Muhammad Naveed

Cash payment for getting the vaccine

If you give your employees a cash payment for getting vaccinated (for example, a $200 payment), you need to:•report the payment via Single Touch Payroll (STP) as part of the employee's salary or wages•withhold tax from the amount under pay as you go (PAYG) withholding, and•include the amount in your employee's ordinary time earnings for the purpose of determining your super contributions for your employee.

If you have already made a cash payment and did not withhold tax, you should contact us straight away so that we can consider the remission of any applicable failure-to-withhold penalties.

If you have not made super contributions, you need to ensure you make them no later than 28 days after the end of the quarter in which the cash payment was made, otherwise you may be liable for super guarantee charge.

Paid leave

If you give your employees paid leave to get their COVID-19 vaccination or additional paid leave to recover from any COVID-19 vaccination side effects, your employee earns salary or wages while they are on paid leave.

You should withhold tax under PAYG withholding and make super contributions on the amount as you usually would.

Transport to and from the vaccination

If you provide or pay for an employee's transport to get their COVID-19 vaccination, there is generally no fringe benefits tax (FBT) payable. The travel is associated with work-related preventative health care and is exempt from FBT.

See also:•Fringe benefits tax - a guide for employers - Chapter 20 - Exempt benefits

Other non-cash benefits

Other non-cash benefits you provide to your employees may be subject to FBT. Non-cash benefits could include:•goods and services•vouchers and gift cards, or•points in a reward scheme.

The FBT treatment of these kinds of benefits will depend on their specific terms and conditions, and the benefits may be subject to FBT unless an exemption or reduction applies.

The fringe benefits you provide may also need to be included in your employee's reportable fringe benefits amount and reported on your employee's income statement.

Benefits that you provide to the general public

You may be providing free or discounted goods, services, vouchers, gift cards or reward points to everyone that has had their COVID-19 vaccination. This could be offered to the public at large or to all members of a club (for example, if the employer is an automobile club).

If such benefits are provided generally to people who have been vaccinated (and not just to employees), no FBT will apply to benefits provided to employees as the benefit is not provided in respect of the employment of the employee.

Exemption for minor benefits

You may provide a non-cash benefit that qualifies for the minor benefits exemption. A benefit that has a value of less than $300 may be exempt from FBT as a minor benefit if it would be unreasonable to treat it as a fringe benefit after considering the following five criteria:•the benefit is provided infrequently and irregularly•the value of the minor benefit and other similar or identical benefits is low•the total value of the minor benefit and other benefits provided in connection with it is low•it is difficult to calculate the taxable value of the benefit and any associated benefits, and•the benefit is provided as a result of an unexpected event.

There are exclusions where the minor benefits exemption does not apply, such as for in-house fringe benefits and minor entertainment benefits provided to employees of income tax exempt organisations.

See also:•Minor benefits exemption•Fringe benefits tax - a guide for employers - Chapter 20 - Exempt benefits

Reduction in taxable value for in-house fringe benefits

You may be entitled to a reduction in FBT where you provide a non-cash benefit that qualifies as an in-house fringe benefit. Broadly, in-house fringe benefits are benefits that are identical or similar to the benefits you provide to customers in the ordinary course of business. If you give one or more in-house fringe benefits to an employee during the FBT year, you can reduce the aggregate of the taxable values of the in-house fringe benefits by $1,000 if the benefits are not provided under a salary packaging arrangement.

See also:•Fringe benefits tax - a guide for employers - Chapter 1 - What is fringe benefits tax?•Fringe benefits tax - a guide for employers - Chapter 19 - Reductions in fringe benefit taxable value•Fringe benefits tax - a guide for employers - Chapter 20 - Exempt benefits

Entries in a draw to win prizes

If you offer a prize draw exclusively to your employees, there are no FBT consequences when the entry to the draw is given to the employee because you do not know which employee will receive a benefit. However, FBT may apply when the winner receives their prize unless an exemption (such as the minor benefits exemption) or a reduction (such as the in-house benefits reduction) applies.

No FBT applies if you make a prize draw, including the prize, available generally to the public or people who have been vaccinated and not just to employees.

See also:•Fringe benefits tax - a guide for employers - Chapter 19 - Reductions in fringe benefit taxable value•Fringe benefits tax - a guide for employers - Chapter 20 - Exempt benefits

Examples

The following are some examples of COVID-19 vaccination incentives and rewards given by employers to their employees, and the tax treatment that arises.

Example 1 - employer gives employee goods

A shoe store gives each employee who receives both of their COVID-19 vaccinations shoes of their choice up to the value of $300. Dominic, an employee, receives both of his vaccinations and receives two pairs of shoes with a total retail value of $300.

The shoes are in-house property benefits and the store does not give their employees any other in-house benefits during the FBT year. The employer is within the $1,000 aggregate threshold for in-house benefits provided to Dominic and the other requirements relating to the concession are met. The taxable value of the fringe benefit is reduced to nil and the store has no FBT obligation in respect of those benefits.

Example 2 - employee receives cash payment

Miranda's employer is offering all of its employees a $200 payment for getting both of their COVID-19 vaccinations. Miranda receives an extra $200 in her fortnightly pay and her employer reports this as salary and wages on her income statement at the end of the income year.

The amount is also included in Miranda's ordinary time earnings for super guarantee purposes.

Example 3 - free goods available to public

Food Co offers customers who have received both of their COVID-19 vaccinations a free meal. This offer is available to the general public, including Food Co's employees.

Private use of an electric vehicle - what you need to do

If your employee uses an electric vehicle for private purposes or the vehicle is taken to be available for their private use, you need to:•work out if the electric vehicle FBT exemption applies•if the benefit is not exempt, work out the taxable value of the benefit and include it in working out your FBT liability•work out if any benefits arising from the payment of any associated car expenses or provision of any associated items are exempt from FBT•work out the taxable value of the car benefit for reportable fringe benefits purposes and report any reportable fringe benefits amount.

Does the exemption apply?

For the exemption to apply, all of the following requirements must be met:a)the benefit is a car benefitb)the vehicle must be a car, which is a zero or low emissions vehicle (vehicle requirements)c)the car was first held and used on or after 1 July 2022 (held and used date requirements)d)the car is used or available for private use by a current employee or their associates (including family members) (recipient requirements)e)no amount of luxury car tax (LCT) has become payable on the supply or importation of the car (LCT requirements).

a) Car benefit

Where the electric vehicle is provided under a lease arrangement, an employer or lessor will only be providing the employee with a car benefit if it is a bona fide car leasing arrangement.

If a car lease arrangement is not bona fide, the employer or lessor will not be providing the employee with a car benefit.

Depending on the arrangement, it may instead be considered a property or residual fringe benefit, and therefore would not be eligible for the electric vehicle exemption.

b) Vehicle requirements

The vehicle must be a car. A car is a motor vehicle (excluding motorcycles, scooters and similar vehicles) that is designed to carry a load of less than one tonne and 8 or less passengers (including the driver).

The car must also be a zero or low emissions vehicle. For FBT purposes, a zero or low emissions vehicle is a:•battery electric vehicle•hydrogen fuel cell electric vehicle, or•plug-in hybrid electric vehicle.

If the vehicle is not a car, the electric vehicle exemption will not apply. However, the exemption for the private use of a vehicle other than a car may apply instead.

Plug-in hybrid electric vehicles - 1 April 2025 onwards

From 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under FBT law.

However, you can continue to apply the exemption if both the following requirements are met:•Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025.•You have a financially-binding commitment to continue providing private use of the vehicle on and after 1 April 2025. For this purpose, any option to extend the agreement exercisable on or after 1 April 2025 is not considered binding.

c) Held and used requirement

The electric vehicle must be both held and used for the first time on or after 1 July 2022.

Electric vehicle is held

An electric vehicle may be 'held' by you, an associate of yours or a third party with whom you (or your associate) make an arrangement.

An electric vehicle is held where it is:•owned (including electric vehicles acquired under hire-purchase arrangements)•leased (or let on hire), or•otherwise made available to the provider.

An electric vehicle is not considered to be held where it is owned by the employee themselves and not by you or your associate.

You can work out who 'holds' the electric vehicle by looking at:•car registration papers•car insurance policies•car leasing documents.

Electric vehicle is used

The electric vehicle must also be used for the first time on or after 1 July 2022.

An electric vehicle is considered 'used' when it is used or available for use by any entity or person.

Example 1 - exemption does not apply

Shelly purchases an electric car on 1 April 2022. She makes it available for the private use of her employee, Jack, from that date until 30 July 2022.

On 1 August 2022, Shelly sells the electric car to ABC Co. ABC Co makes the car available for the private use of its employees from 1 August 2022.

The first time the electric car was both held and used is before 1 July 2022. Therefore, any car benefits are not exempt from FBT.

Example 2 - exemption does apply

C Co orders an electric car from overseas, which is delivered on 1 July 2022 and used by their employee from that date. Under the contract, ownership of the vehicle passed to C Co on 30 June 2022.

The car was:•first held on 30 June 2022, when C Co started owning it•first used on 1 July 2022.

Private use of the car is eligible for the FBT exemption (provided the other requirements of the exemption are met), as the first time the car was both held and used was 1 July 2022.

d) Recipient requirements

For the exemption to apply, the electric vehicle must be used by a current employee or their associate.

The electric vehicle cannot, however, be used by a past or future employee (or their associate) who is not an associate of a current employee - otherwise, the use of the electric vehicle will not be exempt from FBT.

Associates are people closely associated with the employee, such as family members or other relatives.

e) Luxury car tax requirements

An electric vehicle for which LCT has become payable at any stage is not eligible for the exemption. Generally, LCT has to be paid if the value of the vehicle is above the LCT threshold for fuel-efficient vehicles and either:•you are registered or required to be registered for goods and services tax and you sell or import a luxury car in the course of your business - this includes retailers, wholesalers, manufacturers and other businesses that sell luxury cars, or•you are an individual (private buyer) who imports a luxury car.

This means that where an electric vehicle is second hand, you need to look at the sale price of the electric vehicle every time it has been sold to see if any LCT was payable.

Your employer tax and super obligations

If you are a foreign employer, you may have Australian tax and super obligations for your employees. This depends on your employee's individual circumstances including:•their residency status for tax purposes•the source of any employment income earned by the employee•the application of a DTA, if they are a foreign resident.

→ For more information about residency of individuals, source of income and the application of a DTA, see Residency and source of income.

PAYG withholding

From 1 July 2020, you'll need to consider whether the employment income of your employee is subject to PAYG withholding.

PAYG withholding will apply to:•employment income earned by Australian residents (including salary, wages, allowances, commissions, bonuses, holiday pay and payments when an employee leaves)•Australian-sourced employment income earned by employees who are foreign residents (unless the short-term visit exception applies).

Many DTAs with Australia provide that, in certain circumstances, employment income earned by a foreign resident while working in Australia for a short period, (up to 183 days), is not to be taxed in Australia (the short-term visit exception).

If the short-term visit exception does not apply, a DTA may deem employment income earned by a foreign resident while working in Australia to be Australian-sourced and taxable in Australia.

Employment income is not taxable in Australia

If your employee's employment income is not taxable in Australia, you do not need to withhold PAYG amounts.

Generally, employment income will not be taxable in Australia under the short-term visit exception if all of the following apply. The employee:•is a resident of another country for the purposes of a DTA (including after applying the tie-breaker rule for dual residents, if required)•is not present in Australia for more than 183 days in total in either an income year or a 12-month period (depending on the terms of the applicable DTA)•receives salary and wages paid by, or on behalf of, an employer that is not a resident of Australia•the employee's salary and wages are not deductible against the profits of an Australian permanent establishment of their employer.

Depending on the applicable DTA, the 183-day limit for presence in Australia doesn't necessarily all have to be in the same income year, and there may be breaks in the aggregate period.

→ You will need to check the applicable DTA carefully as the wording, conditions and time periods vary from DTA to DTA.

In other very limited situations, the income of your employee may remain foreign sourced. If they also remain a foreign resident, the income is not taxable in Australia.

Employment income is taxable in Australia

If you need to withhold PAYG you need to:•either-register for PAYG withholding or-arrange for an Australian associate or affiliate to undertake the PAYG withholding obligations on your behalf•have your employee complete a Tax file number declaration. You can rely on the information provided by the employee in this form to determine if they are a resident for tax purposes and how much tax to withhold, unless you believe it's incorrect•work out the amount to withhold using our tax withheld calculator•report and pay the withheld amounts to us•prepare annual income statements or payment summaries and lodge an annual report.

→ We recommend you start withholding as soon as it is reasonable to presume your employee will need to have amounts withheld from their employment income. This helps reduce any tax bill your employee may have at the end of the income year.

Example 1 - intending to be in Australia more than 183 days in aggregate

Dominic is an IT professional who resides overseas and works for ComputingWorldwide.com, an overseas company. Dominic can undertake his work remotely anywhere in the world.

Dominic was in Australia from 16 December 2019 to 4 January 2020 (20 days).

He subsequently came back to Australia as a safety precaution on 20 March 2020. Dominic advises ComputingWorldwide.com that he intends to leave Australia once it is safe to return overseas, but that he will stay in Australia at least until 1 September 2020 (due to a personal commitment).

By 1 September 2020, Dominic will have been in Australia for more than 183 days in total (the 20 days that he was in Australia during the New Year period are taken into account for the purposes of the short-term visit exception).

ComputingWorldwide.com checks the relevant DTA and establishes that it has to treat Dominic's salary or wages as taxable in Australia if he spends more than 183 days in Australia in any 12-month period.

As ComputingWorldwide.com is aware that Dominic is expected to be in Australia for more than 183 days in a 12-month period, it registers for PAYG withholding and asks Dominic to complete a TFN declaration.

ComputingWorldwide.com starts to withhold PAYG amounts from Dominic's salary and wages, report and pay the amounts to us, from 1 July 2020.

Example 2 - intending to depart Australia as soon as possible

LeeCo is an overseas accounting firm. One of LeeCo's employees, Mel, came to Australia for a holiday on 1 March 2020. On 1 April 2020, COVID-19 affected international travel, so LeeCo agreed to let Mel remain in Australia and work remotely until travel restrictions were lifted at which time, they both agreed that she would return home.

On 1 July 2020, LeeCo checks the relevant DTA and establishes that they will need to start withholding from their employee's salary or wages when they become taxable in Australia. If Mel remains in Australia for more than 183 days in a 12-month period, all of Mel's salary or wages earned while in Australia are taxable (as the short-term visit exception does not apply).

Mel has been in Australia since 1 March 2020 and it is unlikely she will be returning to her home country before 30 August 2020 (by when she will have been here for 183 days) due to COVID-19 international travel restrictions. It does not matter that Mel was not working in March - any days that she was physically present in Australia are taken into account for the purposes of the short-term visit exception.

We recommend that LeeCo registers for PAYG withholding, asks Mel to obtain a TFN and complete a TFN declaration, and starts withholding from 1 July 2020. This will reduce Mel's potential tax bill at the end of the income year if she stays in Australia for more than 183 days.

→ For more information about:•double-tax agreements, see Tax treaties•residency of individuals, source of income and the DTA exceptions, see Residency and source of income•employing people, see Your workers•PAYG withholding, see PAYG withholding•completing a Tax file number declaration, see Tax file number declaration.

Superannuation

A foreign resident employer will usually be required to pay super for Australian resident and foreign resident employees who perform work in Australia, otherwise the super guarantee charge will apply.

Generally, you must pay super in addition to your employee's wages if:•you pay them $450 or more before tax in a calendar month, and•they are 18 years of age or older.

There are some instances where you don't have to pay super. For example, for an employee who is temporarily working in Australia and is covered by a bilateral super agreement, or for certain foreign executives.

Eligible employees can claim the super paid for them as a Departing Australia Superannuation Payment (DASP) when they leave Australia if they meet all the requirements. A final DASP tax will be withheld from their payment when it is made.

Example 3 - no requirement to withhold but payment of super guarantee

RocketCo has an employee, Rod, working in Australia because of the COVID-19 pandemic. Rod arrived in Australia on 15 March 2020 and leaves Australia on 1 September 2020. Rod is not an executive employee, is over 18, earns more than $450 in a calendar month and doesn't have a certificate of coverage exempting the payment of super in Australia.

RocketCo checks the DTA and establishes that the short-term visit exception applies; therefore it is not required to withhold PAYG from Rod's salary and wages. However, RocketCo is required to pay super to an Australian complying super fund, on behalf of Rod, to avoid the super guarantee charge.

Fringe benefits tax

If you are required to withhold PAYG from payments to your employees, you may also have FBT obligations in Australia. FBT applies to certain benefits you provide to your employees (or their family or other associates) that are in addition to, or instead of, salary or wages. For example, you would need to consider whether FBT applies where you pay for your employee's accommodation or allow them to use a hire car that you've paid for, for private purposes.

You will need to check if any applicable DTA affects your FBT obligations in Australia.

More information

For more information see:•Fringe benefits tax•Tax treaties

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

JobKeeper payment

Question: How do I know if my business is eligible for the JobKeeper payment?

Answer: Employers will be eligible for the JobKeeper payment if all of the following apply:

On 1 March 2020, you carried on a business in Australia or were a not-for-profit organisation that pursued your objectives principally in Australia.
You employed at least one eligible employee on 1 March 2020.
Your eligible employees are currently employed by your business for the fortnights you claim for (including those who are stood down or re-hired).
Your business has faced a
- 30% fall in turnover (for an aggregated turnover of $1 billion or less)
- 50% fall in turnover (for an aggregated turnover of more than $1 billion), or
- 15% fall in turnover (for ACNC-registered charities other than universities and schools).
Your business is not in one of the ineligible categories.

You should note that the turnover calculation is based on GST turnover, but there are some modifications, including disregarding GST grouping where two or more associated business entities operate as a single GST group. We will provide further information soon about applying the turnover test.

See also:

Eligible employers

This question was last updated on 23 April 2020.

Not-for-profit employers and salary packaging

Question: I am a not-for-profit employer and I provide salary-packaged meal entertainment to my employees. Can my employees use their exempt (or rebatable) cap during the FBT year ending 31 March 2021 given restaurants and public venues are currently closed due to COVID-19?

Answer: Whether the provision of meals qualifies as salary-packaged meal entertainment depends on the particular facts and circumstances of the meal and how it is provided. Given the unprecedented circumstances currently existing, for the FBT year ending 31 March 2021, we will not apply any compliance resources to scrutinising expenditure under these arrangements provided the meals are provided by a supplier that was authorised as a meal entertainment provider as at 1 March 2020.

We also confirm that for the FBT year ended 31 March 2020, we will not apply any compliance resources to scrutinising expenditure under these arrangements during the period where restaurants and public venues were closed.

This question was last updated on 17 April 2020.

FBT and working from home

Question: Will I need to pay FBT if I provide an employee with items to allow them to work from home due to COVID-19?

Answer: If you provide your employees with a laptop and a portable printer or other portable electronic devices to enable them to work from home or from another location due to COVID-19, these will usually be exempt from FBT if they are primarily used for your employee's employment.

If you allow your employee to use a monitor, mouse or keyboard they otherwise use in the workplace, or if you provide them with stationery or computer consumables or pay for their phone and internet access, the minor benefits exemption or the otherwise deductible rule may apply.

The minor benefits exemption may apply for minor, infrequent and irregular benefits of less than $300.

The otherwise deductible rule allows you to reduce the taxable value of benefits by the amount for which your employee would be able to claim a once-only deduction.

FBT on accommodation, food and transport

Question: Will I need to pay FBT if I provide an employee adversely affected by COVID-19 with emergency accommodation, food, transport or other assistance?

Answer: No, so long as both of the following apply:

The benefit given to your employee is emergency assistance to provide immediate relief.
That employee is, or is at risk of being adversely affected by COVID-19.

In the context of COVID-19, we will accept that the FBT emergency assistance exemption applies if you, as an employer, have provided emergency accommodation, food, transport or other assistance to an affected employee.

Exempt assistance would cover, for example:

expenses incurred relocating an affected employee due to COVID-19, including paying for flights for overseas to return to Australia
expenses incurred providing food and temporary accommodation if an affected employee is unable to travel due to travel restrictions (including domestic, interstate or intrastate travel)
benefits provided that allow the affected employee to self-isolate or be quarantined
transporting or paying for an affected employee's transport expenses including car hire and transport to temporary accommodation.

Question: My employees work on a fly-in fly-out and a drive-in drive-out basis. With the travel restrictions arising from COVID-19, some are not able to return to their normal residence on the days they aren't working. I'm paying for their temporary accommodation and meals while they can't return home. Do I have to pay FBT for the accommodation and meals I am providing?

Answer: No, you won't have to pay FBT for the temporary accommodation and meals provided to your employees who are unable to return to their normal residence due to domestic and international travel restrictions in response to COVID-19. These benefits are considered emergency assistance and are exempt from FBT.

This question was last updated on 9 April 2020.

FBT on benefits to protect employees from COVID-19

Question: If I give my employees gloves, face masks, sanitisers and anti-bacterial spray to protect them from contracting COVID-19 while at work, do I need to pay FBT on these benefits?

Answer: It depends. These benefits will be exempt from FBT under the emergency assistance exemption if you provide them to your employees to carry out their duties that require them to have physical contact or be in close proximity to customers or clients while carrying out their duties or they are involved in cleaning premises.

Examples of this type of work include the:

medical industry (such as doctors, nurses, dentists and allied health workers)
cleaning industry
airline industry
hairdressing and beautician industry
retail, caf é and restaurant industry.

If your employees' specific employment duties are not of the kind described above, the minor benefits exemption may apply if you provide an employee with minor, infrequent and irregular benefits of less than $300.

FBT and emergency health care

Question: Will I need to pay FBT if I provide emergency health care to an employee affected by COVID-19?

Answer: Exemptions from FBT for emergency health care is limited. They only apply to health care treatment provided:

by an employee of yours (or an employee of a related company)
on your premises (or premises of the related company)
at or adjacent to an employee's worksite.

If you pay for your employee's ongoing medical or hospital expenses, FBT applies.

However, if you pay for transporting your employee from the workplace to seek medical assistance, the cost is exempt from FBT.

FBT and providing the flu vaccination to employees who are working from home

Question: My employees are unable to get the influenza vaccine at the workplace as they are working from home due to COVID-19. Will I need to pay FBT if I provide my employees with a voucher or reimbursement for getting the flu vaccine from a GP or chemist?

Answer: No, you won't have to pay FBT on a voucher or reimbursement for the costs of an employee's flu vaccine from a GP or chemist, as long as it is available generally to all employees.

Providing a flu vaccination to employees is exempt from FBT as it is the provision of work-related preventative health care. It does not matter that you cannot provide the flu vaccine at the workplace because some or all of your employees are working from home due to COVID-19.

If only some of your employees choose to receive the flu vaccine at the GP or chemist, the voucher or reimbursement will still be exempt from FBT, as long as you offered it to all employees.

See also:

Fringe benefits tax

This question was last updated on 8 May 2020.

FBT and providing testing for COVID-19 to employees

Question: Will I need to pay FBT if I provide testing for COVID-19 to my employees prior to them entering the workplace?

Answer: No, you won't have to pay FBT on the provision of COVID-19 testing for your employees prior to them entering the workplace, as long as the testing is carried out by a legally qualified medical practitioner or nurse and is made available generally to all employees.

The provision of this test will be exempt from FBT as it is work-related medical screening, due to the highly infectious nature of COVID-19, and that any employee is equally susceptible to contracting the virus.

If only some of your employees are provided with COVID-19 tests, the tests will still be exempt as long as you offered them to all employees.

See also:

Fringe benefits tax

This question was last updated on 8 May 2020.

Super guarantee obligations

Question: I can't afford to pay my employee's super guarantee contributions by the due date because of COVID-19. What do I need to do?

Answer: Legally, we can't extend the due date to pay the super guarantee contributions for your employees.

Pay as much as you can by the due date, even if you can't pay in full. This will reduce the super guarantee charge.

If you didn't pay the full super guarantee by the due date:

lodge a Super guarantee charge statement
pay the charge to us.

If you do this within the month, there will be no penalties. Interest will still apply.

If you have trouble paying the super guarantee charge, we can work with you to set up a payment arrangement

See also:

Contact us
Super for employers
Super for employers

This question was last updated on 20 March 2020.

Question: My employees are temporarily working overseas because of COVID-19. Does this affect my super guarantee obligations?

Answer: If your employees usually live and work in Australia and are only temporarily working overseas, there is no change to your pay as you go (PAYG) withholding, FBT and super guarantee obligations.

The situation may be more complicated if your employee ends up staying overseas for a lengthy period. We encourage you to first consider our existing advice on these issues. If you are unsure of the effect in your circumstances contact us for further guidance.

Question: I'm an Australian employer and my employee is not an Australian resident. They are working in Australia temporarily as a displaced employee because of COVID-19. What are my employer obligations?

Answer: In most cases, you have the same kind of tax obligations for all employees you have working in Australia. This includes PAYG withholding, FBT and super guarantee.

The same withholding rules apply to both your domestic employees and your displaced foreign employees.

Regarding foreign employees, some of these employees will not have an Australian tax liability on their employment income earned while in Australia (see Not an Australian resident, temporarily in Australia ). If this is the case, there are no PAYG withholding obligations.

We understand in the current environment you may have a larger workforce temporarily situated in Australia because of COVID-19. However it is important to ensure that your displaced foreign employees are supported in the same manner as your domestic staff. We are happy to work with you in setting up to meet your obligations to displaced employees.

This question was last updated on 20 March 2020.

Question: My employee was temporarily working in Australia because of COVID-19 and I paid superannuation on their behalf. When they leave Australia can they withdraw that super?

Answer: When the employee leaves Australia permanently, they may withdraw any superannuation you paid on their behalf while they were displaced (subject to eligibility requirements and tax).

Generally, your employee can claim a Departing Australia Superannuation Payment (DASP) if the following apply:

They accumulated superannuation while working in Australia on a temporary resident visa issued under the Migration Act 1958 (excluding Subclasses 405 and 410).
Their visa has ceased to be in effect (for example, it has expired or been cancelled).
They have left Australia.
They are not an Australian or New Zealand citizen, or a permanent resident of Australia.

This question was last updated on 20 March 2020.

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

Work laptop, other portable electronic device and tools of trade

You may have given or loaned certain eligible work-related items to your employee so they could work from home as a result of COVID-19 or reimbursed them for expenditure they incurred on these items.

An eligible work-related item is exempt from FBT if it is:•primarily for use in the employee's employment•not a duplicate of something with a substantially identical function that has already been provided to the employee in the FBT year (unless it is a replacement).

An eligible work-related item is:•a portable electronic device•computer software•protective clothing•a briefcase•a tool of trade.

Examples of portable electronic devices include laptops, tablets, smart phones, and calculators. However, a desktop computer would not be considered a portable electronic device.→For more information about portable electronic devices, see Work related portable electronic device exemption.

If you are a small business you may be eligible for an exemption, so that you can provide multiple portable electronic devices to an employee, even where the items have substantially identical functions.→From 1 April 2021, the turnover threshold for businesses to be eligible for this exemption will increase from $10 million to $50 million. For more information, see Work out if you're a small business for the income year.

The term 'tools of trade' refers to items that are handheld for use in mechanical operations or require manual operation to produce a defined result. They are of a specialist nature for use by an operator in a particular occupation (for example, an employee carpenter is provided with a hammer, screwdriver or chisel). It does not cover desktop computers, computer peripherals, or general office equipment.→For more information about tools of trade, see ATO Interpretative Decision ATO ID 2006/248Fringe Benefits Tax Exempt Benefits: work related item - tool of trade.

General office equipment

General office equipment includes desks, chairs, cabinets, stationery, computer monitors and peripherals, and other items generally available for use in an office setting.

The way FBT applies to general office equipment depends on how you provide the benefit to your employee.

Lending office equipment

The benefit arising from lending general office equipment to your employee during temporary WFH arrangements due to COVID-19 may be exempt from FBT.

For ongoing WFH arrangements, the benefit may also be exempt in some circumstances, and where it is not exempt, the taxable value may be reduced by the ODR.

Temporary WFH arrangements

During periods of temporary WFH arrangements due to COVID-19, the provision of office equipment will be exempt from FBT if it is:•property that is ordinarily located on your business premises•wholly or principally used directly in connection with your business operations.

Office equipment is considered 'ordinarily located on your business premises' if:•the home use of the equipment by your employee is temporary•there is an expectation that the equipment will be returned to your business premises when the temporary WFH arrangement ceases.

The equipment does not need to have been physically located on your business premises prior to entering into a WFH arrangement to meet the test, provided it is an item that is expected to be returned to the premises.

Example 1 - employees working from home due to lockdown restrictions

Your office closed due to COVID-19 lockdown restrictions. To support your employee to work from home, you ordered an ergonomic chair from an office equipment supplier and had it delivered directly to your employee's home. When your office returns to normal operation, your employee must return the chair to your office.

Your provision of the chair to your employee is exempt from FBT even though the chair had never been used in your office. Your employee uses the chair to undertake their employment duties. The chair remains your property, and it would ordinarily be located on your business premises.

Ongoing WFH arrangements

Office equipment that you loan to an employee to support a WFH arrangement that will continue on a long-term basis is unlikely to meet the exemption above.

However, the benefit may be exempt if you make a no-private-use declaration that covers all office equipment loaned to your employees to support their WFH arrangements where both of the following apply:•the equipment is subject to a consistently enforced policy about its use•this use means the benefits would have a taxable value of nil.

Where you provide general office equipment to your employees solely to enable them to work from home, and have a consistently enforced policy documenting this purpose, we will accept that the requirements of this exemption are met.

You will not be required to provide documentation that demonstrates the employment use of the office equipment. The fact that there may be some incidental use of an item outside of work hours while it is located at an employee's home does not prevent the benefit from meeting this exemption.

Example 2 - office equipment covered by no-private-use declaration

Your office temporarily closed due to COVID-19 and your employee began a WFH arrangement. After your office reopens, you arrange for your employee to continue their WFH arrangement for part of each week.

You provide your employee with an ergonomic chair and computer peripherals to support their WFH arrangement.

You have two policies in effect to which your employee has agreed, through written confirmation:1.the items are only provided to enable your employee to perform their duties at home2.the items remain the property of your business and your employee will need to return them when they cease their WFH arrangement.

You complete a no-private-use declaration for the residual fringe benefits. These benefits are exempt from FBT.→For a copy of the no-private-use declaration template, see this list of approved declaration forms.

If your employee does not complete a no-private-use declaration, the taxable value of that benefit may be reduced under the ODR. The ODR applies if your employee would have received a once-only deduction had they incurred the expenditure themselves to rent the equipment solely to use for work purposes.

If the ODR applies, the taxable value of the benefit is reduced by the gross amount that your employee would otherwise have been allowed to deduct had they incurred the expenditure themselves, less the value of any contributions made by them.

However, if the equipment provided has an alternative purpose besides the WFH arrangement, or is significantly used for private purposes, you may need to apportion the use of the equipment to determine the amount of reduction to the taxable value. In these circumstances, you will be required to provide a copy of the employee's residual benefit declaration and evidence of the employee's work-related use of the equipment (for example, a diary of usage).

You still must be able to show that the equipment was only lent or made available to your employee. That is, the equipment still belongs to you and it will be returned when the WFH arrangement ceases. If this cannot be shown, then the provision of the equipment may be a property benefit (see below).

Giving office equipment or reimbursing for purchases

Where you have given an employee office equipment that has a notional taxable value of less than $300 (including goods and services tax (GST)), or you have reimbursed them for expenses of less than $300 which they incurred in acquiring equipment, the item may be exempt from FBT or its taxable value may be reduced by the ODR.

Where the value of that office equipment is $300 (including GST) or more, then FBT is generally payable.

Taxable value less than $300

Where the taxable value of the item or reimbursement is less than $300 (including GST), the benefit may be exempt if it is a minor benefit.

You should have regard to the following factors in determining whether a benefit you have provided is a minor benefit:•whether the provision of the benefit is infrequent or irregular•whether the provision of the benefit arises from an unexpected event•whether other similar benefits are provided at the same time, and if so, the value of all combined similar benefits.→For more information on the minor benefits exemption, see Minor benefits exemption or Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits.

Where an item of general office equipment is given or the amount paid to acquire it is reimbursed on a once off basis to support the establishment of a WFH arrangement, we will generally accept that the benefit is infrequent and irregular.

If the benefit is not a minor benefit, the ODR may still apply to reduce the benefit's taxable value if your employee would have been entitled to a deduction if they had incurred the expenditure themselves. You will need to keep evidence that demonstrates the employment use by the employee (for example, a diary of usage).

Taxable value equal to $300

An item which cost $300 (including GST) will not qualify for the minor benefits exemption.

If the employee would have been entitled to a once-only deduction under the capital allowance provisions in Division 40 of the Income Tax Assessment Act 1997 had they incurred the expenditure themselves, the ODR may apply to reduce the taxable value of the benefit.

Taxable value of more than $300

Where the taxable value of the benefit is $300 (including GST) or more, FBT is generally payable.

The minor benefits exemption does not apply to any benefits with a notional taxable value of $300 or more.

The ODR does not apply because the employee would be entitled to a deduction for depreciation, (which is not a once-only deduction) under the capital allowance provisions in Division 40 of the Income Tax Assessment Act 1997.

Counselling

Counselling services provided to support an employee's WFH arrangement may be exempt from FBT under the existing rules for work-related counselling.

'Work-related counselling' refers to counselling that seeks to improve or maintain the quality of your employee's work performance and relates to matters such as health and safety, stress management, relationships, retirement, and any other similar matters.

This includes counselling sessions undertaken via telephony or online platforms during a WFH arrangement.

Health care

Health care provided to your employee to support their WFH arrangement may also be exempt from FBT if it is the provision of work-related preventative health care.

'Work-related preventative health care' means any form of care that:•is provided by or on behalf of a legally-qualified medical practitioner, nurse, dentist or optometrist•has the principal purpose of preventing your employee from suffering from injury or disease that is related to their employment•is available to all your employees who are likely to suffer from similar work-related injury or disease.

Also exempt from FBT is a car benefit, expense payment benefit, property benefit or residual benefit provided to an employee that is associated with work-related preventative health care of the employee.

Example 3 - Ergonomic consultations and provision of a sit/stand desk

To ensure your employees' WFH setups meet workplace health and safety standards, you organise personalised online health consultations with a legally-qualified medical practitioner for all of your employees.

The medical practitioner identifies that one of your employees is suffering from back pain due to having to sit down for extended periods of time while working, and recommends certain health interventions to prevent further aggravation/injury, including the use of a sit/stand desk while the employee is WFH. As a result, you purchase a sit/stand desk and arrange for it to be set up at your employee's home.

The provision of these consultations to all of your employees and the sit/stand desk to the employee are exempt from FBT as work-related preventative health care.

This exemption applies to the purchase of the sit/stand desk because it is associated with work-related preventative health care, that is, the workplace health and safety consultations. However, if you simply purchase this equipment for an employee, without the recommendation of a legally-qualified medical practitioner or nurse, the purchase would not be exempt from FBT.

More information

For more information, see:•Fringe benefits tax (FBT)•Fringe benefits tax - a guide for employers.

Siebel reference: 1-NRMTHPY

The ODR allows the employer to reduce the taxable value of fringe benefits by the amount for which the employee would be able to claim a once-only deduction. To the extent that an expense is 'otherwise deductible', the taxable value of the benefit is reduced, which reduces the employer's potential liability to FBT.

Date of publication: 12 March 2021

Garaging a car at an employee's home

Generally, a car fringe benefit will arise where you make a car you own or lease available for the private use of an employee. Where your employee is garaging a work car at home, you may be providing them with a car fringe benefit.

For FBT purposes, a car is a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than one tonne and fewer than nine passengers.

If an exemption does not apply, you need to determine the taxable value of the car fringe benefit. It's calculated using either the:•statutory formula method - the taxable value is a set formula based on the car's cost price•operating cost method - the taxable value is based on the operating costs of the car, reduced by any business use.

Exemption for certain car benefits

In some cases, the use of a car is exempt from FBT. An employee's private use of a taxi, panel van, or utility vehicle designed to carry less than one tonne is exempt from FBT if its private use is limited to:•travel between home and work•incidental travel in the course of performing employment-related travel, and/or•non-work-related use that is minor, infrequent and irregular (such as occasional use of the vehicle to remove domestic rubbish).

For more information on:→exempt car benefits,

If a home-garaged car is not being driven

Where a car has not been driven at all during the period it has been garaged at home, or has only been driven briefly for the purpose of maintaining the car, we will accept that you don't hold the car for the purpose of providing fringe benefits to your employee.

In these situations, provided you elect to use the operating cost method, there will be a nil taxable value for the car and no FBT liability. You need to elect to use the operating cost method in writing before you lodge your FBT return for the year. You should maintain odometer records to show that, during the period the car is garaged, it has not been driven, or has only been driven briefly for the purposes of maintaining the car.

If you don't elect to use the operating cost method, or don't have odometer records, the statutory formula method applies and you will have an FBT liability for the year. This is because the car is garaged at the employee's home and is taken to be available for private use.

If a home-garaged car is being driven

If an employee is driving a car for business purposes, and you elect to use the operating cost method, you may be able to reduce the taxable value of the car fringe benefit to take into account this business use. This may include reducing the taxable value to nil if the car is only being used for business travel.

You will only be able to reduce the taxable value if you have logbook records and odometer records for the period in question. If you have not previously maintained a logbook for the car, the logbook will need to be for at least:•12 continuous weeks, or•until the car stops being garaged at home, if this is less than 12 weeks.

For more information about:→car fringe benefits, see of Fringe benefits tax - a guide for employers - Car fringe benefits→business travel, see Miscellaneous Taxation Ruling Fringe benefits tax: private use of cars: home to work travel

Logbook requirements for car fringe benefits

Your logbook requirements will vary depending on whether:•you already use the operating cost method and have an existing logbook in place, or•it's your first time electing to use the operating cost method or it's a logbook year for you.

Generally, if you have used a logbook for the car before, it will be a logbook year if you have not kept a logbook for the car in the previous four years.

If COVID-19 has impacted driving patterns and you have an existing logbook

Where you're already using the operating cost method, you may have an existing logbook in place. You can still rely on this logbook, despite changes in driving patterns due to COVID-19. You must keep odometer records for the year, and these will show how much the car has been driven during the year, including any lockdown period.

You need to make a reasonable estimate of the percentage of business use of the car, taking into account logbooks, odometer records and any changes in the pattern of business use throughout the year, including changes due to COVID-19.

Where your driving patterns and business-use percentage are impacted by COVID-19, you can choose to keep a new logbook provided that the period is representative of your usage throughout the year. This is so, even if it is not a logbook year. This may provide a more accurate base to estimate the business use of the car.

Example 1 - FBT year ended 31 March 2020 - new logbook not kept

An employer uses the operating cost method to value their car fringe benefits. They kept a logbook in the FBT year ended 31 March 2018.

For the FBT year ended 31 March 2020, there is no requirement for the employer to keep a new logbook.

The employees' driving patterns were not impacted significantly by COVID-19 across the 2020 FBT year, with any impact occurring in March 2020, so the employer decides not to keep a new logbook.

They use the existing logbook, odometer records, employee fuel card records, plus client records to estimate the business use percentage for the year.

Example 2 - FBT year ended 31 March 2021 - new logbook kept

An employer uses the operating cost method to value their car fringe benefits, and kept a logbook in the FBT year ended 31 March 2018.

For the FBT year ended 31 March 2021, there is no requirement for the employer to keep a logbook.

However, employee driving patterns have been significantly impacted by COVID-19, and so the employer chooses to keep a new logbook as it provides a more accurate base to estimate the business use of the car. Odometer records of the total kilometres travelled during the logbook period and during the FBT year are also kept.

If it is your first time using the operating cost method, or it is a logbook year for the car

Where it's your first time using the operating cost method or it is a logbook year, you must:•keep a logbook recording details of business journeys undertaken in the car for a continuous period of at least 12 weeks (the logbook period must also be recorded in the logbook)•keep odometer records of the total kilometres travelled in the logbook period, and the total kilometres travelled during the year, and•estimate the number of kilometres travelled on business journeys during the FBT year.

For this estimate, you must consider all relevant matters including logbook and odometer records, any other records, and any variations in the pattern of business use throughout the year.

If the car was not driven for a period due to COVID-19 impacts, it is recommended that you also keep odometer records to show this.

If COVID-19 impacted driving patterns during the period you were maintaining a logbook

You may have been in the middle of maintaining a logbook for a 12-week period at the time the COVID-19 pandemic impacted driving patterns. You may be concerned that the resulting logbook does not reflect the business use of the car for the 2020 FBT year.

If you are making a reasonable estimate of the business use, you can adjust the use indicated from the logbook to account for the change in driving patterns from COVID-19 impacts.

However, you must ensure that the logbook still records a period of at least 12 weeks - if the logbook does not reflect a 12-week period you cannot apply it to reduce the taxable value to take business use into account.

Example 3 - FBT year ended 31 March 2020 - logbook impacted by COVID-19

An employer uses the operating cost method to value their car fringe benefits, and the 2020 FBT year is a logbook year. They begin maintaining a logbook on 2 February 2020, meaning the logbook must run for at least a 12-week continuous period to 26 April 2020.

However, from early April, in response to the COVID-19 pandemic, the employees' car usage changes significantly, and there are few or no business journeys for the final four weeks of the logbook period.

When estimating the business use for the 2020 FBT year, the employer may adjust their estimate to reflect the business journeys recorded in the period of the logbook before COVID-19 impacted driving patterns, to ensure it is a reasonable estimate of the business use across the FBT year.

Reportable fringe benefits

If the value of certain fringe benefits you provide to an individual employee exceeds $2,000 in an FBT year (1 April to 31 March), you must report the grossed-up taxable value of those benefits on their payment summary or through Single Touch Payroll for the corresponding income year (1 July to 30 June). These are called 'reportable fringe benefits'.

However, where an employee uses a pooled or shared car that results in a taxable fringe benefit, the use of this car is not included for payment summary or Single Touch Payroll purposes.

More information

For more information about car fringe benefits, see:→Chapter 7 of Fringe benefits tax - a guide for employers - Car fringe benefits→FBT car calculator→Miscellaneous Tax Ruling MT 2027Fringe benefits tax: private use of cars: home to work travel

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

Siebel reference: 1-MGZU0LL

Date of publication: 14 August 2020

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:

· Page 169 – minor benefits refers to less than $100 instead of less than $300· Page 171 – work related item exemption does not mention new rules· Page 31 – does not mention shared cars are excluded from reportable fringe benefits and the example on page 33 requires updating.

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:

(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

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:

Criteria	Application of Criteria
(1) the benefit provided is a ‘residual benefit’	As discussed above, the provision of the right to use the equipment constitutes a ‘residual benefit’
(2) the provider is the employer or an associate of the employer	The benefit is provided directly to its employees.
(3) at or about the comparison time, the provider carried on a business that consisted of or included the provision of identical or similar benefits principally to the outsiders	The comparative time is the time the benefit commenced to be provided.‘Outsiders’ in this context are members of the public who are not employees of the employer or its associates or associates of those employees.The employer proposes to provide employees with the ‘use’ of the equipment. This ‘use’ is not identical to the provision of the item itself which the employer supplies to dealers.The use of the item may be considered similar to the benefit that the employer is providing when it the item. This is discussed below.

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:

…..
(c)	any of the following applies:
	(i)	a car benefit relating to the car is provided on that day to an employee or an associate of an employee in respect of the employment of the employee;
	(ii)	the car is owned by, or leased to, an employee or an associate of an employee at any time during the period or periods;
	(iii)	the car is made available to an employee or an associate of an employee at any time during the period or periods by another person, where:
		(A)	the other person is neither the employer of the employee nor an associate of the employer of the employee; and
		(B)	other person did not make the car available under an arrangement to which the employer of the employee, or an associate of the employer of the employee, is a party;
….
(g)	on that day, the car is used in connection with travel by the employee between:
	(i)	the place of residence of the employee; and
	(ii)	that primary place of employment; ….

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:

(a)	at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as the ‘provider’):
	(i)	is applied to a private use by the employee or associate of the employee; or
	(ii)	is taken to be available for private use of the employee or an associate of the employee; and
(b)	either of the following is satisfied:
	(i)	the provider is the employer , or an associate of the employer, of the employee;
	(ii)	the car is so applied or available, as the case may be, under an arrangement between
		(A) the provider or another person; and
		(B) the employer, or an associate of the employer, of the employee,
that application or availability of the car shall be taken to constitute a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee.

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

(a)	the car is:
	(i)	a taxi, panel van or utility truck, designed to carry a load of less than 1 tonne; or
	(ii)	any other vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and
(b)	there as no private use of the car during the year of tax and at the time when the benefit was provided other than:
	(i)	work-related travel of the employee; and
	(II)	other private use by the employee or an associate of the employee, being other use that was minor, infrequent and irregular.

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.

Action item: The Tax Office to advise members when the range of forms that will be available on the new portal deployment 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.

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

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.

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:

Declarations sent as attachments to email
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?
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?
Declarations completed online via employee intranet
Can an electronic declaration be provided in an online form completed via an employer’s online intranet (which would require secure logon)?
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.
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.
Declarations sent from personal email addresses
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?
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).
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. 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:

“accident insurance, airport or departure tax, passenger movement charge, a passport, a visa or a vaccination; or
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?

Has this issue been discussed at any other consultative forum?

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?

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

Action item	FBT111110/52
Description	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 undertook to 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 the 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. Refer agenda item 3.2 Interaction between the Otherwise Deductible Rule and the Non Commercial Loss rules
Response	The Chair will continue to follow up the progress of the approvals with relevant ATO stakeholders.
Status	Carried over
Action item	FBT110811/60
Description	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. Refer agenda item 3.4 FBT Lodgment Program
Response	A further meeting of the sub-group will be organised. Progress will be advised at 18 February 2012 meeting
Status	Ongoing

ii) Register of aged open action items from previous meetings

Action item	Issue	Status	Recommend
FBT260209/31	Electronic lodgment of FBT returns When will corporates be able to lodge FBT returns electronically? ATO to advise members when the range of forms that will be available on the new portal deployment has been decided.	The ATO is compiling a log of Tax Agent Portal improvements and/or suggestions, which have been received from ATO forum members and tax practitioners. This consultation process aims to identify and confirm potential enhancements and develop a priority list for future functionality. The timetable for portal improvements is subject to priority and costing of business specifications. The electronic lodgment of FBT returns is being considered in this consultation process.	Ongoing – the ATO will continue to monitor and provide updates when there is progress to report on the lodgment of FBT returns via the business portal.
FBT110512/58	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 and the ATO will continue to monitor and provide updates when there is progress to report.

What this Ruling is about

1. This Ruling sets out the fringe benefits tax consequences of the provision of Opal cards by employers to their employees, that allow for free travel across the Opal network.

2. Details of this scheme are set out in paragraphs 8 to 15 of this Ruling.

3. All legislative references in this Ruling are to the Fringe Benefits Tax Assessment Act 1986 (FBTAA), unless otherwise indicated.

Who this Ruling applies to

4. This Ruling applies to you if you are an employer that is a private transport operator (PTO):•that is a non-government entity in the business of providing public transport services•that provides those services within the area of the NSW Opal network (Opal network), and•in circumstances where you enter into an agreement with Transport for NSW (TfNSW) to provide your employees with Opal cards that allow for free travel across the Opal network (free Opal card) (Scheme).

When this Ruling applies

5. This Ruling applies from 1 April 2024 to 31 March 2029.

Ruling

6. The provision of Opal cards that allow free travel on the Opal network to employees of the PTOs under the Scheme is a benefit provided to employees in respect of their employment.

7. The benefit will be exempt under subsection 47(1) where the travel is:•between the employee's home and place of employment, or other place from which or at which the employee performs duties of employment, or•on a regular and scheduled service over a route wholly within a metropolitan area (being the Opal network).

Scheme

8. The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon.

9. TfNSW is a state government entity that manages the provision of public transport services throughout New South Wales and manages the Opal network.

10. TfNSW is facilitating a Government initiative to address bus driver shortages and depot understaffing. The initiative will provide employees of PTOs free travel on the whole Opal network.

11. Under the Scheme, PTOs can elect to enter into an arrangement with TfNSW which would enable the PTOs to provide their employees with Opal Cards, which allow for free travel across the Opal network.

12. TfNSW will be responsible for the establishment of the free Opal card scheme and will determine the terms and conditions of use for the free Opal card.

13. The PTOs will have the following responsibilities in relation to the establishment and ongoing management of the free Opal card scheme:•identify individual eligible employees that meet the eligibility criteria for a free Opal card and establish a process by which eligible employees can opt in or out of the Scheme•provide details of eligible employees to TfNSW•distribute free Opal cards to individual eligible employees•promote the Scheme to current eligible employees and potential future employees•reporting obligations to TfNSW•return or destroy relinquished free travel Opal cards, and•undertake audits to ensure employee compliance with concessions determination and terms and conditions of use.

14. The free public transport offered to the employees of the PTOs will be provided in the same, or substantially the same, circumstances as transport provided to members of the public in the ordinary course of carrying on a business of providing transport to members of the public.

15. The free Opal cards will not be provided to the PTO's employees under a salary packaging arrangement.

Is a benefit provided?

16. The term 'benefit' is defined in subsection 136(1) to include:

... any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:(a)an arrangement for or in relation to:(i)the performance of work (including work of a professional nature), whether with or without the provision of property(ii)the provision of, or of the use of facilities for, entertainment, recreation or instruction; or(iii)the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction ... .

17. The provision of Opal cards allowing free travel to employees of PTOs under the scheme is considered to be a benefit because it meets the definition outlined in paragraph 16 of this Ruling.

Will a fringe benefit arise from providing employees with free travel on the Opal network?

18. A 'fringe benefit' is defined in subsection 136(1) as:

... in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:(a)provided at any time during the year of tax; or(b)provided in respect of the year of tax; being a benefit provided to the employee or to an associate of the employee by:(c)the employer; or(d)an associate of the employer; or... (ea)... in respect of the employment of the employee, but does not include:... (g)a benefit that is an exempt benefit in relation to the year of tax ... .

19. In general terms, a fringe benefit is a 'benefit' provided to an employee in respect of the employee's employment, that is not an exempt benefit.

Is the benefit provided in respect of employment?

20. In considering whether a benefit is provided to an employee 'in respect of' their employment, subsection 136(1) defines 'in respect of', in relation to the employment of an employee, to include 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.'

21. In J & G Knowles v Commissioner of Taxation [2000] FCA 196, the Full Federal Court, in examining the meaning of 'in respect of' an employee's employment, held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment'.

22. Based on the facts, it is considered that the provision of Opal cards, allowing free travel to PTO employees, is sufficiently and materially connected to the employment of the PTO employees and as such, any benefit would be considered to have been provided 'in respect of' their employment.

Is the benefit provided to a current employee?

23. An employee is defined in subsection 136(1) to include a current, future and former employee. Subsection 136(1) defines a 'current employee' to mean 'a person who receives, or is entitled to receive, salary or wages'.

24. 'Salary or wages', as defined in subsection 136(1), means payments from which an amount must be withheld under section 12-35 of Schedule 1 to the Taxation Administration Act 1953.

25. PTOs pay employees payments which are 'salary or wages'. Therefore, the employees are current employees of the PTOs.

Is the benefit provided by an employer or an associate?

26. The provider of the benefit is the PTOs (being the employer) through an arrangement with TfNSW.

27. As the provision of the Opal card allowing free travel is a benefit provided to an employee in respect of the employee's employment, the first limb of the definition of fringe benefit is met. The second limb (that is, whether the benefit is an exempt benefit) is considered in paragraphs 30 to 32 of this Ruling.

Is the benefit a residual benefit?

28. Section 45 provides that a benefit is a residual benefit for the purposes of the FBTAA if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive) of Part III.

29. The benefit of free travel provided on the Opal network does not fall under any other Division so, in these circumstances, a residual benefit is provided to the PTO employees.

Will the residual benefit be exempt?

30. The FBTAA specifies that certain benefits will be exempt benefits.

31. For the purpose of this Ruling, the relevant exempt residual benefit rules to be considered are contained in subsection 47(1).

Application of subsection 47(1)

32. In general terms, subsection 47(1) provides that a residual benefit consisting of transport otherwise than in an aircraft, provided to an employee in respect of their employment, is an exempt benefit. Subsection 47(1) states:

Where:(a)in respect of the employment of a current employee, the employer, or an associate of the employer, provides a residual benefit to the employee that consists of transport of the employee, otherwise than in an aircraft:(i)between:(A)the place of residence of the employee; and(B)the place of employment of the employee or any other place from which or at which the employee performs duties of that employment; or(ii)in a case where the place referred to in sub-subparagraph (i)(B) is in a metropolitan area – on a regular and scheduled service over a route wholly within that metropolitan area; and(b)where the provider is the employer – the employer carries on a business of providing transport to members of the public; and(c)where the provider is an associate of the employer – the employer and the associate each carries on a business of providing transport to members of the public; and(d)the transport referred to in paragraph (a) is provided in the same, or substantially the same, circumstances as transport provided to members of the public in the ordinary course of carrying on a business of providing transport to members of the public; and(e)the employee is employed in the business of providing transport to members of the public; and(f)the benefit is not provided under a salary packaging arrangement;

the benefit is an exempt benefit.

Does the residual benefit provided to the employee consist of transport between the place of residence and place of employment, or wholly within the metropolitan area?

33. The travel provided is not in an aircraft and therefore providing the travel between the place of residence of the employee, and the place of employment of the employee or any other place from which the employee performs duties of that employment, will be an exempt benefit.

34. Alternatively, where the place of employment is in a metropolitan area and the transport is provided wholly within the metropolitan area and all other requirements of subsection 47(1) have been met, the benefit will be an exempt benefit.

Metropolitan area

35. In the absence of a legislative definition, it is relevant to refer to the ordinary meaning of the word 'metropolitan'. The Encyclopedia Britannica defines a 'metropolitan area' as:

... a major city together with its suburbs and nearby cities, towns, and environs over which the major city exercises a commanding economic and social influence. Literally construed, metropolis from the Greek means "mother city," and by implication there are progeny or dependents scattered about the core area.

36. Therefore, it is accepted that a metropolitan area extends beyond an urban area to include not just the city itself but also the surrounding communities that have a high degree of economic and social integration with the core urban area.

37. The Opal network broadly sits inside the NSW Government's 'Six Cities Region'.

38. The Six Cities Region is an evolution of the previous 'A Metropolis of Three Cities' and specifically recognises the socio-economic integration and co-dependence across the region:

Our three-cities strategy has grown to a six-cities vision. We're working to create good jobs where people live, attracting world-class industry and talent, and delivering the infrastructure to connect the cities together.

39. The Opal network exhibits the attributes of a metropolitan area supporting the sharing of a labour market, along with social and economic integration, both in the current state and for achieving the NSW Government's future vision.

40. Therefore, we consider the entire Opal network to be within a single metropolitan area for the purposes of subsection 47(1).

Employer carries on a business of providing transport to members of the public

41. The PTOs are operators of public transport services, being bus transport, therefore they carry on a business of providing transport to members of the public.

The transport is provided in the same, or substantially the same, circumstances as transport provided to members of the public in the ordinary course of carrying on a business of providing transport to members of the public

42. The Scheme involves providing the employees with Opal cards that allow free transport across the Opal network in the same, or substantially the same, circumstances as the transport provided to members of the public, being public transport services across the Opal network.

The employee is employed in the business of providing transport to members of the public

43. Workers that are employed by the PTOs (which are operators of public transport) are employed in the business of providing transport to members of the public.

The benefit is not provided under a salary packaging arrangement

44. The benefit is not provided under a salary packaging arrangement.

Conclusion

45. Based on consideration of the factors discussed in paragraphs 32 to 44 of this Ruling, we consider that the requirements of subsection 47(1) have been met. Therefore the provision of Opal cards that allow free travel on the Opal network provided to employees of PTOs will be an exempt benefit.

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

What this Ruling is about

1. This Ruling sets out the fringe benefits tax (FBT) consequences for employer clients of Smartgroup Corporation Ltd's wholly owned subsidiaries who use the Smartgroup Logbook Solution for car logbook records and odometer records. In particular, this Ruling sets out when the reports generated by the Smartgroup Logbook Solution can be utilised to reduce the operating costs in both a logbook year of tax and a non-logbook year of tax to calculate the taxable value of a car fringe benefit using the operating cost method.

2. Details of this scheme are set out in paragraphs 13 to 34 of this Ruling.

3. All legislative references in this Ruling are to the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Who this Ruling applies to

4. This Ruling applies to you if you are an employer who uses Smartgroup Corporation Ltd's web-based logbook system for car logbook and odometer record-keeping requirements through its wholly owned subsidiaries.

5. Wholly owned subsidiaries of Smartgroup Corporation Ltd (collectively herein referred to as 'Smartgroup') are:•Smartfleet Management Pty Ltd•Smartsalary Pty Limited•Salary Packaging Solutions Pty Ltd trading as Advantage Salary Packaging•Fleet West Pty Ltd•Salary Solutions Australia Pty Ltd•AccessPay Pty Ltd•Autopia Management Pty Limited.

When this Ruling applies

6. This Ruling applies from 1 April 2023 to 31 March 2028.

Ruling

Logbook records

7. The Smartgroup Logbook Solution's 'Trip Report' and 'FBT Logbook Report' are documents which satisfy the requirements of the definition of 'log book records' in subsection 136(1).

Odometer records

8. The Smartgroup Logbook Solution's 'Trip Report' and 'FBT Logbook Report' are documents that satisfy the requirements of the definition of 'odometer records' in subsection 136(1).

Requirements of section 10A in a logbook year of tax

9. An employer in a logbook year of tax will satisfy the requirements in section 10A and is entitled to claim a reduction of operating costs if they use the Smartgroup Logbook Solution continuously for:•the duration of the 'applicable log book period' as that term is defined in subsection 162H(1), and•the whole of the 'holding period' as that term is defined in section 162C.

10. An employer in a logbook year of tax who uses the Smartgroup Logbook Solution continuously for the duration of the 'applicable log book period' as that term is defined in subsection 162H(1), but does not use the Smartgroup Logbook Solution continuously for the whole of the 'holding period' as defined in section 162C, satisfies the requirements in section 10A and is entitled to claim a reduction of operating costs provided the employer:•separately records the odometer readings for the beginning and end of the period of the year for which the car was held•estimates the number of business kilometres travelled by the car during the period of the year for which the car was held using all relevant matters including the Smartgroup Logbook Solution's 'Trip Report' and 'FBT Logbook Report', odometer records and any variations in the pattern of use of the car, and•specifies the business use percentage for the period of the year for which the car was held using the estimated number of business kilometres and the odometer readings for the beginning and end of the holding period.

Requirements of section 10B in a non-logbook year of tax

11. An employer in a non-logbook year of tax who uses the Smartgroup Logbook Solution's 'Trip Report' and 'FBT Logbook Report' continuously for the whole of the 'holding period', as that term is defined in section 162C, satisfies the requirements in section 10B and is entitled to claim a reduction of operating costs.

12. An employer in a non-logbook year of tax who has used the Smartgroup Logbook Solution in one of the previous 4 FBT years continuously for an 'applicable log book period', but does not use the system in that year of tax, or for the whole of the period that the car is held, satisfies the requirements in section 10B. They will be entitled to claim a reduction of operating costs of the car on account of business journeys undertaken in the car during the holding period, provided the employer:•separately records odometer readings for the beginning and end of the period of the year for which the car was held•estimates the number of business kilometres travelled by the car during the period of the year for which the car was held using all relevant matters including the Smartgroup Logbook Solution's 'Trip Report' and 'FBT Logbook Report', odometer records and any variations in the pattern of use of the car, and•specifies the business use percentage for the period of the year for which the car was held using the estimated number of business kilometres and the odometer readings for the beginning and end of the holding period.

Scheme

13. The following description of the scheme is based on information provided by the applicant.

14. The Smartgroup Logbook Solution is a web-based logbook system which can be used to log the journeys of a car during a pre-determined period. The Smartgroup Logbook Solution offers a default 12-week period but allows the logbook to record any period of time as determined by the user.

15. The Smartgroup Logbook Solution consists of the following features:•car and employee registration with secure login and password features•mobile and tablet responsive, allowing the driver to classify journey information and record the purpose of each journey•secure remote data management platform (Platform) that securely receives, processes, reports and stores the journey information•reporting module to generate reports•ability to choose from 12-week log type or continuous log type•ability to choose recording business trip only or all trips (that is, include private trips)•a trip classification help guide for employee's reference•automatic email reminder to enter last trip for 12-week log if time period has elapsed•system automatically wraps up the logbook and notifies the driver after entering last trip for 12-week log•ability to download logbook report with trip details in 'comma-separated values' format•automatic calculation of business percentage and private percentage in a logbook report, and•system automatically checks trip reason – if it is not one of the reasons pre-loaded into the system tailored to the applicable employer client's business purposes, the system will request that the driver provide more details.

16. The user is prompted to enter the following information prior to commencing the first trip for which the Smartgroup Logbook Solution is used:•login and password details•opening odometer reading from the car's built-in odometer, and•car registration details, including number plate registration, year of manufacture, manufacturer, model and engine capacity.

17. The user provides information to set up the user account at the time of registration. This information includes the following:•name of driver•car registration•car make and model•email address for user notifications and the Smartgroup Logbook Solution configuration, and•login and password details.

18. This information is stored securely on the Platform.

19. The Platform processes the data entered and generates a log for the specific device which represents the individual driver. Part of the processing includes collation of various entries to create individual trips referred to in the Smartgroup Logbook Solution as a 'Trip Log'.

20. The Smartgroup Logbook Solution allows the user to view, review and report on all data. The journey identifies the user's classification of the trip as either business or personal using the available selection menu. There is also a display of the current business use percentage based on the Trip Logs that have already been classified.

21. The Smartgroup Logbook Solution compiles information from the Trip Logs to produce a logbook report providing the following information:•start date of the logbook period•car registration•date each trip occurs•start and end time of each trip•total kilometres travelled during the trip as calculated using the start and end odometer readings•start and end odometer reading•trip details•classification of trip, and•purpose of the journey.

22. The report is produced in English and can be exported in a variety of formats such as 'comma-separated values' format.

23. The user is prompted to enter the odometer reading displayed on the car's odometer at the commencement of the journey.

24. The Smartgroup Logbook Solution calculates and displays 'business use percentage' and 'personal use percentage' with the percentages calculated using the following formula:

Business use percentage = number of business kilometres travelled by a car during the holding period ÷ total number of kilometres by the car during the holding period × 100

Personal use percentage = number of personal kilometres travelled by the car during the holding period ÷ total number of kilometres travelled by the car during the holding period × 100

25. The Smartgroup Logbook Solution calculates both the number of business kilometres and the total number of kilometres travelled by the car during the holding period where it is used continuously for the whole of the period year for which the car is held thereby calculating the business use percentage for the holding period.

26. Where the Smartgroup Logbook Solution is not continuously used for the whole of the period of the year for which the car is held, the system will not record the number of business kilometres travelled during the holding period nor the total number of kilometres travelled during the holding period. The user will need to separately determine the business use percentage using the estimated number of business kilometres and the odometer readings for the beginning and end of the holding period.

Trip Report

27. The employer can at any stage export a progress report of trip data outlining all trips completed during the logbook period. The employer can then use the information contained within the Smartgroup Logbook Solution to generate a 'Trip Report' on demand as required, which details each individual journey undertaken by each vehicle.

28. The 'Trip Report' provides the following information for each journey undertaken in the selected period:•the start and end date of the logbook period•the car's description•the start and end date on which each journey occurs•the total distance for the journey•the private distance for the journey•the business distance for the journey•the 'start and end odometer readings' for each journey•the driver identification•the status (purpose) of the journey•the address (that is, the location details for the journey)•the total distance for the entire reporting period (per car basis)•the total private distance for the entire reporting period (per car basis)•the total business distance for the entire reporting period (per car basis), and•the automatic calculation of the business use percentage.

29. In relation to the trip purpose, each Smartgroup Logbook Solution client can customise the trip purpose reason in the Trip Report to suit their own business. That is, Smartgroup Logbook Solution clients may wish to have any number of trip purposes all relating to the business usage, for example, client care visit, call out trip, or delivery.

30. An employer will use the Smartgroup Logbook Solution to produce, in English, a 'Trip Report' for any selected period for each car that has the system fitted or for each employee who uses the car that has the system fitted.

31. The Trip Report also provides details of the calculated business use percentage for the selected period based on the information contained in the Smartgroup Logbook Solution.

32. All employer clients using the Smartgroup Logbook Solution will make an election under paragraph 162G(1)(b) to treat a relevant current year of tax as a 'log book year of tax'.

FBT Logbook Report

33. The employer client can use the information contained in the Smartgroup Logbook Solution to generate a 'FBT Logbook Report' which provides details of the calculated business use percentage for the selected period.

34. The FBT Logbook Report provides:•the start and end date of the logbook period•the car's registration number•the car's description, including make/model and engine capacity•the start and end date on which each journey occurs•the start and end odometer readings•the total distance for the journey•the private distance for the journey•the business distance for the journey•the purpose of the journey•the total distance for the entire reporting period (per car basis)•the total private distance for the entire reporting period (per car basis), and•the total business distance for the entire reporting period (per car basis).

What is the operating cost method under section 10?

35. Section 10 allows employers to elect to calculate the taxable value of a car fringe benefit using the cost basis method (operating cost method).

36. Where the election is made, the taxable value of a car fringe benefit using the operating cost method is calculated according to the following formula in subsection 10(2):

(C × (100% − BP)) − R

where:

C is the operating cost of the car during the holding period;

BP is:(a)if, under section 10A or 10B, the employer is not entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period – nil; or(b)...(c)in any other case – the business use percentage applicable to the car for the holding period; and

R is the amount (if any) of the recipient's payment.

37. Therefore, an employer intending to claim a reduction in the operating cost of a car, on account of business journeys undertaken during the holding period, must meet the requirements of either section 10A (if the year is a 'log book year of tax' (as defined in paragraph 39 of this Ruling)) or section 10B (if the year is not a 'log book year of tax'), as applicable.

Do the 'Trip Report' and the 'FBT Logbook Report' generated by Smartgroup's web-based logbook system (the Smartgroup Logbook Solution) meet the relevant requirements of section 10A?

38. Section 10A states:

Where one or more car fringe benefits in relation to an employer in relation to a year of tax relate to a car while it was held by a particular person (in this section called the provider) during a particular period (in this section called the holding period) in a year of tax that is a log book year of tax of the employer in relation to the car, the employer is entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period if, and only if:(a)log book records and odometer records are maintained by or on behalf of the provider for an applicable log book period in relation to the car; and(b)odometer records are maintained by or on behalf of the provider for the holding period; and(c)if the provider is not the employer – those log book records and odometer records are given to the employer before the declaration date; and(d)the employer specifies the employer's estimate of the number of business kilometres travelled by the car during the holding period; and(e)the employer specifies a percentage as the business use percentage applicable to the car in relation to the provider for the holding period.

39. Section 162G sets out various circumstances under which a particular year can be treated as a 'log book year of tax'. It is accepted that all employer clients using the Smartgroup Logbook Solution will make an election under paragraph 162G(1)(b) to treat a relevant current year of tax as a 'log book year of tax'.

Do the 'Trip Report' and 'FBT Logbook Report' generated by the Smartgroup Logbook Solution satisfy the requirements of the definition of 'log book records' under subsection 136(1)?

40. Subsection 136(1) defines 'log book records' as:

log book records, in relation to a car held by a person (in this definition called the holder), in relation to a period, means a daily log book or similar document in which, in respect of each business journey:(a)that is undertaken in the car during the period; and(b)that the holder, or a person acting on behalf of the holder, chooses to record in the document for the purpose of demonstrating the pattern of use of the car during the period;

an entry setting out particulars of:(c)the date on which the journey began and the date on which it ended; and(d)the respective odometer readings of the car at the beginning and end of the journey; and(e)the number of kilometres travelled by the car in the course of the journey; and(f)the purpose or purposes of the journey;...

is made in the English language at, or as soon as reasonably practicable after, the end of the journey.

41. A logbook record is essentially a daily logbook or similar document which contains an entry for each business journey made in the car during the period (paragraph (a) of the definition of 'log book records' in subsection 136(1)) that the holder of the car chooses to record in the document for the purposes of demonstrating the pattern of use of the car during the relevant period (paragraph (b) of the 'log book records' definition in subsection 136(1)).

42. The Smartgroup Logbook Solution's web-based logbook system collects all applicable information for each journey undertaken by a car (that is, it records the location, date, purpose and distance travelled for each journey) and automatically sends the data to the Smartgroup Logbook Solution's centralised server.

43. In addition to this, the business use or private use details for each journey are input by each respective driver through the Smartgroup Logbook Solution's online portal. The relevant employer client then uses the Smartgroup Logbook Solution to produce, in English, a Trip Report and a FBT Logbook Report for the selected period.

44. Paragraph (c) of the definition of 'log book records' in subsection 136(1) requires the date on which the journey began and ended to be entered in the relevant records. The Smartrgroup Logbook Solution records the start and end dates and times of each journey and this information is detailed in both the Trip Report and the FBT Logbook Report. Therefore, this requirement is satisfied.

45. Paragraph (d) of the definition of 'log book records' in subsection 136(1) requires the respective odometer readings of the car at the beginning and at the end of the journey be entered into the relevant records.

46. The term 'odometer' is not defined in either the FBTAA or the Income Tax Assessment Act 1997 but the Macquarie Dictionary^[1] defines that term as being 'an instrument for measuring distance passed over, as by a motor vehicle'.

47. The term 'odometer records', as defined in subsection 136(1) makes reference to the 'odometer reading of the car'. While odometer readings must pertain to the car, it does not necessarily mean that they must also be attributable either wholly or in part to the rotation of the car's wheels, thereby mechanically moving the standard odometer fitted in the car by the manufacturer.

48. Provided the device used by the Smartgroup Logbook Solution to determine the car's odometer readings is of sufficient integrity, it is accepted that a system other than the car's own odometer may meet the FBTAA legislative requirements.

49. The user is prompted to enter the opening odometer reading displayed on the car's built-in odometer prior to commencing the first trip for which the Smartgroup Logbook Solution is used. Each time the car is driven, the start and end odometer readings for the journey are automatically calculated by the Smartgroup Logbook Solution's web-based logbook system from the data recorded. It is therefore accepted that the opening and closing odometer readings calculated by the Smartgroup Logbook System's web-based logbook system are of sufficient integrity to be odometer readings of the car.

50. It is accepted that the opening and closing odometer readings for each car journey as detailed in both the Trip Report and the FBT Logbook Report generated by the Smartgroup Logbook Solution satisfy the requirements of paragraph (d) of the definition of 'log book records' in subsection 136(1).

51. The number of kilometres travelled by the car in the course of each journey is also detailed in both the Trip Report and the FBT Logbook Report, thus satisfying the requirement in paragraph (e) of the definition of 'log book records' in subsection 136(1).

52. Paragraph (f) of the definition of 'log book records' in subsection 136(1) requires the purpose or purposes of the business journeys to be recorded. Further, the definition of 'log book records' requires that entries be made at, or as soon as reasonably practicable after, the end of the journey.

53. In relation to the trip purpose, each Smartgroup Logbook Solution employer client can customise the trip purpose reason in the Trip Report to suit their own business. That is, Smartgroup Logbook Solution clients may wish to have any number of trip purposes relating to the business usage – for example, 'client care visit', 'call out trip', or 'delivery'. For each journey, the driver or user classifies the journey as either business or personal using the available selection menu and records the purpose of each journey. The system automatically checks the trip reason, and requests the driver to provide more detail if required. The Smartgroup Logbook Solution allows the user to view, review and report on all data.

54. It is expected that the reason recorded for each business journey is sufficiently descriptive so as to enable the journey to be classified as a business journey and that the relevant classification and description will be made at the end of each journey, or as soon as reasonably practicable thereafter.

55. It is accepted that both the Smartgroup Logbook Solution's Trip Report and FBT Logbook Report satisfy the requirements in paragraph (f) of the definition of 'log book records' in subsection 136(1).

56. It is considered that the Trip Report and FBT Logbook Report generated by the Smartgroup Logbook Solution is 'a daily log book or similar document' that satisfies the requirement of having the relevant entries 'made in the English language at, or as soon as reasonably practicable after, the end of the journey'.

57. The Trip Report and FBT Logbook Report generated by the Smartgroup Logbook Solution satisfy the definition of 'log book records' in subsection 136(1) provided, for the purposes of section 10A, the Trip Report and FBT Logbook Report are completed for an 'applicable log book period' as defined in subsection 162H(1).

Are the logbook records maintained for an 'applicable log book period'?

58. The definition of 'log book records' in subsection 136(1) also requires that each business journey recorded in the logbook records be in relation to a 'period'. Paragraph 10A(a) refers to 'log book records' being maintained for an 'applicable log book period'.

59. The term 'applicable log book period' is defined in subsection 162H(1) as follows:

For the purposes of the application of section 10 in relation to a car fringe benefit in relation to an employer in relation to a car while it was held by a particular person during a particular period (in this subsection called the "holding period") starting or ending in a year of tax, a reference to the applicable log book period is a reference to:(a)if the holding period is a period of less than 12 weeks – the holding period; or(b)in any other case – a continuous period of not less than 12 weeks that begins and ends during the holding period.

60. The Trip Reports and FBT Logbook Reports that are generated by the Smartgroup Logbook Solution can be configured for a minimum 12 week period under the Scheme. The logbook beginning and end date is displayed on the printed logbook. It is accepted that in the absence of evidence to the contrary in a particular case, all employer clients using the Smartgroup Logbook Solution's Trip Report and FBT Logbook Report in relation to any car fringe benefits that they provide will maintain the necessary records for the duration of the 'applicable log book period'.

61. Accordingly, it is considered that the Trip Report and FBT Logbook Report generated by the Smartgroup Logbook Solution satisfy all of the relevant requirements of the definition of 'log book records' as defined in subsection 136(1).

Do the 'Trip Report' and 'FBT Logbook Report' generated by the Smartgroup Logbook Solution satisfy the requirements of the definition of 'odometer records' under subsection 136(1)?

62. In order to meet the requirements of section 10A, it is essential that 'odometer records' are maintained in addition to 'log book records'.

63. The term 'odometer records' is defined in subsection 136(1) as:

odometer records , in relation to a car, in relation to a period, means a document in which particulars of:(a)the odometer reading of the car at the commencement of the period; and(b)the odometer reading of the car at the end of the period; and(c)if paragraph 162K(2)(b) or 162L(2)(b) applies with effect from a particular date – the odometer readings of both the replacement car and of the original car referred to in that paragraph, as at that date....

are entered in the English language, at, or as soon as reasonably practicable after, the respective times to which those odometer readings relate.

64. The definition of 'odometer records' in subsection 136(1) requires that odometer readings be recorded both at the 'commencement of the period' and at the 'end of the period'.

65. The Smartgroup Logbook Solution's Trip Report and the FBT Logbook Report provide details of the odometer reading for the car at the start of the first recorded journey and also the odometer reading for the car at the end of the last recorded journey that were undertaken during each reporting period.

66. As stated at paragraph 60 of this Ruling, it is accepted that in the absence of evidence to the contrary in a particular case, all employer clients using the Smartgroup Logbook Solution's Trip Report and FBT Logbook Report in relation to any car fringe benefits they provide will maintain the necessary records for the 'applicable log book period'.

67. A report can be generated at the end of the logbook period showing the odometer recordings made and the type of journey undertaken. It is accepted that the Smartgroup Logbook Solution's Trip Report and FBT Logbook Report meet the necessary requirement of having entries made in English at, or as soon as reasonably practicable after, the end of the journey.

68. It is considered that the Trip Report and the FBT Logbook Report generated by the Smartgroup Logbook Solution satisfy all of the relevant requirements of the definition of 'odometer records' as defined in subsection 136(1).

Are the odometer records maintained for the 'holding period'?

69. Paragraph 10A(b) requires odometer records to be maintained for the 'holding period' as defined in section 162C.

70. Section 162C states:

Unless the contrary intention appears, a reference in this Act to a period in a year of tax during which a person held a car is a reference to the period that:(a)commences on whichever of the following times is applicable:(i)if the person held the car at the time of commencement of the year of tax – that time;(ii)in any other case – the time in the year of tax when the person commenced to hold the car; and(b)ends at whichever of the following times is applicable:(i)if the person continued to hold the car until the time of the end of the year of tax – that time;(ii)in any other case – the time in the year of tax when the person ceased to hold the car.

71. Subsection 162(1) states, among other things, that a car will be held by a person if that person either owns or leases the car. Therefore, the continuous period during a FBT year (including the whole year of tax, where applicable) where the employer client either owns or leases a car will be the 'holding period' of that car.

72. Consequently, the odometer readings at the beginning and end of the period during the FBT year (including the whole year of tax, where applicable) where the employer client either owns or leases a car will have to be determined. If the Smartgroup Logbook Solution is used continuously for the whole period that a car is held during a FBT year, the Smartgroup Logbook Solution will provide odometer readings for both the beginning and end of that holding period.

73. However, if the Smartgroup Logbook Solution is not used continuously for the whole of the holding period of the car during the FBT year, the employer client will need to separately maintain the odometer readings for the holding period.

74. It is accepted that, in the absence of any evidence to the contrary in a particular case, the requirement in paragraph 10A(b) will be met by employer clients using the Smartgroup Logbook Solution.

Do the 'Trip Report' and 'FBT Logbook Report' generated by the Smartgroup Logbook Solution enable the employer to estimate the number of business kilometres travelled during the holding period in a logbook year of tax?

75. Paragraph 10A(d) requires the employer client to estimate the number of business kilometres travelled by the car during the holding period. This estimate is used to calculate the business use percentage required by paragraph 10A(e).

76. The basis used to estimate the number of business kilometres is set out in section 162F which states:

For the purposes of this Act, the number of kilometres that represents a reasonable estimate of the number of business kilometres applicable to a car held by a person during a period in a year of tax shall be determined having regard to all relevant matters including, but without limiting the generality of the foregoing.(a)any log book records, odometer records or other records maintained by or on behalf of the person; and(b)any variations in the pattern of use of the car.

77. The Smartgroup Logbook Solution calculates both the number of business kilometres and the total number of kilometres travelled by the car during the holding period where it is used continuously for the whole of the period of the year for which the car is held. Therefore, where the Smartgroup Logbook Solution is used continuously for the whole of the period of the year for which the car is held, both the Trip Report and the FBT Logbook Report will enable the employer client to determine the number of business kilometres travelled during the holding period.

78. However, where the Smartgroup Logbook Solution is not continuously used for the whole of the period of the year for which the car is held, the system will not record the number of business kilometres travelled during the holding period, or the total number of kilometres travelled during the holding period. In such a situation, the employer client, in estimating the number of business kilometres travelled during the holding period, will need to take all relevant matters into account including any other logbook records and odometer records maintained by or on behalf of the user or driver, and any variations in the pattern of use of the car.

79. It is accepted that, in the absence of any evidence to the contrary in a particular case, the requirement in paragraph 10A(d) will be met by employer clients using the Smartgroup Logbook Solution.

Do the 'Trip Report' and 'FBT Logbook Report' generated by the Smartgroup Logbook Solution enable employer clients to specify the business use percentage for the holding period in a logbook year of tax?

80. Paragraph 10A(e) requires the employer client to specify a percentage as the 'business use percentage' applicable to a car for the holding period in a logbook year of tax.

81. Subsection 136(1) defines 'business use percentage' to mean the percentage worked out using the formula:

number of business kilometres travelled by the car during the holding period ÷ total number of kilometres travelled by the car during the holding period × 100

82. The Smartgroup Logbook Solution calculates both the number of business kilometres and the total number of kilometres travelled by the car during the holding period where it is used continuously for the whole of the period of the year for which the car is held. Therefore, where the Smartgroup Logbook Solution is used continuously for the whole of the period of the year for which the car is held, both the Trip Report and FBT Logbook Report automatically calculate for the employer client the business use percentage for the holding period.

83. However, where the Smartgroup Logbook Solution is not continuously used for the whole of the period of the year for which the car is held, the system will not record the number of business kilometres travelled during the holding period, nor the total number of kilometres travelled during the holding period. In such a situation, the employer client will need to separately determine the business use percentage using the estimated number of business kilometres and the odometer readings for the beginning and the end of the holding period.

84. It is accepted that, in the absence of any evidence to the contrary in a particular case, the requirement in paragraph 10A(e) will be met by employer clients using the Smartgroup Logbook Solution.

Conclusion on whether the 'Trip Report' and 'FBT Logbook Report' generated by the Smartgroup Logbook Solution satisfies the requirements of section 10A

85. Both the Trip Report and the FBT Logbook Report generated by the Smartgroup Logbook Solution's web-based logbook system are documents that satisfy the definitions of 'log book records' and 'odometer records' in subsection 136(1) for the purposes of paragraph (a) of section 10A.

86. It is accepted that, in the absence of any evidence to the contrary in a particular case, all remaining applicable requirements of section 10A will be met by employer clients who use the Trip Report and the FBT Logbook Report generated by the Smartgroup Logbook Solution.

87. Therefore, an employer in a logbook year of tax will satisfy the requirements in section 10A and is entitled to claim a reduction of operating costs if they use the Smartgroup Logbook Solution continuously for:•the duration of the 'applicable log book period' as that term is defined in subsection 162H(1), and•the whole of the 'holding period' as that term is defined in section 162C.

88. Additionally, an employer in a logbook year of tax who uses the Smartgroup Logbook Solution continuously for the duration of the 'applicable log book period' as that term is defined in subsection 162H(1), but does not use the Smartgroup Logbook Solution continuously for the whole of the 'holding period' as defined in section 162C, satisfies the requirements in section 10A and is entitled to claim a reduction of operating costs provided the employer:•separately records the odometer readings for the beginning and end of the period of the year for which the car was held•estimates the number of business kilometres travelled by the car during the period of the year for which the car was held using all relevant matters including the Smartgroup Logbook Solution's 'Trip Report' and 'FBT Logbook Report', odometer records and any variations in the pattern of use of the car, and•specifies the business use percentage for the period of the year for which the car was held using the estimated number of business kilometres and the odometer readings for the beginning and end of the holding period.

Do the 'Trip Report' and 'FBT Logbook Report' generated by the Smartgroup Logbook Solution meet the relevant requirements of section 10B?

89. Section 10B states:

Where one or more car fringe benefits in relation to an employer in relation to a year of tax relate to a car while it was held by a particular person (in this section called the "provider") during a particular period (in this section called the "holding period") in a year of tax that is not a log book year of tax of the employer in relation to the car, the employer is entitled to a reduction in the operating cost of the car on account of business journeys undertaken during the holding period in the car if, and only if:(a)odometer records are maintained by or on behalf of the provider in relation to the car for the holding period and, if the provider is not the employer, are given to the employer before the declaration date; and(b)the employer specifies the employer's estimate of the number of business kilometres travelled by the car in the holding period; and(c)the employer specifies the business use percentage applicable to the car in relation to the provider for the holding period.

90. The definitions of the terms 'odometer records', 'holding period' and 'business use percentage' are as defined in paragraphs 63, 70 and 81 of this Ruling respectively.

91. Where the Smartgroup Logbook Solution is used continuously for the whole of the holding period, both the Trip Report and the FBT Logbook Report will meet all the necessary requirements of section 10B in a non-logbook year of tax as they:•provide odometer records for the beginning and end of that holding period•determine the number of kilometres travelled on the journeys classified as business journeys during the period for which the system is continuously used, and•calculate the business use percentage for the selected period using the determined number of business kilometres travelled and the odometer readings for the beginning and end of the holding period.

92. An employer client in a non-logbook year of tax who does not use the Smartgroup Logbook Solution in that year of tax, or does not use it for the whole of the period that the car is held but has used the system in one of the previous 4 FBT years continuously for an 'applicable log book period', will not by itself satisfy the requirements of section 10B. The employer client will also need to:•separately maintain odometer readings for the beginning and end of the period of the year for which the car was held•estimate the number of business kilometres travelled by the car during the period of the year for which the car was held using all the relevant matters including the Smartgroup Logbook Solution and any other logbook records and odometer records maintained by or on behalf of the user or driver, and any variations in the pattern of use of the car, and•specify the business use percentage for the period of the year for which the car is held using the estimated number of business kilometres and the odometer readings for the beginning and end of the holding period.

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

What this Ruling is about

1. This Ruling sets out the fringe benefits tax (FBT) consequences for users of the reports generated by the Toyota Halo system, using the Data Communication Module (DCM) hardware, for car logbook and odometer records. In particular, this Ruling sets out when the reports generated by the Toyota Halo system, using the DCM hardware, can be utilised to reduce the operating costs in both a logbook year of tax and a non-logbook year of tax for the purpose of calculating the taxable value of a car fringe benefit using the cost basis method.

2. All legislative references in the Ruling are to the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

3. Details of this scheme are set out in paragraphs 12 to 28 of this Ruling.

Note: By issuing this Ruling, the ATO is not endorsing this product. Potential purchasers or users must form their own view about the product.

Who this Ruling applies to

4. This Ruling applies to you if you are an employer who uses the DCM hardware in conjunction with the Toyota Halo system for car logbook record and odometer record-keeping requirements.

When this Ruling applies

5. This Ruling applies from 1 April 2024 to 31 March 2028.

Ruling

Logbook records

6. The reports generated by the Toyota Halo system, using the DCM hardware, satisfy the definition of 'log book records' for the purposes of subsection 136(1), provided the:•report is for an 'applicable log book period' as defined in subsection 162H(1)•purpose of the journey is sufficiently descriptive to enable the journey to be classified as a business journey, and•details are recorded at, or as soon as reasonably practicable after, the end of the journey.

Odometer records

7. The reports generated by the Toyota Halo system, using the DCM hardware, satisfy the definition of 'odometer records' in subsection 136(1).

Requirements of section 10A in a logbook year of tax

8. An employer in a logbook year of tax will satisfy the requirements in section 10A and is entitled to claim a reduction of operating costs if they use the reports generated by the Toyota Halo system, in conjunction with the DCM hardware, continuously for the:•duration of the 'applicable log book period' as defined in subsection 162H(1), and•whole of the 'holding period' as defined in section 162C.

9. An employer in a logbook year of tax who uses the Toyota Halo system, in conjunction with the DCM hardware, continuously for the duration of the 'applicable log book period' as that term is defined in subsection 162H(1), but does not use the Toyota Halo system, in conjunction with the DCM hardware, continuously for the whole of the 'holding period' as defined in section 162C, satisfies the requirements in section 10A and is entitled to claim a reduction of operating costs provided the employer:•separately records the odometer readings for the beginning and end of the period of the year for which the car was held•estimates the number of business kilometres travelled by the car during the period of the year for which the car was held using all relevant matters including the reports generated by the Toyota Halo system in conjunction with the DCM hardware, and any variations in the pattern of use of the car, and•specifies the business use percentage for the period of the year for which the car was held using the estimated number of business kilometres and the odometer readings for the beginning and end of the holding period.

Requirements of section 10B in a non-logbook year of tax

10. An employer in a non-logbook year of tax that uses the Toyota Halo system in conjunction with the DCM hardware continuously for the whole of the holding period (as defined in section 162C) satisfies the requirements in section 10B and is entitled to claim a reduction of operating costs.

11. An employer in a non-logbook year of tax who has used the Toyota Halo system in conjunction with the DCM hardware in one of the previous 4 FBT years continuously for an 'applicable log book period', but does not use it in that year of tax or for the whole of the period that the car is held, satisfies the requirements in section 10B. They will be entitled to claim a reduction of operating costs of the car on account of business journeys undertaken in the car during the holding period, provided the employer:•separately records odometer readings for the beginning and end of the period of the year for which the car was held•estimates the number of business kilometres travelled by the car during the period of the year for which the car was held, using all relevant matters including the reports generated by the Toyota Halo system in conjunction with the DCM hardware, and any variations in the pattern of use of the car, and•specifies the business use percentage for the period of the year for which the car is held using the estimated number of business kilometres and the odometer readings for the beginning and end of the holding period.

Scheme

12. The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon.

13. Toyota Motor Corporation Australia Limited offers its customers an option to purchase a vehicle logbook system in conjunction with a genuine Toyota accessory.

14. The vehicle logbook system was originally produced by another entity and was rebranded and renamed by Toyota as 'Toyota Halo'.

15. The purpose of the Toyota Halo system is to maintain records required for the purposes of FBT.

16. This Ruling is with respect to an in-built telematics hardware device known as a Data Communication Module (DCM).

17. The DCM product will be installed on the build of newer vehicles of the Toyota range and can be activated by the owner to access the Toyota Halo system.

18. The Toyota Halo system consists of:•a DCM device with integrated Global Positioning System (GPS) capability that is installed in a vehicle to capture journey information, which-is able to monitor the position of the vehicle so as to determine the vehicle's journeys-records the start and stop times of the journeys-calculates the distance travelled for each of the journeys-allows the driver and administrators to manually classify and review all trips per activity types•an online platform which is used to-monitor the vehicle's movements and log its journeys constantly-display the data relating to a configurable period which can include a pre-defined logbook period for a minimum of 12 weeks-securely receive, process, report and store the journey information for the duration of the customer's contract period•a smart phone-based mobile application which will allow the user-at the conclusion of each vehicle journey to record the type of journey-view and classify previous trips that have not been classified and to classify any unclassified trips as private•a web browser-based secure interface which allows the user to access the platform.

19. Reports are maintained on the Toyota Halo platform and generated by the administrator on-demand on a customisable beginning and end date with a minimum 12-week period. The log book beginning and end date is displayed and printed on the finished log book.

20. Customer vehicles are fitted with a DCM device with integrated GPS capability that automatically and regularly communicate to the Toyota Halo platform via the third generation (3G) or fourth generation (4G) Telstra mobile networks.

21. The DCM device is powered by the vehicle's battery.

22. The DCM device reads the odometer reading from the CANbus (Controller Area Network) of the vehicle. Actual odometer readings are automatically uploaded to the Toyota Halo platform upon activation. Every trip is logged within Toyota Halo, requiring users to classify every trip made as either 'personal' or 'business' with the relevant description. The user can use a mobile device or a desktop or laptop computer to classify each journey.

23. For all classified business journeys, the user must include the journey purpose. The system will not allow a trip to be classified as 'business' without stating the purpose. This data can then be reviewed and audited by a customer's appointed system administrator. All information on any journey undertaken by a vehicle will be sent via the mobile network to be stored on the Toyota Halo platform. The DCM device will buffer up to 2 minutes of concurrent tracking if there is no mobile network to connect.

24. A customer will be able to use the Toyota Halo system to produce (in English) an FBT vehicle logbook for any selected time period for each compatible vehicle that has the system correctly installed.

25. The logbook administrator can review all trip information and is required to identify any errors or potentially misclassified trips prior to completing the logbook. The logbook can only be printed by a user with logbook administration rights and only then once all trips in the logbook have been classified and the logbook completed by the user.

26. Reports generated by the Toyota Halo system will provide the following information:•start and end date of the logbook period•journey type (private or business)•status (purpose) of the journey•user attributes (including name and vehicle registration details)•start time and date when each journey occurs•location the journey commenced•starting odometer reading•end time and date when each journey was completed•location the journey was completed•ending odometer reading, and•total distance travelled during the journey (in kilometres).

27. The Toyota Halo system's generated reports provide details of the calculated business use percentage for the selected period (percentage of number of business kilometres travelled to the total number of kilometres travelled).

28. When connected to a compatible mobile network, the Toyota Halo system ensures delivery of each message to the platform. When momentarily disconnected from a compatible mobile network, the DCM hardware operates as follows:•Near real-time streamed location data (at one minute intervals), data is stored for approximately 2 minutes (continually overwritten).•Trip data (start time, date, odometer, GPS, end time, date, odometer, GPS), data is stored for approximately 2 minutes (continually overwritten).•For both data types, upon reconnection to compatible mobile network, transmission of any collected data which has not been successfully sent offboard will be reattempted.

What is the operating cost method under section 10?

29. Section 10 allows employers to elect to calculate the taxable value of a car fringe benefit using the cost basis method (operating cost method).

30. Where the election is made, the taxable value of a car fringe benefit using the operating cost method is calculated according to the following formula in subsection 10(2):

(C × (100% − BP)) − R

where:

C is the operating cost of the car during the holding period;

BP is:(a)if, under section 10A or 10B, the employer is not entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period – nil; or(c)in any other case – the business use percentage applicable to the car for the holding period; and

R is the amount (if any) of the recipient's payment.

31. Therefore, an employer intending to claim a reduction in the operating cost of a car, on account of business journeys undertaken during the holding period, must meet the requirements of either section 10A (if the year is a 'log book year of tax' (as defined in paragraph 33 of this Ruling)) or section 10B (if the year is not a 'log book year of tax'), as applicable.

Does the Toyota Halo System using the Data Communication Module hardware meet the relevant requirements of section 10A?

32. Section 10A states:

Where one or more car fringe benefits in relation to an employer in relation to a year of tax relate to a car while it was held by a particular person (in this section called the provider) during a particular period (in this section called the holding period) in a year of tax is a log book year of tax of the employer in relation to the car, the employer is entitled to a reduction in the operating cost of the car on account of business journeys undertaken in the car during the holding period if, and only if:(a)log book records and odometer records are maintained by or on behalf of the provider for an applicable log book period in relation to the car; and(b)odometer records are maintained by or on behalf of the provider for the holding period; and(c)if the provider is not the employer – those log book records and odometer records are given to the employer before the declaration date; and(d)the employer specifies the employer's estimate of the number of business kilometres travelled by the car during the holding period; and(e)the employer specifies a percentage as the business use percentage applicable to the car in relation to the provider for the holding period.

33. Section 162G sets out various circumstances under which a particular year can be treated as a 'log book year of tax'. It is accepted that all employers using the Toyota Halo system in conjunction with the DCM hardware will make an election under paragraph 162G(1)(b) to treat a relevant current year of tax as a 'log book year of tax'.

Does the Toyota Halo system using the Data Communication Module hardware satisfy the requirements of the definition of 'log book records' under subsection 136(1)?

34. Subsection 136(1) defines 'log book records' as:

log book records, in relation to a car held by a person (in this definition called the holder), in relation to a period, means a daily log book or similar document in which, in respect of each business journey:(a)that is undertaken in the car during the period; and(b)that the holder, or a person acting on behalf of the holder, chooses to record in the document for the purpose of demonstrating the pattern of use of the car during the period;

an entry setting out particulars of:(c)the date on which the journey began and the date on which it ended; and(d)the respective odometer readings of the car at the beginning and end of the journey; and(e)the number of kilometres travelled by the car in the course of the journey; and(f)the purpose or purposes of the journey;

is made in the English language at, or as soon as reasonably practicable after, the end of the journey.

35. A logbook record is essentially a daily logbook or similar document which contains an entry for each business journey made in the car during the period (paragraph (a) of the definition of 'log book records' in subsection 136(1)) that the holder of the car chooses to record in the document for the purposes of demonstrating the pattern of use of the car during the relevant period (paragraph (b) of the 'log book records' definition in subsection 136(1)).

36. Paragraph (c) of the definition of 'log book records' in subsection 136(1) requires the date on which the journey began and ended to be entered in the relevant records. The Toyota Halo system in conjunction with the DCM hardware records the start and end dates and times of each journey and this information is detailed in the reports it generates. Therefore, this requirement is satisfied.

37. Paragraph (d) of the definition of 'log book records' in subsection 136(1) requires the respective odometer readings of the car at the beginning and at the end of the journey be entered into the relevant records.

38. The term 'odometer' is not defined in either the FBTAA or the Income Tax Assessment Act 1997 but the Macquarie Dictionary defines that term as being, 'an instrument for measuring distance passed over, as by a motor vehicle'.

39. The term 'odometer records', as defined in subsection 136(1), makes reference to 'odometer reading of the car'. While odometer readings must pertain to the car, it does not necessarily mean that they must also be attributable either wholly or in part to the rotation of the car's wheels, thereby mechanically moving the standard odometer fitted in the car by the manufacturer.

40. Provided the GPS device used to determine the car's odometer readings is of sufficient integrity, it is accepted that a system other than the car's own odometer may meet the legislative requirements of the FBTAA.

41. Each time the car is driven, the start and end odometer readings for the journey are calculated from the GPS and other telemetry data recorded. It is accepted that the opening and closing odometer readings calculated by the Toyota Halo system, in conjunction with the DCM hardware, is of sufficient integrity to be odometer readings of the car.

42. It is accepted that the opening and closing odometer readings for each car journey detailed in the reports generated by the Toyota Halo system, using the DCM hardware, satisfy the requirements of paragraph (d) of the definition of 'log book records' in subsection 136(1).

43. The number of kilometres travelled by the car in the course of each journey is also detailed in the reports generated by the Toyota Halo system, using the DCM hardware, thus satisfying the requirement in paragraph (e) of the definition of 'log book records' in subsection 136(1).

44. Paragraph (f) of the definition of 'log book records' in subsection 136(1) requires the purpose or purposes of the business journeys to be recorded. Further, the definition of 'log book records' requires that entries be made at, or as soon as reasonably practicable after, the end of the journey.

45. The classification of a journey as being for business use or private use is input by the driver using an application for the Toyota Halo system via their mobile device at the end of each car journey. For business journeys, the driver must also enter the purpose of the trip.

46. It is expected that the reason recorded for each business journey is sufficiently descriptive so as to enable the journey to be classified as a business journey and that the relevant classification and description will be made at the end of each journey or as soon as reasonably practicable thereafter. Provided this occurs within a week of the journey occurring, it will be accepted that the entry was made as soon as practicable after the end of the journey.

47. It is accepted that the Toyota Halo system, using the DCM hardware, satisfies the requirements in paragraph (f) of the definition of 'log book records' in subsection 136(1).

48. It is considered that the reports generated by the Toyota Halo system, using the DCM hardware, are 'a daily log book or similar document' that satisfies the requirement of being made in the English language at, or as soon as reasonably practicable after, the end of the journey.

49. The reports generated by the Toyota Halo system, using the DCM hardware, satisfy the definition of 'log book records' in subsection 136(1) provided the report is completed for an 'applicable log book period' as defined in subsection 162H(1).

Are the logbook records maintained for an 'applicable log book period'?

50. The definition of 'log book records' in subsection 136(1) also requires that each business journey recorded in the logbook records be in relation to a 'period'. Paragraph (a) of section 10A refers to 'log book records' being maintained for an 'applicable log book period'.

51. The term 'applicable log book period' is defined in subsection 162H(1) as follows:

For the purposes of the application of section 10 in relation to a car fringe benefit in relation to an employer in relation to a car while it was held by a particular person during a particular period (in this subsection called the "holding period") starting or ending in a year of tax, a reference to the applicable log book period is a reference to:(a)if the holding period is a period of less than 12 weeks – the holding period; or(b)in any other case – a continuous period of not less than 12 weeks that begins and ends during the holding period.

52. The reports generated by the Toyota Halo system with the DCM hardware by the administrator can be configured for a minimum 12-week period under the Scheme. It is accepted that in the absence of evidence to the contrary in a particular case, all employers using the Toyota Halo system with the DCM hardware in relation to any car fringe benefits they provide will maintain the necessary records for the duration of the 'applicable log book period' (as the latter term is defined in subsection 162H(1)).

53. Accordingly, it is further considered that odometer and logbook reports that are generated by the Toyota Halo system using the DCM hardware satisfy all of the relevant requirements of the definition of 'log book records' as defined in subsection 136(1).

Does the Toyota Halo system using the Data Communication Module hardware satisfy the requirements of the definition of 'odometer records' under subsection 136(1)?

54. In order to meet the requirements of section 10A, it is essential that 'odometer records' are maintained in addition to 'log book records'.

55. The term 'odometer records' is defined in subsection 136(1) as:

odometer records, in relation to a car, in relation to a period, means a document in which particulars of:(a)the odometer reading of the car at the commencement of the period; and(b)the odometer reading of the car at the end of the period; and(c)if paragraph 162K(2)(b) or 162L(2)(b) applies with effect from a particular date – the odometer readings of both the replacement car and of the original car referred to in that paragraph, as at that date;

are entered in the English language, at, or as soon as reasonably practicable after, the respective times to which those odometer readings relate.

56. The definition of 'odometer records' in subsection 136(1) requires that odometer readings be recorded both at the 'commencement' and at the 'end' of the periods.

57. The Toyota Halo system using the DCM hardware provides details of the odometer reading for the car at the start of the first recorded journey and also the odometer reading for the car at the end of the last recorded journey that were undertaken during each report period.

58. As stated in paragraph 52 of this Ruling, it is accepted that in the absence of evidence to the contrary in a particular case, all employers using the Toyota Halo system with the DCM hardware in relation to any car fringe benefits they provide will maintain the necessary records for the 'applicable log book period'.

59. A report can be generated at the end of the logbook period showing the odometer recordings made and the type of journey undertaken. It is accepted that the Toyota Halo system using the DCM hardware meets the necessary requirement of having entries made in English at, or as soon as reasonably practicable after, the end of the journey.

60. It is considered that the Toyota Halo system using the DCM hardware generate reports which satisfy all of the relevant requirements of the definition of 'odometer records' as defined in subsection 136(1) for an 'applicable log book period'.

Do reports generated by the Toyota Halo system using the Data Communication Module hardware provide 'odometer records' for the 'holding period'?

61. Paragraph 10A(b) requires odometer records to be maintained for the 'holding period' as defined in section 162C.

62. Section 162C states:

Unless the contrary intention appears, a reference in this Act to a period in a year of tax during which a person held a car is a reference to the period that:(a)commences on whichever of the following times is applicable:(i)if the person held the car at the time of commencement of the year of tax – that time;(ii)in any other case – the time in the year of tax when the person commenced to hold the car; and(b)ends at whichever of the following times is applicable:(i)if the person continued to hold the car until the time of the end of the year of tax – that time;(ii)in any other case – the time in the year of tax when the person ceased to hold the car.

63. Subsection 162(1) states, among other things, that a car will be held by a person if that person either owns or leases the car. Therefore, the continuous period during a FBT year (including the whole year of tax, where applicable) where an employer either owns or leases a car will be the 'holding period' of that car.

64. Consequently, the odometer readings at the beginning and end of the period during the FBT year (including the whole year of tax, where applicable) where an employer either owns or leases a car will have to be determined. If the Toyota Halo system with the DCM hardware is used continuously for the whole period that a car is held during a FBT year, the Toyota Halo system will provide odometer readings for both the beginning and end of that holding period.

65. However, if the Toyota Halo system using the DCM hardware is not used continuously for the whole of the holding period of the car during the FBT year, the employer will need to separately maintain the odometer readings for the holding period.

Does the Toyota Halo system with the Data Communication Module hardware enable employers to estimate the number of business kilometres travelled during the holding period in a logbook year of tax?

66. Paragraph 10A(d) requires the employer to estimate the number of business kilometres travelled by the car during the holding period. This estimate is used to calculate the business use percentage required by paragraph 10A(e).

67. The basis used to estimate the number of business kilometres is set out in section 162F which states:

For the purposes of this Act, the number of kilometres that represents a reasonable estimate of the number of business kilometres applicable to a car held by a person during a period in a year of tax shall be determined having regard to all relevant matters including, but without limiting the generality of the foregoing:(a)any log book records, odometer records or other records maintained by or on behalf of the person, and(b)any variations in the pattern of use of the car.

68. The Toyota Halo system with the DCM hardware uses the calculations of the kilometres travelled on the journeys classified as being a 'business journey' during the period for which the system is used to calculate the total number of business kilometres travelled during the period. Therefore, where the Toyota Halo system with the DCM hardware is used continuously for the whole of the period of the year for which the car is held, the reports generated by the system will enable the employer to estimate the number of business kilometres travelled during the holding period.

69. However, where the Toyota Halo system with the DCM hardware is not continuously used for the whole of the period of the year for which the car is held, the number of business kilometres recorded in the reports generated by the system will only be the business kilometres travelled during the period in which the system is used. In such a situation, the employer, in estimating the number of business kilometres travelled during the holding period, will need to take all relevant matters into account, including any other logbook records and odometer records maintained by or on behalf of the user or driver, and any variations in the pattern of use of the car.

Does the Toyota Halo system with the Data Communication Module hardware enable employers to specify the business use percentage for the holding period in a logbook year of tax?

70. Paragraph 10A(e) requires the employer to specify a percentage as the 'business use percentage' applicable to the car for the holding period in a logbook year of tax.

71. Subsection 136(1) defines 'business use percentage' to mean the percentage worked out using the formula:

Number of business kilometres travelled by the car during the holding period ÷ Total number of kilometres travelled by the car during the holding period × 100%

72. Where the Toyota Halo system with the DCM hardware is used continuously for the whole of the period of the year for which the car is held, it will calculate both the number of business kilometres and the total number of kilometres travelled by the car during the holding period. Using these calculations, the reports generated by the Toyota Halo system (with DCM hardware) provides the business use percentage for the holding period.

73. However, where the Toyota Halo system with the DCM hardware is not continuously used for the whole of the period of the year for which the car is held, the system will not record the number of business kilometres travelled during the holding period, nor the total number of kilometres travelled during the holding period. Therefore, in such a situation, it will be necessary for the employer to separately determine the business use percentage using the estimated number of business kilometres and the odometer readings for the beginning and end of the holding period.

Conclusion – does the Toyota Halo system using the Data Communication Module hardware satisfy the requirements of section 10A

74. Where the Toyota Halo system in conjunction with the DCM hardware is used continuously for the whole of the period of the year for which the car is held, the reports generated by the system for that period will meet all the necessary requirements of section 10A.

75. Where the Toyota Halo system in conjunction with the DCM hardware is not used continuously for the whole of the period of the year for which the car is held, the reports generated by the system will not by itself satisfy the requirements of section 10A. Section 10A is only satisfied if all of the requirements as captured in paragraph 32 of this Ruling are met.

Does the Toyota Halo system using the Data Communication Module hardware meet the relevant requirements of section 10B?

76. Section 10B states:

Where one or more car fringe benefits in relation to an employer in relation to a year of tax relate to a car while it was held by a particular person (in this section called the provider ) during a particular period (in this section called the holding period ) in a year of tax that is not a log book year of tax of the employer in relation to the car, the employer is entitled to a reduction in the operating cost of the car on account of business journeys undertaken during the holding period in the car if, and only if:(a)odometer records are maintained by or on behalf the provider in relation to the car for the holding period and, if the provider is not the employer, are given to the employer before the declaration date; and(b)the employer specifies the employer's estimate of the number of business kilometres travelled by the car in the holding period; and(c)the employer specifies the business use percentage applicable to the car in relation to the provider for the holding period.

77. The definitions of the terms 'odometer records', 'holding period' and 'business use percentage' are as defined in paragraphs 55, 62 and 71 of this Ruling respectively.

78. Where the Toyota Halo system using the DCM hardware is used continuously for the whole of the holding period, the generated reports will meet all the necessary requirements of section 10B in a non-logbook year of tax as long as they:•provide odometer records for the beginning and end of that holding period•determine the number of kilometres travelled on the journeys classified as business journeys during the period for which the system is continuously used, and•calculate the business use percentage for the selected period using the determined number of business kilometres travelled and the odometer readings for the beginning and end of the holding period.

79. An employer in a non-logbook year of tax who does not use the Toyota Halo system in conjunction with the DCM hardware in that year of tax, or does not use it for the whole of that period that the car is held but has used the system in one of the previous 4 FBT years continuously for an 'applicable log book period', will not by itself satisfy the requirements of section 10B. The employer will need to:•separately maintain odometer readings for the beginning and end of the period of the year for which the car was held•estimate the number of business kilometres travelled by the car during the period of the year for which the car was held using all the relevant matters including the Toyota Halo system and any other logbook records and odometer records maintained by or on behalf of the user or driver, and any variations in the pattern of use of the car, and•specify the business use percentage for the period of the year for which the car is held using the estimated number of business kilometres and the odometer readings for the beginning and end of the holding period.

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