ODR) will only operate to reduce the taxable value of a fringe benefit to the extent the employee’s share of the fringe benefit is used for income producing purposes of the employee. Broadly, the outcome aligns the ODR with the income tax treatment of deductions, for Taxation Ruling TR 93/32: Income tax: rental property – division of net income or loss between co-owners and Taxation Ruling TR 95/25; Income tax: deductions for interest under subsection 51(1) of the Income Tax assessment Act 1936 following FC of T v. Roberts; FC of T v. Smith.

The Explanatory Memorandum to Taxation Laws Amendment (2008 Measures No. 5) Bill 2008 includes the following background:

4.9 Schedule 4 inserts a new provision into the otherwise deductible rule for loan fringe benefits, expense payment fringe benefits, property fringe benefits and residual fringe benefits in subsections 19(1), 24(1), 44(1) and 52(1) of the FBTAA 1986 which will provide a different calculation for the application of the otherwise deductible rule where because of subsection 138(3) of the FBTAA 1986 a fringe benefit is provided jointly to an employee and their associate and is deemed to be provided solely to the employee. [Schedule 4, items 7, 17, 30 and 39]

4.10 The change to the otherwise deductible rule in these circumstances operates to make a final adjustment to the notional deduction (ND) component in the formula (TV - ND) where TV is the taxable value. The adjustment reduces the unadjusted notional deduction by the employee's percentage of interest in the income producing asset or thing (whether tangible or intangible) to which the benefit relates. This adjustment ensures that the taxable value of the benefit is only reduced by the employee's share of the benefit. [Schedule 4, items 8, 22, 31 and 40]

This amendment only applies when a benefit has in fact been provided jointly to an employee and associate, subsection 138(3) applies and the ODR is also utilised. The calculation of the ODR continues to be based on the previously existing rules by determining the deduction for both the employee and spouse (for example as per the decision in the NAB case).

The 'new' rule operates to make a final adjustment that will reduce the deduction that would have otherwise been available to correctly reflect the employee's percentage of interest in the income producing asset to which the benefit relates.

The date of application provisions provided for the changes apply from 7.30 pm on 13 May 2008. For existing loans as at 13 May 2008 the date was extended to 1 April 2009. For expense payment benefits provided under an existing salary sacrifice arrangement as at 13 May 2008, the date was also extended to 1 April 2009.

In relation to the first issue raised in the NTAA submission, there was a discussion about the different ways in which a salary sacrifice arrangement can be constructed around, broadly, joint benefits. For example, a fixed amount of rental expenses could be sacrificed on the basis that if this amount could not be achieved then the 'balance' could be paid out as salary. Alternatively an arrangement could be constructed around a particular category of expense, say council rates for 2009, where the exact amount was unknown at the time of entering into the arrangement.

The first example (Bart) involves an expense payment benefit provided jointly to Bart and Marge. Whether the benefit is provided under a pre-existing salary sacrifice agreement between Bart and his employer will be a question of fact. If Bart had agreed with his employer (before 13 May 2008) to receive part of his 2009 remuneration as benefits and that agreement covers jointly reimbursing the interest expenses on the property for 2009 then the expense payment benefit will be provided under a pre-existing agreement.  That is the case as there has simply been a subsequent variation to the existing agreement.

The Tax Office advised that the transitional rule would apply to such arrangements up until 1 April 2009.

The Tax Office noted, in responding to the second issue, that an expense payment fringe benefit has been provided only in relation to 'the employee's share of a deductible expense'.

In example 2, Helen's employer pays for her share only. As the employer has only provided the expense payment to Helen subsection 138(3) does not apply as there is no benefit provided jointly to an employee and associate.

As subsection 138(3) is not applicable in these circumstances, the consequence is that new paragraph 24(1)(l) does not apply and the old or existing rules apply. The ODR will apply the income tax rules (such as described in TR 93/32 and TR 95/25) to determine how much Helen is entitled to deduct.

Where the employer reimburses the same amount the employee would have been entitled to deduct as an income tax deduction (for unreimbursed expenditure) the ODR would reduce the taxable value of the fringe benefit to nil.

Joint investments substantiation requirements

The Taxation Institute seeks clarification from the Tax Office as to what documentation an employer is required to obtain, if any, in addition to an ‘otherwise deductible’ declaration, when determining the percentage of the taxable value of a fringe benefit that is otherwise deductible in the context of an expense relating to a jointly held asset.

In a situation where an employer reimburses expenditure that has been incurred jointly by an employee and their associate, currently, the employee declaration only requires the employee to estimate his or her percentage of business use and state the nature of the benefit. The declaration does not cater for an employee to specify their percentage of the expenditure. So it could be difficult for an employer to determine how much of the expenditure is actually otherwise deductible.

The Taxation Institute is concerned that without any guidance from the Tax Office, employers will face difficulty in determining the extent of any additional record keeping requirements in order to ensure full compliance with the FBTAA.

Tax Office response

The Tax Office advised members that Taxation Laws Amendment (2008 Measures No. 5) Act 2008 provides an additional rule to the ‘otherwise deductible rule’ that generally apply in addition to the existing rules.

The amendment does not contain any additional record keeping requirements.

When calculating the taxable value in circumstances where the new law applies, the employer would be required to keep sufficient records under section 132 of the FBTAA to record and explain the transaction.

The existing record keeping requirements continue to apply. In the circumstances of the scenario put forward this includes the requirement to keep 'documentary evidence' under paragraph 24(1)(c)(ii) and a declaration for the purposes of paragraph 24(1)(e).

Requirements for travel diaries (TIA)

The Taxation Institute seeks clarification from the Tax Office relating to the requirement for travel diaries to be obtained from employees for the purposes of the otherwise deductible rule. In particular, whether the requirement for a travel diary to be kept, in relation to travel, should be based on total nights away from an employee’s residence, including transit time, or only nights while at the intended location.

For example, an employee may be required to attend a work-related meeting for three days in Europe. Many flights to Europe depart Australia in the evening and the traveller will usually arrive the following day. Similarly, the return journey will involve more than one day.

In such circumstances, while the employee may be away from his or her usual place of residence for more than five nights from the moment he or she leaves their residence to the time they return, the number of nights the employee actually resides in temporary accommodation at the overseas address will be three nights.

The definition of extended travel expense payment fringe benefit in section 136(1) of the FBTAA states:

‘extended travel expense payment benefit’ means an expense payment fringe benefit where:

(a) the recipient’s expenditure is in respect of travel outside Australia and involves the recipient being away from the recipient’s usual place of residence for a continuous period including more than 5 nights;….

On the other hand the Fringe benefits tax: a guide for employers refers to ‘travel outside Australia for six or more nights’.

TIA view

The Taxation Institute is of the view that being away from home for more than five nights, including transit time, will trigger the need for a travel diary. However, given that the Fringe benefits tax: a guide for employers seems to state something slightly different, would the Tax Office please confirm the appropriate methodology for determining whether a travel diary is required.

Tax Office response

The question that has been put is whether the requirement for a travel diary to be kept should be based on total nights away from an employee’s residence, including transit time, or only nights while at the intended location.

The Tax Office agreed with the TIA that being away from home for more than five nights, including transit time, would require an employee to maintain a travel diary.

The period away from home includes transit time, being for example an overnight stay in Australia en-route to an overseas destination and/or return.

The Tax Office advised that it would, given the current review of the Fringe benefits tax: a guide for employers, provide clarification on this point in the updated version of the guide.

Interaction between 58X and non-business accessories – GPS (TIA)

The Taxation Institute seeks clarification on whether a portable electronic device (such as a GPS) that meets the requirements for FBT exemption under section 58X as an eligible work related item will be excluded from the definition of non-business accessory in relation to determining the base value of car fringe benefits.

Does the Tax Office accept that if an item qualifies for exemption under section 58X as being a work related item primarily for use in an employee’s employment in the portable electronic device category, then the item would fall outside the definition of non-business accessory for the purposes of determining the base value of a car fringe benefit?

Non business accessory is defined under section 136(1) of the FBTAA to mean  ‘an accessory fitted to the car, whether at the factory where the car was assembled or at some other place, other than an accessory required to meet the special needs of any business operations in relation to which the car is used.’

TIA view

It is submitted that, if an item meets the criteria to be an eligible work related item and a portable electronic device then it will not constitute a non-business accessory, since:

·      as the unit is portable, it is not ‘fitted to the car’; and

·      as the unit is primarily for use in the employee’s employment, it is required to meet the special needs of the business operations.

Further, it is submitted that, in the situation where only one of these criteria are met, whilst the item will not constitute an eligible work related item in the portable electronic device category, it will continue not to be a non-business accessory.

Would the Tax Office please confirm its interpretation of this issue.

Tax Office response

Where a portable, that is not fixed, GPS is provided by an employer to an employee primarily for use in the employee's employment and the requirements of subsection 58X(3) are satisfied, the portable GPS would be an eligible work related item exempt under subsection 58X(1).

In determining whether the cost of a portable electronic device such as a GPS is a non-business accessory, it is necessary to determine whether it would qualify as an ‘accessory’ in the first instance.

Macquarie Dictionary (3^rd Edition) defines an ‘accessory’ as:

A subordinate part or object; something added or attached for convenience, attractiveness, etc., such as a spotlight, heater, driving mirror, etc., for a vehicle.

In this scenario the GPS would not be an accessory in relation to the car as it is not a subordinate part or object of the vehicle. It is a portable electronic device.  Accordingly, the portable GPS would not be required to be considered when determining the base value of a car.

Infrequent and irregular benefits under section 58P (CTA)

Taxation Ruling TR 2007/12: Fringe benefits tax: minor benefits (the ruling) outlines five criteria to consider when determining if a fringe benefit can be an exempt benefit under the minor benefit provisions of section 58P. The first criterion considers the infrequency and irregularity of the provision of associated, identical or similar benefits.

Examples 8 and 9 of the ruling detail two scenarios where employees receive benefits under a staff incentive or a staff recognition program. 

The question at hand is when determining if benefits are ‘infrequent and irregular’ should this be looked at from the perspective of the frequency and regularity in which the employer provides the benefit?  That is, as in example 8 where the staff incentive plan is offered monthly.

Or is it the frequency and regularity from the employees’ perspective in receiving the benefits? That is, as in example 9 where the employer regularly and frequently recognises employees (albeit via a structured program as in example 8), but as the employee does not receive that benefit often it is considered a minor benefit?

What if in example 8, the facts were changed slightly so that employees did not regularly meet targets and not all employees received the benefits over the course of the year?

Tax Office response

The Tax Office noted paragraph 58P(1)(a) of the FBTAA states:

(a)  a benefit (in this section called a ‘minor benefit’) is provided in, or in respect of, a year of tax ….in respect of the employment of an employee of an employer

At paragraph 158 of TR 2007/12, the following comment is made:

158. Paragraph 58P(1)(a) requires the tests outlined in subsection 58P(1) be applied to each benefit provided to any particular employee. It is not applied to the total value of benefits provided to an employee, nor does it apply to the total value of benefits provided by any employer.

Following from this, the ‘infrequent and irregular’ criterion applies to benefits provided to a particular employee.

The submission appears to suggest that the approaches taken in examples 8 and 9 in TR 2007/12 are inconsistent in that example 8 appears to consider infrequent and irregular from the employer's perspective, whereas example 9 looks at this criterion from the employee's perspective. The Tax Office stated that this is not the case.

In example 8, even though an employer operates a monthly scheme, this is not what the infrequent and irregular criterion is applied to.

In example 8, at paragraph 89 of TR 2007/12, it is clear that the criterion is applied to an employee.

89. An employee does achieve this target and is provided with a store voucher. The employee has achieved the target on a number of occasions and has received other store vouchers both in the current and previous years of tax.

Further, at paragraph 91 of TR 2007/12, the following is stated:

91. Vouchers, which are identical or similar, can reasonably be expected to be provided to the employee on a frequent and regular basis.

If the facts in example 8 were changed slightly, so that the employee did not regularly meet the target and not all employees received the benefits over the course of the year (as suggested in the submission), then the conclusion at paragraph 91 would be different.

Definition of similar in relation to in house benefits (ICAA).

Background

An employer is a subsidiary of a company that manufactures domestic equipment. The employer supplies these items to retailers who supply them to the public via sale, hire purchase HP and lease.

Neither the retailers nor the finance companies involved in these arrangements are associates of the employer for the purposes of the FBTAA.

The employer supplies the items to employees as in house fringe benefits.

Question:

1. If the employer were to lease the item to an employee would this be considered a benefit sufficiently similar to that supplied to the public to qualify as an in house residual fringe benefit, other things being equal?

2. If the employer were to reimburse some part of an employee’s cost of leasing the item from an external entity would this be considered a benefit sufficiently similar to that supplied to the public to qualify as an in house residual expense payment fringe benefit, other things being equal?

Discussion

Below is a summary of our understanding of the application of the relevant rules:

The term ‘similar’ is not defined in the FBTAA and thus takes on its ordinary meaning. In Taxation Ruling TR 2007/12 FBT: minor benefits, the Commissioner explained that the ordinary meaning of the word ‘similar’ is ‘having a likeness or resemblance, especially in a general way’. Based on this definition, it may be argued that the benefit provided to the employees is similar to the benefits that the employer or its associates provide to the general public. The example given in the Explanatory Memorandum is of defected goods provided to employees being considered to be similar to the non-defected goods sold in the ordinary course of the employer’s business.

It can be argued that when the item is sold to the general public it is property including the right to use that property. It could be then argued that the benefit provided to the general public in a general way resembles the benefit that proposed to be provided to employees, being the use of the item.

Alternatively, in some cases, employers have arrangements in place with financiers and retailers whereby the employer provides the retailers with display goods. The employer retains the ownership to those items until they are sold to the customer. At this point a repayment takes place through the financier. It is arguable that this type of arrangement is akin to a lease arrangement and the benefit provided to the dealers in the ordinary course of its business is similar to the benefits that proposed to be provided to employees, being the use of the same item.

Tax Office response

The Tax Office agreed that the words ‘similar’ and ‘identical’ take on their ordinary meaning as explained in TR 2007/12 at paragraph 204:

204. The Macquarie Dictionary defines 'identical' as:

1. (sometimes followed by to or with) corresponding exactly in nature, appearance, manner, etc.: this leaf is identical to that.

2. the very same: I almost bought the identical dress you are wearing

and 'similar' as:

1. having a likeness or resemblance, especially in a general way.

The Tax Office did not agree that ‘use of property’ and the ‘provision of property’ would be ‘similar’ in context.  However, given that there are very few facts contained in the submission, and the apparent complexity of the arrangements in the above scenarios the Tax Office suggested employers should seek a private binding ruling from the Tax Office as to whether the employer can rely on the in-house benefit concessions.

Car parking where vehicle is not a car or an exempt car benefit (ICAA)

Issue

Does a car parking fringe benefit (or residual fringe benefit) arise where a car parking space is used by a vehicle that is not a ‘car’ or a car that is an exempt car benefit?

Legislation

Section 39A of the FBTAA provides that a car parking benefit arises on a particular day where:

Therefore, in order for a car parking benefit to arise, the car parking space must be used by a vehicle that satisfies the definition of a ‘car’. A car is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to be:

a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

Further, a ‘car benefit’ is defined in section 7(1) of the FBTAA to arise where:

However, a car benefit will be an exempt benefit under section 8(2) of the FBTAA where:

A residual benefit is defined under section 45 of the FBTAA to be:

… if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive)

Discussion

In many instances, a car parking space may be used by a vehicle other than a car, as defined above, or by a car which is an exempt car benefit. In such circumstances, we seek to clarify if a car parking benefit arises. In the event a car parking fringe benefit does not arise, we seek to confirm if a residual fringe benefit has been provided and how it is measured.

On the basis that under section 995-1 of the ITAA 1997, a motor cycle or vehicle designed to carry more than either 1 tonne or nine passengers is excluded from the definition of a ‘car’, the vehicle does not satisfy the criteria for a car parking benefit under the conditions set by section 39A(c) of the FBTAA. 

Similarly, where an exempt car benefit is provided in accordance with section 8(2), the provisions of section 39A set out above will not be satisfied.  Accordingly, a car parking benefit within Division 10A will not arise. 

Where a benefit does not fall within the provisions of subdivision A of divisions 2 to 11, a residual benefit may result.

However, on the assumption that the provisions of Division 10A of the FBTAA are intended to be a code with respect to the taxing of parking benefits, it could be argued that the provision of parking that falls outside the terms of Division 10A should not otherwise be a fringe benefit.

If this argument is not accepted, then valuation of the benefit becomes an issue.

On the assumption that an employer is not in the business of providing car parking, the car parking space will result in an external residual fringe benefit. On the basis that the benefit is provided over more than one day, an external period residual fringe benefit may arise.

Issue 1 – car parking space owned or leased by employer:

On the basis that the benefit results in an external period residual fringe benefit, as outlined above, the valuation of the benefit is determined by section 51 of the FBTAA.  Ordinarily, the taxable value of the benefit is deemed to be the amount paid or payable under an arms length transaction. However, where the car parking space is owned or leased by the employer, it would appear that the value of the benefit would be the cost paid by the provider when the space was purchased or leased, or alternatively, the notional value of the benefit should be used. Notional value is defined in section 136(1) of the FBTAA to be an amount the employee could have been reasonably expected to pay for the benefit under an arms length transaction.  In this case, we assume that the notional value would be the market value of an hourly and/or all day rate, depending on the timing and duration of the benefit.

The issue at hand relates to the valuation of the benefit. If a car, as defined above, had been parked in the parking space, the valuation of the benefit would have been determined under Division 10A.  However, where a motor vehicle that is not a car is parked in the same space, the valuation rules under section 51 will apply.  As such, it is possible to arrive at a significantly higher value for the car parking space where a non car is parked in the car parking space, hence making it disadvantageous to provide a parking space for such vehicles. This contradicts the main reasons behind the employee being provided with such a vehicle in the first place (for example a utility vehicle used by the employee to carry tools of trade).

Issue 2 – car parking space used for less than 4 hours:

Where a car uses a car parking space for private use for less than four hours per day, a car parking benefit will not arise. Where a vehicle other than a car uses a car parking space for less than four hours on a particular day, we note that a car parking fringe benefit will not arise, however, we seek confirmation as to whether a residual benefit will arise, and if so, whether any similar exemption can be applied so that the treatment of the car parking space for the non-car is consistent to that of a car. 

For example, where a car is parked in a car parking space for less than four hours, no car parking benefit arises. Alternatively, where a motor cycle is parked in a car parking space for less than four hours, a residual benefit might be considered to arise.  This would appear to be inconsistent with the provisions in Division 10A.

Where this situation gives rise to a residual fringe benefit, we refer to our arguments above in relation to the inconsistency between the calculation of the taxable value under Division 10A and the valuation rules under section 51.

Tax Office response

The Tax Office stated that parking provided for vehicles other than cars will not give rise to car parking benefits and Division 10A is not applicable. 

Section 58G provides an exemption for motor vehicle parking and applies to parking provided in relation to vehicles other than cars.

Subsection 58G(1) is as follows;

58G(1)  [Motor vehicle parking facilities]  Each of the following benefits is an exempt benefit:

(a) an expense payment 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;

(b) a residual benefit where the recipients benefit consists of motor vehicle parking facilities.

The Tax Office noted the statement in the submission that ‘where an exempt car benefit is provided in accordance with section 8(2), the provisions of section 39A set out above will not be satisfied.  Accordingly, a car parking benefit within Division 10A will not arise.’  The Tax Office did not agree with this view.

When considering the application of subsection 8(2), there must be a ‘car benefit’.

The definition of a ‘car benefit’ in subsection 136(1);

means a benefit referred to in subsection 7(1).

Although, where satisfied, subsection 8(2) provides that a ‘car benefit’ will be an exempt benefit and therefore cannot be a ‘car fringe benefit’, there nonetheless remains a ‘car benefit’. Therefore, as subparagraph 39A(1)(c)(i) is satisfied, the consequence is that Division 10A can apply where car parking is provided in relation to a ‘car’ where the use of that car is exempt under subsection 8(2).

The Tax Office referred specifically to Taxation Ruling TR 96/26 Fringe benefits tax: car parking fringe benefits.

Paragraphs 6 to 8 of the ruling state:

6. For the purposes of Division 10A of the FBTAA, a car means a motor vehicle being:

·        Motor vehicle, station wagon, panel van or utility

·        Any other goods-carrying vehicle (including a four wheel drive vehicle) with a designed carrying capacity of less than one tonne

·        Any other passenger-carrying vehicle with designed carry capacity of fewer than nine occupants

7. Excluded from the definition are panel vans and utilities designed to carry a load of one tonne or more.

8. Parking provided for vehicles other than cars will not give rise to a car parking benefit.

Paragraph 8 of TR 96/26 states clearly that parking provided for vehicles other than cars will not give rise to a car parking benefit.  As TR 96/26 deals with ‘car parking fringe benefits’ and not parking provided for vehicles other than cars, the Tax Office indicated that the Fringe benefits tax: a guide for employers (Guide) provides a general overview of car parking issues at Chapter 16.

The following information (extracts from the Guide) were considered relevant for the purposes of discussion of car parking and broadly set out some matters that can be considered when dealing with parking benefits:

16.8 Car parking expense payment fringe benefits

Where you reimburse or pay for a employee’s car parking costs, this is not a car parking fringe benefit, but may be a car parking expense payment benefit (see 9.9.)

16.9 Exempt benefits – motor vehicle parking

The following car parking benefits provided to employees are exempt from FBT

·   Residual benefits

·   Certain expense payment benefits

·   Parking for the disabled, and

·   Benefits provided by certain employers.

Chapter 20 of the Guide details those parking benefits that are exempt from fringe benefits tax. They can include:

Motor vehicle parking (section 58G)

The following car parking benefits are exempt from FBT:

·        Residual benefits

Residual fringe benefits

Employer-provided parking that is not a car parking fringe benefit is a residual benefit that is exempt from FBT.

Expense payment benefits

Where you pay or reimburse a car parking expense incurred by an employee, it is exempt from FBT if the expense is not a car parking expense payment fringe benefit as described in 16.8.

Exempt employers

You are exempt from FBT in relation to car parking fringe benefits and car parking expense payment fringe benefits if you are one of the following employers:

·        A scientific institution (other than an institution run for the purposes of profit or gain to its shareholders or members)

·        A religious institution

·        A charitable institution

·        A public educational institution, or

·        A government body where the employee is exclusively employed in, or in connection with a public educational institution.

FBT lodgment

Concessions for practitioners 2009 (CPA Aust)

In 2008 an extension was notified granting a lodgment concession to 25 June 2008 for Tax Agents. 

In respect of 2009 will a lodgment concession to 25 June 2009 be granted for practitioners.

Tax Office response

The Tax Office advised that in 2008 the implementation of the Integrated Core Processing (ICP) system was more difficult than expected and to ensure that no one was disadvantaged a general deferral for the lodgment of the FBT return to 25 June 2008 was granted.

In 2009 the Commissioner’s discretion has been granted for tax agents to have a lodgement concession until 28 May 2009.

If tax agents are having difficulties lodging FBT returns on time, lodgment deferrals of up to one month (that is, the 28 June) are now automatically granted under self-assessment arrangements. Subject to a few simple conditions, deferrals of lodgment will now be granted without the need for detailed reasons being supplied with each request.

In relation to FBT obligations, these deferral arrangements do not apply to payment - payment is still required by the due date. If additional time to pay is needed, tax agents must clearly state this in the request and demonstrate that the exceptional circumstances that are affecting lodgment are affecting payment also.

To advise the Tax Office of the deferrals tax agents are required to complete the Tax agent request for additional time to lodge form. 

Tax agents can use the same form whether lodging self-assessed deferrals or deferral requests that fall outside the self-assessment lodgment deferral guidelines.

The request for deferral must be made by the 28th May 2009. Tax agents may still lodge a deferral after a due date has passed, however they must explain why they were unable to lodge the request by the due date. The Tax Office will make a decision based on the circumstances that have been explained in their request.

Subsequent to the meeting the Commissioner of Taxation announced in Press Release 2009/26 that people affected by recent floods in Queensland and northern New South Wales or the Victorian bushfires will be given extra time to lodge their fringe benefits tax (FBT) returns and make any payments.

Electronic lodgment of FBT returns (CTA)

Could the Tax Office advise when will corporates be able to lodge FBT returns electronically rather than by paper. Many corporates have a number of employers in their groups and administrative savings would be made if electronic lodgment was possible.  Some time ago there was a reference to an electronic lodgment arrangement in the Tax Office’s website and the reference has now disappeared, indicating that it is not anticipated that FBT returns will be able to be lodged electronically.'

Tax Office response

The Tax Office advised that there will be a new portal deployment in 2010, however, at this time there has been no decision regarding the range of forms that will be available on the portal. The Tax Office agreed to advise members when the range of forms has been decided.

Update on FBT audit/compliance activities (Tax Office)

The Tax Office is currently undertaking the following risk and compliance activities:

·        Car benefits – FBT compliance activities have significantly increased compared to prior years

·        External data used for data matching has been refreshed and computer programs to process new and expanded information has been refined.

In addition to FBT specific reviews or audits:

·        employer obligation reviews will include fringe benefits tax

·        micro complex compliance and small and medium enterprises field staff will continue to examine FBT issues during their income tax audits

·        goods and services tax (GST) field staff will identify FBT issues during their reviews.

The Tax Office is finding through data matching and compliance verification that seven out of every 10 taxpayers that are investigated are non compliant.  On average this results in a taxation liability of more than $70,000 and a general interest charge of just under $20,000.  Where cases are escalated and assessments are issued the average penalties are $38,000 per case. Of course, these penalties are not applied to cases of voluntary disclosure.

Close of meeting

The next meeting will be held on 14 May 2009 at the NIA, Level 6, 555 Lonsdale Street, Melbourne.