FBT compliance guide 2018 9781925672367, 1925672360

Table of contents :
Product Information
2017 YEAR REVIEWED
WHAT IS FRINGE BENEFITS TAX?
INTRODUCTION
FBT & OTHER TAX LAWS
FRINGE BENEFITS
EXEMPT BENEFITS
TAXABLE VALUE
REDUCTIONS IN TAXABLE VALUE
FBT RETURN
REPORTABLE FRINGE BENEFITS
DOCUMENTATION
DISPUTING FBT PAYABLE
APPENDICES
CAR FRINGE BENEFITS
INTRODUCTION
DEFINITION
EXEMPTIONS
TAXABLE VALUE
REDUCTIONS
STATUTORY FORMULA METHOD
COST BASIS METHOD
CAR PARKING FRINGE BENEFITS
INTRODUCTION
DEFINITION
EXEMPTIONS
TAXABLE VALUE
REDUCTIONS
DOCUMENTATION
EXPENSE PAYMENT FRINGE BENEFITS
INTRODUCTION
DEFINITION
EXEMPTIONS
TAXABLE VALUE
REDUCTIONS
DOCUMENTATION
LOAN FRINGE BENEFITS
INTRODUCTION
DEFINITION
EXEMPTIONS
TAXABLE VALUE
REDUCTIONS
DOCUMENTATION
HOUSING FRINGE BENEFITS
INTRODUCTION
DEFINITION
EXEMPTIONS
TAXABLE VALUE
REDUCTIONS
DOCUMENTATION
LIVING-AWAY-FROM-HOME ALLOWANCE FRINGE BENEFITS
INTRODUCTION
DEFINITION
EXEMPTIONS
TAXABLE VALUE
REDUCTIONS
DOCUMENTATION
PROPERTY FRINGE BENEFITS
INTRODUCTION
DEFINITION
EXEMPTIONS
TAXABLE VALUE
REDUCTIONS
DOCUMENTATION
RESIDUAL FRINGE BENEFITS
INTRODUCTION
DEFINITION
EXEMPTIONS
TAXABLE VALUE
REDUCTIONS
DOCUMENTATION
OTHER FRINGE BENEFITS
INTRODUCTION
BOARD FRINGE BENEFITS
DEBT WAIVER FRINGE BENEFITS
MEAL ENTERTAINMENT
TAX-EXEMPT BODY ENTERTAINMENT FRINGE BENEFITS
MISCELLANEOUS EXEMPT BENEFITS
INTRODUCTION
GENERAL
MOTOR VEHICLE PARKING
EMPLOYEE AWARDS AND ENTITLEMENTS
RELOCATION
REMOTE AREA
EMPLOYEE HEALTH
EDUCATION
CARE WORKERS
EXEMPT EMPLOYERS
SECTION 57A EMPLOYERS
AVOIDING DOUBLE COUNTING
APPENDIX
REDUCTIONS IN TAXABLE VALUES
INTRODUCTION
GENERAL
MOTOR VEHICLE
RELOCATION
REMOTE AREA
OVERSEAS
OTHER
DECLARATIONS
FRINGE BENEFITS TAX RETURN
INTRODUCTION
TAXABLE EMPLOYERS
REBATABLE EMPLOYERS
SECTION 57A EMPLOYERS
FBT COMPLIANCE CHECKLIST
REPORTABLE FRINGE BENEFITS
INTRODUCTION
REPORTING REQUIREMENT
EMPLOYER REPORTING
EMPLOYEE CONSEQUENCES
SALARY PACKAGING
INTRODUCTION
TAXABLE FRINGE BENEFITS
EXCLUDED BENEFITS
EXEMPT BENEFITS
REDUCTIONS IN TAXABLE VALUE
EXEMPT & REBATABLE EMPLOYERS
CASE TABLE
A
B
C
D
E
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
V
W
Y
SECTION FINDING LIST
RULINGS FINDING LIST
INDEX
A
B
C
D
E
F
G
H
I
L
M
N
O
P
R
S
T
U
W

Citation preview

Product Information Disclaimer No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is sold on the terms and understanding that: (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication, and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

About Wolters Kluwer Wolters Kluwer is a leading provider of accurate, authoritative and timely information services for professionals across the globe. We create value by combining information, deep expertise, and technology to provide our customers with solutions that contribute to the quality and effectiveness of their services. Professionals turn to us when they need actionable information to better serve their clients. With the integrity and accuracy of over 45 years’ experience in Australia and New Zealand, and over 175 years internationally, Wolters Kluwer is lifting the standard in software, knowledge, tools and education. Wolters Kluwer — When you have to be right. Enquiries are welcome on 1300 300 224. Related publications In the areas of Australian taxation and superannuation, Wolters Kluwer produces a comprehensive range of electronic and loose-leaf services, annual books, newsletters and online solutions. Titles relevant to this publication include the Australian Fringe Benefits Tax Guide for Employers, Australian Master Tax Guide, Master Tax Examples, Australian Federal Tax Reporter, Australian Federal Income Tax Reporter, Tax Navigator for Business Activities, Australian Income Tax Guide, Australian Income Tax Rulings, Australian Tax Cases, Australian Income Tax Legislation and CCH Tax Week. For details of any of these products, contact Wolters Kluwer Customer Support on 1 300 300 224 or refer to the catalogue on Wolters Kluwer’s website at www.wolterskluwer.cch.com.au. ISBN 978-1-925672-36-7 © 2018 CCH Australia Limited All rights reserved. No part of this work covered by copyright may be reproduced or copied in any form or by any means (graphic, electronic or mechanical, including photocopying, recording, recording taping or information retrieval systems) without the written permission of the publisher.

Foreword The FBT Compliance Guide 2018 (Guide) is a practical and up-to-date explanation of Australia’s fringe benefits tax regime. Accordingly, employers, employees, solicitors, accountants and students interested in the structure and practical application of the fringe benefits tax regime will find this Guide very useful. However, for more detailed commentary, reference should be made to Wolters Kluwer’s Fringe Benefits Guide for Employers (AFB), and for annotated legislative commentary, to Wolters Kluwer’s Australian Federal Tax Reporter (AFT). References to both of these services are provided throughout the Guide. 2017 year reviewed

Chapter 1 highlights all changes and proposed changes to FBT that occurred during the 2017 calendar year. These are categorised according to whether they arise from a change in legislation, a tax case, a public ruling or determination, or a class ruling. The FBT developments during 2017 are cross-referenced to chapters 2 to 16 where the changes or proposed changes are explained. What is fringe benefits tax? Chapter 2 discusses the key features of the fringe benefits tax (FBT) regime. With the help of a flowchart readers are guided through the process of determining the existence of a fringe benefit, what benefits are exempt, the taxable value calculation and the circumstances in which the taxable value of a fringe benefit is reduced. Also considered are the legislative requirements to lodge a fringe benefits tax return and report certain fringe benefits on each employee’s payment summary; the need to keep certain records and how employers can dispute the amount of FBT payable. Categories of fringe benefit Chapters 3 to 11 discuss each of the various types of fringe benefit in a consistent manner and in accordance with the structure of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). The commentary on each category of fringe benefit firstly defines the scope of the benefit category and then addresses specific exemptions, the calculation of taxable value, reductions in taxable value and documentation. This format follows the legislative structure of the FBTAA and facilitates comparisons between benefit categories. Also included are ATO declarations that are required to be prepared before lodgment of the FBT return and documentation that may be useful for employers to maintain (Workpapers). The Workpapers, which also include instructions on how they are to be completed, are designed to illustrate the practical application of the law but are not ATO-approved forms. Miscellaneous exempt benefits Chapter 12 discusses the circumstances in which FBT is not payable and are in addition to the specific exemptions discussed in chapters 3 to 11 inclusive. The exemptions have been organised under headings that have no legislative authority but are generally descriptive of the circumstances in which the miscellaneous exemption may be available. Each miscellaneous exempt benefit is explained and then the various conditions that must be satisfied by the employer are listed. This format is intended to help employers quickly identify whether an exemption may apply to a particular factual circumstance. Reductions in taxable values Chapter 13 discusses the circumstances in which a reduction in taxable value is available and are in addition to the reductions available for employee contributions and due to the application of the “otherwise deductible” rule. The reductions in taxable value have been organised under headings that have no legislative authority but are generally descriptive of the circumstances in which a reduction may be available. Each reduction in taxable value is explained, the conditions for the reduction to apply are listed and the amount of the taxable value reduction indicated. This format is intended to help employers to quickly identify whether a reduction in taxable value may apply to a particular factual circumstance. Fringe benefits tax return Chapter 14 explains how taxable, rebatable and s 57A employers complete the sections of the FBT return that determine the amount of FBT payable. Also included is a checklist of important compliance aspects of the following categories of fringe benefit — cars, car parking, expense payments, loans, debt waiver, housing, LAFH allowances, property and residual fringe benefits. The chapter illustrates the practical application of the legislative FBT return preparation requirements explained in Chapter 2. Reportable fringe benefits

Chapter 15 explains the calculation of the reportable fringe benefits amount and the recording of this amount on employee payment summaries. Also considered is the employee’s responsibility to show reportable fringe benefits on their personal income tax return and the government concessions affected by fringe benefits being reported. A flowchart is used to illustrate the calculation of the reportable fringe benefits amount for each employee. The total of these amounts must be reconciled with the taxable value of fringe benefits shown on the FBT return. Salary packaging Chapter 16 provides an overview of salary packaging, ie employer and employee considerations, effective salary packaging arrangements and valuing the salary package. Items commonly salary packaged are categorised according to whether they are fringe benefits, excluded benefits, exempt benefits or benefits subject to a reduction in taxable value. A table of the comparative pre-tax advantage of each of these categories is provided along with examples of the financial benefit to the employee of salary packaging various items, eg cars. Unless otherwise stated, section references are to the FBTAA. The authors use “their” instead of “his or her” in various places in the book for brevity. The law reflected in this book is for the FBT year ending 31 March 2018. Wolters Kluwer 31 December 2017

Acknowledgments Wolters Kluwer wishes to thank the following who contributed to and supported this publication: Director — Commercial & Strategy: Lauren Ma Head of Content — Tax, Accounting & Superannuation: Diana Winfield Head of Publishing & Digital Strategy: Lilia Kanna Content Coordinator: Nathan Grice Editors: Bill Page and Mary Zachariah Cover Designer: Jessica Crocker

Abbreviations The following abbreviations are used in this book. AAT

Administrative Appeals Tribunal

ACNC

Australian Charities and Not-for-profits Commission

ATC

Australian Tax Cases (Wolters Kluwer)

ATO

Australian Taxation Office

FBT

Fringe benefits tax

FBTAA

Fringe Benefits Tax Assessment Act 1986

FBTR

Fringe Benefits Tax Regulations 1992

FC of T

Federal Commissioner of Taxation

GIC

General interest charge

GST

Goods and services tax

GST Act

A New Tax System (Goods and Services Tax) Act 1999

ID

ATO Interpretative Decision

ITAA 1936

Income Tax Assessment Act 1936

ITAA 1997

Income Tax Assessment Act 1997

LAFH

Living away from home

NTLG

National Tax Liaison Group

PAYG

Pay as you go (PAYG) withholding

SSA

Salary sacrifice arrangement

TAA 1953

Taxation Administration Act 1953

2017 YEAR REVIEWED Introduction

¶1-000

Legislation

¶1-100

Rulings and determinations

¶1-300

Interpretative decisions

¶1-400

Class rulings

¶1-500

Where is it?

¶1-700

¶1-000 Introduction A summary of FBT developments during the 2017 calendar year and the main paragraphs affected are outlined below. The FBT rate for the 2018 FBT year is 47% due to the cessation of the 2% temporary budget repair levy with effect from 1 April 2017. The aggregated turnover threshold for access to a number of small business tax concessions, including the fringe benefits exemption for car parking, was increased to $10m (¶1-100). The Commissioner released updated annual threshold amounts to determine the taxable value of various categories of fringe benefit (¶1-300). Class rulings relating to motor vehicle logbooks, car parking, salary packaging, entertainment and a bus travel benefit scheme were issued (¶1-500).

¶1-100 Legislation ▪ The aggregated turnover threshold for access to small business tax concessions, including the fringe benefits exemption for car parking from 1 April 2017, was increased to $10m — Treasury Laws Amendment (Enterprise Tax Plan) Act 2017 (Act No 41 of 2017)

¶12-205

¶1-300 Rulings and determinations Taxation rulings (TRs) and determinations (TDs) set out the Commissioner’s opinion about the way in which a relevant provision of a tax law applies, or would apply, to entities generally. A public ruling may be relied on by anyone to whom they apply. Listed below are TDs issued in 2017 applicable to the 2018 FBT year. Determinations ▪ Record-keeping exemption threshold (TD 2017/2)

¶2-740

▪ Benchmark interest rate for loan fringe benefits and calculating the deemed loan interest of a car when using the cost basis method (TD 2017/3)

¶3-630 ¶6-360

▪ Calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car (TD 2017/4)

¶10-360

▪ Reasonable amounts for food and drink expenses incurred by employees receiving an LAFH allowance benefit (TD 2017/5)

¶8-360

▪ Indexation factors for valuing non-remote housing (TD 2017/6)

¶7-380

▪ Car parking threshold (TD 2017/14)

¶4-160

▪ Reasonable travel and overtime meal allowance expense amounts (TD 2017/19)

¶5-520

¶1-400 Interpretative decisions ATO interpretative decisions are not law and are neither legally nor administratively binding on the Commissioner. However, if a taxpayer relies upon an ID and their circumstances are materially the same as those described in that ID, and the ID is subsequently found to be incorrect, penalties will not be levied on any underpaid tax. However, interest on the understatement of tax may be payable, depending on the circumstances of the case (Practice Statement PS LA 2001/8). There were no ATO interpretative decisions relating to FBT issued in 2017.

¶1-500 Class rulings The tax consequences set out in a class ruling (CR) apply to the persons to whom the CR applies provided that the arrangement is carried out as described by the participants. However, if the arrangement carried out is materially different from that ruled upon, the ruling has no binding effect on the Commissioner and may be withdrawn or modified (Class Ruling CR 2001/1). Listed below are class rulings issued in 2017. ▪ Customers who use the Ready Track Pty Ltd Driver Journal Report for car log book records (CR 2017/2) ▪ Employers who are clients of Westhill Pty Ltd as trustee for the ASP Trust trading as Airport Security Parking and who enter into a Corporate Bailment Agreement (CR 2017/8) ▪ Employer clients of McMillan Shakespeare Limited and its subsidiaries who participate in the fly-in flyout travel program (CR 2017/18) ▪ Clients of Toyota Fleet Management, whose employees use the DriverDirect E-logbook for car log book and odometer records (CR 2017/19) ▪ Employer clients of PBI Benefit Solutions Pty Ltd who are subject to the provisions of s 57A or 65J of the Fringe Benefits Tax Assessment Act 1986 that make use of the PBI Solutions Meals and Entertainment Card facility (CR 2017/33) ▪ Employer clients of Smartgroup Corporation Ltd who are subject to the provisions of s 57A or 65J of the Fringe Benefits Tax Assessment Act 1986 that make use of the Smartgroup Meals and Entertainment Card facility (CR 2017/34) ▪ Corporate clients of Statewide Novated Leasing Pty Ltd and its subsidiaries who participate in Statewide’s bus travel benefit scheme (CR 2017/35) ▪ Employer contributions to the Australian Construction Industry Redundancy Trust (CR 2017/36) ▪ Employer clients of Community Sector Banking Pty Limited who are subject to the provisions of either s 57A or 65J of the Fringe Benefits Tax Assessment Act 1986 that make use of a B-Maximised MasterCard credit card facility (CR 2017/38) ▪ Employer clients of PBI Benefits Solutions Pty Ltd who are subject to the provisions of s 57A or 65J of the Fringe Benefits Tax Assessment Act 1986 whose employees make use of a PBI Solutions Everyday Purchases Card facility (CR 2017/40) ▪ Employer clients of Smartgroup Corporation Ltd who are subject to the provisions of s 57A or 65J of the Fringe Benefits Tax Assessment Act 1986 that make use of the Smartgroup Everyday Purchases Card facility (CR 2017/41) ▪ Corporate clients of Salary Packaging Australia Pty Ltd who participate in SPA’s bus travel benefit scheme (CR 2017/60)

▪ Employers using the EZYCarLog mobile APP Logbook Solution for car log book and odometer records (CR 2017/65) ▪ Employers who use the EZY2C telematics system (EZY2C GPS Tracking System) for car log book and odometer record keeping requirements (CR 2017/76)

¶1-700 Where is it? FBT calculations

Reference

FBT return preparation flowchart

¶14-090

Calculating FBT for taxable employers

¶14-200

Fringe benefits taxable amount

¶14-225

Calculating FBT for rebatable employers

¶14-300

Aggregate non-rebatable amount

¶14-320

Calculating FBT for s 57A employers

¶14-400

Aggregate non-exempt amount

¶14-420

FBT compliance checklists

¶14-600

FBT rate & gross-up

Reference

FBT rate:

47%

¶2-020

Type 1 benefits (gross-up):

2.0802

¶2-020

Type 2 benefits (gross-up):

1.8868

¶2-020

Days in 2018 FBT year:

365

FBT return

Date

Reference

21 May 2018

¶2-530

Quarterly

¶2-540

21 May 2018

¶2-540

28 May/25 June 2018

¶2-530 to ¶2-550

FBT annual return Instalment payments Balancing payment Registered tax agents

Car fringe benefits — statutory formula method Annualised kms

Pre-10 May 2011 contract

Later contracts

Less than 15,000

26%

20%

15,000 to 24,999

20%

20%

25,000 to 40,000

11%

20%

Over 40,000

7%

20%

¶3-510

¶3-505

Reference

Car fringe benefits — cost basis method Acquisition date

Deemed depreciation

Imputed interest

Before 1 July 2002

22.5%

5.25%

1 July to 9 May 2006

18.75%

5.25%

25%

5.25%

¶3-620

¶3-630

On or after 10 May 2006 Reference

Residual benefit — private use of a motor vehicle other than a car Engine capacity

Rate per km

Up to 2,500cc

$0.53

Over 2,500cc

$0.63

Motorcycles

$0.16

Reference

¶10-360

Other fringe benefits Car parking — threshold Loans — benchmark interest rate

Reference $8.66 per day

¶4-160

5.25%

¶6-360

Housing — indexation factors LAFH — statutory food amounts

¶7-380 Adult/child

LAFH — reasonable food and drink amounts Board — meals

¶8-360 Adult/child

FBT concessions Minor benefits exemption

< $300

$1,000

Excluded fringe benefits

Documentation Declarations

¶13-140

Reference

Flowchart

Gross-up rate (all fringe benefits)

¶12-100 ¶13-120

Reportable fringe benefits

Taxable value — threshold

¶11-480

Reference

Otherwise deductible rule In-house benefits reduction

¶8-370

¶15-060 > $2,000

¶15-020

1.8868

¶15-030 ¶15-120

Reference ¶2-710

Travel diary

¶2-720

Logbook records

¶2-725

Retention of records

¶2-730

Statutory evidentiary documents

¶2-735

Record-keeping exemption

¶2-740

Penalty tax — one penalty unit

¶2-820

WHAT IS FRINGE BENEFITS TAX? INTRODUCTION Roadmap of FBT

¶2000

FBT & OTHER TAX LAWS Overview

¶2005

FBT legislation

¶2010

Key features of FBT

¶2020

Interaction of FBT with other legislation

¶2030

Employee benefits are not subject to income tax

¶2035

Employer FBT liability is deductible

¶2040

Employer costs of providing fringe benefits

¶2045

Entertainment expenditure

¶2050

Limitation on employee expense and depreciation claims

¶2055

GST

¶2060

Personal services income rules

¶2065

Non-commercial loss rules

¶2070

Tax liabilities and government ¶2concessions 075 Expatriate employees and employment income

¶2080

FBT compliance flowchart

¶2090

FRINGE BENEFITS Overview

¶2100

Meaning of “benefit”

¶2110

Provided to employee or associate

¶2120

Nexus with employee’s employment

¶2130

Provided by an employer, associate or third party

¶2140

Benefits that cannot be fringe ¶2benefits 150 EXEMPT BENEFITS Overview

¶2200

Miscellaneous exempt benefits

¶2220

Exempt employers

¶2240

Section 57A employers

¶2260

TAXABLE VALUE Overview

¶2300

Fringe benefits categories

¶2320

Specific exemptions

¶2340

Employee contributions

¶2360

REDUCTIONS IN TAXABLE VALUE Overview

¶2400

“Otherwise deductible” rule

¶2420

Division 14 reductions

¶2440

In-house fringe benefits

¶2460

FBT RETURN Overview

¶2500

Fringe benefits taxable amount

¶2510

Annual return and assessment

¶2530

Payment of tax

¶2540

Registered tax agents and BAS agents

¶2550

Collection and recovery

¶2560

REPORTABLE FRINGE BENEFITS Overview

¶2600

Reporting requirement

¶2610

Excluded fringe benefits

¶2620

Employer reporting

¶2630

Employee consequences

¶2640

DOCUMENTATION Overview

¶2700

Declarations

¶2710

Travel diary

¶2720

Logbook records

¶2725

Retention of records

¶2730

Statutory evidentiary documents

¶2735

Record-keeping exemption

¶2740

Substantiation discretion

¶2750

DISPUTING FBT PAYABLE Overview

¶2800

Objections, reviews and appeals

¶2810

Penalty tax

¶2820

Offences

¶2830

Miscellaneous administrative matters

¶2840 ¶2-

Tax avoidance arrangements 850 APPENDICES Appendix 1: Terminology

¶2900

INTRODUCTION ¶2-000 Roadmap of FBT FBT is a tax on employers who provide certain benefits to employees (¶2-005). A benefit provided to an employee will only be subject to FBT if it is a “fringe benefit” (¶2-100). No FBT is payable on a benefit provided by an exempt employer or if it is an exempt benefit and s 57A employers are partially exempt from paying FBT on fringe benefits (¶2-200). The taxable value of a fringe benefit (amount on which FBT is payable) is dependent upon the category of the benefit and the amount of any contribution made by the employee towards its cost (¶2-300). A reduction of the taxable value is available if the employee would have been entitled to an income tax deduction had they incurred expenditure equal to the benefit provided. Reductions in taxable value are also available in certain other circumstances (¶2-400). Employers self-assess the amount of FBT payable on benefits and are generally required to lodge an annual return by 21 May. If the previous year’s FBT liability was $3,000 or more, the employer is required to pay the tax in quarterly instalments. If the FBT return is lodged late, the amount of penalty payable is dependent on the size of the employer (¶2-500). If the taxable value of fringe benefits, other than excluded benefits, exceeds $2,000 the employer is required to report the grossed-up amount of fringe benefits on the employee’s annual payment summary (¶2-600). Employers are generally required to obtain a declaration or travel diary in order to reduce the taxable value of fringe benefits. In addition, employers must be able to substantiate the amount of FBT payable shown on the FBT return (¶2-700). Employers can object to their self-assessed FBT liability and, if dissatisfied with the Commissioner’s decision, request a review of the decision by the AAT or appeal to the Federal Court (¶2-800).

FBT & OTHER TAX LAWS ¶2-005 Overview The legislation authorising the calculation and collection of FBT, the key features of the FBT regime, interaction with other legislation and where to obtain more information are summarised below. For an overview of the steps involved in determining the amount of FBT payable, reporting fringe benefits on payment summaries and disputing the amount of FBT payable — see the flowchart at ¶2-090. Note: Appendix 1 contains an explanation of important terms relevant to the determination, calculation and reporting of FBT (¶2-900).

¶2-010 FBT legislation The FBT system imposes a tax payable by employers on the value of certain benefits, known as “fringe benefits”, that have been provided to their employees or to associates of those employees in respect of their employment. The FBT system operates under the following Acts: • Fringe Benefits Tax Assessment Act 1986 (FBTAA)

• Fringe Benefits Tax Act 1986 (FBTA) • Fringe Benefits Tax (Application to the Commonwealth) Act 1986. The operative legislation is the FBTAA and the Fringe Benefits Tax Regulations 1992, which explain the assessment, reporting and collection of FBT. The Fringe Benefits Tax Act 1986 imposes the tax on employers. The Fringe Benefits Tax (Application to the Commonwealth) Act 1986 applies FBT to Commonwealth Government employers (Departments and Authorities) so that they are liable to FBT in the same manner as other employers. Section references throughout the FBT Compliance Guide are to the FBTAA unless otherwise indicated.

¶2-020 Key features of FBT Fringe benefits tax (FBT) is: 1. a tax payable by employers (other than exempt employers) 2. on certain benefits (fringe benefits) provided to employees or associates (¶2-100) 3. based on the taxable value of the benefits using one of 12 valuation rules (¶2-300) 4. unless an exemption (¶2-200) or reduction in taxable value (¶2-400) is available for the benefit. Employers prepare an annual FBT return (¶2-500). FBT rate of tax The rate of fringe benefits tax for the 2018 FBT year is 47% due to the cessation of the temporary budget repair levy (FBTA s 6; 6A). The rate for the 2017 FBT year was 49%. Gross-up rates An employer’s liability for FBT is calculated by grossing-up the taxable value of fringe benefits provided to employees and associates. The gross-up factors for the current and earlier FBT years are:

FBT Year

Type 1 grossup

Type 2 grossup

FBT rate

2018

2.0802

1.8868

47%

2017

2.1463

1.9608

49%

2016

2.1463

1.9608

49%

Type 1 benefits are those where the employer is entitled to claim a GST input tax credit in respect of the taxable value of the benefit. Conversely, Type 2 benefits are those where no input tax credit is available (¶2-510). Reportable fringe benefits All employers are required to record the grossed-up taxable value of certain fringe benefits provided to each employee on their annual payment summary if the taxable value of those fringe benefits exceeds $2,000. The 2018 FBT year gross-up rate for this purpose is 1.8868 regardless of whether the fringe benefits are classified as Type 1 or Type 2 benefits (¶2-600). Documentation

To reduce the taxable value of a fringe benefit, employers must maintain specific documentation (eg declarations). In addition, non-specific documentation is required to be maintained to explain the calculation of an employer’s FBT liability (¶2-700). Salary packaging Some employers offer employees the ability to salary package benefits that are either exempt from the payment of FBT, subject to a reduction in taxable value or concessionally taxed (eg cars). Salary package benefits, in lieu of providing cash salary, have financial advantages for both the employer and employee (¶16-000).

¶2-030 Interaction of FBT with other legislation The purpose of the FBT legislation is to ensure the comparable tax treatment of cash and non-cash remuneration provided to employees. This is achieved by ensuring that the FBT, income tax and GST rules operate consistently to achieve this objective. The following summarises how the FBTAA interacts with the ITAA 1936, ITAA 1997 and GST Act.

¶2-035 Employee benefits are not subject to income tax Generally, employees are subject to income tax on monetary remuneration paid by an employer and subject to FBT on non-cash benefits. Exceptions to this general rule include the payment of a living-awayfrom-home allowance (¶8-000) and contributions to worker entitlement funds that are not exempt (¶12280). Fringe benefits and exempt benefits, other than certain car expense payment benefits, are excluded from an employee’s assessable income (ITAA 1936 s 23L). Car expenses reimbursed on a cents per kilometre basis are subject to income tax unless a reduction in taxable value is available (ITAA 1997 s 15-70).

¶2-040 Employer FBT liability is deductible FBT payable by employers is a deductible expense for the income tax year ending 30 June 2018 and is calculated as follows (Taxation Ruling TR 95/24): • Actual FBT liability for the FBT year ending 31 March 2018 • less the FBT instalment for the June 2017 FBT quarter • plus the FBT instalment for the June 2018 FBT quarter. Where an FBT assessment is issued for an earlier FBT year, FBT is incurred at the end of the earlier FBT year rather than in the year in which the assessment is raised (Taxation Determination TD 2004/20).

¶2-045 Employer costs of providing fringe benefits Employers are entitled to a deduction for the cost of providing fringe benefits to employees subject to the limitations imposed by the ITAA 1997 and ITAA 1936. For example, an employer cannot claim a deduction for capital expenditure incurred in buying a house which is used to provide accommodation for an employee. In Taxation Determination TD 94/42, the Commissioner states that an employer’s liability for FBT is not affected by the failure of the employer to claim an income tax deduction for the cost of providing a fringe benefit.

¶2-050 Entertainment expenditure Entertainment provided to an employee or associate may fall within more than one category of fringe benefit depending upon the circumstances in which the benefit is provided, eg an expense payment fringe

benefit, property fringe benefit or residual fringe benefit. Employers can elect to determine the amount of FBT payable on “meal entertainment” using the 50/50 split method or the 12-week register method unless the benefit is provided under a salary packaging arrangement. Where an employer has elected to use the 50/50 split method or the 12-week register method, the income tax deduction for meal entertainment is calculated in accordance with ITAA 1936 s 51AEA and 51AEB respectively (¶11-830).

¶2-055 Limitation on employee expense and depreciation claims Where an employee makes a contribution towards a fringe benefit or pays interest on a loan fringe benefit, the taxable value is reduced by that amount. These amounts, having been paid from after-tax salary, are a deductible expense unless the employer in determining the employee contribution or interest payment made allowance for the business use of the benefit (ITAA 1936 s 51AH; 51AJ). In addition, employees are precluded from claiming depreciation on eligible work-related items (¶12-120) provided as an expense payment benefit or property benefit (ITAA 1997 s 40-45(1)). See ¶5-480, ¶6-490, ¶9-490 and ¶10-490.

¶2-060 GST GST is only payable on the provision of a fringe benefit, or exempt benefit, where an employee or associate of the employee makes a contribution towards the benefit (GST Act s 9-75(3)). The amount of GST payable is 1/11th of the employee contribution. However, where an employee pays a third party for a car expense no GST is payable by the employer (¶3-500; ¶3-600). The taxable value of a fringe benefit is reduced by the full amount of the contribution an employee or associate makes towards the fringe benefit. Irrespective of whether or not the employee or associate of the employee makes a contribution, GSTregistered employers are generally able to claim any applicable GST credits in relation to the provision of benefits to employees and their associates (GST Ruling GSTR 2001/3). Where the taxable value of a benefit includes the “cost” of providing the benefit, this means the GSTinclusive cost (Taxation Ruling TR 2001/2).

¶2-065 Personal services income rules The taxable value of fringe benefits is reduced by the amount of a payment that is non-deductible because of the personal services income rules in ITAA 1997 Pt 2-42 (¶13-640).

¶2-070 Non-commercial loss rules The interaction of the “otherwise deductible” rule (ODR) and the non-commercial loss rules in ITAA 1997 Div 35 are explained in Taxation Ruling TR 2013/6 and Taxation Determination TD 2013/20. “Otherwise deductible” rule (ODR) The ATO states in Taxation Ruling TR 2013/6 that employers cannot rely on the ODR to reduce the taxable value of a fringe benefit if the non-commercial loss rules in ITAA 1997 Div 35 would have applied. The ruling discusses the interaction of ITAA 1997 Div 35 and the ODR in the context of an employer providing an external expense payment fringe benefit. However, the views expressed in the ruling apply to other fringe benefits where the ODR is available including in-house fringe benefits. The conclusion is based on the following analysis. A “once-only deduction” (s 136(1)) requires two conditions to be satisfied “in relation to expenditure”: 1. A deduction is allowable in the year of income in respect of a percentage of the expenditure, and

2. No other deduction is allowable in respect of that expenditure in any other year of income. The explanation of the ATO view in Taxation Ruling TR 2013/6 discusses whether the terms “deduction” and “allowable” refer to a specific income tax deduction provision (eg s 8-1) or a deduction taken into account under ITAA 1997 s 4-15. In doing so, the ATO refers to the discussion of the purpose of the ODR in National Australia Bank Ltd v FC of T 93 ATC 4914 and concludes that a narrow meaning of “deduction” would defeat the purpose of the ODR. On this basis, the ATO preferred view “is that a deduction which would be ‘allowable’ for the purposes of the otherwise deductible rule (eg s 24) is one which would be recognised under s 4-15 of the ITAA 1997” (para 40). Also, it is not possible to apportion expenditure subject to s 35-10(2). Therefore, a fringe benefit subject to ITAA 1997 Div 35 cannot be a “once-only deduction” and the employer cannot reduce the taxable value of the fringe benefit. Example: Div 35 expected to apply Matthew is an employee who expects to have a taxable income of $200,000 for the income year ended 30 June 2018 and has a salary sacrifice arrangement with his employer. Matthew also carries on a business activity that is potentially subject to the loss deferral rule in ITAA 1997 s 35-10(2) of Div 35. Expenditure attributable to the business activity of $90,000 is incurred by Matthew in December 2017 which is deductible (before the operation of ITAA 1997 Div 35). His assessable income from the business activity in March 2018 is only $10,000 and further business expenses of $30,000 have been incurred. Therefore, Matthew expects that in the income year ending 30 June 2018, the business will incur a loss of $110,000 ($10,000 − ($90,000 + $30,000)). Matthew arranges, under the salary packaging arrangement with his employer, for the expenditure of $90,000 to be reimbursed in return for receiving $90,000 less in salary. This results in his employer providing Matthew with an external expense payment fringe benefit in the FBT year ending 31 March 2018. The fringe benefit provided to Matthew has a taxable value of $90,000 before the application of the ODR in s 24. When applying the ODR in s 24, the “notional deduction”, had the expenditure of $90,000 been incurred by Matthew, is $Nil due to the operation of ITAA 1997 s 4-15. Therefore, no reduction in taxable value is available.

Example: Amended FBT assessment Assume the same facts as in the above example, but during the period between 1 April 2018 and 30 June 2018 Matthew’s business derived additional income of $110,000. That is, had Matthew not been reimbursed for the expenditure of $90,000 this amount would have been wholly deductible in the year ending 30 June 2018. Due to the change in circumstances, the ODR would have applied to reduce the taxable value from $90,000 to $Nil. Matthew’s employer is entitled to request an amended assessment of its FBT liability for the FBT year ending 31 March 2018.

Non-commercial loss rules (Div 35) A taxpayer can only deduct a loss from a business activity in the current income year if their “adjusted taxable income” for the relevant year is less than $250,000 and (s 35-10(1)): (1) one of the following four tests is satisfied: • assessable income test • profits test • real property test • other assets test, or (2) the Commissioner has exercised his discretion, or (3) one of the exceptions in ITAA 1997 s 35-10(4) apply. Where one of the above requirements is not satisfied, the loss is quarantined. Alternatively, where the taxpayer has adjusted taxable income of $250,000 or more, the loss is quarantined unless requirement (2) or (3) above is satisfied. “Adjusted taxable income” for an income year is the sum of:

(a) taxable income (excluding excess non-commercial loss deductions) (b) reportable fringe benefits total (¶15-310) (c) reportable superannuation contributions, and (d) total net investment losses. In Taxation Determination TD 2013/20, the ATO concludes that “adjusted taxable income” includes Div 35 expenditure provided as an expense payment fringe benefit, loan fringe benefit or residual fringe benefit. This conclusion is based on the following analysis. When applying the ODR, it is necessary to determine the “notional deduction” assuming the expenditure paid or reimbursed was incurred by the employee. A related effect of this is that “adjusted taxable income” is not reduced as a result of a salary sacrifice (or similar) arrangement. Also, the amount of the reimbursement is not taken into account when calculating the employee’s “reportable fringe benefits total”. The consequence of the above is that a taxpayer may not satisfy the income threshold test (ITAA 1997 s 35-10(2E)) and therefore the reimbursed expenditure may be subject to quarantining under the noncommercial loss rules. A further consequence is that the employee may not be entitled to a once-only deduction and therefore the expense payment fringe benefit, for example, is the amount of the expenditure (Taxation Ruling TR 2013/6). Example: Salary sacrifice arrangement Julie is an employee who expects to have a taxable income of $260,000 and has a salary sacrifice arrangement with her employer. She has no reportable superannuation contributions or net investment losses for the 2017/18 income year. Julie also carried on a business activity which derived no assessable income during the 2017/18 income year, but the activity did satisfy the real property test. Expenditure attributable to the business activity of $120,000 was incurred by Julie in December 2017. For the 2017/18 income year, this amount must be deferred unless the Commissioner exercises his discretion because Julie’s “adjusted taxable income” will exceed $250,000 and she does not satisfy the s 35-10(4) exceptions. Julie arranges for her employer to reimburse the expenditure of $120,000 under a salary sacrifice arrangement before 31 March 2018. Disregarding the ATO’s interpretation of the interaction of the ODR and ITAA 1997 s 35-10(2E), Julie has a taxable income of $140,000. Also, Div 35 will not apply to quarantine the expenditure because the income threshold and real property tests are satisfied. The above conclusion is modified by the operation of Taxation Determination TD 2013/20. When applying the ODR in s 24, it is necessary to determine the “notional deduction” assuming the expenditure of $120,000 was incurred by the employee. The consequences for the income threshold test in ITAA 1997 s 35-10(2E) of doing this are: • no expense payment fringe benefit has been provided and therefore no reportable fringe benefits amount is included when determining “adjusted taxable income” • ITAA 1936 s 51AH (¶5-480) does not apply since no amount has been reimbursed • expenditure attributable to Julie’s business activity is subject to the non-commercial loss rules (Taxation Ruling TR 2013/6), and • Julie’s adjusted taxable income is $260,000 because the $120,000 is disregarded. Therefore, Julie does not satisfy the income threshold test and the reimbursed expenditure of $120,000 is subject to the loss deferral rule in ITAA 1997 s 35-10(2). A further consequence is that Julie is not entitled to a once-only deduction and the expense payment fringe benefit has a taxable value of $120,000 (Taxation Ruling TR 2013/6).

¶2-075 Tax liabilities and government concessions The grossed-up taxable value of reportable fringe benefits provided to employees and associates is required to be shown on the PAYG payment summary of each employee. Reportable fringe benefits have an effect on various income tax concessions or government benefits available to the employee (¶15-320).

¶2-080 Expatriate employees and employment income

An employer is liable to pay FBT if a benefit is provided to an employee in receipt of salary or wages from which PAYG withholding must be deducted. A non-resident employer can be subject to PAYG withholding and FBT in respect of Australian resident employees working overseas if they have a sufficient connection with Australia (Taxation Determination TD 2011/1). Conversely, fringe benefits provided by a resident or non-resident employer to an employee whose salary or wages is not subject to PAYG withholding (eg exempt income) is not liable to pay FBT. For example, an employer is not liable to pay FBT on benefits provided to an Australian resident employee who derives foreign earnings exempt from Australian tax due to ITAA 1936 s 23AG. The exemption in s 23AG applies to income earned: • as an aid or charitable worker employed by an approved developing country relief fund, a public disaster relief fund or a prescribed charitable institution that is exempt from Australian income tax • as a government aid worker, or • as a government employee deployed as a member of a disciplined force (ITAA 1936 s 23AG(1AA)). Since 1 July 2016, employees of an Australian government agency who work for not less than 91 days overseas in the delivery of Official Development Assistance do not qualify for this income tax exemption. Tax equalisation arrangements Foreign employers may enter into a “tax equalisation arrangement” with expatriate employees seconded to work in Australia. The aim of the arrangement is to ensure that an expatriate employee bears the same amount of tax had they remained working in their home country. Typically, this results in the employee continuing to receive the net pay they would otherwise have received had they remained working in their home country. The employer then ensures that the employee’s Australian income tax is paid via the PAYG system or, where a PAYG variation is in force, on assessment of the employee’s tax return. The ATO has confirmed that the gross amount of income paid by the non-resident employer (not the net pay amount) is to be returned as assessable income in the expatriate employee’s Australian tax return. Also, PAYG withholding amounts are to be based on the gross amount of salary that has been derived by the expatriate employee. The FBT implications of a “tax equalisation arrangement” will be as follows (NTLG FBT Sub-committee minutes — 10 May 2012 (Item 8)): • if no PAYG withholding variation has been granted, the PAYG amounts that the employer has withheld during the income year will be credited to the income tax assessment offsetting the tax payable. No FBT is payable as the employer has not provided a benefit, or • if a PAYG withholding variation to nil has been granted, there will be no PAYG withholding credits to offset the tax payable. Accordingly, if the employer pays the employee’s tax liability upon assessment, a residual fringe benefit can arise (Kumagai Gumi Co Ltd v FC of T 99 ATC 4316).

¶2-090 FBT compliance flowchart The following provides an overview of the process involved in determining and reporting fringe benefits and where to obtain more information.

FRINGE BENEFITS ¶2-100 Overview The starting point for determining whether an employer has a liability for FBT is the definition of “fringe benefit” in s 136(1). This definition requires the following conditions to be satisfied: 1. A benefit is provided during or in respect of the FBT year. 2. The benefit is provided to an employee or an associate of the employee. 3. The benefit is provided in respect of the employment of the employee. 4. The benefit is provided by the employer, an associate of the employer or a third party. 5. The benefit is not excluded from being a fringe benefit. Each of the above conditions is further explained below.

¶2-110 Meaning of “benefit” A benefit must be provided during or in respect of the FBT year.

A “benefit” is defined to include any right, privilege, service or facility, including a right relating to real or personal property, whether provided under an arrangement relating to the performance of work, a contract of insurance or in relation to the lending of money. A benefit is provided if it is allowed, given, granted and includes the disposal of the legal or equitable interest in property. However, a benefit is not “provided” if it is obtained through the employee’s fraudulent activity that is not condoned by the employer (ATO Interpretative Decision ID 2003/458). Therefore, the definition of “benefit” is very wide and is only limited by the following further conditions.

¶2-120 Provided to employee or associate The benefit must be provided to the employee or an associate of the employee. Employee An “employee” (s 136(1)) is defined to mean a current, future or former employee. A current employee is a person who is entitled to receive “salary or wages”, ie payments to employees, company directors and office holders, as well as other specified payments that are subject to PAYG withholding under the TAA 1953. In Taxation Ruling TR 2005/16, the Commissioner discusses the key indicators of whether an employment agreement is a contract “of service” (ie person is an employee) or a contract “for services” (ie person is an independent contractor). A person who does not receive “salary or wages” but only receives non-cash benefits is an employee if, had they received cash, that amount would have been subject to PAYG withholding (s 137(1)). A non-resident employer who pays an Australian resident for work performed overseas is subject to PAYG withholding obligations if the non-resident employer has a sufficient connection with Australia, ie if the non-resident carries on an enterprise or income-producing activities in Australia and has a physical presence in Australia (Taxation Determination TD 2011/1). PAYG withholding is not required where the payment is exempt income of the recipient (TAA 1953 s 121). Therefore an employee who only receives exempt income (eg ITAA 1936 s 23AG) is not an employee for FBT purposes (Overseas Aircrew Basing Limited v FC of T 2009 ATC ¶20-089; ¶2-080). Benefits provided to relatives of deceased employees (eg travel benefits provided to a widow or widower of a Member of Parliament) are not subject to FBT (Taxation Ruling TR 1999/10) nor is the payment of funeral expenses of a deceased employee (ATO Interpretative Decision ID 2006/159). However, where an employer pays for the funeral costs of an employee’s family member, the benefit will be subject to FBT (NTLG FBT Sub-committee minutes, 16 February 2012 (Item 8)). Associate An “associate” has the meaning in ITAA 1936 s 318 subject to modifications in s 159. Therefore, an associate of an employee includes: • the relatives of the employee including a de facto spouse • a partner (whether or not the partnership still exists) • a spouse or child of a partner (unless the partner is acting in the capacity of a trustee) • a trustee of a trust estate, eg a trustee of a trust or a non-complying superannuation fund (ATO Decision Impact Statement — Indooroopilly), and • a company that is effectively controlled (either individually or collectively) by the person or associates of the person — including any companies that are controlled by that company. In addition, a person is deemed by s 148(2) to be an associate where a benefit is provided pursuant to an arrangement between the provider of the benefit (eg employer) and the employee or an associate within the meaning in s 136(1). For example, a friend of an employee may be deemed to be an associate (ATO Interpretative Decision ID 2010/97).

A deductible gift recipient (DGR) is not deemed to be an associate of an employee if the employee makes a donation under an effective salary sacrifice arrangement (SSA) (¶16-050) and would have been entitled to a deduction under ITAA 1997 Div 30 (s 148(2A)). Note: Some FBT concessions (eg the “otherwise deductible” rule — ¶13-120) only apply if the benefit is provided to an employee.

¶2-130 Nexus with employee’s employment The benefit must be provided in respect of the employment of an employee. The phrase “in respect of” is defined in s 136(1) to include by reason of, by virtue of, or for or in relation directly or indirectly to, the employment of the employee. However, any causal relationship between the benefit and employment is not sufficient despite the extension to the meaning of “in respect of” in s 148(1). Instead, what must be established is that there is a sufficient or material, rather than a causal connection or relationship, between the benefit and the employment (J & G Knowles & Associates v FC of T 2000 ATC 4151; Starrim Pty Ltd v FC of T 2000 ATC 4460; ATO Interpretative Decisions ID 2003/316; ID 2003/688). The benefit must also be provided to “an” employee of the employer (Indooroopilly Children Services (Qld) Pty Ltd v FC of T 2007 ATC 4236). For example, a payment made into an Employee Incentive Trust in relation to three employees was not a fringe benefit and was not deductible (Essenbourne Pty Ltd v FC of T 2002 ATC 5201). Whereas, the required connection with a particular employee was present in Walstern v FC of T 2003 ATC 5076, where the trustee of a non-resident, non-complying superannuation fund allocated the contribution to a particular employee. The above requirements are applied in Draft Taxation Ruling TR 2017/D5 which explains the tax consequences for employers, trustees and employees who participate in an employee remuneration trust arrangement. Where it can be established that the benefit is not provided in respect of the employment of the employee no FBT liability arises. Benefits not provided “in respect of” employment include: • reimbursements of legal costs incurred in a dispute concerning the termination of employment. This is the case where the link between the payment and the employment termination has been severed, unless there is some other factor in the litigation which suggests a sufficient connection between the benefit and the employment (Taxation Ruling TR 2012/8) • certain family arrangements (Miscellaneous Taxation Ruling MT 2016) • benefits provided to a shareholder/employee of a family company if the company does not claim an income tax deduction (Miscellaneous Taxation Ruling MT 2019) • a benefit arising as a result of the employee exercising rights as a debtor under a loan agreement is not a fringe benefit (ATO Interpretative Decision ID 2003/316) • a benefit provided to an employee/partner through an administration/service entity (Taxation Determination TD 95/57) • benefits provided to genuine volunteer workers will not, in most cases, give rise to a fringe benefit (ATO: Volunteers and tax (Nat 4612)) • flight rewards received under a consumer loyalty program are generally not subject to FBT as they result from a personal contractual relationship (Taxation Ruling TR 1999/6). However, rewards received under a consumer loyalty program that result from points accrued from business expenditure may be subject to FBT (Practice Statement PS LA 2004/4 (GA)) • a discount received by an employee (or former employee) on acquiring an interest as a partner in a professional services partnership (NTLG FBT Sub-committee minutes — 9 August 2012 (Item 11)), and

• an award received by the Dealer Principal of a car dealer business from a manufacturer for having the highest total vehicle sales for a particular period (NTLG FBT Sub-committee minutes — 13 November 2008).

¶2-140 Provided by an employer, associate or third party The benefit must be provided by the employer, an associate of the employer or a third party (provided certain additional requirements are satisfied). However, the employer remains liable for any FBT arising from the provision of the benefit regardless of who provides the benefit. Employer An “employer” (s 136(1)) is a current, future or former employer other than the Commonwealth or an authority of the Commonwealth that is not subject to tax. Benefits provided to Commonwealth employees are subject to FBT by virtue of modifications to the FBTAA contained in Fringe Benefits Tax (Application to the Commonwealth) Act 1986 (ATO Interpretative Decision ID 2007/200). State government departments and authorities are employers and subject to FBT in accordance with Pt XIC of the FBTAA. Also, the Commissioner considers that a non-resident employer can be subject to the PAYG withholding provisions and FBT in respect of Australian resident employees working overseas (Taxation Determination TD 2011/1; ¶2-120). Associate An associate of an employer that is an individual is explained at ¶2-120 in the context of associates of employees. However, if the employer is a company, an associate includes a person who is able to effectively control the company and persons who are associates of that controller. If the employer is a partnership, an associate includes a partner and any associate of a partner. Where the employer is a trust, an associate includes a person that is capable of benefiting under the trust and their associates. Third party A fringe benefit may arise where a benefit is provided by a third party, if the employer or associate knew or ought reasonably to have known that it was doing so: • because there was an arrangement between the employer or an associate of the employer and the arranger, or • because the employer participated in or facilitated the provision of the benefit. An “arrangement” is any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings.

¶2-150 Benefits that cannot be fringe benefits The following benefits are expressly excluded from being fringe benefits: 1. Salary or wages 2. Exempt benefits 3. Employee share schemes 4. Employee share trusts 5. Superannuation contributions 6. Superannuation payments 7. Deemed dividends

8. Other. Each of the above exclusions is further explained below. 1. Salary or wages A payment of salary or wages, or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the ITAA 1936, is excluded. “Salary or wages” is defined to mean payments from which PAYG amounts must be withheld (even if the amount is not withheld) under the TAA 1953. For example, the following amounts have been held to be salary or wages (rather than fringe benefits): • an allowance paid to employees in place of medical benefits insurance (Tubemakers of Australia 93 ATC 4207) • payments made to employees for the cost of fares to and from work, regardless of whether public transport was used (Roads and Traffic Authority of NSW 93 ATC 4508) • retention payments made to a person in consideration of the person providing services for 12 months and paid in addition to normal periodic salary (Dean 97 ATC 4762) • a payment made to an executive trust in connection with the cancellation of bonus entitlements that might accrue in the future (Sent v FC of T 2012 ATC ¶20-364). Benefits provided under an “effective” salary sacrifice arrangement are not salary or wages and conversely benefits provided under “ineffective” arrangements are salary or wages and not subject to FBT (Taxation Ruling TR 2001/10). Costs incurred by an employer in administering such arrangements do not give rise to a fringe benefit (ATO Interpretative Decision ID 2001/333). 2. Exempt benefits A benefit that is an exempt benefit in relation to the year of tax is excluded (¶2-200). 3. Employee share schemes A benefit constituted by the acquisition by a person of an ESS interest under an employee share scheme to which ITAA 1997 Div 83A applies is excluded. For example, in ATO Interpretative Decision ID 2010/142 the ATO concludes that indeterminate rights to shares are excluded from being a fringe benefit because they are an ESS interest or due to the “salary or wages” exclusion. 4. Employee share trusts A benefit constituted by the acquisition of money or property by an employee share trust where the sole activities of the trust are obtaining shares or rights to acquire shares in a company is excluded. An “employee share trust” is defined in ITAA 1997 s 130-85(4) as being a trust whose sole activities are: (a) obtaining shares or rights in a company, and (b) providing ESS interests that are beneficial interests in the above shares or rights, to employees or associates of the company or its subsidiaries, under the relevant employee share scheme, and (c) other activities that are merely incidental to the above (such as payment of dividends and account keeping). In ATO Interpretative Decision ID 2010/108, the ATO concludes that “other activities” are not “merely incidental” where the trust provides financial assistance, including a loan to acquire the shares. This interpretation was applied in ATO Interpretative Decision ID 2011/54 (¶16-360). 5. Superannuation contributions Employer superannuation contributions are not fringe benefits if they are contributions for an employee to: • a complying superannuation fund or a fund that the contributor reasonably believed was complying

(what constitutes a reasonable belief that a superannuation fund is a complying superannuation fund is set out in s 136AB) • a non-resident superannuation fund where the employee for whom the benefit is provided is a temporary resident of Australia (generally an employee with a temporary visa), or • an RSA under the Retirement Savings Accounts Act 1997. The FBT exclusion is for “contributions” to the funds, including in-specie contributions such as of shares and real property. 6. Superannuation payments The following payments are not a fringe benefit: • superannuation benefits as defined in ITAA 1997 • certain payments made in breach of a superannuation fund’s rules which are assessable income of the recipient under ITAA 1936 s 26AF or s 26AFA • early retirement scheme payments as defined in ITAA 1997 • genuine redundancy payments as defined in ITAA 1997 • employment termination payments as defined in ITAA 1997, and • unused annual leave payments, unused long service leave payments, foreign termination payments, certain payments that are an advance or a loan and annuities or annuity supplements covered by ITAA 1936 s 27H. 7. Deemed dividends A payment of an amount that, under any provision of the ITAA 1936, is deemed to be a dividend paid to the recipient is excluded. For example, payments may be deemed to be a dividend by virtue of Pt III Div 7A, s 47A and 65(1B). However, a loan provided on or after 1 April 2007 that complies with ITAA 1936 s 109N is not deemed to be a dividend and is not subject to FBT. It is important to note that the exclusion applies where a company is taken to pay a dividend under ITAA 1936 Pt III Div 7A. For example, a company is taken to have paid a dividend if the requirements of ITAA 1936 s 109D(1) are satisfied regardless of whether any amount is included in assessable income due to ITAA 1936 s 109D(1AA). Example A private company loaned an amount to a shareholder and employee during the 2016/17 income year. The loan is not repaid before the date of lodgment of the private company’s 2016/17 income tax return (which happened in the 2018 FBT year) and the loan is deemed to be a dividend due to ITAA 1936 s 109D(1). However, as the private company does not have a distributable surplus (ITAA 1936 s 109Y) the amount of the dividend is reduced to nil due to ITAA 1936 s 109D(1AA). The private company is still “taken to have paid a dividend” to the shareholder under ITAA 1936 s 109D(1). It is only the amount of the dividend (ITAA 1936 s 109D(1AA)) that is affected by the private company’s distributable surplus. Therefore, the loan is precluded by para (r) of the definition of “fringe benefit” from being subject to FBT (ATO Interpretative Decision ID 2011/33).

8. Other Other benefits that are excluded from being subject to FBT are: • capital payments in respect of restraints of trade and personal injury • disposal of venture capital interests • certain family trust distributions

• payments to associates that are not assessable, and • contributions, on or after 1 October 2008, to a first home saver account. AFB ¶6-200 to ¶6-520; AFT ¶832-451.

EXEMPT BENEFITS ¶2-200 Overview There are a number of miscellaneous exempt benefits, some employers are wholly exempt from FBT (exempt employers) and a limited exemption is available to s 57A employers.

¶2-220 Miscellaneous exempt benefits Miscellaneous exempt benefits are contained in Div 15. These exemptions are limited to certain categories of fringe benefits and are dependent upon the employer being able to satisfy certain conditions. The miscellaneous exemptions are categorised in Chapter 12 according to whether they apply to employers generally or in particular circumstances. For example, the minor benefits exemption in s 58P and the exemption for work-related items in s 58X are illustrations of exempt benefits that apply to employers generally (¶12-050).

¶2-240 Exempt employers The following religious, international bodies and government representative employers are exempt from the payment of FBT: • Registered religious institutions that provide benefits to a religious practitioner for the performance of pastoral or related duties are exempt benefits (¶12-790). • International bodies that are exempt generally from taxation (¶12-800). • Foreign government representatives that are exempt under the Consular Privileges and Immunities Act 1972 or the Diplomatic Privileges and Immunities Act 1967 (¶12-810).

¶2-260 Section 57A employers Registered public benevolent institutions (PBIs), registered health promotion charities (HPCs) and certain public hospitals are exempt from FBT subject to a cap of $17,000 or $30,000 for the 2018 year (s 5B(1E); ¶12-830). For details of when the duties of an employee of an employer that is a government body are exclusively performed in, or connection with, a public hospital or a hospital carried on by a society or association that is a rebatable employer, see Taxation Determination TD 2015/12. PBIs and HPCs must be endorsed by the Commissioner under s 123C to 123E. AFB ¶55-000 to ¶56-700.

TAXABLE VALUE ¶2-300 Overview If a benefit provided to an employee or associate is not a miscellaneous exempt benefit (¶2-220) or provided by an exempt employer (¶2-240), it will be necessary to categorise the fringe benefit in order to determine the taxable value. Each category of fringe benefit (¶2-320) contains its own method of determining the taxable value and

some contain specific exemptions (¶2-340). In addition, the taxable value is reduced by employee contributions (¶2-360) and where certain conditions are satisfied (¶2-400).

¶2-320 Fringe benefits categories The specific categories of fringe benefit are: 1. Cars 2. Car parking 3. Expense payments 4. Loans 5. Housing 6. Living-away-from-home (LAFH) allowances 7. Board 8. Debt waiver 9. Tax-exempt body entertainment 10. Property 11. Residual. A residual fringe benefit arises where a benefit does not come within the scope of one of the categories 1 through 10 above. Also, employers can elect to treat benefits arising from the provision of food or drink as meal entertainment instead of being taxed in accordance with the specific category of benefit provided (¶11-830).

¶2-340 Specific exemptions Some fringe benefit categories allow an exemption if the benefit is provided in particular circumstances. For example, work-related cars (¶3-220), employee expense advances (¶6-240) and food or drink consumed on the employer’s premises (¶9-220). These are in addition to the miscellaneous exempt benefits (¶2-220).

¶2-360 Employee contributions Employees are able to contribute to the cost of certain fringe benefits and thus reduce the taxable value that would otherwise apply (¶13-160). Where an employee makes a contribution towards the cost of a fringe benefit the employer must generally remit 1/11th of the contribution as GST. However, where an employee makes a contribution to a third party that is not the subject of reimbursement by the employer (eg car fuel and oil) no GST is payable by the employer on this contribution (Taxation Ruling TR 2001/2).

REDUCTIONS IN TAXABLE VALUE ¶2-400 Overview An employer can reduce the taxable value (¶2-300) of some fringe benefits where one or more of the following apply:

1. “Otherwise deductible” rule (¶2-420) 2. Division 14 reductions (¶2-440) 3. In-house fringe benefits (¶2-460). The reductions in taxable value are applied in the above order.

¶2-420 “Otherwise deductible” rule If the employee would have been entitled to claim an income tax deduction if they had incurred expenditure equal to the fringe benefit provided by the employer, the taxable value is reduced (“otherwise deductible” rule). This rule can be used to reduce the taxable value of the following categories of fringe benefit (¶13-120): • Expense payments • Loans • Property • Residual • Board. Note: The “otherwise deductible” rule does not apply to car fringe benefits. However, a reduction in taxable value is available for business use of the car if the employer elects to use the cost basis method of determining the taxable value (¶3-400).

¶2-440 Division 14 reductions Division 14 permits employers to reduce the taxable value of certain categories of fringe benefit in a number of specific circumstances. For example, where an employee is required to change their usual place of residence in order to perform employment duties or is required to work in a remote area. The circumstances in which a reduction in taxable value is available under Div 14 are explained in Chapter 13. These reductions in taxable value are dependent upon the employer being able to satisfy certain conditions and the amount of the reduction is generally dependent upon the employee providing documentary evidence and a declaration to the employer.

¶2-460 In-house fringe benefits Employers can reduce the sum of the taxable value of the following fringe benefits provided to any one employee by up to $1,000 unless salary packaged (¶13-140): • In-house expense payment fringe benefits (¶5-340; ¶5-360) • In-house property fringe benefits (¶9-360) • In-house residual fringe benefits (¶10-350).

FBT RETURN ¶2-500 Overview To complete the annual FBT return, all employers must calculate the fringe benefits taxable amount. This requires the taxable value of fringe benefits provided to employees to be grossed-up by a fraction that is dependent upon whether the employer was entitled to claim a GST input tax credit (¶2-510). The FBT return is for the year ending 31 March and employers self-assess the amount of FBT payable

(¶2-530). The liability for FBT is payable in instalments throughout the year (¶2-540) and only tax agents can prepare FBT returns on behalf of employers (¶2-550). The mechanism for the collection and recovery of FBT is contained in the TAA 1953 — see ¶2-560. Chapter 14 explains how the ATO’s FBT return is completed for the various types of employer.

¶2-510 Fringe benefits taxable amount FBT is imposed on the fringe benefits taxable amount (s 5B) for the current FBT year unless the employer is eligible to calculate FBT payable using the employer’s most recent base year (¶2-740). The fringe benefits taxable amount is calculated by summing the following grossed-up amounts (Taxation Ruling TR 2001/2): Type 1 aggregate fringe benefits amount  (s 5B(1B)) 

+

Type 2 aggregate fringe benefits amount  (s 5B(1C)) 

+ Aggregate non-exempt amount  (s 5B(1E)) 

Type 1 aggregate fringe benefits amount For the 2018 FBT year, the Type 1 aggregate fringe benefits amount is the sum of the individual fringe benefits amount and the excluded fringe benefits that are GST-creditable benefits (s 5C(3)) multiplied by 2.0802. The “individual fringe benefits amount” (s 5E(2)) is the sum of the taxable value of fringe benefits other than excluded fringe benefits. The “excluded fringe benefits” is the sum of the taxable value of fringe benefits listed at ¶2-620. GST-creditable benefits A GST-creditable benefit arises in respect of (s 149A): • expenditure incurred by employees or associates (GST Act Div 111), and • expenditure incurred by an employer or another member of a GST group. The classification of a fringe benefit as a GST-creditable benefit (Type 1 benefit) does not depend on the extent of the GST input tax credit entitlement to the provider, nor does the classification as a Type 1 benefit depend on whether the input tax credit is subsequently claimed. The test is whether there is any entitlement to a GST input tax credit (Taxation Ruling TR 2001/2). Also, see GST Ruling GSTR 2001/3. See ¶14-225 for a pictorial summary of the steps involved in calculating the Type 1 aggregate fringe benefits amount. Type 2 aggregate fringe benefits amount For the 2018 FBT year, the Type 2 aggregate fringe benefits amount is the sum of the individual fringe benefits amount and the excluded fringe benefits that are not GST-creditable benefits (s 5C(4)) multiplied by 1.8868. Type 2 fringe benefits are those: • that are wholly GST-free • that represented goods or services not acquired by the employer (such as goods manufactured by the employer) • provided by an employer that is a small business employer who has opted not to register for GST, and • benefits provided by an employer whose activities are input taxed. See ¶14-225 for a pictorial summary of the steps involved in calculating the Type 2 aggregate fringe

benefits amount. Aggregate non-exempt amount For the 2018 FBT year, the aggregate non-exempt amount is the sum of the Individual grossed-up Type 1 non-exempt amount and Individual grossed-up Type 2 non-exempt amount provided to each employee that exceeds the employee’s capped threshold amount (¶12-830). Only employers that are qualifying public or non-profit hospitals, public ambulance services, registered health promotion charities or registered public benevolent institutions provide benefits exempted by s 57A (¶14-400) and therefore have an aggregate non-exempt amount. For example, see Class Ruling CR 2005/82. See ¶14-440 for a pictorial summary of the steps involved in calculating the aggregate non-exempt amount.

¶2-530 Annual return and assessment Employers self-assess the amount of FBT payable on benefits provided to employees (s 66) and are required to lodge an annual return by 21 May (s 68) unless the Commissioner has granted an extension of time. The annual return is required to be lodged by each employer and therefore an employer cannot divide its FBT responsibilities among different branches or prepare a consolidated FBT return for members of a consolidated group. How taxable employers, s 57A employers and rebatable employers complete the ATO’s annual FBT return is explained in Chapter 14. Tax agents Employers attached to the registered agent number (RAN) of a tax agent as at 21 May 2018 have until 25 June 2018 to lodge an electronic FBT return on behalf of an employer. However, if the agent lodges a paper FBT return on behalf of an employer, the lodgment date is 21 May 2018. The due date for payment of the balance of FBT payable is 28 May 2018 in both circumstances. See Tax agent lodgment program 2017–18. Deemed assessment The lodging of a return gives rise to a deemed assessment of the employer’s liability for FBT. That assessment is deemed to have been made by the Commissioner and served on the employer at the time when the return is lodged (s 72). If a return is not lodged by the employer, the Commissioner can make an assessment of the fringe benefits taxable amount and the amount of tax for which, in the Commissioner’s opinion, the employer would have been liable (s 73). Alternatively, the Commissioner can require any person to lodge a return for a particular year (s 69). Amendment of assessment An assessment may be amended where the employer requests an adjustment, or where an audit or subsequent check by the Commissioner reveals undisclosed or undervalued benefits. An application for amendment must be made in the approved form (s 74(6A)). A refund or reduction of the FBT liability as a result of an amended assessment is an assessable recoupment (Taxation Determination TD 2004/21). An assessment may be amended within three years of the lodgment of a return. Where there has not been full and true disclosure and there has been an avoidance of tax, the assessment may be amended within six years of the lodgment of the return. Where, in the Commissioner’s opinion, there has been tax fraud or evasion (Practice Statement PS LA 2008/6), an amendment may be made at any time (s 74(3)).

¶2-540 Payment of tax

An employer’s FBT liability is due and payable on 21 May following the FBT year ended on 31 March (s 90). However, if the FBT return is lodged by a tax agent, FBT is payable by 28 May (¶2-530). If the previous year’s FBT liability was $3,000 or more, the employer is required to pay the tax in quarterly instalments. The instalments are notified in each quarter’s BAS or IAS with a final payment being due, if necessary, with the lodgment of the annual FBT return. Instalments are based on either: 1. the employer’s “notional tax amount” — generally, the amount of the employer’s tax for the most recent year of tax for which the Commissioner has made an assessment (s 110), or 2. if the employer chooses, the employer’s estimate of its current year’s FBT liability (s 112). GIC is payable if the estimate and consequent instalments are too low. For employers who are required to pay GST monthly, either by the Commissioner’s determination or by choice, the instalments of tax are due on 21 July, 21 October, 21 January and 21 April. The balance of the liability is paid on lodgment of the FBT return (s 103(1)). For quarterly payers (those who are required to report and pay GST on a quarterly basis or who are not registered for GST), the instalments of tax are due on 28 July, 28 October, 28 February and 28 April. The balance of the liability is paid on lodgment of the FBT return (s 103(2)). Due dates on weekends Where a due date for payment of a tax debt or lodgment of an approved form falls on a Saturday, Sunday or public holiday, the payment or lodgment may be made on the next business day without incurring a penalty or GIC. A “business day” is defined in s 2B of the Acts Interpretation Act 1901. No instalments if FBT less than $3,000 Instalments do not have to be paid by employers whose FBT liability in the previous year was less than $3,000 (s 111). Such employers need only pay on an annual basis. FBT rebate To ensure that certain non-profit employers that are unable to claim an income tax deduction for FBT are not disadvantaged, an FBT rebate is available under s 65J. See ¶14-300.

¶2-550 Registered tax agents and BAS agents If a registered tax agent prepares an FBT return on behalf of an employer they must give the original or a copy of any notice of assessment to the employer (s 70D). This ensures that the employer knows the amount of any tax payable or if an amount has been electronically transferred to the registered tax agent’s account. Where a registered tax agent or BAS agent makes a statement to the Commissioner that is false or misleading and FBT is underpaid, the employer is liable to pay an administrative penalty (TAA 1953 s 284-75). Also, employers are liable to pay an administrative penalty if the FBT return or BAS statement is not lodged on the approved ATO form by the due date (TAA 1953 s 286-75). However, in both circumstances the employer is not liable to pay the relevant administrative penalty if they engaged a registered tax agent or BAS agent and the statement or the failure to lodge on time was due to the agent’s failure to take reasonable care. A registered tax agent or BAS agent is an agent registered under the Tax Agent Services Act 2009 (TAS Act) which applies from 1 March 2010. The TAS Act requires tax agents and BAS agents (and tax (financial) advisers) to be registered and adhere to a code of professional conduct. The TAS Act also contains a civil penalties regime that applies to certain types of prohibited conduct (eg false and misleading statements made to the Commissioner by registered agents).

¶2-560 Collection and recovery

The mechanical provisions for the collection and recovery of FBT generally correspond to those applying to income tax. These collection and recovery provisions are located in TAA 1953 Sch 1 Pt 4-15. The penalties for not lodging an FBT return on time vary depending on how late the return is and the size of the entity’s business (TAA 1953 Sch 1 s 286-80). The penalties for an entity that is a small, medium or large withholder under the PAYG withholding provisions are set out in the table below. Higher penalties apply for an entity that is a “significant global entity” (TAA 1953 Sch 1 s 286-80(4A)).

Days overdue

Small

Medium

Large

28 days or less

$210

$420

$1,050

29 to 56 days

$420

$840

$2,100

57 to 84 days

$630

$1,260

$3,150

85 to 112 days

$840

$1,680

$4,200

$1,050

$2,100

$5,250

113 days or more

GIC applies to any late payment of tax and/or instalment of tax. If an underpayment occurs because of an amendment to an assessment, other than an amendment to correct a false or misleading statement or an amendment due to a tax avoidance arrangement, the per annum rate is the lower rate which applies to overpayments of tax. The Commissioner has the power to remit late payment penalties. FBT, when it becomes due and payable, is a debt due to the Commonwealth of Australia (TAA 1953 Sch 1 s 255-5(1)). Liability to pay tax is a civil one and failure to pay exposes the taxpayer to civil but not criminal remedies. However, a criminal offence may be committed where arrangements are entered into with the purpose of rendering a company or trustee unable, or likely not to be able, to pay tax. AFB ¶65-000 to ¶65-460.

REPORTABLE FRINGE BENEFITS ¶2-600 Overview Employers, other than certain exempt employers (¶2-240), are required to determine whether any employee has a reportable fringe benefit during the current FBT year (¶2-610). If an employee has a reportable fringe benefit for the 2018 FBT year, this amount is grossed up by 1.8868. This is the reportable fringe benefits amount and is shown on the employee’s annual payment summary together with any salary or wages paid for the year ending 30 June (¶2-630). Employees are required to total the reportable fringe benefits amount (if any) shown on the payment summary prepared by all employers and show this amount on their annual income tax return (¶2-640). Chapter 15 contains a detailed discussion of the calculation of reportable fringe benefits, reporting this amount on employees’ payment summaries and the income tax and other consequences for the employee of reporting fringe benefits.

¶2-610 Reporting requirement An employee has a reportable fringe benefit if (s 135P(1)): • one or more fringe benefits are provided during the FBT year, and • the sum of the taxable value of the fringe benefits provided by the employer (individual fringe benefits amount) exceeds $2,000 (¶15-100).

The “individual fringe benefits amount” (s 5E(2)) is the sum of the employee’s share of the taxable value of each fringe benefit provided during the FBT year other than excluded fringe benefits (¶2-620). Fringe benefits provided to an associate of an employee are included. Employers eligible for the exemptions in s 57A or s 58 are required to include the individual quasi-fringe benefits amount when applying the above test. The individual quasi-fringe benefits amount is the taxable value of fringe benefits provided to employees assuming the exemptions in s 57A and 58 did not apply (s 135Q). Therefore, when applying the $2,000 threshold the taxable value of all fringe benefits and quasi-fringe benefits (other than excluded fringe benefits) are included.

¶2-620 Excluded fringe benefits Certain “excluded fringe benefits” (s 5E(3)) are not required to be reported on an employee’s annual payment summary. For details of these fringe benefits, see ¶15-120. Example 1 Thomas is employed by Plumbers Inc and during the 2018 FBT year is provided with the following fringe benefits with the taxable values indicated: expense payment fringe benefits ($3,000), car fringe benefit ($10,000) and a Div 10A car parking fringe benefit ($4,000). Plumbers Inc determines that Thomas has a reportable fringe benefit amount since the sum of the taxable values of reportable fringe benefits ($13,000) exceeds $2,000. Note: The car parking fringe benefit is an excluded fringe benefit.

¶2-630 Employer reporting Where an employee has a reportable fringe benefit the employer is required to gross-up this amount by 1.8868 (s 135Q(4)). This reportable fringe benefits amount must be shown on the employee’s payment summary for the income year ending 30 June (TAA 1953 s 16-155). Example 2 Continuing the facts in Example 1. The grossed-up reportable fringe benefits amount for Thomas is $24,528 (ie $13,000 × 1.8868). Plumbers Inc is required to report $24,528 on his 30 June 2018 payment summary which also includes any cash salary paid to Thomas.

¶2-640 Employee consequences The total of reportable fringe benefits is required to be shown on the employee’s annual income tax return. The reportable fringe benefit total is the sum of each of the employee’s reportable fringe benefits amounts for the year of income in respect of the employee’s employment. Example 3 Continuing the facts in Example 2 and assume that Thomas was also employed by Builders Ltd during the 2018 FBT year. Builder’s Limited gives Thomas a payment summary for the year ending 30 June 2018 showing a reportable fringe benefits amount of $5,608. Thomas is required to show a reportable fringe benefits amount of $30,136 (ie $24,528 + $5,608) on his 2018 income tax return. This amount is not included in assessable income but is taken into consideration when calculating the Medicare levy surcharge, etc (¶15-320).

AFB ¶67-000 to ¶67-690.

DOCUMENTATION ¶2-700 Overview Employers are required to obtain a declaration (¶2-710) or a travel diary (¶2-720) in order to reduce the taxable value of fringe benefits where the “otherwise deductible” rule applies. In addition, documentary evidence is required to be obtained by employers to substantiate the calculation of the amount of FBT payable (¶2-730). Some employers can reduce the records that must be maintained in support of the amount of FBT payable (¶2-740) and the Commissioner has a limited discretion to disregard the record-keeping requirements (¶2-750).

¶2-710 Declarations Employers are required to obtain either an “individual benefits declaration” or a “recurring benefits declaration” from employees in order to reduce the taxable value of a fringe benefit. Alternatively, employers can prepare a no-private-use declaration in limited circumstances. All declarations must be in a form approved by the Commissioner. Employees can provide declarations electronically if: • it contains the same information as the approved paper form • the employer has consented to the employee’s electronic signature, and • the electronic declaration is readily accessible and understandable, and convertible into written English. An employer can consent to an employee’s electronic signature if the declaration is: 1. sent as an attachment from a password protected work email address 2. completed using an electronic form online provided the employee logs on using a secure password, and the form is linked to that employee’s user identification or name. This will be the case where a payroll or an intranet system ensures that the form cannot be lodged by someone other than the employee 3. sent as an attachment from the employee’s home email address “provided the employee (is) using a secure system”. An employer cannot consent to an employee’s electronic signature if the employee declaration is an attachment to an email sent on their behalf, eg the declaration is attached to an email sent by an employee’s Personal Assistant (Little John) and the “From” line of email reads “Little John on behalf of Robin Hood”. For more information see section 4.8 of the ATO publication, Fringe benefits tax — a guide for employers and NTLG FBT Sub-committee minutes — 10 November 2011 (Item 6). Individual benefits declaration A declaration is required to be completed for each fringe benefit unless the employee is able to prepare a recurring benefits declaration (see below). Where a fringe benefit is provided in connection with a car owned or leased by an employee, additional documentation may be required to be obtained by the employer. See ¶5-530, ¶6-540, ¶9-450 and ¶10470. Recurring benefits declaration This declaration applies where (s 152A):

a. a series of identical benefits are provided to employees throughout the year, and b. the only information required to be shown or attached is the business/private proportion. For example, reimbursement of an employee’s private telephone account where the business/private split remains constant throughout the year. Also, it can only be prepared if an expense payment fringe benefit (¶5-640), property fringe benefit (¶9-620) or residual fringe benefit (¶10-630) is provided. These declarations remain valid for five years or until the business use changes by more than 10%, whichever occurs first. Accordingly, they should be filed and monitored separately to ensure a new declaration is obtained when required. Also, it is important that documentation supporting the business/private percentages be attached to the declarations. No-private-use declaration An exemption from FBT applies where, in respect of an FBT year, an employer: 1. makes a no-private-use declaration for certain benefits, and 2. has procedures in place to ensure that the taxable value of those benefits is nil. This declaration is prepared annually by employers where an expense payment benefit (¶5-210) or residual benefit (¶10-210) is provided to one or more employees. They are prepared for all employees who receive the benefit and therefore should be filed with the current year’s FBT return workpapers.

¶2-720 Travel diary A travel diary is required to be prepared where local or overseas travel results in an employee being away from their usual place of residence for a continuous period of more than five consecutive nights. The travel costs may be provided as an expense payment benefit (¶5-525), property benefit (¶9-540), or residual benefit (¶10-540). Example Barry is required to attend a work-related conference in Europe that is conducted over four days and departs Australia on 1 May (Sunday). Barry arrives in Europe on Monday, departs after the conclusion of the conference on Thursday and arrives home on Saturday morning due to the duration of the flights. Although Barry only spends four nights at the overseas accommodation in Europe he is away from his usual place of residence for six nights. Therefore, a travel diary must be maintained to reduce the taxable value of the trip.

If a travel diary is not required the employer must obtain a declaration (¶2-710) unless the travel is exclusively incurred in gaining or producing the employee’s salary or wages (¶5-520; ¶9-520; ¶10-520). If an employer fails to maintain a travel diary or declaration when required the “otherwise deductible” rule cannot be used to reduce the taxable value of the fringe benefit. See ¶5-540 for details of the information required to be shown in a travel diary and suggested documentation. ATO concession In the ATO publication Fringe benefits tax — a guide for employers (para 4.4) the following concession is given where an expense payment or residual benefit is provided: “If the provision of the expense payment or residual benefit is subject to a consistently enforced prohibition on private use and would result in a taxable value of nil, the requirement to obtain a travel diary will be waived. In such instances, you will then be able to make an annual no private use declaration stating that the benefit which was provided was only for employment related purposes and there was no private portion.” A similar concession is not provided where a property benefit or airline transport benefit is provided in connection with local or overseas travel for which a travel diary is required. The ability of employers to use a no-private-use declaration (s 20A; 47A) in lieu of a travel diary was

discussed at the NTLG FBT Sub-committee minutes — 12 August 2010 (Item 7). However, it is considered that the concessions in s 20A and 47A only have application where an employer would otherwise have been required to obtain a declaration from the employee due to the operation of s 24(1)(e) or s 47(1)(c) respectively. Also, it is to be noted that the onus remains on the employer to be able to substantiate that the travel costs do not result in a taxable value other than nil. The latter is highlighted by the ATO in the following statement: “While sections 20A and 47A do not require employers to obtain travel diaries from employees, an employer may find it prudent to do so in order to satisfy themselves that they can in fact make a noprivate-use declaration. Depending on the circumstances an employer may rely on other policies or controls to achieve the same result.” Accordingly, it is considered that travel diaries should continue to be maintained by employers to substantiate that the employee travel does not include any private component.

¶2-725 Logbook records A logbook must be kept where the cost basis method (¶3-600) is used by an employer to determine the taxable value of a car fringe benefit. A logbook is also required where: • an expense payment benefit (¶5-460), loan benefit (¶6-470), property benefit (¶9-450) or residual benefit (¶10-470) is provided in respect of an employee’s car • the “otherwise deductible” rule is used to reduce the taxable value, and • the employee chooses to substantiate the expenditure using a logbook. The ATO has not released an official logbook and therefore employers may choose to design their own or purchase a commercially produced one. An illustrative logbook (¶3-660) and instructions for completing it (¶3-670) are included in Chapter 3.

¶2-730 Retention of records An employer is required to keep records that identify and explain all transactions and acts relevant for the purpose of ascertaining the employer’s FBT liability. Similarly, an associate of an employer (¶2-140) who provides benefits to an employer’s employees is required to maintain records supporting the employer’s FBT return liability and provide a copy of those records to the employer within 21 days after the end of the relevant FBT year (s 132). Form of records The records must be kept in the English language or, if not in written form (eg maintained on a computer), be in a form which is readily accessible and convertible into English. Also, the records must enable the employer’s FBT liability to be readily ascertained. The Commissioner has not ruled on the nature of FBT records required to be maintained; however, the general income tax record-keeping requirements in ITAA 1936 s 262A (Taxation Ruling TR 96/7) are considered to apply. Also, Taxation Ruling TR 2005/9 contains the Commissioner’s view on what constitutes sufficient electronic records to be retained for income tax purposes, including records relating to electronic commerce. Practice Statement PS LA 2005/2 provides guidelines on record-keeping obligations and the remission of administrative penalties for a failure to keep records. The records required to be kept by employers include: • all source documents (eg invoices, receipts, etc) • statutory evidentiary documents (¶2-735) • workpapers supporting the calculation of amounts shown on the FBT return, and

• copies of records held by an associate in respect of benefits provided to employees. Where the record-keeping exemption requirements are satisfied, the above requirements are modified (¶2-740). Record retention period The records must be retained by the employer and associate for five years after the completion of the transactions or acts to which they relate. However, records are not required to be maintained where: • the Commissioner has notified the employer or associate that retention of the record is not required or where a company has gone into liquidation, or • the information is not known. In the case of an employer, the “completion of the transactions or acts” is the date of lodgment of the FBT return since this is the last “act” of the employer, and the five years commence from this date. Information not known An employer or associate is not required to keep a record of information relating to an act or transaction engaged in by another person under an arrangement with the employer or associate, if the employer or associate: • has made all reasonable efforts to ascertain whether the transaction had been entered into or the act done and to obtain the information, and • did not know and could not reasonably be expected to have known the information. Penalty An employer or associate who fails to keep or retain documentation explaining the FBT liability commits an offence carrying a maximum penalty of 30 penalty units (¶2-820). Breaches of s 132 are an offence of strict liability as defined in s 6.1 of the Criminal Code Act 1995. Broadly, “strict liability” generally makes a person legally responsible for their acts and omissions regardless of culpability.

¶2-735 Statutory evidentiary documents A “statutory evidentiary document” (s 136(1)) is: • a declaration (¶2-710) • nomination of a replacement car (eg ¶3-680) • specification of the business use percentage (eg ¶3-690) • substitute documentary evidence (eg ¶5-505), and • car logbook records (¶2-725). Generally, the employer must keep these documents for five years, starting from the date of the FBT assessment for the last year to which they relate, and longer if there is an outstanding dispute (s 123; 136(1)). The employer can rely on a copy of a lost or destroyed document if it was in existence when the original document was lost or destroyed. If there is no copy and reasonable precautions were taken to prevent the loss or destruction of the document, the Commissioner may effectively exempt the employer from the retention requirement.

¶2-740 Record-keeping exemption

Generally, FBT payable by an employer is calculated on the fringe benefits taxable amount for the year (¶2-510). Also, an employer is generally required to maintain certain records (¶2-730). However, certain employers are exempted from the record-keeping requirements and are able to calculate FBT on the aggregate fringe benefits amount of an earlier year (the “base year”) when such records were maintained (s 135A to 135L). Conditions To qualify for this exemption, the employer must (s 135B): • have established a base year, and • not have been given a notice by the Commissioner during the FBT year immediately before the current year requiring the employer to resume record-keeping. Base year An FBT year is a base year in relation to an employer if (s 135C): • the employer has carried on business operations throughout the FBT year • the employer has lodged an FBT return for the FBT year (even if the employer is not generally required to lodge a return) • all the records for the FBT year have been kept and retained as required (s 132; ¶2-730). An employer who is relying on s 132A to obtain the necessary documentary evidence within a reasonable time may still treat a year as the base year where that evidence is obtained • the employer’s FBT liability for the FBT year is worked out from the aggregate fringe benefits amount for that year and not an earlier base year, and • the aggregate fringe benefits amount for the FBT year does not exceed the “exemption threshold”. The exemption threshold for an FBT year is the previous year’s threshold adjusted for movements in the Consumer Price Index (s 135C). The exemption threshold for the 2018 FBT year is $8,393 (Taxation Determination TD 2017/2). The thresholds for previous FBT years are:

FBT year Threshold 2017

$8,286

2016

$8,164

2015

$7,965

Record-keeping exemption An employer who satisfies the above conditions for an FBT year will not be required to maintain FBT records for that year unless (s 135E): i. the employer is a government body or an income tax-exempt body at any time during the year. If an employer becomes a government body or an income tax-exempt body, FBT records must be kept from the day the employer’s status changes, or ii. an associate of the employer provides to the employer copies of records relating to benefits provided by the associate to the employer’s employees, or iii. the employer receives from the Commissioner a notice requiring it to recommence keeping and retaining records (this will apply from the date the notice is given).

However, an employer is required to keep and retain records for a base year for a period of five years after the end of the last FBT year for which the base year is relevant in determining the employer’s liability (s 135F). Example An employer establishes a base year and is exempt from keeping records in the following year (Year 1). In Year 2, the employer no longer qualifies for the record-keeping exemption. The employer must retain the base year records until the end of Year 6.

FBT liability Where an employer qualifies for the record-keeping exemption, the FBT liability for the current year is worked out using the aggregate fringe benefits amount for the most recent base year, instead of the aggregate fringe benefits amount for the current year (s 135G). An employer may also choose to use the current year aggregate fringe benefits amount (rather than the base year amount) to determine the FBT liability for the current year (s 135H). For example, an employer may choose to use the current year aggregate fringe benefits amount where it is less than the base year amount. The base year aggregate fringe benefits amount cannot be used where: • the employer is a government body or an income tax-exempt body at any time during the current year (s 135J), or • the current year aggregate fringe benefits amount is more than 20% greater than the most recent base year amount. However, this 20% rule does not apply provided the difference between the current year and most recent base year amount is $100 or less (s 135K). Special rules dealing with the retention of statutory evidentiary documents and the valuation of car fringe benefits apply to assist employers in determining their aggregate fringe benefits amount for the current year (given that, under the record-keeping exemption provisions, they may not have retained records for the current year) (s 135K(4); 135K(5)). An employer who ceases business during the current year is able to pro rate its base year aggregate fringe benefits amount in accordance with the proportion of the current year during which it was in business (s 135L).

¶2-750 Substantiation discretion The obtaining or retention of substantiation evidence, including diaries and logbooks, and the giving of that evidence to the employer, are usually required in order to reduce the taxable value of certain fringe benefits or to ensure that other benefits are exempt from FBT. The Commissioner has a discretion to disregard non-compliance with the record-keeping requirements (but not the requirements to provide declarations) where the nature and quality of the evidence satisfies the Commissioner that the taxable value of a benefit is not greater than that specified by the employer (s 123B). For example, in ATO Interpretative Decision ID 2003/1099, the Commissioner was satisfied that the calculation of business kilometres was accurate enough to waive logbook substantiation requirements. The Commissioner can only exercise this discretion while reviewing the affairs of the taxpayer (eg during an audit). Natural disaster Where records have been lost or destroyed in a natural disaster: • Sections 123(5), 123(6) and 123B may apply to relieve the employer from compliance with substantiation requirements in relation to reconstructed records (Practice Statement PS LA 2011/25).

• Where records cannot be reconstructed, an option exists for the Commissioner to make a default assessment of the fringe benefit taxable amount and the amount of FBT payable which can be raised under s 73 (NTLG FBT Sub-committee minutes — 17 February 2011 (Item 7)). AFB ¶66-570; AFT ¶830-700, ¶831-600.

DISPUTING FBT PAYABLE ¶2-800 Overview Employers can object to an assessment and, if dissatisfied with the Commissioner’s decision, request a review of the decision by the AAT or appeal to the Federal Court (¶2-810). Penalties are imposed under the TAA 1953 and under the FBTAA (¶2-820). In addition, the FBTAA contains a number of general offences (¶2-830) and a number of machinery provisions to facilitate the Commissioner in collecting FBT (¶2-840). The FBTAA deals with tax avoidance arrangements in a similar manner to Pt IVA of the ITAA 1936 (¶2850).

¶2-810 Objections, reviews and appeals An employer who is dissatisfied with a deemed assessment or an assessment made by the Commissioner may object against it in the manner set out in Pt IVC of the TAA 1953. To be valid and effective, an objection must (TAA 1953 s 14ZU): • be in writing and in the approved form • be lodged with the Commissioner within the appropriate time limits, although a taxpayer may be able to obtain an extension of time, and • state fully and in detail the grounds on which the taxpayer relies in disputing the assessment. Rights of review and appeal, and provisions for extension of time limits, etc, effectively correspond to those applying to income tax. There is no right to a refund of FBT under the general law of restitution, eg where the objection time limits have expired and the extension of time provisions are not satisfied (Mt Gibson Manager Pty Ltd v FC of T 98 ATC 4012). In Minproc Engineers Ltd v FC of T 98 ATC 2170, the AAT held that an employer which followed a ruling in self-assessing its FBT liability should be allowed to lodge an objection which was five and a half years out of time, but not an objection which was more than six years out of time. However, in Boral Resources (WA) Ltd v FC of T 98 ATC 2158, where the facts were similar to Minproc Engineers, the AAT refused to allow objections against FBT assessments lodged out of time because the employer had not relied on a ruling when self-assessing its FBT liability. Note: Taxation Ruling TR 2011/5 explains what constitutes a valid objection against an income tax assessment and footnote 36 of the Appendix indicates that it may provide guidance in relation to other Acts or associated regulations which provide for similar rights of objection under TAA 1953 Pt IVC.

¶2-820 Penalty tax The uniform penalty regime contained in TAA 1953 Sch 1 Pt 4-25 applies for all FBT-related matters. See Practice Statement PS LA 2012/5 for how the penalty regime in TAA 1953 Subdiv 284-B is administered and Practice Statement PS LA 2006/8 for guidelines for the remission of shortfall interest. Penalties may also be imposed under the FBTAA for: • a tax agent’s failure to provide a taxpayer with a copy of or original notice of assessment (s 70D; ¶2730) (30 penalty units), and • failing to record or retain records (s 132) (30 penalty units).

Since 1 July 2017, one penalty unit is $210 (Crimes Act 1914, s 4AA). The Commissioner can remit all or part of a penalty in a similar manner to that applying to corresponding income tax penalties.

¶2-830 Offences In addition to the specific offences under the FBTAA, the general offences under the TAA 1953 (such as failing to furnish returns or supply information, making false or misleading statements, obstruction and so on) apply to FBT. Persons stripping companies or trusts to make them incapable of paying FBT may be convicted under the Crimes (Taxation Offences) Act 1980. No penalty tax is payable for failure to lodge a return if the failure is the subject of a prosecution (unless the prosecution is withdrawn), but penalties may be imposed on a successful prosecution. A partner is deemed to have committed any offence committed by another in the partnership, but has a defence if it can be shown that the partner was in no way connected with the offence (s 165). The same applies to members of the committee of management of an unincorporated company (s 166). Government bodies are excluded from the offence provisions of the FBT legislation (s 167).

¶2-840 Miscellaneous administrative matters The following summary outlines a number of administrative and machinery provisions in the legislation: • In the absence of sufficient information to make a proper assessment, the Commissioner can make a reasonable assessment (s 124). • The treatment of documents issued by the Commissioner, or by taxpayers, as evidence in judicial proceedings is outlined in TAA 1953 Sch 1 s 350-10. • Authorised officers have wide powers to enter buildings, inspect documents and make copies, and are entitled to all reasonable assistance from the occupier (TAA 1953 Sch 1 s 353-15). • The Commissioner can require any person to attend before the Commissioner or an authorised officer to answer questions and to produce documents in the person’s custody or control (TAA 1953 Sch 1 s 353-10(1)). • Agents acting for employers, employers in the capacity of trustees, and trustees in respect of the affairs of employers, who provide or arrange fringe benefits are required, as agent or trustee, to lodge returns and pay FBT (s 129). • There is provision for relief from FBT in cases of serious hardship (TAA 1953 Div 340), similar to that applying to income tax.

¶2-850 Tax avoidance arrangements Where, on an objective view of an arrangement and the surrounding circumstances, the arrangement was entered into for the sole or dominant purpose of reducing liability for FBT, the Commissioner can effectively cancel any tax benefit from the arrangement (s 67). The Commissioner can only apply s 67 if: 1. an employer has obtained a tax benefit in connection with an arrangement under which a benefit is provided to a person and the arrangement was entered into, or commenced to be carried out, on or after 19 September 1985, and 2. at least one person (not necessarily the employer) entered into, or carried out, the arrangement for the sole or dominant purpose of enabling the employer to obtain a tax benefit.

An “arrangement” is defined to mean, in essence, almost anything that an employer may do, either alone or in association with another or others. A “tax benefit” is any amount that is not included in the aggregate fringe benefits amount of an employer, where that amount would have been, or could reasonably be expected to have been, included if the arrangement had not been entered into or carried out (s 67(2)). However, ceasing or reducing a benefit, replacing it with cash remuneration, or requiring the employee to make a contribution does not constitute a tax benefit (s 67(3)). Where the Commissioner applies s 67 to a tax avoidance arrangement, the employer concerned is liable to pay additional tax. The amount of additional tax is effectively double the amount of tax that would have been avoided under the arrangement, subject to a power of remission given to the Commissioner. Additional tax is not payable if the Commissioner prosecutes the employer for commission of a taxation offence (TAA 1953 s 8ZE). AFB ¶70-020 to ¶75-900; AFT ¶822-250, ¶831-200, ¶972-540.

APPENDICES ¶2-900 Appendix 1: Terminology The following lists some of the key terms that are relevant to the determination, calculation and reporting of fringe benefits. Term

Explanation

Associate of employee

A person connected with an employee (¶2-120).

Associate of employer

A person connected with an employer (¶2-140).

Available for private use

When a car held by an employer is available for the private use of an employee (¶3-180).

Base value of a car

Value of a car when using the statutory formula method (¶3-520).

Cost price

Purchase price of a car (¶3-635).

Declaration

Document required to be maintained to substantiate a reduction in the taxable value of certain fringe benefits (¶2-710).

Employee

A current, future or former employee (¶2-120).

Employer

A current, future or former employer (¶2-140).

Excluded fringe benefit

A fringe benefit not included on the employee’s payment summary. See ¶2-620.

Exempt benefit

A benefit not subject to FBT. This may arise due to a miscellaneous exemption (¶2-220) or an exclusion within the particular category of fringe benefit (¶2-340).

Family member

The employee, spouse or a child of the employee (s 136(1)). A “child” has the meaning in ITAA 1997 s 995-1.

Fringe benefit

A benefit provided to an employee or associate that is subject to the FBT regime (¶2-100).

FBT

Tax imposed by the Fringe Benefits Tax Act 1986. The FBT rate is 47% for the 2018 FBT year.

Individual fringe benefits amount

Total taxable value of fringe benefits, other than excluded fringe benefits, provided to an employee during the FBT year. Includes benefits provided to an associate (¶15-110).

Individual quasi-fringe benefits amount

Total taxable value of fringe benefits, other than excluded fringe benefits, provided to an employee during the FBT year assuming the exemptions in s 57A and 58 did not apply. Includes benefits provided to an associate (¶15-150).

In-house fringe benefit

A benefit provided in the course of the business activities of the employer (¶2-460).

Logbook

Document required to be maintained where a car benefit or a benefit attributable to an employee’s car is provided (¶2-725).

Non-arm’s length arrangement

An arrangement other than an arm’s length arrangement (¶10-390).

Once-only deduction

A deduction in an FBT year in respect of a percentage of the expenditure where no deduction is allowable in respect of a percentage of the expenditure in any other FBT year (eg ¶5-420).

“Otherwise deductible” rule

Requires the employer to assume the employee had incurred expenditure equal to the amount of the benefit provided and determine whether the employee would have been entitled to an income tax deduction (¶13-120).

PAYG

An amount withheld under Sch 1 of the TAA 1953.

Place of residence

A place where a person resides or has sleeping accommodation whether on a permanent, temporary or shared basis (¶7-160).

Rebatable employer

Certain non-profit organisations other than a PBI or HPC (¶14-310).

Recipient

The person to whom the benefit is provided.

Recipients contribution

Contribution towards the taxable value of a fringe benefit (¶13-160).

Recipients payment

Payment towards the taxable value of a fringe benefit (¶13-160).

Recipients rent

Contribution towards the cost of a housing fringe benefit (¶13-160).

Reportable fringe benefit

Amount required to be reported on the employee’s payment summary (¶2-600).

Reportable fringe benefits total

The sum of an employee’s reportable fringe benefits provided by all employers (¶2-600).

Salary or wages

A payment from which a PAYG amount must be withheld (¶2-150).

Salary sacrifice arrangement

An arrangement that involves an employee foregoing salary or wages in return for the provision of benefits (¶16-050).

Section 57A employer

An employer eligible for the concession in s 57A (¶14-400).

Taxable value

The value of a fringe benefit provided by an employer using one of 13 valuation rules. See Chapters 3 to 11 inclusive.

Type 1 gross-up rate

2.0802 (¶14-210).

Type 2 gross-up rate

1.8868 (¶14-220).

Usual place of residence

Where a person ordinarily resides (¶8-130).

Year of income

The year starting 1 July.

Year of tax (FBT year)

The year starting 1 April.

CAR FRINGE BENEFITS INTRODUCTION Roadmap of car fringe benefits

¶3-000

DEFINITION Overview

¶3-100

Car benefit

¶3-110

Provision of a car

¶3-120

Car held by the provider

¶3-140

Novated leasing arrangements

¶3-150

Applied to a private use

¶3-160

Available for private use

¶3-180

What is not a car benefit?

¶3-190

EXEMPTIONS Circumstances

¶3-200

Work-related cars

¶3-220

Unregistered cars

¶3-240

Cars owned by personal services entities

¶3-260

Minor benefits

¶3-280

Car expenses

¶3-290

TAXABLE VALUE Overview

¶3-300

REDUCTIONS Circumstances

¶3-400

STATUTORY FORMULA METHOD Overview

¶3-500

Transitional rules — 2015 and earlier FBT years

¶3-505

Cars subject to FBT before 11 May 2011

¶3-510

Annualised number of whole kilometres

¶3-515

Base value of a car

¶3-520

Adjustment of the base value

¶3-525

Taxable value calculation

¶3-530

Workpaper 1: Taxable value — statutory formula method ¶3-535 Workpaper 2: Base value of car

¶3-540

Instructions for calculating the base value

¶3-560

Workpaper 3: Employee car declaration

¶3-580

Instructions for completing the employee car declaration ¶3-590 COST BASIS METHOD Overview

¶3-600

Car expenses

¶3-610

Deemed depreciation

¶3-620

Imputed interest

¶3-630

Cost price

¶3-635

Taxable value calculation

¶3-640

Workpaper 4: Taxable value: cost basis method

¶3-650

Workpaper 5: Car logbook

¶3-660

Instructions for completing car logbook

¶3-670

Workpaper 6: Employee car declaration

¶3-680

Instructions for completing the employee car declaration ¶3-690 Workpaper 7: Car cost price

¶3-700

Instructions for calculating the cost price

¶3-720

Workpaper 8: Fuel expenses declaration

¶3-740

INTRODUCTION ¶3-000 Roadmap of car fringe benefits A car fringe benefit arises when an employer provides a motor vehicle that is a car to an employee or an associate of the employee (¶3-100). An exemption is available for car benefits arising from the provision of work-related cars and unregistered motor vehicles (¶3-200). Where a car benefit is a fringe benefit the taxable value is calculated using the statutory formula method unless the employer elects to use the cost basis method (¶3-300). The calculation of the taxable value using the statutory formula method is explained at ¶3-500 and the cost basis method at ¶3-600. Illustrative workpapers and the documentation required to be maintained to support the calculations are included.

DEFINITION ¶3-100 Overview A car benefit (¶3-110) will only have a taxable value if it is not exempt (¶3-200) and is a “car fringe benefit”. A car fringe benefit is a car benefit which is also a fringe benefit as defined in s 136(1) and discussed at ¶2-100.

¶3-110 Car benefit A car benefit arises where (s 7): 1. an employee or associate is provided with a car (¶3-120) 2. the car is “held” by the provider (¶3-140), and

3. the car is either: (a) applied to a private use (¶3-160), or (b) available for private use (¶3-180). Each of these requirements is explained below. Natural disaster Where a car is destroyed due to a natural disaster it ceases to be a car from that date (¶3-140).

¶3-120 Provision of a car The employee or an associate of an employee must be provided with a car. A “car” is a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than one tonne and fewer than nine passengers. A “motor vehicle” is any motor-powered road vehicle (including a four-wheel drive). Therefore, the following motor vehicles are cars: • a motor car, station wagon, panel van, utility truck or similar vehicle designed to carry a load of less than one tonne • any other road vehicle designed to carry a load of less than one tonne and fewer than nine passengers. The designed load-carrying capacity of a vehicle is determined by reference to the Australian Design Rules (Case J63, 77 ATC 537). Broadly, the designed load-carrying capacity is calculated by subtracting the unladen weight of the vehicle from the maximum loaded weight (as indicated on the compliance plate). The “unladen weight” includes a full tank of fuel, oil and coolant together with a spare wheel, tools (including jack) and installed options. It does not include the weight of goods or occupants (Miscellaneous Taxation Ruling MT 2024). Station wagons, panel vans and utility trucks are usually cars for FBT purposes. For this purpose, a panel van is a passenger car derivative having the same body configuration as a car forward of the windscreen, eg a Ford Falcon panel van. By way of contrast, Ford Transit vans and Toyota Hi-Ace vans are not panel vans. A utility truck is a vehicle which is a derivative of a car and does not cover vehicles which are made along the same lines as a truck, ie which incorporate a chassis to which a variety of goods-carrying sections can be fitted (Case M10, 80 ATC 76). A car does not include a motorcycle or a four-wheeled motorcycle of the sort used on farms. A hearse is not a car (Taxation Determination TD 2006/39) but a stretched limousine is a car (Case Z25, 92 ATC 247). Provision of a motor vehicle that is not a car will not give rise to a car benefit, but may give rise to a residual benefit (¶10-360).

¶3-140 Car held by the provider The car must be “held” by the employer, or by an associate of the employer, or by the third party with whom the employer or associate makes an arrangement for the car to be provided (s 7(1)(b)). A car is held by a person if that person owns or leases it or it is otherwise made available to that person (s 162(1)). A car under a hire purchase agreement is deemed to be owned by the hirer (s 7(6)). A taxi let on hire or a car hired on an intermittent basis (eg a rental car) where there is no substantial continuity of the hiring arrangement is not held by the hirer (s 7(7)). The ATO considers that a hire period of more than 12 weeks is generally considered to be “substantial” (NTLG FBT Sub-committee minutes — 15 June 1995). Example

John is employed by Swift Ltd and is provided with a salary packaged car which is used for travel between home and work. Swift Ltd provides John with a hire car for six weeks while his salary packaged car is being repaired. The hire car is not a car benefit. Instead, it is an expense payment fringe benefit (¶5-100) or a residual fringe benefit (¶10-100) unless it is an exempt residual benefit (¶10-230).

A car will cease to be held from the date of being destroyed. In ATO Interpretative Decision ID 2011/28, a car provided for the exclusive private use of an employee is burnt out in a bushfire part-way through the FBT year. The car remains at the employee’s residence where it was incinerated before being removed. The ATO concludes that a car destroyed by a natural disaster ceases to be a “car” as it ceases to be a motor-powered road vehicle from the date of being destroyed. The holding period also ends at that time. There is no requirement that an insurance assessor makes a determination that the car is a “write-off”. The provision of a chauffeur to drive a car at the employee’s direction for business or private purposes gives rise to a residual benefit, rather than a car benefit (ATO Interpretative Decision ID 2003/498).

¶3-150 Novated leasing arrangements A novation is a tripartite arrangement whereby the three parties (lessor, lessee and employer) agree to change or transfer all or some of the rights and obligations in a motor vehicle lease entered into between two of the parties. These arrangements are categorised as being either a full novation or a partial novation in Taxation Ruling TR 1999/15. Motor vehicle lease novation arrangements are also discussed in Taxation Ruling IT 2509. Cars subject to a novated lease agreement are subject to fringe benefits tax in the same manner as other cars leased by an employer. For example, where a novation agreement is extended with the same employer, the base value of the car remains unchanged. However, if an employee enters into a new novated lease agreement with an employer who is not associated with the former employer, the base value is the market value of the car at that time. Full novation A full novation results in the employer taking over all the rights and responsibilities contained in the original finance lease contract between the lessor and the employee. Where the above requirements are satisfied, a car fringe benefit arises if the car is provided for the private use of the employee or associate of the employee. Split full novation A split full novation is an arrangement whereby the lessee’s rights and obligations contained in the original finance lease (other than the residual payment obligation) are transferred to the employer. Where the above requirements are satisfied, a car fringe benefit arises if the car is provided for the private use of the employee or associate of the employee. Note: A taxpayer is not required to include in their assessable income any profit that they make on the disposal of a car that is the subject of a split fully novated lease arrangement. See ATO Interpretative Decision ID 2003/320 which was withdrawn 1 April 2010 because it is a simple restatement of the law.

Partial novation The transfer of only the finance lease payment obligation is a partial novation. A partial novation may also occur where there exists both a finance lease (lessor/employee) and a sublease (employee/employer). Under a partial novation, the employer has the obligation to make lease payments instead of the employee. Commonly, partial novation arrangements include an ancillary transaction whereby the lessee also subleases the vehicle to the employer. Where a sublease agreement forms part of the novation agreement, the employee will be assessed on the rental income “paid” by the employer but will not be entitled to an income tax deduction for the rental payments made to the lessor by the employer. Partial novation arrangements entered into on or before 17 June 1998 are treated by the ATO as full novations. However, partial novations entered into after 17 June 1998 result in either a residual or car fringe benefit.

¶3-160 Applied to a private use The car must be applied to a private use (see below) or be available for private use (¶3-180). A car is applied to a private use if it is used in accordance with the employee’s directions, instructions or wishes (s 7(5)). A “private use” is any use of the car by the employee that is not exclusively in the course of producing assessable income of the employee. Therefore, any employment related use of the car by the employee would not be private use. Further, any use giving rise to other assessable income of the employee not related to employment would also not be private use (Miscellaneous Taxation Ruling MT 2027). Example A company allows an employee to use a company car on weekends. The employee runs a private income producing business during his spare time. If the employee’s only use of the car over the weekend is in relation to the conduct of the business, then there will not have been any private use of the car.

However, although the car in the above example may not have been applied to private use, a car benefit may still arise if the car was available for private use (¶3-180).

¶3-180 Available for private use The car must be available for private use (see below) or applied to a private use (¶3-160). A car will be taken to be available for private use by an employee or an associate of an employee in the following two circumstances. Car garaged at employee’s residence Where a car held by an employer (or an associate of an employer) is, on any day, garaged or kept at or near the place of residence of an employee (or an associate of the employee), it is taken to be available for the private use of the employee or associate on that day (s 7(2)). Therefore, a car benefit will arise if a car is garaged at an employee’s place of residence overnight regardless of any actual private use (¶3-160). An employee’s “place of residence” is their home or any other place where the employee resides or has sleeping accommodation, including a motel (ATO Interpretative Decision ID 2004/852). A car is taken to be available for private use where it is garaged at the employer’s place of business if this is also the employee’s place of residence (Case 58/94, 94 ATC 498; Jetto Industrial Pty Ltd v FC of T 2009 ATC ¶10-090). Cars that are used by an ambulance service, police service or firefighting service and that are visibly marked for that purpose and are fitted with a flashing warning light and horn, bell or alarm are not considered to be available for private use simply because they are garaged by the employee (s 7(2A)). Car not at employer’s business premises Where a car held by an employer (or an associate of an employer) is, on any day, not garaged at the business premises (Taxation Ruling TR 2000/4) of that employer or associate, it is taken to be available for private use if any of the following three conditions are also satisfied (s 7(3)). 1. Employee is entitled to apply the car to a private use Whether an employee is entitled to apply a car to a private use is dependent upon the circumstances in which the car is provided. For example, a car provided to an employee as part of a salary packaging arrangement would generally satisfy this requirement. The onus is on the employer to establish that the employee is not entitled to apply the car to a private use on any particular day. Also, an employee is deemed to be entitled to use a car, or apply a car for a private purpose if a prohibition by the employer on private use is not consistently enforced (s 7(4)).

The ATO considers that an employee will remain entitled to apply a car for private purposes unless the employer removes the custody and control of the car from the employee (eg takes the car keys) and can substantiate a prohibition on the private use of the car (Taxation Determination TD 94/16). 2. Employee is not performing employment duties and has custody or control of the car When an employee has custody and control of the car and is not performing employment duties at that time, this requirement is satisfied. An employee has custody or control of a car if the employer does not hold the car keys (Taxation Determination TD 94/16). Example An employee (Paddy) of Tours Ltd is provided with a company-owned car which may be used for private purposes. However, Tours Ltd expressly prohibits private use of the company cars while employees are on annual leave. Paddy collects his company car from the offices of Tours Ltd and parks it at the airport in order to go overseas during a period of annual leave. The keys of the car are not held at the business premises of Tours Ltd. As Paddy is not performing employment duties and has custody or control of the car, the car is deemed to be available for private use.

The ATO considers that an employee or associate has custody or control of a car unless the employer holds the car keys and can substantiate a prohibition on the private use of the car (Taxation Determination TD 94/16). 3. An associate of the employee is entitled to use, or has custody or control of, the car This requirement is satisfied if the employee is not in a position to use a car for private purposes but an associate is not similarly limited from doing so — for example, where an employee parks the car at the airport and travels overseas on employer business. Airport bailment agreements Where the employer has entered into a bailment agreement with the Sydney Airport Corporation Ltd (SACL), an employee or associate of an employee is not considered to have custody or control of an employer’s car or entitled to use the car for private purposes (Class Ruling CR 2009/3). Similarly, where a car is held pursuant to a bailment agreement entered into between an employer and Andrews Airport Parking it is not “available for private use”. This conclusion is subject to the same qualifications as that provided in respect of the SACL bailment agreement (Class Ruling CR 2013/10). Therefore, a car benefit will not arise on the whole days the car is parked in accordance with an approved bailment agreement.

¶3-190 What is not a car benefit? A car benefit does not arise where the car is not held by the provider of the benefit (¶3-140) — for example, where an employee is reimbursed for the actual expenses incurred in respect of a car they own or lease. Instead, one or more of the following categories of benefit may arise: • an expense payment benefit (¶5-460) • a loan benefit (¶6-470) • a property benefit (¶9-450), and • a residual benefit (¶10-470). Also, a car benefit does not arise where an employee or associate is paid a car allowance or is reimbursed for car expenses based on the number of kilometres travelled. The payment of a car allowance is included in the assessable income of the recipient (ITAA 1997 s 15-2) and is not subject to FBT (¶5-120). Similarly, the reimbursement of car expenses based on the number of kilometres travelled is included in assessable income of recipient (ITAA 1997 s 15-70) and is generally an exempt expense payment benefit (¶5-240). AFB ¶20-010 to ¶20-100; AFT ¶801-120.

EXEMPTIONS ¶3-200 Circumstances An exemption is available for work-related cars (¶3-220), unregistered cars (¶3-240) and certain cars held by personal services entities that are used for private purposes (¶3-260). In addition, the minor benefits exemption may apply in limited circumstances (¶3-280).

¶3-220 Work-related cars A car benefit is exempt where all of the following conditions are satisfied: 1. a work-related car is provided 2. the car is used for work-related travel 3. there is minimal private use of the car. Each of these requirements is explained below. 1. A work-related car is provided The car must be (s 8(2)(a)): • a taxi, panel van or utility truck designed to carry a load of less than one tonne, or • a car designed to carry a load of less than one tonne that is not designed for the principal purpose of carrying passengers (other work cars). Taxi, panel van or utility truck A panel van is a passenger car derivative having the same body configuration as a car forward of the windscreen. A utility truck is a vehicle which is a derivative of a car that does not have a chassis to which a variety of goods-carrying sections can be fitted. Example An employee takes home one of the employer’s panel vans. The only use of the panel van is for travel between the employee’s home and work. Also, any other use of the panel van is prohibited and enforced by the employer. The panel van is an exempt car benefit.

Dual cab vehicles Dual cab vehicles may be eligible for the exemption. A dual cab vehicle is a variant of conventional goods-carrying vehicles in that it has a chassis to which a variety of tray sections may be fitted. Also, there are additional seating positions behind the driver and front passenger seat (Miscellaneous Taxation Ruling MT 2024). Modified cars Modified vehicles may be eligible for the exemption. Whether a car is not designed principally to carry passengers is a question of fact as discussed in Miscellaneous Taxation Rulings MT 2024 and MT 2033. In Miscellaneous Taxation Ruling MT 2033, the Commissioner discusses the extent of modifications needed to convert a car originally designed to carry people into one designed principally to carry cargo. This is because it is the design of the vehicle and not the use to which it is put that determines the exemption. This ruling points out that to change the design of a vehicle, the modifications must effect a permanent alteration to the vehicle. Generally, this will be satisfied where the modifications cannot be readily

reversed so that the car can be used alternatively as a passenger and non-passenger vehicle on a regular basis. The presence of bulky equipment or goods that make reconversion difficult is to be ignored since it is the nature of the modifications that is important. The ruling also provides the following example: “Simply removing the rear seat or bolting it down would not be sufficient … However, if … that were to be done in conjunction with the fixing of a rigid floor panel, the reinforcement of internal panels, the fixing of a protective screen behind the driver’s seat and the fixing of shelving etc to a service vehicle, it would be accepted that the modifications (make the car exempt from FBT). Of course, the modifications would need to extend throughout the entire rear area, including that previously devoted to the rear seat. Simply fixing shelving etc to the area behind the rear seat location would not (make the car exempt).” It is also important to note that “… the exemption will not apply in the year in which modifications are effected if, during that year, the unmodified car was used by the employee (or associate) for private purposes or was available for his or her use”; eg if the car was garaged at the employee’s home. 2. The car is used for work-related travel The car is used for work-related travel (s 8(2)(b)(i)). That is, travel incidental to the performance of the employee’s employment duties and includes employee travel between (s 136(1)): (i) the place of residence of the employee, and (ii) the place of employment of the employee or any other place from which or at which the employee performs duties of their employment. This condition will be satisfied provided the travel is by the employee between home and work or work and home regardless of any business stops along the way to or from work. However, the travel must be in respect of the employment duties of the employer providing the car benefit. For example, if an employee is provided with a car benefit by Company A, but also works for Company B, travel between home and Company B is private use (ATO Interpretative Decision ID 2013/34). 3. Minimal private use of the car The private use of the car by the employee or an associate must be minor, infrequent or irregular (s 8(2) (b)(ii)). Although the FBTAA does not explain, as a practical matter, what is “minor, infrequent or irregular”, Draft Practical Compliance Guideline PCG 2017/D14 sets out the Commissioner’s proposed compliance approach to determining private use of vehicles in the 2018 FBT year and later years. An employer may choose to rely on the guideline (when finalised) if: (a) the employer provides an eligible vehicle to a current employee (see ATO fact sheet “Eligible vehicles” on ATO website) (b) the vehicle is provided to the employee to perform their work duties (c) the employer takes all reasonable steps to limit private use of the vehicle and has measures in place to monitor such use. As to what constitutes reasonable steps will depend on the circumstances of a business, but may include a monitored policy on private use of vehicles. (d) the vehicle has no non-business accessories (e) the vehicle had a GST-inclusive value less than the luxury car tax threshold at the time the vehicle was acquired (f) the vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle, and (g) the employee uses the vehicle to travel:

i. between their home and their place of work and any diversion adds no more than two kilometres to the ordinary length of that trip ii. no more than 750 kilometres in total for each FBT year for multiple journeys taken for a wholly private purpose, and iii. no single, return journey for a wholly private purpose exceeds 200 kilometres. Where an employer relies on the draft guideline: • the employer does not need to keep records about their employee’s use of the vehicle that demonstrate that the private use of the vehicle is “minor, infrequent and irregular”, and • the Commissioner will not devote compliance resources to review that the employer can access the car-related exemptions for that employee. Example (taken from PCG 2017/D14) An employer provides an employee with a new panel van designed to carry a load of less than one tonne. The van is not provided as part of a salary packaging arrangement, is fitted with business accessories and was acquired for a value below the applicable luxury car tax threshold. The van is an eligible vehicle. The van is garaged at the employee’s home and the employee uses the van to travel between their home and their place of employment. The employer advises the employee that private use of the vehicle should be limited and conducts checks to monitor the kilometres travelled. The employee usually stops at the newsagent to pick up a newspaper on their way to work. The diversion adds less than two kilometres to the total journey from home to work. On 10 occasions during the FBT year, the employee has also transported their niece to school in the van during the employee’s journey from home to work. The journeys from home to work generally do not exceed 20 kilometres. The employer takes an odometer reading at the end of the 2018 FBT year. The employer notes that the total business kilometres the employee claims to have travelled, based on the distance between the employee’s home and work is 30,000 kilometres. The odometer reading is 30,250. The employer is able to rely on PCG 2017/D14 as the requirements in para 5 of the draft guideline are met: • the diversion to stop at the newsagent adds less than two kilometres to the total home to work travel, and • the journeys transporting the employee’s niece to school are infrequent and irregular and do not exceed 750 kilometres for the year (as evidenced by the odometer reading).

Where an employee’s duties of employment are inherently itinerant in nature, and the employee’s travel from home to work includes transporting a child to school in a work-related car on one occasion in the FBT year, the employee’s journey from home to one of their work locations is regarded as private use of the car. The use of the car for this purpose is minor, infrequent and irregular and is an excepted private use (ATO Interpretative Decisions ID 2012/97; ID 2012/98).

¶3-240 Unregistered cars A car benefit will be an exempt benefit if (s 8(3)): (a) the car is unregistered throughout the period it is held by the employer during the year of tax, and (b) the car is used during that period wholly or principally in connection with the business operations of the employer or, if the employer is a company, a related company.

¶3-260 Cars owned by personal services entities A personal services entity is able to claim a deduction for a single car that is used partly or solely for private purposes. However, if the personal services entity provides more than one car, it will only be able to claim a deduction for one car per individual whose personal services income is included in the entity’s income (ITAA 1997 s 86-70).

Where car expenses for a second car are not deductible, notwithstanding that all or part of the expense relates to gaining or producing personal services income, no FBT is payable in respect of this car (s 8(4)).

¶3-280 Minor benefits The minor benefits exemption (¶12-100) can apply to car benefits but only if the car is not provided as part of a salary sacrifice arrangement (s 58P(f)(v)). Accordingly, the minor benefits exemption will only apply in limited circumstances. Example An employer allows an employee occasional use of one of its cars for a special purpose. This included rubbish removal following a storm and travel from home to work during a three-day transport strike. The employee does not have a general entitlement to use the car for private purposes. The employer calculates that the notional taxable value of each of the benefits provided in the FBT year are all less than $300 using the appropriate cents per kilometre valuation for the car. No FBT is payable as the employer can rely on the minor benefits exemption (Example 6 of Taxation Ruling TR 2007/12).

¶3-290 Car expenses Car expenses (¶3-610) attributable to a period when a car benefit (¶3-110) is provided are exempt (¶12930) where provided as: (a) an expense payment benefit (b) a property benefit, or (c) a residual benefit. This ensures that benefits attributable to a car can only be taxed using the statutory formula method (¶3500) or the cost basis method (¶3-600). Expenses not falling within the definition of “car expenses” are not exempt and employers will need to rely on the “otherwise deductible” rule to reduce the taxable value. For example, road and bridge tolls paid or reimbursed by the employer provided as an expense payment fringe benefit (¶5-465). AFB ¶20-150 to ¶20-190; AFT ¶801-540.

TAXABLE VALUE ¶3-300 Overview Employers use the statutory formula method (¶3-500) to determine the taxable value unless they make an election to use the cost basis method (¶3-600). However, employers do not have to use the same method for all their cars, nor do they have to use the same method for a particular car from year to year. The business records maintained by the employer in support of the FBT return are sufficient evidence of an election to use the cost basis method. For example, if an employer chooses to use the cost basis method but does not have an FBT liability it is not necessary to lodge a nil FBT return to substantiate that the election has been made (NTLG FBT Sub-committee minutes — 12 November 2009). If an employer elects to use the cost basis method but the statutory formula method would produce a lower taxable value, the statutory formula method applies (s 10(5)). In ATO Interpretative Decision ID 2002/102, the Commissioner accepted a late election by the employer to use the cost basis method. An employer who fails to maintain a logbook can elect to use the cost basis method but will not be able to reduce the taxable value as the business use percentage (BUP) cannot be substantiated (ATO Interpretative Decision ID 2004/385).

Where an employer does not make an election to use the cost basis method, and this is the most appropriate method for returning FBT, additional FBT may be payable. In Jetto Industries Pty Ltd v FC of T 2009 ATC ¶10-090, the taxpayer did not lodge FBT returns for three years and had not maintained a logbook supporting his claim that the car is wholly used for business purposes. The Commissioner assessed the taxpayer using the statutory formula method and this was upheld by the AAT. AFB ¶20-200 to ¶20-280.

REDUCTIONS ¶3-400 Circumstances The reductions in taxable value of car fringe benefits are built into each of the two formulae that taxpayers can choose to adopt. Where the statutory formula method is adopted, the number of non-benefit days, any employee contributions towards the car running costs and, in some cases, the number of kilometres travelled determine the amount of the reduction. Conversely, if the cost basis method is used, the reduction in the taxable value is dependent upon the ratio of business-to-private kilometres and any employee contributions toward running costs of the car. In addition, a reduction in taxable value is available where a car fringe benefit is provided in connection with the education of an overseas employee (¶13-540).

STATUTORY FORMULA METHOD ¶3-500 Overview The taxable value of a car fringe benefit is calculated using the statutory formula method unless the employer has elected to use the cost basis method (¶3-300). The taxable value of a car fringe benefit under the statutory formula method (s 9(1)) is dependent on the base value of the car, the period during the year that the vehicle was applied (¶3-160) or available (¶3180) for the private use of the employee or associate and the amount of any payment by the recipient. The statutory formula method is generally more appropriate than the cost basis method (¶3-600) where the car is principally used for private purposes. The formula is (s 9(1)):

Each of the components of the formula, other than the base value (¶3-520), is explained below. Workpaper 1 (¶3-535) illustrates the information necessary for the practical application of the statutory formula method. Statutory percentage A flat statutory percentage of 20% applies, regardless of the distance travelled, to all car benefits provided from 1 April 2014 (except where there was a pre-existing commitment (¶3-510) in place before 7.30 pm Australian Eastern Standard Time (AEST) on 10 May 2011 to provide a car). The flat statutory percentage of 20% is expressed in the formula in s 9(1) as 0.2.

Example A car was purchased on 1 October 2016 for $40,000 and was provided for the use of an employee for the whole of the 2018 FBT year. The employee made a recipient’s payment of $1,000. The taxable value of the car fringe benefit is $7,000 calculated as follows:

Transitional arrangements apply to any new commitments entered into from 10 May 2011 to 31 March 2014 (¶3-505). Period provided The third component of the formula is the number of days during the FBT year on which the car fringe benefit is provided. Any days during the FBT year that a car fringe benefit does not arise (non-private use days) are documented on Workpaper 3 (¶3-580). For example, where the employer retains custody of the car while the employee is overseas (¶3-180) or the minor benefits exemption applies (¶12-100). Example An employer provides a car that is available for the private use of an employee. However, the car develops a serious mechanical problem and is garaged exclusively at the premises of a motor vehicle repairer for the whole of June. If the car is held by the employer for 365 days, this component will be 335 days.

Note: Non-private use days can also reduce the taxable value of car parking fringe benefits (¶4-100) if there is no travel between the employer’s home and work on that day (¶4-190).

Days in FBT year The number of days in the FBT year will be either 365 or 366 (if a leap year). Recipient’s payment The “recipient’s payment” may be a payment by a recipient to the employer (or provider) in consideration for provision of the car benefit (s 9(2)(e)). The recipient must actually make a payment from after-tax income before it can be taken into account; however, journal entries in an employer’s accounts reflecting a set-off may be accepted (¶13-160). Alternatively, the payment may be made to a third party (eg for petrol or oil) for the car. In this circumstance, the recipient must obtain documentary evidence of the payment except in the case of oil or fuel, where a declaration (¶3-740) is acceptable. The documentation or declaration must be given to the employer before the date of lodgment of the FBT return. Where a recipient’s payment is made from after-tax income to the employer, GST is payable and the amount is included in the employer’s assessable income. However, no GST is payable where a payment is made to a third party (eg fuel or oil) in respect of a car held by an employer (Taxation Ruling TR 2001/2). All recipient’s payments are documented on Workpaper 3 (¶3-580).

¶3-505 Transitional rules — 2015 and earlier FBT years The transitional rules phase in the uniform 20% statutory percentage (¶3-500) where the car was acquired after 7.30 pm AEST on 10 May 2011. The following statutory percentages are used unless the employer has made an election that the 20% rate is to apply: Annualised number of

FBT Year

whole kilometres

2012

2013

2014

2015

Less than 15,000 km

20%

20%

20%

20%

15,000 to 24,999 km

20%

20%

20%

20%

25,000 to 40,000 km

14%

17%

20%

20%

More than 40,000 km

10%

13%

17%

20%

The calculation of the annualised number of whole kilometres travelled is explained at ¶3-515. Election An employer can choose to apply the 20% statutory percentage if: (a) the employee is not “worse off”, or (b) the employee consents to the 20% rate if they would be “worse off”. The election is on a car-by-car basis but it is not clear whether the consent of an employee can be revoked in a later FBT year. The FBTAA does not define “worse off”. However, the ATO has indicated that it means a direct financial disadvantage. For example, an employee would be worse off if the employer’s election will result in the employee incurring a higher salary packaging amount. Family tax benefit, child care benefits or child care rebate consequences for an employee are not considered to be direct financial disadvantages and are therefore not considered when deciding if the employee would be “worse off” (NTLG FBT Sub-committee minutes — 11 August 2011). The way in which the employer’s FBT return is prepared is sufficient evidence of the making of the above election. However, where an employee is disadvantaged, the employer will need to ensure that the employee’s consent is documented. For example, by including a statement on the employee car declaration (¶3-580). Anti-avoidance rules Where employers and employees seek to end existing contracts early and immediately enter into new contracts, just to get the benefit of the new arrangements the anti-avoidance provisions (¶2-850) may apply. Example An employee entered into a three-year lease of a car on 10 May 2011 and then cancelled the contract. A new lease agreement for the same car was entered into on 11 May 2011. The anti-avoidance provision (s 67) may apply if this has been done to obtain the benefit of the transitional rules.

¶3-510 Cars subject to FBT before 11 May 2011 Where the car was subject to FBT before 7.30 pm AEST on 10 May 2011 (“grandfathered car”), the statutory percentage was determined in accordance with the following table:

Annualised number of whole kilometres

Statutory percentage

Less than 15,000

0.26

15,000 to 24,999

0.20

25,000 to 40,000

0.11

Over 40,000

0.07

Calculation of the “annualised number of whole kilometres” is explained at ¶3-515. Cars acquired after 10 May 2011 Cars acquired after 7.30 pm AEST on 10 May 2011 will also be grandfathered if there was a commitment before that date to provide a car fringe benefit. Example: Commitment prior to 7.30 pm AEST on 10 May 2011 During April 2011, Constance begins discussions with a salary packaging provider about obtaining a car through a salary sacrifice arrangement. On 2 May 2011, Constance agrees to a particular option with the provider, and the car is ordered. She signs a contract with her employer. The car is scheduled for delivery on 1 August 2011, at which point she will sign documents with the leasing provider for the provision of the car. Constance entered into a commitment prior to 7.30 pm AEST on 10 May 2011, and her contract will be grandfathered.

Change to a grandfathered car commitment A car will only remain grandfathered if the last time the employer, associate of the employer, employee or associate committed to the application or availability of the car occurred before 7.30 pm AEST on 10 May 2011. Where a commitment in connection with a car fringe benefit is varied subsequent to 7.30 pm AEST on 10 May 2011 the new rules (¶3-500) apply for the subsequent FBT year. Example: Car packaging term extended A car was subject to FBT prior to 7.30 pm AEST on 10 May 2011. The employer and employee agree to extend the salary sacrifice arrangement for a further two years on 17 August 2013. This is considered to be a new commitment and therefore from 1 April 2014, the arrangement will be subject to the transitional rules. The car travelled more than 40,000 km during the year ending 31 March 2014. For the 2014 FBT year, the statutory percentage is 7% (old rate). However, for the 2015 FBT year and later FBT years, the statutory percentage is 20%.

What is a “commitment”? A “commitment” is not defined in the FBTAA; however the Explanatory Memorandum to Taxation Laws Amendment (2011 Measures No 5) Act 2011 states it is a financially binding transaction on one or more parties that cannot be backed out of. Alterations to the agreement to provide a car fringe benefit that result in a change to a financially binding commitment include: • refinancing a car • altering the terms of an existing contract, eg lease term or residual value • fitting of accessories (such as window tinting, DVD players, luggage racks or bull bars) to a leased car if this results in lease payments being increased • changing employers even if the employers are within the same corporate group • an employee transferring to another government department and ownership of the car remains the same. In this instance, the new employer has committed to the application and availability of the car — the fact that the car continues to be owned by the former employer is not relevant (NTLG FBT Sub-committee minutes — 11 August 2011) • purchasing a car at the end of a leasing arrangement (NTLG FBT Sub-committee minutes — 10 May

2012 (Item 7)). In each of the above circumstances the 20% statutory percentage will apply (¶3-500) subject to the transitional rules (¶3-505). Alterations to the agreement to provide a car fringe benefit that do not result in a change to a financially binding commitment include (see ATO Fringe benefits tax — a guide for employers): • allowing an employee to travel more or less kilometres resulting in a change in the amount of FBT payable • adjustments to salary packaging arrangements which alter post-tax contributions • use of an employer’s “fleet car” by different employees (not involving any salary sacrifice arrangements) • a change to lease payments in accordance with a clause in a pre-10 May 2011 lease agreement permitting such changes to be made (NTLG FBT Sub-committee minutes — 10 May 2012 (Item 6)), and • a change to a salary packaging administration provider (NTLG FBT Sub-committee minutes — 10 May 2012 (Item 6)).

¶3-515 Annualised number of whole kilometres Where the car is grandfathered (¶3-510) or the transitional rules apply (¶3-505), the annualised number of whole kilometres that the car travelled during the FBT year is calculated. The “annualised number of whole kilometres” (s 136(1)) is calculated in accordance with the formula: F ×  G H where: F = number of whole kilometres travelled by the car during the FBT year when the car was owned or leased G = number of days in the FBT year H = number of days in the holding period. Number of whole kilometres To determine the number of whole kilometres travelled, employers should maintain a record of the car odometer readings (¶3-580). Where an employer fails to record odometer readings for the car appropriate evidence which records two separate odometer readings which are close to the beginning and end of the FBT year will be acceptable (Taxation Determination TD 94/26 (withdrawn)). For example, car purchase invoice or service record showing odometer reading. Holding period The holding period (s 162C) commences at the beginning of the FBT year if the car was held at that time, otherwise, the holding period commences when the car is first held. The holding period ends at the time during the FBT year when the car ceases to be held (¶3-140). Example: Grandfathered car An employer provided a car subject to FBT before 7.30 pm AEST on 10 May 2011 and therefore the “statutory fraction” (¶3-510)

continues to apply. The car was sold on 4 September 2017 and therefore the number of days the car was held during the 2018 FBT year is 157. The year ending 31 March 2018 has 365 days. If during the holding period the car travelled 11,500 km, the annualised number of whole kilometres is:

11,500 × 365 157

= 26,735 km

The number of days the car was held during the FBT year can be calculated from the information shown on Workpaper 2 (¶3-540).

¶3-520 Base value of a car The calculation of the base value of a car (¶3-500) depends on whether the provider (eg the employer or an associate) owned or leased the car (s 9(2)). The calculation and monitoring of the base value of the car is documented on Workpaper 2 (¶3-540), which is explained at ¶3-560. The base value of the car may need to be adjusted (¶3-525). Car owned Where the provider or an associate owns the car the base value is the sum of: 1. cost price (¶3-635) when the car is first held, and 2. non-business accessories fitted after the car is first held. The base value of a car fringe benefit will therefore remain unchanged if, for example, an employer: • sells the car and leases it back • has ceased to own the car and then becomes the owner again (this effectively counters sale-andrepurchase arrangements designed to reduce the value), or • acquires the car from an associate. Hire purchase cars A car let under a hire purchase agreement is deemed to have been purchased at the time when first taken under the agreement and to have been owned at all times (s 7(6)). Also, when the hirer makes the final hire purchase payment and acquires legal ownership of the car this does not change the cost price. Car leased Where the provider or an associate leases, the car the base value is the sum of: 1. leased car value when the car is first held, and 2. non-business accessories fitted after the car is first held. The base value of a car fringe benefit will therefore remain unchanged if, for example, an employer purchased the car for its residual value at the termination of the lease. Leased car value Where the lessor purchased the car at or about the time when the provider (or an associate of the provider) commenced to lease the car from the lessor then the “leased car value” of the car is the cost price (¶3-635) of the car to the lessor. Otherwise, the leased car value is the market value of the car at the time when the provider or associate first held the car. In both of the above situations, the leased car value is the GST-inclusive cost. Non-business accessories — fitted after car first held

The cost price of any non-business accessory fitted to a car after the first holding time and which remained on the car at any time during the FBT year (not necessarily for the whole year) is included in the base value. Example An employer provides a car fringe benefit to an employee. The car is acquired for $60,000 on 9 September 2017. On 28 February 2018, the employer fits a roof rack and tow bar (non-business accessories) which have a cost price of $2,000. The base value of the car for the 2018 FBT year is $62,000 even though the non-business accessories remained fitted to the car for only one month.

The cost price of a non-business accessory fitted after the car is first held is the expenditure incurred for or in relation to the fitting of any non-business accessory including customs duty if a privilege or exemption applied. This is reduced by any contribution to that cost by any recipient of a car benefit at or about the time when the expenditure was incurred. Non-business accessory A “non-business accessory” means any accessory (factory fitted or otherwise) fitted to the car, other than an accessory required to meet the special needs of any business operations for which the car is used. The Commissioner’s view is that, on this test, a two-way radio or car telephone used in a business would not be a non-business accessory, but an air conditioner and a radio cassette player — with or without dictating facilities — would be non-business accessories and would be included in the cost price of the car. Bull-bars, tow-bars and windscreen protecting screens on vehicles used in rural industries would usually be regarded as business accessories on this basis. In ATO Interpretative Decision ID 2011/47, the Commissioner discusses what a non-business accessory is and concludes that paint protection, fabric protection, rust protection and window tinting are nonbusiness accessories. However, the cost of printing the name and logo of a business on a thin film which is then stuck onto a car, but can be removed by peeling it off, is not a non-business accessory (NTLG FBT Sub-committee minutes — 12 May 2011 (Item 10)).

¶3-525 Adjustment of the base value The base value of a car may be adjusted in the following circumstances. Four-year-old cars Where a car has been held for four years (as at the beginning of the FBT year) the base value is reduced by one-third of the cost price (¶3-635) of the car (s 9(2)(a)(i) and (ii)). Example: Four years old at beginning of FBT year On 21 December 2013, an employer purchased a car with a base value of $60,000. On 21 December 2017, the car has been held for four years. The car is not four years old for the whole of the 2018 FBT year. For the 2019 and subsequent FBT years, the base value is reduced to $40,000.

No reduction in base value is available for expenditure incurred on non-business accessories fitted after the car was first held. See Taxation Determination TD 94/28 and ATO Interpretative Decision ID 2004/528. Example: No reduction for non-business accessories subsequently acquired On 1 October 2012, an employer purchases a car with a base value of $30,000 which includes the cost of a special DVD player. Subsequently, the employer purchases and installs a tow bar at the request of the employee (ie non-business accessory) for $900 on 15 January 2014. On 1 October 2016, the car has been held for four years.

The car is four years old for the whole of the 2018 FBT year and the base value is reduced to $20,900. For the 2019 and subsequent FBT years, the base value remains $20,900.

Other adjustments Transactions that are not at arm’s length are adjusted to an arm’s length basis when determining the base value (s 13(2)). Where a car is acquired at arm’s length but for no expenditure it is deemed to have been obtained for expenditure equal to the market value (s 13(4)). For example, a car donated to an employer would be valued at market value for the purposes of determining the base value.

¶3-530 Taxable value calculation To assist employers calculate the taxable value of car fringe benefits using the statutory formula method, the following supporting workpapers may be prepared, but they are not a legislative requirement. It should be noted that a flat statutory percentage of 20% applies, regardless of the distance travelled, to all car benefits provided from 1 April 2014 (except where there was a pre-existing commitment (¶3-510) in place before 7.30 pm Australian Eastern Standard Time (AEST) on 10 May 2011 to provide a car) (¶3-500). Workpaper 1 (¶3-535) contains the components that need to be determined to use the statutory formula method. Refer to the instructions at the foot of this workpaper to calculate the taxable value of car fringe benefits. Workpaper 2 (¶3-540) explains the calculation of the “base value” of a car that is owned, leased or subject to a hire purchase agreement. It contains basic information that identifies the car (Car details), the calculation of the base value (Calculations) and subsequent transfers or sales of the car (Car transfers). The instructions for its completion are provided at ¶3-560. Workpaper 3 (¶3-580) is an employee declaration which details the kilometres travelled by the car during the FBT year, non-private use days and any recipient’s payments. The instructions for its completion are provided at ¶3-590. Motor vehicle dealers Where a motor vehicle dealer allows employees to use any of a number of cars that are on hand, it is difficult to apply the statutory formula on an individual car basis. Accordingly, the Commissioner allows motor vehicle dealers to use an average base value amount and a 20% statutory fraction that is multiplied by the average number of employees using the cars (Miscellaneous Taxation Ruling MT 2023). AFB ¶20-300 to ¶20-420, ¶20-750 to ¶20-825; AFT ¶801-870, ¶801-910, ¶801-920.

¶3-535 Workpaper 1: Taxable value — statutory formula method

¶3-540 Workpaper 2: Base value of car

¶3-560 Instructions for calculating the base value Workpaper 2 documents the calculation of the base value of the car and is therefore prepared in the FBT year that the car is acquired, leased or the subject of a hire purchase transaction. Also, as it contains information that is relevant to more than one FBT year, Workpaper 2 should be filed in a permanent FBT file rather than with the current year’s FBT calculation. Car details Identify the car and the driver. If the car was acquired around 10 May 2011, carefully review the purchase invoice and purchase order to determine if the car is to be grandfathered (¶3-510) or the transitional rules apply (¶3-505). Base value The first component of the base value is the cost price of the car when it is first held. This is the expenditure incurred by the employer on the acquisition of the car and the cost of any non-business accessories fitted at that time (¶3-635). The second component of the base value is the cost price of non-business accessories fitted to the car after it was first held. FBT is payable on the whole of this amount regardless of how long during the FBT

year the non-business accessories remained attached to the car (¶3-520). Adjusted base value If the car has been held for four years before the commencement of the current FBT year, the cost price of the car when it is first held is reduced by one-third. However, non-business accessories fitted after the car was first held are not eligible for this concession (¶3-525). Tip: Purchase all non-business accessories at the time of acquisition of the car so the one-third reduction in taxable value can be claimed if the car is held for more than four years.

Car transfers Where cars are transferred between employers within the same consolidated group, the accounting cost price may alter; however, this revised amount is not acceptable for FBT purposes. Accordingly, employers need to ensure that the base value is not inadvertently revised as a consequence and this information may assist in the reconciliation of the base value and accounting cost (see instructions at ¶3-535). Sale of cars to employees Where a car is sold to an employee, a property fringe benefit (¶9-160) and an FBT liability arises if the consideration received is less than the market value of the vehicle (¶9-390).

¶3-580 Workpaper 3: Employee car declaration

¶3-590 Instructions for completing the employee car declaration Workpaper 3 documents kilometres travelled, non-private use days, recipient’s payments and if an election has been made to use the 20% statutory percentage. The work paper is required: • prior to the preparation of the FBT return, and • prior to a sale, disposal or trade-in of the car, or • if the employee ceases to have control of the car (eg resignation). All employees complete Workpaper 3 unless this information is available from another source. Kilometres travelled This information is used to determine the statutory percentage to be applied to the base value where the car is grandfathered (¶3-510) or the transitional rules apply (¶3-505). If the kilometres travelled cannot be substantiated; the relevant maximum statutory percentage will apply. Non-private use days If a car is not used (¶3-160) or available for private use (¶3-180) on a particular day (ie non-private use

day) then FBT is not payable in respect of that day. Non-private use days only arise if the employee or associate does not have access to the car directly or indirectly. This will generally only occur in the following circumstances: Car is garaged for repairs The number of non-private use days excludes the days of “drop-off” and “pick-up” and therefore routine services will not result in a reduction of FBT payable. Also, it is important to note that the presence of the vehicle at the garage is not sufficient — the employee or associate must not have access to it, eg it is undergoing a major repair. Car is parked at employer’s business premises If the car parked at the business premises of the employer, the number of days unavailable for private use excludes the days of “drop-off” and “pick-up”. However, the employee or associate must not have access to the car keys. Airport car parking A non-private-use day may arise if the employee parks the car at an airport pursuant to an airport car park bailment agreement (¶3-180). The days of “drop-off” and “pick-up” are not included. A non-private use day does not arise if the employee simply parks the car at the airport or leaves the car garaged at or near their private residence. In this circumstance, the employer has not removed the car from the custody and control of the employee by, for example, holding the car keys (Taxation Determination TD 94/16). Minor benefits Where a car, not subject to a salary sacrifice arrangement, is only used for the purpose of providing a minor benefit on any given day this day is not counted as a day the car is used or available for private use (¶3-280). Recipient’s payment Where a contribution is made towards the cost of the car fringe benefit, the taxable value is reduced by the amount of the payment to the employer or to a third party (¶3-500). Details of all employee contributions towards operating costs of the car are to be inserted, and where a payment was made to a third party, the following documents are to be attached: • invoices for the petrol, oil, repairs, etc, or • a fuel expenses declaration if only petrol or oil is purchased. The approved format of the fuel expenses declaration (¶3-740) requires the employee to provide a reasonable estimate of fuel expenses. In Taxation Determination TD 97/19, the Commissioner gives illustrations of how taxpayers can determine a reasonable estimate, eg using the average retail price of petrol in Australian capital cities published by the Australian Bureau of Statistics (ABS). The ATO will also accept the average petrol prices published on the Australian Automobile Association website (Issues for Motorists, Petrol Prices) as being a basis for determining a reasonable estimate of fuel costs (NTLG FBT Sub-committee minutes — 14 February 2013 at Item 11). Important: A payment towards the cost price of an employer provided car (eg a “trade-in” of an employee owned motor vehicle) is not a recipient’s payment (¶3-635). Statutory percentage If an employee has consented to an employer using the 20% statutory percentage for a particular car, circle “Yes” to indicate acceptance.

COST BASIS METHOD

¶3-600 Overview The taxable value is calculated according to a formula that determines the amount of the car operating costs that are attributable to non-business purposes. An election (s 10(1)) must be made to use this method and a logbook is required to be maintained. The logbook is the basis for determining the BUP and therefore the private use of the car. The cost basis method is generally more appropriate where the car is principally used for business purposes. The formula is (s 10(2)): (C × (100% − BUP)) − R where: C

= operating cost of the car during the holding period

BUP = business use percentage R

= the amount (if any) of the recipient’s payment.

All of the above amounts are determined by reference to the period during the FBT year the provider held the car (¶3-140). If the provider holds the car for only part of the year, or holds the car to provide the benefit during only part of the year, then the relevant holding period is that part of the year. Workpaper 4 (¶3-650) itemises the various operating costs and other information needed for the practical application of the cost basis method, the components of which are explained below. Operating costs — component “C” The operating costs of a car include some deemed costs that are calculated in a manner independent of that adopted for income tax purposes. Operating costs include GST. The operating costs of a car are dependent upon whether the car is owned or leased by the provider (s 10(3)(a)) and are summarised below. Car owned or under a hire purchase contract The following amounts are included: • car expenses (¶3-610) • deemed depreciation (¶3-620), and • imputed interest (¶3-630). Leased car The following amounts are included: • car expenses (¶3-610) other than those incurred by the lessor, and • lease payments. Impact of GST The operating costs of a car are to be included at the GST-inclusive value, whether the car is owned, under a hire purchase contract or leased (Taxation Ruling TR 2001/2). Business use percentage — component “BUP” The BUP is the proportion of business kilometres travelled by the car during the relevant period relative to the total number of kilometres travelled by the car (s 136(1)): Number of business kilometres travelled by the car            during the holding period           

× 100%

Total number of kilometres travelled by the car during the holding period A “business kilometre” is a kilometre travelled by car in the course of a “business journey” (s 136(1)). Where an employee’s duties of employment are inherently itinerant in nature, the employee’s unaccompanied travel in a car from home to work is regarded as business travel. However, where the itinerant employee’s travel from home to work includes the transportation of a family member to their work/school, the employee’s entire journey from home to work is not regarded as a “business journey” (ATO Interpretative Decisions ID 2012/96; ID 2012/97). To establish the BUP employers need to ensure that employees maintain a car logbook (s 10A; 10B). If the minor benefits exemption (¶12-100) applies, and the car is not the subject of a salary sacrifice arrangement, the period of minor benefit use is treated as “business use” (see Taxation Ruling TR 2007/12 at para 246 and ATO Interpretative Decision ID 2007/140). An illustrative Car Logbook is contained in Workpaper 5 (¶3-660) and instructions for its completion are at ¶3-670. The calculation of the BUP is recorded on Workpaper 6 (¶3-680). Simplified approach for employers with large fleets Employers with a fleet of 20 or more cars can elect to use a simplified approach to working out the business use percentage component of the operating cost method (Practical Compliance Guideline PCG 2016/10). Under this approach, employers are allowed to rely on a representative average business use percentage to calculate car fringe benefits for the fleet. Employers can use this approach if: • they are an employer with a fleet of 20 or more cars • the cars are “tools of trade” cars, eg cars provided to sales representatives where they are subject to extensive business use. Cars used predominantly for private use (for example, by executive employees), and cars that are salary-packaged, would not be considered to be “tool of trade” cars • their employees are mandated to maintain log books in a log book year • they hold valid log books for at least 75% of the cars in the log book year • the cars are of a make and model chosen by the employer, rather than the employee • each car in the fleet had a GST-inclusive value less than the luxury car limit applicable at the time the car was acquired (see Luxury Car Tax Determination LCTD 2017/1 for the luxury car limit for the 2017/18 financial year), and • the cars are not provided as part of an employee’s remuneration package (for example, under a salary packaging arrangement), and employees cannot elect to receive additional remuneration in lieu of the use of the cars. Employers that meet the above conditions can apply an average business use percentage to all tool of trade cars held in the fleet in the log book year and the following four years. The average business use percentage is calculated by: • gathering all log books kept for each car in the fleet • determining which of those log books are valid • confirming that they have valid log books for at least 75% of the cars in the fleet, and • calculating the average of the business use percentages determined in accordance with each of the valid log books. Example An employer with a fleet of 50 cars and a mandatory log book policy decides to apply the fleet car simplified approach. They confirm that all cars in the fleet meet the required criteria and 40 cars in the fleet have a valid log book (which exceeds the 75% valid log book requirement). The employer then uses those log books to calculate the average business use percentage as 85%.

The employer can use the average business use percentage of 85% for a five-year period to calculate the taxable value of car fringe benefits provided in respect of the fleet.

Recipient’s payment — component “R” The “recipient’s payment” may be a payment by a recipient to the employer (or the provider if not provided by the employer) in consideration for provision of the car benefit (s 10(3)(c)). The recipient must actually make a payment from after-tax income before it can be taken into account; however, journal entries in an employer’s accounts reflecting a set-off may be accepted (¶13-160). Alternatively, the payment may be made to a third party (eg for petrol or oil) for the car. In this circumstance, the recipient must obtain documentary evidence of the payment except in the case of oil or fuel, where a declaration (¶3-740) is acceptable. The documentation or declaration must be given to the employer before the date of lodgment of the FBT return. Where a recipient’s payment from after-tax income is made to the employer, GST is payable and the amount is included in the employer’s assessable income. However, no GST is payable where a payment is made to a third party (eg fuel or oil) in respect of a car held by an employer (Taxation Ruling TR 2001/2). All recipient payments are documented on Workpaper 6 (¶3-680).

¶3-610 Car expenses A “car expense” (s 136(1)) means an expense incurred in respect of: (a) the registration of, or insurance in respect of, the car (b) repairs to or maintenance of the car, or (c) fuel for the car. Example: Repairs and maintenance A car provided to an employee has been fitted with an in-built satellite navigation system (SNS). The SNS is updated for new maps to allow the employee to navigate locations along roads constructed or altered after the system was installed. The ATO considers that Taxation Ruling TR 97/23 Income tax: deduction for repairs is relevant when determining whether an employer has incurred a “repair” within the meaning of s 136(1) of the FBTAA. Also, the term “maintain” has its ordinary meaning of “to keep in due condition, operation, or force; keep unimpaired”. Applying the above considerations, the SNS map update involves a restoration or the functionality of the satellite navigation system and does not change its character. It is therefore both a repair and maintenance of the car and the cost is an expense incurred in respect of repairs and maintenance of the car (ATO Interpretative Decision ID 2014/18).

Car expenses to be included in the operating cost are those incurred during the holding period by the employer or someone else such as an employee or associate (s 10(3)(a)(i)). An insured repair expense is not included as a car expense (s 10(3A)). For example, expenses of repairing a car that are paid by an insurer or by the party responsible for the damage are not car expenses. Insurance and registration expenses The insurance and registration expenses to be included in the operating cost are those relating to the holding period. Even if the provider holds the car for the whole year and uses it to provide car fringe benefits for the whole year, an apportionment will be necessary if the period of registration or insurance does not correspond with the FBT year (s 10(3)(a)(ii)). Lease charges If the car is leased, the charges under the lease agreement that are attributable to the FBT year are included in the operating cost (s 10(3)(a)(v)).

¶3-620 Deemed depreciation Depreciation on the cost price of a car is included operating costs (¶3-600) where the provider owns the car (s 10(3)(a)(iii)), or holds it under a hire purchase agreement (s 10(3)(a)(vi)). Where a non-business accessory is fitted to the car after the provider purchased, or is deemed to have purchased the car, depreciation is calculated separately and as if the cost price of the non-business accessory was a car (s 10(3)(a)(iv)). Depreciation formula Depreciation is calculated using the following formula (s 11(1)): ABC D where: A = “depreciated value” of the car if the provider already owned, or is deemed to own, the car at the beginning of the year, or the GSTinclusive cost price (¶3-635) of the car in other cases B = depreciation rate C = number of days during the FBT year the car was owned or subject to a hire purchase agreement D = number of days in the FBT year. Components A and B are further explained below. Depreciated value The “depreciated value” is the cost price (¶3-635) of the car less depreciation from the time when the provider first owned, or is deemed to own, the car to the beginning of the year concerned (s 12). Note: The luxury car depreciation limit (ITAA 1997 s 40-230) does not apply when determining the amount of deemed depreciation. This means that, to some extent, an employer may be paying FBT on an amount for which an income tax deduction has not been received. Also, non-arm’s length transactions are adjusted to arm’s length terms (s 13).

Depreciation rate The depreciation rate is worked out using the following formula (s 11(1AA)): DV percentage Effective life of the car where: DV percentage is the percentage applicable when using the diminishing value method in the ITAA 1997 to determine the decline in value of depreciating assets. For cars acquired after 9 May 2006, the percentage is 200% (ITAA 1997 s 40-72). Effective life of the car is the number of years in the period specified as the effective life of the car in a determination made by the Commissioner pursuant to ITAA 1997, s 40-100 and in effect at the most recent time (before the end of the tax year) the person became the owner of the car. The Commissioner has determined that cars acquired on or after 1 January 2006 have an effective life of eight years. The FBT depreciation rates that apply are set out in the table below.

Date car acquired

Depreciation rate

Before 1 July 2002

22.5%

After 1 July 2002 to 9 May 2006

18.75%

On or after 10 May 2006

25%

Example 1 An employer buys a car on 2 November 2017 for $30,000 and retains it for the rest of the FBT year ending 31 March 2018. There are 150 days from 2 November to 31 March. Based on the deemed depreciation rate of 0.25, the deemed depreciation on the car for the year to 31 March 2018 is calculated as follows:

$30,000 × 0.25 × 150 365

 = $3,082

If car benefit is not provided for the full holding period An apportionment of the depreciation amount is required where the provider held the car but did not hold it for the purpose of providing car fringe benefits for the whole of that period (s 11(1A)): DEP  ×

DHP DCO

where: DEP = deemed depreciation for the period during the FBT year when the car was held DHP = number of days during the FBT year when the car was held for the purpose of providing car fringe benefits DCO = total number of days during the FBT year the car was held.

Example 2 Assume the same facts as in Example 1 except that the car was not provided as a fringe benefit until 2 December 2017. That is, the car was held for the purpose of providing fringe benefits for 120 days of the 150 days the car was held. The deemed depreciation on the car for the year to 31 March 2018 is calculated as follows:

$3,082 × 120 150

 = $2,465

Balancing adjustments Where an employer car is disposed of during the FBT year, the balancing adjustment amount (ITAA 1997 s 40-285) does not form part of the deemed depreciation and hence does not affect the operating costs calculation (¶3-600).

¶3-630 Imputed interest An imputed interest cost is included in the operating costs of the car where the provider owns the car (s

10(3)(a)(iii)), or holds it under a hire purchase agreement (s 10(3)(a)(vi)). Where a non-business accessory has been fitted to the car after the provider purchased, or is deemed to have purchased the car, an imputed interest on that accessory has to be calculated separately (s 10(3)(a) (iv)). Imputed interest formula The imputed interest amount is calculated using the following formula (s 11(2)): ABC D where: A = depreciated value of the car if the provider already owned (or was deemed to own) the car at the beginning of the FBT year, or the GST-inclusive cost price of the car in other cases. See ¶3-620 for the meaning of “depreciated value” and “cost price” B = benchmark interest rate for the FBT year (¶6-360) C = number of days in the period in the FBT year the car was owned or subject to a hire purchase agreement D = number of days in the FBT year.

Example 1 An employer purchases a car on 2 November 2017 for $30,000 and retains it for the rest of the year ending 31 March 2018. There are 150 days from 2 November to 31 March. Based on the benchmark interest rate of 5.25%, the imputed interest cost on the car for the year to 31 March 2018 is calculated as follows:

$30,000 × 0.0525 × 150 365

 = $647

If car benefit is not provided for the full holding period An apportionment of the imputed interest amount is required where the provider held the car but did not hold it for the purpose of providing car fringe benefits for the whole of that period (s 11(1B)): INT ×

DHP DCO

where: INT

= imputed interest for the period during the FBT year when the car was held

DHP = number of days during the FBT year when the car was held for the purpose of providing car fringe benefits DCO = total number of days during the FBT year the car was held.

Example 2 Assume the same facts as in Example 1 except that the car was not provided as a fringe benefit until 1 December 2017. That is, the

car was held for the purpose of providing fringe benefits for 121 days of the 150 days the car was held. The imputed interest cost on the car for the year to 31 March 2018 is calculated as follows:

$647 × 121 150

 =  $522

AFB ¶20-500, ¶20-520; AFT ¶802-090, ¶802-095.

¶3-635 Cost price If a car was manufactured, the cost price of a car is the amount that it could reasonably have been expected to be sold under an arm’s length wholesale transaction. If the manufacturer is registered for GST the cost price includes GST (Taxation Ruling TR 2001/2). Where the car was not manufactured the “cost price” is the sum of: 1. expenditure directly attributable to the acquisition or delivery of the car 2. expenditure on non-business accessories when the car was acquired, and 3. customs duty (if applicable). The “cost price” of a car subject to a hire purchase agreement is the “leased car value” (¶3-520) when the car was first taken on hire. This is generally the “cost price” of the car to the hirer. Expenditure directly attributable to acquisition or delivery The cost price of a car includes expenditure incurred that is directly attributable to the acquisition or delivery of the car, net of registration costs and of any tax on registration or transfers, incurred by the holder. It does not include the cost of an extended warranty or insurance as these are attributable to the ongoing operation of the car. The separate purchase of an extended car warranty does not form part of the “cost price” because it is a separate contract from the contract for the sale of the car and is a form of insurance (ATO Interpretative Decision ID 2006/253). Where an employee provides a trade-in vehicle to the car dealer from whom the car fringe benefit is financed the cost price is the purchase price of the car minus the trade-in. Similarly, if the employee makes a cash payment directly to a car dealer or to the employer to assist with the purchase of the car the cost price is the purchase price of the car minus this cash payment. Fleet discounts and manufacturer rebates reduce the purchase price of the car and hence the cost price. However, if no expenditure is incurred, or if parties are not dealing at arm’s length, then s 13 may apply to deem the cost price to be the amount that could reasonably be expected to be incurred under an arm’s length transaction (Taxation Ruling TR 2011/3). Expenditure on non-business accessories — fitted at time of purchase The cost price of a car includes additional expenditure incurred for, or in relation to, the fitting of any nonbusiness accessories to the car at or about the time of purchase (or deemed purchase). Customs duty must be included if a privilege or exemption applied. This is reduced by any contribution to that cost by any recipient of a car benefit at or about the time when the expenditure was incurred. The meaning of a “non-business accessory” is explained at ¶3-520. Customs duty The cost price of a car includes customs duty if the person was entitled to privileges or exemptions on the acquisition of the car or non-business accessories fitted at or about the time of acquisition.

¶3-640 Taxable value calculation To assist employers calculate the taxable value of car fringe benefits using the cost basis method, the

following supporting workpapers may be prepared, but they are not a legislative requirement. Workpaper 4 (¶3-650) contains the components that need to be determined to use the cost basis method. Refer to the instructions at the foot of this work paper to calculate the taxable value of car fringe benefits. Workpaper 5 (¶3-660) is an illustrative logbook. The instructions for its completion are provided at ¶3-670. Workpaper 6 (¶3-680) is an employee declaration which details the kilometres travelled by the car during the FBT year, calculation of the BUP and any recipient’s payments. The instructions for its completion are provided at ¶3-690. Workpaper 7 (¶3-700) explains the calculation of the “cost price” of a car that is owned or subject to a hire purchase agreement. It contains basic information that identifies the car (Car details), the calculation of the cost price (Calculations) and subsequent transfers or sales of the car (Car transfers). It is not required to be prepared for leased cars. The instructions for its completion are provided at ¶3-720. Workpaper 8 (¶3-740) is the ATO declaration required to be prepared where fuel or oil for the car is paid by the employee, documentary evidence is not obtained and the expenditure is not reimbursed by the employer. This declaration may be prepared to substantiate a reduction in the taxable value calculated using either the statutory formula method (¶3-590) or cost basis method (¶3-690). AFB ¶20-450 to ¶20-700, ¶20-850 to ¶20-930; AFT ¶802-050, ¶802-080, ¶802-120.

¶3-650 Workpaper 4: Taxable value: cost basis method

¶3-660 Workpaper 5: Car logbook

¶3-670 Instructions for completing car logbook The purpose of Workpaper 5 is to illustrate the contents of the car logbook that employers must maintain to support the business versus private use of the car. A valid logbook must be maintained for each car that the employer has elected to use the cost basis method. When is a logbook to be prepared? A logbook must be prepared if (s 162G(1)): (a) one was not prepared for any of the previous four years (b) the employer elects to prepare a logbook, or (c) the Commissioner serves a notice on the taxpayer. Logbook period The logbook period is 12 weeks unless the holding period (¶3-600) is less than this time period (s 162H). For example, if the car was owned for less than 12 weeks then the logbook would cover the period of ownership.

The period covered by the logbook may span two FBT tax years. Logbook entries “Logbook records” means a daily logbook or similar document that sets out for each business journey undertaken in the car particulars of: • date on which the journey began and the date on which it ended • odometer readings at the beginning and end of the journey • number of kilometres travelled by the car in the course of the journey, and • the purpose or purposes of the journey. The above must be recorded in English and as soon as practicable after the end of the journey. A high integrity electronic device, other than the motor vehicle’s own odometer can be used in keeping a logbook provided that the device is of sufficient integrity (ATO Interpretative Decision ID 2002/925). Also, the Commissioner indicates in ATO Interpretative Decision ID 2003/1099 that a lack of opening and closing odometer readings for each business journey will not preclude the employer using the cost basis method if business kilometres are accurately calculated. A “business journey” is a journey undertaken in a car otherwise than in the application of the car to a private use, being an application that results in the provision of a fringe benefit in relation to the employer (s 136(1)). Accordingly, when recording the “purpose or purposes of the journey” (see above) employers need to ensure that this is detailed enough to show why the journey was for business. Simply describing a journey as “business” or “miscellaneous business” is not enough. A consequence of the above definition is that if a car journey is a minor benefit (¶3-280), it is considered to be business journey and therefore does not result in any increase in the taxable value of a car fringe benefit under the cost basis method (Taxation Ruling TR 2007/12; ATO Interpretative Decision ID 2007/140). A combination of written and electronic records may constitute a logbook. For example, an electronic device that records distances travelled and a written record recording business use of the car (eg diary) are acceptable provided all logbook record requirements are satisfied by either or both records. However, employers will need to ensure that both information sources are maintained for the required recordkeeping period (NTLG FBT Sub-committee meeting — 8 August 2013, at Item 6). Reports produced using Global Positioning System (GPS) satellite information to monitor the location and distance travelled by the car may satisfy the definition of “logbook records” or “odometer records”. See Class Rulings CR 2017/19, CR 2017/65, CR 2017/76, CR 2016/31, CR 2016/37, CR 2016/44, CR 2016/47, CR 2016/56, CR 2016/91 and CR 2016/95. Why must a logbook be maintained? The employer must establish the BUP which is used in the cost basis formula. The BUP is the ratio of business kilometres to total kilometres travelled by the car expressed as a percentage (¶3-600). To substantiate the BUP for a logbook year, an employer is required to (s 10A): 1. ensure logbook and odometer records are maintained for the logbook period 2. ensure odometer records are maintained for the holding period (¶3-690) 3. obtain, if the provider of the car benefit is not the employer, logbook and odometer records before the FBT is lodged 4. specify an estimate of the number of business kilometres travelled by the car during the holding period, and 5. specify an estimate of the BUP for the car during the holding period.

If the above substantiation requirements are not satisfied, the BUP is nil. Similarly, the BUP is nil if, in a non-logbook year (s 10B), the employer does not maintain odometer records, specify the number of business kilometres and the BUP (s 10(2)(a)). This will have the consequence that the taxable value will be based on the whole of the operating costs less any recipient contribution. An employer must generally retain odometer and logbook records for five years for the assessment date of the last year to which they relate (s 132). Replacement car Where a car is replaced, the original BUP for the old car can be used for the new car, subject to any changes in the business use of the replacement car. The employer must specifically nominate the replacement car, giving the make, model and registration number of both cars (s 162K). AFB ¶20-600 to ¶20-700; AFT ¶802-050, ¶802-120 to ¶802-140.

¶3-680 Workpaper 6: Employee car declaration

¶3-690 Instructions for completing the employee car declaration Workpaper 6 documents kilometres travelled, recipient’s payments and BUP for the FBT year. The work paper is required: • prior to the preparation of the FBT return, and • prior to a sale, disposal or trade-in of the car, or • if the employee ceases to have control of the car, eg resignation. All employees are required to complete Workpaper 6 (except the BUP) unless the information is available from another source. The BUP is required to be determined by the employer. Kilometres travelled

Odometer records must be maintained for the holding period and, in a logbook year, for the logbook period (s 10A; 10B). Also, “odometer records” must show the odometer reading of the car at the beginning and end of the relevant period for both the original and any replacement car (s 136(1)). Where a car is replaced, the original BUP for the old car can be used for the new car, subject to any changes in the business use of the replacement car. The employer must specifically nominate the replacement, giving the make, model and registration number of both cars (s 162K). Business use percentage Employers are required to specify a reasonable estimate of the number of business kilometres travelled by the car and the BUP (s 10A; 10B). A “business kilometre” is a kilometre travelled by the car in the course of a business journey (¶3-670). When making a reasonable estimate of the number of business kilometres travelled employers are required to take into consideration all relevant matters. These matters include, but are not limited to, any logbook record, odometer or other records and any variations in the pattern of use of the car (s 162F). Also, this estimate must be specified in writing before the date of lodgment of the FBT return (s 123A). Where a car is used by two employees consecutively during the FBT year and both maintained a 12-week logbook the BUP is determined based on both logbooks, ie combined business use relative to total kilometres travelled (NTLG FBT Sub-committee minutes — 16 May 2013 (Item 8)). Recipient’s payment Where a contribution is made towards the cost of the car fringe benefit the taxable value is reduced by the amount of the payment to the employer or to a third party (¶3-600). Details of all employee contributions towards operating costs of the car are to be inserted, and where a payment was made to a third party, the following documents are to be attached: • receipt or invoice for the petrol, oil, repairs, etc, or • fuel expenses declaration if only petrol or oil is purchased. The approved format of the fuel expenses declaration (¶3-740) requires the employee to provide a reasonable estimate of fuel expenses — see ¶3-590 for further details. Important: A payment towards the cost price of an employer provided car (eg a “trade-in” of an employee owned motor vehicle) is not a recipient’s payment (¶3-635).

¶3-700 Workpaper 7: Car cost price

¶3-720 Instructions for calculating the cost price Workpaper 7 documents the calculation of the cost price of the car and therefore is prepared in the FBT year that the car is acquired or is the subject of a hire purchase transaction. Also, as it contains information that is relevant to more than one FBT year, Workpaper 7 should be filed in a permanent FBT file rather than with the current year’s FBT calculation. Cost price The cost price of a car is the expenditure incurred by the employer on the acquisition of the car and the cost of any non-business accessories fitted at that time (¶3-635). Deemed depreciation is initially based on the cost price (¶3-620). Non-business accessories — fitted after car first held Non-business accessories fitted after the car is first held are depreciated separately from non-business accessories included in the cost price (¶3-620). This is because they are not held by the employer for whole of the period that the car is held. Car transfers Where cars are transferred between employers within the same consolidated group the accounting cost price may alter; however, this revised amount is not acceptable for FBT purposes. Accordingly, employers

need to ensure that the cost price is not inadvertently revised. Sale of cars to employees Where a car is sold to an employee a property fringe benefit (¶9-160) and an FBT liability arises if the consideration received is less than the market value of the vehicle (¶9-390).

¶3-740 Workpaper 8: Fuel expenses declaration

CAR PARKING FRINGE BENEFITS INTRODUCTION Roadmap for car parking fringe benefits

¶4-000

DEFINITION Overview

¶4-100

Car parking benefit

¶4-110

Parking facility is provided

¶4-120

Car is owned, leased or provided

¶4-130

Parking facility is on business premises

¶4-140

Commercial parking station within 1 km

¶4-150

Car parking threshold

¶4-160

Car is parked for more than four hours

¶4-170

Parked in vicinity of employment place

¶4-180

Travel between home and work

¶4-190

EXEMPTIONS Circumstances

¶4-200

TAXABLE VALUE Overview

¶4-300

Commercial parking station method

¶4-310

Market value method

¶4-320

Average cost method

¶4-330

Statutory formula method

¶4-340

Twelve-week register method

¶4-350

All-day parking fee

¶4-360

Which valuation method to adopt

¶4-370

Taxable value calculation

¶4-380

Workpaper 1: Car parking benefit summary

¶4-385

Workpaper 2: Valuation of car parking benefits

¶4-395

REDUCTIONS Circumstances

¶4-400

DOCUMENTATION Overview

¶4-500

Actual usage method

¶4-520

Twelve-week register method

¶4-540

Statutory formula method

¶4-560

Workpaper 3: Benefit days — actual usage method

¶4-565

Instructions for completing the actual usage method workpaper

¶4-570

Workpaper 4: Benefit days — 12-week register method

¶4-575

Instructions for completing the 12-week register method workpaper ¶4-580 Workpaper 5: Benefit days — statutory formula method

¶4-585

INTRODUCTION ¶4-000 Roadmap for car parking fringe benefits A car parking fringe benefit arises where employer-provided parking facilities are made available to an employee or associate of an employee and certain additional conditions are satisfied (¶4-100). A car parking benefit provided to a disabled person by small businesses and certain non-profit employers is exempt (¶4-200). Where a car parking benefit is a fringe benefit, the taxable value is calculated using one of five methods — commercial parking station method, market value method, average cost method, statutory formula method and 12-week record keeping method (¶4-300). There are no reductions in taxable value (¶4-400). Employers need to keep records of both the number of parking benefits provided and how those benefits have been valued. Also, employers must be able to substantiate how the taxable value of car parking fringe benefits has been calculated (¶4-500).

DEFINITION ¶4-100 Overview A car parking benefit (¶4-110) will only have a taxable value if it is not exempt (¶4-200) and is a “car parking fringe benefit”. A car parking fringe benefit is a car parking benefit which is also a fringe benefit as defined in s 136(1) and discussed at ¶2-100. For example, a car parking fringe benefit arises where an employer enters into an “arrangement” (in accordance with the requirements in the s 136(1) fringe benefit definition) with a commercial car parking station operator and prepays for the provision of a car parking space to an employee through the allocation of vouchers (NTLG FBT Sub-committee minutes — 9 August 2012 (Item 10)).

¶4-110 Car parking benefit A car parking benefit arises where all of the following conditions are satisfied: 1. A parking facility is provided (¶4-120). 2. The car parked is for employee use (¶4-130). 3. The parking facility is on business premises (¶4-140). 4. A commercial parking station is within 1 km of the parking facility (¶4-150). 5. The commercial parking station fee is greater than the threshold (¶4-160). 6. The car is parked for more than four hours (¶4-170).

7. The car is parked in the vicinity of the primary place of employment (¶4-180). 8. The car is used to travel between home and work (¶4-190). 9. The parking is not exempt by regulation (¶4-200). Each of these requirements is explained below.

¶4-120 Parking facility is provided A parking facility must be provided in respect of the employment of the employee (s 39A(1)(d)). A “parking facility” includes any area which is actually used for parking cars and is not restricted to formal car parking facilities or an area set aside specifically for parking. However, an area set aside in a car dealer’s yard or showroom for the display of trading stock does not constitute a parking facility (Taxation Determination TD 94/54). The phrase “in respect of” is defined 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. Essentially, any connection between an employee’s employment and the provision of the parking facilities will be sufficient (¶2-130).

¶4-130 Car is owned, leased or provided The car must be owned or leased by the employee or an associate of the employee. Alternatively, the car is provided by the employer as a car benefit or made available to the employee by any other person (s 39A(1)(c)). For example, a car borrowed by an employee will satisfy this requirement. A “car” (¶3-120) must be parked. Therefore, a motorbike, and a vehicle designed to carry a load of one or more tonnes or nine or more passengers, cannot give rise to a car parking fringe benefit. Where the car is provided by an employer or an associate of the employer, the car must be “car benefit” as defined in s 7 (¶3-110). Therefore, a car parking fringe benefit can arise in respect of a car that is an exempt car benefit, eg utility trucks and other work-related cars (¶3-220).

¶4-140 Parking facility is on business premises The car must be parked on the business premises or associated premises of the employer (s 39A(1)(a) (i)). “Business premises” are premises used for the business operations of the employer and include associated premises (ATO Interpretative Decision ID 2001/255). However, the employer does not need to have exclusive propriety rights in respect of the business premises (Esso Australia Ltd (Childcare) v FC of T 98 ATC 4953; Taxation Ruling TR 2000/4). However, business premises do not include premises used as a place of residence of an employee, a corporate box, boats, planes, etc. Example An employer leases car parking spaces for the use of its employees from ABC Commercial Parking Station for a monthly fee. The employer calculates the taxable value of the car parking benefits provided to employees in accordance with Div 10A.

The lease of a car parking space by an employee is not in respect of the “business premises” of the provider (eg employer). Therefore, any payment or reimbursement of a car space leased by an employee is not a car parking benefit. Instead, an expense payment fringe benefit will arise (¶5-110) if it is an “eligible car parking expense payment benefit” (¶12-195).

¶4-150 Commercial parking station within 1 km A commercial parking station must be located within a 1 km radius of the employer-provided parking

facilities (s 39A(1)(a)(ii)). A “commercial parking station” is a permanent commercial car parking facility where car parking spaces are available in the ordinary course of business to members of the public for all-day parking on payment of a fee. However, a parking facility on a public street, road, lane, thoroughfare or footpath paid for by the inserting of money in a meter or by obtaining a voucher is not a commercial parking station. “All-day parking” is defined to mean the parking of a single car for a continuous period of six hours or more between 7 am and 7 pm (daylight period). Example: Continuous period of six hours or more Bottom Parking is a commercial car park operating between 6.30 am and 10.00 pm. Different parking fees are payable for vehicles parked before 1.00 pm and those that enter after 1.00 pm. The fee charged for vehicles entering the parking station from 1.00 pm is not paid for “all-day parking” because it is impossible to park for a continuous period of six hours or more during the period 7.00 am to 7.00 pm (ATO Interpretative Decision ID 2014/12).

Example: Daylight period Top Parking is a 24-hour commercial car park. It charges $9.00 a day for early-bird parking (for cars parked before 7.30 am), $2.00 hourly from 6.30 am to 6.00 pm with a maximum fee of $10.00 for all-day parking and $1.00 per hour for cars parked between 5.00 pm and midnight. The lowest fee charged for all-day parking during a daylight period is $9.00 (adaption of Example 6 of Taxation Ruling TR 96/26).

A car parking facility that does not have the primary purpose of providing all-day parking (eg parking for short-term shoppers or hotel guests) will not be treated as a commercial parking station, nor will a car park that is not operated to make a profit (Taxation Ruling TR 96/26). However, car parking facilities located near airports can be a commercial parking station despite the “penalty” pricing arrangements used (NTLG FBT Sub-committee minutes — 16 November 2006). In FC of T v Qantas Airways Limited 2014 ATC ¶20-477, the taxpayer argued that short-term and longterm car parking facilities near airports (airport parking) were not commercial parking stations for all-day parking as required by s 39A(1)(a)(ii) and (iii), due to the unique nature of airport parking. It contended that airport parking was intended for use by airline travellers, have pricing structures that were monopolistic and not comparable to parking stations providing parking principally, or primarily, for use by commuters driving their cars to and from work. The Full Federal Court held that the FBTAA did not differentiate car parking facilities by reference to any confined class of intended (primary or predominate) user. A literal interpretation to the meaning of “commercial parking station” in s 39A was appropriate. This meant that the car parking provided by Qantas to its employees at Qantas's own premises at locations across the country was subject to FBT. Measuring the one kilometre distance A commercial parking station is taken to be located within a 1 km radius if the car entrance to the commercial parking station is situated less than one kilometre, by the shortest practicable route (s 39B). This route can be travelled by foot, car, train, boat, etc; however, illegal shortcuts through private property are not acceptable. Also, distances travelled can be determined using an odometer reading, a street directory, information available from a public transport authority or any other method that will give a correct indication (Taxation Ruling TR 96/26).

¶4-160 Car parking threshold The lowest fee charged by the operator of any commercial parking station in the ordinary course of business to members of the public for “all-day parking” (¶4-150) on the first business day of the FBT year must be more than the car parking threshold (s 39A(1)(a)(iii)). If there are several commercial parking stations within the 1 km radius of the employer-provided parking facility, the above condition is satisfied if at least one such parking station charges more than the threshold amount at the beginning of the FBT year.

The lowest daily parking fee is determined on the first business day of the FBT year but is disregarded if the amount is not representative (s 39AA). A fee will not be representative (s 39AB) if it is substantially less or more than the average fee charged by the car park operator during a four-week period either beginning or ending on the first business day of the FBT year (whichever is chosen by the employer). For the 2018 FBT year, the car parking threshold is $8.66 (Taxation Determination TD 2017/14). For the FBT year ending 31 March 2017, the threshold was $8.48. Example Auto Repairs Pty Ltd allows its employees to park their cars on the company’s business premises. The accountant for Auto Repairs Pty Ltd determines that there are three car parking stations within a 1 km radius of the company’s car parking facility. The lowest fee payable by each parking station for all-day parking on the first business day of the 2018 FBT year is:

Parking station

Lowest fee

Take It or Leave It

$6.00

City

$7.50

Commercial

$9.00

As one parking station charges above the 2018 threshold amount of $8.66, Auto Repairs Pty Ltd will have an FBT liability assuming the other requirements are satisfied.

Where the commercial car parking station fee is offered on a periodic basis, the daily car parking fee is calculated in accordance with the formula in s 39E (¶4-360).

¶4-170 Car is parked for more than four hours The car must be parked at the employer-provided parking facilities for a total duration of more than four hours between 7 am and 7 pm (s 39A(1)(b)). All periods of parking must be added together to determine whether the four-hour threshold is met. Also, it is important to note that the total duration must exceed four hours. Example 1 John parks on the employer’s business premises at 9 am and leaves at 12 pm to see a client in the Sydney CBD. John returns to the office at 2 pm and parks the car on his employer’s premises before leaving again to see another client at 4 pm. The parking periods during the day are added to establish that five hours of parking facilities were provided. The four-hour threshold requirement is therefore satisfied.

Example 2 Jill parks on the employer’s business premises at 9 am and leaves at 12 pm to see a client in the Sydney CBD. Jill returns to the office at 6 pm and parks the car on her employer’s premises before leaving the office to travel home at 9 pm. The parking periods during the day are added to establish that four hours of parking facilities were provided. This is because only one hour of the period between 6 pm and 9 pm is included. The four-hour threshold requirement is not satisfied.

¶4-180 Parked in vicinity of employment place The employee must have a primary place of employment (s 39A(1)(e)) and the car must be parked at, or in the vicinity of, that primary place of employment (s 39A(1)(e) and (f)).

The “primary place of employment” of an employee is the business premises or associated premises of the employer or an associate of the employer where the employee performs or most recently performs employment duties. Accordingly, the car must be parked at or near the employer’s business premises, or associated premises, on which the employee would normally carry out their employment duties on that day. If not parked at the primary place of employment, the car must be parked “in the vicinity of” the primary place of employment. The FBTAA does not define “in the vicinity of” but in Virgin Blue Airlines Pty Ltd v FC of T 2010 ATC ¶20-188, the Federal Court concluded that “vicinity” meant “near”, “proximate” or “close”. This interpretation was subsequently endorsed on appeal to the Full Federal Court in Virgin Blue Airlines Pty Ltd v FC of T 2010 ATC ¶20-226. The Full Federal Court held that a car park located approximately 2 km from the taxpayer’s primary place of employment was not “in the vicinity of” that employment and therefore no FBT was payable by the employer. Example An employee (Arnold) has a primary place of employment in the Sydney CBD where Jake Ltd (employer) has business premises. Jake Ltd leases a car parking space at Chatswood (approximately 10 km away) for Arnold to park his employer provided car. Arnold travels by car to Chatswood and commutes by train to his primary place of employment. As the car is not parked in the vicinity of Arnold’s primary place of employment, no car parking benefit arises.

The ATO regards the Full Federal Court decision in Virgin Blue Airlines as confirming that the application of the vicinity test requires evaluative judgment, and notes that the legislation does not specify an absolute measure of distance as the relevant criterion for liability. The decision does not require any change to Taxation Ruling TR 96/26 (ATO decision impact statement on Virgin Blue Airlines — updated 21 May 2014).

¶4-190 Travel between home and work The car must be used in connection with travel between the employee’s place of residence and the employee’s primary place of employment (s 39A(1)(g)). A “place of residence” is a place at which a person resides or has sleeping accommodation. It does not have to be the employee’s usual place of residence. This condition will be satisfied provided the travel is between home and work or work and home regardless of any business stops along the way to or from work. AFB ¶53-030 to ¶53-170; AFT ¶814-160, ¶814-180, ¶814-220.

EXEMPTIONS ¶4-200 Circumstances Car parking benefits for disabled persons, provided by small businesses and certain non-profit employers, are exempt (¶12-190). In addition, the provision of a car parking benefit may be exempt if the requirements of the minor benefits exemption are satisfied (¶12-100). AFB ¶53-210 to ¶53-290; AFT ¶814-240.

TAXABLE VALUE ¶4-300 Overview The taxable value of car parking fringe benefits is dependent upon the methodology used to value and determine the number of parking spaces used by employees: Taxable value = Valuation of parking benefit ×

Number of parking benefits

provided The taxable value is then reduced by any contribution made by the recipient (¶13-160). Employers can choose to use any one or more of the following five methods to determining the taxable value of car parking benefits: • Commercial parking station method • Market value method • Average cost method • Statutory formula method • 12-week register method. The choice of which method to adopt is primarily dependent upon the availability of information on commercial car parking fees and the nature of the employer’s parking facilities.

¶4-310 Commercial parking station method Under this method, the taxable value is calculated by multiplying the actual parking benefits during the FBT year by the lowest all-day commercial parking station daily fee reduced by the amount of any contribution by the recipient (s 39C). Valuation The lowest “all-day parking fee” (¶4-360) is the lowest fee charged to the public in the ordinary course of business by the operator of a commercial parking station (¶4-150) that is located within 1 km of the employer-provided parking. Parking is all-day where it is provided for a continuous period of six or more hours between 7 am and 7 pm. Therefore, it is necessary for employers to monitor the car parking fees of commercial parking stations within a 1 km radius of the employer-provided parking facility during the FBT year. Example For the 2018 FBT year, the lowest all-day parking fee charged by ABC Carpark to members of the public is $9.00 which exceeds the car parking threshold of $8.66, whereas the lowest all-day parking fee charged by the nearby XYZ Carpark to members of the public is $7.50. Both car parks are located within 1 km of the employer-provided parking facility. The employer may use the lower fee of $7.50 to value the car parking benefits.

Parking benefits Each actual parking benefit provided during the year must be valued and therefore employers need to maintain a register of all car parking benefits provided during the FBT year (¶4-520).

¶4-320 Market value method Under this method, the taxable value is calculated by multiplying the actual parking benefits during the FBT year by the arm’s length amount of the benefit (market value) reduced by the amount of the any contribution by the recipient (s 39D). Valuation The market value is to be determined by a suitably qualified arm’s length valuer and reported to the employer in a form approved by the Commissioner (Taxation Ruling TR 96/26). The employer’s FBT return must be based on that report. An employer can elect to use the market value method where the car parking space is located in a commercial car park (NTLG FBT Sub-committee minutes — 14 August 2008).

An employer must elect to use the market value basis of valuation for any or all of the car parking fringe benefits in relation to a particular FBT year (s 39D(1)). Therefore, an employer can use different valuation methods on different days in relation to the same employer-provided parking facility. For example, an employer may elect to use the market value method for part of the FBT year and the commercial parking station method for the remaining part of the year. Parking benefits Each actual parking benefit provided during the year must be valued and therefore employers need to maintain a register of all car parking benefits provided during the FBT year (¶4-520). However, the taxable value calculation is less onerous because, unlike the Commercial parking station method, there will generally be only one car benefit valuation amount.

¶4-330 Average cost method Under this method, the taxable value is calculated by multiplying the actual parking benefits during the FBT year by the average of the lowest all-day commercial parking station daily fee reduced by the amount of the any contribution by the recipient (s 39DA). Valuation The lowest “all-day parking fee” (¶4-360) is the lowest fee charged to the public in the ordinary course of business by the operator of a commercial parking station (¶4-150) that is located within 1 km of the employer-provided parking. Parking is all-day where it is provided for a continuous period of six or more hours between 7 am and 7 pm. An employer must elect to use the average cost method of valuation for any or all of the car parking fringe benefits in relation to a particular FBT year (s 39DA(1)). Therefore, an employer can use different valuation methods on different days in relation to the same employer-provided parking facility. For example, an employer may elect to use the average cost method for part of the FBT year and the commercial parking station method for the remaining part of the year. Parking benefits Each actual parking benefit provided during the year must be valued and therefore employers need to maintain a register of all car parking benefits provided during the FBT year (¶4-520). However, the taxable value calculation is made simpler because employers only need to monitor commercial parking station fees at the beginning and end of the FBT year.

¶4-340 Statutory formula method Under this method, the taxable value for each car parking space is calculated by multiplying the daily rate amount by the statutory number of parking benefits. This amount is then apportioned based on the period in the FBT year the parking space was available (s 39FA):

Daily rate amount ×

Number of days in availability periods  in relation to the space 

×

228

366 The taxable value of all car parking benefits provided is the sum of the above amounts for all car parking spaces (ie “total value of car parking benefits”) less the sum of all recipient contributions. However, if the number of spaces exceeds the number of employees, an adjustment is required to be made to the total value of car parking benefits (see below). An employer must elect to use the statutory formula method of calculating the taxable value and specify the employees covered by the election (s 39GA(1)). Valuation The “daily rate amount” (s 39FC) is determined by using whichever of the following methods the employer chooses:

(i) the commercial parking station method (ii) the market value method, or (iii) the average cost method. Accordingly, one of the following valuation methods is used: • lowest all-day commercial parking fee (¶4-310) • market value of employer-provided parking facilities (¶4-320), or • average of commercial parking station fees (¶4-330). Parking benefits The statutory number of car parking benefits provided during the year for each employee is 228 (¶4-560). The employer must keep a record of the number of employees and spaces at the beginning and end of the FBT year (Taxation Ruling TR 96/26). The average number of employees is the number of employees at the beginning plus the number of employees at the end of the relevant period, divided by two. Taxable value adjustment Where the average number of employees covered by the election is less than the average number of spaces provided, the “total value of car parking benefits” is reduced proportionately (s 39FB). Example An employer elects to use the statutory formula method to determine the taxable value of car parking benefits provided to its employees. The employer has 60 car parking spaces available for use by employees. There are 44 employees at the beginning and 56 employees at the end of the FBT year, ie an average of 50 ((44 + 56) ÷ 2). The employer commenced carrying on business halfway through the FBT year and the “daily rate amount” is $10. Therefore, the value of each car parking space is $1,140 calculated as follows:

$10 × 228 ×

183 366

The total value of 60 car parking spaces after adjusting for the reduced number of employees at the end of the FBT year is $57,000, ie $1,140 × 60 × 50/60. This is also the taxable value if there were no recipient contributions.

¶4-350 Twelve-week register method Under this method, the taxable value is calculated by multiplying the annualised value of parking benefits during the FBT year (using a 12-week register) by the period the parking benefits were available during the year (s 39GB): Total value of car parking benefits (register)

×

52 ×  12 

Number of days of car parking benefits  366 

An employer must elect to use the 12-week register method of calculating the taxable value and specify the employees covered by the election (s 39GA(1)). Valuation The “total value of car parking benefits” (s 39GC) is calculated by multiplying the value of the benefits by the register parking benefits. The “value of the benefits” is determined by using whichever of the following methods the employer chooses: (i) the commercial parking station method

(ii) the market value method, or (iii) the average cost method. Accordingly, one of the following valuation methods is used: • lowest all-day commercial parking fee (¶4-310) • market value of employer-provided parking facilities (¶4-320), or • average of commercial parking station fees (¶4-330). Parking benefits The 12-week register must be maintained to support the number of register parking benefits (¶4-540).

¶4-360 All-day parking fee Where a commercial parking station offers parking on a weekly, monthly, quarterly, etc, basis it is necessary to determine the all-day parking fee for the purpose of determining whether the car parking threshold amount (¶4-160) has been exceeded. This calculated rate is also relevant if the employer does not use the market value method of determining the taxable value. The all-day parking fee is calculated using the formula (s 39E): Total fee for the parking period Business days in the period See ATO Interpretative Decision ID 2006/93 for a practical illustration of the above formula in circumstances where the daily car parking fee progressively reduces over time. According to the ATO, the view expressed in ID 2006/93 remains correct (NTLG FBT Sub-committee minutes — 9 August 2012 (Item 9)).

¶4-370 Which valuation method to adopt The decision as to which of the above valuation methods to adopt is dependent upon the availability of information on commercial car parking fees and the nature of the employer’s parking facilities. For example, if the parking provided at the employer’s premises is inferior (eg not under cover) then consideration should be given to using the market value method.

¶4-380 Taxable value calculation Workpaper 1 (¶4-385) illustrates the calculation of the taxable value of car parking benefits and contains the following summary information: 1. Valuation method adopted 2. Benefit days 3. Calculation of the taxable value. Valuation method Workpaper 2 (¶4-395) evidences the valuation method the employer has elected to use and contains instructions for its completion. Benefit days The number of benefit days is dependent upon whether the employer has chosen to use either the statutory formula method or the 12-week register method to determine the number of car parking benefits

instead of the actual number of benefits. An explanation of these methods and illustrative workpapers are provided at ¶4-500 and following. AFB ¶53-310 to ¶53-390; AFT ¶814-320, ¶814-340, ¶814-355.

¶4-385 Workpaper 1: Car parking benefit summary

¶4-395 Workpaper 2: Valuation of car parking benefits

REDUCTIONS ¶4-400 Circumstances The reductions in taxable value of car fringe benefits are built into each of the formulae that taxpayers can choose to adopt, including contributing to the cost of parking facilities.

DOCUMENTATION ¶4-500 Overview Employers need to keep records of both the number of parking benefits provided and how those benefits have been valued. In addition, they are required to maintain documentation to substantiate the FBT liability (if any) shown on the FBT return (¶2-730). There are three methods of calculating the number of benefit days that parking was provided on the

business premises of an employer. An employer may elect to use any method; however, where no election is made the actual usage method applies. Where the actual usage method (¶4-520) is used, the minimum information the ATO considers employers need to keep is a declaration that includes all of the following details: • the number of car parking spaces available for use by employees • the number of business days in the FBT year • the valuation method chosen to be used, and • the daily value of the car parking spaces. There is no approved format for the declaration. In addition, the ATO considers the following additional records should be kept (if applicable): • the actual number of employees parking on the premises if this is less than the number of available car parking spaces • days when no car parking fringe benefits arise for a car parking space (eg employees are on leave) • days that are not business days of the employer • particular car parking spaces used by more than one employee (eg shift workers) and therefore giving rise to more than one car parking benefit, and • car parking benefits provided to employees outside normal business hours, eg on weekends.

¶4-520 Actual usage method This calculation method involves determining the actual number of car parking benefits using parking records relevant to the full FBT year. The type of record to be kept is dependent upon the number of employees provided with parking facilities and whether, for example: (a) there is an automated system of monitoring the check-in and check-out times of vehicles (b) a person is currently or can be assigned to monitor casual parking, eg on weekends by persons provided with such parking facilities and other employees who use the parking on an ad hoc basis, and (c) whether the 12-week register or statutory formula methods provide a sufficiently accurate approximation of the number of parking benefits. Workpaper 3 (¶4-565) illustrates a method considered appropriate where there is a small number of vehicles, usage can vary considerably over any given 12-week period and details of casual parking are maintained. Instructions for completing this workpaper are included at ¶4-570.

¶4-540 Twelve-week register method This calculation method involves the preparation of a 12-week register of how all available parking spaces were used (s 39G). The register must include the following details (s 39GG): • the date on which each car is parked • parking duration on that day • whether the car was used for travel between home and work, and

• the place where the car is parked. Entries in the register must be made as soon as practicable after a vehicle has entered or left the car parking facilities. The 12-week period chosen must be representative of the car parking usage over the year of tax (s 39GE). A new register must be kept after four years or in the FBT year following any year in which the number of car spaces (or the number of employees if this is less) increases by more than 10% on any day (s 39G). However, changing the car parking facility used by employees does not invalidate the 12-week register, provided the number of car parking fringe benefits does not increase by more than 10% (ATO Interpretative Decision ID 2007/45). The number of car parking benefits is calculated by multiplying the 12-week register benefit days by: 52 12

×

Number of days car parking is available 366    

Example After keeping a register for a 12-week period, an employer determines that 250 car parking benefits, each with a taxable value of $10, have been provided to employees during the 12-week period. Car parking benefits are provided by the employer from 1 October to the end of the FBT year. The total taxable value of the benefits is $5,387, calculated as follows:

(250 × $10) ×

52 182 ×  12  366

Workpaper 4 (¶4-575) provides an illustration of what a 12-week register may look like and instructions for its completion are included at ¶4-580.

¶4-560 Statutory formula method A physical count of the number of parking spaces available must be performed that includes all available parking spaces and not just those physically marked as such (s 39F). This calculation method involves multiplying the number of parking spaces available to employees by: Number of days car space is available     366

× 228

If the number of employees allowed to park is less than the number of available spaces, it is necessary to document this fact since the benefit calculated above may be reduced by the following percentage:  Average number of employees  Average number of eligible spaces An election is required to use this method. Workpaper 5 (¶4-585) illustrates a possible format and contains instructions for calculating the statutory formula benefit days. AFB ¶53-500 to ¶53-590.

¶4-565 Workpaper 3: Benefit days — actual usage method

¶4-570 Instructions for completing the actual usage method workpaper Workpaper 3 is used to support Workpaper 1 (Car parking benefit summary). This workpaper may need to be supported by further records of the use of the available parking spaces by employees. Step 1: Employee List the names of persons who have been assigned or use a parking space. Step 2: Business days Enter the number of business days in the FBT year, ie exclude weekends and public holidays (¶2-540). Step 3: Additional days Input any incremental parking days adjacent to each employee with a permanent parking space (eg weekends) and record use of parking by temporary users. Step 4: Non-benefit days Enter adjacent to each employee any days that the parking space was not used, eg employee was on

holiday. Step 5: Benefit days Input (A) plus (B) less (C) and calculate the total number of benefit days (D) for the year. Transfer the total number of benefit days to Workpaper 1 (¶4-385).

¶4-575 Workpaper 4: Benefit days — 12-week register method

¶4-580 Instructions for completing the 12-week register method workpaper Workpaper 4 is used to support Workpaper 1 (Car parking benefit summary). Step 1: 12-week period Determine a 12-week period that is considered will provide a “typical” period of usage of the car parking facilities of the employer. Step 2: Recording parking use

The method of completing the register information should be documented and explained to staff before commencing to record parking use. Practical considerations when using this method include: (a) the number of employees (b) any existing procedures/systems for monitoring the check-in and check-out of vehicles (these procedures will be required by the ATO when they undertake an audit of the FBT return), and (c) whether one staff member is available to complete the register or it is to be completed by individual employees and then collated. Step 3: Benefit days Calculate the total number of benefit days for each employee during the 12-week period and multiply by 52 and divide by 12. 1 Total benefit days during 12-week period 2 Divide by 12 and multiply by 52

4.333

3 Total benefit days (ie 1 × 2) = Transfer the total number of benefit days to Workpaper 1 (¶4-385). Step 4: Monitoring Document the method to be adopted to monitor the periodic review of car parking usage to ensure changes in usage and/or expiry of five years triggers preparation of a new register. Step 5: Documentation The following may be attached to the register and securely filed: (a) any existing procedures (eg car entry security records) (b) explanation of the reasoning for selecting the particular 12-week period.

¶4-585 Workpaper 5: Benefit days — statutory formula method

EXPENSE PAYMENT FRINGE BENEFITS INTRODUCTION Roadmap of expense payment fringe benefits

¶5-000

DEFINITION Overview

¶5-100

Expense payment benefit

¶5-110

Reimbursements versus allowances

¶5-120

When does the benefit arise?

¶5-140

Expenditure is incurred by the recipient

¶5-160

Examples of expense payment benefits

¶5-170

EXEMPTIONS Circumstances

¶5-200

No-private-use declaration

¶5-210

LAFH accommodation

¶5-220

Employee car expenses

¶5-240

TAXABLE VALUE Overview

¶5-300

External expense payment fringe benefit

¶5-320

In-house property expense payment fringe benefit

¶5-340

In-house residual expense payment fringe benefit

¶5-360

Entertainment facility leasing expenses

¶5-370

REDUCTIONS Circumstances

¶5-400

“Otherwise deductible” rule

¶5-410

Once-only deduction

¶5-420

Notional deduction

¶5-440

Car expense payment benefit

¶5-460

Road and bridge tolls

¶5-465

Jointly provided expense payment benefits

¶5-470

Application of ITAA 1936 s 51AH

¶5-480

Business use of motor vehicles

¶5-490

DOCUMENTATION Overview

¶5-500

Documentary evidence

¶5-505

Declaration

¶5-510

When is a declaration not required?

¶5-520

Travel diary

¶5-525

Car expense payment benefits

¶5-530

Documenting local and overseas travel

¶5-540

Workpaper 1: Travel itinerary

¶5-600

Workpaper 2: Travel diary

¶5-610

Workpaper 3: No-private-use declaration — expense payment benefits ¶5-620 Workpaper 4: Expense payment benefit declaration

¶5-630

Workpaper 5: Recurring expense payment fringe benefit declaration

¶5-640

Workpaper 6: Expense payment benefits — taxable value summary

¶5-650

INTRODUCTION ¶5-000 Roadmap of expense payment fringe benefits An expense payment fringe benefit arises when an employer makes a payment in discharge of an obligation incurred by an employee or an associate of an employee (¶5-100). An exemption is available for expense payment benefits where the employer prepares a no-private-use declaration, reimburses certain car expenses on a cents per kilometre basis or pays for an employee’s accommodation while they are living away from home (¶5-200). Where an expense payment benefit is a fringe benefit, the taxable value is calculated differently depending upon whether an external expense payment fringe benefit or an in-house expense payment fringe benefit is provided by the employer (¶5-300). If the employee would have been entitled to an income tax deduction for the amount paid or reimbursed, the taxable value is reduced (“otherwise deductible” rule). A reduction of the taxable value is also available in a number of other circumstances (¶5-400). Employers are required to obtain a declaration or travel diary from employees where a reduction in the taxable value is claimed. Also, employers must be able to substantiate how the taxable value of an expense payment fringe benefit has been calculated (¶5-500). Note: Employers can elect to determine the taxable value of expenditure on food and drink incurred by employees and associates using the rules in Div 9A (meal entertainment). See ¶11-800.

DEFINITION ¶5-100 Overview An expense payment benefit will only have a taxable value if it is not exempt (¶5-200) and is an “expense payment fringe benefit”. An expense payment fringe benefit is an expense payment benefit which is also a fringe benefit as defined in s 136(1) and discussed at ¶2-100.

¶5-110 Expense payment benefit An expense payment benefit (s 20) arises where a “provider”: • pays an amount to wholly or partly discharge an obligation incurred by a “recipient” to a third party, or • reimburses wholly or partly an amount incurred by the recipient to a third party. The provider making the payment may be the employer, an associate of the employer or a third party

under an arrangement with the employer. The recipient of the benefit is the employee or an associate of the employee. Therefore, all payments related to the activities of employees are potentially subject to FBT unless the payments are expense allowances (¶5-120). Example: Payment An employee (recipient) joins a health club (third person) with payment due at the end of May. The employee has therefore incurred an obligation to pay membership fees to the health club. The employer (provider) pays the health club fees owed by the employee on 1 May. An expense payment benefit arises at the time when the payment is made, not at the later due date for payment of the debt (s 147).

Example: Reimbursement An employee (recipient) enters into a contract for the provision of medical insurance and pays the medical insurance premiums. The employer (provider) agrees to pay (ie reimburse) the employee an amount equal to the medical insurance premiums incurred and paid by the employee. An expense payment benefit arises at the time the reimbursement is made.

¶5-120 Reimbursements versus allowances It is important to understand the distinction between a reimbursement and an allowance because the former is subject to FBT while the latter is generally outside the scope of FBT and taxable as “salary or wages” (Taxation Ruling TR 92/15). The exception to this general rule is a living-away-from-home (LAFH) allowance benefit (¶8-100). A reimbursement is a payment of expenses incurred by an employee or some other person that the employer considers to have been incurred on its behalf. As a result, the employer generally requires the employee to provide original receipts and related documentation to substantiate the amount of the reimbursement and any income tax deduction the employer is entitled to claim. An allowance is the payment of a definite sum of money to cover estimated expenses of an employee or some other person. It is often paid because the employer does not wish to be under an obligation to account for such expenses directly or indirectly. As a consequence, supporting documentation (eg an invoice) is not submitted to the employer as the employee is the one obligated to substantiate any income tax deduction claimed. Car allowances The payment of a car allowance is ordinary income of the employee and is assessable under ITAA 1997 s 6-5. Also, the employer is not liable for FBT due to the definition of “fringe benefit” in s 136(1) which excludes a payment of “salary or wages”. Example An employee (Jenny) is the accountant for Little Business Ltd and is required to use her car on occasions to meet with customers and suppliers of business goods or services. Little Business Ltd pays Jenny a car allowance of $2,000 to cover the cost of business travel. Jenny is required to include the $2,000 in her personal income tax return but is able to claim a deduction for her car expenses in accordance with ITAA 1997 s 8-1 and Div 28. Little Business is required to deduct PAYG instalments (TAA 1953 s 12-35) from the payments made to Jenny but is not liable to pay FBT.

Car expenses reimbursed on a cents per kilometre basis Car expenses reimbursed on a cents per kilometre basis are generally exempt from FBT under s 22 (¶5240) and included in the employee’s assessable income due to ITAA 1997 s 15-70. Example An employee (John) is the accountant for Big Business Ltd and is required to use his car on occasions to meet with customers and

suppliers of business goods or services. John travels 1,000 km for business purposes and is reimbursed 76 cents per km (ie $760) by Big Business Ltd. No FBT is payable due to the exemption in s 22.

¶5-140 When does the benefit arise? An expense payment benefit arises at the time the provider makes the payment discharging the obligation to the third party or makes the reimbursement payment. Accordingly, where the provider pays or reimburses a benefit by instalments, each instalment gives rise to a separate benefit even though it is paid in respect of the same amount of expenditure incurred by the recipient.

¶5-160 Expenditure is incurred by the recipient An expense payment benefit only arises where the payment or reimbursement by the employer or associate is in respect of expenditure incurred by the recipient (¶5-110). If the expenditure is incurred by the employer or an associate of the employer, another category of fringe benefit may arise. Employee credit cards If an employee uses their personal credit card to purchase a benefit, and their employer discharges the consequent obligation to pay that amount to the credit card issuer, that will be an expense payment benefit provided by the employer to the employee. This is because the employee has contracted with the third party to pay the debt and is responsible for the discharge of the debt incurred on their personal credit card. Corporate credit cards Expenditure is not incurred by an employee who obtains a benefit from a supplier and uses a credit card issued to their employer. In this circumstance, s 150 deems: (1) the supplier to have supplied the benefit in respect of the employee’s employment under an arrangement with the employer, and (2) the employer has incurred the expenditure of the supplier of the benefit. Where an employer provides an employee with a credit card that is issued to the employer but able to be used by the employee, a residual benefit will arise unless another category of benefit applies. For example, the purchase of food or drink will be a property benefit unless an election is made by the employer to treat the expenditure as meal entertainment (¶11-800). Alternatively, a car benefit (¶3-100) arises if the employee uses the card to pay for car expenses; the employer holds the car and uses the cost basis method to determine the taxable value. Credit card processing fees Some vendors of goods or services (eg airlines, ticketing companies, restaurants, taxis, etc) charge customers a surcharge if payment is made by way of a credit card. These are often referred to as processing fees or credit card surcharges and are usually disclosed separately on the invoice. The ATO considers that credit card processing fees incurred by an employer as part of the provision of a fringe benefit constitute part of the taxable value of the fringe benefit. This is stated to be consistent with the policy of the FBT regime which generally requires the taxable value of benefits to be calculated by reference to the expenditure incurred by the employer rather than the value of the fringe benefit to the employee (NTLG FBT Sub-committee minutes — 10 November 2011 (Item 7)).

¶5-170 Examples of expense payment benefits Examples of employee expenses and their FBT treatment are summarised below: • Car owned or leased by an employee. – Car expenses paid or reimbursed. This is the taxable value unless the employee provides certain

documentation (¶5-460). – Car expenses reimbursed on a cents per kilometre basis are shown in the employee’s income tax return. It is not an expense payment benefit except in the situations listed at ¶5-240. • Car parking. Amount of expenditure incurred by an employee is the taxable value unless exempt (¶12-190). • Desktop computers. Amount paid or reimbursed is the taxable value and the “otherwise deductible” rule (¶5-410) does not apply. • Entertainment facility leasing expenses. Employers can use the “actual method” or the “50/50 split method” to determine the taxable value (¶5-370). • Health insurance premiums. Amount paid or reimbursed is the taxable value. • Home mortgage. Payment of an employee’s mortgage repayments is an expense payment benefit. However, payments into an employee’s home mortgage offset facility are a payment of salary or wages. • Home rental expenses. Amount paid or reimbursed is the taxable value unless the employee is LAFH (¶5-220), the employee would have been entitled to an income tax deduction (¶5-410), it is for temporary accommodation (¶13-300) or is remote area housing rent (¶13-440). • Home telephone. Amount paid or reimbursed is the taxable value unless the employee would have been entitled to an income tax deduction (¶5-410). • Laptop computer. Amount paid or reimbursed is the taxable value unless exempt (¶12-120). • Mobile phone. Amount paid or reimbursed is the taxable value unless exempt (¶12-120). • Mobile electronic devices — monthly charges. Amount paid or reimbursed is the taxable value unless the employee would have been entitled to an income tax deduction (¶5-410). An exemption is available if provided as a residual benefit (¶12-130). • Membership fees and subscriptions. Amount paid or reimbursed is the taxable value unless exempt (¶12-160) or the employee would have been entitled to an income tax deduction (¶5-410). • Newspapers and periodicals. Amount paid or reimbursed is the taxable value unless exempt (¶12140) or the employee would have been entitled to an income tax deduction (¶5-410). • Personal credit card payments. Amount paid or reimbursed is the taxable value (¶5-160) unless the goods or services are work-related (¶5-410). • Road and bridge tolls. Amount paid or reimbursed is the taxable value unless the employee would have been entitled to an income tax deduction (¶5-465). • Self-education expenses. Amount paid or reimbursed is the taxable value unless the employee would have been entitled to an income tax deduction (¶5-410). • Taxi travel. Amount paid or reimbursed is the taxable value unless exempt (¶12-180) or the employee would have been entitled to an income tax deduction (¶5-410). • Training for employees made redundant. Amount paid or reimbursed is the taxable value unless exempt as a minor benefit (¶12-100) or the employee would have been entitled to an income tax deduction (¶5-140). Exemption as a work-related counselling expense (¶12-630) does not apply. AFB ¶30-000 to ¶30-090; AFT ¶806-070 to ¶806-100.

EXEMPTIONS ¶5-200 Circumstances An exemption is available where an employer prepares a no-private-use declaration (¶5-210), pays or reimburses an employee for LAFH accommodation (¶5-220) or reimburses the car expenses of a car held by an employee on a cents per kilometre basis (¶5-240). Car expenses (¶3-610) paid or reimbursed in respect of a car held by an employer (¶3-140) are exempt (¶12-920). Road or bridge tolls are not exempt (¶5-465) unless the minor benefits exemption applies (¶12-100). In addition, a number of miscellaneous exemptions (¶12-000) are available in respect of expense payment benefits. For example, the provision of certain work-related and other benefits (¶12-050) such as newspapers; costs incurred in relocating employees (¶12-310) such as consultant costs; and employee health benefits (¶12-510) such as compassionate travel.

¶5-210 No-private-use declaration An expense payment fringe benefit covered by a “no-private-use declaration” is an exempt benefit (s 20A). A “no-private-use declaration” is a declaration, made by an employer, which applies to all expense payment fringe benefits for which the employer will only pay or reimburse so much of the expense as will result in the taxable value of the benefit being nil. To qualify for the exemption, the following conditions must be satisfied: 1. A declaration is prepared by the employer (¶5-620). 2. Employer has procedures in place to ensure the taxable value of the benefit is nil. These declarations are prepared annually and apply to all employees who receive the benefit. Example An employer has a policy of reimbursing international business telephone calls made from the private residence of employees. All employees are required to itemise the relevant international calls on their telephone account when seeking reimbursement. The employer makes a no-private-use declaration and therefore the reimbursement of the portion of the employees’ private telephone bill is an exempt benefit. There is no need to obtain declarations from each employee to support that the taxable value is nil.

¶5-220 LAFH accommodation Expenditure on accommodation provided to an employee who is required to live away from their normal residence in order to perform employment duties is an exempt benefit (s 21). To qualify for the exemption, the following conditions must be satisfied: 1. An expense payment benefit is provided to a current employee in respect of their employment. 2. The expenditure is in respect of accommodation for eligible family members (¶8-150). 3. The accommodation is not provided while the employee is undertaking travel in the course of performing employment duties. 4. The accommodation is required solely because the duties of employment require the employee to live away from their normal residence (¶8-130). 5. The employee must either maintain a home in Australia (¶8-510) and satisfy the 12-month limitation (¶8-520) or work on a fly-in fly-out (FIFO) or drive-in drive-out (DIDO) basis (¶8-530).

6. The employer must obtain a declaration from the employee that they maintain a home in Australia (¶8-630), work on a FIFO or DIDO basis (¶8-640) or the transitional rules apply (¶8-380). From 1 October 2012, employers must satisfy condition 5 and obtain one of the specific declarations in condition 6, subject to the transitional rules (¶8-380). Example Elisabeth is employed by Moving Target and is required to live away from her normal residence in Sydney from 1 May 2017 to 31 August 2017 in order to perform employment duties in Adelaide. Moving Target reimburses Elisabeth for the cost of the rental accommodation on a home unit in Adelaide she has incurred and pays her an allowance to cover food costs. Elisabeth provides Moving Target with the required declaration before lodgment of the 2018 FBT return. The reimbursement of the cost of the rental accommodation is an exempt expense payment benefit.

Mortgage expenses The phrase “in respect of accommodation” does not include the reimbursement or payment of mortgage expenses of a house purchased by an employee and used as a dwelling by family members while they are temporarily residing in Australia (ATO Interpretative Decision ID 2001/803). Utility costs The payment of utility costs (eg electricity, gas and water) and other expenses associated with accommodation (eg cleaning) may fall within the scope of expenditure incurred on accommodation. In some circumstances, the cost of the utilities cannot be dissected from the cost or value of the accommodation, such as in the case of a serviced apartment or campsite-style accommodation. However, in other arrangements, the utilities may be billed separately and will be provided as an expense payment or residual benefit. Generally, if utility costs cannot be dissected or determined separately from the lease or licence of accommodation, they will form part of the accommodation cost (NTLG FBT Subcommittee minutes — 8 November 2012 (Item 11)). Residential cleaning costs Whether residential cleaning costs paid or reimbursed by an employer are in respect of accommodation provided to eligible family members is dependent upon the facts. For example, where professional cleaners are engaged by the employer prior to, or at the end of, a tenancy arrangement (lease), no benefit is provided to the employee. This is because the cleaning costs arise from the terms of the lease agreement that requires the accommodation to be maintained in a particular state for the purposes of the lease. On the other hand, where a cleaner is engaged on an ongoing weekly or fortnightly basis, it would appear that there is a benefit to the employee. Whether the exemptions in s 21 or s 47(5) extend so far as to include the benefit attributable to a professional cleaner will ultimately depend on the facts (NTLG FBT Sub-committee minutes — 11 August 2011 (Item 9)). Note: The above complements exemptions for the accommodation component of a LAFH allowance (¶8-340) and the provision of LAFH accommodation by an employer (¶10-250).

¶5-240 Employee car expenses Car expenses in respect of a car owned (including under a hire-purchase contract) or leased by an employee and reimbursed on a cents per kilometre basis are exempt unless provided in respect of (s 22): (a) relocation transport (¶13-220) (b) employment interviews or selection tests (¶13-240) (c) work-related medicals, counselling and training (¶13-260) (d) remote area holiday transport (¶13-490; ¶13-495)

(e) overseas employment holiday transport (¶13-520), or (f) a time when the employee had ceased to perform employment duties. Car expenses reimbursed on a cents per kilometre basis in circumstances (a) through (e) are instead subject to a reduction in taxable value. The amount of the reduction in taxable value is calculated by reference to the basic car rate and, in some circumstances, the supplementary car rate (¶13-280). Example Belinda is employed by Executive Couriers and is required to use her car on occasions to deliver parcels to clients on her way home from work. Executive Couriers reimburses Belinda for delivering parcels to clients on a cents per kilometre basis. The reimbursement of Belinda’s car expenses is an exempt benefit since none of the above exclusions are applicable.

AFB ¶30-100 to ¶30-140; AFT ¶806-130 to ¶806-340.

TAXABLE VALUE ¶5-300 Overview The taxable value of an expense payment fringe benefit in relation to a year of tax is dependent upon whether the payment or reimbursement of the expense incurred by the employee or associate is: (a) an external expense payment fringe benefit (¶5-320), or (b) an in-house expense payment fringe benefit. An “in-house expense payment fringe benefit” is a benefit that satisfies the requirements to be classified either as an in-house property (¶5-340) or in-house residual (¶5-360) fringe benefit. That is, the property or service provided to the employee or associate must be ordinarily provided to the public by the employer. An employer can elect to apportion entertainment facility leasing expenses using the 50/50 split method instead of apportioning the expenses based on actual use (¶5-370). For a pictorial overview of the calculation of the taxable value of an expense payment fringe benefit, see Workpaper 6 (¶5-650). Note: The first $1,000 of the taxable value of all in-house fringe benefits provided per employee each year is exempt from FBT unless provided under a salary packaging arrangement (¶13-140).

¶5-320 External expense payment fringe benefit An “external expense payment fringe benefit” is a fringe benefit that is not an in-house expense payment fringe benefit. For example, where an employer pays or reimburses a third party that does not sell the employer’s products. The taxable value (TV) of an external expense payment fringe benefit is the amount of the payment or reimbursement reduced by the amount of any contribution by the recipient towards the expense (s 23). That is: TV = Amount paid or reimbursed − Recipients contribution The meaning and consequences of making a “recipients contribution” is explained at ¶13-160. Example

John is a sales representative employed by a manufacturer of timber products (Wood Designs). Wood Designs does not provide telecommunication services and reimburses John for his home telephone account ($300). John uses his home telephone solely for private purposes. The taxable value of this external expense payment fringe benefit is:

$300 − Nil = $300

¶5-340 In-house property expense payment fringe benefit The taxable value (TV) of an in-house property expense payment fringe benefit (“actual fringe benefit”) is the amount that would have been the valuation of an in-house property fringe benefit if the expense payment benefit were a property benefit. This amount is then reduced by any contribution by the recipient towards the expense (s 22A(1)). That is: TV =

Valuation of the in-house property fringe benefit

−

Recipients contribution (if applicable)

The “valuation of the in-house property fringe benefit” is dependent upon the circumstance in which the tangible property is ordinarily sold by the employer or an associate to the public. These valuation rules are explained at ¶9-380. The meaning and consequences of making a “recipients contribution” is explained at ¶13-160. Example Juliet is employed by Curtains & More, which sells a range of household products including Manchester. Juliet purchases bed linen from one of the retail outlets of Curtains & More for the full retail price of $440. Employees of Curtains & More are entitled to a 25% discount on the lowest price ordinarily charged to members of the public. If the bed linen had been supplied directly to Juliet by her employer, a property fringe benefit would have been provided. However, as Juliet has incurred expenditure on purchasing the bed linen, an expense payment fringe benefit will arise. Curtains & More reimburses Julie $110. The taxable value of the benefit is $Nil (75% × $440 − $330).

¶5-360 In-house residual expense payment fringe benefit The taxable value (TV) of an in-house residual expense payment fringe benefit (actual fringe benefit) is the amount that would have been the valuation of an in-house residual fringe benefit if the expense payment benefit were a residual benefit (ATO Interpretative Decision ID 2008/30). This amount is then reduced by any contribution by the recipient towards the expense (s 22A(2)). That is: TV =

Valuation of the in-house residual fringe benefit

−

Recipients contribution

The “valuation of the in-house residual fringe benefit” is dependent upon whether the residual benefit provided is an identical or similar benefit to that ordinarily provided by the employer or associate to the public. These valuation rules are explained at ¶10-350. Example Ken is a former employee of Big Insurers Co that offers a range of insurance products to the general public. Ken renews his home insurance cover for $880 through one of the retail outlets of Big Insurers Co for the full retail price of $880. All current and former employees of Big Insurers Co are entitled to a 25% discount on the lowest price paid by the public on any insurance product if approved by the company. Former employees are required to pay the insurance renewal notice amount and then seek reimbursement. If Ken had been a current employee of Big Insurers Co and been billed at the discounted rate, a residual fringe benefit would have been provided. However, as Ken has incurred expenditure on purchasing the home insurance cover, an expense payment fringe benefit will arise. Big Insurers reimburses Ken $220. The taxable value of the benefit is $Nil (75% × $880 − $660).

In determining the taxable value of an in-house residual expense payment fringe benefit, the lowest price at which an identical benefit is sold to a member of the public (¶10-355) does not include any Commonwealth Government rebate provided to the employee under the Private Health Insurance Incentives Act 2007 (ATO Interpretative Decision ID 2012/85). Instead, the rebate is a recipients contribution (ATO Interpretative Decision ATO ID 2012/86). The meaning and consequences of making a “recipients contribution” is explained further at ¶13-160. Expenditure on electricity Employees of the NSW state-owned corporations are able to enter into a salary sacrifice arrangement with their employer for the reimbursement of their domestic electricity accounts. Following the sale of electricity assets by the NSW Government, the employees of NSW state-owned corporations will purchase their domestic electricity supplies from a private sector company which is neither the employer, nor an associate of the employer. Therefore, for the electricity to qualify as an “inhouse benefit”, the private sector company must have purchased the electricity from the employer or associate of the employer. If it is only possible to conclude that a portion of the electricity generated by state-owned corporations will be purchased by retailers who sell this to employees, will this preclude the benefit from being an in-house fringe benefit? The ATO concludes that the reimbursement of the domestic electricity expenses of an employee of a state-owned corporation is an “in-house residual expense payment fringe benefit”. This would not be the case if the employer sold all of their output to an entity which is not the retailer from which the employee purchased the electricity (Class Ruling CR 2011/71).

¶5-370 Entertainment facility leasing expenses Employers can elect to treat 50% of entertainment facility leasing (EFL) expenses (50/50 split method) as the taxable value instead of apportioning (actual use method) the EFL expenses between users of the premises or facilities (s 152B), except where the benefits are provided under a salary packaging arrangement. EFL expenses are expenses incurred in hiring or leasing (s 136(1)): (a) a corporate box, or (b) boats or planes, for the purpose of the provision of entertainment, or (c) other premises or facilities, for the purpose of the provision of entertainment. However, EFL expenses do not include expenses to the extent they are attributable to: • the provision of food or drink, or • advertising and are allowable income tax deductions. EFL expenses are not deductible under ITAA 1997 s 8-1 to the extent they are in respect of the provision of entertainment (ITAA 1997 s 32-5). In deciding the extent to which an EFL expense is in respect of the provision of entertainment, the Commissioner has discretion to determine the extent to which an income tax deduction is allowable (ITAA 1997 s 32-75). In Taxation Determination TD 92/162, the Commissioner has exercised his discretion to determine that 5% of the expenditure on a corporate box is incurred on advertising and 95% is incurred on recreational entertainment. However, a higher proportion of the total expenditure may be attributed to advertising depending on the particular circumstances, eg size, location and prominence of advertising signs. For illustrations of EFL expenses, see ATO Interpretative Decisions ID 2009/45 (expenses of hiring a private function room at a club for a family celebration) and ID 2009/141 (a marquee is a “facility”). Note: An EFL expense incurred by an employer is a residual fringe benefit (¶10-110), although the same rules apply to determine the taxable value.

Note: A separate single grossed-up cap of $5,000 applies for salary packaged EFL expense benefits for employees of s 57A employers (¶16-610) and rebateable employers (¶16-650).

Actual method To take advantage of the actual method, employers must keep records of the employees, associates and third parties who use the facility in order to apportion EFL expenses. This enables employers to determine the amount of recreational entertainment (¶11-810) subject to FBT and the amount that is not deductible under ITAA 1997 s 32-5. Example Boy Ltd incurs $10,000 on leasing a corporate box which was used by 1,000 employees/associates and clients/third parties during the FBT year. The percentage of employees and associates that used the corporate box was 75%. The apportionment of the $10,000 EFL expense is:

Total expenditure on corporate box

$10,000

Less: deductible advertising cost (5% × $10,000)

$500

Amount to be apportioned

$9,500

EFL expenditure subject to FBT (75% × $9,500)

$7,125

EFL expenditure not deductible ($9,500 − $7,125)

$2,375

The total EFL expenses may be apportioned based on the total seating capacity of the facility and the benefits provided calculated on the basis of the actual patronage of the event (NTLG FBT Sub-committee minutes — 6 November 2012 (Item 13)). Example An employer hires a corporate box for a five-day cricket match at a total cost of $12,500. The box has a capacity of 10 persons and therefore, a maximum of 50 benefits could be provided over the expected five-day duration of the match. That is, a benefit of $250 per person ($12,500/50). The cricket match is won on the third day, and the actual number of attendees on days 1, 2 and 3 was 20 persons. The value of the benefit provided to each person on days 1, 2 and 3 is $250. On days 4 and 5, the taxable value is nil because no benefit is provided. The income tax deductibility of the total expenditure of $12,500 was not discussed at the NTLG FBT Sub-committee meeting.

50/50 split method Where an employer has elected to apply the 50/50 method, a deduction equal to 50% of the total EFL expenses incurred in the FBT year is deductible (ITAA 1936 s 51AEC). The other 50% is subject to FBT (s 152B). Example Girl Ltd incurs $10,000 on leasing a corporate box which was used by 1,000 employees/associates and clients/third parties during the FBT year. The apportionment of the $10,000 EFL expense is:

Total expenditure on corporate box

$10,000

Less: deductible advertising cost (5% × $10,000)

$500

Amount to be apportioned

$9,500

EFL expenditure subject to FBT (50% × $9,500)

$4,750

EFL expenditure not deductible (50% × $9,500)

$4,750

This method is not available for EFL expenses benefits provided under a salary packaging arrangement. Food or drink EFL expenses do not include food or drink. Expenditure on food or drink provided in connection with EFL expenses is meal entertainment (¶11-810) and is shown on the FBT return either as an expense payment benefit (Item E), property benefit (Item K) or tax exempt body entertainment (Item L) where an employer uses the actual method (¶11-860) to determine meal entertainment. Alternatively, an employer can elect to use one of the concessional methods to determine the amount of FBT and show this amount as meal entertainment (Item P) on the FBT return (¶11-830). AFB ¶30-200 to ¶30-390; AFT ¶806-600 to ¶806-690.

REDUCTIONS ¶5-400 Circumstances The taxable value may be reduced if the employee would have been able to claim an income tax deduction for the expense payment fringe benefit (¶5-410). Where an expense payment fringe benefit is provided in connection with a car owned or leased by an employee (¶5-460) or provided jointly to an employee and an associate (¶5-470) special rules apply. Road and bridge tolls in respect of a car fringe benefit or a car held by an employee must be separately substantiated (¶5-465). The taxable value may also be reduced in a number of specific circumstances and these are contained in Div 14. For example, reductions in taxable value are available for certain relocation (¶13-300) and remote area (¶13-400) benefits. Also, the sum of all in-house fringe benefits and airline transport fringe benefits provided to each employee may be reduced by up to $1,000 (¶13-140). For the order in which reductions in taxable value are claimed, see ¶2-400.

¶5-410 “Otherwise deductible” rule To the extent that the employee would have been entitled to a once-only deduction for the expense (s 24), the taxable value is reduced using the following formula (“otherwise deductible” rule): Reduced taxable value = TV − ND where: TV = Taxable value of the expense payment fringe benefit (¶5-300) ND = Notional deduction (¶5-440) unless the expense payment benefit is a car expense payment fringe benefit (¶5-460). For the rule to apply, the following conditions must be satisfied: (1) The recipient of the expense payment fringe benefit must be an employee (¶2-120). (2) The employee must be entitled to a once-only deduction (¶5-420). (3) The employee must give the employer certain documentation (¶5-500). A reduction in taxable value is not available where the expense payment benefit is provided to an associate of an employee despite it being used for an income-producing purpose (Taxation Determination TD 93/90). Also, a reduction in taxable value of a benefit provided jointly to an employee and their associate is limited to the employee’s share of the benefit (¶5-470). However, if no additional cost can be attributed to the share of the benefit provided to an associate of an employee, the taxable value is reduced by the amount paid by the employee (¶10-420). The otherwise deductible rule must be applied to reduce the taxable value of road and bridge tolls (¶5-

465). Note: The “otherwise deductible” rule is not available for expenses that, had they not been provided as a fringe benefit, would have been subject to the non-commercial loss provisions in ITAA 1997 Div 35 (¶2-070).

¶5-420 Once-only deduction The employee must be entitled to a once-only deduction for the expense payment benefit, ignoring the limitation on self-education expenses (ITAA 1936 s 82A) and the income tax substantiation rules in ITAA 1997 Div 28 and 900 (s 24(1)(b); 24(1)(ba)). A “once-only deduction” (s 136(1)) is one that is wholly or partly allowable in one year of income and not in any other year of income and therefore excludes depreciation, prepayments and borrowing expenses that are spread over more than one income year. Also, the “once-only deduction” does not have to relate to the employee’s income from employment to qualify for a reduction in taxable value. Example Robert is employed to road-test heavy vehicles on the premises of his employer (RTA) and attends a Heavy Vehicle Driver training course. The heavy vehicle training school is a prescribed course of education and therefore ITAA 1936 s 82A will apply (ATO Interpretative Decision ID 2002/517). Robert pays for the cost of the course which would have been deductible under ITAA 1997 s 8-1 subject to the $250 limit in ITAA 1936 s 82A and obtains reimbursement from his employer. RTA is able to reduce the taxable value of the expense payment fringe benefit provided to Robert to nil.

The “otherwise deductible” rule can still apply to reduce the taxable value of a benefit even if an employer is not allowed a deduction because it is a capital expense (Taxation Determination TD 93/20).

¶5-440 Notional deduction The taxable value of an expense payment fringe benefit is reduced by the notional deduction unless the employer provided a car expense payment benefit (s 24(1)(g)). Special rules apply to the calculation of the reduction in the taxable value of a car expense payment benefit (¶5-460). The formula to calculate the notional deduction is: Notional deduction (ND) = GD −  RD where: GD = gross deduction, ie amount that would have been allowable for the gross expenditure RD = allowable deduction for the recipients contribution after taking into consideration ITAA 1936 s 51AH (¶5-480).

Example Judith is a teacher employed by Private School and undertakes an overseas study trip that is relevant to her employment and satisfies the requirements of ITAA 1997 s 8-1. Private School agrees to pay the airfare ($6,000) but requires Judith to contribute $1,000 and therefore the taxable value of the benefit is $5,000. Assume ITAA 1936 s 51AH does not apply (¶5-480). Judith is able to substantiate that 80% of the travel is undertaken for an income-producing purpose.

Notional deduction

= ($6,000 × 80%) − ($1,000 × 80%) = $4,800 − $800 = $4,000

Note: In the above example, the reduced taxable value is $1,000, ie $5,000 − $4,000.

¶5-460 Car expense payment benefit Where a car expense payment benefit is provided by an employer, the amount of the reduction in the taxable value depends on whether the employee has maintained a logbook or claims a reduction in taxable value based on the number of kilometres travelled by the car (s 24(1)(h) and (j)). A declaration must be provided by the employee (¶5-530). A “car expense payment benefit” is an expense payment fringe benefit where, if the recipient had incurred the expenditure in respect of the provision of the expense payment benefit, that expenditure would have been a car expense as defined in ITAA 1997 s 28-13, eg operating costs such as petrol, servicing and repairs, etc. The car expense must be in respect of a car owned or leased by the employee and therefore cannot be in respect of a car benefit (¶3-100). Road and bridge tolls are not a “car expense payment benefit” and any reduction in taxable value must be substantiated using the “otherwise deductible” rule (¶5-410). Logbook method Where the employee maintains a logbook, the reduction in taxable value (ND) is calculated by reference to the business use percentage (BUP) established by the logbook: ND = TV × BUP

Example An employee (Heather) of XYZ Ltd owns a car that is used partly for business purposes and contracts with Mechanics Pty Ltd to service her car. Heather pays Mechanics Pty Ltd and asks XYZ Ltd to reimburse the invoiced cost of $3,750. XYZ Ltd requires Heather to contribute $750 towards the repair bill regardless of whether or not her car is used partly for business purposes. That is, s 51AH does not apply (¶5-480). The taxable value of the external expense payment fringe benefit is $3,000 ($3,750 less $750). If the business use of the car by Heather (¶5-490) is 80% then:

ND = 3,000 × 80% =  $2,400 Note: In the above example, the BUP is based on the logbook records and contained in the employee declaration (¶5-630). The reduced taxable value is $600, ie $3,000 − $2,400.

No logbook — other method Where the employee does not maintain a logbook, the reduction in taxable value is also calculated based on the business use percentage, but is capped at 33⅓%. The employee is required to declare the total number of kilometres travelled during the relevant period and the percentage of these kilometres that related to business use. Example An employee (Rebecca) of ABC Ltd owns a car that is used partly for business purposes and contracts with Smasher Pty Ltd to service her car. Rebecca pays Smasher Pty Ltd and asks ABC Ltd to reimburse the invoiced cost of $5,500. ABC Ltd requires Rebecca to contribute $2,000 towards the repair bill regardless of whether or not her car is used partly for business purposes. That is, s 51AH does not apply (¶5-480). The taxable value of the external expense payment fringe benefit is $3,500 ($5,500 less $2,000). Heather does not maintain a logbook and submits a declaration that 50% of the kilometres travelled was for business use of the car by Rebecca (¶5-490) then:

ND = 3,500 × 33⅓% = $1,167 Note: In the above example, the maximum permitted BUP is 33⅓% even though the business use in the employee declaration is 50%. The reduced taxable value is $2,333, ie $3,500 − $1,167.

¶5-465 Road and bridge tolls

Road and bridge (R & B) tolls incurred in respect of a car fringe benefit (¶3-100) or a car held by an employee (¶5-460) are not car expenses. Therefore, it is necessary to substantiate any reduction in the taxable value unless the minor benefits exemption applies (¶12-100). To reduce the taxable value, it will be necessary to apply the “otherwise deductible” rule (¶5-410; ¶10420) to each R & B toll benefit provided during the FBT year. However, in the ATO fact sheet Fringe benefits tax and road tolls, three alternative methods of determining the private use percentage of R & B toll expenditure are considered. This percentage can then be used to determine the notional deduction (¶5-440) and hence the reduction in taxable value of the expense payment fringe benefit (or residual fringe benefit). The following summarises the valuation methods in the ATO fact sheet and the treatment of exempt car benefits. Four-week diary records Where an employer keeps a diary or similar record of R & B toll usage over a four-week representative period that establishes the business/private usage of R & B tolls over that period, the private use percentage can be applied to R & B tolls for the entire FBT year. Car logbooks, etc Employers can use records such as car logbooks, odometer records and running sheets to record car travel and establish the business and private use of the car in an FBT year. Accordingly, employers can apply the percentage of private usage established for an FBT year using these records to total R & B tolls expenditure for the year. Pooled cars Where it is difficult for an employer to work out an employee’s expenditure on R & B tolls for a pool car, private R & B toll expenditure in a normal working week can be used as a basis for working out the annual FBT liability. Employers can use evidence such as electronic tag records, running sheets and employee attendance records to support their calculation. Exempt car benefits An employee’s use of a taxi, panel van, utility or other commercial car (that is, one not designed principally to carry passengers) is exempt from FBT where the conditions discussed at ¶3-220 are satisfied. Road and bridge tolls are similarly exempt where the requirements of s 8(2) are satisfied and the car is not salary-sacrificed.

¶5-470 Jointly provided expense payment benefits Where expense payment benefits are jointly provided to an employee and an associate, the reduction in taxable value is limited to the amount of expense payment benefit that the employee would otherwise have been entitled to claim as an income tax deduction (s 24(1)(l)). This is achieved by requiring employers to use the formula in s 24(9) to determine the notional deduction (ND): ND = Unadjusted ND × Employee’s percentage interest where: Unadjusted ND

= amount assuming benefit deemed to be provided to employee only (s 138(3))

Employee’s percentage = employee’s percentage interest in the income-producing thing in interest respect of which the expense payment fringe benefit is provided.

Example A married couple, Harry and Heidi, each hold a 50% interest in an investment property that is used to derive assessable income. Harry’s employer reimburses him for the cost of council rates of $1,000 paid on the jointly owned investment property. The taxable value of the benefit provided to Harry is calculated as follows:

Step 1 Calculate the “Unadjusted ND”. This is the amount assuming s 24(1)(l) does not apply and is therefore $1,000 (ie $1,000 × 50% × 2). Step 2 Determine the “Employee’s percentage interest”. This is the amount shown on Harry’s expense payment benefit declaration, ie 50%. Step 3 Calculate “ND” by multiplying the amount in Step 1 by the percentage in Step 2. That is, $1,000 × 50% = $500. The reduced taxable value of the expense payment fringe benefit provided jointly to Harry is therefore $500, ie $1,000 − $500.

Joint expense payments provided before 7.30 pm AEST on 13 May 2008 were deemed by s 138(3) to be provided to the employee and the “otherwise deductible” rule (¶5-410) was available in respect of the joint expense payment benefit, but only for the 2009 and earlier FBT years. In the above example, for FBT years prior to 2009, the reduced taxable value would have been $Nil as the notional deduction did not require adjustment.

¶5-480 Application of ITAA 1936 s 51AH In calculating the notional deduction for purposes of working out the reduction to the taxable value, the amount that would have been allowable to an employee is to be reduced by the allowable deduction for the recipients contribution (¶5-440). This allowable deduction can in turn be reduced due to the operation of ITAA 1936 s 51AH. Under this section, employees or associates are not entitled to a deduction for expenses incurred in deriving assessable income to the extent they have been paid or reimbursed by the employer as an expense payment benefit (¶5-110). Also, the amount of the deduction for expenditure incurred but not reimbursed may be reduced if the amount paid or reimbursed was determined by reference to the business use of the benefit. The effect of ITAA 1936 s 51AH is that deductible expenditure incurred and paid by the employee is calculated differently depending upon whether the amount paid or reimbursed by the employer or an associate is: • unaffected by the employee’s business use, or • calculated by reference to the employee’s business use. These two circumstances are illustrated below. Example: Unaffected by business use Peter is employed by Sales Ltd and uses his home telephone 50% for income-producing purposes. Sales Ltd has a policy of reimbursing only 40% of their private telephone bills regardless of the amount of business use. Peter incurs private telephone expenses of $1,200 for the income year ending 30 June 2014 and is reimbursed $480 by Sales Ltd. Peter calculates his income tax deduction as follows:

50%  ×  ($1,200  −  $480)  =  50%  ×  $720  =  $360 The notional deduction is therefore calculated as follows:

GD − RD = ND ($1,200 × 50%) − $360 = $240 Accordingly, the taxable value of the expense fringe benefit provided to Peter is the amount reimbursed for the home telephone ($480) less the notional deduction of $240 (the amount that is “otherwise deductible” to Peter) resulting in a reduced taxable value of $240.

Example: Calculated by reference to business use Paul is employed by Purchases Ltd and uses his home telephone 50% for income-producing purposes. Purchases Ltd has a policy of paying or reimbursing only the business use proportion of the private telephone bills of employees.

Paul incurs home telephone expenses of $1,200 for the income year ending 30 June 2014 and is reimbursed $600 by Purchases Ltd. Paul calculates his income tax deduction as follows:

50%  ×  $1,200  −  $600  =  $600  −  $600  =  $Nil The notional deduction is therefore calculated as follows:

GD − RD = ND ($1,200 x 50%) − $Nil = $600 Accordingly, the taxable value of the expense fringe benefit provided to Paul is the amount reimbursed for the home telephone ($600) less the notional deduction of $600 (the amount that is “otherwise deductible” to Peter) resulting in a reduced taxable value of $Nil.

¶5-490 Business use of motor vehicles Whether a motor vehicle expense payment benefit provided to an employee would have been a deductible expense is dependent upon the circumstances surrounding the provision of the benefit to the employee. For example, in Taxation Ruling MT 2027, the Commissioner discusses the distinction between private and business use of a car fringe benefit (¶3-100) based on established income tax principles. In particular, consideration is given to the following circumstances in which a car may be used by an employee: • travel while on stand-by • travel between places of employment/business • employment duties of an itinerate nature (commercial travellers, etc) • business trips on the way to or from work • travel incorporating the transportation of equipment, etc • certain sportsmen and shearers. The principles discussed in Taxation Ruling MT 2027 are relevant when determining whether the “otherwise deductible rule” (¶5-410) applies to an expense payment fringe benefit provided in connection with a motor vehicle that is not a car fringe benefit. AFB ¶9-040, ¶30-400 to ¶30-480; AFT ¶806-790 to ¶806-818 and ¶806-910.

DOCUMENTATION ¶5-500 Overview Generally, employers must obtain documentary evidence (¶5-505) and a declaration (¶5-510) in order to reduce the taxable value of an expense payment fringe benefit. Additional documentation may be required if a car expense payment benefit is provided (¶5-530). In addition, employers are required to maintain supporting documentation to substantiate the FBT liability (if any) shown on the FBT return (¶2-730).

¶5-505 Documentary evidence Documentary evidence of an expenditure is a document that contains the name of the supplier, amount of expenditure, nature of goods or services, date the expense was incurred and date the document was made out as required by ITAA 1997 Div 900-E (s 136(1)). Documentary evidence of the expenditure incurred by the employee, or a copy, must be given to the

employer before the date of lodgment of the FBT return (s 24(1)(c)) except where the expenditure is (¶5520): • an eligible overtime meal expense payment benefit, or • an eligible incidental travel expense payment benefit. Substitute documentary evidence may be provided for certain eligible small and undocumentable expenses. A small expense is $10 or less where the total of all such expenses provided to any one employee is less than $200. An undocumentable expense is one where it would be unreasonable for the employer to have obtained documentation, eg a bus ticket. A petty cash book or similar document is substitute documentary evidence if it contains the details specified in ITAA 1997 Subdiv 900-E except for the date on which the document was made out. Payment or reimbursement of an employee’s private motor vehicle fuel or oil expenditure may be substantiated by the employer obtaining documentary evidence, substitute documentary evidence or a declaration (¶3-740) from the employee.

¶5-510 Declaration Generally, the income-related purpose of employee expenditure is substantiated by the employee preparing a declaration and providing this to the employer before the date of lodgment of the FBT return. If an FBT return is not required to be lodged, the declaration is to be given to the employer by 21 May of the following FBT year. However, a declaration is not required in some circumstances including where a travel diary must be prepared instead (¶5-520). Types of declarations Employees are required to prepare: • an expense payment benefit declaration (¶5-630), or • a recurring fringe benefit declaration (¶5-640). Employers are, however, permitted to prepare a no-private-use declaration to avoid obtaining one of the above declarations from employees (¶5-210). Different declarations may be prepared for different types of expenditure and for different employees in the same FBT year. See ¶2-710 for more information.

¶5-520 When is a declaration not required? A declaration indicating the income-producing purpose is not required to be prepared for the following expense payment benefits due to the nature of the expense or because a travel diary is required to be prepared instead (s 24(1)(e)). Exclusive employee expense payment benefit An “exclusive employee expense payment benefit” is an expense payment benefit where the recipients expenditure is exclusively incurred in gaining or producing salary or wages of the recipient from the employment to which the benefit relates and is not in respect of interest. In this instance, the employer has all the necessary information to determine the FBT treatment of the employee expenditure. Example Peter is employed in the funds management department of Big Bank and registers for a full day Corporate Treasurers seminar conducted by Executive Seminars. Big Bank agrees to pay the cost of the course as it is directly relevant to his employment position. As Peter has contracted with Executive Seminars, he has incurred the cost of the seminar and Big Bank has provided an expense payment fringe benefit. Also, Peter would have been entitled to a deduction under ITAA 1997 s 8-1 for the total cost of the seminar if he had paid for it personally. The payment of the cost of the seminar is an exclusive employee expense payment benefit and therefore Big Bank is not required to obtain an employee declaration from Peter.

An exclusive employee expense payment benefit is still subject to the documentary evidence requirement (¶5-505). Eligible overtime meal expense payment benefit An “eligible overtime meal expense payment benefit” is expenditure that the recipient might reasonably have been expected to have incurred on food or drink due to having to work overtime. It is not necessary for the payment or reimbursement to be required by law or under an industrial agreement. Reasonable overtime meal allowances paid under an industrial agreement are released annually by the Commissioner and apply for the subsequent tax year. The reasonable amount for the income year ending 30 June 2018 is $30.05 (see Taxation Determination TD 2017/19 which is to be read together with Taxation Ruling TR 2004/6). Example Electrical Contractors is required to pay its employees an overtime meal allowance of $30.05 for the year ending 30 June 2018 in accordance with an industrial instrument. All amounts are paid out of petty cash on the day that the overtime is performed. Electrical Contractors is not required to obtain documentary evidence of the expenditure incurred by the employees in respect of the allowance or obtain an expense payment declaration to support a reduction in taxable value. Also, no amount is required to be shown on the employees’ payment summaries in accordance with the ATO publication PAYG withholding — Withholding from allowances. Employees of Electrical Contractors can generally claim an income tax deduction for the amount of a bona fide overtime meal allowance that does not exceed the Commissioner’s reasonable allowance amount for the relevant income year. Accordingly, where the requirements of Taxation Ruling TR 2004/6 are satisfied, the otherwise deductible rule will reduce the taxable value of an overtime meal allowance to nil.

Eligible incidental travel expense payment benefit An “eligible incidental travel expense payment fringe benefit” is a payment of compensation for expenses that the employee might reasonably be expected to have incurred on: • accommodation, food, drink or incidentals in respect of travel within Australia while performing employment duties away from their usual place of residence, or • food, drink or incidentals in respect of travel outside Australia while performing employment duties away from their usual place of residence. The types of travel expense and the amounts that are considered by the Commissioner to be reasonable travel allowances are released annually by the Commissioner and apply for the subsequent tax year. For example, Taxation Determination TD 2017/19 applies for the income year ending 30 June 2018 but should be read together with Taxation Ruling TR 2004/6. Extended travel expense payment benefit An “extended travel expense payment benefit” is expenditure in respect of: • overseas travel that involves the recipient being away from their usual place of residence for a continuous period of more than five nights, or • local travel where the recipient is away from their usual place of residence for a continuous period of more than five nights and the travel was not exclusively undertaken to earn the salary or wages of the recipient but does not include an ITAA 1997 Div 28 car expense. Example Barry is required to attend a work-related conference in Europe that is conducted over four days and departs Australia on Sunday. Barry arrives in Europe on Monday, departs after the conclusion of the conference on Thursday and arrives home on Saturday morning due to the duration of the flights.

Although Barry only spends four nights at the overseas conference in Europe, he is away from his usual place of residence for six nights. Therefore, a travel diary must be maintained to reduce the taxable value unless the trip is the subject of a no-private-use declaration.

¶5-525 Travel diary Where an extended travel expense payment benefit (¶5-520) is provided, other than an international aircrew expense payment benefit, a travel diary or similar document must be given to the employer before the declaration date (s 24(1)(d)). Alternatively, the ATO has indicated that an employer can prepare a noprivate-use declaration (¶5-210) — see the ATO publication Fringe benefits tax — a guide for employers (¶2-720). An “international aircrew expense payment benefit” is expenditure consisting of food, drink, accommodation, etc, in the performance of the employee’s employment duties as a pilot, flight attendant or crew in relation to travel outside Australia. See ¶5-540 for details of the information required to be shown in a travel diary and suggested documentation.

¶5-530 Car expense payment benefits For employers to reduce the taxable value of a car expense payment benefit (¶5-460), the employee must give to the employer an expense payment benefit declaration (¶5-630). In addition, the employee must comply with the substantiation rules in Div 15 if the logbook method is used to reduce the taxable value of the expense payment fringe benefit (s 24(1)(ea) and (f)). These rules require a logbook and odometer records to accompany the declaration. The substantiation rules in Div 15 are similar to the substantiation rules that apply to car fringe benefits (¶3-670).

¶5-540 Documenting local and overseas travel Where overseas travel results in the employee being away from their usual place of residence for a continuous period of more than five nights, a travel diary must be provided. A similar requirement applies to local travel where the purpose of the travel is not exclusively in the course of the employee’s employment. The details to be shown in a travel diary or similar document are: • place where the activity was undertaken • date and approximate time when the activity commenced • duration of the activity, and • nature of the activity. The above information must be recorded in English and as soon as reasonably practicable after the conclusion of the activity (Miscellaneous Taxation Ruling MT 2038). If an employee fails to record a narration explaining an income-producing activity, FBT is payable since the otherwise deductible rule (¶5410) cannot be relied upon to reduce the taxable value. The meaning of a “similar document” to a travel diary (eg detailed itinerary, written report to management, conference schedule, etc) and the circumstances in which they are appropriate is discussed in Miscellaneous Taxation Ruling MT 2038. Where an employee will be away from their home on business for more than five continuous nights, the following may help to ensure adequate travel documentation is maintained. Step 1: Before trip commences

Prepare a travel itinerary (¶5-600) since this will assist the timely finalisation of a travel diary. Alternatively, it may contain sufficient information to substitute for a travel diary. Step 2: During trip Prepare a travel diary (¶5-525) as illustrated and explained at ¶5-610 during the course of the trip. Step 3: On return from trip Finalise the travel diary within one week of completing the trip, ensuring all travel details have been completed and are informative of the business activity undertaken. The travel itinerary and any other relevant documentation (eg a training course agenda and/or memo explaining results of the trip, etc) should then be attached to the diary. AFB ¶30-500 to ¶30-620; AFT ¶806-820 to ¶806-990.

¶5-600 Workpaper 1: Travel itinerary

¶5-610 Workpaper 2: Travel diary

¶5-620 Workpaper 3: No-private-use declaration — expense payment benefits

¶5-630 Workpaper 4: Expense payment benefit declaration EXPENSE PAYMENT BENEFIT DECLARATION For FBT year ending........................ EMPLOYER: Section A (To be completed by all taxpayers together with one of the sections B or C if a car expense payment benefit was provided).

I, .................................... (name of employee)

 declare that ....................................  (show nature of expense eg telephone rental and/or calls)

was provided to me by or on behalf of my employer during the period from .................. 20...... to .................. 20...... and the expenses were incurred by me for the following purpose(s) .................................... .................................... .................................... .................................... (Please give sufficient information to demonstrate the extent to which the expenses were incurred by you for the purpose of earning your assessable income).

I also declare that the percentage of those expenses incurred in earning my assessable income was ............%. Note 1: If Section B is completed the above percentage is that shown in Section B. Note 2: If Section C is completed the above percentage is the lesser of 33⅓% and the proportion of business kilometres to total kilometres stated in Section C.

Section B: Log book records & odometer records maintained (To be completed where the necessary log book records and odometer records have been maintained.)

I declare that: (i) the period of the FBT tax year the car was in use by me for business purposes was: .................. 20...... to .................. 20......; (ii) log books and odometer records for the car (or a car which this car replaces) were kept for a minimum of 12 consecutive weeks during that period and have been given to the employer, or (iii) log books and odometer records for the car (or a car which this car replaces) were kept for a minimum of 12 consecutive weeks in an earlier year, and odometer records were kept this year and have been given to the employer; (iv) the car business percentage for the period mentioned in item (i) above was ......%. Note: The business use percentage is the proportion of business kilometres to total kilometres. The percentage is to be determined by taking into account the business use in the log book records and variations in the pattern of business use throughout the year, due to things like holidays or seasonal factors.

Section C: No log book records maintained (To be completed where the benefit relates to a car and section B is not applicable.)

I declare that: (i) the period of the FBT year the car was in use by me for business purposes was: ............ 20...... to ............ 20......; (ii) the total number of kilometres travelled by the car in that period was ............ (iii) the number of business kilometres travelled by the car in that period was ............ Signature: ........................    Date: ....................................

Publisher’s Note: The above wording has been adapted from the ATO approved format available on the ATO website at https://www.ato.gov.au/Forms/Employee-Declaration/. Instructions: 1. Complete Section A and one of sections B or C (if applicable). 2. After completing Section A and one of sections B or C put a diagonal line through the inapplicable sections. 3. Sign and date the declaration and attach supporting documentation.

For the declaration that complies with the rules as applicable to the 2015/16 and earlier FBT years, see the 2016 FBT Compliance Guide at ¶5-630.

¶5-640 Workpaper 5: Recurring expense payment fringe benefit declaration

¶5-650 Workpaper 6: Expense payment benefits — taxable value summary

LOAN FRINGE BENEFITS INTRODUCTION Roadmap of loan fringe benefits

¶6-000

DEFINITION Overview

¶6-100

Loan benefit

¶6-110

Meaning of “loan”

¶6-120

Unpaid debts

¶6-140

Deferred interest loans

¶6-160

EXEMPTIONS Circumstances

¶6-200

Loans by moneylenders

¶6-220

Employee expense advances

¶6-240

Relocation expense advances

¶6-260

TAXABLE VALUE Overview

¶6-300

Fixed interest rate loan made before 1 July 1986

¶6-320

Variable interest rate housing loan made before 3 April 1986 ¶6-340 Benchmark interest rate loans

¶6-360

Calculation of the taxable value

¶6-380

REDUCTIONS Circumstances

¶6-400

“Otherwise deductible” rule

¶6-410

Once-only deduction

¶6-430

Notional deduction

¶6-450

Car loan benefits

¶6-470

Jointly provided loan benefits

¶6-480

Application of ITAA 1936 s 51AJ deductions

¶6-490

DOCUMENTATION Overview

¶6-500

Declaration

¶6-520

Car loan benefits

¶6-540

Workpaper 1: Loan fringe benefit declaration

¶6-580

Workpaper 2: Loan benefits — taxable value summary

¶6-585

Statutory interest rates for loans made before 1 July 1986

¶6-590

INTRODUCTION ¶6-000 Roadmap of loan fringe benefits A loan fringe benefit arises when an employer or associate makes a loan to an employee or an associate of the employee (¶6-100). An exemption is available for loans made by moneylenders, employee expense advances and relocation expense advances (¶6-200). Where a loan benefit is a fringe benefit, the taxable value is the difference between the actual interest accruing on the loan and the notional amount of interest. The notional amount of interest is dependent on when the loan is made and whether it is a fixed or variable loan facility (¶6-300). If the employee would have been entitled to an income tax deduction for the interest on the loan fringe benefit the taxable value is reduced (¶6-400). Employers are generally required to obtain a declaration from employees to substantiate a reduction in the taxable value of a loan fringe benefit. Additional documentation is required if a car loan benefit is provided (¶6-500).

DEFINITION ¶6-100 Overview A loan benefit will only have a taxable value if it is not exempt (¶6-200) and it is a loan fringe benefit. A loan fringe benefit is a loan benefit which is also a fringe benefit as defined in s 136(1) and discussed at ¶2-100.

¶6-110 Loan benefit A loan benefit arises where one person (called the “provider”) makes a loan (¶6-120) to another person (called the “recipient”). The benefit continues throughout each FBT year that the recipient is under an obligation to repay the whole or part of the loan (s 16(1)). For example, when an employer provides a loan to an employee or an associate whether interest-free or at a concessional rate of interest or allows a debt to remain outstanding after the due date for payment has passed. A loan benefit commences at the time that the loan funds are advanced, eg when the employee receives a cheque for the amount loaned and not when the cheque is cashed (ATO Interpretative Decision ID 2003/347). It includes a loan provided to an employee by the trustee of an employee remuneration trust, where the loan is made under an arrangement between the employer and the trustee (Draft Taxation Ruling TR 2017/D5) unless the loan is a deemed dividend (¶2-150).

¶6-120 Meaning of “loan” A “loan” is defined to include: • an advance of money • the provision of credit or any other form of financial accommodation • the payment of an amount on account of another person where there is an obligation (whether express or implied) to repay the amount, and • a transaction (whatever its terms or form) that in substance effects a loan of money. The meaning of “loan” is extended to include most unpaid debts (¶6-140) and deferred interest loans (¶6-

160). An amount mistakenly paid to an employee where the employee is allowed time for repayment is also a loan (Taxation Determination TD 2008/10).

¶6-140 Unpaid debts A loan benefit will be deemed to arise where a debt has not been paid by the due date for payment (s 16(2)). The loan will be deemed to exist for as long as the debt remains outstanding, that is, until it is paid or waived (in which case a debt waiver benefit may arise) (¶11-600). Example An employer sells a car to an employee at the full market value, the purchase price being payable at the date of delivery. If the employee fails to pay on this date, the employer will be treated as having lent the employee the sale price until the debt is either paid or waived.

If interest accrues on the unpaid debt, then the loan is deemed to have been made at that interest rate. In any other case, the loan is deemed to have been made at a nil interest rate (s 16(5)).

¶6-160 Deferred interest loans A loan on which interest is deferred for more than six months is deemed to create a new loan equal to the amount of the deferred interest. That is, once interest has accrued for six months on a loan, there is deemed to be a separate and additional loan of the accrued interest. The new loan is deemed to be made at a nil rate of interest and extends from the end of the six-month period until the interest is paid or becomes payable. A new loan is deemed to arise at the end of every six-month period (s 16(3); 16(4)). Example If the interest on a loan is deferred for 24 months, there will be three deemed loans of deferred interest. If the interest is paid at the end of the 24-month period, then the duration of the three loans would have been 18 months, 12 months and six months respectively.

AFB ¶25-005 to ¶25-050; AFT ¶804-520.

EXEMPTIONS ¶6-200 Circumstances An exemption is available for the three specific categories of loan benefits discussed below. In addition, a loan benefit will be exempt if the minor benefits exemption conditions are satisfied (¶12100). Note: Where the employer is a private company, ITAA 1936 Div 7A will apply where a loan is made to a shareholder/employee (¶2-150).

¶6-220 Loans by moneylenders A fixed interest rate loan (s 17(1)) and a variable rate loan (s 17(2)) are exempt where: • the loan provider carries on a business that consists of or includes the making of loans to members of the public, ie a financial institution such as a bank, and • the interest rate applicable to the loan is not less than the rate on similar arm’s length loans made to a member of the public in the ordinary course of business. For example, a loan fringe benefit will arise where a financial institution offers employees a loan that differs from that offered to the general public

(Taxation Determination TD 95/18; Taxation Ruling TR 93/6). Where a loan only meets the above requirements for part of the FBT year, the exemption has no application. That is, the taxable value of the benefit is determined by reference to the whole of the period in the year of tax during which the loan existed, not simply from the date that the interest rate is varied (Taxation Determination TD 95/17).

¶6-240 Employee expense advances Employee expense advances are exempt where the following conditions are satisfied (s 17(3)): 1. The sole purpose of the advance is to meet expenses to be incurred by a current employee in the course of performing employment duties within the next six months (ATO Interpretative Decision ID 2006/294). 2. The amount of the advance is not excessive relative to expected employer expenses. 3. The employee must account to the employer and repay any balance within six months of the advance being made. For example, an expense advance to meet the overseas travel costs of an employment-related trip would be exempt. However, if the trip is to last more than six months, separate advances would be needed so that none is made to cover expenses expected to be incurred more than six months into the future. Also, within six months of each advance being made the employee would need to account to the employer for the expenditure incurred.

¶6-260 Relocation expense advances An advance made to an employee who is relocated is exempt where the following conditions are satisfied (s 17(4)). 1. The sole purpose of the advance is to enable an employee to pay a rental bond, security deposit (ie for electricity, gas or telephone services) or any similar amount. 2. The loan must be repayable within 12 months of being made. 3. The employee must obtain a lease or licence of accommodation that is either exempt because the employee is required to live away from their usual place of residence in order to perform employment duties (¶5-220; ¶10-250) or is reduced because the employee is required to change their usual place of residence (¶13-320; ¶13-340). Example An employee (Jason) of ABC Ltd is required to live away from home in order to perform employment duties. Jason receives a LAFH allowance benefit (¶8-110) to cover the cost of the lease of the temporary residential premises. In addition, ABC Ltd advances Jason an amount to cover the rental bond ($2,000) and utility security costs ($500) in connection with the temporary residential premises. The amount advanced is to be repaid within 12 months. The $2,500 relocation advance is a loan benefit that is exempt from FBT.

AFB ¶25-100 to ¶25-150; AFT ¶804-730 to ¶804-750.

TAXABLE VALUE ¶6-300 Overview The taxable value (TV) of a loan fringe benefit in relation to a year of tax is the amount (if any) by which the notional amount of interest on the loan exceeds the amount of interest that has actually accrued on

the loan during that year (s 18). That is: TV =

Notional amount of interest

− Accrued interest

If the interest actually accruing on a loan is equal to or greater than the notional amount of interest then the loan fringe benefit has no taxable value. “Interest” is also defined to include a payment in the nature of interest. Therefore, where the recipient is liable for such a payment, the amount may be treated as accrued interest and deducted from the notional amount of interest to determine the taxable value. However, a loan fringe benefit cannot be reduced by the premiums on a life assurance policy held by the employee as a condition of the insurance company granting the loan (Taxation Determination TD 95/38). The calculation of the “notional amount of interest” is dependent on when the loan benefit is provided to the employee. In particular, whether the loan benefit is: • a fixed interest rate loan made before 1 July 1986 (¶6-320) • a variable interest rate housing loan made before 3 April 1986 (¶6-340), or • any other type of loan (¶6-360). For a pictorial overview of the calculation of the taxable value of a loan fringe benefit, see ¶6-585.

¶6-320 Fixed interest rate loan made before 1 July 1986 The notional amount of interest on an eligible pre-commencement loan is the lesser of the amount calculated using: • the benchmark interest rate for the FBT year (¶6-360), and • the statutory interest rate at the time the loan was made (¶6-590). An “eligible pre-commencement loan” is a loan made before 1 July 1986 where the interest rate is specified in a document in existence at the time when the loan was made and cannot be varied.

¶6-340 Variable interest rate housing loan made before 3 April 1986 The notional amount of interest on a housing loan relating to a dwelling made before 3 April 1986, which is not an eligible pre-commencement loan (¶6-320), is the lesser of the amount calculated using: • the benchmark interest rate for the FBT year (¶6-360), and • 13.5% per annum. Broadly, a “housing loan relating to a dwelling” (s 141) is a loan made to, and used by, a person to acquire a prescribed interest in land or a stratum unit upon which a unit of accommodation was used or is proposed to be used as the person’s usual place of residence. For example, a caravan would not qualify for this concession. The lender is obligated to keep these housing loans separate from any other loan to the borrower (s 141(2)(c)). If this is not done, the loan will not be a housing loan and the option of using the lower of 13.5% per annum and the benchmark interest rate will be lost.

¶6-360 Benchmark interest rate loans The notional amount of interest on loans not falling within one of the above categories is the amount of interest calculated using the benchmark interest rate for the FBT year the loan fringe benefit is being valued. The benchmark rate for the 2018 FBT year is 5.25% per annum (Taxation Determination TD 2017/3). For

the FBT year ending 31 March 2017, the benchmark interest rate was 5.65%.

¶6-380 Calculation of the taxable value The taxable value of a loan fringe benefit is calculated by reference to the whole period in the year of tax during which the loan existed, and not only for the periods in the year of tax during which the interest rate on the loan was below the statutory interest rate (Taxation Determination TD 95/17). Example An employee of a bank is given a two-year loan on 1 June 2017 at an interest rate which is above the benchmark interest rate. On 1 December 2017, the employee avails himself to a reduced interest rate due to having completed five years of service with the bank. The interest rate is below that available to members of the public who took out similar loans at the same time. The taxable value of the loan fringe benefit for the 2018 FBT year is calculated by reference to the whole period from 1 June 2017, not just from 1 December 2017.

In the first year of a loan, the taxable value is calculated from the day on which the loan was made until the end of the year of tax. In subsequent years, the whole year would be the appropriate period. In the final year of the loan, the taxable value would be calculated for the period from 1 April to the day on which the loan is extinguished. Example An employee was granted a 20-year 5% interest-only loan of $50,000 on 18 October 2001 and therefore the taxable value is calculated by reference to the benchmark interest rate (¶6-360). It is assumed that no portion of the loan was used to derive assessable income, eg it was used to finance renovations to a private residence. The actual interest accruing for the 2018 FBT year is $2,500 (ie $50,000 × 5%) and the notional interest, at the benchmark rate of 5.25%, is $2,625 (ie $50,000 × 5.25%). The taxable value of the loan fringe benefit is $125.

AFB ¶25-200 to ¶25-250; AFT ¶805-040, ¶805-110.

REDUCTIONS ¶6-400 Circumstances The taxable value may be reduced if the employee would have been able to claim an income tax deduction for the interest on the loan fringe benefit (¶6-410). Where the loan is provided in connection with a car owned or leased by an employee (¶6-470) or jointly provided to an employee and associate (¶6-480) special rules apply. The taxable value is further reduced if the loan was made to enable the employee to purchase a dwelling in a remote area (¶13-420). Note: For the order in which reductions in taxable value are claimed, see ¶2-400.

¶6-410 “Otherwise deductible” rule To the extent that the employee would have been entitled to a once-only deduction for the interest (s 19), the taxable value of the loan fringe benefit is reduced using the following formula (“otherwise deductible” rule): Reduced taxable value = TV − ND where: TV = Taxable value of the loan fringe benefit (¶6-300)

ND = Notional deduction (¶6-450) unless the loan benefit is a car loan benefit (¶6470). For the rule to apply, the following conditions must be satisfied: 1. The recipient of the loan fringe benefit must be an employee (¶2-120). 2. The employee must be entitled to a once-only deduction (¶6-430). 3. The employee must give the employer certain documentation (¶6-500). A reduction in taxable value is not available where the loan fringe benefit is provided to an associate of an employee despite it being used for income producing purposes (Taxation Determination TD 93/90). Where only part of a loan is used to purchase a car or to pay a car expense, that part of the loan is treated as a separate loan when applying the “otherwise deductible” rule (s 19(2)). Therefore, employers will need to calculate the reduction in taxable value in respect of the portion of the loan used to purchase the car in accordance with car loan benefit rules explained at ¶6-470. A reduction in taxable value is not available for a loan fringe benefit provided by the trustee of an employee remuneration trust to the extent that the loan is used to acquire an interest or an asset: • that is not expected to produce assessable income • where likelihood of generating assessable income in excess of the interest expense is remote, or • for the sole purpose of making a capital gain or exempt or non-assessable non-exempt income. (Draft Taxation Ruling TR 2017/D5). Note: The “otherwise deductible” rule is not available for expenses that, had they not been provided as a fringe benefit, would have been subject to the non-commercial loss provisions in ITAA 1997 Div 35 (¶2-070).

¶6-430 Once-only deduction The employee must be entitled to a once-only deduction for the interest on the loan benefit ignoring the limitation on self-education expenses (ITAA 1936 s 82A) and the income tax substantiation rules in ITAA 1997 Div 28 and 900 (s 19(1)(b); 19(1)(ba)). A “once-only deduction” is one that is wholly or partly allowable in one year of income and not in any other year of income. The “once-only deduction” does not have to relate to the employee’s income from employment to qualify for a reduction in taxable value. Example Michael is an employee of Big Bank and borrows at a concessional interest rate from his employer to pay the fees for a prescribed course of education. Assume the interest on the loan would have been wholly deductible under ITAA 1997 s 8-1 but for ITAA 1936 s 82A. Big Bank can reduce the taxable value of the loan fringe benefit by 100% because the $250 limitation in ITAA 1936 s 82A is ignored.

¶6-450 Notional deduction The taxable value of a loan fringe benefit is reduced by the notional deduction (s 19(1)(e)) unless the employer provides a car loan benefit. Special rules apply to the calculation of the reduction in the taxable value of a car loan benefit (¶6-470). The formula to calculate the notional deduction is: Notional deduction (ND) = GD − RD where:

GD = gross deduction that would have been allowable for the gross loan interest (ie the notional amount of interest calculated by reference to the benchmark interest rate) RD = allowable deduction for the interest that accrued on the loan after taking into consideration ITAA 1936 s 51AJ (¶6-490).

Example An employee is provided with an interest-only loan of $10,000 for the whole of the 2018 FBT year. The employer charges the employee 2.625% pa interest ($262.50) and s 51AJ (¶6-490) does not apply. The employee uses 40% of the loan to purchase an income-producing investment property and the remaining 60% for a holiday. The benchmark interest rate is 5.25% pa and the notional loan interest is $525 (ie $10,000 × 5.25%). Therefore, the taxable value (TV) is $262.50 (ie $525 − 262.50).

Notional deduction = ($525  ×  40%)  −  ($262.50  ×  40%) = $210  −  $105 = $105 The reduced taxable value is therefore $157.50, ie $262.50 − $105.

¶6-470 Car loan benefits Where a car loan benefit is provided by an employer, the amount of the reduction in the taxable value is dependent on whether the employee has maintained a logbook or claims a reduction in taxable value based on the number of business kilometres travelled by the car (s 19(1)(f) and 19(1)(g)). A “car loan benefit” is a loan to purchase a car or to pay a car expense (ITAA 1997 s 28-13). The car expense must be in respect of a car owned or leased by the employee and therefore cannot be in respect of a car benefit (¶3-100). Logbook method Where the employee maintains a logbook, advises the business use percentage (BUP) of the car and ITAA 1936 s 51AJ applies (s 19(1)(f)(ii)): ND =

Notional amount of interest

× BUP

Example John borrowed $30,000 from his employer (Smash Repairers) at 1.05% pa interest to purchase a motor vehicle that is used partly for business purposes during the 2018 FBT year. The accrued interest amount takes into consideration that John will use the car 80% for business purposes. That is, John is only required to pay the private component of the benchmark interest rate, ie 20% × 5.25%. The loan was outstanding for the whole of the 2018 FBT year and therefore the notional amount of interest is $1,575 (ie $30,000 × 5.25%). The taxable value is $1,260 (ie $1,575 less $30,000 × 1.05%). John provides Smash Repairers with a declaration (¶6-580) indicating business use is 80% and logbook records. The ND amount is:

ND

=

$1,575 × 80%

=

$1,260

The reduced taxable value is therefore nil, ie $1,260 − $1,260. No deduction is allowable to John for the accrued interest due to ITAA 1936 s 51AJ (¶6-490).

Other method (no logbook) Where the employee does not maintain a logbook, a declaration may be provided to the employer in the approved form setting out the holding period, the total number of kilometres travelled and the percentage related to business use. The reduction in taxable value is then based on this business use percentage but is capped at 33⅓% of the taxable value (before any reduction).

Example An employee is given a loan of $20,000 for the whole year to 31 March 2018 to purchase a car. The employer charges the employee 4% pa interest. The logbook rules were not complied with, but the employee gives the employer an approved declaration. The car was used for business purposes for 60% of its use (based on a reasonable estimate). The relevant notional amount of interest is calculated with a statutory interest rate of 5.25% pa. The taxable value before any reduction is $250 (ie ($20,000 × 5.25%) − ($20,000 × 4%)). (a) notional deduction — this is calculated by subtracting the allowable deduction from the gross deduction (see ¶6-450), as follows:

(($20,000  ×  5.25%) × 60%) − (($20,000 × 4%) × 60%) = $630 − $480 = $150 (b) 33⅓% of taxable value before reduction — this is calculated as follows:

$250  ×  33⅓%  =  $83.33. The calculation under (b) produces the lowest reduction amount resulting in a final taxable value of $166.67 (ie $250 − $83.33).

If the employer makes an allowance for the income-producing use in setting the amount of interest payable by the employee on the loan, the reduction is capped at 33⅓% of the notional interest. Example An employer lends an employee $20,000 for the whole year to 31 March 2018 to purchase a car. The car is used for business purposes 60% of its use and for private purposes 40% of its use (based on a reasonable estimate). The logbook rules were not complied with, but the employee gives the employer an approved declaration. The relevant notional amount of interest is calculated with a statutory interest rate of 5.25% pa. The employer makes an allowance for the expected level of business use to which the car will be put by charging only 2.1% pa interest (ie for the private component only — 5.25% × 40%). The taxable value before any reduction would be $630 (ie ($20,000 × 5.25%) − ($20,000 × 2.1%)). (a) notional deduction — this is calculated by subtracting the allowable deduction from the gross deduction (see ¶6-450), as follows:

(($20,000  × 5.25%) × 60%) −  (($20,000  × 0%) × 60%) = $630 − $0 = $630 (b) 33⅓% of notional amount of interest — this is calculated as follows:

($20,000  ×  5.25%)  × 33⅓% = $350. The calculation under (b) produces the lowest reduction amount resulting in a final taxable value of $280 (ie $630 − $350).

¶6-480 Jointly provided loan benefits Although loan benefits provided jointly to an employee and an associate (ie joint loans) are deemed by s 138(3) to be provided to the employee alone, the reduction in taxable value is limited only to the amount of interest on the loan that the employee would otherwise have been entitled to claim as an income tax deduction on the employee’s percentage of interest in the income-producing thing. This is achieved by requiring employers to use the following formula (s 19(5)) to determine the notional deduction (ND): ND  =  Unadjusted ND  ×  Employee’s percentage interest where: Unadjusted ND

= amount assuming only s 138(3) continues to apply. See ¶6-450 and ¶6-470

Employee’s percentage = employee’s percentage interest in the income producing thing that is interest the subject of the loan fringe benefit.

Example A married couple, Jack and Jill, are jointly provided with an interest only $100,000 loan by Jill’s employer (Home Loans Inc) during 2008 with an interest rate of 2% pa. The loan is used to finance the joint purchase of publicly listed shares ($60,000) and to have a holiday. Assume Jack and Jill are each entitled to a proportionate income tax deduction of 30% of the loan interest paid to Home Loans Inc. Home Loan Inc calculates the reduction in taxable value for the 2018 FBT year as follows. Step 1: Calculate the “Unadjusted ND”. The benchmark interest rate is 5.25% pa and therefore the gross loan interest is $5,250 (ie $100,000 × 5.25%). The taxable value (TV) before applying the otherwise deductible rule is $3,250 (ie $5,250 − $2,000).

Notional deduction = ($5,250 × 60%) – ($2,000 × 60%) = $3,150 − $1,200 = $1,950 Step 2: Determine the “Employee’s percentage interest”. This is 50% since Jack and Jill own the shares 50/50 and will presumably need to be noted on the employee declaration so that Step 1 can be performed. Step 3: Calculate “ND” by multiplying the amount in Step 1 by the percentage in Step 2. That is, $1,950 × 50% = $975. The taxable value of the loan fringe benefit provided to Jack and Jill is then calculated using the formula TV − ND. That is, $2,275 ($3,250 − $975).

¶6-490 Application of ITAA 1936 s 51AJ deductions In calculating the notional deduction for the purposes of working out the reduction of taxable value, the notional amount of interest that would have been allowable is reduced by the allowable deduction for the actual interest accrued on the loan (¶6-450). This allowable deduction (RD) can in turn be reduced due to the operation of ITAA 1936 s 51AJ. Under this section, employees or associates are not entitled to a deduction for interest incurred and paid on a loan benefit (¶6-110) to the extent the interest rate was determined by reference to the business use of the loan (ITAA 1936 s 51AJ). This restriction operates in a similar manner to ITAA 1936 s 51AH (¶5-480). The effect of ITAA 1936 s 51AJ is that the deduction claimed for interest paid is calculated by reference to the anticipated business use as determined by the employer. Where the employer has made an allowance for business use of the benefit, the employee is: 1. not entitled to a deduction if the business use of the benefit is equal to or less than the employer’s allowance, or 2. entitled to a deduction calculated in accordance with the following formula if (1) does not apply. D − A where: D = amount of the deduction ignoring ITAA s 51AJ A = amount of the allowance for business use.

Example An employee is provided with an interest-only loan of $10,000 for the whole year to 31 March 2018. The employer charges the employee 2.625% pa interest ($262.50) on the basis that the loan monies will be used 50% for business purposes, ie s 51AJ will apply. The employee uses 60% of the loan to purchase an income-producing investment property and the remaining 40% for a holiday. The benchmark interest rate is 5.25% pa and the notional interest is $525 (ie $10,000 × 5.25%). Therefore, the taxable value (TV) is $262.50 (ie $525 − $262.50). The allowable deduction that the employee would have been entitled to of $157.50 ($262.50 × 60%) is reduced by the amount of the allowance for business use resulting in an allowable deduction of $26.25 (see below).

Employee deduction = D  −  A

= ($262.50  ×  60%)  −  ($262.50  ×  50%) = $157.50  −  $131.25 = $26.25 Accordingly, the notional deduction is equal to:

Notional deduction = GD − RD = ($525 × 60%) − $26.25 = $288.75 As the taxable value of the benefit of $262.50 is less than the notional deduction, no FBT is payable by the employer. If instead, the employee’s actual business use is 40%, because the employer’s estimated business use (50%) is more than the actual business use the employee is not entitled to any deduction, and therefore RD is nil (¶6-450). The notional deduction and reduced taxable value is then calculated as:

Notional deduction = GD − RD = ($525  ×  40%)  −  0 = $210  −  $0 = $210 Reduced taxable value = $52.50 ($262.50  −  $210.00)

AFB ¶25-400 to ¶25-490; AFT ¶805-120, ¶805-280.

DOCUMENTATION ¶6-500 Overview Employers are required to obtain a declaration from employees detailing the purpose of the loan and the extent to which it has been used for business purposes. Additional documentation may be required if a car loan benefit is provided (¶6-540). Employers are also required to maintain supporting documentation to substantiate the fringe benefit tax liability (if any) shown on the FBT return (¶2-730).

¶6-520 Declaration A loan fringe benefit declaration (¶6-580) is prepared by employees to indicate the income-producing purpose of the loan provided by the employer. It must be furnished to the employer before the date by which the employer must lodge an FBT return for the FBT year concerned. However, this declaration is not required where the fringe benefit is (s 19(1)(c)): i. an employee credit loan benefit, or ii. an employee share loan benefit. Employee credit loan benefit An “employee credit loan benefit” is a loan fringe benefit where the loan consists of the provision of credit by the employer in relation to the sale of goods or services to the employee and the goods or services are for use exclusively in the course of the employee’s employment with the employer. Example

An employee (John) purchases a non-compulsory uniform (ie corporate uniform) on interest-free credit terms from his employer (Big Bank). The corporate uniform is exclusively used in the course of John’s employment by Big Bank and is therefore an employee credit loan benefit.

Employee share loan benefit An “employee share loan benefit” is a loan fringe benefit where the loan was made for the sole purpose of enabling the employee to acquire shares in the employer (or an associated company) and the shares were beneficially owned by the employee throughout the period in the FBT year that the loan was outstanding.

¶6-540 Car loan benefits For employers to reduce the taxable value of a car loan benefit (¶6-470), the employee must give to the employer a loan fringe benefit declaration (¶6-580). In addition, the employee must comply with the substantiation rules in Div 15 if the logbook method is used to reduce the taxable value of the car loan benefit (s 19(1)(ca)). The substantiation rules in Div 15 of Pt III are similar to the substantiation rules that apply to car fringe benefits (¶3-670). AFB ¶25-500 to ¶25-530; AFT ¶805-260.

¶6-580 Workpaper 1: Loan fringe benefit declaration LOAN FRINGE BENEFIT DECLARATION For FBT Year Ending........................ EMPLOYER: Section A I, .................................... (name of employee)

 declare that the loan of $ ....................................  (amount in words)

made to me by .................................... (name of person who lent you the money)

on .................. 20 was used by me during the period from 20 ........................ to .................. 20...... for the following purpose(s): .................................... .................................... .................................... .................................... (Please give sufficient information to demonstrate the extent to which the loan was used for the purpose of earning your assessable income.)

I also declare that had I paid interest at a commercial rate on the loan for the above period, I would have been entitled to claim an income tax deduction equal to ............% of the interest on that loan.

Section B (To be completed where the necessary log book records and odometer records have been maintained.)

I declare that: (i) the period of the FBT tax year the car was in use by me for business purposes was: .................. 20...... to .................. 20......; (ii) log books and odometer records for the car (or a car which this car replaces) were kept for a minimum of 12 consecutive weeks during that period and have been given to the employer; or (iii) log books and odometer records for the car (or a car which this car replaces) were kept for a minimum of 12 consecutive weeks in an earlier year, and odometer records were kept this year and have been given to the employer; (iv) the car business percentage for the period mentioned in item (i) above was ......% (see Explanatory Note 3).

Section C (To be completed where the benefit relates to a car and Section B is not applicable.)

I declare that: • the period of the FBT year the car was in use by me for business purposes was: ............ 20 ...... to ............ 20......; • the total number of kilometres travelled by the car in that period was ............ • the number of business kilometres travelled by the car in that period was ............

Explanatory Notes 1. If section B is completed, the tax deductible percentage stated in section A should equal the percentage of business use shown at item (iv) of section B.

2. If section C is completed, the tax deductible percentage stated in section A should be the lesser of 33⅓ % and the proportion of business kilometres to total kilometres as shown in section C. 3. The percentage of business use is the proportion of business kilometres to total kilometres. The percentage of business use stated in section A and item (iv) of section B should be determined by taking into account the business use in the log book records and variations in the pattern of business use throughout the year, due to things like holidays or seasonal factors.

Signature: ........................    Date: ....................................

Publisher’s Note: The above wording has been adapted from the ATO approved format available at https://www.ato.gov.au/Forms/Employee-Declaration/.

For the declaration that complies with the rules as applicable to the 2015/16 and earlier FBT years, see the 2016 FBT Compliance Guide at ¶6-580.

¶6-585 Workpaper 2: Loan benefits — taxable value summary

¶6-590 Statutory interest rates for loans made before 1 July 1986 The statutory interest rates for loans made before 1 July 1986 are set out in the table below. Period

Interest rate  (% per annum) 

Date on which period commenced

Date on which period ended

1 January 1946 ....................................

1 August 1952 ....................................

3.875

2 August 1952 ....................................

31 March 1956 ....................................

4.5

1 April 1956 ....................................

28 February 1961 ....................................

5.0

1 March 1961 ....................................

10 April 1963 ....................................

5.25

11 April 1963 ....................................

31 March 1965 ....................................

4.75

1 April 1965 ....................................

31 July 1968 ....................................

5.0

1 August 1968 ....................................

31 March 1970 ....................................

5.5

1 April 1970 ....................................

30 September 1973 ....................................

6.25

1 October 1973 ....................................

13 September 1974 ....................................

7.25

14 September 1974 ....................................

28 February 1978 ....................................

9.25

1 March 1978 ....................................

31 March 1980 ....................................

8.75

1 April 1980 ....................................

31 July 1980 ....................................

9.25

1 August 1980 ....................................

31 December 1980 ....................................

9.75

1 January 1981 ....................................

31 August 1981 ....................................

10.75

1 September 1981 ....................................

31 March 1982 ....................................

11.75

1 April 1982 ....................................

31 January 1983 ....................................

12.75

1 February 1983 ....................................

30 September 1983 ....................................

12.50

1 October 1983 ....................................

30 November 1983 ....................................

12.00

1 December 1983 ....................................

15 April 1985 ....................................

11.50

16 April 1985 ....................................

14 July 1985 ....................................

12.00

15 July 1985 ....................................

30 September 1985 ....................................

12.50

1 October 1985 ....................................

6 April 1986 ....................................

13.50

7 April 1986 ....................................

30 June 1986 ....................................

14.75

HOUSING FRINGE BENEFITS INTRODUCTION Roadmap of housing fringe benefits

¶7-000

DEFINITION Overview

¶7-100

Housing benefit

¶7-110

Lease or licence

¶7-120

Unit of accommodation

¶7-140

Usual place of residence

¶7-160

When does the benefit arise?

¶7-170

EXEMPTIONS Circumstances

¶7-200

TAXABLE VALUE Overview

¶7-300

Accommodation outside Australia

¶7-320

Australian accommodation in a hotel, motel, etc

¶7-340

Other Australian accommodation

¶7-360

Statutory annual value

¶7-370

Indexation factors

¶7-380

Market rental value

¶7-390

REDUCTIONS Circumstances

¶7-400

Recipients rent

¶7-420

DOCUMENTATION Overview

¶7-500

Housing agreement

¶7-520

Base year election

¶7-540

Current year taxable value

¶7-560

Workpaper 1: Housing agreement

¶7-575

Workpaper 2: Base year election

¶7-585

Workpaper 3: Current year housing benefit taxable value

¶7-595

Workpaper 4: Housing benefits — taxable value summary ¶7-600

INTRODUCTION ¶7-000 Roadmap of housing fringe benefits

A housing fringe benefit arises when one person grants another person a right to occupy or use a unit of accommodation as their usual place of residence (Div 6; ¶7-100). There are no specific exemptions for housing fringe benefits in Div 6; however, three miscellaneous exemptions are available in connection with the provision of housing to employees (¶7-200). The taxable value of a housing fringe benefit depends on the type of accommodation, the location of the accommodation and whether the employer provides identical or similar accommodation to the public (¶7300). The “otherwise deductible” rule does not apply to housing benefits; however, a reduction in taxable value is available for temporary housing accommodation and certain remote area housing related benefits (¶7400). There are no specific documentation requirements for housing fringe benefits (¶7-500).

DEFINITION ¶7-100 Overview A housing benefit will only have a taxable value if it is not exempt (¶7-200) and is a “housing fringe benefit”. A housing fringe benefit is a housing benefit which is also a fringe benefit as defined in s 136(1) and discussed at ¶2-100.

¶7-110 Housing benefit A housing benefit (s 25) is the subsistence, during the whole or part of an FBT year, of a housing right granted by one person (the provider) to another person (the recipient). A “housing right” is defined in s 136(1) to mean a lease or licence granted to a person to occupy or use a unit of accommodation at a time when the accommodation is the person’s usual place of residence. Accordingly, a housing benefit arises where an employee is: 1. granted a lease or licence (¶7-120) 2. to occupy or use a unit of accommodation (¶7-140) 3. as their usual place of residence (¶7-160). For example, if an employee is granted the right to use residential premises owned or leased by their employer, this will be a housing benefit if the foregoing conditions are satisfied. However, if the conditions are not satisfied, the accommodation may be exempt (¶10-250). The timing of when a housing benefit arises is explained at ¶7-170. Natural disaster Where a house has been destroyed due to a natural disaster a “housing right” will not exist from that point in time as there is no unit of accommodation that can be occupied or used as the person’s usual place of residence (ATO Interpretative Decision ID 2011/57). However, where the house has only been damaged it may be deemed to be a different unit of accommodation (¶7-370).

¶7-120 Lease or licence A “lease” is defined to include a sub-lease but its meaning is not otherwise specified. The word “licence” is not defined in the FBTAA and therefore its ordinary meaning in this context applies, ie permission, leave or authority. The lease or licence must be for more than one day (s 149).

¶7-140 Unit of accommodation

A “unit of accommodation” includes: • a house, flat or home unit • accommodation in a house, flat or home unit • accommodation in a hotel, hostel, motel or guesthouse • accommodation in a bunkhouse or living quarters • accommodation in a ship or floating structure (such as an oil rig) • a caravan or other mobile home. It is not necessary for the employee to have exclusive use of the accommodation.

¶7-160 Usual place of residence A “place of residence” means: (a) a place at which a person resides, or (b) a place at which the person has sleeping accommodation, whether on a permanent or temporary basis and whether or not on a shared basis. There is no statutory definition of “usual place of residence” (¶8-135). Whether a place is an employee’s usual place of residence is a question of fact, based on all the circumstances. It is considered that an employee will have a usual place of residence at the location where the housing is provided if they have no intention or expectation of returning to the former location or have abandoned their former place of residence. This will need to be justified by individual facts and circumstances and a declaration to this effect may be obtained from the employee. Factors that indicate an employee has a usual place of residence at a previous location include the employee’s ownership or possession of premises at that location and occupation of the premises by members of the employee’s family (Draft Taxation Ruling TR 2017/D6).

¶7-170 When does the benefit arise? A housing benefit arises at the time a lease or licence is granted by one person to another provided all the essential elements for a housing right are present (see ¶7-110). Where all the essential elements of a housing benefit are not present then a residual benefit (¶10-110) will generally arise. Accordingly, there may be more than one type of benefit in any one year in respect of the same unit of accommodation. There may also be more than one housing benefit in respect of the same unit of accommodation in the one year. For example, where more than one person is granted a lease or licence to occupy or use a unit of accommodation during the FBT year. AFB ¶35-000 to ¶35-070; AFT ¶807-760.

EXEMPTIONS ¶7-200 Circumstances There are no specific exemptions in Div 6 where a benefit satisfies the definition of a housing benefit. However, a miscellaneous exemption is available for housing provided to employees located in a remote area of Australia (¶12-480) and certain trainees (¶12-680). In addition, accommodation provided to certain live-in care workers is exempt (¶12-720).

TAXABLE VALUE ¶7-300 Overview The taxable value of a housing fringe benefit depends on the type of accommodation, location of the accommodation and whether the employer provides identical or similar accommodation to the public. In particular, different rules apply: 1. where the accommodation is located outside Australia (¶7-320) 2. where the accommodation is a caravan, mobile home or in a hotel, motel, etc, located in Australia and supplied by a person who is in the business of providing such accommodation in Australia (¶7340), and 3. for all other Australian accommodation (¶7-360). In all circumstances, contributions by the employee (recipients rent) towards the cost of the housing fringe benefit will reduce the taxable value (¶7-420). For a pictorial overview of the calculation of the taxable value of a housing fringe benefit, see Workpaper 4 (¶7-600).

¶7-320 Accommodation outside Australia If the accommodation is not located in a state or internal territory of Australia, the taxable value of the housing benefit is the market rental value (¶7-390) of the accommodation less any recipients rent (¶7420). The market rental value is determined as at the time the accommodation is occupied by the recipient of the benefit (s 26(1)(a)). The internal territories of Australia are the Northern Territory and ACT. While Christmas Island and the Cocos (Keeling) Islands are deemed to be internal territories, they are considered to be remote areas (s 157) and therefore the accommodation is exempt (¶12-480). Note: The external territories of Australia are Ashmore Island, Cartier Island, the Coral Sea Islands, Heard Island, McDonald Island, Norfolk Island, Australian–Antarctic Territory and the Indian Ocean Territories.

¶7-340 Australian accommodation in a hotel, motel, etc This method applies where the accommodation is located in a state or internal territory of Australia, is not eligible for the remote area exemption (¶12-480) and is: 1. a caravan, mobile home, hotel, motel, hostel or guesthouse accommodation, and 2. supplied by a person who is in the business of providing such accommodation. The taxable value (s 26(1)(b)) is calculated using the formula: A × B − R where: A

= the market rental value (¶7-390) of the housing right

B

= 0.75 where, if the fringe benefit were not a housing fringe benefit, it would be an in-house residual fringe benefit (¶10-340); otherwise it is 1.0

R

= recipients rent (¶7-420).

That is, the taxable value is the market value of the accommodation reduced by the recipients rent unless the employer’s business includes the provision of a caravan, mobile home, etc, to the public. In such instances, to determine the market rental value (¶7-390) of temporary accommodation such as a

caravan, hotel, motel, etc, an employer can use 15% of the daily rate charged to casual guests (Miscellaneous Taxation Ruling MT 2025). Example: Market value An employer owns a caravan park in Victoria and employs Jack to manage it. Jack occupies a house located within the caravan park rent-free. The caravan park does not rent other similar houses to the public. The market rental value of the house is $100 per week and Jack occupies the house for the whole of the FBT year. The taxable value is $5,200 ($100 × 52 − 0).

Example: 75% discount An employer owns a caravan park in Queensland and employs Jill to manage it. Jill occupies a mobile home located within the caravan park rent-free. The caravan park has other similar mobile homes that are let to the public in the ordinary course of its business. The market rental value of the mobile home is $100 per week and Jill occupies the mobile home for the whole of the FBT year. The taxable value is $3,900 ($100 × 52 × 75% − 0).

¶7-360 Other Australian accommodation This method applies where the accommodation does not fall within either of the above categories and is not eligible for the remote area exemption (¶12-480). For example, hotel accommodation in NSW, not located in a remote area and leased by an employer who is not in the business of providing such accommodation. The taxable value (s 26(1)(c)) is the statutory annual value of the accommodation less any rent paid by the employee and is calculated using the formula: AB C

−  R

where: A = statutory annual value of the housing right (¶7-370) B = number of whole days in the tenancy period C = number of days in the FBT year R = recipients rent (¶7-420). The statutory annual value is the annualised market rental value of the housing right in the first year it is provided (“base year”). In subsequent FBT years, the “base year” amount is indexed unless the market rental value has substantially changed or the employer chooses to determine a new “base year”. Where a unit of accommodation is jointly owned by an employer and its employees and is used for both business and private purposes, the statutory annual value is to be calculated having allowed for the business use of the housing right (Taxpayer v FC of T [2013] AATA 566).

¶7-370 Statutory annual value The statutory annual value is dependent upon whether the current FBT year is a “base year” or the employer is calculating the taxable value for a subsequent FBT year. Base year In the “base year” the statutory annual value is calculated using the formula (s 26(2)(a)): A × B

C where: A = the market rental value (¶7-390) B = the number of days in the FBT year, and C = the number of whole days in the tenancy period. Therefore, the statutory annual value in a “base year” is the annualised market rental value of the housing right regardless of the duration of that right during the FBT year. An FBT year will be a “base year” if any of the following conditions are satisfied: • the accommodation was not used in the preceding year to provide a housing benefit • the employer elects to treat the current year as a base year • there is a 10% change in the market value of the housing right, or • the unit of accommodation has been used to provide housing benefits in each of the preceding nine years, none of which was a base year. Example 1: 2017 FBT year Jennifer has a licence to occupy or use a unit of accommodation located in New South Wales from 1 December 2016 past 31 March 2017. Therefore, the tenancy period during the 2017 FBT year is 121 days. Assuming the housing right has a market value of $3,050 for the period 1 December 2016 to 31 March 2017 the statutory annual value is:

$3,050 × 365 121

 = $9,200

The taxable value of the housing fringe benefit provided to Jennifer during the 2017 FBT year assuming she does not pay any recipients rent is (¶7-360):

9,200 × 121 365

− 0

= $3,050

Non-base year For FBT years subsequent to a “base year” the statutory annual value is calculated using the formula (s 26(2)(b)): D × E where: D = this is one of the following amounts: i. the base year statutory annual value in the immediately preceding FBT year, or ii. the prior year statutory annual value. E = indexation factor (¶7-380). The statutory annual value in a non-base year is therefore either the annualised market value (where the previous FBT year was a base year) or the indexed market value of the housing right for the immediately preceding FBT year.

Example 2: 2018 FBT year Continuing the facts in Example 1 and assuming Jennifer continues to be provided with the housing right until 28 February 2018. Therefore, the tenancy period during the 2018 FBT year is 334 days. The base value of Jennifer’s housing right for the 2017 FBT year is $9,200 and the indexation factor for the 2018 FBT year for a property located in NSW is 1.024 (¶7-380). The statutory annual value is therefore $9,420.80 ($9,200 × 1.024). The taxable value of the housing fringe benefit provided to Jennifer during the 2018 FBT year assuming she does not pay any recipients rent is (¶7-360):

9,420.80 × 334 365

− 0

=  $8,620.67

Where the accommodation was occupied during the base year by different employees, the market rental values may be different. In this circumstance, it will be necessary to determine the weighted average of rents to determine the market rental value. The “base year” market value can be indexed for a maximum of nine years unless the employer chooses to make a new base year election or is required to determine a new market value. A new market value and hence a new base year of tax is required: • where there is a break of at least a year in which the accommodation does not give rise to a housing benefit for any employee, or • where a material alteration to the accommodation occurs in an intervening year such that there is an increase or decrease in the market value of the accommodation of 10% or more, eg if an employerowned house is renovated, extended or materially damaged, or • in the 10th year after the last base year. Natural disaster — house damaged In ATO Interpretative Decision ID 2011/59, an employer granted an employee a housing fringe benefit in respect of a two-storey house. Part-way through the FBT year, the ground floor was substantially damaged by a flood resulting in only the upper level remaining habitable. As a consequence, the market value of the right to occupy the house decreased by 10% or more. The ATO concluded that flood damage was a material alteration to the unit of accommodation. Accordingly, the house was deemed to be a different unit of accommodation after the natural disaster and the value of the housing right was to be from that date re-established by reference to the adjusted market value.

¶7-380 Indexation factors The indexation factors for the purpose of valuing non-remote housing for the 2018 FBT year (Taxation Determination TD 2017/6) and those of the previous year are: 2018

2017

New South Wales

1.024

1.025

Victoria

1.014

1.022

Queensland

1.005

1.013

South Australia

1.010

1.016

Western Australia

0.942

0.988

Tasmania

1.025

1.010

Northern Territory

0.933

0.997

Australia Capital Territory 0.998

0.978

Christmas Island and the Cocos (Keeling) Islands are deemed to be part of the Northern Territory, and Jervis Bay is deemed to be part of New South Wales (s 28(5)).

¶7-390 Market rental value In determining the market rental value, the following are disregarded (s 27): • any expenses of the occupant that might be paid by another person (eg gas or electricity paid by the employer). Such expenses are a separate benefit from the provision of the housing right. • any onerous conditions attached to the occupation and relating to the employee’s employment. The above ensures that market rental value is determined by reference to what the unit of accommodation would command if it were rented on the open market ignoring any special employment concessions or obligations. The market rental value is the price that a willing but not anxious person would be prepared to pay the owner to occupy the particular premises. Ordinarily, this will require a comparison of the unit of accommodation with similar comparable properties that have similar features — location, number of rooms, physical condition, etc. In Miscellaneous Taxation Ruling MT 2025, the Commissioner provides guidelines for determining the market rental value for a range of accommodation types and situations, eg dormitory housing, shared rooms, houses in remote areas, hotels/motels, holiday resorts, mining towns, accommodation for caretakers and accommodation provided by a funeral director in or near a mortuary premises. Accommodation provided by a retirement village operator to a live-in-manager is discussed in Practical Compliance Guideline PCG 2016/14. AFB ¶35-200 to ¶35-320; AFT ¶808-100, ¶808-340, ¶808-460.

REDUCTIONS ¶7-400 Circumstances The reductions in taxable value of a housing fringe benefit are included in the calculation of taxable value itself, eg recipients rent (¶7-420). However, temporary accommodation provided due to an employee being required to change their usual place of residence in order to perform employment duties is subject to a reduction in taxable value (¶13300). Also, benefits attributable to remote area housing loans (¶13-420), interest payments (¶13-430) and rent (¶13-440) are subject to a reduction in taxable value.

¶7-420 Recipients rent “Recipients rent” is any rent or other consideration paid during the relevant year for the housing right granted by the employer or an associate. It is not limited to rental money but must be something that can be formally recognised as being part of the lease or licence of the unit of accommodation. For example, recipients rent includes any amount paid to make the property habitable (Case 28/97, 97 ATC 321). However, a payment in the nature of a premium for the granting of a lease or licence would not relate to the subsistence of the housing right, but to its creation. For the employer to claim the reduction in taxable value, the recipients rent must be paid by the time that the employer furnishes the FBT return for the year concerned. AFB ¶35-400 to ¶35-420; AFT ¶808-160.

DOCUMENTATION

¶7-500 Overview Employers are required to maintain supporting documentation to substantiate the FBT liability (if any) shown on the FBT return (¶2-730). A declaration from an employee confirming they have changed their usual place of residence is not required although this may be requested by an employer (¶7-160). Also, employers may wish to consider preparing workpapers to support the arrangement entered into with the employee (¶7-520), the base year election (¶7-540) and the current year taxable value calculation (¶7-560).

¶7-520 Housing agreement Workpaper 1 (¶7-575) is a housing agreement that explains the terms upon which an employee has been provided with a housing benefit. This agreement may be placed on the employee’s personnel file and a copy kept with the employer’s FBT records for the current year. When the employee ceases to receive the housing benefit, a note to this effect may be put on the agreement (eg “lapsed 23 April 2013”).

¶7-540 Base year election Workpaper 2 (¶7-585) is used when the housing is “Other Australian accommodation” (¶7-360) and it is necessary to value the initial housing benefit in the “base year” (ie “base value”). Documentation supporting the market valuation should be attached to this workpaper.

¶7-560 Current year taxable value Workpaper 3 (¶7-595) explains the mathematical calculations performed in order to derive the taxable value for the current year that is not a “base year” ie where Workpaper 2 is not required to be completed. AFB ¶35-500 to ¶35-595.

¶7-575 Workpaper 1: Housing agreement

¶7-585 Workpaper 2: Base year election

¶7-595 Workpaper 3: Current year housing benefit taxable value

¶7-600 Workpaper 4: Housing benefits — taxable value summary

LIVING-AWAY-FROM-HOME ALLOWANCE FRINGE BENEFITS INTRODUCTION Roadmap of LAFH allowance fringe benefits

¶8-000

DEFINITION Overview

¶8-100

LAFH allowance benefit

¶8-110

Payment by employer

¶8-120

Living away from normal residence

¶8-130

Usual place of residence

¶8-135

Non-deductible expenses

¶8-140

Accommodation component

¶8-150

Food component

¶8-160

Oil and gas rig employees

¶8-170

EXEMPTIONS Circumstances

¶8-200

TAXABLE VALUE Overview

¶8-300

Taxable value — home in Australia employees

¶8-310

Taxable value — FIFO or DIDO employees

¶8-320

Taxable value — other LAFH employees

¶8-330

Exempt accommodation component

¶8-340

Exempt food component

¶8-350

Reasonable food and drink amounts

¶8-360

Statutory food amounts

¶8-370

Transitional rules

¶8-380

List of countries by cost grouping

¶8-390

REDUCTIONS Circumstances

¶8-400

DOCUMENTATION Overview

¶8-500

Maintaining a home in Australia

¶8-510

LAFH allowance limited to first 12 months

¶8-520

FIFO and DIDO requirements

¶8-530

Substantiating LAFH expenses

¶8-540

Employee LAFH declarations

¶8-550

Other LAFH allowance documentation

¶8-560

Workpaper 1: LAFH agreement

¶8-600

Workpaper 2: LAFH allowance — taxable value

¶8-610

Workpaper 3: Employee related expenses

¶8-620

Workpaper 4: Employees who maintain an Australian home

¶8-630

Workpaper 5: Employees who fly-in fly-out or drive-in drive-out

¶8-640

Workpaper 6: Living-away-from-home allowance benefits — taxable value summary

¶8-680

INTRODUCTION ¶8-000 Roadmap of LAFH allowance fringe benefits A living-away-from-home (“LAFH”) allowance fringe benefit arises when a LAFH allowance benefit is provided to an employee who is required to live away from their normal residence in order to perform employment duties (¶8-100). The taxable value of a LAFH allowance fringe benefit is the amount of the allowance after deducting the exempt accommodation and exempt food components if certain conditions are satisfied (¶8-300). All reductions in the taxable value of a LAFH allowance fringe benefit are included in the calculation of the taxable value (¶8-400). Employers must obtain a LAFH declaration to substantiate an employee is living away from home and explain how the taxable value of a LAFH allowance fringe benefit has been calculated. Employees must substantiate expenditure incurred on accommodation and food or drink while living away from their normal residence. In addition, they are required to maintain a home in Australia during the period of LAFH which is limited to 12 months, unless they are a fly-in fly-out (FIFO) or drive-in drive-out (DIDO) employee (¶8-500). ATO guidance on how the LAFH allowance concession applies is contained in the web publication FBT — a guide for employers and Draft Taxation Ruling TR 2017/D6. AFB ¶40-000; AFT ¶809-120 to ¶809-145.

DEFINITION ¶8-100 Overview A LAFH allowance benefit (¶8-110) will only have a taxable value if it is not exempt (¶8-200) and is a ”living-away-from-home allowance fringe benefit”. A living-away-from-home allowance fringe benefit is a LAFH allowance benefit which is also a fringe benefit as defined in s 136(1) and discussed at ¶2-100. A LAFH allowance benefit includes an accommodation component and a food component. However, employers can choose to provide an expense payment benefit, property benefit or residual benefit instead of a LAFH allowance.

¶8-110 LAFH allowance benefit A LAFH allowance benefit (s 30(1)) arises where, in respect of the employment of an employee, an employer:

• pays an allowance to the employee (¶8-120) • the employment duties require the employee to live away from their normal residence (¶8-130), and • the payment compensates the employee for additional non-deductible expenses and disadvantages (if any) arising because the employee is required to live away from their normal residence (¶8-140). Where the above requirements are satisfied, the accommodation component (¶8-150) and food component (¶8-160) may be concessionally taxed (¶8-300). However, an amount described as a LAFH allowance and paid to an offshore oil and gas rig worker (¶8-170) is wholly taxable (¶8-330). A LAFH allowance benefit arises at the time the employer makes the payment to the employee. The fact that the payment is an allowance for a period (while the employee is living away from home) does not affect the time that the LAFH allowance benefit arises. For example, if an employee is living away from home from 1 March through 30 April and the employer makes a payment on the following 1 May, the payment is included in the employer’s fringe benefit taxable amount in the second year of tax. Instead of paying a LAFH allowance, an employer may choose to pay for an employee’s accommodation by way of an expense payment benefit or residual benefit (¶8-200). Similarly, the food component may be paid by way of an expense payment benefit or property benefit (¶8-400).

¶8-120 Payment by employer A LAFH allowance must be a payment in money for expenses incurred or to be incurred by the employee and for other disadvantages (if any) suffered. A LAFH allowance benefit cannot be paid by an associate of an employer or by a third party, or paid to an associate of an employee. As a practical general rule, an allowance paid for up to 21 days will be treated as a travelling allowance and not as a LAFH allowance. A travelling allowance is not subject to FBT as it is generally included in the employee’s assessable income (¶5-120). Factors such as the underlying purpose of the allowance, the time period for which it is paid or the change in job location are to be considered based on the employment agreement in order to properly characterise the allowance either as a travel or LAFH allowance (FBT — a guide for employers; Hancox v FC of T 2013 ATC ¶20-401; 2012 ATC ¶10-285).

¶8-130 Living away from normal residence A LAFH allowance benefit must be paid by reason that the duties of employment require the employee to live away from their “normal residence” (s 30(1)(b)). The term “normal residence” is defined to mean the employee’s usual place of residence if that residence is in Australia. However, if the employee’s usual place of residence is not in Australia, “normal residence” is either: • the employee’s usual place of residence (¶8-135), or • the place in Australia where the employee usually resides. The FBTAA does not define “reside” and therefore has its ordinary meaning of to dwell permanently or for a considerable time; have one’s abode for a time (Macquarie Dictionary 5th Ed). Example: “normal residence” of a non-resident Fiona, a British citizen, comes to Australia to work for three years. She intends to return to the United Kingdom at the end of the period. Her usual place of residence is in the United Kingdom. Fiona leases a home in Sydney for the duration of her employment in Australia. After Fiona has been in Australia for six months, her employer asks her to work in the Melbourne office for a period for which she will be paid a LAFH allowance. For the purposes of determining the taxable value of the LAFH allowance fringe benefit, Sydney is considered to be her “normal residence” while in Australia. However, had Fiona only stayed in Sydney for a few weeks before moving to Melbourne, the home in Sydney would not be considered to be her “normal residence”. This property has not been established as where she usually resides in Australia. Instead, her “normal residence” would be her UK usual place of residence.

Before 1 October 2012, the LAFH allowance had to be paid by reason that the employee was required to live away from their “usual place of residence”. The replacement of this phrase with the broader term “normal residence” in s 30(1) ensures a LAFH allowance benefit can arise regardless of the employee’s usual place of residence. The location where the employee usually resides in Australia is relevant to the calculation of the taxable value of a LAFH allowance fringe benefit. For example, an overseas employee who does not work on a FIFO or DIDO basis (¶8-530) will only be eligible for the concessional treatment of LAFH benefits if they maintain a home in Australia (¶8-310). Duties of employment The LAFH allowance must be paid because the “duties of employment require the employee to live away from his or her normal residence”. Formerly, it was necessary to show that the “employee is required to live away from his or her usual place of residence in order to perform employment duties”. This change in wording places more emphasis on the need to show that the duties of employment are the reason for the employee having to live away from home. Whether this requirement is satisfied is to be determined considering all the facts. While it is generally expected that there would be a change in the location of employment where an employee’s duties require them to live away from their normal residence, this is not a requirement in itself. The ATO has acknowledged that the question of whether an employee may be paid a LAFH allowance is dependent on the particular facts (NTLG FBT Sub-committee minutes — 13 November 2008). This followed an AAT decision in Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) 2008 ATC ¶10-051 that an employee with increased work hours who leased a property closer to his place of employment was not required to do so in order to perform his employment duties. The allowance paid to compensate him for living near work during the week was therefore held to not constitute a LAFH allowance benefit.

¶8-135 Usual place of residence A person’s “usual place of residence” is not defined in the FBTAA. The Commissioner considers that an employee is living away from their usual place of residence if they would have continued to live at the former place had the duties of their employment not required them to work temporarily in the new locality. Indicators that an employee has a usual place of residence at a previous location include the employee’s ownership or possession of premises at that location and occupation of the premises by members of the employee’s family (Draft Taxation Ruling TR 2017/D6). The usual place of residence of an employee may be owned or leased. However, a “single” person formerly living with their parents may be unable to establish that they are living away from their usual place of residence because of the transitory nature of their lifestyle (NTLG FBT Sub-committee minutes — 13 November 2008). Employees living away from home Generally, the following types of employees will be regarded by the Commissioner to be living away from their “usual place of residence”: • foreign nationals employed in Australia on a temporary basis • Australian residents stationed in a foreign country for a time (eg export consultants, diplomats, immigration officials) • employees transferred temporarily to another location within Australia, provided the permanent job location does not change • construction workers living in camps, barracks or huts • oil industry employees living on offshore oil rigs • marine industry employees living on board vessels, and

• trainee employees (eg trainee teachers) living away from home in order to undergo extended training courses. To determine if someone is living away from home, factors such as the lifestyle of the employee and the type of profession and industry can be relevant. For example, transitory workers, such as those who follow construction work around and have no permanent place of residence are generally not regarded as living away from home. Other relevant factors include whether personal details, such as an employee’s driver’s licence or electoral enrolment, have been changed; and whether their former house is being looked after by relatives or friends for the time the employee was at the new locality; or whether the former residence was being rented out for the time they were at the new locality.

¶8-140 Non-deductible expenses A LAFH allowance must be paid for additional expenses of living away from home or additional expenses and compensation for other disadvantages of living away from home. Such additional expenses do not include expenses for which the employee would be entitled to an income tax deduction (Roads and Traffic Authority of NSW 93 ATC 4508; Draft Taxation Ruling TR 2017/D6), but instead non-deductible expenses of LAFH, including: • food • residential rent • telephone expenses for calls to home • additional insurance on personal property kept away from home with the employee, and • laundry costs of personal clothing. An allowance to compensate only for “other additional disadvantages” without some clear connection with likely additional expenses will not be a LAFH allowance benefit (Atwood Oceanics Australia 89 ATC 4808; Taxation Determination TD 94/14). For example, a location allowance will generally not be a LAFH allowance but is assessable income of the employee (Taxation Determination TD 94/14). A “hardlying” allowance paid to a seaman in relation to the standard of and requirement to share accommodation on board a ship was an assessable allowance and not a LAFH allowance (Best 2005 ATC 2184; Crane 2005 ATC 2032). Example John is a truck driver employed by Interstate Transport & Co that has its depot in Sydney. John lives in Sydney and is regularly required to transport goods to various destinations within Australia. Interstate Transport & Co pays John an allowance that is described as a “LAFH allowance” to cover the cost of meals and accommodation. Although described as a LAFH allowance, the amount paid to John is a travelling allowance. John is travelling in the course of performing the requirements of his employment contract. The allowance is not paid in respect of non-deductible expenses.

¶8-150 Accommodation component The “accommodation component” of a LAFH allowance fringe benefit is the amount that might reasonably be concluded to be compensation for expenses to be incurred by an employee on accommodation for eligible family members. How to determine the amount that might “reasonably be concluded” to be compensation for accommodation expenses of eligible family members is not explained in the FBTAA. Accordingly, it will depend on the terms and conditions upon which the employer and employee negotiated the amount of the LAFH allowance.

Employers may take into account the following when determining reasonable accommodation costs: • whether the employee will be accompanied by family members • the position held by the employee in the workplace • the location where the employee will be living • whether or not the accommodation will be furnished, and • the employee’s current living standards. To quantify reasonable accommodation costs, employers may refer to: 1. accommodation expenditure for an employee with similar circumstances in the alternate location, or 2. indexes and guidelines provided by the Australian Bureau of Statistics or commercial organisations to estimate the costs of accommodation in a particular location.

¶8-160 Food component The “food component” is the amount of a LAFH allowance fringe benefit that might reasonably be concluded to be compensation for expenses to be incurred by an employee on food or drink for eligible family members during the period covered by the fringe benefit. An “eligible family member” includes the employee, their spouse and children living with the employee required to live away from their normal residence (¶8-130). Therefore, the “food component” is calculated based on the number of adults and children forming part of the family living away from home. The amount that might “reasonably be concluded” to be compensation for food or drink expenses of eligible family members may be determined by: • monitoring the food expenditure for a family in the alternate location over a representative period (for example, 12 weeks), or • using indexes and guidelines provided by the Australian Bureau of Statistics or commercial organisations to estimate the additional food costs in a particular location, or • using the food component amounts published by the Commissioner, provided they are reasonable in the employee’s circumstances (¶8-360). Having established the reasonable food costs for a particular location, an employer and employee may choose to agree on a lower (but not a higher) food or drink compensation amount to be included in the LAFH allowance. This will be the amount that “might reasonably be concluded” to be compensation for expenses to be incurred by an employee on food or drink for eligible family members during the period covered by the fringe benefit (ie food component). It is important for employers to document how the food component has been calculated. This is because “normal food or drink expenses” that would otherwise be included in the “food component” are taken into consideration when determining the exempt food component (¶8-350). Note: An employer may choose to use the Commissioner’s reasonable food and drink amounts (¶8-360) to determine the food component of a LAFH allowance.

¶8-170 Oil and gas rig employees Allowances paid by an employer to offshore oil and gas rig employees in respect of their employment are treated as LAFH allowance benefits if (s 30(2)): • the employee’s usual place of employment is on an oil rig, or other petroleum or gas installation, at sea (see below)

• the employee is provided with residential accommodation at or near the worksite. In Case 54/95, 95 ATC 447, it was concluded that as the sleeping, mess and recreational quarters, together with food on board, the mobile offshore drilling units provide the drill crew with a place to reside (or lodge), the drill ship was “residential accommodation” • the allowance is expressed to be paid as a LAFH allowance (Best v FC of T 2005 ATC 2184; Crane v FC of T 2005 ATC 2032; ATO Interpretative Decision ID 2004/706) • no part of the allowance satisfies the conditions in s 30(1) — see ¶8-110, and • it would be concluded that the whole or part of the allowance is paid to compensate the employee for disadvantages arising because the “duties of employment” require the employee to live away from their usual place of residence. Oil rig or other petroleum or gas installation In Maratech CMDL Pty Ltd v FC of T 97 ATC 4033, the Federal Court confirmed the AAT decision in Case 54/95, 95 ATC 447 that daily allowances paid to employees working on a petroleum exploration drill ship were “living-away-from-home allowances” covered by s 30(2). The vessel in question was a drill ship, in a class of drilling rigs described as mobile offshore drilling units. They were not production platforms and their operations were confined to drilling exploratory holes at sea. They operated as ships on the voyage to the site and were then maintained in position by anchors or thrusters while drilling. The drill crew, to whom the allowance was paid, worked two weeks on and two weeks off, and were only on board while the vessel was in situ and operating as a drilling rig. The Federal Court held that the term “oil rig” had a common but not a technical usage, and was descriptive of the vessel in question. The fact that it could be described as a “ship” during a voyage did not preclude it being described as an “oil rig” while in situ carrying out drilling operations. Further, the ship also came within the description of “or other petroleum or gas installation”, as it could be an installation while it was in situ. Example An employer provides cabin facilities on an oil rig to its employees who are paid LAFH allowances to compensate them for the additional hardship of living at sea. The payments are for deductible expenses and are limited to compensation for additional disadvantages only. The allowances paid to the employees do not compensate them for non-deductible expenses; therefore s 30(1) is not satisfied. The allowances are LAFH allowance benefits under s 30(2). The taxable value for a particular employee is the amount of the allowance without any reduction for the exempt accommodation or food components (¶8-330).

AFB ¶40-010 to ¶40-130; AFT ¶809-940 to ¶809-980.

EXEMPTIONS ¶8-200 Circumstances No FBT is payable on the exempt accommodation and exempt food components of a LAFH allowance. Also, an exemption is available for LAFH accommodation provided by way of an expense payment benefit (¶5-220) or as a residual benefit (¶10-250). In addition, persons required to live away from home may be entitled to an exemption for the cost of leasing household goods (¶12-440).

TAXABLE VALUE ¶8-300 Overview The concessional taxation of LAFH allowance fringe benefits depends on the employee substantiating

that they: • maintain a home in Australia (¶8-310), or • work on a FIFO or DIDO basis (¶8-320). Where one of the above circumstances applies, the allowance is concessionally taxed: Taxable value

=

LAFH allowance benefit

−

exempt accommodation component

−

exempt food component

where: LAFH allowance benefit = amount of the LAFH allowance fringe benefit paid (¶8-110) Exempt accommodation = accommodation expenditure incurred (¶8-340) Exempt food = food expenditure incurred less a statutory amount (¶8-350). If the employee’s circumstances do not qualify for the above concessional taxation treatment, the whole of the allowance is subject to FBT (¶8-330) unless certain transitional rules applied (¶8-380). For a practical illustration of how the taxable value of LAFH allowance fringe benefits is calculated, see Workpaper 2 (¶8-610). The workpaper uses the actual expenditure incurred on accommodation and food or drink recorded by the employee on the employee-related expenses declaration (¶8-620) or documentary evidence of this expenditure (¶8-540).

¶8-310 Taxable value — home in Australia employees A LAFH allowance is concessionally taxed (¶8-300) to the extent that all of the following requirements are satisfied (s 31): (a) an employee maintains a home in Australia (¶8-510) (b) the allowance relates to the first 12 months of LAFH (¶8-520) (c) accommodation and food expenses are substantiated (¶8-540), and (d) a declaration that (a) and (b) are satisfied is given to the employer (¶8-550). Example David maintains a home in Perth and is provided with a LAFH allowance benefit (¶8-110) by his employer because he is required to perform employment duties in Melbourne. The LAFH allowance commences to be paid on 1 April 2017 and is for 12 months. On 1 October 2017, David’s home burns down and he decides not to purchase a new home until his LAFH assignment is completed. As David no longer maintains a home in Australia for his immediate use and enjoyment, only a portion of the LAFH allowance satisfies the requirements of s 31. For the period to 1 October 2017, the LAFH allowance is concessionally taxed (¶8-300). From 2 October 2017 until 31 March 2018, the LAFH allowance is fully taxable (¶8-330).

The concessional taxable value calculation is adjusted if the employee resumes living at their normal residence or the period of LAFH is paused. Return to normal residence If an employee returns to their normal residence while continuing to receive a LAFH allowance, the exempt food component is reduced accordingly (s 31(3)). That is, the food component (¶8-160) paid during the period the employee returns to their normal residence is fully taxable. Example

Julie has her home in Sydney and is required to perform employment duties in the Adelaide office of her employer for 12 months commencing 1 April 2017. She is provided with a LAFH allowance benefit that satisfies the above conditions and includes a food component of $247 per week (¶8-360). The exempt food component is therefore $205 ($247 − $42 (statutory food amount: ¶8-370)). While working in Adelaide, her son becomes ill and she recommences working at the Sydney office of her employer for 15 weeks and continues to be paid a LAFH allowance. For the 2018 FBT year, the exempt food component is $7,585 ($205 × (52 − 15)).

LAFH period paused If an employer pauses the 12-month period (¶8-520) for an employee, the exempt accommodation component and exempt food component are reduced accordingly (s 31(4)). That is, the accommodation component (¶8-150) and food component (¶8-160) paid during the part of the 12-month period that the employee is not living away from home are fully taxable. Example Bruce has his home in Sydney and is required to perform employment duties in the Adelaide office of his employer for 12 months commencing 1 April 2017. He is provided with a LAFH allowance benefit that includes a food component of $16,000 of which $13,000 is substantiated and incurs accommodation expenditure of $52,000. While working in Adelaide, his employer pauses the 12-month period of living-away-from-home assignment because of a temporary suspension of the project Bruce was working on. Bruce recommences working at the Sydney office of his employer for 15 weeks but continues to be paid a LAFH allowance. The exempt food component for the entire 12-month period is $10,816 ($13,000 − (52 × $42)). For the 2018 FBT year, the exempt food component for Bruce is $7,696 ($10,816 × ((52 − 15)/52)) and the exempt accommodation expenditure is $37,000 ($52,000 × ((52 − 15)/52)).

¶8-320 Taxable value — FIFO or DIDO employees A LAFH allowance benefit is also concessionally taxed (¶8-300) to the extent that the employee satisfies all of the following (s 31A): (a) lives in residential accommodation at or near their usual place of employment (eg residential accommodation provided in a town located in close proximity to the workplace) (b) works on a FIFO or DIDO basis (¶8-530) (c) substantiates the accommodation and food expenses (¶8-540), and (d) gives their employer a declaration that (a) and (b) are satisfied (¶8-550).

¶8-330 Taxable value — other LAFH employees Unless transitional rules applied (¶8-380), a LAFH allowance benefit is fully taxable to the extent the employee does not maintain a home in Australia or is not employed on a FIFO or DIDO basis. That is, the employee does not satisfy all of the requirements of s 31 (¶8-310) or s 31A (¶8-320) during the whole of the period of LAFH (s 31B). This also applies where an allowance is paid to an employee working on an oil or gas rig at sea (¶8-170).

¶8-340 Exempt accommodation component The accommodation component (¶8-150) of a LAFH allowance fringe benefit is exempt to the extent of the actual accommodation expenditure incurred by the employee and substantiated. Where a family member incurs accommodation costs, they are considered to be acting as an agent of the employee and therefore the employee is still the person incurring those expenses. A “family member” is defined to mean the employee, spouse of the employee or child of the employee. Accommodation expenditure is substantiated by the employee providing receipts or a declaration (¶8-

540).

¶8-350 Exempt food component The food component (¶8-160) of a LAFH allowance benefit is exempt from FBT to the extent the following three requirements are satisfied (s 31H). 1. Expenditure is incurred The exemption is limited to expenditure on food or drink for eligible family members incurred by the employee during the FBT year and included in the LAFH allowance benefit. Where a family member incurs expenditure on food or drink, they are considered to be acting as an agent of the employee and therefore the employee is still the person incurring those expenses. A “family member” is defined to mean the employee, spouse of the employee or child of the employee. Example 1: Expenditure incurred Brian is an employee required to live away from home at a location within Australia for 12 months commencing 1 April 2017. His spouse accompanies him on the assignment. Brian and his employer agree that the food component of his LAFH allowance for the 2018 FBT year will be $23,400 ($450 × 52) based on an agreed weekly food amount of $450 for two adults. Brian and his spouse incurred $21,000 on food and drink during the 2018 FBT year. This is the food component used to determine the exempt food component (see below).

2. Expenditure is substantiated Food or drink expenditure incurred by an employee must be substantiated if it exceeds the amount the Commissioner considers reasonable. For the 2018 FBT year, the weekly amounts that the Commissioner considers reasonable are contained in Taxation Determination TD 2017/5 (¶8-360). Example 2: Substantiation required Assume the same facts as in Example 1. The expenditure incurred on food or drink by Brian for the 2018 FBT year ($21,000) exceeds the amount the Commissioner considers reasonable for two adults, $19,292 ($371 × 52 weeks). Brian is required to substantiate the whole of the expenditure incurred on food or drink ($21,000) by preparing a declaration or providing receipts to his employer. This amount is also used to determine the exempt food component at Step 3 below.

Example 3: Substantiation not required Assume the same facts as Example 1, except that Brian and his spouse incurred $19,292 on food and drink during the 2018 FBT year. This amount is not required to be substantiated since it does not exceed the amount that the Commissioner considers reasonable. Also, $19,292 is the food component used to determine the exempt food component at Step 3 below.

3. Exempt food component The exempt food component is calculated as follows (s 31H(2)): Exempt food component

=

food component

–

applicable statutory  food total 

The “food component” is the amount incurred during the FBT year on food or drink to the extent it does not exceed the food component of the LAFH allowance. The “applicable statutory food total” is the total of the statutory food amounts for eligible family members (¶8-370).

Example 4: Exempt food component — no allowance for normal food or drink Jason is an employee required to live away from home during the whole of the 2018 FBT year at a location within Australia. His spouse and two children aged 11 and 13 accompany him. Jason and his employer agree that the weekly food component of his LAFH allowance will be $557, ie the amount the Commissioner considers reasonable for three adults and one child. The expenditure incurred on food or drink for the 2018 FBT year is $28,964 ($557 × 52). The weekly statutory food amount for eligible family members is $147 (ie $42 + $42 + $21 + $42) and the “applicable statutory food total” is $7,644 ($147 × 52). Exempt food component is therefore $21,320 (ie $28,964 − $7,644). Taxable value of food component ONLY = $7,644 (ie $28,964 − $21,320).

The “applicable statutory food total” may be reduced (but not below zero) by an amount representing the total normal food or drink expenses for eligible family members had they remained living in their normal residence during the LAFH allowance period and which was taken into account in calculating the food component. Example 5: Exempt food component — allowance for normal food or drink Assume the same facts as in Example 4, except that Jason and his employer agree to adjust the reasonable food or drink component of his allowance for normal food or drink expenditure. The amount of the adjustment is $60 which is less than the applicable statutory total of $147. The expenditure incurred on food or drink for the 2018 FBT year is $25,844 (($557 − $60) × 52). The adjusted weekly statutory food amount for eligible family members is $87 (ie $147 − $60) and the “applicable statutory food total” is $4,524 ($87 × 52). Exempt food component is therefore $21,320 (ie $25,844 − $4,524). Taxable value of food component ONLY = $4,524 (ie $25,844 − $21,320). Note: The reduction in taxable value of the food component from Example 4 by $3,120 is due to the employee contributing towards the cost of food or drink (ie $60 × 52).

¶8-360 Reasonable food and drink amounts For the 2018 FBT year, the reasonable weekly food and drink amounts, whether paid as a LAFH allowance fringe benefit (¶8-000) or a LAFH food fringe benefit (¶13-620), are set out in Taxation Determination TD 2017/5. Separate amounts are shown for food and drink consumed at locations within Australia and at overseas locations (see below). In both circumstances, employers are not required to maintain documentation to substantiate the amount of food or drink incurred by the employee if that expenditure is equal to, or less than, these amounts (¶8-540). Locations within Australia For locations within Australia, the weekly reasonable amounts for the 2018 FBT year are set out in the following table. Family group

2018

2017

One adult

$247

$242

Two adults

$371

$363

Three adults

$495

$484

One adult and one child

$309

$303

Two adults and one child

$433

$424

Two adults and two children

$495

$485

Two adults and three children

$557

$546

Three adults and one child

$557

$545

Three adults and two children

$619

$606

Four adults

$619

$605

Additional adults

$124

$121

Additional children

$62

$61

The above amounts are based on the Australian Bureau of Statistics 2009/10 Household Expenditure Survey and indexed to take into account CPI. Example 1: Employee relocated within Australia David relocates from his home in Sydney to Brisbane to perform employment duties for his employer for 25 weeks commencing 1 May 2017. He is accompanied by his wife and two children both under the age of 12 years as at 1 April 2017. David is paid a LAFH allowance that includes a food component of $13,000. If the total food and drink expenses incurred by the family during the period David is living in Brisbane does not exceed the Commissioner’s reasonable amount of $12,375 ($495 per week × 25 weeks), he does not need to substantiate the expenses. If expenditure on food and drink of $13,000 cannot be substantiated in full, $12,375 may be used to calculate the exempt food component (¶8-350).

Overseas locations The following table summarises the reasonable weekly food and drink amounts for the various overseas locations (based on their cost groups) and family groupings. The factor in Table 4 of Taxation Determination TD 2017/5 (below) is applied to the one adult amount (in Table 3 of TD 2017/5) to determine the family group amount. The countries included in each cost group are set out in Table 2 of TD 2017/5 (¶8-390). Family group

Factor

One adult

Cost Group 1

Cost Group 2

Cost Group 3

Cost Group 4

Cost Group 5

Cost Group 6

$137

$201

$273

$310

$437

$537

Two adults

1.5

$206

$302

$410

$465

$656

$806

Three adults

2.0

$274

$402

$546

$620

$874

$1,074

One adult and one child

1.25

$172

$252

$342

$388

$547

$672

Two adults and one child

1.75

$240

$352

$478

$543

$765

$940

Two adults and two children

2.0

$274

$402

$546

$620

$874

$1,074

Two adults and three children

2.25

$309

$453

$615

$698

$984

$1,209

Three adults and one child

2.25

$309

$453

$615

$698

$984

$1,209

Three adults and two children

2.5

$343

$503

$683

$775

$1,093

$1,343

Four adults

2.5

$343

$503

$683

$775

$1,093

$1,343

Additional adults

0.5

$69

$101

$137

$155

$219

$269

Additional children

0.25

$35

$51

$69

$78

$110

$135

Example 2: Australian resident working overseas Maria relocates from her home in Sydney to Canada to perform employment duties for her employer for 25 weeks commencing 1 April 2017. She is accompanied by her husband and child. Maria is paid a LAFH allowance that includes a food component of $15,000 and an accommodation component of $25,000. Canada is listed in Table 2 of Taxation Determination TD 2017/5 as being in Cost Group 5 and therefore the reasonable amount for food and drink is $765 per week. If the total food and drink expenses incurred by Maria during the period of living in Canada does not exceed the Commissioner’s reasonable amount of $19,125 ($765 per week × 25 weeks), she does not need to substantiate the expenses. The $15,000 is used to calculate the exempt food component as this is the expenditure accepted as having been incurred by the employee on food or drink (¶8-350).

¶8-370 Statutory food amounts The statutory food amounts per week are: • $42: persons aged 12 years or more before the beginning of the FBT year, and • $21: persons aged less than 12 years before the beginning of the FBT year. Example An expatriate employee is required to live away from his usual place of residence in the United Kingdom for the whole of the FBT year. He is accompanied by his spouse and two children aged 11 and 13 (eligible family members). The weekly statutory food amount is $147 ($42 + $42 + $21 + $42). The “applicable food statutory total” (¶8-350) is $7,644 ($147 × 52).

¶8-380 Transitional rules The above sets out the treatment of a LAFH allowance benefit (¶8-100) or benefit under s 21 (¶5-220); s 47(5) (¶10-250) or s 63 (¶13-620) provided to an employee who, on or after 1 October 2012, lives away from their normal residence regardless of when it was paid (current law). The current law was relaxed during a transitional period if the employee was being provided with a LAFH benefit as at 7.30 pm on 8 May 2012. The transitional period commenced on 1 October 2012 and generally ended on 30 June 2014. However, if there was a material variation to, or renewal of, an “eligible employment arrangement” (EEA) before 30 June 2014, the current law applied from the date of variation or renewal. An EEA is a commitment by an employer or associate of the employer to provide the employee with a LAFH allowance or equivalent benefits during the period the employee is required to perform employment duties away from their normal residence. For details on the operation of the transitional rules, see the 2015 FBT Compliance Guide (¶8380).

¶8-390 List of countries by cost grouping For the 2018 FBT year, the cost grouping for various countries is listed in Taxation Determination TD 2017/5 and reproduced below. If a country is not listed, the ATO advises that employers are to use Cost Group 1. Country

Cost Group

Country

Cost Group

Albania

2

Laos

2

Algeria

3

Latvia

4

Angola

6

Lebanon

5

Antigua and Barbuda

5

Lithuania

3

Argentina

2

Luxembourg

5

Armenia

3

Macedonia

2

Austria

5

Malawi

2

Azerbaijan

3

Malaysia

3

Bahamas

6

Mali

4

Bahrain

5

Malta

3

Bangladesh

4

Mauritius

3

Barbados

5

Mexico

3

Belarus

2

Monaco

6

Belgium

5

Morocco

3

Bermuda

6

Mozambique

3

Bolivia

2

Myanmar

3

Bosnia

2

Namibia

2

Brazil

3

Nepal

2

Brunei

2

Netherlands

5

Bulgaria

3

New Caledonia

5

Burkina Faso

3

New Zealand

4

Cambodia

3

Nicaragua

3

Cameroon

4

Nigeria

6

Canada

5

Norway

6

Chile

3

Oman

5

China (includes Macau & Hong Kong)

5

Pakistan

2

Colombia

3

Panama

3

Congo Democratic Republic

5

Papua New Guinea

4

Cook Islands

4

Paraguay

2

Costa Rica

3

Peru

4

Cote D’Ivoire

5

Philippines

3

Croatia

3

Poland

3

Cuba

3

Portugal

3

Cyprus

4

Puerto Rico

5

Czech Republic

3

Qatar

5

Denmark

6

Romania

3

Dominican Republic

4

Russia

5

East Timor

3

Rwanda

3

Ecuador

4

Saint Lucia

4

Egypt

3

Saint Vincent

3

El Salvador

3

Samoa

5

Eritrea

3

Saudi Arabia

4

Estonia

3

Senegal

4

Ethiopia

3

Serbia

2

Fiji

3

Sierra Leone

3

Finland

5

Singapore

5

France

5

Slovakia

4

Gabon

6

Slovenia

3

Gambia

2

Solomon Islands

4

Georgia

3

South Africa

2

Germany

5

Spain

5

Ghana

4

Sri Lanka

3

Gibraltar

3

Sudan

3

Greece

4

Surinam

2

Guatemala

3

Sweden

5

Guyana

3

Switzerland

6

Hungary

3

Taiwan

4

Iceland

5

Tanzania

3

India

3

Thailand

4

Indonesia

3

Tonga

3

Iran

3

Trinidad and Tobago

5

Ireland

5

Tunisia

3

Israel

5

Turkey

3

Italy

5

Uganda

3

Jamaica

4

Ukraine

2

Japan

6

United Arab Emirates

5

Jordan

5

United Kingdom

5

Kazakhstan

2

United States of America

5

Kenya

4

Uruguay

3

Korea Republic

5

Vanuatu

5

Kosovo

2

Venezuela

5

Kuwait

5

Vietnam

2

Kyrgyztan

2

Zambia

3

AFB ¶40-310 to ¶40-400; AFT ¶810-280 to ¶810-370.

REDUCTIONS ¶8-400 Circumstances All reductions in the taxable value of a LAFH allowance are included in the above calculation of the taxable value (¶8-300). However, an employer can provide an expense payment or property fringe benefit resulting in the same taxable value calculation for the food component (¶13-620).

DOCUMENTATION ¶8-500 Overview The following conditions must be satisfied for LAFH allowances to be concessionally taxed (¶8-300): • employee maintains a home in Australia (¶8-510), and • LAFH allowances are paid for no more than 12 months (¶8-520), or • employee works on a FIFO or DIDO basis (¶8-530). Confirmation that the above eligibility requirements are satisfied is by way of a declaration provided by employees to their employer (¶8-550). In addition, employees must provide documentation or a declaration to substantiate the amount of expenditure incurred on accommodation and food or drink (¶8540). All employers are required to maintain documentation that explains calculation of FBT payable on LAFH allowances paid to employees (¶8-560).

¶8-510 Maintaining a home in Australia An employee maintains a home in Australia if the following three requirements are satisfied (s 31C). 1. Ownership interest in the unit of accommodation The employee must usually reside in a unit of accommodation (¶7-140) in which the employee or employee’s spouse has an ownership interest. An ownership interest includes a legal or equitable interest, or a licence or right to occupy a dwelling (ITAA 1997 s 118-130). For example, an employee or spouse will have an ownership interest in a unit of accommodation they own or rent. Whether adult children living in the family home have an “ownership interest” in a family home will depend on a consideration of the facts. Generally, the payment of board by an adult child is not considered to result in any licence or right to occupy the family home. On the other hand, parties can enter into “commercial” arrangements when renting a property to a relative, such as an adult child. Such rental arrangements or subletting will need to be consistent with normal commercial practices. There will need to be a proper rental agreement (see Taxation Ruling IT 2167) with a commercial rent and allocation of utility costs, etc (NTLG FBT Subcommittee minutes — 8 November 2012). The employee must “usually reside” in the unit of accommodation at the time of being required to live away from home, ie “dwell permanently or for a considerable time” (Macquarie Dictionary 5th Ed). In Taxation Ruling TR 98/17, the Commissioner considers six months to be a considerable time when deciding whether an individual’s behaviour is consistent with residing in Australia (¶8-130). 2. Available for immediate use and enjoyment The unit of accommodation must continue to be available for the employee’s immediate use and enjoyment during the LAFH allowance period.

The ordinary meaning of “immediate” is occurring or accomplished without delay; instant (Macquarie Dictionary 5th Ed). Accordingly, the entire unit accommodation could not be leased or sublet because tenants or subtenants are required to be given notice of the termination of the lease. If an individual has a boarder or tenant staying with them in their normal residence, the employee can still be considered to be maintaining the home for their own use and enjoyment. However, the boarder’s stay must not impinge on the availability of the residence for the individual’s immediate and reasonable use and enjoyment. Likewise, if an employee has a house-sitter in their home while they are living away from it, they will be maintaining the home when the house-sitter is either required to vacate the residence or their stay does not impinge on the employee’s use and enjoyment of it whenever the employee returns home, for example, during temporary visits. An employee can sublet or rent a part of the employee’s home before or after entering into an arrangement to LAFH. However, such arrangements must not impinge on the availability of the residence for the employee’s immediate and reasonable use and enjoyment (NTLG FBT Sub-committee minutes — 8 November 2012). 3. Resume living at unit of accommodation It must be reasonable to expect that the employee will resume living at the unit of accommodation when the LAFH allowance period ends. This will be satisfied if the employee maintains control over the home by incurring the ongoing costs of maintaining the residence such as mortgage or rental payments and taxes. However, this is not satisfied if the accommodation is sold or otherwise disposed of during the period the duties of employment require the employee to live away from home. Note: LAFH accommodation benefits (¶5-220; ¶10-250) and LAFH food benefits (¶13-620) paid or provided by an employer are also subject to this requirement.

¶8-520 LAFH allowance limited to first 12 months The fringe benefit must relate to the first 12 months that the employment duties require the employee to live away from home, unless the employer (s 31D): • pauses the 12-month period, or • a new 12-month period commences because the employee is required to live at another location to perform employment duties. The 12-month limitation is unaffected by changes to an employee’s employment contract within the same work location (eg changes to the employment contract following the promotion of the employee to a management position or changes to their job title). In addition, the 12-month limitation is unaffected by a change in employer if the new employer is an associate of the former employer (eg where a corporate restructure results in an employee being transferred from one entity to an associated entity). Example Margaret is an auditor for her employer (ABC Ltd) in Sydney where she owns her own home. ABC Ltd requires Margaret to participate in a due diligence audit of a subsidiary that requires her to work for 12 months at the company’s Melbourne office commencing 1 January 2017. Margaret is paid a LAFH allowance during this period and plans to return to Sydney on 31 December 2017. During the audit assignment, Margaret resigns from ABC Ltd from 31 December 2017 to accept a senior auditor position with XYZ Pty Ltd commencing 1 January 2018. XYZ Pty Ltd is a subsidiary of ABC Ltd and requires Margaret to remain at the Melbourne office for another three months. XYZ plans to pay Margaret a LAFH allowance. As ABC Ltd and XYZ Pty Ltd are associates, the 12-month limitation period is not satisfied for the LAFH allowance paid by XYZ Pty Ltd.

Pausing the 12-month period

An employer may pause the 12-month period. This gives the employer the ability to maximise the time an employee spends performing employment duties while living away from home where it is appropriate and beneficial to do so. For example, the employer may choose to pause the period because the employee takes annual leave, long service or sick leave. The food and accommodation components of a LAFH allowance benefit are fully taxed if they relate to a period during which the 12-month period is paused. Example Bruce has his home in Sydney and is required to perform employment duties in the Adelaide office of his employer (ABC Ltd) for 12 months commencing 1 April 2017. On 1 July 2017, ABC Ltd pauses the 12-month LAFH allowance period because of a temporary suspension in the project Bruce is working on. Bruce returns to his home in Sydney. If ABC Ltd continues to pay Bruce the LAFH allowance during the paused period, FBT is payable on the LAFH allowance to the extent it relates to the paused period.

New 12-month period The employer can start a new 12-month period if the employer later requires the employee to live away from home at another location. To do so, the employer must be able to show that it would be unreasonable to expect the employee to commute to the new location from the earlier location for which a benefit of the same kind was provided. Example Julie has her home in Canberra and is required to perform employment duties in the Sydney office of her employer (XYZ Ltd) for eight months commencing 1 April 2017. On 1 December 2017, Julie recommences work in Canberra and ceases to receive a LAFH allowance. On 1 January 2018, Julie commences work in Melbourne for 12 months and is paid a LAFH allowance by XYZ Ltd. A new 12-month period starts because Melbourne is a new location. Alternatively, if Julie had not returned to Canberra before commencing work in Melbourne, the result would be the same — a new 12-month period starts. The benefit provided because of the new location (Melbourne) is not of the “same kind” as the LAFH allowance benefit to work in Sydney. However, if the location is the same but the work is different, it is questionable whether this is of the “same kind”.

Note: LAFH accommodation benefits (¶5-220; ¶10-250) and LAFH food benefits (¶13-620) paid or provided by an employer are also subject to this requirement.

¶8-530 FIFO and DIDO requirements An employee is considered to be working on a FIFO or DIDO basis if all of the following conditions are satisfied (s 31E): 1. Employment duties The employee must on a regular and rotational basis work for a number of days and then have a number of days off. Also, the working days and days off cannot be the same in consecutive weeks. The words regular and rotational are not defined and therefore have their ordinary meanings in the context of s 31E. That is, “recurring at fixed times; periodic” and “regularly recurring in succession” respectively (Macquarie Dictionary 5th Ed). The requirement that the working days and days off cannot be the same in consecutive weeks ensures that an employee working a standard five-day week will not qualify. An employee working a nine-day fortnight that results in some overlap of days off in consecutive weeks may qualify since they will not work the same days in consecutive weeks (NTLG FBT Sub-committee minutes — 14 February 2013). In ATO Interpretative Decision ID 2013/43, the ATO considers that an employee having the following work arrangement is not on a regular and rotational basis. An employee is seconded to work in Australia on the basis of working 5.5 days per week and having the seventh day off but is required to be on call. At the completion of a six-month period, the employee returns to their normal country of residence for a period of

15 days before returning to Australia. No other employee performs the employment duties of the employee on the seventh day. Also, it is noted that Taxation Determination TD 94/96 does not apply since the employee is not working in a remote area. This requirement is not satisfied where an employee does not share, nor does anyone else perform, their employment duties, ie the employee remains solely responsible for performing their employment duties. The “employment duties” requirement will be satisfied if the employment duties of the employee are such that their hours of work are determined on a rostered basis. This sort of working arrangement is common in industries where the business activity generally takes place continuously 24 hours a day, seven days a week such as the mining industry. 2. Returns to normal residence The employee must travel to their normal residence on days off and then return to their usual place of employment on a regular and rotational basis. An employee’s “normal residence” is their usual place of residence and includes the place in Australia where they reside if they are a non-resident (¶8-130). The “usual place of residence” is the place which, as a residence, is frequently occupied and, objectively, is to be considered as the regular or expected place of residence. It would appear that, at any one time, a person can only have one usual place of residence. A place at which an employee sleeps away from his usual place of residence may, in time, and by conduct, become his usual place of residence (¶8-135). There is no requirement that the employee have an ownership interest (¶8-510) in that residence and therefore this requirement will be satisfied by children living with their parents. 3. Customary in the industry It must be customary for employers in the relevant industry to work shifts on a regular and rotational basis and return to their normal residence on days off. The Commissioner’s explanation of when a benefit provided to an employee will be customary for a particular industry is discussed at ¶13-500. Also, employers may seek a private ruling as to what is customary within their industry (Taxation Determination TD 94/97). The work duties of employees in the mining industry continue to be undertaken by other employees on a rotational basis while any particular employee is on days off and therefore these employers will satisfy this requirement. 4. Unreasonable for employee to commute daily The locations of the employee’s usual place of employment and normal place of residence must be such that it would be unreasonable to expect the employee to travel daily on each work day between the two locations. Whether the time that it takes to commute to work from an employee’s home is unreasonable or excessive is not explained. In the context of the FIFO transport exemption in s 47(7), a commuting time of 90 minutes is considered to be “reasonable” for an Australian employee working on a FIFO basis at a worksite located 90 km outside of Beijing (EM of Act No 129 of 2011). However, other factors may be relevant in deciding whether it is unreasonable for the employee to commute between home and work on a daily basis, eg personal security. 5. Resume living at normal residence It must be reasonable to expect that the employee will resume living at their normal residence when the employment duties no longer require them to live away from that home. This is a requirement that supports that the employee is, in fact, living away from home and therefore entitled to be paid a LAFH allowance. For example, an employee who continues to make mortgage or rental payments on their normal residence while living away from home will satisfy this requirement. An employee who does not own or lease a normal residence because they live with their parents may satisfy this requirement if they expect to return to that residence. However, their parent’s home must be located near the place where they performed employment duties before those duties required them to live

away from home. An Australian resident employee who ceases living with their parents in order to commence employment duties that otherwise meet the requirements of s 31E will not satisfy this requirement. Note: LAFH accommodation benefits (¶5-220; ¶10-250) and LAFH food benefits (¶13-620) paid or provided by an employer are also subject to this requirement.

¶8-540 Substantiating LAFH expenses LAFH expenditure is substantiated by the employee providing the employer with documentary evidence or a declaration in a form approved by the Commissioner before the date of lodgment of the FBT return (s 31G). Documentary evidence includes the actual receipts or other evidence such as credit card or bank statements. Copies of such documents are also permissible (¶5-505). The declaration approved by the Commissioner is reproduced at ¶8-620. If the employee provides the employer with a declaration, the employee must retain the documentary evidence of expenses incurred for five years (s 31G(2)(b)). Alternatively, if the employee provides documentary evidence of LAFH expenses (eg receipts), the employer has the obligation to retain the documentation for five years (¶8-560). Expenditure incurred on accommodation during the period of LAFH must be substantiated in the above manner. Example: Accommodation During the FBT year, Warren is paid a LAFH allowance by his employer that includes an accommodation component (¶8-150). Warren is required to provide documentary evidence of the expenditure incurred on accommodation (or copies) to his employer. Alternatively, Warren can provide a declaration to his employer and personally retain the documentary evidence for five years.

The payment of utility costs (eg electricity, gas and water) and other expenses associated with accommodation (eg cleaning) may fall within the scope of expenditure incurred on accommodation. In some circumstances, the cost of the utilities cannot be dissected from the cost or value of the accommodation, such as in the case of a serviced apartment or campsite style accommodation. However, in other arrangements, the utilities may be billed separately and will be provided as an expense payment or residual benefit. Generally, if utility costs cannot be dissected or determined separately from the lease or licence of accommodation they will form part of the accommodation cost (NTLG FBT Sub-committee minutes — 8 November 2012). Expenditure on food or drink is only required to be substantiated if the total expenditure incurred exceeds the amount the Commissioner considers reasonable (s 31G(1)(b); ¶8-360). This is the case even if the food component included in the employee’s LAFH allowance benefit exceeds the Commissioner’s reasonable amount (NTLG FBT Sub-committee minutes — 14 February 2013). Example: Food or drink The LAFH allowance paid to Warren includes a food component (¶8-160). The total of the food and drink expenses incurred by Warren does not exceed the amounts considered reasonable by the Commissioner (¶8-360). Warren is not required to provide documentary evidence or a declaration of LAFH expenses incurred during the FBT year. The Commissioner’s reasonable amounts are used to calculate the exempt food component (¶8-350).

Example: Food component exceeds reasonable amount A LAFH allowance paid to an employee includes a weekly food component (¶8-160) of $436 for the 2018 FBT year. This exceeds the weekly food amount for one adult ($247) that the Commissioner considers reasonable. The employee has incurred food and drink expenditure of $247 per week. The employee is not required to provide documentary evidence or a declaration to substantiate the calculation of the exempt food

component (¶8-350) using $247 per week.

Note: To the extent that the allowance is fully taxable (¶8-330), documentary evidence or a declaration is not required.

¶8-550 Employee LAFH declarations For employees to be concessionally taxed on LAFH benefits, one of the following declarations must be provided to their employer (s 31F): • Home in Australia employees (¶8-310) prepare the declaration at ¶8-630, unless the transitional rules applied (¶8-380). • FIFO and DIDO employees (¶8-320) prepare the declaration at ¶8-640. In addition, employees can choose to provide a separate declaration substantiating accommodation and food or drink expenses incurred during the FBT year (¶8-620). All declarations must be given to the employer before the date on which the FBT return form is to be lodged (¶2-530). Where an employee resigns during an FBT year, the employer should ensure that a declaration is obtained from the employee before contact is lost. Where an employee dies prior to completing a declaration, the ATO will accept a declaration from the executor of the deceased estate of the former employee (NTLG FBT Sub-committee minutes — 14 February 2008). A declaration is a statutory evidentiary document that must be obtained from employees and retained for five years from the date of lodgment of the FBT return (¶2-730). There is no mechanism for the employer to provide a substitute document. Note: LAFH accommodation benefits (¶5-220; ¶10-250) and LAFH food benefits (¶13-620) paid or provided by an employer are also subject to this requirement.

AFB ¶40-502 to ¶40-570; AFT ¶810-430 to ¶810-490.

¶8-560 Other LAFH allowance documentation Employers are required to maintain supporting documentation to substantiate the FBT liability (if any) shown on the FBT return for LAFH allowance fringe benefits (¶2-730). The Commissioner has discretion to disregard non-compliance with certain record-keeping requirements (¶2-750). LAFH agreement Workpaper 1 (¶8-600) documents the LAFH agreement reached between the employee and the employer (employment arrangement). For example, whether the food component (¶8-160) has been adjusted for “normal food or drink expenses” — this affects the calculation of the exempt food component (¶8-350). It will generally be prepared at the time of the employee commencing to live away from home and may be attached to the annual employee declaration (¶8-550). A new workpaper is prepared if the employment arrangement is subsequently varied. Taxable value Workpaper 2 (¶8-610) illustrates the calculation of the taxable value of the LAFH allowance fringe benefit, and Workpaper 6 summarises the taxable value calculation (¶8-680). AFB ¶40-502 to ¶40-570; AFT ¶810-430 to ¶810-490.

¶8-600 Workpaper 1: LAFH agreement

¶8-610 Workpaper 2: LAFH allowance — taxable value

¶8-620 Workpaper 3: Employee related expenses

¶8-630 Workpaper 4: Employees who maintain an Australian home

¶8-640 Workpaper 5: Employees who fly-in fly-out or drive-in drive-out

¶8-680 Workpaper 6: Living-away-from-home allowance benefits — taxable value summary

PROPERTY FRINGE BENEFITS INTRODUCTION Roadmap of property fringe benefits

¶9-000

DEFINITION Overview

¶9-100

Property benefit

¶9-110

Meaning of “property”

¶9-120

Meaning of “provide”

¶9-140

Provision of property with a residual benefit

¶9-150

Airline travel

¶9-155

Examples of property benefits

¶9-160

EXEMPTIONS Circumstances

¶9-200

Property consumed on employer’s premises

¶9-220

Exclusion: salary packaging arrangements

¶9-225

TAXABLE VALUE Overview

¶9-300

External property fringe benefit

¶9-320

Valuation of external property fringe benefits

¶9-340

In-house property fringe benefit

¶9-360

Valuation of in-house property fringe benefits

¶9-380

In-house salary packaged property

¶9-381

In-house airline transport property

¶9-382

In-house wholesale market property

¶9-383

In-house retail market property

¶9-384

In-house similar property

¶9-385

In-house property acquired for resale

¶9-386

In-house other property

¶9-387

Arm’s length transaction

¶9-388

Meaning of “notional value”

¶9-390

Airline transport fringe benefit

¶9-394

Salary packaging arrangement

¶9-396

REDUCTIONS Circumstances

¶9-400

“Otherwise deductible” rule

¶9-420

Once-only deduction

¶9-430

Notional deduction

¶9-440

Car property benefits

¶9-450

Jointly provided property benefits

¶9-480

Application of ITAA 1936 s 51AJ

¶9-490

DOCUMENTATION Overview

¶9-500

Declaration

¶9-520

Travel diary

¶9-540

Car property benefits

¶9-560

Sale of property to employees

¶9-580

Workpaper 1: Property benefit declaration

¶9-600

Workpaper 2: Recurring property benefit declaration

¶9-620

Workpaper 3: Sale of assets to employees

¶9-640

Workpaper 4: Property benefits — taxable value summary ¶9-650

INTRODUCTION ¶9-000 Roadmap of property fringe benefits A property fringe benefit arises when an employer provides property to an employee or an associate of an employee (¶9-100). An exemption is available for property benefits provided and consumed on the employer’s business premises (eg morning and afternoon tea) unless salary packaged (¶9-200). Where a property benefit is a fringe benefit, the taxable value is calculated differently depending upon whether an external property fringe benefit or an in-house property fringe benefit is provided by the employer. From 22 October 2012, salary packaged in-house property fringe benefits are no longer concessionally taxed (¶9-300). If the employee would have been entitled to an income tax deduction for the value of the property provided by the employer, the taxable value is reduced (“otherwise deductible” rule). A reduction in the taxable value is also available in a number of other circumstances (¶9-400). Employers must be able to substantiate how the taxable value of a property fringe benefit has been calculated. Also, employers are generally required to obtain a declaration or travel diary from employees where a reduction in the taxable value is claimed (¶9-500). Note: Employers can elect to determine the taxable value of expenditure on food and drink provided to employees and associates using the rules in Div 9A (meal entertainment). See ¶11-800.

DEFINITION ¶9-100 Overview A property benefit will only have a taxable value if it is not exempt (¶9-200) and it is a property fringe benefit. A property fringe benefit is a property benefit which is also a fringe benefit as defined in s 136(1) and discussed at ¶2-100. Note: An “airline transport fringe benefit” (former Div 8) is taxed as an in-house property fringe benefit under Div 11 (¶9-155) or in-house

residual fringe benefit under Div 12 (¶10-170).

¶9-110 Property benefit A property benefit (s 40) arises at the time that property is provided by one person (the “provider”) to another person (the “recipient”). That is, there must be property and the property must be provided for there to be a property benefit.

¶9-120 Meaning of “property” Property is defined in s 136(1) to mean tangible and intangible property. Tangible property Tangible property is goods and includes animals (including fish) and gas and electricity that is not reticulated (s 156). The provision of gas and electricity through pipes/wires to a town or building is a residual benefit. Intangible property Intangible property is defined to mean: a. real property (ATO Interpretative Decision ID 2004/211) b. a chose in action, and c. any other kind of property other than tangible property, but does not include a right arising under a contract of insurance or a lease or licence in respect of real property or tangible property. Fully paid vouchers In ATO Class Ruling CR 2009/11, a marketing services company (RewardsCorp) acquires excess offpeak inventory (eg accommodation) from suppliers in the tourism and leisure industries at a discount. The inventory is then packaged and sold to RewardsCorp clients (Clients) in the form of fully paid vouchers. The fully paid vouchers purchased by Clients are used to promote their products or given to their employees as, for example, part of an employee incentive program. The ATO concludes that the fully paid vouchers are intangible property and therefore the concessional valuation rules for in-house property fringe benefits are not available (¶9-380). Instead, the fully paid vouchers are an “external property fringe benefit”. In the circumstance where Clients provide the fully paid vouchers to their employees, the taxable value is the amount paid to RewardsCorp under an arm’s length transaction (s 43(a)). The ATO reached a similar conclusion in relation to holiday certificates marketed by RewardsCorp (ATO Class Ruling CR 2009/12). Note: An employer provides the employee with an “in-house property fringe benefit” when the employee redeems a “promissory voucher” for the merchandise sold by the employer (¶9-360).

Money The principle that money can constitute property for the purposes of the FBTAA is confirmed in ATO Interpretative Decision ID 2007/204 where reference is made to the Federal Court decision in Caelli Constructions (VIC) Pty Ltd v FC of T 2005 ATC 4938. The ATO view is that money is “intangible property” because it does not fall within the definition of “goods” or the other inclusions of the definition of “tangible property” in s 136(1) (ATO Interpretative Decision ID 2010/151). Bitcoin Bitcoin does not satisfy the ordinary meaning of “money” because it is not sufficiently widespread or generally accepted as a medium of exchange. Also, because Bitcoin is not a legally recognised unit of account and form of payment by the laws of any sovereign country it is not “foreign currency” for the purposes of Div 775 of the ITAA 1997 (Taxation Determination TD 2014/25).

The provision of Bitcoin by an employer to an employee is intangible property because it falls within the category “any other kind of property”. Also, as Bitcoin is a non-cash benefit (ie property in any form except money) it is excluded from PAYG withholding. Accordingly, Bitcoin is not “salary or wages” and its provision in respect of the employment of an employee is a property fringe benefit (Taxation Determination TD 2014/28).

¶9-140 Meaning of “provide” Under the definition of “provide” in s 136(1), the provision of property is the disposal of the provider’s beneficial interest in the property or legal ownership of the property. The mere parting with possession by way of loan or bailment (eg security) is not the provision of property. Where a person has the use of property before title passes, the property is deemed to be provided at the time the recipient obtains use of the property. However, if title never passes, then there is deemed never to have been a property benefit and any assessment made in the meantime will be amended (s 155). In the latter circumstance, a residual benefit will arise from the use of the property, instead of a property benefit. Where a person does anything that results in the creation of property in another person, such as the issue of shares by a company, the property is provided when it comes into existence (s 154).

¶9-150 Provision of property with a residual benefit A property benefit does not arise where property (other than food or drink) is provided together with a residual benefit under a single business contract (s 153). The whole benefit is treated as a residual benefit. Example An employer (XYZ Ltd) contracts with ABC Mechanics Pty Ltd to repair a car owned by an employee and used for private purposes. ABC Mechanics invoices XYZ Ltd for the repair cost which includes spare parts of $200 (property) and labour of $600 (residual benefit). In this circumstance, the property benefit component is not apportioned. Instead, the benefit ($800) is a residual benefit.

However, if the combined property/residual benefit provided to the employee includes food or drink, a separate property fringe benefit will arise. Example An employer (XYZ Ltd) contracts with Executive Hotels to provide a holiday package to an employee and family members as a performance bonus. Executive Hotels invoices XYZ Ltd for the cost of the holiday package which includes meals of $2,000 (property benefit) and accommodation of $5,000 (residual benefit). XYZ Ltd has provided a property fringe benefit of $2,000 and a residual fringe benefit of $5,000 to the employee.

¶9-155 Airline travel All property benefits in connection with airline travel provided after 7.30 pm AEST on 8 May 2012 are subject to Div 11. Airline travel that qualifies as an “airline transport fringe benefit” is concessionally taxed (¶9-382) unless salary packaged (¶9-381). Prior to that time, airline travel satisfying the requirements in former s 32 (airline transport benefits) was taxed in accordance with the rules in former Div 8.

¶9-160 Examples of property benefits A property benefit will arise where, for example:

• goods manufactured by an employer are sold or gifted to employees or their associates • employer-owned motor vehicles, computers or other office equipment are provided to employees • an employer contracts with a third party to pay for property that is then provided to an employee • an employee uses a corporate credit card to pay for food or drink (¶5-160) • frequent flyer points are given to an employee (¶9-340). AFB ¶45-000 to ¶45-090; AFT ¶814-840, ¶814-850, ¶814-860.

EXEMPTIONS ¶9-200 Circumstances A specific exemption is available for property benefits provided and consumed on the employer’s business premises (¶9-220). However, this concession is not available where the benefit forms part of the employee’s salary package (¶9-225). In addition, a number of miscellaneous exemptions (¶12-000) are available in respect of property benefits — for example, non-entertainment meals provided to the employee of an employer that is a primary producer (¶12-500), employer contributions to certain worker entitlement funds (¶12-280) and the provision of certain work-related and other benefits (¶12-050).

¶9-220 Property consumed on employer’s premises Property provided to a current employee and consumed by the employee on a working day on the business premises of the employer is exempt from FBT. The exemption extends to property provided by a related company (s 158) in the foregoing circumstances where the employer is a company (s 41(1)). For most employers, this exemption will only have application in relation to meals provided to employees in-house since most employer products are not consumable in a day. Example Bob is a sole trader carrying on a computer repair business and has three employees. Bob and the employees consume morning and afternoon tea during working days on the business premises. The spouses of the employees sometimes stop at the office and consume morning and afternoon tea. The food and drink is exempt under s 41 in respect of benefits provided to the employees. The minor benefits exemption (s 58P) may apply in respect of benefits provided to spouses. The food and drink provided to Bob is not subject to FBT and is deductible under ITAA 1997 s 8-1 as it does not amount to entertainment.

Examples of exempt property benefits The following food or drink satisfy the above requirements of s 41(1) and are therefore exempt (Taxation Ruling IT 2675): • Morning and afternoon tea such as tea, coffee, cakes and biscuits, etc, but not alcohol. • Light meals that include tea, coffee, orange juice, salads, sandwiches and other “hand food”, etc, but not alcohol. • Food or drink provided in an in-house dining facility (ITAA 1997 s 32-30) located on business premises (Taxation Ruling TR 2000/4) unless provided at a party, reception or other social function. The exemption does not apply to vouchers entitling the employee to receive massage services because the benefit is not “consumed” (ATO Interpretative Decision ID 2005/109).

¶9-225 Exclusion: salary packaging arrangements From 22 October 2012, the above exemption, for food and drink consumed at the employer’s business premises, is not available if the food or drink is provided under a salary packaging arrangement (s 41(2)) (¶9-396). Example Jennifer is employed by XYZ Ltd, and under a salary packaging arrangement her annual salary of $60,000 is reduced to $54,000 in return for being provided with benefits of $6,000. Any food or drink attributable to the reduction of $6,000 is not exempt from FBT.

Before 22 October 2012, former s 41(2) also precluded an exemption for salary packaged food or drink consumed on the employer’s business premises after 13 May 2008 in light of the popularity of “meal card arrangements”. For details of these former rules, see the 2015 FBT Compliance Guide (¶9-230). Note: Meal card arrangements continue to be available for s 57A employers (¶14-410) because food or drink is not included when determining the amount on which FBT is payable (¶14-430).

AFB ¶45-100 to ¶45-140; AFT ¶814-970.

TAXABLE VALUE ¶9-300 Overview The taxable value (TV) of a property fringe benefit in relation to a year of tax is the value of the property provided reduced by any recipients contribution (s 42; 43). That is: TV = Valuation of property benefit − Recipients contribution The valuation of a property benefit is dependent on whether the property is: a. an external property fringe benefit (¶9-340), or b. an in-house property fringe benefit (¶9-380). The meaning and consequences of making a recipients contribution is explained at ¶13-160. For a pictorial overview of the calculation of the taxable value of a property fringe benefit, see Workpaper 4 (¶9-650). Note: (1) From 22 October 2012, salary packaged in-house property fringe benefits are no longer concessionally taxed (¶9-381). (2) From 7.30 pm AEST on 8 May 2012, airline transport fringe benefits (former Div 8) are an in-house property fringe benefit (¶9-382) or inhouse residual benefit (¶10-353).

¶9-320 External property fringe benefit An “external property fringe benefit” (s 136(1)) is a property benefit other than an in-house property fringe benefit (¶9-360). Therefore, an external property fringe benefit will arise from the provision of: • Intangible property, eg real property, shares, etc (¶9-120). • Tangible property where the benefit is not an in-house property fringe benefit (¶9-360). For example, fully paid holiday vouchers and certificates used to promote business products are intangible property and therefore an external property fringe benefit (ATO Class Rulings CR 2009/11; CR 2009/12). Gift cards Gift cards that enable employees to redeem goods at participating stores operated by the employer are

intangible property and therefore an external property fringe benefit (ATO Interpretative Decision ID 2010/135). Similarly, a gift card provided by a retailer of clothing to an employee that can only be used to purchase clothing acquired by the employer for resale is intangible property. Therefore, regardless of any employer-imposed conditions, gift cards cannot be an in-house fringe benefit (NTLG FBT Sub-committee minutes — 16 May 2013). Note: An employer provides the employee with an “in-house property fringe benefit” when the employee redeems a “promissory voucher” for merchandise sold by the employer (¶9-360).

¶9-340 Valuation of external property fringe benefits The valuation of an external property fringe benefit is dependent on which of the following circumstances is relevant to the provision of the property to the employee or associate (s 43). Employer/associate acquisition Where the employer or an associate of the employer purchased the property under an arm’s length transaction (¶9-388), the valuation is the “cost price” of the property to the employer or associate. The “cost price” is the expenditure incurred by the provider that is directly attributable to purchasing or obtaining delivery of the property. Example An employer leases a car costing $30,000 for four years with a 30% residual value, ie under a bona fide lease (Taxation Determination TD 95/63 and Taxation Ruling IT 28). At the conclusion of the lease term, the employer purchases the car for the residual value of $9,000 and on-sells it to an employee for the same amount. The valuation of the external property fringe benefit is $9,000 as the purchase price of the car is arm’s length. Therefore, the taxable value of the external property fringe benefit is $9,000 − $9,000 = $Nil.

In ATO Class Ruling CR 2013/77, the Australian manufacturer and importer of Toyota and Lexus motor vehicles (Toyota) established the LM High Flyers program (Program) in order to increase sales of their locally made motor vehicles. The Program applies to employees of dealerships owned and operated by Toyota and employees of independent dealerships which are not associates of Toyota. Under the Program, an “eligible employee” is entitled to a number of frequent flyer points when a specified vehicle is sold during the period the Program operates. Frequent flyer points are credited by Frequent Flyer Program operator (FF operator). An eligible employee must register their frequent flyer (FF) membership number to participate. Employees who are not already a FF member are provided with membership without having to pay the joining fee (currently less than $300). Toyota pays the FF operator for the points credited to FF membership accounts of employees and all costs of the program including FBT. The ATO concludes that the provision of FF points to employees of Toyota is an external property fringe benefit where the amount paid by Toyota is at least $300. The provision of FF membership is an exempt minor benefit under s 58P (¶12-100). Third party provider Where a third party supplies the property (eg at request of employer, via credit card, etc), under an arm’s length transaction (¶9-388), the valuation is the arm’s length amount paid to the third party. Example ABC Ltd (employer) is able to obtain a discount on television sets purchased from Cheap TVs Pty Ltd (a retailer that is not an associate of ABC Ltd). A “corporate rate” discount is available to all business customers of the retailer and is therefore arm’s length. The employer arranges for the retailer to provide a TV to an employee and pays Cheap TVs $4,000 for a TV that retails for $4,500. The employee pays ABC Ltd $1,500 after taking delivery of the TV. The valuation of the external property fringe benefit is $4,000 as the purchase price of the TV is arm’s length. Therefore, the taxable value of the external property fringe benefit is $4,000 − $1,500 = $2,500.

Other circumstances Where the property purchased is not an arm’s length transaction or was not acquired by the employee at about the time that the employer purchased it, the valuation is the notional value. The notional value is explained at ¶9-390. Example An employer leases a car costing $30,000 for four years with a 20% residual value and therefore is not a bona fide lease (Taxation Determination TD 95/63; Taxation Ruling IT 28). At the conclusion of the lease term the employer purchases the car for the residual value of $6,000 and on-sells it to an employee for the same amount. The residual value of the lease determined in accordance with Taxation Ruling IT 28 is 30% of the cost of the car (ie $9,000) and therefore $6,000 is not arm’s length. The valuation of the external property fringe benefit is $9,000 (notional value) and therefore, the taxable value of the external property fringe benefit is $9,000 − $6,000 = $3,000.

¶9-360 In-house property fringe benefit An “in-house property fringe benefit” is the provision of tangible property (¶9-120) by the employer or its associate, or by a third party in one of the following circumstances. Employer or associate Where the provider of the property fringe benefit is the employer or an associate of the employer, then at or about the provision time that employer or associate must carry on a business consisting of, or including, the provision of identical or similar property principally to outsiders. The “provision time” is the time at which the benefit is provided or deemed to be provided (¶9-140). Example: Promissory voucher An employer, carrying on business of selling merchandise (tangible property) to the public by retail, provides employees with a piece of paper (voucher) that may be redeemed for merchandise. The voucher does not specify a monetary value. Instead, it entitles the employee to a specified number and type of merchandise ordinarily sold by the employer to the public. Vouchers can only be redeemed by the employee in person and within a specified time. The issue of the voucher is an administrative aid to facilitate the provision of merchandise to the employee at a later time. Therefore, the benefit evidenced by the voucher is provided at the time the voucher is redeemed for the designated merchandise. This treatment is considered to be consistent with “Life Gold Passes” and “Severance Passes” given to members of parliament on their retirement (Taxation Ruling TR 1999/10). As merchandise is a “good”, the benefit provided is a property benefit. Accordingly, the employer provides the employee with an “in-house property fringe benefit” when the employee redeems the voucher for the merchandise, not when the voucher is issued (ATO Interpretative Decision ID 2014/17).

Note: Compare with ATO Class Ruling CR 2009/11 (¶9-120) and ATO Interpretative Decision ID 2010/135 (¶9-320).

The provider must “carry on a business” at or about the time the benefit is provided. If the employer or associate has not yet entered into, or has ceased to conduct the relevant type of business, the benefit will not be an in-house property fringe benefit. Property will be “identical” if it is the same in all respects, except for any differences (if any) that are minimal or insignificant and do not affect the value of the property (s 136(1)). The ordinary meaning of “similar” is something having a general likeness or resemblance while not being identical. Broadly, an “outsider” is a member of the public and does not include employees or associates of employer. Example John is an employee of Bunny Hardware Pty Ltd that sells various building supplies to the general public. John purchases 10 litres of paint from his employer and is given a 30% discount on the recommended retail price. The paint is an in-house property fringe benefit.

Third party provider Where the property benefit is provided by a person that is not the employer or an associate of the employer, then: • the provider must have purchased the benefit from the employer or an associate of the employer (the “seller”), and • at or about the provision time, both the provider and the seller must carry on a business consisting of, or including, the provision of identical or similar property principally to outsiders. Example Jennifer is an employee of International Oil Ltd that refines oil and then sells petrol to service stations throughout Australia. Jennifer purchases petrol for her car from a retail petrol outlet (Petrol Express) and is entitled to a 5 cents per litre staff discount on the recommended retail price under an arrangement between International Oil Ltd and Petrol Express. The petrol is an in-house property fringe benefit.

The concessional valuation rules for in-house property fringe benefits (¶9-380) extend to cases where, rather than being directly provided with an in-house property fringe benefit, the employee acquired the benefit and the employer either paid the bill or reimbursed the employee for the cost (¶5-340).

¶9-380 Valuation of in-house property fringe benefits The valuation of an in-house property fringe benefit (¶9-360) is dependent upon whether the benefit is provided: 1. under a salary packaging arrangement after 21 October 2012 2. as an airline transport fringe benefit after 8 May 2012, or 3. in circumstances comparable to sales made to wholesalers, retailers, etc. The valuation methods are applied in the above order. Note: The first $1,000 of the taxable value of all in-house fringe benefits provided per employee per year is exempt from FBT. In-house salary packaged property benefits are not eligible for this concession (¶13-140).

¶9-381 In-house salary packaged property The valuation of an in-house property fringe benefit provided under a salary packaging arrangement is the notional value of the benefit at the provision time (s 42(1)(aa)). This valuation rule applies to benefits provided on or after 22 October 2012 unless certain transitional provisions apply. Also, no other in-house property valuation methodology can be used if the benefit is included in a salary packaging arrangement (¶9-396). Notional value The “notional value” is the amount that the person receiving the benefit would have been required to pay the provider at that time under an arm’s length transaction (¶9-390). Example Bill works at the Geelong Meat Works (GMW) abattoir. Subsequent to 22 October 2012, he agrees to a reduction in his salary in exchange for a meat pack for Christmas which includes meat processed by GMW and therefore is an in-house fringe benefit. GMW does not sell the meat pack to manufacturers, wholesalers or retailers in the ordinary course of business (s 42(1)(a)(i)) and identical meat packs are not sold to members of the public (s 42(1)(a)(ii)). The meat packs are specifically packaged for employees of GMW abattoir and therefore s 42(1)(a)(iii) would have applied (¶9-385) but for the salary packaging arrangement. As Bill has salary packaged this in-house fringe benefit, the taxable value is the notional value of the meat pack which is its market value.

¶9-382 In-house airline transport property The valuation of a property benefit that is an airline transport fringe benefit is 75% of the stand-by airline travel value at the time the transport starts. However, this valuation rule does not apply if the benefit is provided under a salary packaging arrangement (s 42(1)(ab)). This valuation rule applies to benefits provided after 7.30 pm AEST on 8 May 2012 (¶9-155). An “airline transport fringe benefit” includes an in-house property fringe benefit consisting of transport in a passenger aircraft subject to stand-by restrictions (¶9-394). A “salary packaging arrangement” is an arrangement where an employee receives a benefit as part of their contract of service (¶9-396). An airline transport fringe benefit provided as part of a salary packaging arrangement is taxable under s 42(1)(aa) — see ¶9-381. Stand-by airline travel value The “stand-by airline travel value” is dependent on whether the travel is on an international or domestic route: • International route: 50% of the lowest of any carrier’s standard single economy airfare for that route as publicly advertised during the FBT year. • Domestic route: 50% of the carrier’s lowest standard single economy airfare for that route as publicly advertised during the FBT year. The “standard single economy airfare” is the standard, non-preferential economy class airfare charged in respect of a scheduled air service. It also includes a concessional airfare that children, students or a blind person are entitled to. Example 1 A travel agent provides an employee with an airline ticket on a domestic flight between Sydney and Melbourne subject to stand-by restrictions. An airline ticket is tangible property. The benefit is an airline transport fringe benefit that is an in-house property fringe benefit. To value the benefit, it is necessary to determine the standard single economy airfare and calculate 50% of this amount. This is the “stand-by airline travel value”.

However, in both instances the airfare must not be subject to any special booking conditions. Example 2 An airline provider offers discounted fares where a group booking is made of more than 10 people. A group booking is not a standard single economy airfare and cannot be used as a comparable airfare in determining the stand-by airline travel value.

Similarly, a “one-off” or heavily discounted airfare is not a “standard single economy airfare”. Example 3 A travel agent provided an airline transport fringe benefit to an employee in a passenger aircraft from Sydney to Perth. When determining the lowest standard single economy airfare, the travel agent finds an airfare for this route which is advertised by Fly United Airline for $1.00. The travel agent is able to ascertain that the flight is heavily discounted as part of a marketing campaign by the airline because it is so far below the average range of fares for that route of between $150 and $500 plus. The discounted fare does not reflect the standard single economy airfare. It cannot be used as a comparable airfare in determining the stand-by airline travel value.

The publicly advertised airfare during the FBT year in which the stand-by travel starts must be used. Example 4 An employee of a travel agent is provided with an economy class return ticket between Sydney and Zurich subject to stand-by restrictions. Elisabeth boards a flight home on 31 March 2018 and lands in Australia on 1 April 2018 AEST. The standard single economy fare to be used in determining the stand-by travel value is the lowest publicly advertised fare during the 2018 FBT year. If Elisabeth had boarded the flight on 1 April 2018, the lowest publicly advertised fare of any international carrier during the 2019 FBT year is to be used.

¶9-383 In-house wholesale market property The valuation of an in-house property fringe benefit that is identical to property the provider manufactured, produced, processed or treated and sold in the ordinary course of business to manufacturers, wholesalers or retailers (purchasers) is the lowest price paid or payable by those purchasers (s 42(1)(a)(i)). However, this valuation method cannot be used if the benefit is one of the following: • in-house salary packaged property benefit (¶9-381), or • in-house airline transport property benefit (¶9-382). The phrase “manufactured, produced, processed or treated” contemplates that the provider does something to existing property that affects its state. The provider cannot simply acquire and resell the property (see ¶9-386). Lowest price paid or payable The lowest price is the amount at which identical property, under an arm’s length transaction: (a) was sold, at or about the time the property was provided to the recipient, to manufacturers, wholesalers or retailers, or (b) if (a) does not apply, could reasonably be expected to have been sold at or about the time the property was provided to manufacturers, wholesalers or retailers. Property is “identical” if it is the same in all respects, except for any differences (if any) that are minimal or insignificant and do not affect the value of the property. An “arm’s length transaction” is a transaction in which the parties are dealing with each other at arm’s length in relation to the transaction (¶9-388). Example A manufacturer of electrical goods (ABC Ltd) provides an item of stock (a Model 212 refrigerator) to an employee (Bob) for $600. The manufacturer usually sells the Model 212 refrigerator to wholesalers for $800, including GST. However, the manufacturer, at the time of the sale to the employee, allowed wholesalers a discount of 10% if the invoice was paid within seven days. The valuation of the property fringe benefit is therefore $720 since this is the lowest price charged by the employer to wholesalers for the Model 212 refrigerator. The taxable value of the in-house property fringe benefit is therefore $720 − $600 = $120.

¶9-384 In-house retail market property The valuation of an in-house property fringe benefit that is identical to property the provider manufactured, produced, processed or treated and sold in the ordinary course of business to members of the public is 75% of lowest price charged at or about the time the benefit was provided (s 42(1)(a)(ii)). However, this valuation method cannot be used if the benefit is one of the following:

• in-house salary packaged property benefit (¶9-381), or • in-house airline transport property benefit (¶9-382). Lowest price The lowest price is the amount at which identical property manufactured, produced, processed or treated was sold by the provider: • to members of the public, at or about the time the benefit was provided and in the ordinary course of business under an arm’s length transaction or transactions, and • in similar circumstances and subject to identical terms and conditions (other than price) to the provision of the property to the recipient. Property is “identical” if it is the same in all respects, except for any differences (if any) that are minimal or insignificant and do not affect the value of the property (¶9-360). An “arm’s length transaction” is a transaction in which the parties are dealing with each other at arm’s length (¶9-388). Example A manufacturer of garden furniture (XYZ Ltd) sells an outdoor table and chairs to an employee (Jill) for $500. The manufacturer only sells garden furniture that it produces directly to members of the public, and at the time of the sale to Jill, the outdoor table and chairs retailed for $1,000, including GST. The valuation of the property fringe benefit is $750, ie 75% of the lowest price ($1,000), charged by the employer to members of the public. The taxable value of the in-house property fringe benefit is therefore $750 − $500 = $250.

Whether a “special” or “sale” price will be the relevant yardstick will depend on the time at which the employee receives the goods. For example, if the outdoor table and chairs that usually sell for $1,000 are on sale for $800 this is the lowest price if provided to the employee during the sale period. Sales to both wholesalers and the public Where the employer or an associate manufactures, produces, processes or treats goods and sells them in the ordinary course of business both to: • manufacturers, wholesalers or retailers, and • the public, the valuation rules discussed at ¶9-383 apply when determining the taxable value of the property fringe benefit. This is because the categories in s 42 are applied progressively. That is, s 42(1)(a)(ii) can only apply if s 42(1)(a)(i) cannot apply.

¶9-385 In-house similar property The valuation of an in-house property fringe benefit that is similar, but not identical, to property sold to manufacturers, wholesalers, retailers (¶9-383) or members of the public (¶9-384) in the ordinary course of the provider’s business is 75% of the notional value of the recipient’s property at the provision time (s 42(1)(a)(iii)). However, this valuation method cannot be used if the benefit is one of the following: • in-house salary packaged property benefit (¶9-381), or • in-house airline transport property benefit (¶9-382). Notional value The “notional value” is the amount that the person receiving the benefit would have been required to pay

the provider at that time under an arm’s length transaction (¶9-390). Example A manufacturer of toys has a production breakdown that results in a flaw in the toys produced and therefore they cannot be sold to wholesalers, retailers or members of the public at the listed prices. The manufacturer sells a defective toy to an employee for $10 although the wholesale price is $40 and the retail price is $50. The manufacturer is able to establish that the market value of the defective toy is $20. The valuation of the property fringe benefit is $15, ie 75% of the arm’s length price ($20) and therefore the taxable value of the inhouse property fringe benefit is $15 − $10 = $5.

¶9-386 In-house property acquired for resale The valuation of an in-house property fringe benefit where the property was acquired by the provider and not manufactured, produced, processed or treated by the provider is the lesser of the arm’s length price and the notional value (s 42(1)(b)). However, this valuation method cannot be used if the benefit is one of the following: • in-house salary packaged property benefit (¶9-381), or • in-house airline transport property benefit (¶9-382). Arm’s length price or notional value The valuation of the in-house property fringe benefit is the lesser of: (a) the arm’s length price for the acquisition of the property, or (b) the notional value of the recipient’s property at the provision time. Arm’s length price The “arm’s length price” of a property benefit is: (a) the cost price if it was acquired by the provider under an arm’s length transaction in the ordinary course of business, or (b) the amount that the provider could have been expected to pay under an arm’s length transaction in the ordinary course of business, eg if the property was acquired by way of gift. The “cost price” of a property fringe benefit is the expenditure incurred by the provider that is directly attributable to purchasing or obtaining delivery of the property. Whereas an “arm’s length transaction” is a transaction in which the parties are dealing with each other at arm’s length in relation to the transaction (s 136(1)). Notional value The “notional value” is the amount that the person receiving the benefit would have been required to pay the provider at that time under an arm’s length transaction (¶9-390). Example A retailer purchases tennis rackets for $200 for sale to the public at a retail price of $300. However, some of the tennis rackets are damaged while on the showroom floor. The retailer sells a damaged racket to an employee for $150; however, the retailer could have sold the tennis racket second-hand for $175. The valuation of the property fringe benefit is $175, ie the lower of the “arm’s length price” ($200) and the “notional value” ($175). Therefore, the taxable value of the in-house property fringe benefit is $175 − $150 = $25.

Staff discounts Sales of goods by retailers to their employees, either at full arm’s length prices or at a discounted price at

least equal to the arm’s length purchase price of those goods to the retailer, do not give rise to a taxable fringe benefit and, in these circumstances, the retailer would not be required to keep records of sales of this type to individual employees (Miscellaneous Taxation Ruling MT 2022).

¶9-387 In-house other property The valuation of an in-house property fringe benefit is 75% of the notional value of the property at the time of being provided where the benefit does not satisfy any of the above requirements (s 42(1)(c)). This valuation rule applies where the property does not fall into any of the above categories but satisfies the requirements to be treated as an in-house property fringe benefit.

¶9-388 Arm’s length transaction An “arm’s length transaction” (s 136(1)) is a transaction where the parties to the transaction are dealing with each other at arm’s length. Parties are generally “at arm’s length” if neither party is effectively controlled by the other. In an arm’s length situation, each party normally stands upon its rights and conducts its business dealings in a formal manner without trusting the other party’s judgment, control or influence. However, unrelated parties are not “dealing with each other at arm’s length” if they collude to achieve a particular result or one party submits the exercise of its will to the dictation of the other (Granby Pty Ltd v FC of T 95 ATC 4240). For example, if more than one item of property is transferred as part of one transaction and one of the parties is indifferent to the apportionment of the consideration between the various items of property, the parties are considered not to be dealing with each other at arm’s length because the acceding party has submitted the exercise of its will to the wishes of the other party (Collis v FC of T 96 ATC 4831).

¶9-390 Meaning of “notional value” The “notional value” is the amount that the person receiving the benefit could reasonably be expected to have been required to pay the provider for the benefit under an arm’s length transaction (s 136(1)). Example An Australian employer (Aus Coy) purchases white goods from an associated overseas manufacturer (AOM Coy) and sells them in Australia. Aus Coy wishes to offer a discount to its employees on a particular white good model which it purchases for $1,500 from AOM Coy. AOM Coy sells the same model to the public via the internet for $1,200 (excluding delivery costs) which is less than the “arm’s length price” paid by Aus Coy. The “notional value” is $1,500 because this is the amount the employee is required to pay the provider (Aus Coy) for the property (NTLG FBT Sub-committee minutes — 16 May 2013).

In Taxation Determination TD 93/231, the Commissioner states that the lowest of the following amounts are an acceptable valuation of the property: • price of comparable goods advertised in local newspapers and/or magazines or similar publications • price paid for comparable goods at a public auction • price of comparable goods at a second-hand store, or • market value of the goods determined by a qualified valuer. The above determination specifically precludes the use of the following valuation methods: • tax written down value of depreciating assets • a “best offer” made by an employee.

However, although Taxation Determination TD 93/231 does not permit use of lease residual values, this has been superseded by Taxation Determination TD 95/63. Following the decision in Granby 95 ATC 4240, the Commissioner has accepted that a residual value nominated in a lease may be used where the parties are actually at arm’s length (Taxation Determination TD 95/63). Accordingly, where an employer has an arm’s length finance lease of a car which is later acquired at its residual value and on-sold to an employee at the residual value specified in the lease, no FBT will be payable.

¶9-394 Airline transport fringe benefit An airline transport fringe benefit will arise to the extent the following conditions are satisfied (s 136(1)): 1. an in-house fringe benefit is provided 2. transport is provided in a passenger aircraft, and 3. stand-by restrictions apply to the transport. The definition applies to benefits provided after 7.30 pm AEST on 8 May 2012 and reproduces parts of the definition of “airline transport benefit” in former s 32. It is intended to simplify the practical operation of the former definition for airline operators and travel agents but is not intended to alter its scope. Each of the above conditions is further explained below. 1. In-house fringe benefit The benefit provided is an in-house property fringe benefit (¶9-360) or in-house residual fringe benefit (¶10-340). Example: Property fringe benefit A travel agent (Employer) provides an employee with a ticket for transport in a passenger aircraft subject to stand-by restrictions. The ticket is an in-house property fringe benefit because Employer is in the business of providing airline travel, the ticket is tangible property and similar to other airline tickets provided principally to the public.

Example: Residual fringe benefit An airline (Employer) provides discounted travel on another airline to its employees pursuant to an interline agreement. The travel is subject to stand-by restrictions. As Employer is in the business of providing airline travel, the provision of this benefit is an in-house residual fringe benefit as similar benefits are provided principally to the public.

2. Airline transport The benefit is the provision of transport in a passenger aircraft operated by a carrier including any incidental services. Transport in a “passenger aircraft” is any air travel of someone, as distinct from something (eg cargo). It also includes any incidental services on board the aircraft such as the provision of meals. The cost of meals is a property benefit and cannot be included as part of a residual benefit (¶9-150). 3. Stand-by restrictions The airline transport is subject to stand-by restrictions that customarily apply to employees in the airline industry. The Act does not define “stand-by restrictions” or those that are considered “customary”. The “stand-by restrictions” that apply where a seat on a flight has not been reserved vary between airlines. Not all airlines and travel agents have the same corporate policies or staff remuneration policies in respect to stand-by travel. This is the reason for limiting airline transport to stand-by restrictions that

“customarily apply”. The Explanatory Memorandum (EM) describes these to commonly include the following: • seating on the aircraft is not guaranteed for the employee or associate of the employee • transport on the aircraft is subject to seat availability up to the point of departure, and • an employee or associate may be required to disembark the aircraft for a commercial passenger. Stand-by restrictions may also affect other incidental benefits such as meals and in-flight entertainment.

¶9-396 Salary packaging arrangement With effect from 22 October 2012, a salary packaging arrangement is defined to mean an arrangement where an employee receives a benefit (s 136(1)): (a) in return for a reduction in salary or wages that would not have happened apart from the arrangement, or (b) in circumstances where it is reasonable to conclude that the employee’s salary or wages would be greater if the benefit was not provided. The definition requires there to be an arrangement, a benefit and salary or wages that is less than it would otherwise be. An “arrangement” is broadly defined to mean any agreement, whether or not enforceable by legal proceedings, and includes any scheme or course of conduct. A “benefit” is defined to include any right, privilege, service or facility provided under an arrangement for or in relation to the performance of work (¶2-110). “Salary or wages” is defined to mean certain payments from which an amount is required to be withheld (even if no amount is actually withheld) under PAYG withholding. Example: Negotiated salary packaging arrangement Jennifer has just started working for a car company and in negotiating her remuneration package agrees with her new employer to forego $25,000 of her per annum salary in order to receive the use of a car. Jennifer has entered into a salary packaging arrangement as she has negotiated a reduction in salary or wages in return for a car fringe benefit.

Example: Implicit salary packaging arrangement Michael has started employment with an IT firm. His job was previously advertised as having a total remuneration package of $100,000 per annum. Michael only receives $95,000 pa in salary and wages but is given by his employer, free-of-charge, gaming and photography software to the value of $5,000 pa. A salary packaging arrangement has been entered into because it is reasonable to conclude that Michael’s salary or wages would have been greater if the software had not been provided.

Concessionally taxed benefits Fringe benefits provided on an ad hoc basis are incapable of forming part of a “salary packaging arrangement”. Also, not all concessionally taxed benefits contain a restriction prohibiting them from being subject to a salary sacrifice arrangement. The benefits that cannot be provided under a salary packaging arrangement are: • exempt food or drink (¶9-225), and • free public transport (¶10-280) unless provided to police officers (¶10-285).

Only the “notional value” valuation rule is available for salary packaged in-house property (¶9-381) and residual (¶10-351) fringe benefits. Also, a reduction in taxable value is not available for in-house fringe benefits provided under a salary sacrifice arrangement (¶13-140). Transitional rules for salary packaged in-house benefits Certain transitional rules applied such that the above changes which took effect from 22 October 2012 did not apply to an existing salary packaging arrangement until the earlier of: • 1 April 2014, or • the date it was materially varied. For details on the operation of these transitional rules, see the 2015 FBT Compliance Guide (¶9-398).

REDUCTIONS ¶9-400 Circumstances The taxable value may be reduced if the employee would have been able to claim an income tax deduction for the property fringe benefit (¶9-420). Where a property benefit is provided in connection with a car owned or leased by an employee (¶9-450) or provided jointly to an employee and associate (¶9480), special rules apply. The taxable value may also be reduced in a number of specific circumstances and these are contained in Div 14. For example, reductions in taxable value are available for remote area benefits (¶13-400), relocation costs (¶13-300) and where LAFH food is provided (¶13-620). Also, the sum of all in-house fringe benefits provided to each employee may be reduced by up to $1,000 unless provided under a salary packaging arrangement (¶13-140). Note: For the order in which reductions in taxable value are claimed, see ¶2-400.

¶9-420 “Otherwise deductible” rule To the extent that the employee would have been entitled to a once-only deduction (s 44) the taxable value is reduced using the following formula (“otherwise deductible” rule): Reduced taxable value = TV − ND where: TV = Taxable value of the property benefit (¶9-300) ND = Notional deduction (¶9-440) unless the property benefit is a car property benefit (¶9-450). For the rule to apply the following conditions must be satisfied: 1. The recipient of the property fringe benefit must be an employee (¶2-120). 2. The employee must be entitled to a once-only deduction (¶9-430). 3. The employee must give the employer certain documentation (¶9-500). A reduction in taxable value is not available where an associate of an employee is provided with a property benefit despite it being used for income-producing purposes (Taxation Determination TD 93/90). Note: The “otherwise deductible” rule is not available for expenses that, had they not been provided as a fringe benefit, would have been subject to the non-commercial loss provisions in ITAA 1997 Div 35 (¶2-070).

¶9-430 Once-only deduction

The employee must be entitled to a “once-only deduction” for the property benefit assuming they incurred the cost of the benefit. In doing so, the limitation on self-education expenses (ITAA 1936 s 82A) and the income tax substantiation rules in ITAA 1997 Div 28 and 900 (s 44(1)(b); 44(1)(ba)) are ignored. A once-only deduction (s 136(1)) is one that is wholly or partly allowable in one year of income and not in any other year of income and therefore excludes depreciation, prepayments and borrowing expenses that are spread over more than one income year. Also, the once-only deduction does not have to relate to the employee’s income from employment to qualify for a reduction in taxable value. For example, light lunches provided by a computer training company to its trainers as part of the conduct of training courses outside its business premises were property benefits subject to the “otherwise deductible” rule which reduced the taxable value of the benefit (Re Pollak Partners and DFC of T 94 ATC 2213). For the “otherwise deductible” rule to apply, it is the deductibility of the benefit in the hands of the employee that is relevant. Therefore, as a result of applying this rule: • the taxable value of a benefit is reduced where the employer cannot claim a deduction because it is a capital expense but it is a revenue expense of the employee (Taxation Determination TD 93/20), and • the taxable value of a benefit is not reduced where the employer is allowed a deduction because it is a business expense but it is a private expense of the employee (¶10-430).

¶9-440 Notional deduction The taxable value of a property fringe benefit is reduced by the notional deduction unless the employer provided a car property benefit (s 44(1)(f)). Special rules apply to the calculation of the reduction in the taxable value of a car property benefit (¶9-450). The formula to calculate the notional deduction is: Notional deduction = GD − RD where: GD = gross deduction, ie amount of the gross property benefit that would have been an allowable deduction RD = allowable deduction for the recipients contribution towards the gross property benefit after taking into consideration ITAA 1936 s 51AJ (¶9-490).

Example Ben is an airline steward employed by Swift Air and uses his employer’s corporate credit card to pay for personal clothing that cost $600. It is assumed that Ben would have been entitled to a deduction under ITAA 1997 s 8-1 if he had incurred the expenditure, subject to meeting substantiation requirements. Swift Air requires Ben to contribute $100 towards the cost of the clothing. The taxable value is therefore $500. Assume ITAA 1936 s 51AJ does not apply. Ben is only able to substantiate that 80% of the cost of the clothing has an income-producing purpose. Therefore:

Notional deduction

= ($600 × 80%) − ($100 × 80%) = $480 − $80 = $400

The reduced taxable value is accordingly $100, ie $500 − $400.

¶9-450 Car property benefits Where a car property benefit is provided by an employer, the amount of the reduction in the taxable value

is dependent on whether the employee has maintained a logbook or claims a reduction in taxable value based on the number of business kilometres travelled by the car (s 44(1)(g) and (h)). A declaration (¶9600) must be provided by the employee. A “car property benefit” is a property fringe benefit where, if the recipient had incurred expenditure in respect of the provision of the property benefit, that expenditure would have been a car expense (ITAA 1997 s 28-13). The car expense must be in respect of a car owned or leased by the employee and therefore cannot be in respect of a car benefit (¶3-100). Logbook method Where the employee maintains a logbook, the reduction in taxable value (ND) is calculated by reference to the business use percentage (BUP) established by the logbook: ND = TV ×  BUP

Example An employee (Bill) of a petrol retailer buys fuel from his employer with a retail price of $5,000 at a 30% discount during a particular FBT year and the employee contributes $1,500. The discount is provided to all employees regardless of whether or not they use their private car for business purposes. That is, ITAA 1936 s 51AJ does not apply. It is assumed that $3,750 is the valuation of the property benefit in accordance with s 42. The taxable value of the property benefit is $2,250 ($3,750 less $1,500). If the BUP established under the substantiation rules is 80%, then:

ND = 2,250  ×  80% = $1,800 The BUP is contained in the employee declaration (¶9-560) and the reduced taxable value is $450, ie $2,250 − $1,800.

Other methods Where an employee does not provide a logbook to substantiate the BUP, the reduction in taxable value is also based on business use percentage but is capped at 33⅓%. This requires the employee to declare the total number of kilometres travelled during the relevant period and the percentage of those kilometres that related to business use. For an illustration of the former circumstance, see ¶6-470 and for the latter circumstance, see ¶10-470.

¶9-480 Jointly provided property benefits Although property benefits provided to an employee and an associate jointly are deemed by s 138(3) to be provided to the employee, the reduction in taxable value of joint property benefits is limited to the amount of the property benefit that the employee would otherwise have been entitled to claim as an income tax deduction. This is achieved by requiring employers to use the formula in s 44(5) to determine the notional deduction (ND): ND = Unadjusted ND  ×  Employee’s percentage interest where: Unadjusted ND

= amount assuming s 138(3) continues to apply. See ¶9-440 and ¶9450

Employee’s percentage = employee’s percentage interest in the income-producing thing that is interest the subject of the property fringe benefit.

¶9-490 Application of ITAA 1936 s 51AJ Employees or associates are not entitled to a deduction for contributions towards a property benefit (¶9-

110) to the extent the contribution was determined by reference to the private use of the property (ITAA 1936 s 51AJ). See loan fringe benefit illustration at ¶6-490. AFB ¶45-400 to ¶45-480; AFT ¶815-580.

DOCUMENTATION ¶9-500 Overview Generally, employers must obtain from employees either a declaration (¶9-520) or a travel diary (¶9-540) in order to reduce the taxable value of a property fringe benefit. Additional documentation may be required if a car property benefit is provided (¶9-560). In addition, employers are required to maintain supporting documentation to substantiate the FBT liability (if any) shown on the FBT return (¶2-730).

¶9-520 Declaration A property benefit declaration (¶9-600) is prepared by employees to indicate the income-producing purpose of the property benefit provided by the employer. However, the declaration is not required where the fringe benefit is (s 44(1)(c)): i. an exclusive employee property benefit ii. covered by a recurring fringe benefits declaration (¶2-710; ¶9-620), or iii. an extended travel property benefit. Exclusive employee property benefit An “exclusive employee property benefit” is a property benefit that would have been incurred exclusively in gaining or producing salary or wages of the employee had they borne the cost of the fringe benefit. Example An employee (John) of ABC Ltd travels to Melbourne for a business meeting and pays for his meals on the ABC Ltd corporate credit card. ABC Ltd has provided John with a property benefit. The cost of the meals, if paid by John, would have been incurred exclusively in gaining or producing his employment income. Accordingly, John is not required to prepare a property benefit declaration.

Extended travel property benefit An “extended travel property benefit” is property in respect of: • overseas travel that involves the recipient being away from their usual place of residence for a continuous period of more than five nights, or • local travel where the recipient is away from their usual place of residence for a continuous period of more than five nights and the travel was not exclusively undertaken to earn the salary or wages of the recipient but does not include an ITAA 1997 Div 28 car expense. Although a declaration is not required, the employee is required to prepare a travel diary.

¶9-540 Travel diary Where an extended travel property benefit (¶9-520) is provided, other than an international aircrew

property benefit, a travel diary or similar document must be given to the employer before the declaration date (s 44(1)(d)). An “international aircrew property benefit” is property consisting of food, drink, accommodation, etc, in the performance of the employee’s employment duties as a pilot, flight attendant or crew in relation to travel outside Australia. See ¶5-540 for details of the information required to be shown in a travel diary and suggested documentation.

¶9-560 Car property benefits For employers to reduce the taxable value of a car property benefit (¶9-450) the employee must give to the employer a property benefit declaration (¶9-600). In addition, the employee must comply with the substantiation rules in Div 15 if the logbook method is used to reduce the taxable value of the property fringe benefit (s 44(1)(da) and (e)). The substantiation rules in Div 15 are similar to the substantiation rules that apply to car fringe benefits (¶3-670).

¶9-580 Sale of property to employees Preparation of work papers to help document and calculate the taxable value of benefits may assist with FBT compliance. For example, the preparation of Workpaper 3 (¶9-640) may assist in ensuring that all sales or gifts of property during the FBT year are captured at the time the benefit is provided. In Miscellaneous Taxation Ruling MT 2022, the Commissioner states: “Sales of goods by retailers to their employees either at full arm’s length prices or at a discounted price at least equal to the arm’s length purchase price of those goods to the retailer do not give rise to a taxable fringe benefit and, in these circumstances, the retailer would not be required to keep records of sales of this type to individual employees.” Accordingly, compliance costs can be reduced where an employer has systems and procedures that ensure sales to employees are at a price not less than the values under the concessional valuation rules for in-house property fringe benefits (¶9-360). AFB ¶45-500 to ¶45-610; AFT ¶815-610.

¶9-600 Workpaper 1: Property benefit declaration PROPERTY BENEFIT DECLARATION For FBT year ending........................ EMPLOYER: Section A (To be completed by all taxpayers together with one of the sections B or C if a car property benefit was provided.)

I, .................................... (name of employee)

declare that .................................... (Nature of goods, eg car expenses, employer products, stationery, etc)

was provided to me by or on behalf of my employer during the period .................. 20...... to .................. 20...... and that the property was used by me for the following

purpose(s): .................................... .................................... (Please give sufficient information to demonstrate the extent to which the property was used by you for the purpose of earning your assessable income.)

I also declare that had I purchased the property for its market value, I would have been entitled to claim an income tax deduction equal to ...... % of the purchase price. Note 1: If Section B is completed the above percentage is that shown in Section B. Note 2: If Section C is completed the above percentage is the lesser of 33⅓% and the proportion of business kilometres to total kilometres stated in Section C.

Section B: Log book records & odometer records maintained (To be completed where the necessary log book records and odometer records have been maintained.) I declare that: (i) the period of the FBT tax year the car was in use by me for business purposes was: .................. 20...... to .................. 20......; (ii) log books and odometer records for the car (or a car which this car replaces) were kept for a minimum of 12 consecutive weeks during that period and have been given to the employer; or (iii) log books and odometer records for the car (or a car which this car replaces) were kept for a minimum of 12 consecutive weeks in an earlier year, and odometer records were kept this year and have been given to the employer; (iv) the car business percentage for the period mentioned in item (i) above was ...... %. Note: The business use percentage is the proportion of business kilometres to total kilometres. The percentage is to be determined by taking into account the business use in the log book records and variations in the pattern of business use throughout the year, due to things like holidays or seasonal factors.

Section C: No log book records maintained (To be completed where the benefit relates to a car and Section B is not applicable.) I declare that: (i) the period of the FBT year the car was in use by me for business purposes was: .................. 20...... to .................. 20......; (ii) the total number of kilometres travelled by the car in that period was .................................... (iii) the number of business kilometres travelled by the car in that period was ....................................

Signature:........................   Date:..................

Publisher’s Note: The above wording has been adapted from the ATO approved format available at https://www.ato.gov.au/Forms/Employee-Declaration/. Instructions 1. Complete Section A and one of sections B or C (if applicable). 2. After completing Section A and one of section B or C put a diagonal line through the inapplicable sections. 3. Sign and date the declaration and attach the supporting documentation.

For the declaration that complies with the rules as applicable to the 2015/16 and earlier FBT years, see the 2016 FBT Compliance Guide ¶9-600.

¶9-620 Workpaper 2: Recurring property benefit declaration

¶9-640 Workpaper 3: Sale of assets to employees

Note : This is not an approved ATO form

¶9-650 Workpaper 4: Property benefits — taxable value summary

RESIDUAL FRINGE BENEFITS INTRODUCTION Roadmap of residual fringe benefits

¶10-000

DEFINITION Overview

¶10-100

Residual benefit

¶10-110

Period residual benefit

¶10-120

Non-period residual benefit

¶10-130

Regular billing periods

¶10-140

Comparison time

¶10-150

Property provided with a residual benefit

¶10-160

Airline travel

¶10-170

Examples of residual benefits

¶10-180

EXEMPTIONS Circumstances

¶10-200

No-private-use declaration

¶10-210

Use of employer’s property

¶10-220

Motor vehicles other than cars

¶10-230

Unregistered vehicles

¶10-240

LAFH accommodation

¶10-250

Recreational and child care facilities

¶10-260

Child care — priority access contributions

¶10-270

Public transport business

¶10-280

Public transport provided to police officers

¶10-285

FIFO transport arrangements

¶10-290

TAXABLE VALUE Overview

¶10-300

External residual fringe benefit

¶10-310

Valuation of external residual fringe benefits

¶10-320

In-house residual fringe benefit

¶10-340

Valuation of in-house residual fringe benefits

¶10-350

In-house salary packaged residual benefit

¶10-351

In-house airline transport residual benefit

¶10-353

In-house identical residual benefit

¶10-355

In-house similar residual benefit

¶10-357

Valuation of motor vehicles

¶10-360

Meaning of “notional value”

¶10-390

REDUCTIONS Circumstances

¶10-400

“Otherwise deductible” rule

¶10-420

Once-only deduction

¶10-430

Notional deduction

¶10-450

Car residual benefits

¶10-470

Jointly provided residual benefits

¶10-480

Application of ITAA 1936 s 51AJ

¶10-490

DOCUMENTATION Overview

¶10-500

Declaration

¶10-520

Travel diary

¶10-540

Car residual benefits

¶10-560

Workpaper 1: No-private-use declaration — residual benefits

¶10-600

Workpaper 2: Employer-provided vehicles other than cars declaration ¶10-610 Workpaper 3: Residual benefit declaration

¶10-620

Workpaper 4: Recurring residual benefit declaration

¶10-630

Workpaper 5: Residual benefits — taxable value summary

¶10-640

INTRODUCTION ¶10-000 Roadmap of residual fringe benefits A residual benefit arises when an employer provides services or the use of property to an employee or an associate of an employee and it does not fall within any of the specific categories of benefit (¶10-100). An exemption is available where the employer prepares a no-private-use declaration or in several specific circumstances, eg provision of child care and motor vehicles not for private use (¶10-200). Where a residual benefit is a fringe benefit, the taxable value is calculated differently depending upon whether an external residual fringe benefit or an in-house residual fringe benefit is provided by the employer. Salary packaged in-house residual fringe benefits are no longer concessionally taxed (¶10300). If the employee would have been entitled to an income tax deduction for the residual fringe benefit, if they had incurred expenditure for its provision, the taxable value is reduced (¶10-400). Employers must be able to substantiate how the taxable value of a residual fringe benefit has been calculated. Also, employers are generally required to obtain a declaration or travel diary from employees where a reduction in the taxable value is claimed (¶10-500).

DEFINITION ¶10-100 Overview

A residual benefit (¶10-110) will only have a taxable value if it is not exempt (¶10-200) and is a residual fringe benefit. A residual fringe benefit is a residual benefit which is also a fringe benefit as defined in s 136(1) and discussed at ¶2-100. An “airline transport fringe benefit” (former Div 8) is now taxed as an in-house residual fringe benefit (¶10170) or in-house property fringe benefit (¶9-155).

¶10-110 Residual benefit A residual benefit (s 45) arises when an employee is provided with a benefit that does not fit into any of the specific benefit categories, eg cars, expense payments, loans, etc. This ensures all benefits that are provided in respect of the employment of an employee are subject to FBT. The main types of residual benefit are the performance of personal services (including manual and professional work), the use of property and the provision of insurance cover (¶10-180). The timing of the provision of a residual benefit is dependent upon whether the benefit is a “period residual benefit” (¶10-120) or “non-period residual fringe benefit” (¶10-130). Certain residual benefits invoiced by reference to regular billing periods (eg electricity) are deemed to be non-period residual benefits (¶10-140). A period residual benefit may need to be apportioned between two or more FBT years. The “comparison time” is relevant when determining whether an in-house fringe benefit is provided and its taxable value (¶10-150). Natural disasters A residual benefit can continue to arise where the employee is provided with the use of the desktop computer at home and it is inaccessible due to a natural disaster. This is because, even though the desktop computer is not accessible to the employee, it is the act of providing the use that creates the benefit (NTLG FBT Sub-committee minutes — 17 February 2011 (Item 9.3)).

¶10-120 Period residual benefit A period residual benefit is a residual benefit that is provided during a period and is deemed to be provided during any part of the FBT year that the period occurred (s 46(1)). A benefit consisting of a lease or licence in respect of property is specifically deemed to be provided during the period when the lease or licence subsists. However, such a lease or licence will only be a period residual benefit if it is provided or subsists for more than one day (s 149). Example Eastern Bank Inc owns a seaside residential property in Queensland. An employee (Jimmy) is permitted to use the property for four weeks while on annual leave free-of-charge. Jimmy takes annual leave between 17 March 2018 and 13 April 2018. A period residual benefit has been provided by Eastern Bank Inc, and the benefit is apportioned between the 2018 and 2019 FBT years.

However, the provision of a residual benefit for a service that is charged by way of regular bills that cover a particular period is not a period residual benefit (¶10-140).

¶10-130 Non-period residual benefit A non-period residual benefit is a residual benefit which is provided for no more than one day. This follows from the definition of period residual fringe benefit discussed at ¶10-120. Example The Managing Director (Shaun) of Eastern Bank Inc is provided with the services of a gardener who works at his home on

Wednesday each week. The gardener is contracted by Eastern Bank Inc to perform the gardening duties at Shaun’s home and therefore cannot be an expense payment benefit. A non-period residual benefit has been provided to Shaun by Eastern Bank Inc.

A non-period residual benefit also arises where a regular billing period payment is required to be made in respect of a period residual benefit (¶10-140).

¶10-140 Regular billing periods A period residual benefit is deemed to be non-period residual benefit if (s 46(2)): 1. the residual benefit is not a lease or licence in respect of property 2. the benefit requires a payment to be made at regular intervals, and 3. identical benefits are provided to the public in the ordinary course of the provider’s business. Where the above three conditions are satisfied: • each billing period shall be taken to constitute a separate residual benefit, and • each separate residual benefit is deemed to be provided when payment in respect of the billing period concerned is due and payable. The above treatment simplifies the taxable value calculation of residual benefits commonly provided to employees. For example, the supply of utility services (eg council rate, electricity, gas) and telephone services that are commonly billed on a quarterly basis. Example An employer (Gas Express) provides gas to the public via a reticulation system in the ordinary course of business. An employee (Kate) of Gas Express is provided with gas on identical terms and conditions as members of the public who are charged quarterly for the amount of gas consumed. Quarterly gas bills are payable on 21st of the following month. Gas Express does not charge Kate for gas consumed by her during the quarterly period ended 31 March 2018 payable on 21 April 2018. The provision of gas to Kate will constitute a non-period residual fringe benefit provided during the 2019 FBT year.

¶10-150 Comparison time The comparison time is dependent upon whether the residual fringe benefit is subject to regular billing periods, a period residual benefit, an airline transport fringe benefit or a non-period residual benefit. Regular billing periods If the residual fringe benefit is provided subject to regular billing periods, the comparison time is the start of the billing period. Benefits subject to regular billing periods are defined in s 46(2), eg the payment of gas or electricity bills (¶10-140). Period residual benefits If the residual benefit is a period residual fringe benefit, then the comparison time is the time when the recipients overall benefit started to be provided. A “period residual fringe benefit” is a residual fringe benefit that is provided or subsists for more than one day, unless deemed to be provided at a particular time (¶10-120). The “recipients overall benefit” means the benefit to which the period residual fringe benefit relates, including the benefit as it was or will be provided outside the FBT year. For example, if the fringe benefit commenced to be provided on 21 January 2017, the comparison time for the benefit that continues to be

provided during the 2018 FBT year is 21 January 2017. Airline transport If the residual benefit is an airline transport fringe benefit (¶9-394), the comparison time is when the transport starts. Other residual benefits Where a residual fringe benefit does not fall into one of the above categories, the comparison time is the time when the benefit is provided. This rule applies to non-period residual benefits (¶10-130) and to residual fringe benefits provided in respect of the education of a child of an overseas employee (¶13-540).

¶10-160 Property provided with a residual benefit In cases where property is provided at the same time as a residual benefit (eg spare parts are provided when a television set is repaired), the two benefits are treated as one residual benefit if the provider is in the business of supplying such goods and services (s 153). If the goods are supplied by one provider and the services by another, the two types of benefit are valued separately (¶9-150).

¶10-170 Airline travel All residual benefits provided after 7.30 pm AEST on 8 May 2012 in connection with airline travel are subject to Div 12. Airline travel that qualifies as an “airline transport fringe benefit” is concessionally taxed (¶10-353) unless salary packaged (¶10-351). Prior to that time, airline travel satisfying the requirements of former s 32 (airline transport benefits) was taxed in accordance with the rules in former Div 8.

¶10-180 Examples of residual benefits Examples of the circumstances in which a residual benefit will typically arise include: • use of a motor vehicle other than a car. However, the residual benefit may be exempt (¶10-230) • expenditure incurred on an employer’s corporate credit card (¶5-160) • taxi fares, but not the Cabcharge fee, paid by an employer (National Australia Bank 93 ATC 4914). However, the residual benefit may be exempt (¶12-180) • the use of recreational facilities by an employee of a tax-exempt employer (ATO Interpretative Decision ID 2008/60) • income protection, trauma and portable sick leave insurance coverage (eg Class Rulings CR 2004/113; CR 2005/103) • the payment of an employee’s income tax liability (Kumagai Gumi Co Ltd v FC of T 99 ATC 4316) • the provision of the services of a chauffeur (ATO Interpretative Decision ID 2003/498) • the waiver of loan establishment fees by a bank (Westpac Banking Corporation 96 ATC 5021), and • the provision of reticulated gas or electricity (s 156). AFB ¶50-000 to ¶50-090; AFT ¶816-550 to ¶816-750.

EXEMPTIONS ¶10-200 Circumstances

An exemption is available for the specific categories of residual benefit discussed in paragraphs ¶10-210 to ¶10-290 below. In addition, a number of miscellaneous exemptions (¶12-000) are available in respect of residual benefits. These are: • minor benefits (¶12-100) • the provision of certain work-related benefits (¶12-120) • residual parking benefits (¶12-200) • employee awards and entitlements (¶12-230) • costs incurred in relocating employees (¶12-310), and • employee health benefits (¶12-510) such as compassionate travel.

¶10-210 No-private-use declaration This exemption applies where an employer (s 47A): (a) makes a no-private-use declaration for particular residual benefits, and (b) has procedures in place to ensure that the taxable value of the benefits is nil. No-private-use declarations (¶10-600) are required to be prepared annually and have application to all employees who receive the benefit.

¶10-220 Use of employer’s property The use by a current employee of property which is ordinarily used in connection with the business operations of the employer is an exempt benefit (s 47(3)). To qualify for the exemption, the following conditions must be satisfied: 1. Property is provided for the use of a current employee (a former employee is not eligible). 2. The employee is provided with the use of property (other than a motor vehicle). 3. The property is ordinarily located on the business premises of the employer and wholly or principally used directly in connection with the employer’s business operations. Alternatively, where the employer is a company this condition is satisfied by a related company (s 158). (Business premises are defined to include a building or construction site.) The exemption is intended to cover such benefits as employee use of an employer’s telephones, office equipment such as photocopiers, factory equipment, tools, and so on. The exemption also extends to include toilets, vending machines, tea or coffee making facilities but not drinking (eg a bar) or in-house dining facilities. However, the exemption applies whether or not the property is used on the business premises or on a working day and therefore includes the use of property, for example, borrowed for the weekend by an employee. Example Concrete Constructions Pty Ltd provides concreting services to a number of home builders and uses a number of concrete mixers to construct concrete paths. An employee is given permission to take one of the cement mixers home over the weekend to construct a path at his house. No payment is made by the employee and no FBT is payable. Note: If the employer’s truck is used to transport the cement mixer to his house this additional residual benefit does not qualify due to the exclusion of motor vehicles.

¶10-230 Motor vehicles other than cars The provision or use of certain motor vehicles is an exempt benefit (s 47(6)). To qualify for the exemption, the following conditions must be satisfied: 1. A motor vehicle is provided in respect of the employment of a current employee. 2. The motor vehicle is not a car (¶3-120). 3. The motor vehicle is used for “work-related travel”, ie travel between home and a workplace or travel incidental to the performance of employment duties. 4. Private use is minor, infrequent or irregular. For details of the Commissioner’s proposed compliance approach to determining private use of vehicles, see Draft Practical Compliance Guideline PCG 2017/D14 (¶3-220). Where condition 4 is not satisfied, the taxable value is calculated using either the cents per kilometre basis or the cost basis method (¶10-360). The exemption “mirrors” the exemption in s 8(2) for work-related cars held by an employer (¶3-220). Example 1 Janet is employed by Builder Ltd and is provided with the use of a utility truck (Ute) held by Builder Ltd. The Ute has carrying capacity of one tonne and Janet only uses it to travel to and from work. The provision of the Ute is an exempt benefit as the requirements of s 47(6) are satisfied.

Example 2 Bob is a builder employed by Builder Ltd and is provided with a utility truck (Ute) held by Builder Ltd that is exempt as the requirements of s 8(2) are satisfied. On his way from his residence to a building site, Bob has an accident and his Ute is a “write-off”. Builder Ltd hires a Ute from Quick Hire while waiting for delivery of a replacement Ute. The Ute hired from Quick Hire is not held by Builder Ltd and therefore the exemption in s 8(2) cannot apply. However, if the requirements of s 47(6) are satisfied Builder Ltd is not subject to FBT during the period the Ute is hired from Quick Hire.

A tram is not a motor vehicle and therefore private use by an employee will not qualify for the exemption (ATO Interpretative Decision ID 2010/163). However, the exemption is available for a bus used to transport employees between their homes and workplace (ATO Interpretative Decision ID 2001/313). Under an arrangement the employer provided an employee with a prepaid bus ticket purchased from a third party and held in the employer’s name. The employee is only permitted to use the ticket for travel between the employee’s home and workplace and the employer implements a policy to ensure the employee does not use the ticket for other private travel. An exempt residual benefit is provided (ATO Interpretative Decision ID 2009/140).

¶10-240 Unregistered vehicles The provision or use of an unregistered motor vehicle is an exempt benefit (s 47(6A)). To qualify for the exemption, the following conditions must be satisfied: 1. A motor vehicle is provided in respect of the employment of a current employee. 2. The motor vehicle is unregistered (s 162N) at all times during the FBT year. 3. The motor vehicle is wholly and principally used directly in connection with the business operations of the employer or a related company where the employer is a company.

For example, use of a tractor or truck that is not registered.

¶10-250 LAFH accommodation Accommodation provided to an employee who is required to live away from their normal residence in order to perform employment duties is an exempt benefit (s 47(5)). To qualify for the exemption, the following conditions must be satisfied: 1. The accommodation is a residual benefit provided to an employee by way of a lease or licence in respect of their employment. 2. The accommodation is for eligible family members and is provided solely because the duties of employment require the employee to live away from their normal residence (¶8-130). 3. The employee must either maintain a home in Australia (¶8-510) and satisfy the 12-month limitation (¶8-520) or work on a fly-in fly-out or drive-in drive-out (FIFO or DIDO) basis (¶8-530). 4. The accommodation is not provided while the employee is undertaking travel in the course of performing employment duties. 5. Unless the accommodation is provided in connection with a FIFO transport arrangement (¶10-290), the employer must obtain a declaration from the employee that they maintain a home in Australia (¶8630), work on a FIFO basis (¶8-640) or the transitional rules apply. From 1 October 2012, employers must satisfy condition 3 and obtain one of the specific declarations in condition 5 subject to the transitional rules (¶8-380).

¶10-260 Recreational and child care facilities The provision of recreational and child care facilities to a current employee is an exempt benefit (s 47(2)). To qualify for the exemption, the following conditions must be satisfied: 1. A residual benefit is provided to a current employee. 2. A recreational facility is made available to the employee. 3. Alternatively, a child care facility is made available to the employee. 4. The facility is located on the business premises (Taxation Ruling TR 2000/4) of the employer. Where the employer is a company, the facility may be located on the business premises of a related company. A “recreational facility” is a facility for recreation but does not include a facility for accommodation, drinking or dining (s 136(1)). The Commissioner states in ATO Interpretative Decision ID 2015/25 that the residual benefit that arises from the participation of an employee in a fitness class provided by the employer on the employer’s premises is not an exempt benefit under s 47(2). This is because the benefit provided to the employee is the participation in a fitness class and not the provision, or use, of a recreational facility. A “child care facility” is a facility where children under the age of six are minded or provided with care and education (ATO Interpretative Decision ID 2001/309). It does not include the provision of residential care or a facility at the place of residence of any of those children.

¶10-270 Child care — priority access contributions Employer contributions to obtain priority of access to child-minding facilities are an exempt benefit (s 47(8)).

To qualify for the exemption, the following conditions must be satisfied: 1. A contribution is made by an employer to obtain priority access for a child or children of an employee to an approved: • centre based on long day care • family day care service • outside school hours care service, and • in-home care service. 2. The contribution was made under a program administered by the Families Department. In ATO Interpretative Decision ID 2012/58, an employer entered into an agreement with a child care service provider and made a contribution to obtain priority access for a certain number of long day care places. At the time the contribution was made and at the time priority of access was granted, the centre was an approved centre based long day care service in accordance with s 47(8)(a)(v), as evidenced by a certificate of approval issued by the Department of Education Employment and Workplace Relations. The benefit was an exempt residual benefit under s 47(8).

¶10-280 Public transport business The provision of free or discounted travel to an employee of a business that provides transport to members of the public is an exempt benefit (s 47(1)). To qualify for the exemption, the following conditions must be satisfied: 1. Transport (other than on an aircraft) is provided in respect of a current employee. 2. The employee is employed in the business of providing transport to members of the public. 3. The transport is between the employee’s place of residence and place of employment or from which employment duties are performed. 4. If the employee’s place of employment is in a metropolitan area, the transport is on a regular and scheduled service within that metropolitan area. 5. The transport is provided in the same, or substantially the same, circumstances as transport provided to members of the public. 6. The employer carries on a public transport business. Alternatively, if the transport is provided by an associate of the employer, both the employer and the associate must carry on a business of providing transport to members of the public. 7. From 22 October 2012, the transport is not provided under a salary packaging arrangement (¶9396) unless the transitional rules apply. Example Bus Inc carries on a business of operating a bus service on scheduled routes to members of the public within the metropolitan area of Sydney. Bus Inc allows employees to use the regular metropolitan bus service free-of-charge when travelling to work and therefore this residual benefit is exempt from FBT. The exemption would not be available if Bus Inc ran a special bus service that collected employees from their homes and dropped them off at the bus depot or if the benefit was salary packaged.

Where all of the above conditions cannot be satisfied, the exemption in s 47(6) may apply (¶10-230).

¶10-285 Public transport provided to police officers Public transport provided free to police officers is an exempt benefit (s 47(1A)). To qualify for the exemption, the following conditions must be satisfied: 1. A government body is the employer. (All state and commonwealth public servants satisfy this requirement.) 2. Employment duties are performed in the police service. 3. Employee is provided with public transport, ie any transport available to the public. 4. Transport is between the employee’s residence and place of employment. Example Julie is an employee of the NSW Police Integrity Commission and commutes daily to the Sydney CBD from her home in an outer suburb. Her employer provides her with a free weekly train ticket throughout the FBT year. No FBT is payable and this benefit can be included as part of her salary package.

¶10-290 FIFO transport arrangements The provision of transport between the usual place of residence of an employee and their usual place of employment in a remote area or on an oil rig or other installation at sea is an exempt benefit (s 47(7)). To qualify for the exemption, the following conditions must be satisfied: 1. An employee’s usual place of employment is: • in a remote area (¶12-475) • on an oil rig, or other installation, at sea, or • at a remote location overseas (if the benefit is provided on or after 1 July 2009). 2. The employee is provided with residential accommodation (Taxation Determination TD 95/49) at or near their usual place of employment. 3. The employee regularly works for a certain number of days (working days) and has a certain number of days off. On completion of the working days the employee travels from the usual place of employment to their usual place of residence and returns on completion of the days off work. Having a day off during the course of a period of working days does not affect this requirement (Taxation Determination TD 94/96). 4. The employee is provided with transport on a regular basis between their usual place of employment and usual place of residence. This must be because it would be unreasonable to expect the employee to travel on a daily basis on work days between the employee’s: (a) usual place of employment, and (b) usual place of residence having regard to those locations. Example: Remote area of Australia An employee located in Australia has his usual place of residence in town A and works on a fly-in fly-out (FIFO) basis at a mine site in a remote area adjacent to town B. The employer provides accommodation to the employee at town B. At the beginning and end of work periods, the employer provides transport by plane between town A and town B. The provision of

this transport meets the requirements of s 47(7) and is therefore exempt. The employer also provides daily transport between town B and the mine site. This transport does not satisfy condition 4 and is therefore not exempt (NTLG FBT Sub-committee meeting — 12 September 1996).

Remote location overseas A remote location overseas is not defined in the FBTAA because population estimates are not necessarily available for locations in overseas countries. Also, other factors such as amenities and facilities need to be taken into consideration even if the location is in a densely populated area. Accordingly, the ordinary meaning of remote location will need to be applied. A remote location overseas is one which is inaccessible or sparsely populated, and has not been developed into, or located in close proximity to, an urban area, ie a built up area, such as a town or city (Explanatory memorandum to Act No 129 of 2011 that amended s 47(7)). Example: Overseas remote area An Australian company, employing Australian workers on a FIFO basis from their homes in Australia, has a worksite located in Papua New Guinea. The worksite is located 350 km from a city of 500,000 people. Various small towns (populations under 1,000 people) with limited electricity supply and facilities are located closer to the worksite. Due to the poor road quality and no direct route between the worksite and the town, the worksite location is over five hours’ drive from the city, which has accommodation, restaurants, electricity and a limited number of roads, as well as bus services. Provided that any factors not mentioned in the example do not alter the outcome, on balance, the worksite would be considered remote. The closest urban area to the worksite is located 350 km away, with poor road quality adding to the long trip. This town would not be considered to be within close proximity to the worksite. Provision of transport to and from the worksite from an employee’s usual place of residence in Australia, provided by the employer, would be exempt from FBT.

The ATO maintains a list of overseas locations on its website indicating whether or not they are a remote location. The list is titled FBT exemption for fly-in/fly-out arrangements — remote and non-remote overseas locations and is updated based on private ruling decisions. At the time of publication, 39 locations had been listed as remote and 30 as non-remote. The remote locations are:

Remote overseas locations •

Nhemba, Tete, Mozambique

•

Bakun Project, Bakun, Malaysia

•

Nunavut, Canada

•

Akjoujt, Mauritania

•

Tengiz, Kazakhstan

•

Tasiast Mauritania, Mauritania

•

Goro, New Caledonia

•

Simandou, Guinea, Mozambique

•

Aasiaat, Greenland

•

Goro Site, New Caledonia

•

Thabeikkyin Township, Burma

•

Koniambo Site, Vavouto (including Koné), New Caledonia

•

Esterhazy, Canada

•

Lagos, Nigeria

•

Mary River, Baffin Island, Canada

•

Highlands, Papua New Guinea

•

McArthur River, Saskatchewan, Canada

•

Amursk, Russia

•

Ring Of Fire, Ontario, Canada

•

Chayvo, Sakhalin Island, Russia

•

Tenke, Democratic Republic of Congo

•

Dekastri, Russia

•

Sodankyla, Finland

•

Odoptu, Sakhalin Island, Russia

•

Jarsuguda, India

•

Okha, Sakhalin Island, Russia

•

Bacan Island, Indonesia

•

Choiseul Island, Solomon Islands

•

PT Hatch, Soroako, Indonesia

•

Isabel Island (also known as Santa Isabel), Solomon Islands

•

Sumba, Indonesia

•

Hwange, Zimbabwe

•

Pha Bing, Lao People’s Democratic Republic

•

Kariba South, Zimbabwe

•

Sepon, Vilabouly District, Savannakhet Province, Lao People’s Democratic Republic

•

Solwezi, Zambia

•

Vilabouly, Savannakhet Province, Lao People’s Democratic Republic

•

Manus Island, Papua New Guinea

•

Nauru

The ATO has advised that in “straightforward” situations it will make future determinations about whether an overseas location is remote (or non-remote) without requiring a formal private ruling request to be lodged. In such situations, the ATO still requires an explanation as to why a location is remote by reference to the following factors (having regard to comparable Australian standards) before making a determination: • the distance and time it takes to travel from the worksite to the nearest urban area • the population of the nearest urban area • accessibility of the overseas site • safety and the crime rate, adequacy of local law enforcement and health risks in the surrounding areas to the worksite • location of the worksite relative to the arrival destination in the foreign country (eg an international airport) • the quality of the roads between the nearest urban area and the worksite, and • amenities and facilities available in the nearest urban area (in close proximity to the worksite), such as (but not limited to): – public transport – availability of accommodation/housing – a library, public park and other recreational facilities – places for buying a variety of foods – a reliable electricity supply and access to clean drinking water/running water and a sewage system, and – availability of access to the internet, mobile phone reception and access to facilities such as banks and medical supplies and facilities. Where the situation is not “straightforward”, a private ruling request is still required (NTLG FBT Subcommittee minutes — 16 February 2012 (Item 7)). AFB ¶50-100 to ¶50-160; AFT ¶816-850 to ¶817-500.

TAXABLE VALUE ¶10-300 Overview

The taxable value (TV) of a residual fringe benefit in relation to a year of tax is the value of the residual benefit provided reduced by any recipients contribution (s 48 to 51). That is: TV =

Valuation of the residual − Recipients contribution benefit

Valuation of residual benefit The valuation of a residual benefit is dependent upon whether the service provided or the use of property by the recipient is: (a) an external residual fringe benefit (¶10-320), or (b) an in-house residual fringe benefit (¶10-350). The above two types of residual fringe benefit are further categorised as either: (i) a period residual fringe benefit (¶10-120), or (ii) a non-period residual fringe benefit (¶10-130). Recipients contribution If a period residual fringe benefit is provided, it may be necessary for the employer to apportion the recipient’s contribution between one or more FBT years. The meaning and consequences of making a recipients contribution is further explained at ¶13-160. Taxable value If a period residual fringe benefit is provided, it may be necessary for the employer to apportion the value of the total residual fringe benefit (recipients overall benefit) between one or more FBT years. The amount of any recipients contribution towards the benefit provided during the current FBT year (recipients current benefit) is subtracted. For a pictorial overview of the calculation of the taxable value of a residual fringe benefit, see Workpaper 5 (¶10-640). Note: (1) From 22 October 2012, salary packaged in-house residual fringe benefits are not concessionally taxed (¶10-351). (2) From 7.30 pm AEST on 8 May 2012, airline transport fringe benefits (former Div 8) are an in-house property fringe benefit (¶9-382) or inhouse residual benefit (¶10-353).

¶10-310 External residual fringe benefit An external residual fringe benefit is a residual benefit that is not an “in-house residual fringe benefit” (¶10-340) and therefore arises if either: 1. the employer or associate provided the benefit and does not carry on a business that included the provision of identical or similar benefits principally to outsiders that was also provided to the employee, or 2. a third party provided the benefit and does not carry on a business that included the provision of identical or similar residual benefits principally to outsiders and did not purchase the benefit that was provided to the employee from the employer or associate.

¶10-320 Valuation of external residual fringe benefits The valuation of an external residual fringe benefit is dependent upon whether the benefit was provided under an arm’s length transaction by the employer or associate of an employer or a third party. Employer or associate purchases benefit This category applies where the employer or an associate of the employer purchased the residual benefit

under an arm’s length transaction and provided it to an employee or associate (s 50(a); 51(a)). The valuation of the residual benefit is the amount paid or payable by the employer or associate. This amount may have to be apportioned between FBT years if it is a period residual benefit. Example An employer (Company) issues all sales staff with a corporate credit card which may be used to pay both business and private expenses. An employee (Wally) pays for holiday accommodation ($990) that is booked to the corporate credit card of Company. The valuation of the external non-period residual fringe benefit is the amount paid by Company for the holiday accommodation ($990). The taxable value is also $990 assuming Wally is not required to make a recipients contribution.

It is important to identify the monetary amount of the benefit provided to the employee in respect of payments made by an employer or associate. For example, the payment of a taxi fare using Cabcharge is an external non-period residual benefit; however, the monthly service charge payable by the employer is not a benefit provided to the employee (National Australia Bank Ltd v FC of T 93 ATC 4914). Third party provider This category applies where a third party provides a residual benefit to an employee or an associate and the employer or an associate of the employer incurs expenditure under an arm’s length transaction to compensate the third party (s 50(b); 51(b)). The valuation of the residual fringe benefit provided to an employee or associate is the amount of the expenditure incurred by the employer or an associate of the employer. This amount may have to be apportioned between FBT years if it is a period residual benefit. Example An employer (Big Tours) agrees to pay the legal costs of an employee (Jim) who is involved in a traffic accident while holidaying in Queensland. Big Tours contacts a solicitor (Legal Eagles) to advise that Jim will be coming to see them and that they will be paying the bill. Assume Legal Eagles sends a bill for $440. The valuation of the external non-period residual fringe benefit is the amount paid by Big Tours for the benefit provided to Jim ($440). The taxable value is also $440 assuming Jim is not required to make a recipients contribution.

Non-arm’s length transaction This category applies where the above circumstances do not apply to the external residual fringe benefit provided to the employee or associate (s 50(c); 51(c)), eg if the benefit provided by the employer directly or indirectly is not an arm’s length transaction. The valuation of the residual fringe benefit provided to an employee or associate is the notional value (¶10-390) of the residual benefit at the time the benefit is provided. This amount may have to be apportioned between FBT years if it is a period residual benefit. Example An employer (Big Tours) agrees to pay the legal costs of an employee (Jim) who is involved in a traffic accident while holidaying in Queensland. Big Tours contacts a solicitor (Legal Eagles) to advise that Jim will be coming to see them and that they will be paying the bill. Legal Eagles advises Big Tours that they will waive the cost of Jim’s first consultation that would otherwise cost $440. Assume the waiver is not arm’s length. The valuation of the external non-period residual fringe benefit is the amount that Jim could reasonably have been required to pay Legal Eagles ($440). The taxable value is also $440 assuming Jim is not required to make a recipients contribution.

¶10-340 In-house residual fringe benefit An “in-house residual fringe benefit” is the provision of a residual fringe benefit (¶10-100) to an employee or an associate in one of the following two circumstances. However, a benefit provided under a contract

of investment insurance (eg life assurance) is specifically excluded from being an in-house residual fringe benefit. Employer or associate Where the provider of the residual fringe benefit is the employer or an associate of the employer, then at or about the comparison time that employer (or associate) must carry on a business consisting of, or including, the provision of identical or similar benefits principally to outsiders. Example John is an employee of Home Conveyance Ltd, a boutique legal firm providing conveyancing services to the general public. John proposes to purchase a house and his employer gives him a 30% discount on the legal costs of transferring the title of the house to him.

Third party provider Where the residual benefit is provided by a person that is not the employer or an associate of the employer, then: • the provider must have purchased the benefit from the employer or an associate of the employer, and • at or about the comparison time, both the provider and the seller must carry on a business consisting of, or including, the provision of identical or similar property principally to outsiders. Example Jennifer is an employee of Electricity Generators Ltd that sells electricity to Energy Retailers (third party), which supplies electricity to the general public. Electricity Generators Ltd enters into an arrangement with Energy Retailers whereby Jennifer will not be billed for the electricity she uses during the term of her employment.

¶10-350 Valuation of in-house residual fringe benefits The valuation of an in-house residual fringe benefit (¶10-340) is dependent upon whether the benefit is provided: 1. under a salary packaging arrangement after 21 October 2012 2. as an airline transport fringe benefit after 8 May 2012 3. in identical circumstances that would have applied to the public, or 4. in any other circumstances. The valuation methods are applied in the above order. Note: The first $1,000 of the taxable value of all in-house fringe benefits provided per employee each year is exempt from FBT. In-house salary packaged residual benefits are not eligible for this concession (¶13-140).

¶10-351 In-house salary packaged residual benefit The valuation of an in-house residual fringe benefit provided under a salary packaging arrangement is the notional value of the benefit at the comparison time (s 48(aa); 49(aa)). This valuation rule applies to benefits provided on or after 22 October 2012 unless the transitional rules apply. Also, no other in-house residual benefit valuation methodology can be used if the benefit is included in a salary packaging arrangement (¶9-396). The “comparison time” is the time when the benefit is provided (¶10-150). Notional value

The “notional value” is the amount that the person receiving the benefit would have been required to pay the provider at that time under an arm’s length transaction (¶10-390).

¶10-353 In-house airline transport residual benefit The valuation of an in-house residual fringe benefit that is an airline transport fringe benefit is 75% of the stand-by airline travel value at the comparison time. However, this valuation rule does not apply if the benefit is provided under a salary packaging arrangement (s 48(ab); 49(ab)). This valuation rule applies to benefits provided after 7.30 pm AEST on 8 May 2012 (¶10-170). An “airline transport fringe benefit” includes an in-house residual fringe benefit consisting of transport in a passenger aircraft subject to stand-by restrictions (¶9-394). An airline transport fringe benefit provided as part of a salary packaging arrangement (¶9-396) is taxable under s 48(aa) or s 49(aa) — see ¶10-351. Stand-by airline travel value The “stand-by airline travel value” is dependent upon whether the travel is on an international or domestic route: • International route: 50% of the lowest of any carrier’s standard single economy airfare for that route as publicly advertised during the FBT year. • Domestic route: 50% of the carrier’s lowest standard single economy airfare for that route as publicly advertised during the FBT year. The “standard single economy airfare” is the standard, non-preferential economy class airfare charged in respect of a scheduled air service. It also includes a concessional airfare that children, students or a blind person are entitled to. For illustrations of the calculation of the “standard single economy airfare”, see the examples at ¶9-382.

¶10-355 In-house identical residual benefit The valuation of an in-house residual fringe benefit, where identical benefits were provided to members of the public, is 75% of the lowest sale price to a member of the public at or about the comparison time (s 48(a); 49(a)). This valuation rule does not apply if the residual benefit is provided on or after 22 October 2012 under a salary packaging arrangement (¶10-351) or an airline transport fringe benefit provided after 7.30 pm AEST on 8 May 2012 (¶10-353). Lowest sale price To determine the lowest sale price, at or about the comparison time, identical benefits must have been provided: • to members of the public • in the ordinary course of business of the provider • under an arm’s length transaction • in similar circumstances, and • subject to identical terms and conditions as those that applied to the recipients benefit (except price). An “identical benefit” is another benefit that is the same in all respects except for differences that are minimal or insignificant and do not affect the value of the benefit. Whether a benefit is provided to a member of the public in the “ordinary course of business” is dependent

on a consideration of the facts. An “arm’s length transaction” is one where the parties are dealing with each other at arm’s length in relation to the transaction (¶9-388). The “recipients benefit” is the residual fringe benefit provided to the employee or associate. Example 1: Non-period residual fringe benefit (identical) Shark Hire carries on a business of hiring fishing boats to members of the public. Boats can be hired for a day, between 9 am and 4 pm (standard hire agreement). An additional fee applies if the boat is required outside these times. On a Sunday, an employee of Shark Hire (Julie) is provided, free-of-charge, with a fishing boat for one day under the standard hire agreement. The arm’s length boat hire fee payable by a member of the public to Shark Hire for an identical fishing boat on that day is $440. The valuation of the residual fringe benefit is $330, ie 75% of the lowest price ($440) payable by a member of the public in respect of an identical benefit at or about the comparison time.

Example 2: Period residual fringe benefit (identical) Executive Car Hire carries on a business of hiring motor vehicles to members of the public. On 18 March 2018, a car owned by an employee (Jason) is involved in a motor vehicle accident and has to be repaired. Executive Car Hire provides Jason with a hire car (Holden 2016 model) from their fleet until 27 May 2018 (for 10 weeks) while Jason’s car is being repaired. Jason is required to contribute $100 per week for the use of his employer’s hire car. The arm’s length car-hire fee payable by a member of the public for a Holden 2016 model for the period of 10 weeks commencing 18 March 2018 is $2,200. This is the identical overall benefit in respect of Jason’s benefit (ie recipients overall benefit) at the comparison time. The price payable by a member of the public in respect of the current identical benefit for the 2018 FBT year is $440 ($2,200 × 2 weeks/10 weeks). The valuation of the residual fringe benefit is $330, ie 75% of the lowest price ($440) payable by a member of the public in respect of current identical benefit in relation to the recipients overall benefit of $2,200.

When determining the “lowest price” at which an identical benefit is sold to a member of the public, any reduction in premium or rebate provided by the Commonwealth Government to an employee under the Private Health Insurance Incentives Act 2007 constitutes a recipients contribution and will not be included in the determination process (ATO Interpretative Decisions ID 2012/85; ID 2012/86).

¶10-357 In-house similar residual benefit The valuation of an in-house residual fringe benefit that has not been provided under a salary packaging arrangement (¶10-351) and is not an airline transport fringe benefit (¶10-353) or identical benefit (¶10355) is 75% of the notional value at the comparison time (s 48(b); 49(b)). Notional value The “notional value” is the amount that the recipient could reasonably have been required to pay the provider under an arm’s length transaction (¶10-390). The notional value of a similar benefit will typically need to be determined where: • benefits provided to the public are not identical • identical benefits have been provided to the public, but not at the comparison time • any dealings in identical benefits with the public at or about the comparison time were not at arm’s length, or • identical or similar benefits are not provided to the public at all. However, identical or similar benefits must at least be provided to “outsiders” otherwise an in-house residual fringe benefit could not be provided (¶10-340).

Example 1: Non-period residual fringe benefit (similar) Shark Hire carries on a business of hiring fishing boats to members of the public between 9 am and 4 pm (standard hire agreement). An additional fee applies if the boat is required outside these times. On 23 July 2017 (Sunday), an employee of Shark Hire (Julie) is provided with a fishing boat, free-of-charge, from her employer for one day between 5 am and 9 pm. No fishing boats have been hired on any Sunday during the past 12 months between 5 am and 9 pm. However, a competitor of Shark Hire (Dolphin Hire) regularly hires fishing boats between 5 am and 9 pm and charges $880 for the day. Assuming $880 is the amount that Julie could reasonably have been required to pay Shark Hire, the valuation of residual benefit is $660 (75% of $880).

Example 2: Period residual fringe benefit (similar) Executive Car Hire carries on a business of hiring motor vehicles to members of the public. On 18 March 2018, a car owned by an employee (Jason) is involved in a motor vehicle accident and has to be repaired. Executive Car Hire provides Jason with a hire car (2008 Ford) from their fleet until 27 May 2018 (for 10 weeks) while Jason’s car is being repaired. Executive Car Hire has only one 2008 Ford and it is generally not hired to the public and is therefore not an identical benefit. Jason is required to contribute $50 per week for the use of his employer’s hire car. The amount that Jason could reasonably have been required to pay for the use of the 2008 Ford for two weeks is $220, ie notional value of the recipients current benefit for the 2018 FBT year. The valuation of the residual fringe benefit is $165, ie 75% of the notional value ($220) of Jason’s current benefit.

¶10-360 Valuation of motor vehicles A residual benefit will arise in respect of a motor vehicle in any of the following circumstances: 1. An employer provides a motor vehicle that is not a car to an employee or associate. 2. An employer provides a hired motor vehicle for the use of an employee or associate. 3. An employer incurs the expenses of a motor vehicle held by an employee. The following discusses the calculation of the taxable value of a motor vehicle in the above three circumstances. 1. Employer-provided motor vehicles other than cars Where an employer provides a motor vehicle that is not a car and is used for private purposes, a residual fringe benefit (Div 12) will arise unless the exemption in s 47(6) applies (see ¶10-230). Example 1 Apex Accounting Pty Ltd allows an employee (Janet) to use a motor vehicle that is owned by the company. The motor vehicle has a load carrying capacity exceeding one tonne and Janet uses the vehicle to travel to and from work as well as regularly using it for private purposes. The provision of the motor vehicle to Janet is not an exempt benefit (¶10-230) and is subject to FBT (Miscellaneous Taxation Ruling MT 2027).

In Miscellaneous Taxation Ruling MT 2034, the Commissioner discusses alternative methods of determining the taxable value of these vehicles and the declaration required to be prepared (¶10-610). The alternative valuation methods are: (i) apportioning operating costs on the basis of the proportion of private kilometres to total kilometres travelled. This will require the preparation of a logbook (¶3-660), or (ii) multiplying the number of private kilometres travelled by the employee by reference to approved per kilometre rates. Of the two methods, the Commissioner expresses a preference for employers to use method 2 above

provided the number of private kilometres is small relative to the total number of kilometres travelled. For the 2018 FBT year, the following rates are to be used (Taxation Determination TD 2017/4).

Engine capacity

Rate per kilometre

Up to 2,500cc

$0.53 (2017: $0.52)

Over 2,500cc

$0.63 (2017: $0.63)

Motorcycles

$0.16 (2017: $0.16)

The taxable value is calculated using the formula: A × B −  C where: A = number of private kilometres B = cents per kilometre rate C = cash contribution (not including any payment for fuel).

Example 2 Continue the facts in Example 1. Janet estimates that her home to work and other private travel amounts to 10,000 km and the motor vehicle travelled 50,000 km during the 2018 FBT year. Janet submits a declaration (¶10-610) to Apex Accounting Pty Ltd and does not make any employee contribution towards the residual benefit. Assuming the engine capacity of the motor vehicle is over 2,500cc, the taxable value for the 2018 FBT year is $6,300 (10,000 × $0.63).

2. Hired motor vehicles Where an employer enters into a short-term hiring agreement for a motor vehicle, a residual fringe benefit will arise unless the motor vehicle is a car hired for 12 weeks or more (¶3-140). Similarly, where the employer meets the hiring costs incurred by an employee, an expense payment benefit equal to the amount paid or reimbursed will arise (¶5-110). Example 3 Bob has an accident in a car provided by his employer (ABC Ltd) and therefore cannot use it during the period of four weeks that it is being repaired. ABC Ltd hires a car for Bob’s use at a cost of $800 (hiring fee for four weeks’ use of the car). The hire car provided to Bob is assumed to be an external residual fringe benefit and therefore the taxable value is $800 unless, for example, the “otherwise deductible” rule applies.

If the hired motor vehicle qualified as an in-house residual fringe benefit (¶10-340) the taxable value will be determined using the valuation rule in ¶10-350. 3. Car held by an employee Where an employer incurs the expenses of a motor vehicle held by an employee a “car residual benefit” will arise, eg where an employer allows an employee to charge expenses of a privately owned car to a corporate credit card (¶5-160). A car residual benefit is an external residual fringe benefit. However, a reduction in taxable value is

available based on the type of car substantiation documentation provided by the employee to the employer (¶10-470).

¶10-390 Meaning of “notional value” The “notional value” is the amount that the person could reasonably be expected to have been required to pay to obtain the benefit from the provider under an arm’s length transaction. An “arm’s length transaction” (¶9-388) is a transaction where the parties to the transaction are dealing with each other at arm’s length (Granby Pty Ltd v FC of T 95 ATC 4240). AFB ¶50-200 to ¶50-390; AFT ¶817-750 to ¶818-210.

REDUCTIONS ¶10-400 Circumstances The taxable value may be reduced if the employee would have been able to claim an income tax deduction for the residual fringe benefit (¶10-420). Where a residual fringe benefit is provided in connection with a car owned or leased by an employee (¶10-470) or provided jointly to an employee and an associate (¶10-480) special rules apply. The taxable value may also be reduced in a number of specific circumstances and these are contained in Div 14. For example, reductions in taxable value are available for certain relocation (¶13-300) and remote area (¶13-400) benefits. Also, the sum of all in-house fringe benefits provided to each employee may be reduced by up to $1,000 unless provided under a salary packaging arrangement (¶13-140). Note: For the order in which reductions in taxable value are claimed see ¶2-400.

¶10-420 “Otherwise deductible” rule To the extent that the employee would have been entitled to a once-only deduction (s 52) the taxable value is reduced using the following formula (“otherwise deductible” rule): Reduced taxable value = TV − ND where: TV = Taxable value of the residual benefit (¶10-300) ND = Notional deduction (¶10-450) unless the residual benefit is a car residual benefit (¶10-470). For the rule to apply, the following conditions must be satisfied: 1. The recipient of the residual fringe benefit must be an employee (¶2-120). 2. The employee must be entitled to a once-only deduction (¶10-430). 3. The employee must give the employer certain documentation (¶10-500). A reduction in taxable value is not available where an associate of an employee is provided with a residual benefit that is used for an income-producing purpose (Taxation Determination TD 93/90). In NTLG FBT Sub-committee minutes — 16 February 2012, the ATO provided the following illustrations of the operation of the “otherwise deductible” rule when accommodation is shared. Example 1 An employee is provided with accommodation in relation to business travel, where the cost for the employee is $250 and there is no additional cost for an accompanying spouse. Separate residual fringe benefits have been provided to the employee and the spouse. However, the taxable value of the benefit provided to the spouse is nil.

The otherwise deductible rule results in the benefit provided to the employee being reduced to nil.

Example 2 An employee is provided with accommodation in relation to business travel, where the cost for the employee is $250 and there is an additional $50 charge for an accompanying spouse. The notional value of the benefit provided to the spouse is $50 because there is an additional cost incurred for the hotel accommodation over and above the cost to the employee. The benefit provided to the spouse may, however, constitute an exempt minor benefit (¶12-100). The otherwise deductible rule results in the benefit of $250 provided to the employee being reduced to nil.

Note: The “otherwise deductible” rule is not available for expenses that, had they not been provided as a fringe benefit, would have been subject to the non-commercial loss provisions in ITAA 1997 Div 35 (¶2-070).

¶10-430 Once-only deduction The employee must be entitled to a once-only deduction for the residual benefit ignoring the limitation on self-education expenses (ITAA 1936 s 82A) and the income tax substantiation rules in ITAA 1997 Div 28 and 900 (s 52(1)(b); 52(1)(ba)). A “once-only deduction” is one that is wholly or partly allowable in one year of income and not in any other year of income and therefore excludes depreciation, prepayments and borrowing expenses that are spread over more than one income year. Also, the “once-only deduction” does not have to relate to the employee’s income from employment to qualify for a reduction in taxable value. Example Paul is an employee of Aussie Legal and owns an Australian residential property that he wants to lease. Aussie Legal provides Paul with a customised lease agreement and assistance with its registration for an arm’s length price. In the above circumstances Paul is entitled to a deduction for the legal costs under ITAA 1997 s 25-20 (lease documentation expenses). Accordingly, Aussie Legal can reduce the taxable value of the in-house non-period residual fringe benefit provided to Paul.

The requirement to consider the deductibility of the benefit in the hands of the employee has the consequence that the “otherwise deductible” rule will reduce the taxable value of a benefit where the employer cannot claim a deduction because it is a capital expense but is a revenue expense of the employee (Taxation Determination TD 93/20). Example An employee travels overseas to set up a new agency for his employer and is reimbursed by him. The cost of this would be a capital expense to the employer. If the employee had paid for the trip and was not reimbursed, then he would have been entitled to a deduction if the requirements of ITAA 1997 s 8-1 were met. Therefore, the “otherwise deductible” rule applies.

In John Holland Group Pty Ltd & Anor v FC of T 2015 ATC ¶20-510, the Full Federal Court held that the costs incurred by two employers to fly its employees between their home city (Perth) and a remote work location (Geraldton) in Western Australian were expenses that would have been “otherwise deductible” to the employees. The employees paid for their own travel costs between their homes and Perth airport, after which all other transport, transfer and accommodation expenses were organised and paid for by the employers. The flights between Perth and Geraldton were undertaken during the employees’ rostered-on periods and the employees were subject to the employers’ directives and policies during that time. The employers claimed that the “otherwise deductible” rule applied to reduce the taxable value of the residual fringe benefit to nil. This was on the basis that the cost of the flights would have been deductible to the employees under s 8-1 of ITAA 1997 had they paid for the flights themselves. The Commissioner

claimed that “fly-in fly-out” employees were undertaking a journey to and from work, and that Lunney v FC of T [1958] HCA 5 had long established that such journeys were not deductible. The Full Federal Court held that the employees were relevantly at work from their arrival at Perth airport and were deriving income from that point and would be entitled to a deduction for the cost of air travel from Perth airport to Geraldton. According to Edmonds J, from the time the employees checked in at Perth airport, they were travelling in the course of their employment, subject to the directions of their employers and being paid for it. That situation subsisted until they disembarked the plane at Perth airport at the end of their rostered-on work time. At no time during that period were they travelling to work, they were travelling on work and the cost of doing so under the statutory hypothesis in s 52(1) of the FBTAA would be an allowable deduction to them under s 8-1 of ITAA 1997. Note that FBT payable on benefits provided to fly-in fly-out employees is exempt where the requirements of s 47(7) are satisfied (¶10-290).

¶10-450 Notional deduction The taxable value of a residual fringe benefit is reduced by the notional deduction unless the employer provided a car residual benefit (s 52(1)(e)). Special rules apply to the calculation of the reduction in the taxable value of a car residual benefit (¶10-470). The formula to calculate the notional deduction is: Notional deduction (ND) = GD −  RD where: GD = gross deduction, ie amount of the gross residual benefit that would have been an allowable deduction RD = allowable deduction for the recipients contribution towards the gross property benefit after taking into consideration ITAA 1936 s 51AJ (¶10-490).

Example An employee (John) wins his employer’s $500 sales incentive award and is given an airline ticket that cost the employer $600 by making a recipient contribution of $100. Assume ITAA 1936 s 51AJ does not apply (¶10-490). The airline ticket is an external non-period residual fringe benefit and the valuation of the residual benefit is the cost price of the airline ticket to the employer of $600 (¶10-320). John is able to substantiate that the travel undertaken using the airline ticket provided by his employer is 80% for an incomeproducing purpose and the remaining 20% for a holiday.

Notional deduction

= ($600  ×  80%)  −  ($100  ×  80%) = $480  −  $80 = $400

Note: In the above example, the reduced taxable value is $100, ie $500 − $400.

¶10-470 Car residual benefits A “car residual benefit” is a residual fringe benefit where, if the recipient had incurred expenditure in respect of the provision of the residual benefit that expenditure would have been a car expense (ITAA 1997 s 28-13). The car expense must be in respect of a car owned or leased by the employee and therefore cannot be in respect of a car benefit (¶3-100). Where a car residual benefit is provided by an employer, the amount of the reduction in the taxable value

is dependent upon whether the employee has maintained a logbook or claims a reduction in taxable value based on the number of business kilometres travelled by the car (s 52(1)(g) and (h)). A declaration (¶10560) must be provided by the employee. For an illustration of the calculation of the reduction in taxable value where the logbook method is used, see ¶5-460. Where a logbook has not been maintained and a declaration has been provided by the employee as to the business use of the car based on the number of business kilometres travelled, the reduction in taxable value is the lesser of: i. notional deduction (s 52(1)(h)(iii)), and ii. ND determined on the basis that the recipient contribution is not adjusted for business use (s 52(1)(h) (iv)), or iii. where the recipient contribution is adjusted for business use (s 52(1)(h)(v)), the ND determined on that basis. Example An employer (XYZ Ltd) engages Mechanics Pty Ltd to repair a car owned by an employee (Heather) that is used partly for business purposes. Mechanics Pty Ltd gives XYZ Ltd an invoice detailing the spare parts (property) and labour (residual benefit) making up the repair bill of $3,750. The total repair bill is an external residual fringe benefit. Heather is required to contribute $750 towards the repair bill regardless of whether or not her car is used partly for business purposes and provides a residual benefit declaration (¶10-560) to her employer. As illustrated below the lesser of the notional deduction and ND is $750.

Notional deduction The notional deduction (¶10-450) is: Notional deduction = GD −  RD As the taxable value of the residual benefit is $3,000 ($3,750 less $750) and assuming the business use percentage is 25% based on the odometer details shown in the employee declaration, then: Notional deduction

= ($3,750  ×  25%)  −  ($750  ×  25%) = $937.50  −  $187.50 = $750

Recipient contribution not adjusted for business use The ND calculated in accordance with s 52(1)(h)(iv) is: ND

=

TV  ×  33⅓%

=

$3,000  ×  33⅓ %

=

$1,000

¶10-480 Jointly provided residual benefits Where a residual benefit is provided jointly to an employee and an associate the reduction in taxable value is limited to the amount of residual benefit that the employee would otherwise have been entitled to claim as an income tax deduction. This is achieved by requiring employers to use the formula in s 52(5) to determine the notional deduction (ND):

ND = Unadjusted ND  ×  Employee’s percentage interest where: Unadjusted ND

= amount assuming s 138(3) continues to apply. See ¶10-450 and ¶10470

Employee’s percentage = employee’s percentage interest in the income producing thing that is interest the subject of the residual fringe benefit.

¶10-490 Application of ITAA 1936 s 51AJ Employees or associates are not entitled to a deduction for contributions towards a residual benefit (¶10110) to the extent the contribution was determined by reference to the private use of the benefit (ITAA 1936 s 51AJ). See the loan fringe benefit illustration at ¶6-490. AFB ¶50-400 to ¶50-480; AFT ¶818-310 to ¶818-330.

DOCUMENTATION ¶10-500 Overview Generally, employers must obtain from employees either a declaration (¶10-520) or a travel diary (¶10540) in order to reduce the taxable value of a residual fringe benefit. Additional documentation may be required if a car residual benefit is provided (¶10-560). Employers are also required to maintain supporting documentation to substantiate the FBT liability (if any) shown on the FBT return (¶2-730).

¶10-520 Declaration A residual benefit declaration (¶10-620) is prepared by employees to indicate the income-producing purpose of the residual fringe benefit provided by the employer. However, the declaration is not required where the fringe benefit is (s 52(1)(c)): (i) an exclusive employee residual benefit (ii) covered by a recurring fringe benefits declaration (¶10-630), or (iii) an extended travel residual benefit. Exclusive employee residual benefit An “exclusive employee residual benefit” is a residual benefit that would have been incurred exclusively in gaining or producing salary or wages of the employee had they borne the cost of the fringe benefit. Example Barbie Inc has a shortage of sales representatives for the launch of its new product range in Melbourne and assigns an employee (Denise) from Sydney to assist. Barbie Inc purchases a return airfare to enable Denise to help out with the Melbourne product launch. The cost of the return airfare from Sydney to Melbourne, if paid by Denise, would have been incurred exclusively in gaining or producing her employment income. Accordingly, Denise is not required to prepare an employee declaration.

Extended travel residual benefit An “extended travel residual benefit” is a benefit in respect of:

• overseas travel that involves the recipient being away from their usual place of residence for a continuous period of more than five nights, or • local travel where the recipient is away from their usual place of residence for a continuous period of more than five nights and the travel was not exclusively undertaken to earn the salary or wages of the recipient • but does not include an ITAA 1997 Div 28 car expense. Although a declaration is not required, the employee is required to prepare a travel diary (¶10-540).

¶10-540 Travel diary Where an extended travel residual benefit (¶10-520) is provided, other than an international aircrew residual benefit, a travel diary or similar document must be given to the employer before the declaration date (s 52(1)(d)). Alternatively, the ATO has indicated that an employer can prepare a no-private-use declaration (¶10-210) — see the ATO publication, Fringe benefits tax — a guide for employers (¶2-720). An “international aircrew residual” is food, drink, accommodation, etc, in the performance of the employee’s employment duties as a pilot, flight attendant or crew in relation to travel outside Australia. See ¶5-540 for details of the information required to be shown in a travel diary and suggested documentation.

¶10-560 Car residual benefits For employers to reduce the taxable value of a car residual benefit (¶10-470), the employee must give to the employer a residual benefit declaration (¶10-620). In addition, the employee must comply with the substantiation rules in Div 15 if the logbook method is used to reduce the taxable value of the residual fringe benefit. The substantiation rules in Div 15 are similar to the substantiation rules that apply to car fringe benefits (¶3-670).

¶10-600 Workpaper 1: No-private-use declaration — residual benefits

¶10-610 Workpaper 2: Employer-provided vehicles other than cars declaration

¶10-620 Workpaper 3: Residual benefit declaration RESIDUAL BENEFIT DECLARATION For FBT year ending........................ EMPLOYER Section A (To be completed by all taxpayers together with one of the sections B or C if a car residual benefit was provided.)

I, .................................... (name of employee)

 declare that ....................................  (Nature of the goods, eg car expenses, employer products, stationery, etc)

was provided to me by or on behalf of my employer during the period .................. 20...... to .................. 20...... and that benefit was used by me for the following purpose(s): .................................... .................................... (Please give sufficient information to demonstrate the extent to which the benefit was used by you for the purpose of earning your assessable income.)

I also declare that had I purchase the service or privilege, etc for its market value, I would have been entitled to claim an income tax deduction equal to ............% of the purchase price. Note 1: If Section B is completed the above percentage is that shown in Section B. Note 2: If section C is completed the above percentage is the lesser of 33⅓% and the proportion of business kilometres stated in Section C.

Section B: Log book records & odometer records maintained (To be completed where the necessary log book records and odometer records have been maintained.)

I declare that: (i) the period of the FBT tax year the car was in use by me for business purposes was: .................. 20...... to .................. 20......; (ii) log books and odometer records for the car (or a car which this car replaces) were kept for a minimum of 12 consecutive weeks during that period and have been given to the employer, or (iii) log books and odometer records for the car (or a car which this car replaces) were kept for a minimum of 12 consecutive weeks in an earlier year, and odometer records were kept this year and have been given to the employer (iv) the car business percentage for the period mentioned in item (i) above was ......%. Note: The business use percentage is the proportion of business kilometres to total kilometres. The percentage is to be determined by taking into account the business use in the log book records and variations in the pattern of business use throughout the year, due to things like holidays or seasonal factors.

Section C: No log book records (To be completed where the benefit relates to a car and Section B is not applicable.)

I declare that: (i) the period of the FBT year the car was in use by me for business purposes was: ............ 20 ...... to ............ 20......; (ii) the total number of kilometres travelled by the car in that period was ............ (iii) the number of business kilometres travelled by the car in that period was ............ Signature: ........................    Date: .................................... Publisher’s Note: The above wording has been adapted from the ATO approved format available on the ATO website at https://www.ato.gov.au/Forms/Employee-Declaration/. Instructions: 1. Complete Section A and one of sections B or C (if applicable). 2. After completing Section A and one of sections B or C put a diagonal line through the inapplicable section. 3. Sign and date the declaration and attach supporting documentation.

¶10-630 Workpaper 4: Recurring residual benefit declaration

¶10-640 Workpaper 5: Residual benefits — taxable value summary

OTHER FRINGE BENEFITS INTRODUCTION Overview

¶11-000

BOARD FRINGE BENEFITS Overview

¶11-400

Definition

¶11-420

Exemptions

¶11-440

Taxable value

¶11-480

Reductions in taxable value

¶11-520

Documentation

¶11-560

Workpaper 1: Board benefits — taxable value summary

¶11-590

DEBT WAIVER FRINGE BENEFITS Overview

¶11-600

Definition

¶11-620

Exemptions

¶11-640

Taxable value

¶11-680

Reductions in taxable value

¶11-720

Documentation

¶11-760

Workpaper 2: Debt waiver benefits — taxable value summary ¶11-790 MEAL ENTERTAINMENT Overview

¶11-800

Meal entertainment

¶11-810

What is not meal entertainment?

¶11-820

Meal entertainment — concessional methods

¶11-830

50/50 split method

¶11-840

12-week register method

¶11-850

Entertainment — actual method

¶11-860

Flowchart: Meal entertainment — actual method

¶11-865

Table 1: Food or drink expenditure

¶11-875

Table 2: Food or drink on business premises

¶11-880

Table 3: Food or drink off business premises

¶11-885

TAX-EXEMPT BODY ENTERTAINMENT FRINGE BENEFITS Overview

¶11-900

Definition

¶11-910

Exemptions

¶11-920

Taxable value

¶11-930

Documentation

¶11-950

INTRODUCTION ¶11-000 Overview This chapter provides a brief overview of the nature of three categories of fringe benefit and the alternative methods of calculating the taxable value of meal entertainment.

BOARD FRINGE BENEFITS ¶11-400 Overview A board fringe benefit arises where an employee is entitled under an industrial award or employment arrangement to accommodation and to at least two meals a day. The meal must be prepared and supplied on the employer’s premises or a related company’s premises or at or adjacent to a worksite. Where a meal does not satisfy the definition of a board benefit it may be, for example, a property benefit (¶9-110). It is to the employer’s advantage if a benefit is a board benefit rather than a property benefit, because of the concessional valuation provisions that apply.

¶11-420 Definition A board benefit (s 35) arises where a meal is provided to an employee or an associate of the employee: 1. on a meal entitlement day 2. by the employer 3. on the employer’s premises, and 4. is not prepared or provided in an excluded circumstance. All of the above requirements arise from the definition of “board meal” and “meal entitlement day” in s 136(1). A “meal entitlement day” is a day on which an employee or associate (ie recipient) was entitled to be provided with residential accommodation (with or without charge) and two meals pursuant to the provisions of an industrial instrument or under an employment arrangement (with or without charge). A board meal must be provided by the employer of the employee or, if the employer is a company, a company that is related (s 158) to the employer. Also, a board meal must be prepared and provided to the employee on “eligible premises” or in an “eligible dining facility” as defined in s 136(1). Except for employees of restaurants, hotels, motels, etc, the meal must not be provided in a public dining facility. Meals at a party, reception, etc, are excluded, as are meals prepared in a facility exclusive to the employee concerned.

¶11-440 Exemptions Meals provided to persons employed in a primary production business located in a remote area are generally exempt (¶12-500). Also food, other than meals, provided in conjunction with a board fringe benefit (¶12-950) is exempt. Where an employee is providing live-in care to elderly, handicapped or necessitous persons, so that accommodation provided to the employee would be an exempt benefit, then meals provided to the

employee and members of the employee’s family are exempt to the same extent (¶12-710).

¶11-480 Taxable value The taxable value of a board fringe benefit depends on the age of the employee or associate (recipient) at the commencement of the FBT year the benefit is received (s 36). In particular, where the recipient of a board fringe benefit is: (a) 12 years or over before 1 April — the taxable value is $2 per meal, and (b) 11 years or younger before 1 April — the taxable value is $1 per meal. Both amounts are reduced by any recipients contribution (¶13-160) and are Type 2 gross-up amounts. The expenditure incurred in respect of providing meals to employees is a deductible expense of the employer (ITAA 1997 s 32-20). For a pictorial overview of the calculation of the taxable value of a board fringe benefit, see Workpaper 1 (¶11-590).

¶11-520 Reductions in taxable value Where the employee would have been entitled to an income tax deduction for expenditure on the meal, the taxable value is reduced by applying the “otherwise deductible” rule in s 37 (¶13-120). Any reduction in the taxable value of a benefit is only available to an employer where the board fringe benefit concerned is provided to an employee of the employer. No reduction is available for a benefit provided to an associate of an employee, even though the associate or the employee may have been entitled to an income tax deduction in respect of expenditure on the meal concerned (Taxation Determination TD 93/90). Although the benefit must be provided to the employee, it need not be provided by the employer. It may, for example, be provided by a related company of a company employer or by a third party under an arrangement.

¶11-560 Documentation It is not necessary for the employer to obtain from the employee a declaration as to the extent to which the employee would have been entitled to a deduction for expenditure on the recipient’s meal. AFB ¶37-000 to ¶37-580; AFT ¶812-130, ¶812-860.

¶11-590 Workpaper 1: Board benefits — taxable value summary

DEBT WAIVER FRINGE BENEFITS ¶11-600 Overview Where an employer or associate of an employer forgives an amount owing by an employee or associate of an employee, a debt waiver benefit will arise. A remuneration advance received by an insurance agent and offset against commissions actually earned was assessable income and did not give rise to a debt waiver fringe benefit (Cohen v FC of T 2000 ATC 4424). Note: The special rules in ITAA 1997 Div 245 ensure that taxpayers are not allowed to effectively duplicate the tax deduction that would otherwise arise from the forgiveness of a commercial debt. However, these rules do not apply where the debt forgiven is a debt waiver fringe benefit (ITAA 1997 s 245-40(a)).

¶11-620 Definition A debt waiver benefit (s 14) arises where: 1. one person (called “the recipient”) is under an obligation to pay or repay an amount to another (called “the provider”)

2. the provider waives the obligation of the recipient to pay or repay that amount. The above two requirements are further explained below. Obligation to pay or repay an amount An “obligation” is defined in s 136(1) to include an obligation that is not enforceable by legal proceedings. Also, the obligation to pay or repay must be an amount of money and therefore does not include an obligation to supply or return an item of property due to the operation of s 145. For example, an obligation to supply or return an item of property is not an obligation to pay or repay an amount of money. The waiver of such an obligation will not be a debt waiver benefit, although it may give rise to another form of benefit, such as a property benefit (¶9-110) or a residual benefit (¶10-110). Waiver The provider of the amount to a recipient must waive the obligation of the recipient to pay or repay that amount. The waiver (ie release) may be by action or conduct of the provider, such as a written or oral release from a debt. However, merely forbearing to demand payment or to enforce a demand for payment will generally not amount to a debt waiver. Payment by mistake In Taxation Determination TD 2008/11, the ATO states that where an employer mistakenly pays to its employee an amount that the employee is not legally entitled to, but is obliged to repay, the employer’s subsequent waiver of that obligation constitutes a debt waiver benefit. However, where it is established that the recipient of the mistakenly paid amount is under no obligation to repay the amount then no debt waiver benefit can arise under s 14. For example, if the employee establishes a defence to a claim for restitution by the employer as discussed in David Securities Pty Ltd & Ors v Commonwealth Bank of Australia 92 ATC 4658.

¶11-640 Exemptions There are no exempt debt waiver benefits in Div 3. A debt waiver will always give rise to a taxable value unless it is a minor benefit (¶12-100) or is not a fringe benefit. For example, a debt waived for commercial reasons, such as where the employee has no assets and is unable to repay it, would not give rise to a benefit. Similarly, where under a commercial loan agreement a lender accepts a transfer of shares in full satisfaction of the loan, there is no waiver (ATO Interpretative Decisions ID 2003/316; ID 2003/317).

¶11-680 Taxable value The taxable value of a debt waiver fringe benefit is simply the amount of the payment or repayment which is waived. Also, a debt waiver benefit arises at the time when the obligation concerned is waived (s 15). A debt waiver fringe benefit is subject to the Type 2 gross-up rate (¶2-510). For a pictorial overview of the calculation of the taxable value of a debt waiver fringe benefit, see Workpaper 2 (¶11-790).

¶11-720 Reductions in taxable value Division 3 does not provide for any reduction in the taxable value of a debt waiver fringe benefit or take account of any consideration provided for the waiver. For example, if an employee provides consideration, such as giving up some valuable right against the employer, in exchange for a debt waiver benefit, the value of any debt waiver fringe benefit will still be the full amount of payment or repayment which the employer has waived.

¶11-760 Documentation

Other than the general record-keeping obligation imposed upon employers (¶2-730), no other documentation is required to be prepared. AFB ¶28-000 to ¶28-520; AFT ¶803-380.

¶11-790 Workpaper 2: Debt waiver benefits — taxable value summary

MEAL ENTERTAINMENT ¶11-800 Overview Entertainment is the provision of food, drink or recreation to an employee, associate of an employee or third party. To determine the FBT treatment of entertainment, it is necessary to categorise the expenditure as either meal entertainment or recreational entertainment. Recreational entertainment is entertainment that is not meal entertainment (¶11-810). Taxable employers calculate the taxable value of entertainment fringe benefits provided to employees and associates based on the category of fringe benefit provided or “actual method” (¶11-860). Taxexempt employers calculate the taxable value in accordance with the rules in Div 10 (¶11-900). Both taxable and tax-exempt employers can elect to calculate the taxable value of meal entertainment benefits using the concessional methods in Div 9A (¶11-830); however, FBT on recreational entertainment continues to be calculated using the actual method.

Meal entertainment and entertainment facility leasing expenses are not reportable fringe benefits except where they are provided under a salary packaging arrangement from 1 April 2016 (¶15-120).

¶11-810 Meal entertainment A meal entertainment benefit arises where “meal entertainment” is provided by an employer to another person, except where the meal entertainment is provided under a salary packaging arrangement from 1 April 2016 (s 37AC). Broadly, meal entertainment consists of (s 37AD): (a) entertainment by way of food or drink (b) travel or accommodation connected with (a), or (c) the reimbursement or payment of expenses incurred in providing (a) or (b). When one of the above three circumstances exists, a meal entertainment benefit exists regardless of whether business discussions or transactions occur, or the provision of entertainment is in connection with the working of overtime or otherwise in connection with the performance of work duties, or for the purposes of promotion or advertising, or at, or in connection with, a seminar. Example: Car parking Food or drink is provided to employees at a restaurant (s 37AD(a)). An employee drove to the restaurant and incurred a fee to park his car which was reimbursed by his employer. Car parking is part of the journey undertaken between one place and another (travel). Accordingly, the reimbursement of car parking fees is incurred in providing meal entertainment (s 37AD(c)) and therefore is a meal entertainment benefit (ATO Interpretative Decision ID 2014/15).

Unlike the definition of “entertainment” contained in ITAA 1997 s 32-10, the definition of “meal entertainment” does not include the provision of recreation, eg movie tickets, joy flight, harbour cruise or game of golf. All employers are required to pay FBT based on the actual amount of this “recreational entertainment”. Determining meal entertainment The determination of whether or not the provision of food and drink constitutes the provision of entertainment requires an objective analysis of all the surrounding circumstances. The Commissioner considers that the following factors are relevant (Taxation Ruling TR 97/17): (a) why the food and drink is being provided? (b) what type of food and drink is being provided? (c) when that food and drink is being provided? (d) where the food and drink is being provided? The ATO considers that none of the above individual factors will be determinative; however, factors (a) and (b) are considered the more important. Examples of meal entertainment are: • breakfast, lunch or dinner consumed at a restaurant for the purpose of business networking • food or drink consumed at a social function held on the business premises, eg Friday night drinks, and • food or drink consumed at a social function held off the business premises, eg Christmas party or other social event. Once it has been determined that meal entertainment has been provided, the employer must decide

whether to use the actual method (¶11-860) or one of the concessional methods (¶11-830) to determine the amount of deductible expenditure and FBT payable.

¶11-820 What is not meal entertainment? The following types of food or drink expenditure and/or circumstances are not considered to amount to “meal entertainment”. Sustenance The following types of food or drink expenses do not amount to “entertainment” (Taxation Rulings IT 2675; TR 97/17): • morning and afternoon teas • light meals (provided no alcohol is served) in the context of a working lunch, eg sandwiches. Taxation Ruling TR 97/17 also considers that light refreshments provided immediately prior to or following a seminar (eligible or ineligible) which are included as part of the cost of the seminar are deductible. The only condition is that the seminar is otherwise deductible under ITAA 1997 s 8-1, eg a continuing professional development course. Business travel Food or drink provided in the course of overnight business travel is not entertainment (see note at the foot of ITAA 1997 s 32-10). Accordingly, the cost of meals consumed by travelling employees and business clients is not meal entertainment. However, if an element of entertainment is introduced (eg a floor show) then the character of the food or drink is changed and it becomes meal entertainment (Taxation Rulings IT 2675; TR 97/17). The portion of food or drink provided to non-travelling employees or business clients remains meal entertainment where the actual method (¶11-860) of apportioning meal entertainment is used. Where an election is made to use one of the concessional methods of determining meal entertainment apportionment is based on the rules in Div 9A (¶11-830). Minor items of property The characteristics of “timeliness” and “direct connection” are required for the provision of property to amount to entertainment (Taxation Determination TD 94/55). On this basis, the following examples are provided to illustrate what is and what is not “entertainment”: “Costs incurred in the giving of items of property, such as bottled spirits, groceries, games, TV sets, VCRs, computers, crockery, swimming pools, gardening equipment, etc; have an enduring character, and only an indirect nexus to any immediate entertainment. Consumption is usually delayed. The items of property usually require further steps before they can be consumed, and consumption can occur over a long period.” Accordingly, the above types of property that do not amount to entertainment are a deductible expense where the requirements of ITAA 1997 s 8-1 are satisfied. However, FBT is payable if the costs incurred are not an exempt property benefit (¶9-220) or a minor benefit (¶12-100). Alcohol The provision of alcohol is generally entertainment whether or not it is provided with morning or afternoon tea or at a light meal because the consumption of alcohol has social connotations and therefore provides or affords diversion or amusement (Taxation Ruling IT 2675). However, Taxation Ruling TR 97/17 concludes that a deduction is allowable in some circumstances, such as business travel and some seminars.

¶11-830 Meal entertainment — concessional methods Where an election has been made under Div 9A, the taxable value of meal entertainment benefits provided to employees (and associates) is calculated under either the “50/50 split method” (¶11-840) or

“12-week register method” (¶11-850). The election is not available in respect of meal entertainment which is not provided by the employer (s 37AA). For example, meal entertainment provided by an associate of the employer or by another person. The election is also not available where the meal entertainment is provided under a salary packaging arrangement from 1 April 2016. A contribution by an employee or associate towards the provision of meal entertainment reduces the amount of meal entertainment expenditure (s 37AB) but not contributions by a third party (ATO Interpretative Decision ID 2005/146).

¶11-840 50/50 split method The taxable value of meal entertainment is 50% of the total expenditure incurred by an employer on the provision of meal entertainment during the current FBT year to employees, associates and third parties during the FBT year (s 37BA). All meal entertainment benefits, whether provided to employees, associates or third parties and any related accommodation or travel must be included. Example An employer invites employees and third party contractors who have successfully completed a long-term project to dinner at a restaurant. Employees are issued with cab charge dockets to facilitate them getting to the function and returning home. The employees heading up the project are provided with accommodation at a hotel. The food and drink provided at the restaurant and the associated accommodation and taxi travel amount to meal entertainment as it is a social activity.

Income tax deduction The employer is entitled to claim 50% of the expenditure incurred on the provision of meal entertainment during the current FBT year. No other deduction is allowable for the same expenditure and therefore ITAA 1997 Div 32 does not apply (ITAA 1936 s 51AEA).

¶11-850 12-week register method The taxable value of meal entertainment is (s 37CB(1)): Meal entertainment (current FBT year) × Register percentage The register percentage is calculated on the basis of the following fraction and the amount calculated is deductible for income tax purposes (s 37CB(2)): Total value of meal entertainment fringe benefits provided in the 12-week period Total value of meal entertainment provided in the 12-week period

Example An employer’s total meal entertainment expenditure in an FBT year is $100,000. The employer maintains a 12-week register which allows the employer to determine that 30% of meal entertainment expenditure (using the “actual method”) was provided as a fringe benefit. The taxable value of meal entertainment fringe benefits provided is 30% × $100,000, ie $30,000.

The employer must keep a register for a continuous 12-week period which is representative of the expenditure in the relevant year (s 37CC). Generally, the register can be used for the year in which it is kept and the subsequent four years (s 37CD). Income tax deduction For each expense incurred in an FBT year incurred by the employer in providing meal entertainment, the deduction allowed is the amount of meal entertainment expenditure incurred in an FBT year multiplied by the register percentage (ITAA 1936 s 51AEB(1)).

The register percentage is the percentage of (ITAA 1936 s 51AEB(2)): Total deductions for register meal entertainment Total register meal entertainment expenses The “Total deductions for register meal entertainment” is the total deductions that would (but for ITAA 1936 s 51AEA; 51AEB) be allowable to the employer for expenses incurred in providing meal entertainment during the 12-week register period. The “Total register meal entertainment expenses” is the total of expenses incurred by the employer in providing meal entertainment during the 12-week period in which the register is kept. Example The employer elects to use the 12-week register method for FBT purposes and maintains a register from 31 December 2015 to 24 March 2016. During this 12-week period, meal entertainment expenses totalling $12,000 are incurred, of which $9,000 would be deductible. The register percentage is:

$9,000  =  $12,000 75% If during the whole of the 2017/18 income year the taxpayer incurs meal entertainment expenses totalling $50,000 and the register remains valid (s 37CD(3)), the amount deductible under ITAA 1936 s 51AEB is $37,500, ie $50,000 × 75%. No other amount is deductible under any other section of the ITAA 1936 or ITAA 1997.

¶11-860 Entertainment — actual method Where an employer has not made a Div 9A election, meal entertainment provided to employees and associates is, depending on the circumstances, subject to FBT as: • an expense payment fringe benefit (¶5-100), eg reimbursement of entertainment expenditure incurred on a personal credit card of an employee to the extent that the entertainment was provided to employees or their associates • a property fringe benefit (¶9-100), eg an entertainment meal provided in a restaurant to an employee • a residual fringe benefit (¶10-100), eg use by an employee of sporting facilities owned by an employer • a board fringe benefit (¶11-400), eg an entertainment meal provided to an employee who is entitled under an industrial award to accommodation and at least two meals per day, or • a tax-exempt body entertainment fringe benefit (¶11-900), eg the provision of an entertainment meal to an employee by an employer which is a tax-exempt body. The taxable value of “recreational entertainment” (¶11-810) is calculated in accordance with the above rules regardless of whether the employer has made a Div 9A election. Apportionment of meal entertainment Where meal entertainment is provided in part to employees (or associates of employees) and to third parties (eg clients), an apportionment of the expenditure is required. Meal entertainment provided to third parties reduces the taxable value of expense payment fringe benefits (s 63A). Where the benefit relating to employees (or their associates) cannot easily be determined, the ATO will accept the use of a “per head” basis of apportionment. This does not preclude employers from using an exact expense basis if they wish (Taxation Determination TD 94/25). Example: Property fringe benefit Bill and Jill are employees of Work Ltd. At the request of Work Ltd, Bill and Jill take a major client (Jim) out to lunch to discuss business matters. The cost of the dinner is $300 which is paid by Bill using his employer’s corporate credit card.

The portion of the expense on lunch attributable to Bill and Jill ($200) is a deductible expense and a property fringe benefit. The amount attributable to Jim ($100) is a non-deductible expense and not subject to FBT.

Determining meal entertainment The flowchart at ¶11-865 provides an overview of how the actual method applies to the determination of meal entertainment. Other categories of fringe benefit may apply to the provision of the food or drink (eg LAFH allowance). FBT is calculated in accordance with the valuation rule for the benefit and, being fringe benefits, the whole of the expenditure is deductible (ITAA 1997 s 32-20). The meaning of entertainment is discussed in Taxation Ruling TR 97/17. In addition, a detailed explanatory table is provided of whether food or drink provided in various circumstances amounts to meal entertainment. The following tables are based on that ruling: Table 1: Food or drink expenditure (¶11-875) This provides a summary of the treatment of alcohol and food or drink provided in various circumstances. For some categories it is necessary to refer to tables 2 or 3. Table 2: Food or drink on business premises (¶11-880) Where food or drink is provided on the employer’s business premises it is exempt from FBT if provided as a property fringe benefit. Table 3: Food or drink off business premises (¶11-885) Where food or drink is provided at a venue other than the employer’s business premises a general rule applies. However, the general rule is varied in a number of circumstances including where the food or drink is provided in the course of the employee undertaking business travel. AFB ¶60-000 to ¶60-595; AFT ¶813-000, ¶813-050.

¶11-865 Flowchart: Meal entertainment — actual method

¶11-875 Table 1: Food or drink expenditure This contains illustrations of the treatment of various types of food, drink and recreation expenditure by taxable employers. It is based on Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink. If a particular type of food/drink expenditure is not listed, refer to ¶11-880; ¶11-885. For additional clarification, see the detailed commentary references indicated. Key: ME

=

meal entertainment

R

=

recreational entertainment

¶11-880 Table 2: Food or drink on business premises See ¶11-875 for an explanation of the abbreviations.

¶11-885 Table 3: Food or drink off business premises See ¶11-875 for an explanation of the abbreviations.

TAX-EXEMPT BODY ENTERTAINMENT FRINGE BENEFITS ¶11-900 Overview This type of benefit can arise to an employer who, although generally not income tax-exempt, derives some exempt income and incurs entertainment expenditure wholly (or partly) attributable to the exempt income.

¶11-910 Definition A tax-exempt body entertainment benefit arises where (s 38): • a person provides entertainment to an employee (or an associate of the employee) • the entertainment is in respect of the employment of the employee • the person providing the entertainment incurred expenditure in the provision of the entertainment which, if it were incurred in producing assessable income, would be non-deductible by virtue of ITAA 1997 Div 32, apart from ITAA 1997 s 32-20 • the person providing the entertainment did not incur the entertainment expenditure in producing assessable income, and • the provision of the entertainment in not producing assessable income to the provider was also in respect of the employment of the employee to whom the entertainment was provided. The following aspects of the above definition are to be noted. Employee or associate of employee Where an employer provides entertainment at one time and in one place to both employees and persons who are not employees, eg at a reception, FBT will only apply to the entertainment provided to the employee. The entertainment provided to the other guests will totally escape FBT. Tax-exempt body As a general rule, an employer will be a tax-exempt body where it either does not derive assessable income from its activities or otherwise is specifically exempt from income tax. Non-deductible entertainment While entertainment expenditure is generally non-deductible due to Div 32, there are certain exceptions. For example, the cost of meals provided to employees in a staff cafeteria excluding benefits associated with a social function, the cost of meals at certain business seminars and meals on business travel overnight.

¶11-920 Exemptions There are no specific exemptions in Div 10; however, certain religious and non-profit organisations are exempt (¶12-710). In addition, the minor benefits exemption will apply if, apart from satisfying the conditions in ¶12-100, the following requirements are met (ATO publication, Tax-exempt body entertainment fringe benefits): • the provision of the entertainment is incidental to the provision of entertainment to outsiders and does not consist of a meal, other than light refreshments, or • a function is held on a business premise solely as a means of recognising the special achievements of an employee in a matter relating to the employment of this employee. In these circumstances, only benefits provided to your employee, and their associates, are exempt from FBT.

¶11-930 Taxable value The taxable value of the benefit is the expenditure incurred in providing the entertainment to the employee concerned (s 39). Where the expenditure is used to provide entertainment for more than one person, the taxable value is the appropriate proportion of the total expenditure. Tax-exempt employers may also use either the 50/50 split method or the 12-week register method of valuing meal entertainment fringe benefits (¶11-800). However, these methods are not available where the meal entertainment is

provided under a salary packaging arrangement from 1 April 2016 (¶11-830). FBT is payable on the grossed-up taxable value of the benefit (¶2-500). However, a rebate is available to certain non-profit employers (¶14-310).

¶11-950 Documentation There are no specific documentation requirements other than the general record-keeping requirements (¶2-700). AFB ¶60-650 to ¶60-780; AFT ¶813-360.

MISCELLANEOUS EXEMPT BENEFITS INTRODUCTION Overview

¶12-000

GENERAL Overview

¶12-050

Minor benefits

¶12-100

Applying the “unreasonable” test

¶12-110

Examples of minor benefits

¶12-115

Work-related items

¶12-120

Portable electronic devices — monthly charges

¶12-130

Newspapers and periodicals

¶12-140

Membership fees and subscriptions

¶12-160

Taxi travel

¶12-180

MOTOR VEHICLE PARKING Overview

¶12-190

Car parking expense payment benefits

¶12-195

Residual parking benefits

¶12-200

Small business car parking

¶12-205

Certain non-profit employers

¶12-210

Government public educational institutions

¶12-215

Car parking facilities for disabled persons

¶12-220

EMPLOYEE AWARDS AND ENTITLEMENTS Overview

¶12-230

Long service awards

¶12-240

Safety awards

¶12-260

Worker entitlement contributions

¶12-280

Deposits to the Superannuation Holding Accounts Reserve ¶12-290 RELOCATION Overview

¶12-310

Employment interviews and selection tests

¶12-320

Relocation consultant engagement costs

¶12-340

Removal and storage of household effects

¶12-360

Home sale or acquisition benefits

¶12-370

Home sale costs

¶12-380

Home purchase costs

¶12-400

Costs of connection or re-connection of utilities

¶12-420

Leasing of household goods while LAFH

¶12-440

Relocation transport

¶12-460

REMOTE AREA Overview

¶12-470

What is a remote area?

¶12-475

Remote area housing

¶12-480

Meals for primary production employees

¶12-500

EMPLOYEE HEALTH Overview

¶12-510

Work-related injuries

¶12-520

Work-related injury insurance

¶12-530

In-house health care facilities

¶12-540

Travel to obtain medical treatment

¶12-560

Compassionate travel

¶12-580

Work-related medical examinations

¶12-600

Work-related medical screening

¶12-610

Work-related preventative health care

¶12-620

Work-related counselling

¶12-630

Migrant language training

¶12-640

Work-related travel costs

¶12-650

Emergency assistance

¶12-660

EDUCATION Overview

¶12-670

Trainees under Australian Traineeship System

¶12-680

Approved student exchange programs

¶12-700

CARE WORKERS Overview

¶12-710

Live-in residential care workers

¶12-720

Live-in help for elderly and disadvantaged persons

¶12-730

Live-in domestic employees

¶12-740

Non-live-in domestic employees (food and drink)

¶12-750

EXEMPT EMPLOYERS Religious institutions

¶12-790

International organisations

¶12-800

Foreign governments

¶12-810

SECTION 57A EMPLOYERS

Overview

¶12-830

Public benevolent institutions

¶12-840

Government bodies employing hospital staff

¶12-850

Meaning of “public hospital”

¶12-855

Public hospitals and ambulance services

¶12-860

Non-profit hospitals

¶12-870

Health promotion charities

¶12-880

Non-profit organisations and associations

¶12-885

Charities and charitable institutions

¶12-890

ACNC registration requirements

¶12-900

Meaning of “institution”

¶12-905

AVOIDING DOUBLE COUNTING Overview

¶12-920

Car expenses

¶12-930

Motor vehicle expenses

¶12-940

Food and drink in certain cases

¶12-950

APPENDIX Applying the minor benefits exemption

¶12-980

INTRODUCTION ¶12-000 Overview This chapter discusses a number of miscellaneous circumstances in which FBT is not payable and are in addition to the specific exemptions discussed in Chapters 3 to 11 inclusive. These miscellaneous exemptions are dependent upon the employer being able to satisfy certain conditions and, in some circumstances, are limited to certain categories of fringe benefit. The benefits that are exempt have been organised under headings that are descriptive of the circumstances in which an exemption applies. For each miscellaneous exempt benefit a brief description is provided of the circumstances that will trigger an exemption from FBT. This is followed by a list of the conditions that must be satisfied for the FBT exemption to apply.

GENERAL ¶12-050 Overview This grouping of exempt benefits has application to most employers. It contains the minor benefits (¶12100), work-related items (¶12-120), newspapers and periodicals (¶12-140), memberships and subscriptions (¶12-160) and taxi travel (¶12-180) exemptions.

¶12-100 Minor benefits A benefit with a notional taxable value of less than $300, where it would be unreasonable for the benefit

to be treated as a fringe benefit, is an exempt benefit (s 58P). To qualify for the exemption, all of the following conditions must be satisfied: 1. A benefit is provided in respect of the employment of an employee. 2. The benefit is not excluded from being a minor benefit. 3. The notional taxable value is less than $300 (minor benefits threshold test). 4. Associated benefits provided during the year must be considered. 5. It would be unreasonable to treat the benefit as a fringe benefit (“unreasonable” test). Each of the above conditions is further explained below. 1. Minor benefits A minor benefit is any benefit provided in, or in respect of, the current FBT year in respect of the employment of an employee of an employer (s 58P(1)(a)). Therefore, subject to certain exclusions (see condition 2), any type of benefit is capable of being a minor benefit, eg cars, loans, debt waivers, etc. Where a benefit is provided in respect of a period spanning more than one FBT year, only the benefit provided in the current year is considered in determining the notional taxable value (Taxation Ruling TR 2007/12 at para 18). Example An employer reimburses an employee for private telephone calls made during the quarter ending March 2017 in two equal instalments. The first instalment of $290 is paid in March and the second instalment is paid in April. Each instalment of $290 may qualify as a minor benefit, as both satisfy the $300 threshold test. However, each instalment will not be a minor benefit unless the other qualifying conditions in s 58P(1) are also satisfied.

2. Exclusions from the exemption The minor benefits exemption does not apply to: • an in-house expense payment fringe benefit, in-house property fringe benefit or in-house residual fringe benefit (s 58P(1)(c); ¶2-460), and • certain tax-exempt body entertainment benefits (s 58P(1)(d)). In addition, the minor benefits exemption cannot apply if an employer has elected to use the 50/50 split method to determine the taxable value of meal entertainment. This is because such an election precludes any other benefit from arising (s 37AF). However, the minor benefits exemption is still available if an employer elects to use the 12-week register method to determine the taxable value (¶11-830). Note: Prior to 8 May 2012, an airline transport fringe benefit (former Div 8) was also excluded from being a minor benefit.

3. Minor benefits threshold test The notional taxable value of the minor benefit in relation to the current FBT year is less than $300 (s 58P(1)(e)). The “notional taxable value” is the amount that would be the taxable value of the minor benefit if it were a fringe benefit in relation to the FBT year (unless it is a car benefit). That is, the normal valuation rules for the particular type of benefit generally determine the notional taxable value. Example: Otherwise deductible rule applies Bob uses his private telephone to call clients from his home office and is entitled to an income tax deduction under the Income Tax Assessment Act 1997 s 8-1 for 50% of the bill. Bob obtains reimbursement of a telephone bill for $400 from his employer. The notional taxable value is $200 due to the operation of the otherwise deductible rule (¶5-410), and therefore the minor benefits threshold test is satisfied.

Also, it is the notional taxable value of the benefit provided by the employer, and not the value of the benefit provided to the employee that is relevant. Example: Value of benefit to employee is not relevant An employee is provided with a gift purchased for $500 to celebrate the birth of her baby. The employee’s work colleagues have contributed $250 and the employer has matched their contribution with the same amount. As the employer’s contribution is less than $300, the minor benefits exemption will be available if the other requirements of s 58P are satisfied (adaptation of ATO Interpretative Decision ID 2005/366).

The threshold test applies to each separate benefit provided to a particular employee or associate of an employee. Example: Benefit provided to employee and associate Old Dough Pty Ltd has 100 employees and holds its annual Christmas party for employees as well as their spouses and children at a restaurant. The employer pays $3,500 to the restaurant for all employees, 50 spouses and 50 children who attended. This is the provision of one benefit to employees that needs to be apportioned in order to determine whether the minor benefits threshold test is satisfied. The benefit is provided to the employees, spouses and children (200 attendees), and therefore the benefit provided to each employee or associate is $175 (ie $3,500/200). Therefore, the minor benefits threshold test is satisfied (adaptation of Taxation Ruling TR 2007/12, Example 2).

The “notional taxable value” of a car benefit (¶3-100) is determined assuming it is a residual fringe benefit — see “Employer-provided motor vehicles other than cars” (¶10-360). 4. Associated benefits Employers must consider any associated benefits when applying the unreasonable test to each minor benefit provided to an employee or associate. An associated benefit is a benefit that relates to the same employment activity, is not an exempt benefit and is (s 58P(2)): (i) identical or similar to the minor benefit, or (ii) provided in connection with the provision of the minor benefit, or (iii) identical or similar to a benefit provided in connection with the provision of the minor benefit. The following examples illustrate the above three circumstances in which an associated benefit arises: Example 1: Identical or similar An employee is provided during the FBT year with a bottle of French Champagne ($299) at Christmas and a bouquet of flowers ($100) to celebrate the birth of her son. These two benefits are not considered to be “identical or similar” (s 58P(2)(a)(i)).

Example 2: In connection with The employer pays the employee’s taxi fare to the theatre and a restaurant meal consumed afterwards. The cost of the taxi fare ($100), entry to the theatre ($200) and restaurant meal ($295) satisfy the minor benefits threshold test. However, all are provided “in connection with” each other and therefore are associated benefits.

Example 3: Identical or similar to a connected benefit The employer pays the cost of an employee’s entry to the theatre ($200) and the taxi fare to get there ($50). Assume the entry to the theatre is a minor benefit, and the taxi fare is an associated benefit of the employee due to s 58P(2)(a)(ii). Assume the employer also pays the cost of the taxi fare of a guest of the employee ($100). This is an identical or similar benefit to the taxi fare (associated benefit) provided to the employee in connection with attending the theatre, and is therefore an associated benefit due to s 58P(2)(a)(iii).

An associate benefit must relate to the same employment activity of the employee (s 58P(2)(b)) and cannot be an exempt benefit (s 58P(2)(c)). Example An employee travels by taxi between home and work each day with a stopover at McDonald’s restaurant on some mornings to buy breakfast. The employer pays for the taxi fare and reimburses the employee for breakfast. As the taxi fare is exempt due to s 58Z, it is not an associated benefit.

5. Unreasonable test It must be unreasonable to treat the benefit as a fringe benefit in relation to the employer in relation to the FBT year after having regard to five criteria (s 58P(1)(f); ¶12-110). AFB ¶55-010 to ¶55-060; AFT ¶820-070.

¶12-110 Applying the “unreasonable” test In deciding whether it would be unreasonable to treat a benefit as a fringe benefit, all five criteria in s 58P(1)(f) must be considered and no one criterion is determinative. In Taxation Ruling TR 2007/12 at para 198, the ATO concludes that the criteria are to be applied based on what a reasonable person would conclude after having regard to all the relevant circumstances surrounding the provision of the minor benefit. However, in the examples that illustrate the application of criteria in s 58P(1)(f)(ii) and (iii), the Ruling generally accepts or dismisses these considerations based on a conclusion as to whether or not the associated benefits are “substantial”. The word “substantial” does not appear in the legislation, and how to make this determination is not explained in Taxation Ruling TR 2007/12. The criteria in s 58P(1)(f)(ii) and (iii) are the most difficult to apply due to the absence of objective guidance on what total value of associated benefits provided in any FBT year is minor. There is a threshold on each minor benefit ($300), but there is no monetary limit on associated benefits that may form part of a composite benefit (eg a Christmas party and Christmas presents). (i) Infrequency and irregularity The infrequency and irregularity with which similar or identical benefits (or benefits in connection with the minor benefit) have been provided or can reasonably be expected to be provided. The ATO considers it inappropriate to specify the number of times that associated benefits can be provided while satisfying the “infrequency and irregularity” criterion. Accordingly, the ATO considers that 48 times a year, or four times a month (Case 2/96, 96 ATC 131), cannot be treated as a general rule when considering what is “infrequent and irregular”. Instead, whether a benefit is provided infrequently and irregularly will depend on the circumstances. Example: Baby-sitting expenses An employer unexpectedly requests an employee to work overtime on six occasions during the FBT year. The cost of engaging a baby-sitter on each occasion is $110, which is below the minor benefits threshold of $300. Each of these minor benefits is “identical or similar” to each other (s 58P(1)(f)(i)(A)). The employer must decide whether the provision of a baby-sitter on six occasions during the FBT year has been provided “infrequently and irregularly”. However, the only guidance for the employer is that if the employee’s baby-sitting expenses are paid “a few times in any year”, it is provided infrequently and irregularly (see Taxation Ruling TR 2007/12, Example 11).

The more frequently and regularly small benefits of a similar kind are provided, the less likely they are to qualify as minor benefits. If the minor benefits are confined to a few special occasions like Christmas and other special occasions, this would be a factor in favour of this criterion being satisfied. (ii) Value of the minor benefit and identical or similar associated benefits

The sum of the notional taxable values of the minor benefit and similar or identical benefits in the current and any other FBT year. Example ABC Pty Ltd reimburses Jennifer for her private telephone bill in July for $120. On a number of other occasions during the FBT year, ABC Pty Ltd reimburses Jennifer’s private telephone bills. The amounts are always less than $300. The cumulative amount of all telephone accounts bills paid needs to be considered when deciding whether it would be unreasonable to treat them as a minor benefit.

The smaller the cumulative value of the identical or similar benefits, the more likely that this criterion will be satisfied. However, a monetary amount is not specified in s 58P and the guidance in Taxation Ruling TR 2007/12 is that the value must not be “substantial”. (iii) Value of the minor benefit and other associated benefits The sum of the notional taxable values of the minor benefit and other associated benefits in the current and any other FBT year. The smaller the cumulative value of the other associated benefits, the more likely that this criterion will be satisfied. However, a monetary amount is not specified in s 58P and the guidance in Taxation Ruling TR 2007/12 is that the value must not be “substantial”. Example: Other associated benefits A meal ($290) which is a minor benefit is provided in connection with two nights’ accommodation ($420) and taxi travel ($100). Each benefit under these circumstances is a separate benefit. The total of the taxable values of the night’s accommodation and taxi travel, and any other accommodation or taxi travel provided in the current year, in a previous year and those that are reasonably expected to be provided in the future must be considered. The greater the total value of the other associated benefits, in this case being the accommodation and the taxi travel, the less likely it is that the minor benefit, being the meal, will qualify as an exempt benefit (adaptation of Taxation Ruling TR 2007/12, Example 16).

(iv) Practical difficulty The practical difficulty for the employer in determining the value of the minor benefit and associated benefits. This includes the difficulty of keeping the necessary records and of assigning a mathematical value to something which may not be easily quantifiable, eg allowing office staff to type employees’ essays. The greater the difficulty that the employer will suffer in monitoring the minor benefits the more likely that this criterion will be satisfied. (v) Circumstances in which benefit is provided The circumstances in which the minor benefit and any associated benefits are provided, including whether it was provided to assist the employer with an unexpected event or as a reward for services rendered by the employee. Whether a benefit is provided to assist the employee to deal with an unexpected event will always be a question of fact. For example, an employer providing a short-term loan to an employee to pay unexpected debts and baby-sitting expenses paid on behalf of an employee required to work overtime. Whether a benefit was provided otherwise than wholly or principally by way of a reward for services of an employee is dependent upon the employment contract and the circumstances of the payment. However, the ATO considers that a benefit provided as part of a salary sacrifice arrangement (SSA) cannot be a minor benefit as it is a reward for services. Where a benefit is not included in a SSA, it may be difficult to determine whether the benefit is a reward for services. For example, the decisions in National Australia Bank v FC of T 93 ATC 4914 and Case 2/96, 96 ATC 131 discuss the difficulties associated with reaching a decision on whether taxi fares are a reward for services. The difficulty of determining whether a benefit is a reward for services or an employer obligation also arises where an employee receives, for example, a gift voucher in recognition of being deemed “employee of the month”.

Example: Staff recognition award An employer provides an employee (Julie) with a $250 department store voucher in recognition of her diligent work during the June quarter in meeting a tight work project deadline. The voucher is not part of any formal staff incentive scheme. Julie had been recognised on another occasion in the current FBT year and in a previous FBT year, and on each occasion she received a $250 department store voucher. The voucher provided to Julie in the current FBT year is below the minor benefits threshold. In applying the unreasonableness test, it is concluded: (i) vouchers which are identical or similar are not reasonably expected to be provided to that employee on a frequent and regular basis (ii) the sum of the notional taxable value of the minor benefit and identical or similar benefits in this year ($250) and other years ($250) would not be substantial (iii) there are no “other associated benefits” to consider (iv) there would be no difficulties in determining the value of the benefit and therefore this consideration is not applicable, and (v) the benefit is not provided to assist with an unexpected event and is provided wholly or principally as a reward for services rendered. Based on the above, it is concluded that it would be unreasonable to treat the voucher as a fringe benefit. Accordingly, the benefit provided to Julie is an exempt benefit (adaptation of Taxation Ruling TR 2007/12, Example 9).

However, where the benefit is directly related to the employment activities of the employee, this nexus will preclude the minor benefits exemption from applying (see Taxation Ruling TR 2007/12, Example 8).

¶12-115 Examples of minor benefits Taxation Ruling TR 2007/12 contains the following examples to illustrate how the minor benefits exemption applies to: • baby-sitting expenses • Christmas gifts • Christmas parties • get-well gifts • gym memberships • movie vouchers if not provided by a tax-exempt body • road and bridge tolls • staff awards, and • use of an employer’s car. In addition, the ATO lists the following illustrations of circumstances that may result in the minor benefits exemption being available, assuming the benefit is less than $300 and the other conditions (¶12-100) are satisfied (Taxation Ruling TR 2007/12 at para 245): • a one-off welcome gift, for example a food hamper, provided to a new employee on commencement of employment • meals provided on an ad hoc basis to an employee a few times a year • a short-term advance to help an employee pay unexpected debts • the recovery of overpaid salary by instalment arrangements

• stationery that an employee is permitted to use for private purposes • the use of office staff to type essays or assignments, and • permitting staff to have waste or leftover materials of a business, such as packing cases or fabric remnants.

¶12-120 Work-related items Work-related items are an exempt benefit if the following conditions are satisfied (s 58X): 1. The benefit is an eligible work-related item. 2. The item is primarily for use in the employee’s employment. 3. More than one item, with substantially identical functions, cannot be provided in any one FBT year unless it is a replacement item, or the item is a portable electronic device and the employer is a small business entity. 4. An expense payment benefit, property benefit or residual benefit is provided to an employee. The above conditions are further explained below. In addition, employees are precluded from claiming depreciation on eligible work-related items acquired after 13 May 2008 where they are provided as an expense payment or property benefit (ITAA 1997 s 40-45(1)). 1. Eligible work-related item An eligible work-related item is any of the following business-related accessories. Portable electronic devices The term “portable electronic device” is not defined in the FBTAA; however, ATO Interpretative Decision ID 2008/133 states that such a device will have the following primary characteristics: • easily portable and designed for use away from an office environment • small and light • can operate without an external power supply, and • designed as a complete unit. For example, a mobile phone, calculator, electronic diary, personal digital assistant (PDA), portable computer and portable printer. The cost of upgrading a portable electronic device (included in the purchase price) is eligible for the exemption but not peripheral items. Example An employee, at the time of purchasing a laptop computer, requested additional memory to be included in the computer. The laptop computer and additional memory are itemised on the one invoice. The cost of upgrades, involving built-in internal components of a laptop computer that are made at the time of purchase, will form part of the cost of the portable electronic device. However, where the employee requests peripheral items such as cables, modems or cradles or an extension to the warranty, and these come at an additional cost, the exemption in s 58X will not extend to these items (ATO Interpretative Decision ID 2008/158).

Computer software What amounts to an item of computer software is discussed in Taxation Ruling TR 93/12. Protective clothing

An item of protective clothing is clothing that provides a degree of protection sufficient to characterise the expenditure as work-related rather than private (Taxation Ruling TR 2003/16). Briefcases A briefcase is defined in the Macquarie Dictionary 6th Ed to be a flat, rectangular case of leather or other material used for carrying documents, books, manuscripts, etc. Therefore the exemption in s 58X does not extend to other types of bags that may be used when undertaking employment duties. For example, satchel bags, wheeled business cases, backpacks, shoulder bags, laptop bags, tote bags and so on (NTLG FBT Sub-committee minutes — 13 November 2008). Trade tools An electrically powered and manually operated microscope provided to an employee scientist as part of a salary sacrifice agreement (SSA) is a “tool of trade” and therefore an exempt benefit (ATO Interpretative Decision ID 2006/248). However, modems, printers and other similar computer accessories provided to an employee accountant are not tools of trade as they are not “held in the hand for performing or facilitating mechanical operations” (NTLG FBT Sub-committee minutes — 14 March 1996). 2. Primarily used in the employee’s employment The benefit must be primarily for use in the employee’s employment at the time it is provided. It is a question of fact whether a work-related item is provided “primarily” for business use (NTLG FBT Subcommittee minutes — 14 August 2008). Example An employer provided a laptop computer to an employee who regularly visits clients and requires the computer to produce and update work reports between client visits. The employer anticipates there may be incidental personal use of the laptop computer and does not have a written policy restricting this use. The laptop computer is a portable electronic device. The laptop computer is primarily for use in the employee’s main employment duty, ie regularly visiting clients, which requires ready access to a laptop computer and any personal use is considered to be incidental to the business use. Accordingly, the laptop computer is “primarily for use in the employee’s employment” (ATO Interpretative Decision ID 2008/127). If an employee is provided with a laptop computer primarily for use in connection with work-related self-education, it is not “primarily for use in the employee’s employment”. The ATO defines an “employee’s employment” to mean those tasks that are undertaken as a part of the routine daily functions that the employee performs. Accordingly, it cannot include self-education that is undertaken to enhance the ongoing development and performance of those routine daily functions (NTLG FBT Sub-committee minutes — 13 May 2010 (Item 10)).

3. One substantially identical item each FBT year An eligible work-related item (the “later item”) is generally not exempt if, earlier in the FBT year, an expense payment benefit or a property benefit has arisen in relation to an eligible work-related item (the “earlier item”) that has substantially identical functions to the later item (s 58X(3)), unless it is a replacement for the earlier item (s 58X(4)). However, for the 2017 FBT year and later FBT years, a small business entity can provide a portable electronic device to an employee that has substantially identical functions to a device already provided to that employee in the same FBT year, and each of the devices will be exempt from FBT (s 58X(4)(b)). The meaning of “small business entity” is the same as in the Income Tax Assessment Act 1997 (s 136(1)). Broadly, an entity is a small business entity for an income year if it: (i) carries on a business in the income year; and (ii) satisfies the $10m aggregated turnover test ($2m for the 2017 FBT year and prior FBT years) for the income year (ITAA 1997 s 328-110). Whether a work-related item has “substantially identical functions” is a question of fact. However, where some functions are replicated in two separate work-related items (eg mobile phone and PDA), those items would not have substantially identical functions (NTLG FBT Sub-committee minutes — 14 August 2008). During consultation with the ATO, consideration was given to which of the following combinations of portable electronic device are not eligible for the s 58X exemption: 1. tablet PC and laptop computer

2. smartphone and phablet 3. phablet and tablet PC, and 4. tablet PC hybrid and laptop computer. The ATO considers that only the devices in (2) and (4) above would be considered to have “substantially identical functions” (NTLG FBT Sub-committee minutes — 16 May 2013). It is important to note that the exclusion is limited to the provision of no more than one expense payment benefit or property benefit in relation to an eligible work-related item. A “replacement item” is one that is required because the earlier item was lost, destroyed or needed to be replaced due to developments in technology. A second item provided as a back-up — eg because the earlier item is being washed — is not exempt (NTLG FBT Sub-committee minutes — 14 May 2009). Example During the FBT year, an employee (John) purchased a laptop computer. The employer agreed to reimburse John for the cost of the computer over a two-year period. Later in the FBT year, John is provided with a second laptop computer (property benefit) by his employer that is not a replacement. The employer does not satisfy the definition of a “small business entity” in s 136(1) in the income year starting or ending after the start of the FBT year. The s 58X(1) exemption is not available for the second laptop computer. This is because the test in s 58X(3) limits the exemption to the provision of expense payments for one item or the provision of one item (property benefit) per year and the exception in s 58X(4) for an employer that is a small business entity does not apply (ATO Interpretative Decision ID 2008/159).

4. Benefit provided The work-related item must be provided by way of an expense payment benefit, property benefit or residual benefit. Also, the work-related item must be provided to a current, future or former employee (¶2120) and be in respect of that employment (¶2-130). A work-related item provided to an associate is not exempt. Where an expense payment benefit is provided the expenditure must be in respect of an eligible workrelated item. For example, repayments of a loan taken out to purchase an eligible work-related item do not qualify for the exemption (ATO Interpretative Decision ID 2008/160). AFB ¶55-070 to ¶55-150; AFT ¶820-145.

¶12-130 Portable electronic devices — monthly charges A laptop computer is an eligible work-related item that will be exempt from FBT where the requirements of s 58X are satisfied (¶12-120). Monthly use charges are similarly exempt from FBT where provided as a residual benefit. Internet access costs Internet access costs of a wireless broadband connection qualify as exempt benefits under s 58X if the laptop, inclusive of a USB modem/dongle, satisfies the requirements of s 58X and is provided as a residual benefit. This is because the wireless internet access forms part of the “making available of an eligible work-related item” as required by s 58X(1)(c). However, where the laptop is provided as an expense payment or property benefit internet access costs do not fall within the s 58X exemption. For example, where home internet accounts are in the name of the employee and are reimbursed, internet access would not fall within the s 58X exemption (NTLG FBT Sub-committee minutes — 12 August 2010 (Item 11)). Mobile phone internet download charges Where an employer provides the use of a mobile phone to an employee (residual benefit), the use of the phone, inclusive of internet access, is within the phrase “making available of an eligible work-related item”. That is, mobile phone internet download charges are exempt from FBT (NTLG FBT Sub-committee

minutes — 11 August 2011 (Item 10)). Mobile phone call costs Mobile phone call costs, which relate to an employee’s use of a mobile phone meeting the requirements of s 58X, and provided as a residual benefit are to be similarly treated (NTLG FBT Sub-committee minutes — 13 November 2008 (Item 8)).

¶12-140 Newspapers and periodicals Newspapers and periodicals used for employment business purposes are exempt from FBT (s 58H). Conditions 1. The benefit is an expense payment benefit, property benefit or residual benefit. 2. Must be provided to an employee, eg cannot be provided to a spouse. 3. The newspaper or periodical must be used by the employee in gaining or producing salary and wages paid by their employer. Merely incidental use is not sufficient. Example The employer provides the company accountant with a subscription to a general newspaper, a financial newspaper, a business magazine and a periodical on bee-keeping. The financial newspaper and business magazine are used by the employee accountant for work purposes for the employer and are therefore exempt fringe benefits. The accountant also runs a private honey-making business and uses the bee-keeping periodical to help earn income in that regard and therefore is not exempt from FBT. The provision of the general newspaper is entirely for private purposes and therefore is also not exempt.

AFB ¶55-170; AFT ¶820-010.

¶12-160 Membership fees and subscriptions The following benefits are exempt from FBT (s 58Y): a. subscriptions to trade and professional journals b. entitlement to use a corporate credit card, and c. entitlement to use an airport lounge membership. Conditions 1. The benefit is an expense payment benefit or a property benefit. 2. The benefit must be provided by an employer in respect of an employee’s employment (¶2-130). AFB ¶55-180; AFT ¶820-150.

¶12-180 Taxi travel Any benefit arising from taxi travel by an employee is exempt from FBT if one of the conditions below is satisfied (s 58Z). Conditions 1. A single taxi trip beginning or ending at the employee’s place of work (s 58Z(1)). Example The exemption is available if an employee travels by taxi from work to a railway station and travels the rest of the way home by

train. However, if the taxpayer travels by taxi from home to the railway station and then travels by train to work, the taxi trip would not be exempt.

2. Taxi travel is necessary due to the sickness or injury of the employee and is between any of the following locations (s 58Z(2)): i. the employee’s place of work, or ii. the employee’s place of residence, or iii. any other place that it is necessary, or appropriate, for the employee to go as a result of the sickness or injury. Example John falls sick at work and travels by taxi to a medical surgery and, after consultation with the doctor, travels home by taxi. The benefit arising from the taxi journeys from work to the surgery and from the surgery home is exempt as there is no requirement for the taxi travel to be a single journey.

Note: The exemption does not apply to taxi travel by an associate of the employee, eg spouse visiting an employee at the office and then taking a taxi home. However, taxi travel not meeting either of the above requirements may qualify as an exempt minor benefit (¶12-100).

ATO discussion paper on meaning of “taxi” The ATO has released a technical discussion paper (TDP 2017/2) which considers the definition of “taxi” for the purposes of the s 58Z exemption. The main purpose of the discussion paper is to consider whether the interpretation of the definition of “taxi” should include ride-sourcing vehicles and other vehicles for hire. AFB ¶55-190; AFT ¶820-155.

MOTOR VEHICLE PARKING ¶12-190 Overview This grouping considers six circumstances where car parking provided to employees is exempt from FBT. The small business concession (¶12-205), business-related parking (¶12-195), parking for disabled persons (¶12-220), and parking for vehicles that are not a car (¶12-200) are relevant to most employers. In addition, parking provided by non-profit employers (¶12-210) and certain educational institutions (¶12215) is exempt. Fly-in fly-out arrangements The cost of car parking at an airport by an employee who then flies to a remote area under a fly-in fly-out arrangement (¶10-290) is exempt from FBT under s 58G(1). The exemption under s 58G(1) is available whether the parking expenditure is incurred by the employee (expense payment benefit) or by the employer (residual benefit). This is because in both instances the car is not parked at, or in the vicinity of, the employee’s primary place of employment and is therefore not an “eligible car parking expense payment benefit” (¶12-195) or a Div 10A car parking benefit (¶12-200). See ATO Interpretative Decision ID 2012/18 and NTLG FBT Sub-committee minutes dated 10 November 2011 (Item 8).

¶12-195 Car parking expense payment benefits Motor vehicle parking that is not an “eligible car parking expense payment benefit” is an exempt benefit (s 58G(1)(a)). For example, where an employee obtains reimbursement of a parking expense for a car that was not used for travel between their home and work.

Conditions 1. A motor vehicle parking facility is provided. 2. The benefit is not an eligible car parking expense payment benefit. An “eligible car parking expense payment benefit” is expenditure in respect of a motor vehicle parking facility for a car on one or more days where all of the following conditions are satisfied on any of those days: • the employee has a primary place of employment • the car was parked for one or more daylight periods exceeding four hours in total at, or in the vicinity of, that primary place of employment • the whole or part of the recipients expenditure is in respect of the provision of the parking facilities to which that parking relates • the car was used in connection with travel by the employee between the place of residence of the employee and that primary place of employment, and • the provision of car parking facilities is not exempted by regulation. AFB ¶55-250; AFT ¶820-005.

¶12-200 Residual parking benefits Motor vehicle parking facilities provided as a residual benefit are an exempt benefit (s 58G(1)(b)). Conditions A residual benefit arises if the motor vehicle: 1. is not a car, or 2. is a car, but the parking does not satisfy the requirements of Div 10A (¶4-100). AFB ¶55-255; AFT ¶820-005.

¶12-205 Small business car parking The provision of parking facilities by certain small business employers is exempt from FBT (s 58GA). Conditions 1. A car parking benefit is provided (¶4-100). 2. The car is not parked at a commercial parking station (¶4-140). 3. The employer is not: • a listed public company or a subsidiary of a listed public company • the Commonwealth, a state, a territory or an authority of one of these. 4. The employer’s ordinary and statutory income for the income year ending most recently before the start of the FBT year is less than $10m (s 58GA(1)(d)(i) and ATO Interpretative Decision ID 2004/935). Special rules apply where the employer did not start to carry out business operations until after the start of the relevant income year (s 58GA(2)). 5. If condition 4 is not satisfied, the employer is a small business entity for FBT years commencing on or after 1 April 2007 (s 58GA(1)(d)(ii)). An employer is a “small business entity” for an income year if

the aggregate turnover of the business carried on (ITAA 1997 s 328-110; 995-1): i. was less than $10m for the previous income year, or ii. is likely to be less than $10m for the current income year, or iii. is less than $10m for the current income year. However, circumstance (ii) cannot be used if the taxpayer carried on a business for the previous two income years and its aggregated turnover for each of those years was $10m or more. AFB ¶55-260; AFT ¶820-005.

¶12-210 Certain non-profit employers Car parking provided to an employee of certain non-profit employers is an exempt benefit (s 58G(2)). Conditions The employer of the employee must be a: • scientific institution (but not one carried on by a company, society or association for the purposes of profit or gain to its individual shareholders or members) • registered charity, or • public educational institution. AFB ¶55-270; AFT ¶820-005.

¶12-215 Government public educational institutions Car parking in respect of the employment of the employee of a government body is an exempt benefit (s 58G(3)). Conditions 1. Car parking benefit (¶4-110) or eligible car parking expense payment benefit (¶12-195) is provided. 2. The employer is a government body. 3. The employee is exclusively employed in, or in connection with, a public educational institution. AFB ¶55-275; AFT ¶820-005.

¶12-220 Car parking facilities for disabled persons Parking facilities whether on the business premises or paid to a commercial parking station are exempt where provided to a disabled person. See FBTR reg 4 and 13A respectively. Conditions 1. The benefit is a car parking benefit (¶4-100) or an eligible car parking expense payment benefit (¶12195). 2. The disabled person must be entitled under a state or territory law to use a disabled person’s parking space. 3. The disabled person must be the driver or passenger in the car. 4. A disabled person’s parking permit must be displayed on the car.

AFB ¶55-280; AFT ¶820-000.

EMPLOYEE AWARDS AND ENTITLEMENTS ¶12-230 Overview This grouping is relevant to employers who provide long service awards (¶12-240), safety awards (¶12260) or make contributions for the protection of employee entitlements (¶12-280).

¶12-240 Long service awards Non-cash awards (eg a watch) to employees in recognition of service of not less than 15 years are exempt from FBT (s 58Q). Conditions 1. The “long service award benefit” must be made solely in recognition of an employee’s service of not less than 15 years. 2. The exemption is not available for awards in the form of salary or wages, non-arm’s length arrangements or for the dominant purpose of enabling the employer to obtain the exemption. 3. For 15 years’ service, the exemption is $1,000. 4. If the recognised long service period exceeds 15 years then the $1,000 exemption increases by $100 for each additional year of long service recognised. 5. Where an employee receives a subsequent long service award then the amount of the benefit that is exempt is $100 for each year in excess of 15 years that is being recognised by the additional award. 6. If the taxable value of the long service award exceeds the above exemption thresholds then the whole of the award is subject to FBT. Employees, other than director/shareholder employees, may be able to enter into an effective salary sacrifice agreement (SSA) despite condition 2 above (NTLG FBT Sub-committee minutes — 17 November 2005). Example The long service recognition policy of ABC Pty Ltd states that, after 15 years of service, each employee will be entitled to receive a watch with a value of $250. However, company policy permits employees to salary-package an amount so that a higher value watch can be awarded. An employee, Tom, asks to receive a watch with a notional taxable value of $1,000. ABC Pty Ltd buys the watch and debits Tom’s salary package with $750. No FBT is payable by the employer on the watch.

AFB ¶55-310; AFT ¶820-080.

¶12-260 Safety awards Awards to employees in genuine recognition of occupational health or occupational safety achievements are exempt from FBT (s 58R). Conditions 1. The sole purpose of the “safety award benefit” must be to recognise the employee’s special efforts in promoting health and safety in the employee’s workplace. 2. The exemption is not available for awards in the form of salary or wages, non-arm’s length

arrangements or for the dominant purpose of enabling the employer to obtain the exemption. 3. The value of the award(s) during any year must not exceed $200. 4. If the taxable value of the safety award exceeds the exemption threshold then the whole of the award is subject to FBT. Where the taxable value of a safety award exceeds $200 but is less than $300 the minor benefits exemption may be available (NTLG FBT Sub-committee minutes — 12 August 2010). AFB ¶55-320; AFT ¶820-090.

¶12-280 Worker entitlement contributions Contributions to an approved worker entitlement fund are exempt from FBT (s 58PA). A worker entitlement fund is a (trust) fund for employee long service leave, sick leave or redundancy payments. These funds are often referred to as redundancy trusts or redundancy funds. Although these funds operate in a variety of ways, their purpose is to manage employee entitlements and provide portability and protection (eg in the event of employer insolvency). Conditions To qualify for the exemption, the following conditions must be satisfied: 1. Contributions must be made to an “approved worker entitlement fund”. 2. Contributions must be made under an industrial instrument. 3. Contributions must be either: i. made for the purposes of meeting an obligation under the industrial instrument to make leave payments (including payments in lieu of leave) or payments when an employee ceases employment or dies, or ii. for the reasonable administrative costs of the approved worker entitlement fund. Example An employer is covered by an industrial instrument (IA) that requires contributions to be made to an approved worker entitlement fund. According to an enterprise agreement (EA) the employer entered into with a union, the employer is required to make contributions to an approved worker entitlement fund nominated by the union. Although the IA and EA are both “industrial instruments” as defined in s 136(1), the EA is not regarded as a related legal instrument. The EA requires the employer to make contributions to the approved worker entitlement fund to provide for the income protection insurance of eligible employees. The IA makes no mention of a requirement for income protection insurance. The stated purpose of the IA is to make payments when an employee ceases employment. The income protection insurance contributions are provided for a purpose that is not covered by the IA and accordingly, such contributions are not exempt benefits under s 58PA. See ATO Interpretative Decision ID 2012/95.

Class Rulings CR 2012/28 and CR 2012/84 provide illustrations of how the s 58PA exemption requirements are satisfied in relation to employer contributions made to the WA Construction Industry Redundancy (No 2) Fund and the Australian Construction Industry Redundancy Trust. An employer who makes a contribution to an approved worker entitlement fund that satisfies the above conditions is entitled to claim an income tax deduction for the amount of the contribution provided it does not relate to the earning of exempt income or non-assessable exempt income. Also, a refund of contributions made for a person who has ceased to be an employee is included in assessable income in the year in which it is derived (Class Ruling CR 2013/78). For the assessable income of an approved worker entitlement fund (Fund) to be concessionally taxed as a public trading trust instead of under ITAA 1936 s 99A, it must be a unit trust. In B.E.R.T. Pty Ltd as Trustee for the B.E.R.T. Fund No 2 v FC of T 2013 ATC ¶10-332, the AAT held that a member’s interest

in the Fund was personal and could not be assigned. A member did not have a right to or interest in any money or assets of the fund and therefore was not a unit trust. Approved worker entitlement fund The following are approved worker entitlement funds (s 58PB): • funds established under a Commonwealth, state or territory law • funds prescribed in the FBT regulations (before 28 June 2011) • funds that have been endorsed by the Commissioner since 28 June 2011. The Commissioner must endorse a fund as an approved worker entitlement fund if the fund applies for endorsement and satisfies the requirements in s 58PB(4). AFB ¶55-330; AFT ¶820-077, ¶820-078, ¶820-079.

¶12-290 Deposits to the Superannuation Holding Accounts Reserve A superannuation guarantee deposit made to the Superannuation Holding Accounts Reserve (SHAR) is an exempt benefit (s 58W). Conditions 1. Deposit is made in respect of the employment of an employee. 2. Deposit is made pursuant to the Small Superannuation Accounts Act 1995. AFT ¶820-140.

RELOCATION ¶12-310 Overview This grouping considers the exemptions available where it is necessary to relocate the place of employment of an employee and/or interview an employee for a new or changed employment position. The cost of travel, meals and accommodation provided to an employee attending an employment interview or selection test is exempt (¶12-320). The cost of a relocation consultant (¶12-340), removal and storage of household effects (¶12-360), certain home purchase (¶12-400) and sale (¶12-380) costs, connection or re-connection of utilities (¶12420), leasing household goods (¶12-440) and certain relocation transport benefits (¶12-460) are exempt where an employee is relocated.

¶12-320 Employment interviews and selection tests The provision of transport, meals or accommodation to an employee in connection with attending an employment interview or selection test is exempt from FBT (s 58A). Conditions 1. The benefit is a car benefit, expense payment benefit, property benefit or residual benefit in respect of transport, accommodation and meals en route. 2. The benefit is provided to the employee. 3. The travel is required solely for an “employment interview or selection test” (s 143D) in connection with employment, promotion or job transfer. 4. The benefit is provided under an arm’s length arrangement.

5. Where an employee uses their own car and is reimbursed on a cents per kilometre basis, this is not an exempt benefit but is subject to a reduction in taxable amount (¶13-240). 6. Where an expense payment fringe benefit is provided, the employee must supply documentary evidence to the employer. Transport A benefit in respect of the provision of transport includes expenditure on accident insurance, airport or departure tax, a passport, a visa, a vaccination or any similar matter if the employee incurred the expenditure to enable them to travel to the employment interview or selection test (s 142A). AFB ¶55-710; AFT ¶819-920.

¶12-340 Relocation consultant engagement costs Relocation consultant costs incurred solely as a consequence of an employee temporarily or permanently relocating their residence to perform employment duties are exempt from FBT (s 58AA). Conditions 1. The benefit is an expense payment benefit or residual benefit in respect of relocation consultant services, such as: • obtaining removalist quotes • finding accommodation, including temporary accommodation • lease negotiation • providing information about transportation to the new location, and • providing information about education and community services at the new location. 2. A relocation consultant is required solely because the employee is required to: i. live away from their usual place of residence to perform employment duties ii. return to their usual place of residence after performing the employment duties in (i) above iii. change their usual place of residence to perform employment duties. The term “required” does not mean the change of an employee’s usual place of residence must be at the direction of the employer. A change may also be required if this is necessary in order for the employee to effectively perform their employment duties (ATO Interpretative Decision ID 2013/8). 3. The relocation consultant is engaged to assist the employee to settle or remain settled at a particular location by providing information, eg available accommodation. However, the payment of expenses (eg electricity bill) on behalf of an employee or family member is specifically excluded. 4. The benefit is provided under an arm’s length arrangement. 5. Documentary evidence is provided to the employer where the benefit is an expense payment benefit. Example Jenny is an employee of Zig & Co Mining Pty Ltd in Lightning Ridge and is required to move from Lightning Ridge to Kalgoorlie in order to perform her duties as a geologist. Zig & Co Mining Pty Ltd engages a relocation consultant to assist in Jenny’s relocation. The consultant provides Jenny with accommodation quotes, transportation quotes, provides information about medical facilities in Kalgoorlie and pays for furniture rental on her behalf. Zig & Co Mining is eligible for an FBT exemption for the costs involved in engaging the relocation consultant to provide information

about, as well as arranging for, Jenny’s relocation to Kalgoorlie. However, it is not eligible for an FBT exemption for the furniture rental paid by the relocation consultant on Jenny’s behalf.

AFB ¶55-720; AFT ¶819-925.

¶12-360 Removal and storage of household effects Removal or storage costs incurred as a consequence of an employee temporarily or permanently relocating their residence to perform employment duties are exempt from FBT (s 58B). For example, the costs of removal, storage, transport, packing, unpacking of household goods and pets. Conditions 1. The benefit is an expense payment benefit or residual benefit in respect of the removal or storage of household effects of the employee. 2. The removal or storage costs must arise solely because the employee is required to relocate their place of residence in order to perform employment duties. The term “required” does not mean the change of an employee’s usual place of residence must be at the direction of the employer. A change may also be required if this is necessary in order for the employee to effectively perform their employment duties (ATO Interpretative Decision ID 2013/8). 3. Where the employee’s relocation is temporary, the removal and storage costs must be to enable a family member to take up residence, or continue to reside, at or near the place where the employee is temporarily employed. 4. Where an employee is returning to their usual place of residence following an assignment that requires them to be relocated, the removal and storage costs must be to enable a family member to take up residence at the employee’s usual place of residence. 5. Where the relocation is permanent, the removal and storage costs must be to enable a family member to take up residence, or continue to reside at the employee’s new usual place of residence. In addition, the removal or storage must occur within 12 months of the employee commencing work at their new job and be provided under an arm’s length arrangement. 6. The employee must not be undertaking travel in the course of performing their normal employment duties. 7. Documentary evidence is provided to the employer where the benefit is an expense payment benefit. AFB ¶55-740; AFT ¶819-930.

¶12-370 Home sale or acquisition benefits Incidental costs of the sale or purchase of a home incurred because an employee is required to change their usual place of residence to perform employment duties may be exempt where the following preconditions are satisfied (s 58C(1)). Pre-conditions 1. The employee, or an associate of the employee, holds a prescribed interest in land or a stratum unit or a proprietary right in a flat or home unit (residential property). 2. The employee or associate sells or proposes to sell a residential property solely because the employee is required to change their usual place of residence to perform employment duties. The term “required” does not mean the change of an employee’s usual place of residence must be at the direction of the employer. A change may also be required if this is necessary in order for the

employee to effectively perform their employment duties (ATO Interpretative Decision ID 2013/8). 3. The employee or associate holds the residential property at the time that the employer first notifies the employee of a change to their employment location (notice time). 4. The employee occupies or proposes to occupy the residential property at the “notice time” as their usual place of residence. 5. The expense payment benefit is in respect of certain incidental costs. 6. The residual benefit is in respect of certain incidental costs. The further conditions that must be satisfied for the incidental costs of the sale or purchase of a home to be exempt are discussed at ¶12-380 and ¶12-400 respectively. AFB ¶55-770; AFT ¶819-950.

¶12-380 Home sale costs Expenses incidental to the sale of an employee’s home, eg stamp duty, legal fees, advertising, agent’s commission, discharge of mortgage costs, etc, are exempt from FBT (s 58C(2)). Conditions 1. Pre-conditions for the application of the exemption are satisfied (¶12-370). 2. The benefit is an expense payment benefit or residual benefit in respect of incidental sale costs of a residential property. 3. Within two years after the day on which the employee commences work at the new location, the employee entered into a contract to sell the property. 4. Where more than one residential property is sold, the employer must elect the one to which the exemption applies. 5. In the case of an expense payment benefit, documentary evidence of the expenditure is given to the employer. 6. The benefit is provided under an arm’s length arrangement. AFB ¶55-780; AFT ¶819-950.

¶12-400 Home purchase costs Expenses incidental to the purchase of an employee’s home, eg stamp duty, legal fees, expenses of borrowing, etc, and associated utility costs (ie telephone, gas and electricity connection costs) are exempt from FBT (s 58C(3)). Conditions 1. Pre-conditions for the application of the exemption are satisfied (¶12-370). 2. The benefit is an expense payment benefit or residual benefit in respect of incidental purchase costs and associated utility re-connection costs of the new residential property. 3. The employee, or an associate of the employee, must acquire a prescribed interest in land or a stratum unit or a proprietary right in a flat or home unit (new residential property). 4. The employee or an associate purchases the new residential property solely because the employee is required to change their usual place of residence to perform employment duties at a new location.

5. The employee or associate must enter into a contract for the acquisition of the new residential property within four years of the employee commencing employment duties at the new employment location. 6. Where the employee or an associate holds another residential property at the time of commencing employment duties at the new location, that property must have been sold within two years of that time for the exemption (¶12-380) to be available. 7. Immediately after the purchase of the new residential property the employee occupied or proposed to occupy it as their usual place of residence. 8. Documentary evidence is provided to the employer where the benefit is an expense payment benefit. 9. The benefit is provided under an arm’s length arrangement. The exemption available for incidental costs of the sale of a residential property held at the time of commencing employment duties (old residential property) is recouped where that property is not sold within two years of commencing work at the new location (s 58C(5)). Example Sharon is employed by ABC Pty Ltd at premises located in Sydney but is requested in January 2016 to permanently perform her employment duties in Melbourne. As a consequence, Sharon moves to Melbourne on 15 March 2016 and enters into a contract to purchase a home there on 1 March 2017. The incidental acquisition costs of the new residential property are exempt as the conditions in s 58C(3) are satisfied. For example, the four-year time limit in condition 5 above is satisfied. At the time of being requested to relocate to the Melbourne office of ABC Pty Ltd, Sharon owned a home in Sydney and satisfies the conditions in s 58C(2) for the incidental costs of the sale to be exempt. Sharon puts the Sydney property on the market on 1 March 2016 before leaving for Melbourne and subsequently incurs advertising and real estate agent fees of $10,000 in respect of the proposed sale of the property that are reimbursed by ABC Pty Ltd. No FBT is paid on the $10,000 as it is expected that a sale will take place before the expiry of the two-year time limit in s 58C(2)(aa). The home in Sydney is not sold as at 15 March 2018 which is two years after commencing her employment duties in Melbourne. Accordingly, a benefit of $10,000 will arise in the 2018 FBT year for ABC Pty Ltd in accordance with s 58C(3) to (5).

AFB ¶55-770, ¶55-790; AFT ¶819-950.

¶12-420 Costs of connection or re-connection of utilities The cost of connecting telephone, gas or electricity services to accommodation occupied by an employee as a consequence of being relocated is exempt from FBT (s 58D). Conditions 1. The benefit is an expense payment benefit or residual benefit in respect of the connection or reconnection of telephone, gas or electricity services to a unit of accommodation. 2. The accommodation must be solely for the family members, ie employee, spouse, children. 3. The accommodation must be required solely because the employee is required to live away from, or to change, their usual place of residence in order to perform employment duties. The term “required” does not mean the change of an employee’s usual place of residence must be at the direction of the employer. A change may also be required if this is necessary in order for the employee to effectively perform their employment duties (ATO Interpretative Decision ID 2013/8). 4. Where the employee has changed their place of residence the employee must have had a telephone connected at their former home. Also, the new phone must be connected or reconnected within 12 months of starting work at the new employment location under an arm’s length arrangement. 5. Where the employee has changed their place of residence, the gas or electricity services must be reconnected within 12 months of starting work at the new employment location. The reconnection of

the gas or electricity must be under an arm’s length arrangement. 6. Documentary evidence of the telephone, gas or electricity connection or reconnection expenditure is given to the employer where an expense payment benefit is provided. AFB ¶55-750; AFT ¶819-970.

¶12-440 Leasing of household goods while LAFH The cost of leasing of household goods while occupying living-away-from-home (LAFH) accommodation is exempt from FBT (s 58E). For example, rental of furniture, appliances and lawn mowers will qualify, but not personal computers. Conditions 1. The benefit is an expense payment benefit or residual benefit in respect of a lease or licence of goods. 2. The goods must be in connection with the accommodation supplied to the employee by the employer because they are required to live away from home (¶8-110 and ¶10-250). 3. The goods must be primarily for the domestic use of the family members. AFB ¶55-760; AFT ¶819-980.

¶12-460 Relocation transport Transport, accommodation or meals provided to an employee and family members as a consequence of an employee being required to relocate their usual place of residence to perform employment duties are exempt from FBT (s 58F). The meaning of “relocation transport” is contained in s 143A. Conditions 1. The benefit is a car benefit, expense payment benefit, property benefit or residual benefit in respect of “relocation transport”, ie transport, accommodation or meals for the employee and family members en route (s 58F(a) and (b)). The word “transport” is not defined but the ordinary meaning is a car, bus, train, plane, etc. Also, expenditure by an employee on accident insurance, airport or departure tax, a passport, a visa, a vaccination or any similar matter in connection with transport is taken to be “in respect of the provision of transport” or consist of transport (s 142A(1)). However, where an employee applies for a visa to continue working in Australia, the application costs of doing so are not in respect of the provision of transport. Therefore, this condition for the exemption in s 58F is not satisfied (ATO Interpretative Decision ID 2013/35). 2. The relocation transport is required solely because the employee is required to live away form, return to or change their usual place of residence as a consequence of performing or having performed employment duties (s 143A(c)). The term “required” does not mean the change of an employee’s usual place of residence must be at the direction of the employer. A change may also be required if this is necessary in order for the employee to effectively perform their employment duties (ATO Interpretative Decision ID 2013/8). 3. The transport is provided to enable a family member to take up residence at the new locality of residence or return to their usual place of residence (s 143A(d)). Transport, meals and accommodation provided from the time of leaving the employee’s usual place of residence will satisfy this requirement. However, transport, meals and accommodation provided after family members arrive “at or near” the place where employment duties are to be performed do

not qualify (NTLG FBT Sub-committee minutes — 14 February 2013 (Item 10)). Transport costs incurred in visiting a former locality for personal reasons will not qualify for the exemption. However, costs of a journey that enables an employee to relocate (ATO Interpretative Decision ID 2004/293) and visiting a former locality after a new residence has been established may qualify. 4. Where the transport is in respect of a spouse or child of the employee this must not be concurrent with a business trip of the employee or the travel is a deductible expense of the spouse or child (s 143A(e)). 5. Where the transport is for the employee, it must not be provided while the employee is undertaking travel in the course of performing the duties of that employment (s 143A(f)). 6. Excluded from the exemption is an expense payment benefit constituted by the reimbursement of car expenses on a cents per kilometre basis (s 58F(c)(i)). However, such reimbursements may qualify for concessional treatment (¶13-220). 7. Documentary evidence of the expenditure must be given by the employee to the employer (s 58F(c) (ii)). 8. The benefit is provided under an arm’s length arrangement if the employee is required to change their usual place of residence (s 143A(g)). AFB ¶55-730; AFT ¶819-990.

REMOTE AREA ¶12-470 Overview This grouping defines what a remote area is (¶12-475) and considers two separate types of remote area benefit. Firstly, the circumstances in which a remote area housing benefit is exempt (¶12-480) and secondly, when meals provided to employees of primary producers in remote areas is exempt (¶12-500).

¶12-475 What is a remote area? Whether a location is remote is dependent upon whether it is located within Zones A and B as defined in ITAA 1936 Sch 2 (Taxation Ruling TR 94/27) or the benefit is provided by certain regional employers. • If the location is within Zone A or B, it will be remote if it is at least 40 km from an urban centre with a population of at least 28,000 but less than 130,000 and more than 100 km from any eligible urban area with a population of 130,000 or more (s 140(1)(a)(i)). • If the location is not within Zone A or B, it will be remote if it is at least 40 km from an urban centre with a population of at least 14,000 but less than 130,000 and more than 100 km from any eligible urban area with a population of 130,000 or more (s 140(1)(a)(ii)). • Certain regional employers. Where, in relation to a housing benefit, provided in respect of the employment of an employee by certain employers (see below) the location only has to be at least 100 km from a town with a population of at least 130,000 to be classified as not being in a remote area (s 140(1A)). Eligible urban area An “eligible urban area” is defined by reference to its location and proximity to an urban centre with a particular population (s 140(1)). An “urban centre” is an area described as an urban centre in the Census of Population and Housing taken by the Australian Statistician on 30 June 1981 (s 140(3)). Christmas Island and, since 1 July 1991, the Cocos (Keeling) Islands are taken not to be situated in or adjacent to

an eligible urban area (s 157(2)). Measuring distances The distances in s 140 are calculated by reference to the “shortest practicable surface route”. If the “shortest practicable surface route” includes a route by water, the total kilometres of the surface route that are by water are doubled for the purpose of determining whether the location is remote. For example, if the relevant location is 40 km by sea and 35 km by road from an eligible urban area, the shortest practicable surface route is taken to be 115 km. Remote and non-remote towns The ATO publication Fringe benefits tax — remote areas contains lists of eligible urban areas. It also contains a list of towns and cities divided into those that are remote and those that are not. List 2 is used by “certain regional employers” providing a housing benefit that is exempt under s 58ZC (¶12-480). List 1 is to be used in all other circumstances. Certain regional employees The employers subject to the concession in s 140(1A) are: • Public hospital (s 140(1B)(a)). See ¶12-860 for exempt benefits provided by these employers (s 57A(3)(a)). • Hospital carried on by a society or association that is a rebatable employer (s 140(1B)(c)). See ¶12855 for the meaning of “hospital” and ¶12-870 for exempt benefits provided by these employers (s 57A(4)). • Registered charity (s 140(1B)(d)). A “registered charity” (s 136(1)) is a charity (¶12-890) registered under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act) (¶12-900). • Government public hospital, ie a government body where the duties of the employee are exclusively performed in, or in connection with, a public hospital or hospital carried on by a society or association that is a rebatable employer (s 140(1C)). See ¶12-850 for exempt benefits provided by these employers (s 57A(2)). • Public ambulance service (s 140(1CA)). See ¶12-860 for exempt benefits provided by these employers (s 57A(3)(b)). • Police service, ie a government body where the employee’s duties are performed in a police service (s 140(1D)). See ¶15-120 for the definition of “police service” and excluded benefits provided by these employers. AFB ¶56-700; AFT ¶832-990.

¶12-480 Remote area housing Housing provided to an employee working in a remote area is exempt from FBT (s 58ZC). Conditions 1. A housing benefit (¶7-100) is provided to an employee. 2. The housing benefit accommodation is located in a remote area (¶12-475). 3. Employee must be employed in the remote area for the whole tenancy period and therefore cannot be a former or future employee. 4. The provision of the accommodation by the employer must be necessary because:

i. the nature of the employer’s business is such that employees are likely to move frequently from one residential location to another, or ii. there is no sufficient suitable residential accommodation otherwise available in the area in which the employee is employed, or iii. it is customary for employees in the industry (Taxation Determination TD 94/97) to be provided with housing assistance by their employers. 5. The housing right was not provided pursuant to a non-arm’s length arrangement (ATO Interpretative Decision ID 2005/156) or for the purpose of obtaining the exemption (ATO Interpretative Decisions ID 2002/412; ID 2010/183). Example An employer engages a new employee who will be provided a housing benefit located in a remote area. The employer and employee enter into an effective salary sacrifice agreement (SSA) (¶16-050) whereby the employee agrees to forego part of his total remuneration in return for the employer providing the housing benefit. The arrangement can be explained as being an ordinary business dealing customary in the employer’s industry. The arrangement was not entered into to enable the employer to obtain the s 58ZC exemption (ATO Interpretative Decisions ID 2010/182 (withdrawn); ID 2010/183).

AFB ¶55-860; AFT ¶820-167.

¶12-500 Meals for primary production employees Meals provided to an employee of an employer that is a primary producer are exempt from FBT (s 58ZD). Conditions 1. The employer is engaged in a primary production business carried on in a remote area (¶12-475). 2. A meal that is “ready for consumption” is provided on a working day to a person (see below). 3. The meal is not, or does not include, the provision of meal entertainment (¶11-800). 4. The meal is a property benefit, an expense payment benefit or a residual benefit that is provided to an employee, or a board benefit that is provided to an employee or an associate of the employee. 5. The employee is employed in the business of primary production, the employee’s primary place of employment is in a remote area and the benefit is provided to the employee in respect of that employment. In ATO Interpretative Decision ID 2006/333, the employer carries on a business of primary production in a remote area and provides an employee with free meat and vegetables that the employee is required to prepare before being eaten. The circumstance under which the food is supplied does not amount to “meal entertainment” (¶11-810). The ATO discusses the meaning of “meal” and “ready” and then concludes that food provided in its raw form is not completely prepared for immediate use. Accordingly, such food is not “ready for consumption” and therefore is not an exempt benefit. AFB ¶55-870; AFT ¶820-168.

EMPLOYEE HEALTH ¶12-510 Overview This grouping considers the exemptions that are available to all employers for benefits provided as a

consequence of workers compensation legislation (see ¶12-520 and ¶12-530) and for those employers who grant employees emergency assistance (¶12-660). Also considered are travel benefits provided on compassionate grounds — to attend the funeral of a relative (¶12-580) or arising from an employee accepting an overseas assignment (¶12-560). An exemption is also available for employers who provide in-house health care facilities (¶12-540), medical examinations of employees in certain circumstances (¶12-600), medical screening of a particular group of employees (¶12-610), preventative health care (¶12-620), the counselling of employees in a variety of situations (¶12-630) or assisting non-English-speaking migrant families (¶12-640). Travel costs in connection with the provision of most of the foregoing benefits are also exempt from FBT (¶12-650).

¶12-520 Work-related injuries A benefit provided in respect of a work-related injury suffered by an employee is exempt from FBT (s 58J(1)), eg the payment of hospital, medical and ambulance costs. Conditions 1. The benefit provided is connected with a work-related trauma (see below). 2. The work-related trauma is compensable under a workers compensation law. 3. Where condition 2 is not satisfied, the benefit is otherwise reasonable (Taxation Determination TD 93/64). A “work-related trauma” is an injury or disease related to the employee’s employment. A workers compensation law is a law of the Commonwealth, a state, a territory or a foreign country that provides compensation or other benefits for work-related injury suffered by employees without requiring proof of any breach of duty by the employer. Alternatively, a benefit will be reasonable if, had the employer taken out workers compensation insurance, it would have been subject to compensation under a workers compensation law. AFB ¶55-510; AFT ¶820-020.

¶12-530 Work-related injury insurance A benefit provided in respect of a contingent right to compensation for a work-related injury suffered by an employee is exempt from FBT (s 58J(2)). Conditions 1. A residual benefit is provided in respect of an employee. 2. A contingent right to a benefit for a work-related trauma (see ¶12-520) is provided. 3. Where the contingent right takes the form of a contract of insurance the residual benefit must be limited to work-related trauma compensation. AFB ¶55-515; AFT ¶820-020.

¶12-540 In-house health care facilities A health care benefit provided in an in-house health care facility by an employer is exempt from FBT (s 58K). Conditions 1. the health care is provided in respect of the employee’s employment 2. the health care is provided in an in-house health care facility of the employer, or

3. where condition 2 is not satisfied, health care is provided by a member of the health care facility staff in the performance of their duties. An in-house health care facility must be operated at least principally for providing health care for a workrelated trauma (¶12-520) suffered by employees. It must also be located on the employer’s or an associate’s business premises or adjacent to the employee’s worksite, eg in a first aid room or medical clinic. Health care is defined to mean any test or form of care (whether therapeutic, preventative or rehabilitative) that is related to a person’s physiological or psychological health. It also includes the supply, maintenance or repair of artificial limbs and mechanical and surgical aids and the supply of drugs or other property in connection with health care. The exemption extends to health care provided away from the in-house health care facility provided this is in respect of a work-related injury, eg a company doctor visits an employee to check on how he/she is recovering. However, the exemption would not extend to a health care benefit provided to an employee at a non-work-related football match. AFB ¶55-520; AFT ¶820-030.

¶12-560 Travel to obtain medical treatment Travel costs incurred to obtain suitable medical treatment while an employee is working in a foreign country are exempt from FBT (s 58L). Conditions 1. The transport is provided to a person called the “traveller”. 2. The benefit provided is a car benefit, expense payment benefit, property benefit or residual benefit. 3. The transport is required solely because a person (patient) requires medical treatment. Medical treatment is an act or thing that is a “medical expense” within the meaning in ITAA 1936 s 159P. 4. The employee was performing employment duties at an overseas employment place. 5. The transport is between the overseas employment place and at or near the place of medical treatment. 6. A non-employee patient must be a family member living with or near the employee. 7. Any non-patient traveller must accompany the patient due to the patient’s age, as an escort for medical reasons or, if a family member, this must be customary due to the nature and duration of the medical treatment required by the patient. 8. Where meals or accommodation are provided, these must be provided en route or required due to a need to be present at the medical treatment place. 9. The place of medical treatment must be the closest or cheapest. 10. If the benefit is an expense payment benefit, documentary evidence of the expenditure must be supplied to the employer. “Medical treatment” is a medical expense other than in respect of a cosmetic operation or dental treatment that is solely cosmetic (s 58L(2) to (5)). AFB ¶55-530; AFT ¶820-040.

¶12-580 Compassionate travel

Travel costs (transport, meals or accommodation) in connection with visiting a sick relative or attending a funeral are exempt from FBT (s 58LA). Conditions 1. The benefit provided is a car benefit, expense payment benefit, property benefit or residual benefit. 2. Where the traveller is an employee, the sole reason for the travel must be to enable the employee to visit a close relative who is seriously ill or attend the funeral of a close relative. 3. Where the traveller is a close relative, the sole reason for the travel must be to enable the traveller to visit the employee or a close relative of the employee who is seriously ill, or alternatively, to attend the funeral of the employee or a close relative of the employee. 4. At the time that the compassionate travel commences, the employee must be: • travelling in the course of performing employment duties, or • living away from home in the course of performing employment duties, or • living or performing duties in a remote area (¶12-475) of an Australian state or territory. Alternatively, the employee would have satisfied one of the above requirements but for their death. 5. If the benefit is an expense payment benefit, documentary evidence of the expenditure must be supplied to the employer. AFB ¶55-540; AFT ¶820-045.

¶12-600 Work-related medical examinations A medical examination or test carried out to determine the suitability of a person to be employed, continue to be employed, undertake a change of duties or become a member of a superannuation fund, etc, is exempt from FBT (s 58M(1)). Conditions 1. The benefit is an expense payment benefit, property benefit or residual benefit in respect of a medical examination or test. 2. The medical examination or test on the employee is carried out by or on behalf of an audiometrist or a legally qualified medical practitioner, nurse, dentist or optometrist. 3. The purpose of the medical examination must be wholly or principally in order to ascertain the physiological or psychological condition of the employee to, for example, commence employment or become a member of a superannuation fund (ATO Interpretative Decision ID 2007/141). A number of private organisations provide health services to assist employers maintain a healthier workforce, reduce absenteeism and improve employee retention. For example, the medical examinations or tests made available to employees in Class Rulings CR 2010/7 and CR 2011/41 satisfy the above conditions. AFB ¶55-550; AFT ¶820-050.

¶12-610 Work-related medical screening A medical examination or test carried out to determine if an employee has suffered, is suffering or is at risk of suffering, from work-related trauma is exempt from FBT (s 58M(1)). Conditions 1. The benefit is an expense payment benefit, property benefit or residual benefit in respect of a

medical screening examination or test. 2. The medical screening examination or test on the employee is carried out by or on behalf of an audiometrist or a legally qualified medical practitioner, nurse, dentist or optometrist. 3. The purpose of the medical screening examination or test must be wholly or principally in order to ascertain whether the employee has suffered, is suffering or is at risk of suffering from work-related trauma (see ¶12-520). 4. The medical screening examination or test must be made available to all employees exposed to work-related trauma. A number of private organisations provide health services to assist employers maintain a healthier workforce, reduce absenteeism and improve employee retention. For example, the medical screening examinations or tests made available to employees in Class Rulings CR 2009/29 and CR 2010/7 satisfy the above conditions. Benefits provided in respect of the employment of an employee that are associated with the provision of the above benefits may also be exempt benefits under s 58M(2). In Lake Fox Ltd v FC of T 2012 ATC ¶10-248, the AAT held that the payment by an employer of private health insurance premiums for employees was not “in respect of” work-related medical screening for the employees and was also not an associated benefit under s 58M(2). The fact that the insurance might cover employees for work-related medical screening costs did not alter the characterisation of the expenditure as being in respect of health insurance, and the benefit was not an exempt benefit under s 58M (¶10-350). The AAT’s conclusion on the application of the s 58M exemption was consistent with the ATO’s submissions in the case (see the ATO Decision Impact Statement on the Lake Fox case). AFB ¶55-560; AFT ¶820-050.

¶12-620 Work-related preventative health care Any form of health care provided by a doctor, nurse, dentist, optometrist to all employees at risk of suffering from work-related trauma is exempt from FBT (s 58M(1)). Conditions 1. The benefit is an expense payment benefit, property benefit or residual benefit in respect of a preventative health care medical examination or test (ATO Interpretative Decision ID 2003/689). 2. The preventative health care medical examination or test on the employee is carried out by or on behalf of an audiometrist or a legally qualified medical practitioner, nurse, dentist or optometrist. 3. The purpose of the preventative health care medical examination or test must be wholly or principally to prevent the employee suffering from work-related trauma (see ¶12-520). 4. The preventative health care must be made available to all employees at risk of suffering workrelated trauma (ATO Interpretative Decision ID 2004/557). Example An employer makes arrangements for free flu vaccinations to be administered by a nurse or doctor. Details of when and where the vaccinations will be administered are conveyed to all employees. Benefits provided in respect of the employment of an employee that are associated with the provision of the above benefits may also be exempt benefits under s 58M(2). The costs of providing the vaccinations to employees satisfy the above requirements even if not all employees take advantage of the employer’s offer. Accordingly, the free flu vaccinations are exempt from FBT (ATO Interpretative Decision ID 2004/301).

A number of private organisations provide health services to assist employers maintain a healthier workforce, reduce absenteeism and improve employee retention. For example, the preventative health care medical screening examinations or tests made available to employees in Class Rulings CR 2009/29

and CR 2010/7 satisfy the above conditions. Group exercise classes provided to employees whose attendance is the result of a referral by a legally qualified person qualify as “work-related preventative health care” if made generally available to all employees at risk. Also, the group exercise classes cannot qualify as work-related counselling (¶12-630) as “a predominantly physical activity session with negligible or no lecture component will not constitute counselling”. However, the exercise classes may be exempt if they constitute a minor benefit (Class Ruling CR 2011/41). In Lake Fox Ltd v FC of T 2012 ATC ¶10-248, the AAT held that the payment by an employer of private health insurance premiums for employees was not “in respect of” work-related preventative health care of the employees and was also not an associated benefit under s 58M(2). The fact that the insurance might cover employees for work-related preventative health care costs did not alter the characterisation of the expenditure as being in respect of health insurance, and the benefit was not an exempt benefit under s 58M (¶10-350). The AAT’s conclusion on the application of the s 58M exemption was consistent with the ATO’s submissions in the case (see the ATO Decision Impact Statement on the Lake Fox case). AFB ¶55-570; AFT ¶820-050.

¶12-630 Work-related counselling Counselling provided in respect of health, safety, fitness, stress management, etc, that is not provided wholly or principally as a reward for employee services is exempt from FBT (s 58M(1)). Conditions 1. The benefit is an expense payment benefit, property benefit or residual benefit in respect of workrelated counselling. 2. The scope of the work-related counselling is limited to matters such as health, safety, fitness, stress management, etc, eg a quit-smoking program may qualify for the exemption (ATO Interpretative Decision ID 2001/543). 3. The work-related counselling is provided to an employee or an associate in the presence of the employee. 4. The purpose of the counselling is to improve or maintain the quality of the duties performed by employees or prepare employees for retirement. 5. The counselling is not provided wholly or principally as a reward for services rendered by the employee. For example, this requirement will not be satisfied where an employee has entered into a salary sacrifice agreement (SSA) with their employer (NTLG FBT Sub-committee minutes — 16 November 2006). The Commissioner considers that the provision of outplacement services to employees before and after they are made redundant generally falls within the definition of “work-related counselling” and is an exempt benefit (Taxation Determination TD 93/153). However, the payment for, or reimbursement of, a training course or activity provided under a worker retraining program by an employer to an employee being made redundant does not meet the definition of “work-related counselling” (ATO Interpretative Decision ID 2015/1). A number of private organisations provide health services to assist employers maintain a healthier workforce, reduce absenteeism and improve employee retention. For example, the work-related counselling made available to employees in Class Rulings CR 2009/29, CR 2010/7 and CR 2012/67 satisfy the above conditions. The ATO considered the meaning of “counselling” in Class Ruling CR 2008/73 and concluded based on the dictionary definition of “counselling” and the meaning of “seminar” in ITAA 1997 s 32-65: “53. The wording of these definitions suggests ‘counselling’ is not limited to verbal advice provided at a seminar, or similar session, but can extend to include discussion group meetings facilitated by a

trained leader that include some practical demonstrations. The knowledge or skills provided in such situations can be in a wide range of areas, however, a predominantly physical activity session with negligible or no lecture component, such as attendance at an external gym will not constitute ‘counselling’.” A similar conclusion to the above is reached in Class Ruling CR 2013/43 (para 58). AFB ¶55-580; AFT ¶820-050.

¶12-640 Migrant language training Language training courses designed to teach English or explain Australian citizenship and lifestyle to a person who is, or intends to become, an immigrant of Australia is exempt from FBT (s 58M(1)). Conditions 1. The benefit is an expense payment benefit, property benefit or residual benefit in respect of migrant language training. 2. The migrant language training is provided to an employee or associate who intends to become an immigrant to Australia. The training must be designed to teach the English language or impart an understanding of Australian citizen rights and duties to persons whose first language is not English. AFB ¶55-590; AFT ¶820-050.

¶12-650 Work-related travel costs Travel costs incurred in attending work-related medical examinations (¶12-600), work-related medical screening (¶12-610), work-related preventative health care (¶12-620), work-related counselling (¶12-630) and migrant language training courses (¶12-640) are exempt from FBT (s 58M(2)). Conditions 1. The benefit is a car benefit, an expense payment benefit, property benefit or residual benefit. 2. The benefit is associated with a work-related medical examination, work-related medical screening, work-related preventative health care, work-related counselling or migrant language training — that is, transport, meals or accommodation (s 143E). 3. The travel costs are not in respect of car expenses reimbursed on a cents per kilometre basis. (See ¶13-260 for the reduction in taxable value where the cents per kilometre basis is used.) 4. Documentary evidence is provided to the employer where the travel costs are an expense payment benefit. AFB ¶55-600; AFT ¶820-050.

¶12-660 Emergency assistance The provision of emergency assistance to an employee or an associate of an employee as a consequence of a natural disaster, accident or serious illness, etc, is exempt from FBT (s 58N). Conditions 1. A benefit is provided in respect of the employment of the employee. 2. The benefit is provided to a person who is, or in immediate risk of becoming, the victim of an emergency. An “emergency” is a circumstance that arises from a natural disaster, an accident, serious injury, a conflict involving armed forces, a civil disturbance, etc. 3. The sole purpose of the benefit must be to provide emergency assistance:

• first aid or other emergency health care • emergency meals or food supplies • emergency clothing • emergency transport • emergency accommodation • emergency use of household goods • temporary repairs • any similar matter. 4. Where the emergency assistance takes the form of “first aid or other emergency health care” (¶12540), the exemption is limited to certain categories of benefit and must be provided: (a) by an employee of the employer or a related entity, or (b) on the premises of the employer or a related entity, or (c) at, or adjacent to where the employer or the employees of a related entity perform duties of their employment. Example: Cash payment An employee’s house is made uninhabitable part-way through an FBT year due to a natural disaster (flood) and the employee does not have any other accommodation. The employer makes an emergency relief cash payment (payment) to the employee to cover anticipated rent for a reasonable period of time and to pay immediately needed meal and food expenses. The payment is not “salary or wages” but is a property benefit as it is provided in respect of the employee’s employment. The emergency relief cash payment is exempt from FBT (ATO Interpretative Decision ID 2011/60).

Note: A state government temporary living expenses grant paid in instalments over six months to a taxpayer directly affected by a natural disaster is not assessable income (ATO Interpretative Decision ID 2011/69).

AFB ¶55-610; AFT ¶820-065.

EDUCATION ¶12-670 Overview This grouping considers benefits provided under the Australian Traineeship System (¶12-680) and an approved student exchange program (¶12-700).

¶12-680 Trainees under Australian Traineeship System Food, drink and accommodation provided to an employee who is a trainee under the Australian Traineeship System are exempt from FBT (s 58S). Conditions 1. The employee is a trainee under a training agreement under the Australian Traineeship System scheme. 2. The benefit is an expense payment benefit, housing benefit, board benefit, property benefit or residual benefit.

3. The benefit is provided under an industrial agreement or is customary in the industry (Taxation Determination TD 94/97). The Australian Traineeship System scheme has been overhauled and replaced with a wider system referred to as Australian Apprentices programme and therefore it is not clear how this exemption is to be applied. In the NTLG FBT Sub-committee minutes — 12 August 2010, the ATO considered that s 58S should be amended as the Australian Traineeship System has been superseded and Treasury agreed to progress this item through the Tax Issues Entry System (TIES). In the NTLG FBT Sub-committee minutes — 10 November 2011, Treasury advised that broadening the concession to the wider “Australian Apprentices” programme was a policy issue that was outside the scope of TIES. Accordingly, the exemption in s 58S cannot currently be accessed by employers. AFB ¶55-410; AFT ¶820-100.

¶12-700 Approved student exchange programs A benefit consisting of an employee (or an associate of an employee) being placed in an approved student exchange program is exempt from FBT (s 58ZB). Student exchange programs are run by organisations such as Rotary International, Australian Cultural Exchange, and Lions Long Term Youth Exchange. Conditions 1. The employer or an associate of the employer did not select or take part in the selection of the employee or associate as a participant in the program. 2. The student exchange program is registered with the relevant state or territory body. AFB ¶55-420; AFT ¶820-165.

CARE WORKERS ¶12-710 Overview Certain benefits associated with the personal care of elderly persons and religious practitioners by employees of a natural person, government body, religious institution or religious practitioner are exempt from FBT.

¶12-720 Live-in residential care workers Accommodation, meals, etc, provided to an employee and family members (ie spouse or child) who live with the employee are exempt benefits (s 58). Conditions 1. Employer must be a government body, a registered religious institution, ACNC registered company or a non-profit company whose activities include caring for elderly or disadvantaged persons. 2. Employee’s duties must principally consist of caring for elderly or disadvantaged persons and any of their children that reside with them. 3. Employee living with the elderly or disadvantaged persons in residential premises of the employer must be performing employment duties. 4. Need for the employee to live with the elderly or disadvantaged persons must be directly related to their care.

A “government body” means the Commonwealth, a state or a territory, or an authority of one of these. A “registered religious institution” is a charity registered under the ACNC Act as an entity with a purpose that is the advancement of religion (¶12-900). Before 3 December 2012, a religious institution was not required to be registered under the ACNC Act. The meaning of a religious institution is discussed at ¶12905. An “ACNC registered company” is a company registered with the ACNC and therefore must be a “nonprofit organisation” (¶12-885). In Taxation Ruling TR 92/17, the ATO considers that for a body to be a religious institution: “(a) its objects and activities must reflect its character as a body instituted for the promotion of some religious object; and (b) the beliefs and practices of the members of that body must constitute a religion.” An elderly person is someone who is at least 60 years old, and a disadvantaged person is someone who is either handicapped or in necessitous circumstances. This exemption complements the concession available to persons who are employed by a natural person to look after elderly or disadvantaged persons in their own home (¶12-730). AFB ¶55-960; AFT ¶819-900.

¶12-730 Live-in help for elderly and disadvantaged persons Accommodation, meals, etc, provided to an employee and family members (ie spouse or child) who live with the employee are exempt benefits (s 58U). Conditions 1. Employer must be a natural person. 2. Employee’s duties must principally consist of caring for one or more elderly or disadvantaged persons (¶12-720) and any of their children that reside with them. 3. Employee must live in the same unit of accommodation as the elderly or disadvantaged person or persons being cared for. 4. Need for the employee to live with the elderly or disadvantaged person(s) must be directly related to their care. The type of care that must be provided is not stipulated but it can be expected to include the various types of care that an elderly or disadvantaged person would naturally need, eg medical attention, feeding, clothing, washing, housekeeping. AFB ¶55-970; AFT ¶820-120.

¶12-740 Live-in domestic employees Accommodation, meals, etc, provided to an employee and family members (ie spouse or child) who live with the employee are exempt benefits (s 58T). Conditions 1. Employer is a registered religious institution (¶12-720) or a religious practitioner (¶12-790). 2. Employee’s duties principally consist of domestic services or personal services for religious practitioners and their relatives. 3. Employee lives in a unit of accommodation (¶7-140) in proximity to the religious practitioner.

4. Need for the employee to live in the unit of accommodation is directly related to the employment duties of providing domestic or personal services. “Domestic services” includes child care, gardening, home renovations, repairs or maintenance, house cleaning, nursing care and preparation of meals, and “personal services” includes services as a personal secretary or chauffeur (s 136(1)). This exemption complements the concession available to religious practitioners who are employed by a registered religious institution (¶12-790). AFB ¶55-980; AFT ¶820-110.

¶12-750 Non-live-in domestic employees (food and drink) Food and drink (eg morning tea) provided to an employee rendering domestic services (eg child care) to a natural person or a religious practitioner (including relatives) at their place of residence are an exempt benefit (s 58V). Conditions 1. Employer is a natural person or registered religious institution (¶12-720). 2. If the employer is a natural person, the employee must be employed to render domestic services for the employer, and their relatives, at the employer’s residence. 3. If the employer is a registered religious institution, the employee must be employed to render domestic services for one or more religious practitioners (¶12-790), and their relatives, where the practitioner lives. 4. Employee is not provided with residential accommodation. 5. Food or drink is consumed at the time the employment duties are provided. AFB ¶55-990; AFT ¶820-130.

EXEMPT EMPLOYERS ¶12-790 Religious institutions A benefit provided to a religious practitioner, principally in respect of pastoral or religious duties, is an exempt benefit (s 57). Conditions 1. Employer of the employee is a registered religious institution (¶12-720). 2. Employee is a religious practitioner. 3. Benefit is provided to the employee, or to a spouse or a child of the employee. 4. Benefit is provided principally in respect of the employee’s pastoral or religious duties. A “religious practitioner” means: • a minister of religion • a student at an institution who is undertaking a course of instruction in the duties of a minister of religion • a full-time member of a religious order, or

• a student at a college conducted solely for training persons to become members of religious orders. Example A pastor had a primary role of preaching, teaching and propagating religious beliefs and pastoral care, and defining the spiritual direction of the church. Upon his retirement, the church proposes to continue to provide the pastor with accommodation, use of a car and use of a corporate credit card to meet living expenses of $1,000 per week. The benefits are in respect of pastoral duties directly related to the teaching and propagation of religious beliefs and are therefore exempt (ATO Interpretative Decision ID 2001/332).

Although the terms “minister of religion” and “member of a religious order” are not defined in the FBT legislation, the ATO in Taxation Ruling TR 92/17 considers that they include not only members of the clergy in Christian denominations, but also persons who hold equivalent positions in other religions. AFB ¶56-220; AFT ¶819-690.

¶12-800 International organisations International organisations which are exempt from income tax and other taxes by virtue of the International Organisations (Privileges and Immunities) Act 1963 are exempt from FBT in respect of benefits provided to their employees. In addition, the exemption applies to organisations established under agreements to which Australia is a party and which oblige Australia to grant the organisation a general tax exemption (s 55). Accordingly, the exemption attaches to the particular organisation (eg United Nations, International Monetary Fund) as an employer and it is irrelevant how the benefit arose or who provided it. AFB ¶56-260; AFT ¶819-490.

¶12-810 Foreign governments Foreign governments are exempt from FBT if they are exempt from taxes by virtue of the Consular Privileges and Immunities Act 1972 or the Diplomatic Privileges and Immunities Act 1967 (s 56). The exemption attaches to the particular employer. The only question is whether the benefit is one for which the employer would be liable for FBT were the employer not covered by the above Acts. AFB ¶56-280; AFT ¶819-590.

SECTION 57A EMPLOYERS ¶12-830 Overview Benefits provided in respect of the employment of an employee by certain employers (see below) are exempt from FBT under s 57A if certain conditions are satisfied. However, the exemption is subject to a capping threshold on grossed-up taxable benefits of either $17,000 or $30,000 (¶14-435). For the 2017 FBT year, these caps were $17,667 and $31,177 respectively due to the temporary budget repair levy (s 135Y). For the 2017 FBT year and later FBT years, the grossed-up taxable value of salary packaged meal entertainment and entertainment facility leasing benefits is included in these caps. If the inclusion of the salary packaged meal and entertainment benefits causes the employee to exceed the relevant cap, the FBT exemption still applies provided the cap is not exceeded by more than the lesser of: • $5,000, and • the total grossed-up taxable value of salary packaged meal entertainment and entertainment facility leasing benefits (s 5B(1E)). The employers eligible for this concession are: • registered public benevolent institutions (¶12-840) • government bodies employing hospital staff (¶12-850) • public hospitals and ambulance services (¶12-860) • non-profit hospitals (¶12-870), and • registered health promotion charities (¶12-880). The meaning of “charity” and “charitable institution” are discussed at ¶12-890 and the ACNC registration requirements at ¶12-900. The capping threshold is $30,000 if the employer is a registered public benevolent institution or a registered health promotion charity and $17,000 if the employer is a government body, a public hospital, a public ambulance service or a non-profit hospital. The calculation of the fringe benefits taxable amount where s 57A benefits are provided is explained at ¶14-400.

¶12-840 Public benevolent institutions A benefit provided in respect of the employment of an employee is an exempt benefit where (s 57A(1)): • the employer of the employee is a registered public benevolent institution, and • endorsed as a registered public benevolent institution. For the 2018 FBT year, the exemption is limited to benefits with a grossed-up taxable value not exceeding $30,000 for each employee (¶14-435). A “registered public benevolent institution” (s 136(1)) is a charity registered under the ACNC Act as a public benevolent institution (PBI). Before 3 December 2012, a PBI was not required to be registered under the ACNC Act. Guidance from the Australian Charities and Not-for-profits Commission on the meaning of “public benevolent institution” is available in the Commissioner’s Interpretation Statement: Public Benevolent Institutions (CIS 2016/03). An entity whose activity was predominantly to raise funds that it disseminated to other member entities for

the relief of hunger in various countries was held eligible to be endorsed as a public benevolent institution for FBT purposes (FC of T v The Hunger Project Australia 2014 ATC ¶20-458). The Full Federal Court held that the ordinary contemporary meaning or understanding of a public benevolent institution is broad enough to encompass an institution (ie HPA) that provides relief via related or associated entities. In doing so, the court dismissed the Commissioner’s contention that a public benevolent institution must provide its aid and services directly to people in need of the benevolent relief. The following institutions and organisations have also been accepted as public benevolent institutions: • the Boys’ Brigade, which provided recreational facilities free of charge to boys of poorer areas (Maughan v FC of T (1942) 66 CLR 388) • the Australian Council for Overseas Aid, which although it does not provide direct aid itself, is a coordinating and educative agency set up by other public benevolent institutions (80 ATC 4575), and • Legacy associations (FC of T v Launceston Legacy 87 ATC 4635). Endorsement From 3 December 2012, for an entity to be entitled to be endorsed by the Commissioner as a registered PBI (s 123C(1)), the entity must (s 123C(2)): • be a registered PBI (see above) • have an Australian Business Number (ABN), and • not be a hospital or public ambulance employer. An entity applies for endorsement in accordance with Div 426 of the TAA 1953 which requires applications to be in a form approved by the Commissioner. AFB ¶56-410; AFT ¶819-790.

¶12-850 Government bodies employing hospital staff A benefit provided in respect of the employment of an employee is an exempt benefit where (s 57A(2)): (a) the employer of the employee is a government body, and (b) the employment duties of the employee are exclusively performed in, or in connection with: (i) a public hospital (¶12-855), or (ii) a hospital carried on by a society or association that is a rebatable employer (“non-profit hospital”; ¶14-310). The above requirements are discussed in Taxation Determination TD 2015/12. Employment duties The requirement that the duties be performed “exclusively” is determined by reference to an employee’s statement of employment duties and the actual duties being performed at a particular time. A positive indicator that an employee is engaged in activities that enable a hospital to carry out its functions is where those activities are conducted under the direction, management and control of the hospital administration. The entitlement to the s 57A(2) exemption is considered in relation to each separate job position. When an employee changes job positions during the year or is concurrently engaged in separate positions during a period it will be necessary to consider each position separately. Example: Employee changes jobs Janet is an employee of a State Health Department (SHD) and, as part of her remuneration package, is provided with the use of a car for private purposes. Her employment duties do not satisfy the requirements of s 57A(2)(b).

Janet is subsequently appointed Director of Nursing at a public hospital. However, Janet’s employer remains the SHD and she retains the use of the car as part of her new remuneration package. Janet’s new position has duties which are exclusively performed “in, or in connection with” a public hospital. Section 57A(2)(b) is satisfied and the exemption applies to the car benefits provided to her in respect of her Director of Nursing position (adaptation of TD 2015/12, Example 7).

Performed “in” a hospital The phrase “in a hospital” requires the employee to perform their duties in the physical location of a hospital facility and in a place within that facility where activities are conducted that allow the hospital to carry out its functions. Places such as a surgical theatre, a patient ward or a hospital administration office are clearly recognisable as being part of the hospital where its functions are carried out. An activity carried out within the physical confines of a hospital that is not part of the activities carried on by the hospital organisation will not satisfy this requirement. Example: Construction project manager Dean is employed by the State Department of Public Works as a project manager for the construction of a new hospital building on the site of the Newland Public Hospital. Dean’s role includes working in an office performing engineering and related tasks for the construction of the new hospital building. This office is part of a self-contained building within the physical boundary of the Newland Public Hospital. Dean does not perform his duties “in” a public hospital or “in connection with” a public hospital. Although Dean performs his employment duties within the physical boundary of the Newland Public Hospital facility he does not work at a place where the activities of the public hospital are being conducted (adaptation of TD 2015/12, Example 3).

Performed “in connection with” The phrase “in connection with” requires the employee’s duties to support the operation of the hospital and the employee is dependent on the hospital to undertake their duties. Under this test, it is not necessary that the duties of employment be performed at the physical location of the hospital facility. Example: Support officer Edith is an employee of a State Health Department. The unit that Edith works for exclusively provides administrative support to a number of metropolitan public hospitals including for procurement of hospital goods and services and payment of suppliers. Edith performs her duties at the Department premises which are outside the physical location of a public hospital. Edith performs all of her duties “in connection with” a public hospital because her duties enable a hospital to carry out its functions (adaptation of TD 2015/12, Example 4).

For the 2018 FBT year, the exemption is limited to benefits with a grossed-up taxable value not exceeding $17,000 for each employee (¶14-440). AFB ¶56-430, ¶56-500; AFT ¶819-790.

¶12-855 Meaning of “public hospital” The term “public hospital” is not defined in the FBTAA; however, it is defined in the Macquarie Dictionary to mean “a hospital owned and run by the government”. In ATO Practice Statement PS LA 2001/9 (withdrawn 11 June 2013), the ATO explains its approach to determining which organisations will be treated as a “hospital” for the purpose of the capping of s 57A benefits (¶14-400; see also Taxation Determination TD 2015/12).

¶12-860 Public hospitals and ambulance services A benefit provided in respect of the employment of an employee is an exempt benefit where (s 57A(3)): (a) the employer of the employee is a public hospital (¶12-855), or

(b) the employer provides public ambulance or support services, and the employee is predominantly engaged in connection with those services. For the 2018 FBT year, the exemption is limited to benefits with a grossed-up taxable value not exceeding $17,000 for each employee (¶14-435). Support services The Explanatory Memoranda that introduced s 57A(3) indicates that services that support a public ambulance service would include a call centre which answers emergency telephone calls. However, a commercial provider of transportation to hospitals would not be providing services that support public ambulance services. Also, an employee is “predominantly” involved in ambulance or support services if they were involved in connection with the provision of those services for at least half of the FBT year. AFB ¶56-450; AFT ¶819-790.

¶12-870 Non-profit hospitals A benefit provided in respect of the employment of an employee is an exempt benefit where (s 57A(4)): • the employer of the employee is a hospital (¶12-855), and • the hospital is carried on by a non-profit society or association that is a rebatable employer (¶14-310). For the 2018 FBT year, the exemption is limited to benefits with a grossed-up taxable value not exceeding $17,000 for each employee (¶14-435). AFB ¶56-470; AFT ¶819-790.

¶12-880 Health promotion charities A benefit provided in respect of the employment of an employee is an exempt benefit where (s 57A(5)): (a) the employer of the employee is a registered health promotion charity, and (b) endorsed as a registered health promotion charity. For the 2018 FBT year, the exemption is limited to benefits with a grossed-up taxable value not exceeding $30,000 for each employee (¶14-435). Registered health promotion charity A “registered health promotion charity” (s 136(1)) is a charity (¶12-890) registered under the ACNC Act as an institution whose principal activity is to promote the prevention or the control of diseases in human beings (¶12-900). Before 3 December 2012, a health promotion charity (HPC) was not required to be registered under the ACNC Act. A “disease” is defined in the Macquarie Dictionary, 6th Ed to mean “a morbid condition of the body, or of some organ or part; illness; sickness; ailment”. It also includes “any mental or physical ailment, disorder, defect or morbid condition, whether of sudden onset or gradual development and whether genetic or other origin” (s 136(1)). ACNC guidelines on the meaning of “heath promotion charity” are set out in the Commissioner’s Interpretation Statement: Health Promotion Charities (CIS 2015/01). Endorsement A health promotion charity is only able to access the FBT exemption if the charity is endorsed by the Commissioner under s 123D(1). From 3 December 2012, for an entity to be entitled to be endorsed by the Commissioner as a HPC the entity must (s 123D(2)): • be a registered HPC (see above)

• have an ABN, and • not be a hospital or public ambulance employer. An entity applies for endorsement in accordance with Div 426 of the TAA 1953 which requires applications to be in a form approved by the Commissioner. AFB ¶56-490; AFT ¶819-790.

¶12-885 Non-profit organisations and associations A “non-profit society”, “non-profit association” or “non-profit club” is a society, association or club that is carried on otherwise than for the purposes of profit or gain to its individual members, and is neither (former s 65J(5)): • an incorporated company which is 100% beneficially owned by the Commonwealth, a state or a territory (or an authority or institution of such), nor • an incorporated company which is limited by guarantee and where the interests and rights of the members are beneficially owned by the Commonwealth, a state or a territory (or an authority or institution of such). What is a “non-profit” organisation? In its publication Tax basics for non-profit organisations, the ATO states: “A non-profit organisation is an organisation that is not operating for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up. Any profit made by the organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members. We accept an organisation as non-profit where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people — both while it is operating and when it winds up. These documents should contain acceptable clauses showing the organisation’s nonprofit character.” Meaning of “association” The Macquarie Dictionary defines “association” as being “an organisation of people with a common purpose and having a formal structure”. The meaning is also discussed in Taxation Determination TD 95/56, where it is concluded: “A body which is formed by government, is controlled by government and performs functions on behalf of government is clearly not formed to effect the purposes of the members of that body but is formed to effect the purposes of government. Combined with the fact that the members do not create the body (or have the power to dissolve it) and that the members do not have ultimate control over the functions of the body, such a body cannot be said to be an association.” Therefore, the ATO considers most bodies formed by the federal, state or territory governments, most statutory authorities (including those set up to market, regulate or promote agricultural or other products) and local governments councils are not “associations”. Non-profit association In ATO Interpretative Decision ID 2009/127, the employer is an association not carried on for the profit or gain of individual members and an incorporated company limited by guarantee. A number of the members of the non-profit association are taken to be institutions of the Commonwealth, state or territory for the purposes of s 65J (¶14-315). The remaining members of the non-profit association are private organisations. The ATO concludes the employer is a “non-profit association” as defined in former s 65J(5) for the purposes of former s 65J(1). This is because the member organisations (who beneficially own the

members interests and rights in the company limited by guarantee) are not all government bodies. AFB ¶58-070; AFT ¶819-790.

¶12-890 Charities and charitable institutions The words “charity” and “charitable” are not defined in the Fringe Benefits Tax Assessment Act 1986. However, effective from 1 January 2014, a statutory definition is contained in the Charities Act 2013 (CA) which applies for all Commonwealth purposes, including taxation law. The statutory definition essentially codifies the previous law, broadly as set out by the Commissioner in Taxation Ruling TR 2011/4. However, it also introduces a number of changes, including the modernisation of charitable purposes and the clarification of activities which are unlawful or contrary to public policy. “Charity” from 1 January 2014 For an entity to qualify as a “charity” under the statutory definition, the following must apply: • the entity is a not-for-profit entity • all of its purposes are “charitable” and for the “public benefit”, or are incidental to, ancillary to, and in furtherance or aid of those purposes • none of its purposes are “disqualifying purposes”, and • it is not an individual, a political party or a “government entity” (CA s 5). A “not-for-profit entity” is not defined in the Charities Act, and accordingly takes its ordinary meaning of an entity that is not carried on for the profit or gain of its individual members (¶12-885). The funding of an institution by government does not mean that the institution cannot be charitable (Central Bayside General Practice Association v Commr of State Revenue; Taxation Ruling TR 2011/4). Charitable purpose A charitable purpose is defined to include the advancement of education, religion, culture, natural environment, security of Australia and any other purpose beneficial to the general public. Also, unless specified otherwise, the purpose may be directed to something in Australia or overseas (CA s 12). A charitable fund may retain its charitable status where it provides money, property or benefits to a body that would be a charity except for the fact that it is a government entity, such as a public health service (CA s 13). Where an entity had a charitable purpose under the previous law, but the purpose does not come within the statutory purposes listed in CA s 12, the purpose is treated as qualifying as a charitable purpose. Also, special transitional rules apply to ancillary funds. Identifying the purposes To identify the entity’s purpose(s), the substance and reality of the situation must be considered. The main factors are usually: • the entity’s objectives, set out in its governing rules, and • its activities and the extent to which they are directed to achieving those objectives. Non-charitable purposes are acceptable only if they are incidental to charitable purposes: CA s 5(b)(ii). This requires that they must tend to assist, or naturally go with, the achievement of the charitable purpose (Navy Health Ltd v FC of T (2007) FCA 931). Examples of incidental purposes include accounting or fundraising functions. This gives effect to the decision in FC of T v Word Investments Ltd, where the High Court ruled that, under the common law, a company that endeavours to make a profit from its activities can still be charitable if its profit-making goal is only in aid of its charitable purpose.

Disqualifying purposes An entity cannot be a charity if any of its purposes are “disqualifying purposes” (CA s 5). A disqualifying purpose means any of the following (CA s 11): • the purpose of engaging in, or promoting, unlawful activities • the purpose of engaging in, or promoting, activities that are contrary to “public policy”, or • the purpose of promoting or opposing a political party or a candidate for political office. AFB ¶56-510; AFIT ¶102-020; ¶102-040.

¶12-900 ACNC registration requirements With effect from 3 December 2012, registration with the ACNC is a pre-condition for endorsement as a: • public benevolent institution (¶12-840) • health promotion charity (¶12-880), or • charitable institution. The ACNC Act provides that to register with the ACNC, an entity must: a) be a NFP entity b) comply with the governance standards and external conduct requirements in Pt 3-1 of that Act c) have an ABN (ACNC Act s 25-5), and d) not be covered by an Australian Government declaration characterising them as being engaged in or supporting terrorist or other criminal activities. The entity may register as a “type” or as one or more “subtypes” but, currently the only “type” is a charity. With effect from 1 January 2014, as a result of the introduction of a statutory definition of “charity”, the “subtypes” of charity were expanded to cover: • entities with any of the categories of charitable purpose set out in the Charities Act 2013 (¶12-890) • public benevolent institutions, and • institutions whose principal activity is to promote the prevention or the control of diseases in human beings (Australian Charities and Not-for-profits Commission Act 2012 s 25-5). Before 1 January 2014, the subtypes of charity were limited to: • entities with a purpose that is: – the relief of poverty, sickness or the needs of the aged (subtype 1) – the advancement of education (subtype 2) – the advancement of religion (subtype 3), or – another purpose beneficial to the community (subtype 4) • institutions whose principal activity is to promote the prevention or the control of diseases in human beings (subtype 5) • PBIs (subtype 6), or

• NFP child care bodies available to the public, as specified in s 4 of the Extension of Charitable Purpose Act 2004 (¶12-890) (subtype 7). Special rules govern the transition to the new registration subtypes, effective from 1 January 2014 (Charities (Consequential and Transitional Provisions) Act 2013, Sch 2 items 2, 3). AFB ¶56-515; AFIT ¶768-166.

¶12-905 Meaning of “institution” An “institution” is to be given its ordinary meaning of “an establishment, organisation, or association, instituted for the promotion of some object, especially one of public utility, religious, charitable, educational, etc” (definition from the Shorter Oxford English Dictionary quoted in Young Men’s Christian Association of Melbourne v FC of T (1926) 37 CLR 351 at p 361). An “institution” can take many forms (eg trust, unincorporated association or a corporation). Therefore it will be necessary to consider the constitution, activities, size and permanence of the establishment, organisation or association. Although the meaning of the word “institution” depends on its context, it does not ordinarily connote a mere trust to hold or manage trust property (Gibbs J at p 158 of Stratton v Simpson (1970) 125 CLR 138). Similarly, the word “institution” should be given a meaning “greater than a structure controlled and operated by family members and friends” (Pamas Foundation (Inc) v FC of T 92 ATC 4161 at p 4168). In Home Health Pty Ltd v FC of T 2013 ATC ¶10-325, a company that provided community mental health services was held not to be an institution because it appeared to be controlled by one director, to have a small and exclusive membership, and to be no bigger than a structure controlled and operated by family members. The AAT accepted the Commissioner’s argument that the word “institution” has a meaning greater than a structure controlled and operated by a single man (relying on the Full Federal Court decision in Pamas Foundation (Inc) v DFC of T 92 ATC 4161). Institution of the Commonwealth, a state or territory A scientific or public educational institution (former s 65J(1)(b)) and an endorsed charitable institution (former s 65J(1)(baa)) will be a rebatable employer provided they are not “an institution of the Commonwealth, a state or a territory”. The meaning of the phrase used in former s 65J(1)(b) and (baa) is defined in s 65J(3) that provides: “For the purposes of this section, an institution established by a law of the Commonwealth, a state or a territory is taken to be an institution of the Commonwealth, the state or the territory, as the case requires.” In Taxation Determination TD 2008/2, consideration is given to the meaning of “established by a law of the Commonwealth, a state or a territory” in s 65J(3). The ATO concludes that the mere incorporation of a charitable institution under the Corporations Act 2001 (for example) does not mean that s 65J(3) is satisfied. AFB ¶58-060; AFIT ¶102-020.

AVOIDING DOUBLE COUNTING ¶12-920 Overview Where a motor vehicle that is a car is provided to the employee or an associate of the employee, a car benefit will arise if the requirements of Div 2 (¶3-110) are satisfied. Similarly, if a motor vehicle that is not a car is provided to the employee, or an associate of the employee, a residual benefit will arise if the requirements of Div 12 (¶10-110) are satisfied. To ensure that benefits attributable to motor vehicles can only be taxed under Div 2 or 12, the running costs of a car (¶12-930) or other motor vehicles (¶12-940), held by an employer, are exempt. The exemption does not apply to expenses of motor vehicles owned or leased by an employee.

¶12-930 Car expenses A car expense attributable to the provision or use of a car (¶3-120) is an exempt benefit where (s 53(1)): • a car fringe benefit is provided, or • the car is exempt due to s 8(2). A “car expense” (s 136(1)), in relation to a car, means an expense incurred in respect of: (a) the registration of, or insurance in respect of, the car (b) repairs to or maintenance of the car, or (c) fuel for the car. The exemption applies to car expenses provided by way of an expense payment benefit, property benefit or residual benefit. Example 1 Apex Accounting Pty Ltd provides an employee (Julie) with a car that she uses for private travel to and from work and is a car benefit (s 7(1)) that is a fringe benefit. The taxable value of the car fringe benefit is determined using either the statutory formula method (¶3-500) or the cost basis method (¶3-600). However, the costs of fuel, registration, insurance, repairs and maintenance of Julie’s car paid or reimbursed by Apex Accounting are exempt (s 53(1)).

Example 2 Apex Accounting Pty Ltd provides an employee (Janet) with a company-owned panel van designed to carry a load of less than one tonne. Janet uses the vehicle to travel to and from work and to occasionally take domestic rubbish to the local waste disposal depot. The provision of the panel van is an exempt benefit (s 8(2)), and the costs of fuel, registration, insurance, repairs and maintenance paid or reimbursed by Apex Accounting are exempt under s 53(1).

AFB ¶55-210; AFT ¶819-090.

¶12-940 Motor vehicle expenses An expense attributable to the provision or use of a motor vehicle that is not a car is an exempt benefit where (s 53(2)): • a residual fringe benefit is provided, or • the motor vehicle is exempt due to s 47(6). The expenses subject to this concession are equivalent to “car expenses” (¶12-930). AFB ¶55-220; AFT ¶819-090.

¶12-950 Food and drink in certain cases Benefits arising from meals are subject to concessional valuation as board benefits under Div 9; other food and drink, such as morning and afternoon tea, provided to the same person on the same day in essentially the same circumstances will be exempt (s 54). AFB ¶56-060; AFT ¶819-390.

APPENDIX

¶12-980 Applying the minor benefits exemption Taxation Ruling TR 2007/12 discusses the conditions to be satisfied for a benefit to qualify for the minor benefits exemption (¶12-100). It also contains a number of examples to illustrate the practical application of the minor benefits exemption: • Christmas parties • gifts • use of an employer’s car • road tolls • a staff incentive or recognition scheme • a gym membership • baby-sitting expenses • movie vouchers, and • salary packaging. In addition, Appendix 2 of Taxation Ruling TR 2007/12 contains further guidance on the operation of the conditions that need to be satisfied for the minor benefits exemption to apply, including a further three examples. However, these examples are provided to assist employers to understand the Commissioner’s view but do not form part of the binding public ruling. The following discusses the starting point for the exemption to apply and the two key conditions that must be satisfied using a number of practical examples. The purpose is to illustrate that the practical difficulty in applying the minor benefits exemption is primarily due to shortcomings in the original legislation, eg the absence of monetary limits in s 58P(1)(f)(ii) and (iii). Starting point The starting point for determining whether the minor benefits exemption will apply to a benefit provided by an employer is s 58P(1)(a). This condition requires that a minor benefit must be “provided in respect of the employment of an employee of an employer”. Accordingly, a current, future or former employee can be the recipient of a minor benefit and qualify for the exemption. However, there is no specific provision for the exemption in s 58P to extend to benefits provided to associates of the employee. Instead, the minor benefits exemption extends to associates if authorised by one of the specific categories of benefits in Div 2 to 12 of Pt III of the FBTAA. 1. Minor benefits threshold test Ignoring benefits that are precluded from being a minor benefit in s 58P(1)(b) to (d), the second condition to be satisfied is that the notional taxable value of the minor benefit in relation to the current year of tax is less than $300 (s 58P(1)(e)). The “notional taxable value” is the taxable value according to the relevant category of fringe benefit except where the benefit is a car benefit. The notional taxable value of a car benefit is determined by assuming that it is a residual benefit. This is a key condition because the FBT liability of employers is affected by how the minor benefit provided “in respect of the employment of an employee” is determined. The guidance provided in Taxation Ruling TR 2007/12 is: “17. Paragraph 58P(1)(e) places a threshold of ‘less than $300’ on the notional taxable value of a minor benefit. This threshold test applies to each benefit provided to an individual employee, and/or each benefit provided to an associate of an employee, to which section 58P may apply. The threshold test is not an upper limit on the total value of minor benefits that any individual employee may receive.”

Accordingly, the ATO considers it is necessary to look at each benefit provided to each employee and/or associate when applying the minor benefits threshold test. But what is “each benefit” where the benefit is provided at the same time to the employee and to one or more associates? Example 1: Christmas party An employer, which is not a tax-exempt body, invites its two employees to attend a Christmas party at a local restaurant. The employees are accompanied by their partners and each couple has one child. The total cost to the employer is $1,680 for the employees, partners and two children. Therefore the cost per person attending the Christmas party is $280 ($1,680/6). As the cost per person attending the Christmas party is less than $300 the minor benefits exemption threshold test is satisfied and no FBT is payable provided the unreasonableness test is satisfied (see Taxation Ruling TR 2007/12, Example 2).

Example 2: Gym membership An employer offers to reimburse its employees for the cost of a three-month family membership at the local gym. The total cost to the employer is $885 and the membership is for the employee, partner and one child. Therefore the cost per person attending the gym sessions is $295 ($885/3). As the cost per person is less than $300 the minor benefits exemption threshold test is satisfied and no FBT is payable provided the unreasonableness test is satisfied (see Taxation Ruling TR 2007/12, Example 10 after taking into consideration the meaning of “benefit” in Example 2).

Accordingly, where a single benefit provided to an employee is shared with one or more associates (including minors) the cost per person determines whether the minor benefits threshold test is satisfied. This method is used despite the restriction in s 138(3) that provides: “For the purposes of this Act, where a benefit in respect of the employment of an employee is provided jointly to the employee and one or more associates of the employee, the benefit shall be deemed to have been provided to the employee only.” 2. Unreasonableness test If the minor benefits threshold test is satisfied, then it is necessary to apply the unreasonableness test to determine whether it would be unreasonable to treat a benefit satisfying the “minor benefits threshold test” as a fringe benefit (s 58P(1)(f)). The unreasonableness test requires employers to consider five specific criteria when determining whether to allow themselves an exemption for a minor benefit. To assist employers make this determination the ATO has provided the following guidance in Taxation Ruling TR 2007/12: “9. In considering the application of the exemption under section 58P it is necessary to look to the nature of the benefit provided and give due weight to each of the criteria. The weight given to each criterion will also vary depending on the circumstances surrounding the provision of each benefit.” Also, the following additional guidance is provided in Taxation Ruling TR 2007/12, Appendix 2, which does not form part of the binding public ruling: “195. All five criteria must be considered. No single criterion on its own will determine whether it is unreasonable to treat the benefit as a fringe benefit. 196. In considering the scope of the exemption it will be necessary to look to the nature of the benefit provided and give due weight to each of the criteria. 197. The weight given to each criterion will vary depending on the circumstances surrounding the provision of each benefit. 198. The conclusion that must be reached after having considered the five criteria is an objective one. It is a ‘reasonable person’ test. That is, what would a reasonable person conclude after having regard to all the relevant circumstances surrounding the provision of the minor benefit. The provision does not give the Commissioner a discretion.” Accordingly, employers must apply a “reasonable person” test to determine whether it would be unreasonable to pay FBT on a minor benefit without knowing what weight to put on each of the criteria. The only definitive guidance employers have is that any benefit paid as part of a salary sacrificing

arrangement will fail the unreasonableness test regardless of the other criteria (see Taxation Ruling TR 2007/12, Example 13). The five criteria to be applied by employers are discussed below. Criterion 1: Infrequency and irregularity of identical or similar benefits This criterion requires a consideration of the infrequency and irregularity with which identical or similar benefits are given in connection with the minor benefit (s 58P(1)(i)). “Infrequency and irregularity” and “identical or similar” have their ordinary meanings as they are not defined in the FBTAA. Also, in Case 2/96, 96 ATC 131 it is pointed out that “infrequent and irregular” is not the same as “isolated and rare” in concluding that total taxi trips of 48 each year meet the infrequency and irregularity test in the taxpayer’s particular circumstances. The ATO considers that whether an identical or similar benefit is provided infrequently and irregularly will depend on the circumstances. However, the more often and regularly benefits and associated benefits are provided, the less likely that this criterion will be satisfied (Taxation Ruling TR 2007/12 at para 22). Example 3: Baby-sitting expenses An employer unexpectedly requests one of its staff to work overtime on six occasions during the FBT year. The cost of engaging a baby-sitter on each occasion is $110, which is below the minor benefits threshold of $300. The employer must decide whether the provision of a baby-sitter on six occasions has been provided “infrequently and irregularly”. However, the only guidance for the employer is that if the employee’s baby-sitting expenses are paid “a few times in any year”, it is provided infrequently and irregularly (see Taxation Ruling TR 2007/12, Example 11).

Criterion 2: Notional taxable value of identical or similar benefits This criterion requires a consideration of the sum of notional taxable values of the minor benefit and any identical or similar benefits in relation to the current year or any other year of tax (s 58P(1)(f)(ii)). This criterion requires employers to take into consideration the sum of the monetary amounts of identical or similar benefits, for example, the monetary amount of baby-sitting expenses paid on more than one occasion during the current or any other FBT year. However, s 58P(1)(f)(ii) does not contain any threshold amount against which to judge the sum of the notional taxable values calculated by the employer. According to Taxation Ruling TR 2007/12, “the greater the value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will qualify as an exempt benefit”. The only other guidance is in the NAB case where Ryan J found that taxi fares of $8,000 were substantial and therefore this criterion was not satisfied. Example 4: Baby-sitting expenses In Example 3 the sum of the notional taxable values of the baby-sitting benefits provided to the employee during the FBT year is $660. The employer must now give “weight” to this criterion. However, the only guidance is that the criterion is satisfied if the baby-sitting expenses were paid a few times a year and on each occasion they were less than $300 (see Taxation Ruling TR 2007/12, Example 10).

Criterion 3: Notional taxable value of associated benefits that are not identical or similar This criterion requires a consideration of the sum of the notional taxable values of any other associated benefits in relation to the current year or any other year of tax (s 58P(1)(f)(iii)). An “other associated benefit” is a benefit that is provided in connection with the minor benefit or provided in connection with the associated benefit (s 58P(2)(a)(ii) and (iii)). This criterion requires employers to take into consideration the sum of the monetary amounts of benefits other than those that are identical or similar to the minor benefit that are provided in connection with the minor benefit. For example, the monetary amount of taxi fares provided to enable a baby-sitter to attend the employee’s residence on short notice during the current or any other FBT year. However, s 58P(1)(f) (iii) does not contain any threshold amount against which to judge the sum of the notional taxable values

calculated by the employer. The only guidance on how employers are to apply this criterion is contained in Example 16 of Taxation Ruling TR 2007/12 but this does not form part of the binding ruling. In that example, it is concluded that where taxi travel and accommodation (associated benefits) are provided in connection with a meal: “231. The greater the total value of the other associated benefits, in this case being the accommodation and the taxi travel, the less likely it is that the minor benefit, being the meal, will qualify as an exempt benefit. The other criteria used to determine if it is unreasonable to treat the minor benefit as a fringe benefit would need to be considered before any conclusion could be reached that the benefit is a minor benefit.” Note: In the case of baby-sitting expenses this criterion does not apply since there are no associated benefits — see Taxation Ruling TR 2007/12, Example 11.

Criterion 4: Practical difficulty for the employer This criterion requires a consideration of the practical difficulty for the employer in determining the notional taxable values of the minor benefit (if it is not a car benefit) and any associated benefits that are not car benefits (s 58P(1)(f)(iv)). Employers are required to keep records that record and explain all transactions and acts that are relevant for the purposes of ascertaining the employer’s liability for FBT. Accordingly, it is considered that this criterion will only have relevance in very limited circumstances. Note: In the case of the baby-sitting expenses it is concluded that there would be no practical difficulties in determining the value of the benefits — see Taxation Ruling TR 2007/12, Example 11.

Criterion 5: Circumstances surrounding the provision of the minor benefit This criterion requires a consideration of the circumstances surrounding the provision of the minor benefit. In particular, whether it was provided to assist the employer with an unexpected event or as a reward for services rendered by the employee (s 58P(1)(f)(v)). Employers are required to characterise the reason for the minor benefit being provided and give it a “weight” as is the case with the other criterion. However, according to Taxation Ruling TR 2007/12, if the benefit is provided to enable the employee to meet an unexpected event then this criterion is satisfied and it is necessary to weigh up the other four criteria. Conversely, if the benefit is characterised as a reward for services because it is part of a salary sacrifice agreement this criterion is failed, it is not necessary to weigh up the other criteria and the benefit cannot be a minor benefit.

Note: In the case of the baby-sitting expenses it is concluded that the benefit was provided to assist the employee because of an unexpected event (the request to work overtime on that same day). On the facts, it is not wholly or principally a reward for services — see Taxation Ruling TR 2007/12, Example 11.

Conclusion Section 58P(1)(f) requires employers to determine whether the “unreasonableness test” has been satisfied without any guidance as to the weight to be placed on each criterion or any monetary thresholds against which to judge Criterion 2 and Criterion 3. For example, in Taxation Ruling TR 2007/12 the monetary amount of baby-sitting benefits provided to the employee during the FBT year is not specified but is less than $300 and the number of benefits is described as being “a few” (Example 11). Based on these facts the ATO concludes: “117. On balance, having regard to the various criteria in paragraph 58P(1)(f), it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefit. 118. Accordingly, the reimbursement of the baby-sitting expense provided to the employee is an exempt benefit.”

Does the above conclusion hold if the baby-sitting expense payment benefits are provided on six occasions and the sum of identical benefits is $660? What if other benefits are also provided during the FBT year, such as a Christmas party and reimbursement of a family gym fee, to the same employees? Example 5: Multiple minor benefits An employer provides its two employees with an annual Christmas party which had a total cost of $1,680, each employee with a family gym membership of $885, and each employee with a baby-sitter while working late ($660). If all of these minor benefits are less than $300 per person and are not part of a salary sacrifice agreement, would it be reasonable to treat each minor benefit as exempt from FBT? If the answer is “yes” then $4,770 [$1,680 + 2 × ($885 + $660)] is not subject to FBT.

This more difficult question is not addressed in Taxation Ruling TR 2007/12 because the wording of the “unreasonableness test” in s 58P(1)(f) is just too vague and, as a consequence, too difficult to apply in practice.

REDUCTIONS IN TAXABLE VALUES INTRODUCTION Overview

¶13-000

GENERAL Overview

¶13-100

“Otherwise deductible” rule

¶13-120

In-house fringe benefits

¶13-140

Employee contributions

¶13-160

MOTOR VEHICLE Overview

¶13-200

Relocation transport

¶13-220

Employment interviews and selection tests

¶13-240

Work-related medicals, counselling and training

¶13-260

Basic and supplementary car rates

¶13-280

RELOCATION Overview

¶13-300

Temporary accommodation near former location

¶13-320

Temporary accommodation near new location

¶13-340

Temporary accommodation meals

¶13-360

REMOTE AREA Overview

¶13-400

Residential fuel

¶13-410

Housing loans

¶13-420

Housing loan interest

¶13-430

Housing rent

¶13-440

Provision of residential property

¶13-450

Payment for residential property

¶13-460

Residential property option fee

¶13-470

Residential property repurchase consideration

¶13-480

Remote area holiday transport defined

¶13-485

Remote area holiday transport — no ceiling

¶13-490

Remote area holiday transport — subject to ceiling

¶13-495

OVERSEAS Overview

¶13-500

Overseas employment holiday transport

¶13-520

Education of children

¶13-540

OTHER Overview

¶13-600

LAFH food

¶13-620

Payments to associates that are not deductible

¶13-640

Entertainment component of certain fringe benefits

¶13-660

DECLARATIONS Relocation transport declaration

¶13-710

Employment interview or selection test declaration — transport in employee’s car ¶13-720 Medical/counselling/training car travel declaration

¶13-730

Relocation — temporary accommodation declaration

¶13-740

Remote area holiday transport declaration

¶13-750

INTRODUCTION ¶13-000 Overview This chapter addresses the scope, conditions and amount of the reduction in taxable value of various fringe benefits. These reductions in taxable value are dependent upon the employer being able to satisfy certain conditions and the amount of the reduction is generally dependent upon the employee providing documentary evidence and a declaration to the employer. The fringe benefits that are subject to a reduction in taxable value have been organised under headings that are descriptive of when a reduction in FBT may be available. For each fringe benefit, a brief description is provided of the circumstances that will trigger a reduction in taxable value. This is followed by a list of the conditions that must be satisfied and the amount of the reduction.

GENERAL ¶13-100 Overview This grouping of benefits has application to all employers whose employees are provided with benefits that are used for business purposes (¶13-120) and/or make a contribution towards the cost of the benefit (¶13-160). A reduction in taxable value is also available where the employer provides discounted goods or services that are also provided to the general public as part of its business activities (¶13-140).

¶13-120 “Otherwise deductible” rule The “otherwise deductible” rule permits the gross taxable value of certain fringe benefits to be reduced by the amount of the notional once-only income tax deduction that the employee would “otherwise” have been entitled to. Example An employer reimburses an employee’s private telephone bill and therefore provides an expense payment benefit. The “otherwise deductible” rule permits the taxable value of the benefit to be reduced by the proportion of the telephone bill that the employee would have been entitled to claim as an income tax deduction if they had not been reimbursed (Taxation Determination TD 93/96).

Conditions 1. The benefit must be an expense payment fringe benefit (¶5-000), loan fringe benefit (¶6-000), property fringe benefit (¶9-000), residual fringe benefit (¶10-000) or a board fringe benefit (¶11-400). 2. In determining the amount of the employee’s notional deduction, the threshold for self-education expenses in ITAA 1936 s 82A is disregarded. Also, the income tax substantiation requirements in ITAA 1997 Div 28 and 900 are disregarded since the FBTAA contains its own substantiation requirements. 3. The recipient of the fringe benefit must be an employee. For example, if an employer lent $100,000 at no interest to an employee’s wife to purchase a rental property, no reduction in taxable value is available (Taxation Determination TD 93/90). 4. Benefits provided jointly to an employee and an associate are deemed to have been received solely by the employee (s 138(3)) and therefore the “otherwise deductible” rule is not precluded from applying (National Australia Bank Limited v FC of T 93 ATC 4914). However, for benefits provided after 13 May 2008, the operation of s 138(3) has been amended to ensure that only that portion of the benefit attributed to the employee can reduce the taxable value. See ¶6-480 (loan benefits), ¶5470 (expense payment benefits), ¶9-480 (property benefits) and ¶10-480 (residual benefits). 5. The “otherwise deductible” rule is available regardless of whether the employer is entitled to an income tax deduction for the expenditure (Taxation Determination TD 93/20). 6. The “otherwise deductible” rule is not available for expenses that, had they not been reimbursed, would be subject to the non-commercial loss provisions in ITAA 1997 Div 35 (¶2-070). 7. A reduction in taxable value is not permitted where the employee’s expenditure was incurred in deriving income from a foreign source before 30 June 2008. 8. A reduction in taxable value is not permitted for depreciation of income-producing assets since this is not a “once-only deduction”. Similarly, certain prepaid expenses do not qualify (Taxation Determination TD 93/46). 9. Where car expenses of a car owned or leased by an employee are reimbursed, the reduction in taxable value is dependent upon the records supplied by the employee and method adopted to calculate the reimbursement. See ¶5-530, ¶6-540, ¶9-560 and ¶10-560. 10. Invoices/receipts (or copies) must generally be obtained from the employee. 11. If application of the “otherwise deductible” rule results in a negative amount the taxable value is reduced to nil. 12. Generally, an employee wishing to take advantage of the “otherwise deductible” rule must complete a declaration explaining how the benefit was used for the purpose of earning assessable income (¶2700). 13. The “otherwise deductible” rule does not apply to reduce the taxable value of a benefit provided where an employee is required to renew a work visa (NTLG FBT Sub-committee minutes — 9 August 2012 (Item 8)). Reduction The reduction percentage is dependent upon the amount of the notional “once-only” deduction that the employee would otherwise have been entitled to claim as a deductible expense. FBTAA s 19, 24, 44, 52; AFB ¶57-070.

¶13-140 In-house fringe benefits

The taxable value of in-house fringe benefits that relate to a particular employee is reduced by the lesser of the sum of those benefits or $1,000. Salary packaged fringe benefits cannot be included. Conditions 1. The benefit must be an in-house expense payment fringe benefit (¶5-300), in-house property fringe benefit (¶9-360) or in-house residual fringe benefit (¶10-340). 2. The reduction applies to the total of the benefits provided to the employee and their associates (Miscellaneous Taxation Ruling MT 2044; ATO Interpretative Decisions ID 2006/196; ID 2006/197). 3. If there is no taxable in-house fringe benefit then no reduction is available. 4. The reduction applies separately to each employee and any unused amount is not available for offset against the taxable fringe benefits of another employee. 5. In-house fringe benefits provided on or after 22 October 2012 under a salary packaging arrangement are excluded unless the transitional provisions apply. See ¶5-340, ¶5-360, ¶9-381 and ¶10-351. Reduction The sum of the taxable value of fringe benefits provided to any one employee and their associates is reduced by the lesser of (s 62): (a) the taxable value of the fringe benefits, or (b) $1,000. Example: Limit on reduction John is employed by ABC Ltd and is provided with an in-house wholesale market property fringe benefit (¶9-383) of $400 and an inhouse expense payment residual fringe benefit (¶5-360) of $550. These are the only fringe benefits provided to him during the FBT year. The aggregate taxable value of benefits eligible for the concession is $950. The taxable value of the fringe benefits is reduced to nil. (If the aggregate taxable value had been $1,200, the taxable value would have been reduced to $200.)

Example: Salary packaged Julie is employed by XYZ Ltd and is provided with an in-house airline transport property fringe benefit (¶9-382) of $400 and an inhouse expense payment residual fringe benefit of $550 (after 21 October 2012 and under a salary packaging arrangement). These are the only fringe benefits provided to her during the FBT year. The aggregate taxable value of benefits eligible for the concession is $400. The taxable value of the in-house fringe benefits is reduced to $550.

Note: Airline travel that qualifies as an “airline transport fringe benefit” is taxed as an in-house residual fringe benefit (¶10-170) or in-house property fringe benefit (¶9-155).

AFB ¶57-090; AFT ¶820-750.

¶13-160 Employee contributions A contribution by an employee or associate towards the cost of a car fringe benefit is known as a “recipient’s payment” whereas a contribution towards the cost of most other fringe benefits is known as a “recipients contribution”. However, an employee contribution towards a housing fringe benefit is referred to as “recipients rent”. Conditions 1. The following categories of fringe benefit do not permit employee contributions to be made: LAFH allowance fringe benefits (¶8-000), debt waiver fringe benefits (¶11-600) and tax-exempt body

entertainment fringe benefits (¶11-900). 2. Employee contributions are included in the assessable income of the employer and GST is generally payable by the employer on the contribution. However, no GST is payable where a recipient’s payment is made to a third party for car expenses (¶3-500; ¶3-600). 3. The taxable value of a fringe benefit is reduced by the amount of the employee contribution made before lodgment of the FBT return. 4. A journal entry in an employer’s accounts reflecting a set-off between the employer and employee is an employee contribution if the requirements in Miscellaneous Taxation Ruling MT 2050 are satisfied. 5. Employee contributions can only reduce the taxable value of the benefit to which they relate. 6. Any consideration received by an employer in reimbursement of an FBT liability does not constitute an employee contribution. Reduction The receipt by the employer of an employee contribution reduces the taxable value of the fringe benefit. Example An employee is provided with a car benefit and makes payments of $33 per week to his/her employer for the cost of fuel paid by his/her employer. These payments will reduce the employer’s car fringe benefits taxable value by $33 and GST of $3 is payable by the employer. Alternatively, if the employee had incurred the fuel expenses of the car personally (ie not reimbursed by employer), the taxable value is reduced by $33 and no GST is payable.

AFB ¶57-060; AFT ¶832-870.

MOTOR VEHICLE ¶13-200 Overview This grouping considers the reduction in taxable value available where an employee is reimbursed for car expenses on a cents per kilometre basis in connection with the provision of the following exempt benefits: • relocation transport • employment interviews and selection tests, and • work-related medicals, counselling and training. Each of the above benefits is exempt, including associated travel costs other than car expenses reimbursed on a cents per kilometre basis, provided certain conditions are satisfied. Car expenses reimbursed on a cents per kilometre basis are subject to a reduction in taxable value. The reduction in taxable value is calculated by reference to the basic car rate and, in some circumstances, the supplementary car rate of 0.63 of a cent per kilometre (¶13-280).

¶13-220 Relocation transport Car expenses of an employee reimbursed on a cents per kilometre basis for using their own car in connection with relocation transport is subject to a reduction in taxable value. Conditions 1. Travel must be in respect of relocation transport (¶12-460).

2. Car expenses are reimbursed on a cents per kilometre basis (¶5-240). 3. A relocation transport declaration is provided (¶13-710). Reduction The taxable value is reduced by what the reimbursement would have been had the sum of the basic car rate and the supplementary car rate (¶13-280) been used by the employer (s 61B). Example An employee (John) is employed at the Sydney branch office of ABC Ltd and lives at Parramatta. John is required by ABC Ltd to perform his employment duties at the head office of ABC Ltd in Melbourne and changes his usual place of residence to Melbourne. ABC Ltd pays for John’s meals and accommodation while travelling to his new home in Melbourne. These benefits are exempt as the requirements of s 58F are satisfied (¶12-460). John is also reimbursed for car expenses based on the number of kilometres travelled between Parramatta and Melbourne. This benefit is subject to a reduction in taxable value under s 61B. John travels 1,000 km by car (with his spouse) to his new home in Melbourne and ABC Ltd reimburses his car expenses at a rate of $1.50 per km. Therefore, the taxable value of the expense payment fringe benefit is $1,500 and the reduction in taxable value is $666.30 (1,000 × ($0.66 + $0.0063)). ABC Ltd pays FBT on the reduced taxable value of $833.70 (ie $1,500 – $666.30).

AFB ¶57-220; AFT ¶820-665, ¶70-040.

¶13-240 Employment interviews and selection tests Car expenses of an employee reimbursed on a cents per kilometre basis for using their own car in connection with an employment interview or selection test are subject to a reduction in taxable value. Conditions 1. Travel must be in respect of an employment interview or selection test (¶12-320). 2. Car expenses are reimbursed on a cents per kilometre basis (¶5-240). 3. An employment interview or selection test declaration is provided (¶13-720). Reduction The taxable value is reduced by what the reimbursement would have been had the basic car rate (¶13280) been used by the employer (s 61E). Example An employee (Amira) is employed by ABC Ltd in Adelaide and applies for a job with Wiggets Pty Ltd who have their head office at Port Augusta. Amira is required by Wiggets Pty Ltd to attend an interview in Port Augusta to discuss her application and perform a selection test. Wiggets Pty Ltd pays for Amira’s meals and accommodation during her stay in Port Augusta to attend the interview and selection test. These benefits are exempt as the requirements of s 58A are satisfied (¶12-320). Amira is also reimbursed for car expenses based on the number of kilometres travelled between her home and Port Augusta. This benefit is subject to a reduction in taxable value under s 61E. Amira travels 1,000 km by car to attend the interview/selection test and Wiggets Pty Ltd reimburses her car expenses using a rate of $1.50 per km. Therefore, the taxable value of the expense payment fringe benefit is $1,500 and the reduction in taxable value is $660 (1,000 × $0.66). Wiggets Pty Ltd pays FBT on the reduced taxable value of $840 (ie $1,500 – $660).

AFB ¶57-240; AFT ¶820-710.

¶13-260 Work-related medicals, counselling and training Car expenses in connection with occupational health or migrant language training benefits and

reimbursed on a cents per kilometre basis are subject to a reduction in taxable value. Conditions 1. Travel must be associated with work-related medicals, preventative health care, counselling or training (¶12-650). 2. Car expenses are reimbursed on a cents per kilometre basis (¶5-240). 3. A medical/training car travel declaration is provided (¶13-730). Reduction The taxable value is reduced by what the reimbursement would have been had the sum of the basic car rate and the supplementary car rate (¶13-280) been used by the employer (s 61F). AFB ¶57-260; AFT ¶820-730.

¶13-280 Basic and supplementary car rates The basic car rate is the rate that taxpayers use when determining their personal income tax deduction for car expenses using the “cents per kilometre” method (ITAA 1997 Div 28). This method allows taxpayers to claim a deduction for the business use of a car based on the number of business kilometres travelled up to a maximum of 5,000 km. For the 2018 FBT year, the basic car rate is 66 cents per kilometre, which is the same rate as for the 2017 FBT year. This rate applies regardless of the engine size of the car. The supplementary car rate is 0.63 of a cent per kilometre (FBTR reg 14). The above basic and supplementary car rates are also used when determining the reduction in taxable value where car expenses are reimbursed on a cents per kilometre basis in respect of remote area holiday transport (¶13-490; ¶13-495) and employment holiday transport (¶13-520). AFB ¶57-520; AFT ¶832-242.

RELOCATION ¶13-300 Overview This grouping considers the reductions in taxable value where an employee is required to relocate their usual place of residence in order to perform employment duties and has to find temporary accommodation. A reduction in taxable value is available for temporary accommodation, including the lease of household goods, near the employee’s former (¶13-320) or new employment location (¶13-340). Also, the cost of meals provided while staying in temporary accommodation that is a hotel, motel, hostel or guesthouse is reduced to $2 for adults and $1 for children (¶13-360).

¶13-320 Temporary accommodation near former location The lease or licence of a temporary accommodation near the employee’s former home including the cost of hiring furniture, appliances, etc, of a household nature due to a change in employment duties is subject to a reduction in taxable value (s 61C(1); 61C(2)). Conditions 1. The benefit is any of the following: • an expense payment fringe benefit, housing fringe benefit or residual fringe benefit that relates to a lease or licence of temporary accommodation occupied or used by family members, or

• an expense payment fringe benefit or residual fringe benefit that relates to a lease or licence of household goods for the use by family members in connection with the temporary accommodation. 2. The temporary accommodation is required solely because the employee is required to change their usual place of residence in order to perform employment duties. The term “required” does not mean the change of an employee’s usual place of residence must be at the direction of the employer. A change may also be required if this is necessary in order for the employee to effectively perform their employment duties (ATO Interpretative Decision ID 2013/8). 3. The temporary accommodation must be located near the employee’s former place of residence. Also, this accommodation must be required because the employee’s former home became unavailable or unsuitable for residential use (eg due to removal or storage of furniture). 4. The benefit is provided under an arm’s length arrangement. Reduction Taxable value, before the in-house fringe benefits concession (¶13-140), is reduced to nil to the extent that the benefits are attributable to a maximum period of 21 days ending on the date that the employee commences work at the new location (s 61C(2)). AFB ¶57-320; AFT ¶820-680.

¶13-340 Temporary accommodation near new location A lease or licence of temporary accommodation near a proposed new place of residence including the cost of hiring furniture, appliances, etc, of a household nature is subject to a reduction in taxable value (s 61C(1); 61C(3)). Note: An employer can provide a lease or licence of household goods with or without providing a temporary accommodation benefit.

Conditions 1. The benefit is any of the following: • an expense payment fringe benefit, housing fringe benefit or residual fringe benefit that relates to a lease or licence of temporary accommodation occupied or used by family members, or • an expense payment fringe benefit or residual fringe benefit that relates to a lease or licence of household goods for the use by family members in connection with the temporary accommodation. 2. The temporary accommodation is required solely because the employee is required to change their usual place of residence in order to perform employment duties. The term “required” does not mean the change of an employee’s usual place of residence must be at the direction of the employer. A change may also be required if this is necessary in order for the employee to effectively perform their employment duties (ATO Interpretative Decision ID 2013/8). 3. The temporary accommodation must be located at or near the employee’s new place of employment and sustained reasonable efforts must be made to find a long-term place of residence. 4. Within four months of relocating, the employee or an associate must enter into a contract to occupy or use a unit of accommodation as a long-term place of residence for the employee. Alternatively, the employee must provide a declaration to the employer before the FBT return is lodged (¶13-740). 5. Where the former place of residence of the employee was not owned, the reduction in taxable value is generally limited to the four-month threshold period unless a declaration is made to extend this period to six months.

6. Where the former residence of the employee was owned, the reduction in taxable value may be extended to twelve months where certain requirements in relation to the sale of the former residence are satisfied and a declaration has been prepared. 7. The benefit is provided under an arm’s length arrangement. Reduction Taxable value, before the in-house fringe benefits concession (¶13-140), is reduced to nil to the extent that the above conditions are satisfied (s 61C(3)). AFB ¶57-340; AFT ¶820-680.

¶13-360 Temporary accommodation meals The taxable value of meals provided to an employee or other family member while staying in temporary accommodation required as a consequence of a change of employment location is subject to a reduction in taxable value. Conditions 1. The meal is an expense payment fringe benefit or property fringe benefit provided to an employee or associate. 2. The meal was provided to the employee/other family member when they were living in a hotel, motel, hostel or guesthouse (temporary accommodation). 3. An expense payment fringe benefit, a housing fringe benefit or a residual fringe benefit in respect of the temporary accommodation must be provided to the employee (¶13-320 or ¶13-340). 4. The temporary accommodation must be subject to a reduction in taxable value and the meal must be consumed during the period that the benefit was provided. Reduction Taxable value of the meal, before any employee contribution (¶13-160) and the in-house fringe benefits concession (¶13-140), is reduced to $2 for adults and $1 for children younger than 12 years of age before the beginning of the FBT year (s 61D). Example John works for ABC Company Pty Ltd and is required to change his usual place of residence in Sydney to perform employment duties in Melbourne. John puts his house in Sydney on the market, which is sold before the move to Melbourne is finalised. John and his spouse (Jennifer) therefore have to move into a Sydney hotel for two weeks and the requirements of ¶13-320 are assumed to be satisfied. ABC Company Pty Ltd reimburses John for the cost of meals provided during the period of temporary accommodation in the Sydney hotel. Accordingly, the taxable value of these meals will be $2 for each meal provided to John and Jennifer.

AFB ¶57-360; AFT ¶820-695.

REMOTE AREA ¶13-400 Overview This grouping considers the reductions in taxable value available where employees are working in a remote area of Australia (see ¶12-475 for the definition of “remote area”). Employers located in a remote area are entitled to a reduction in the taxable value for the following benefits provided to their employees: payment of gas and electricity bills (¶13-410), payment of housing loan interest (¶13-420; ¶13-430), payment of housing rent (¶13-440), assistance with the acquisition of a

remote area dwelling (¶13-450 to ¶13-480), and holiday transport (¶13-490; ¶13-495).

¶13-410 Residential fuel The taxable value of fuel (eg electricity and gas) provided to a current employee for use in connection with their usual place of residence in a remote area is subject to a 50% reduction in taxable value. Conditions 1. The benefit is an expense payment fringe benefit, property fringe benefit or residual fringe benefit. 2. The employee is the recipient of a remote area housing benefit (¶12-480), remote area housing loan benefit (¶13-420) or remote area housing rent benefit (¶13-440). 3. The residential fuel was not made available pursuant to a non-arm’s length arrangement or for a purpose that includes obtaining a reduction in taxable value of the fringe benefit. Reduction The taxable value of a benefit relating to the residential fuel, before the in-house fringe benefits concession (¶13-140), is reduced by 50% (s 59). AFB ¶57-410; AFT ¶820-180, ¶820-190, ¶820-200.

¶13-420 Housing loans The taxable value of a loan fringe benefit provided to an employee to purchase a dwelling located in a remote area and used as their usual place of residence is subject to a 50% reduction in taxable value. Conditions 1. The benefit is a loan fringe benefit (¶6-100) in connection with a dwelling. 2. The dwelling is located in a remote area (¶12-475). A “dwelling” does not, for example, include a caravan. 3. The dwelling is the usual place of residence (¶7-160) of the employee during the period of the FBT year (occupation period) that they were under an obligation to repay the loan. 4. The employee is employed in a remote area. 5. It is customary for employers in the industry to provide a housing loan with an interest rate less than the market interest rate to their employees (s 142(2E); 142(3)(b)). 6. The provision of the “remote area housing loan” (s 142(1)) is necessary because of the nature of the employer’s business, insufficient suitable residential accommodation or the concessional loan terms are customary for the employer’s industry. 7. The loan was not made pursuant to a non-arm’s length arrangement or for the purpose of obtaining a reduction in taxable value of the loan benefit. Reduction The taxable value of the loan fringe benefit is reduced by 50% of the amount of the benefit that relates to the occupation period in relation to the year of tax (s 60(1)). Example The notional amount of interest on a loan provided to an employee to finance the purchase of a home located in a remote area and satisfying the above conditions is $10,000. The interest that accrued on the loan during the relevant FBT year was $2,000, resulting in a taxable value of $8,000, which is reduced to $4,000.

AFB ¶57-420; AFT ¶820-250.

¶13-430 Housing loan interest The payment or reimbursement of interest on a loan provided to an employee to purchase a dwelling located in a remote area and used as their usual place of residence is subject to a 50% reduction in taxable value. Conditions 1. The benefit is an expense payment fringe benefit (¶5-100) in respect of interest on a “remote area housing loan” (s 142(1)). 2. The dwelling is located in a remote area (¶12-475). A “dwelling” does not, for example, include a caravan. 3. The dwelling is the usual place of residence (¶7-160) of the employee during the period of the FBT year (occupation period) that the interest on the loan accrued. 4. The employee is employed in a remote area. 5. It is customary for employers in the industry to pay or reimburse employees for housing loan interest incurred by an employee in respect of a housing loan relating to a remote area dwelling (s 142(2E); 142(3)(c)). 6. The payment or reimbursement of housing loan interest is necessary because of the nature of the employer’s business, insufficient suitable residential accommodation or the payment or reimbursement is customary for the employer’s industry. 7. The interest expense assistance was not provided pursuant to a non-arm’s length arrangement or for the purpose of obtaining a reduction in taxable value of the expense payment benefit. Reduction The taxable value of the expense payment fringe benefit is reduced by 50% of the amount of the benefit that relates to the occupation period in relation to the year of tax (s 60(2)). Example Jin finances the purchase of a home located in a remote area by borrowing from a bank and incurs interest of $5,000. Conditions 1 to 7 inclusive listed above are satisfied and Jin obtains reimbursement of the interest paid from her employer. The taxable value of the expense payment fringe benefit ($5,000) is reduced by $2,500 and the reduced taxable value is $2,500 (ATO Interpretative Decision ID 2003/157).

AFB ¶57-430; AFT ¶820-350.

¶13-440 Housing rent An expense payment fringe benefit in respect of the rent of a dwelling located in a remote area and used by an employee as their usual place of residence is subject to a 50% reduction in taxable value. Conditions 1. The benefit is an expense payment fringe benefit (¶5-100) in respect of “remote area housing rent connected with a unit of accommodation” (s 142(1A)). 2. The unit of accommodation is located in a remote area (¶12-475). A “unit of accommodation” is defined differently to “dwelling” and includes a caravan.

3. The unit of accommodation is the usual place of residence (¶7-160) of the employee during the period of the FBT year (occupation period) that the rent accrued. 4. The employee is employed in a remote area. 5. It is customary for employers in the industry to pay or reimburse rent in respect of a remote area unit of accommodation occupied by their employees (s 142(2E); 142(3)(a)). 6. The payment or reimbursement of remote area housing rent is necessary because of the nature of the employer’s business, insufficient suitable residential accommodation or the provision of rent assistance is customary for the employer’s industry. 7. The rent assistance was not provided pursuant to a non-arm’s length arrangement or for the purpose of obtaining a reduction in taxable value. Reduction The taxable value of the expense payment fringe benefit is reduced by 50% of the amount of the gross rent that relates to the occupation period in relation to the year of tax (s 60(2A)). Example Ashwin rents a house located in a remote area from a real estate agent and incurs rent of $5,000. Conditions 1 to 7 inclusive listed above are assumed to be satisfied and Ashwin obtains reimbursement of the rent paid from his employer. The reduction in taxable value is 50% of the gross rent and the reduced taxable value of the expense payment fringe benefit is therefore $2,500. Alternatively, if the employer only reimbursed half of the rent, the reduction in taxable value would still be $2,500 resulting in a reduced taxable value of nil (ATO Interpretative Decision ID 2003/159).

AFB ¶57-450; AFT ¶820-400.

¶13-450 Provision of residential property The provision of an interest in land (residential property) located in a remote area and used, or proposed to be used, by an employee as their usual place of residence is subject to a 50% reduction in taxable value. Conditions 1. The benefit is a property fringe benefit (¶9-100) in respect of a “remote area residential property” (s 142(2)). 2. The property must consist of an estate or interest in land upon which is a dwelling occupied or used as the employee’s usual place of residence (¶7-160). 3. Where a dwelling is not situated on the land, the Commissioner must be satisfied that construction of a dwelling will take place within six months of the land being transferred to the employee and will be used as their usual place of residence within 18 months. 4. The land is located in a remote area (¶12-475). 5. The employee is employed in a remote area. 6. It is customary for employers in the industry to provide residential property without charge or for a consideration that is less than the market value of the property to their employees (s 142(2E); 142(3) (d)). 7. The provision of the property is necessary because of the nature of the employer’s business, insufficient suitable residential accommodation or the provision of residential property without charge or for a consideration less than market value is customary for the employer’s industry.

8. The property was not provided pursuant to a non-arm’s length arrangement or for the purpose of obtaining a reduction in taxable value of the benefit or to take advantage of the remote area home ownership scheme (¶13-480). Reduction The taxable value of the property fringe benefit in relation to the year of tax is reduced by 50% (s 60(3)). AFB ¶57-460; AFT ¶820-450.

¶13-460 Payment for residential property A payment for the acquisition of an interest in land (residential property) or the construction/renovation of a building on land located in a remote area and used by an employee as their usual place of residence is subject to a 50% reduction in taxable value. Conditions 1. The benefit is an expense payment fringe benefit (¶5-100) in respect of a “remote area residential property” (s 142(2C)). 2. The expenditure must be to enable the employee to acquire an estate or interest in land and to construct a dwelling on that land. Alternatively, the expenditure is to enable the employee to construct a dwelling on land that the employee holds an estate or interest in. 3. Where Condition 2 is not satisfied, the expenditure must be to enable the employee to acquire an estate or interest in land on which there is a dwelling (ATO Interpretative Decision ID 2003/160). Alternatively, the expenditure is to enable the employee to extend an existing dwelling they hold an estate or interest in. 4. The land is located in a remote area (¶12-475). 5. The dwelling on the land, or proposed to be erected on the land, must be the usual place of residence (¶7-160) of the employee who must be employed in the remote area at the time the land is provided. 6. It is customary for employers in the industry to pay or reimburse employees for expenditure incurred in acquiring or constructing a dwelling or extension to that dwelling (s 142(2E); 142(3)(e)). 7. The payment or reimbursement of expenditure incurred in acquiring or constructing residential property is necessary because of the nature of the employer’s business, insufficient suitable residential accommodation or the provision of housing assistance is customary for the employer’s industry. 8. The expenditure on the land was not made pursuant to a non-arm’s length arrangement or for the purpose of obtaining a reduction in taxable value of the benefit or to take advantage of the remote area home ownership scheme (¶13-480). Reduction The taxable value of the expense payment fringe benefit in relation to the year of tax is reduced by 50% (s 60(4)). AFB ¶57-470; AFT ¶820-455.

¶13-470 Residential property option fee A fee paid by an employer in consideration for the employee granting an option to acquire the employee’s home or land upon which the employee will construct a home within specified time limits is subject to a 50% reduction in taxable value.

A remote area residential property option fee is typically paid where, as part of a home ownership scheme operated by an employer in a remote area, the employer sells a house to an employee at market value, but also pays the employee a fee in return for: • an option to repurchase the property from the employee, and • the employee’s agreement not to dispose of the property to anyone else for, say, five years. Conditions 1. The benefit is a property fringe benefit in respect of a “remote area residential property option fee” (s 142(2A)). 2. The property must consist of a fee paid to the employee by way of consideration in respect of the grant of an option to purchase an estate or interest in land held by the employee and on which a dwelling is located. 3. Where Condition 2 is not satisfied, the property must consist of a fee paid to the employee by way of consideration in respect of the grant of an option to purchase an estate or interest in land held by the employee and on which the employee proposes to construct a dwelling. 4. The land is located in a remote area (¶12-475). 5. The employee is employed in a remote area. 6. The option was granted at or before the employee acquired the estate or interest and contains a restriction on the disposal of that estate or interest. 7. It is customary for employers in the industry to have a residential property ownership scheme involving the granting by employees of options to purchase their residential property (s 142(2E); 142(3)(f)(i)). 8. The property benefit in respect of the residential property ownership scheme involving the granting of options is necessary because of the nature of the employer’s business, insufficient suitable residential accommodation or the residential property ownership scheme options are customary for the employer’s industry. 9. The property fringe benefit must not be provided under a non-arm’s length arrangement or for the purpose of obtaining a reduction in taxable value under s 60 or the benefit of a remote area home ownership scheme (¶13-480). Reduction The taxable value of the property fringe benefit in relation to the year of tax is reduced by 50% (s 60(5)). AFB ¶57-480; AFT ¶820-460.

¶13-480 Residential property repurchase consideration The taxable value of a property fringe benefit in respect of the repurchase of land located in a remote area and used by an employee as their usual place of residence is generally subject to a 50% reduction in taxable value. Conditions 1. The benefit is a property fringe benefit (¶9-100) in respect of a “remote area residential property repurchase consideration” (s 142(2B)) agreement. 2. The property must consist of an amount paid to the employee by way of consideration for the purchase of an estate or interest in land held by the employee and on which a dwelling is located.

3. Where Condition 2 is not satisfied, the property must consist of an amount paid to the employee by way of consideration for the purchase of an estate or interest in land held by the employee and on which the employee proposes to construct a dwelling. 4. The land is located in a remote area (¶12-475). 5. The employee is employed in a remote area. 6. The employee has entered into an agreement that contains a restriction on the disposal of their estate or interest in a dwelling. 7. It is customary for employers in the industry to have a residential property ownership scheme involving the purchase of their residential property (s 142(2E); 142(3)(f)(ii)). 8. The property benefit in respect of the residential property ownership scheme is necessary because of the nature of the employer’s business, insufficient suitable residential accommodation or residential property repurchase agreements are customary for the employer’s industry. 9. The property fringe benefit must not be provided under a non-arm’s length arrangement or for the purpose of obtaining a reduction in taxable value under s 60 or the benefit of a remote area home ownership scheme. 10. Where the amount paid by the provider for the estate or interest exceeds both the market value of the property at the time of purchase and the “guideline price” in s 60AA(4), the taxable value is the amount attributable to the guideline price (s 60(7)). The guideline price is the indexed market value of the estate or interest when acquired by the employee. Reduction The taxable value of the property fringe benefit in relation to the year of tax is reduced by 50% (s 60(6)). Note: The 50% reduction will be denied on that portion of the property benefit that is attributable to the employer paying an excessive amount above market repurchase price under a buy-back clause in a remote area housing agreement (s 65CC).

AFB ¶57-500; AFT ¶820-465.

¶13-485 Remote area holiday transport defined A benefit will be in respect of “remote area holiday transport” where the following conditions are satisfied (s 143(1)). Conditions 1. The benefit is an expense payment fringe benefit, property fringe benefit or residual fringe benefit in respect of the provision of transport, accommodation or meals en route for family members, ie the employee, spouse or a child of the employee. 2. The employee, apart from temporary absences, performs the duties of their employment in a remote area (¶12-475). 3. The transport is provided wholly or principally to enable the employee or family members to have a holiday of not less than three days. 4. The “transport” (s 142A) is between a place at or near the remote area employment location and another place, unless provided to a spouse or child (see Condition 6 below). 5. Where the transport is for the employee, it must be provided during a period of recreation leave of not less than three days and, on completion of that leave, they must resume duties at the remote area. 6. Where the spouse or a child of the employee does not live with the employee at the work locality, the

transport must be to enable the spouse or child to meet the employee (eg where the child travels directly from the school to the holiday destination). 7. The benefit is provided under an industrial agreement or in accordance with industry custom (¶13500). 8. A cash allowance may be paid by an employer to a spouse or child of the employee. A benefit satisfying the above conditions is a remote area holiday transport fringe benefit (s 143(2)). This phrase is used in s 61 (¶13-490) and 60A (¶13-495) which set out the further conditions that must be satisfied for the employer to claim a reduction in taxable value. AFB ¶57-510; AFT ¶833-070.

¶13-490 Remote area holiday transport — no ceiling Remote area holiday transport (¶13-485) provided via the most direct route between the work locality and: • the city from which the employee was engaged to work, or • the capital city of the state in which the work place is located, is subject to a reduction in taxable value. Conditions 1. If an expense payment fringe benefit is provided then documentary evidence or a declaration (¶13750) is given to the employer. 2. No documentary evidence is required if a property or residual fringe benefit is provided. 3. Special rules apply if an allowance is paid to the spouse or child of an employee. 4. Special rules apply if car expenses are reimbursed on a cents per kilometre basis. The concession does not extend to the cost of accommodation at the holiday destination (NTLG FBT Subcommittee minutes — 18 May 2006). Reduction The taxable value, before the in-house fringe benefits concession (¶13-140), is reduced by 50% to the extent that it does not relate to car expenses reimbursed on a cents per kilometre basis (s 61). Car expenses Where car expenses are reimbursed on a cents per kilometre basis, a declaration (¶13-750) is required and the 50% reduction in taxable value is calculated by reference to the sum of (s 61(1)(f)): • the basic car rate, and • the supplementary car rate (where two or more family members travelled in the car). The basic and supplementary car rates are set out at ¶13-280. AFB ¶57-520; AFT ¶820-600.

¶13-495 Remote area holiday transport — subject to ceiling Remote area holiday transport (¶13-485) that is not provided via the most direct route between the work locality and: • the city from which the employee was engaged to work, or

• the capital city of the state in which the work place is located is subject to a ceiling on the amount of the reduction in taxable value. Conditions 1. If an expense payment fringe benefit is provided then documentary evidence or a declaration (¶13750) must be given to the employer. 2. No documentary evidence is required if a property or residual fringe benefit is provided. 3. Special rules apply if an allowance is paid to the spouse or child or an employee. 4. Special rules apply if car expenses are reimbursed on a cents per kilometre basis. The concession does not extend to the cost of accommodation at the holiday destination (NTLG FBT Subcommittee minutes — 18 May 2006). Reduction The taxable value, before the in-house fringe benefits concession (¶13-140), is reduced by the lesser of (s 60A): • 50% of the gross taxable value, and • 50% of the benchmark travel amount. The “gross taxable value” is the amount that would have been the taxable value of the fringe benefit if any reduction under s 60A(1) and 62 were ignored. For example, where an employer provides an expense payment fringe benefit that satisfies the requirements in s 143, the gross taxable value is the amount paid or reimbursed after subtracting any recipients contribution (ATO Interpretative Decision ID 2014/9). The “benchmark travel amount” is the usual cost of transport between the remote area work locality and the capital city of the state in which the work place is located. This is normally the cost of the return economy airfare and incidental costs en route, eg airport transfers, meals and accommodation. Example An employee (Ahmed) performs employment duties in a remote area of Western Australia and resides at that location with his spouse (Nadima). Ahmed and Nadima own a home in Sydney which is their usual place of residence. Under the terms of an industrial agreement, Ahmed is entitled to be provided with transport to a destination of his choosing once a year. Ahmed has a holiday with Nadima in Bali and his employer (Remote Ltd) pays for the airfares. Remote Ltd is entitled to a reduction in taxable value of the remote area holiday transport fringe benefit. The amount is the lesser of 50% of the return airfares to Bali and 50% of the return economy airfares to Perth (benchmark travel amount).

Car expenses Where car expenses are reimbursed on a cents per kilometre basis a declaration (¶13-750) is required and the 50% reduction in taxable value is calculated by reference to the sum of (s 60A(4)): • the basic car rate, and • the supplementary car rate (where two or more family members travelled in the car). The basic and supplementary car rates are set out at ¶13-280. AFB ¶57-530; AFT ¶820-500.

OVERSEAS ¶13-500 Overview

This grouping of benefits considers the reductions in taxable value available to persons ordinarily resident in Australia that are employed overseas and non-residents who are employed to work in Australia. Where one of the above requirements is satisfied and the employee is provided with an overseas holiday (¶13-520) or the education costs of the employee’s child are paid by the employer (¶13-540), a reduction in taxable value is available. Both concessions include a requirement that the benefit must be provided under an industrial instrument or because it is customary in the industry. In Taxation Determination TD 94/97, the Commissioner states: “A benefit will be accepted as being customary where it is normal or common for employees of that class or job description in that industry to be provided with the same or similar benefits. It is not necessary that all or even the majority of employees in the industry receive the benefit. Where the provision of the benefit is unique, rare or unusual within an industry it would not be accepted as being customary.”

¶13-520 Overseas employment holiday transport Transport, accommodation or meals provided to an overseas employee and family members in connection with having a holiday are subject to a reduction in taxable value. Conditions 1. The employee must be an “overseas employee” (s 143B). 2. The benefit is an expense payment fringe benefit, property fringe benefit or a residual fringe benefit in respect of “overseas employment holiday transport” (s 143C) — that is, transport or accommodation or meals en route that satisfy the following further conditions. 3. The purpose of the transport is to enable an overseas employee and family members to have a holiday of not less than three days and is not remote area holiday transport (see ¶13-490 and ¶13495). 4. Where the transport is provided to the employee, it is provided during a period of recreation leave and, on completion of that leave, the employee resumes duty at the overseas post. 5. The transport must be between the overseas place of employment and another destination except where the spouse or child of the employee does not live with the employee. 6. Where the transport is in respect of a spouse or child of the employee, this must generally not be concurrent with a business trip of the employee. 7. The benefit is provided under an industrial instrument or in accordance with industry custom (¶13500). 8. Documentary evidence or a declaration is provided to the employer where the transport, accommodation or meals are an expense payment fringe benefit. Reduction The taxable value of an overseas employment holiday transport fringe benefit, other than in respect of car expenses reimbursed on a cents per kilometre basis, is reduced by the lesser of (s 61A): a. 50% of the gross taxable value, or b. 50% of the benchmark travel amount in relation to that fringe benefit in relation to the family member or 50% of the greatest benchmark travel amount if more than one overseas employment holiday is provided. However, the reduction in taxable value is 50% of the actual travel cost (eg first class airfare) where: i. the employee undertakes only one holiday trip during the FBT year, and

ii. the holiday is to their home country. Note: The benchmark travel amount is the usual cost of travel (ie return economy airfare) between the overseas employment place and the employee’s usual place of residence.

Car expenses Where an employee is reimbursed on a cents per kilometre basis, the 50% reduction is applied to what the taxable value would have been if basic car rate and the supplementary car rate (if applicable) had been used by the employer (¶13-280). Accordingly, the excess over the Commissioner’s approved cents per kilometre rates is not subject to the 50% reduction. AFB ¶57-560; AFT ¶820-650.

¶13-540 Education of children Costs related to the full-time education of the child of an overseas employee are subject to a reduction in taxable value. Conditions 1. The benefit is a car fringe benefit, expense payment fringe benefit, property fringe benefit or residual fringe benefit that relates to the full-time education of an employee’s child under the age of 25 years. Extra tuition that supplements a child’s full-time education is eligible for a reduction in taxable value (ATO Interpretative Decision ID 2006/52). 2. The full-time education must be at a school, college, university or by a tutor. The spouse of an overseas employee who participates in the Home School Education Program is a “tutor” (ATO Interpretative Decision ID 2011/56). 3. The employee must be an “overseas employee” (s 143B) — that is, the employee must perform their work outside the country of their residence. 4. The whole or part of the full-time education of the child must be undertaken while the employee is an “overseas employee”. 5. The benefit must be in accordance with an industrial instrument or it is customary for employers in the employer’s industry to provide benefits of the same kind and in similar circumstances (¶13-500). 6. Documentary evidence of expenditure is given to the employer. Reduction The taxable value, before the in-house fringe benefits concession (¶13-140), is reduced to the extent that the benefit is attributable to the education of the child during the qualifying period (s 65A). The qualifying period is generally the duration of the full-time education. However, if the overseas posting is for a period of less than 28 days the qualifying period is the duration of the overseas posting. AFB ¶57-570; AFT ¶821-160, ¶808-680.

OTHER ¶13-600 Overview This grouping of benefits considers the reductions in taxable value available for LAFH food (¶13-620) and where deductions are denied for entertainment expenditure (¶13-660) or due to the operation of the personal services income regime (¶13-640).

¶13-620 LAFH food

The cost of food provided to family members as a consequence of an employee being required to live away from their normal residence is subject to a reduction in taxable value. To qualify for a reduction in taxable value, the following conditions must be satisfied: 1. An expense payment fringe benefit or a property fringe benefit provided in respect of food or drink consumed by eligible family members of an employee living away from their normal residence (¶8130) in order to perform employment duties (LAFH food fringe benefit). 2. The LAFH food fringe benefit is equivalent to the food component of a LAFH allowance fringe benefit that is reasonable (¶8-160). The weekly food and drink amounts that the Commissioner considers reasonable are listed at ¶8-360. 3. LAFH food fringe benefit exceeds the statutory food amounts in respect of eligible family members. The statutory food amounts are listed at ¶8-370. 4. From 1 October 2012, the employee must: • maintain a home in Australia (¶8-510), and • the benefit is limited to 12 months (¶8-520), or • work on a fly-in fly-out or drive-in drive-out (FIFO or DIDO) basis (¶8-530). 5. The employee gives the employer a declaration in the approved form. From 1 October 2012, the approved form is: • employees who maintain an Australian Home declaration (¶8-630), or • employees who FIFO or DIDO declaration (¶8-640), or • transitional rules apply declaration. Reduction The taxable value of the LAFH food fringe benefit is reduced by the amount by which the equivalent food component exceeds the statutory food amount (s 136(1)) before taking into account the following (s 63): • any recipient’s contribution (¶13-160), and • in-house fringe benefits reduction (see ¶13-140). Step 1: Equivalent food component During the 2018 FBT year, an employer pays for the food and drink of an employee (Jack) and his spouse (Jill). Jack is required to live away from his normal residence (Perth) in order to perform employment duties within Melbourne. The employer reimburses Jack (expense payment fringe benefit) $400 per week for food incurred during the eight weeks he and his wife lived away from their usual place of residence. For the 2018 FBT year, the Commissioner considers an amount of $371 per week is considered reasonable for two adults (¶8-360). However, Jack provides receipts for food expenses incurred while living in Melbourne with Jill of $3,200 (ie $400 × 8). Step 2: Excess food component The statutory food amount for Jack and Jill is $672, ie $42 × 2 × 8. Therefore, the amount by which the equivalent food component exceeds the statutory food amount is $2,528 (ie $3,200 − $672). Step 3: Declaration Jack gives his employer the ATO declaration that he maintained a home in Australia while LAFH in Melbourne with his wife. Also, the amount reimbursed satisfies the 12-month limitation.

Step 4: Reduced taxable value The taxable value of the LAFH food fringe benefit provided to Jack is $3,200 (ie $400 × 8). The reduced taxable value is therefore $672 (ie $3,200 − $2,528). Note: If Jack made a contribution out of his after tax salary of $800 towards the benefit, the reduced taxable value would have been $Nil (ie $672 − $800). The additional employee contribution of $128 cannot be used.

AFB ¶57-610; AFT ¶820-950.

¶13-640 Payments to associates that are not deductible This reduction applies where expenses are not deductible due to the operation of the personal services income (PSI) regime. Conditions 1. A fringe benefit is provided in relation to the employment of a current employee. 2. The provider of the benefit is denied a deduction due to the PSI regime in ITAA 1997 Pt 2-42. Reduction The taxable value of a fringe benefit is reduced by the same amount as is made non-deductible to the provider of the benefit due to the operation of the PSI regime (s 61G). This ensures that expenses that would otherwise have been deductible are not also subject to FBT. AFB ¶57-620; AFT ¶820-735.

¶13-660 Entertainment component of certain fringe benefits This reduction applies where an employer makes a payment or reimburses an employee for expenditure incurred on entertaining persons other than the employee or associate. (This ensures that non-deductible entertainment due to ITAA 1997 Div 32 is not subject to FBT.) Reduction Taxable value is reduced by the non-deductible entertainment amount attributable to the third party (s 63A). AFB ¶57-630; AFT ¶820-970.

DECLARATIONS ¶13-710 Relocation transport declaration

¶13-720 Employment interview or selection test declaration — transport in employee’s car

¶13-730 Medical/counselling/training car travel declaration

¶13-740 Relocation — temporary accommodation declaration

¶13-750 Remote area holiday transport declaration

FRINGE BENEFITS TAX RETURN INTRODUCTION Overview

¶14-000

Preparation of FBT return

¶14-010

FBT return workpapers

¶14-020

Taxable value workpapers

¶14-040

FBT return flowchart

¶14-090

Workpaper 1: Details of fringe benefits provided

¶14-150

Workpaper 2: Summary of reductions in taxable value

¶14-170

Workpaper 3: In-house fringe benefits reduction

¶14-190

TAXABLE EMPLOYERS Overview

¶14-200

Grossed-up Type 1 aggregate fringe benefits amount

¶14-210

Grossed-up Type 2 aggregate fringe benefits amount

¶14-220

Legislation flowchart — fringe benefits taxable amount

¶14-225

Example

¶14-230

Workpaper 4: Analysis of taxable value

¶14-280

REBATABLE EMPLOYERS Overview

¶14-300

Rebatable employers

¶14-310

Calculation of the FBT rebate

¶14-315

Aggregate non-rebatable amount

¶14-320

Individual base non-rebatable amount

¶14-330

Capped rebate amount

¶14-335

Legislation flowchart — aggregate non-rebatable amount

¶14-340

Example

¶14-350

Workpaper 5: Aggregate non-rebatable amount (no salary packaged entertainment benefits) ¶14-370 Workpaper 5A: Aggregate non-rebatable amount (with salary packaged entertainment benefits)

¶14-375

SECTION 57A EMPLOYERS Overview

¶14-400

Section 57A employers

¶14-410

Aggregate non-exempt amount

¶14-420

Individual base non-exempt amount

¶14-430

Capped threshold amounts

¶14-435

Salary packaged meal and other entertainment benefits

¶14-438

Legislation flowchart — aggregate non-exempt amount

¶14-440

Example

¶14-460

Workpaper 6: Aggregate non-exempt amount (no salary packaged entertainment benefits)

¶14-470

Workpaper 6A: Aggregate non-exempt amount (with salary packaged entertainment benefits)

¶14-475

FBT COMPLIANCE CHECKLIST Overview

¶14-600

Car fringe benefits — statutory formula method

¶14-610

Car fringe benefits — cost basis method

¶14-620

Car parking fringe benefits

¶14-630

Expense payment fringe benefits

¶14-640

Loan and debt waiver fringe benefits

¶14-650

Housing fringe benefits

¶14-660

Living-away-from-home (LAFH) allowance fringe benefits

¶14-670

Property fringe benefits

¶14-680

Residual fringe benefits

¶14-690

Appendix: Notice of non-lodgment

¶14-695

INTRODUCTION ¶14-000 Overview All employers who have a liability to pay FBT must prepare an FBT return (¶14-010). The amounts shown on the FBT return need to be documented (¶14-020) and supported by workpapers that explain the calculation of the taxable value of each category of fringe benefit (¶14-040). The flowchart at ¶14-090 provides a pictorial overview of the tax return preparation process. The legislation governing the preparation of the FBT return is discussed at ¶2-500. Note: The FBT rate is 47% for the 2018 FBT year.

¶14-010 Preparation of FBT return The steps involved in completing the FBT return form, other than the business details (Items 1 to 13), are explained below. An FBT return is not required to be lodged if no FBT is payable. However, if an employer is registered for FBT the ATO requires a notice of non-lodgment (¶14-695) to be completed. Step 1: Taxable value summary Item 23 (Details of fringe benefits provided) summarises the calculation of the taxable value of fringe benefits provided during the FBT year. This item is required to be completed by all employers and is based on the workpapers used to determine the taxable value of fringe benefits (¶14-040).

Step 2: FBT liability Items 14 to 19 (Return calculation details) explain the calculation of the fringe benefits taxable amount (¶14-225), the amount of tax payable and the FBT rebate (if applicable). The completion of these items varies depending upon whether the employer is: • subject to FBT on all benefits provided (¶14-200) • entitled to a rebate of FBT (¶14-300), or • a s 57A employer (¶14-400). An apportionment of the activities of an employer will be necessary where a non-profit employer qualifies for the exemption in s 57A and the rebate. In this circumstance, the organisation lodges an FBT return as both a rebatable employer (¶14-300) and a s 57A employer (¶14-400). Step 3: Balance of FBT payable Items 20 to 22 explain the calculation of the amount of FBT payable or refundable. For payment options and when instalments of tax are required to be paid, see ¶2-540. Step 4: Compliance check Prior to the finalisation of the FBT return, a compliance check should be performed to ensure the accuracy of the FBT return information. An illustrative checklist of important aspects of the calculation of the taxable value of some fringe benefits is provided at ¶14-600.

¶14-020 FBT return workpapers The following workpapers illustrate and document the amounts required to be shown on the annual FBT return. Workpaper 1: Details of fringe benefits provided This workpaper (¶14-150) broadly reproduces Item 23 of the FBT return form which is required to be prepared by all employers. It is supported by the taxable value workpapers (¶14-040), Workpaper 2 and Workpaper 3. Workpaper 2: Summary of reductions in taxable value This workpaper (¶14-170) itemises the various types of reductions in taxable value that are only required to be shown in total at Item 23 (see Workpaper 1). The types of reduction in taxable value are (¶2-400): • “Otherwise deductible” rule • Div 14 reductions • In-house fringe benefits reduction. Workpaper 3: In-house fringe benefits reduction This workpaper (¶14-190) contains a summary of the various categories of fringe benefits that are eligible for a reduction in taxable value of no more than $1,000 per employee (¶13-140). It is used to support the amount shown on Workpaper 2. Workpaper 4: Analysis of taxable value This workpaper (¶14-280) illustrates the need to split the taxable value of the various categories of fringe benefits between those where the employer is entitled to a GST credit (Type 1) and those where there is no entitlement (Type 2). See ¶2-510 for more details.

¶14-040 Taxable value workpapers

Employers need to have systems and procedures in place to determine if an employee has been provided with a particular category of fringe benefit and to document the calculation of the taxable value of benefits provided. See the categories of fringe benefits and valuation rules in Chapters 3 to 11.

¶14-090 FBT return flowchart The following explains the tasks to be performed when completing the annual FBT return.

¶14-150 Workpaper 1: Details of fringe benefits provided

¶14-170 Workpaper 2: Summary of reductions in taxable value

¶14-190 Workpaper 3: In-house fringe benefits reduction

TAXABLE EMPLOYERS ¶14-200 Overview Employers, other than s 57A employers (¶14-400), calculate the fringe benefits taxable amount (¶2-510) shown at Item 15 of the FBT return form as follows:

The calculation of the Type 1 aggregate fringe benefits amount and the gross-up of this amount are explained at ¶14-210. Similarly, the calculation of the Type 2 aggregate fringe benefits amount and the gross-up of this amount are explained at ¶14-220. An illustration of the calculation of the fringe benefits taxable amount is provided at ¶14-230. It is important to ensure that the sum of the Type 1 and Type 2 taxable value amounts used to determine the Item 14A and 14B amounts equals the taxable value shown at Item 23 of the FBT return (¶14-150).

See Workpaper 4 at ¶14-280.

¶14-210 Grossed-up Type 1 aggregate fringe benefits amount The gross-up of the Type 1 aggregate fringe benefits amount is calculated using the following formula (s 5B(1B)):

The Type 1 aggregate fringe benefits amount is the sum of all fringe benefits provided during the FBT year that are GST-creditable benefits (s 5C(3)). The calculation of this amount is a five-step process (¶14225).

¶14-220 Grossed-up Type 2 aggregate fringe benefits amount The gross-up of the Type 2 aggregate fringe benefits amount is calculated using the following formula (s 5B(1C)):     Type 2 aggregate fringe benefits amount

×

  = Type 2 aggregate fringe benefits amount ×

1 (1 − FBT rate) 1.8868

The Type 2 aggregate fringe benefits amount is the sum of all fringe benefits provided during the FBT year that are not GST-creditable benefits (s 5C(4)). The calculation of this amount is a six-step process (¶14-225).

¶14-225 Legislation flowchart — fringe benefits taxable amount

¶14-230 Example An employer provides its employees with the following fringe benefits: • Employee A receives a stereo with a taxable value of $2,000 and an overseas holiday with a taxable value of $7,000. • Employee B receives a $3,000 reimbursement of his children’s school fees. The employer is registered for GST and input tax credits are available on the acquisition of the stereo. None of the benefits are exempted by s 57A, so there is no aggregate non-exempt amount (¶14-420). The employer’s fringe benefits taxable amount is calculated as follows. Step 1: Type 1 aggregate fringe benefits amount Add each employee’s individual fringe benefits amount for benefits where the employer is entitled to claim GST input tax credits. Employee A = $2,000 for the stereo Employee B = $0 (tuition fees are GST-free)

= $2,000 Step 2: Gross-up of Type 1 aggregate fringe benefits The Type 1 aggregate fringe benefits amount is shown at Item 14A of the FBT return: $2,000 × 2.0802 =  $4,160 Step 3: Type 2 aggregate fringe benefits amount Add each employee’s individual fringe benefits amount for benefits where the employer cannot claim GST input tax credits. Employee A = $7,000 (no GST on overseas holiday) Employee B = $3,000 (tuition fees are GST-free) = $10,000 Step 4: Gross-up of Type 2 aggregate fringe benefits The Type 2 aggregate fringe benefits amount is shown at Item 14B of the FBT return: $10,000 × 1.8868 =  $18,868 Step 5: Fringe benefits taxable amount Add together the s 5B(1B) and 5B(1C) amounts: $4,160 + $18,868 =  $23,028 The $23,028 is shown at Item 15 of the FBT return and the employer’s FBT liability for the year of $10,823 (ie $23,028 × 47%) is shown at Item 16 of the FBT return.

¶14-280 Workpaper 4: Analysis of taxable value

REBATABLE EMPLOYERS ¶14-300 Overview Rebatable employers (¶14-310) calculate the fringe benefits taxable amount (¶2-510) shown at Item 15 of the FBT return form in the same manner as taxable employers (¶14-200):

The calculation of the Type 1 aggregate fringe benefits amount and the gross-up of this amount are explained at ¶14-210. Similarly, the calculation of the Type 2 aggregate fringe benefits amount and the gross-up of this amount are explained at ¶14-220. An illustration of the calculation of the fringe benefits taxable amount is provided at ¶14-230. It is important to ensure that the sum of the Type 1 and Type 2 taxable value amounts used to determine the Item 14A and 14B amounts equals the taxable value shown at Item 23 of the FBT return (¶14-150). See Workpaper 4 at ¶14-280. FBT rebate For the 2018 FBT year, the amount of the rebate is 47% of the difference between tax that would otherwise be payable and the aggregate non-rebatable amount. The rebate is reduced if the employer was not a rebatable employer for the whole of the FBT year (¶14-315).

¶14-310 Rebatable employers Rebatable employers are taxpayers that are not entitled to an income tax deduction for FBT paid in respect of their employees.

An employer is a rebatable employer if the employer (s 65J(1)): • is exempt from income tax at any time during the FBT year, and • satisfies the special conditions (if any) referred to below. 1. Registered charity A registered charity is not a rebatable employer for the FBT year (s 65J(1), Item 1) if it meets the following conditions, eg it: (a) is a registered public benevolent institution (¶12-840) (b) is a registered health promotion charity (¶12-880) (c) is an institution of the Commonwealth, a state or a territory (¶12-905) (d) has not been endorsed under s 123E(1), or (e) is not an institution (¶12-905). In addition, it must (ITAA 1997 s 50-50; 50-52): • have a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia, or • be an institution that meets the description and requirements in Item 1 of the table in ITAA 1997 s 3015, or • be a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident, or • be a prescribed institution that has a physical presence in Australia but which incurs its expenditure and pursues its objectives principally outside Australia, and • be endorsed as exempt from income tax. A “registered charity” (s 136(1)) is a charity (¶12-890) registered under the Australian Charities and Notfor-profits Commission Act 2012 (ACNC Act) (¶12-900). Endorsement A charitable institution will only be a rebatable employer if the institution is endorsed by the Commissioner under s 123E. From 3 December 2012, for an entity to be entitled to be endorsed by the Commissioner as a “charitable institution” (s 123E(1)), the entity must (s 123E(2)): • be a registered charity (¶12-900) • satisfy the above “special conditions”, and • have an ABN. A “charitable institution” is not defined in the FBTAA but clearly must be both “charitable” (¶12-890) and an “institution” (¶12-905). It takes its meaning from the registration requirement in ACNC Act. A charitable institution is a charity registered under the ACNC Act other than a public benevolent institution or health promotion charity. An entity applies for endorsement by the Commissioner in accordance with Div 426 of TAA 1953 which requires applications to be in a form approved by the Commissioner. 2. Scientific institution

The scientific institution must not be an institution of the Commonwealth, a state or a territory unless it (s 65J(1), Item 2): (a) is an institution established by a law of the Commonwealth, a state or a territory (b) is not conducted by or on behalf of the Commonwealth, a state or a territory, and (c) is engaged solely in research into the causes, prevention or cure of diseases in humans. In addition, it (ITAA 1997 s 50-55): • must have a physical presence in Australia and, to that extent, incur its expenditure and pursue its objectives principally in Australia, or • must be an institution that meets the description and requirements in Item 1 of the table in ITAA 1997 s 30-15, or • must be a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident. Note: Item 1 of the ITAA 1997 s 30-15 table lists the requirements for a fund, authority or institution to be a gift deductible recipient.

3. Public educational institution The public educational institution must not be an institution established by a law of the Commonwealth, a state or a territory unless it (s 65J(1), Item 3): (a) is not conducted by or on behalf of the Commonwealth, a state or a territory, and (b) is a preschool or school (other than a tertiary institution). In addition, it (ITAA 1997 s 50-55): • must have a physical presence in Australia and, to that extent, incur its expenditure and pursue its objectives principally in Australia, or • must be an institution that meets the description and requirements in item 1 of the table in ITAA 1997 s 30-15, or • is a prescribed institution which is located outside Australia and is exempt from income tax in the country in which it is resident. 4. Society, association or club — encouragement of science The society, association or club must be established for the encouragement of science, is not carried on for the purpose of profit or gain of its individual members and (s 65J(1), Item 4; ITAA 1997 s 50-70): (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia, or (b) is a society, association or club that meets the description and requirements in item 1 of the table in ITAA 1997 s 30-15, or (c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident. In addition, the society, association or club must not be an incorporated company where it is beneficially owned by (s 65J(5)): • the Commonwealth, a state or a territory, or • an authority or institution of the Commonwealth, a state or territory (¶12-905).

5. Society, association or club — community services The society, association or club must be established for community services purposes, other than for political lobbying purposes (s 65J(1), Item 5), and is not carried on for the purpose of profit or gain of its individual members and (ITAA 1997 s 50-70): (a) has a physical presence in Australia and, to that extent, incurs its expenditure and pursues its objectives principally in Australia, or (b) is a society, association or club that meets the description and requirements in Item 1 of the table in ITAA 1997 s 30-15, or (c) is a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident. In addition, the society, association or club must not be an incorporated company where it is beneficially owned by (s 65J(5)): • the Commonwealth, a state or a territory, or • an authority or institution of the Commonwealth, a state or territory (¶12-905). 6. Employer and employee associations An employer association or an employee association (s 65J(1), Item 6) that (ITAA 1997 s 50-15): (a) is registered or recognised under the Fair Work (Registered Organisations) Act 2009 or an Australian law relating to the settlement of industrial disputes, and (b) is located in Australia, and incurs its expenditure and pursues its objectives principally in Australia, and (c) complies with all the substantive requirements in its governing rules, and (d) applies its income and assets solely for the purpose for which it is established. 7. Trade unions The trade union (s 65J(1), Item 7; ITAA 1997 s 50-15): (a) must be located in Australia, and incur its expenditure and pursue its objectives principally in Australia, and (b) comply with all the substantive requirements in its governing rules, and (c) apply its income and assets solely for the purpose for which it is established. 8. Society or association — aviation and tourism The society or association must be established for the purpose of promoting the development of aviation or tourism (s 65J(1), Item 8) and must not be carried on for the profit or gain of its individual members (ITAA 1997 s 50-40). In addition, the society or association must not be an incorporated company beneficially owned by (s 65J(5)): • the Commonwealth, a state or a territory, or • an authority or institution of the Commonwealth, a state or territory (¶12-905). 9. Society or association — promoting agriculture, etc The society or association must be established for the purpose of promoting the development of any of the following Australian resources (s 65J(1), Item 9):

(a) agricultural (b) horticultural (c) industrial (d) manufacturing (e) pastoral (f) viticulture (g) aquaculture, or (h) fishing. In addition, the society or association must not be carried on for the profit or gain of its individual members (ITAA 1997 s 50-40) and must not be an incorporated company beneficially owned by (s 65J(5)): • the Commonwealth, a state or a territory, or • an authority or institution of the Commonwealth, a state or territory (¶12-905). 10. Society or association — Australian information and communications The society or association must be established for the purpose of promoting the development of Australian information and communications technology resources (s 65J(1), Item 10). In addition, the society or association must not be carried on for the profit or gain of its individual members (ITAA 1997 s 50-40) and must not be an incorporated company beneficially owned by (s 65J(5)): • the Commonwealth, a state or a territory, or • an authority or institution of the Commonwealth, a state or territory (¶12-905). 11. Society, association or club — sport, art, literature and music The society, association or club must be established for the encouragement of any of the following (s 65J(1), Item 11): (a) animal racing (b) art (c) a game or sport (d) literature, or (e) music. In addition, the society, association or club must not be carried on for the profit or gain of its individual members and must (ITAA 1997 s 50-70): (i) have a physical presence in Australia and, to that extent, incur its expenditure and pursue its objectives principally in Australia, or (ii) be a society, association or club that meets the description and requirements in Item 1 of the table in ITAA 1997 s 30-15, or (iii) be a prescribed society, association or club which is located outside Australia and is exempt from

income tax in the country in which it is resident. Also, the society, association or club must not be an incorporated company where it is beneficially owned by (s 65J(5)): • the Commonwealth, a state or a territory, or • an authority or institution of the Commonwealth, a state or territory (¶12-905). 12. Society, association or club — musical purposes The society, association or club must be established for musical purposes (s 65J(1), Item 12) and must not be carried on for the profit or gain of its individual members and must (ITAA 1997 s 50-70): (a) have a physical presence in Australia and, to that extent, incur its expenditure and pursue its objectives principally in Australia, or (b) be a society, association or club that meets the description and requirements in Item 1 of the table in ITAA 1997 s 30-15, or (c) be a prescribed society, association or club which is located outside Australia and is exempt from income tax in the country in which it is resident. Also, the society, association or club must not be an incorporated company where it is beneficially owned by (s 65J(5)): • the Commonwealth, a state or a territory, or • an authority or institution of the Commonwealth, a state or territory (¶12-905).

¶14-315 Calculation of the FBT rebate The total grossed-up value of benefits that can be provided to each employee of a rebatable employer is capped at $30,000 in the 2018 FBT year. If the total grossed-up value of the fringe benefits provided to an individual employee exceeds the capped rebate amount then FBT is payable on the excess amount (¶14335). The rebate is calculated using the formula (s 65J(2A)): FBT rate × [Gross tax − Aggregate ×          non-rebatable amount] 

Rebatable days in year

Total days in year where: • gross tax is the amount of FBT that would be payable if the rebate did not apply • aggregate non-rebatable amount is the FBT payable on the proportion of the taxable value of fringe benefits for which the employer cannot obtain a tax rebate (see ¶14-320) • rebatable days in year is the number of whole days in the FBT year when the employer was a rebatable employer (¶14-310) • total days in year is the number of days in the FBT year, excluding the days on which the employer did not engage in activities as an employer, and • FBT rate is the rate of fringe benefits tax for the FBT year (s 65J(6); ¶2-020).

Example: 2018 FBT year A religious institution has one employee who is provided with a car fringe benefit with a taxable value of $10,000 during the 2018 FBT year. The grossed-up taxable value of this type 1 benefit is $20,802 ($10,000 × 2.0802) and the FBT payable, assuming no rebate is available, is $9,776.94 (47% of $20,802). The religious institution can claim an FBT rebate of $4,595.16:

0.47 × ($9,776.94 − 0) ×

365

365 The non-rebatable amount is zero because the grossed-up taxable value of benefits ($20,802) does not exceed capped rebate amount of $30,000 (¶14-335).

Workpapers 5 and 5A (¶14-370 and ¶14-375) illustrate how to calculate the non-rebatable amount for each employee in order to calculate the aggregate non-rebatable amount.

¶14-320 Aggregate non-rebatable amount The employer’s aggregate non-rebatable amount is the amount that represents the proportion of the taxable value of fringe benefits for which the employer is being denied a rebate. The aggregate nonrebatable amount is worked out using the method statement in (s 65J(2B)): Step 1:

Determine the Type 1 individual base non-rebatable amount and Type 2 individual base non-rebatable amount for the employee (¶14-330). Gross-up these amounts by 2.0802 and 1.8868 respectively and add them together.

Step 2:

Subtract $30,000. If this results in a negative amount, substitute zero for that employee.

Step 2A:

If the amount calculated under Step 2 in relation to an employee is positive, reduce that amount (but not below zero) by the lesser of: (a) $5,000; and (b) so much of the employee’s individual grossed-up non-rebatable amount as relates to salary packaged meal entertainment and entertainment facility leasing benefits.

Step 3:

Sum the per employee amounts calculated at Step 2A to determine the total amount for all employees.

Step 4:

Multiply the Step 3 amount by 47% to determine the aggregate non-rebatable amount for all employees of the employer for the FBT year.

Example: 2018 FBT year (one employee) A religious institution has one employee (Jill) who is provided by her employer in the 2018 FBT year with a car fringe benefit with a taxable value of $20,000 and car parking at a car parking station (Div 10A car parking benefit) with a taxable value of $5,000. Both are type 1 fringe benefits. Jill is also provided with meal entertainment of $6,000 under a salary packaging arrangement. This is a type 2 fringe benefit as it is not GST-creditable. The grossed-up taxable value of the car fringe benefit is $41,604 ($20,000 × 2.0802), the car parking benefit is $10,401 ($5,000 × 2.0802) and the salary packaged meal entertainment is $11,320 ($6,000 × 1.8868). The fringe benefits taxable amount is $63,325. The individual grossed-up non-rebatable amount for Jill is $52,924 (ie $41,604 + $11,320). The car parking fringe benefit is not included when determining this amount (¶14-340). This amount of $52,924 is then reduced by the rebate cap of $30,000 (see Step 2 above) to $22,924. As this amount ($22,924) is positive, it is reduced further by $5,000 to $17,924 in accordance with Step 2A as $5,000 is less than the portion of the employee’s individual grossed-up non-rebatable amount as relates to salary packaged meal entertainment (ie $11,320). Therefore, the employer’s “aggregate non-rebatable amount” of benefits provided to Jill (its sole employee) is $8,424.28 (ie $17,924 × 47%).

Example: 2018 FBT year (two employees) Assume the religious institution in the above example had a second employee (Bill). Bill is provided with a car fringe benefit with a taxable value of $15,000 and expense payment benefits with a taxable value of $10,000. Assume an input tax credit is not available for the expense payment benefits. The grossed-up taxable value of the car fringe benefit is $31,203 ($15,000 × 2.0802) and the expense payment benefits is $18,868 ($10,000 × 1.8868). The individual grossed-up non-rebatable amount for Bill is $50,071 (ie $31,203 + $18,868). This amount of $50,071 is then reduced by the rebate cap of $30,000 (see Step 2 above) to $20,071. Therefore, the “aggregate non-rebatable amount” of benefits provided to Jill and Bill is $17,857.65 (ie ($17,924 + $20,071) × 47%).

For the legislative flowchart of the above steps, see ¶14-340 and for illustrative workpapers, see ¶14-370 and ¶14-375. The capped rebate amount for the 2018 FBT year is $30,000 (¶14-335).

¶14-330 Individual base non-rebatable amount The Type 1 individual base non-rebatable amount (s 65J(2E)) and the Type 2 individual base nonrebatable amount (s 65J(2F)) include all fringe benefits provided by a rebatable employer to their employees other than: • meal entertainment (¶11-810) regardless of whether an election has been made to determine the taxable value in accordance with Div 9A (see ¶11-830) • car parking fringe benefits (see ¶4-000), and • fringe benefits attributable to entertainment facility leasing (see ¶15-120). However, from 1 April 2016, these exclusions do not apply to meal entertainment and entertainment facility leasing benefits provided under salary packaging arrangements (¶14-335). The calculation of the individual base non-rebatable amount is pictorially illustrated at ¶14-340.

¶14-335 Capped rebate amount For the 2018 FBT year, no FBT rebate is available if the total grossed-up value of the fringe benefits provided to an individual employee, after disregarding: • meal entertainment • car parking, and • entertainment facility leasing expenses, exceeds $30,000 (s 65J(2H); ¶14-340). Since 1 April 2016, the grossed-up taxable value of salary packaged meal entertainment and entertainment facility leasing benefits is included in the capped rebate amount. If the inclusion of the salary packaged meal and entertainment benefits causes the employee to exceed the capped rebate amount, the rebate will still apply provided the cap is not exceeded by more than the lesser of: • $5,000, and • the total grossed-up taxable value of salary packaged meal entertainment and entertainment facility leasing benefits (s 65J(2B) and 65J(2J)). Prior to 1 April 2016, salary packaged meal entertainment and entertainment facility leasing benefits were not included in an employee’s rebatable cap. Employee employed for part of FBT year The $30,000 capping threshold applies even if the employee is not employed for the full FBT year. For

example, if the total grossed-up value of the benefits provided to a person employed between May and November is $21,000, the rebate will reduce the FBT payable to nil.

¶14-340 Legislation flowchart — aggregate non-rebatable amount

¶14-350 Example A trade union has one employee who is provided with a car, car parking and reimbursed for meal entertainment of $2,000 during the FBT year. The taxable value, fringe benefits taxable amount and rebate shown on the FBT return are summarised below. All benefits are assumed to be Type 1. Fringe benefits Car (car benefit)

Taxable value 13,000

Car parking (Div 10A car parking benefit)

3,000

Car parking (expense payment benefit)

4,000

Restaurant meals (expense payment benefit)

   2,000

Item 23: Taxable value of fringe benefits

$22,000

Item 14A: Type 1 aggregate amount and fringe benefits taxable amount

45,764

Item 16: Amount of tax payable @47%

$21,509.08

Calculation of rebate Taxable value of fringe benefits provided

22,000

Less: Car parking

(3,000)

  : Meal entertainment (not salary sacrificed)

(2,000)

Type 1 individual base non-rebatable amount

17,000

Individual gross-up Type 1 non-rebatable amount

35,363

Less: Rebate cap

30,000

      Sub-total 1

5,363

Item 17: Aggregate non-rebatable amount (Sub-total 1 × 47%)

$2,520.61

      Sub-total 2 (Item 16 less Item 17)

18,988.47

Item 18: Amount of rebate = Sub-total 2 × 47%

$8.924.58

AFB ¶58-000 to ¶58-400; AFT ¶821-600.

¶14-370 Workpaper 5: Aggregate non-rebatable amount (no salary packaged entertainment benefits)

¶14-375 Workpaper 5A: Aggregate non-rebatable amount (with salary packaged entertainment benefits)

SECTION 57A EMPLOYERS ¶14-400 Overview Employers eligible for the s 57A exemption from FBT (¶14-410) calculate the fringe benefits taxable amount shown at Item 15 of the FBT return form as follows:

The non-exempt amount for an employee is the sum of the grossed-up individual base non-exempt amount (¶14-430) after subtracting the capped threshold amount (¶14-435). The sum of the non-exempt amount for all employees is the aggregate non-exempt amount (¶14-420). See the example at ¶14-460 for how to calculate the aggregate non-exempt amount and Workpapers 6 (¶14-470) and 6A (¶14-475). It is important to ensure that the aggregate non-exempt amount can be reconciled with the taxable values of fringe benefits reported at Item 23 (¶14-150) of the FBT return form.

¶14-410 Section 57A employers The following employers are exempt from fringe benefits tax by virtue of s 57A and therefore have an aggregate non-exempt amount: • registered public benevolent institutions (¶12-840) • government bodies employing hospital staff (¶12-850) • public hospitals and ambulance services (¶12-860) • non-profit hospitals (¶12-870), and • registered health promotion charities (¶12-880).

¶14-420 Aggregate non-exempt amount The aggregate non-exempt amount is required to be shown at Item 14C of the FBT return. It is the sum of the grossed-up non-exempt amount for each employee (if positive) calculated as follows (s 5B(1E)): Individual grossed-up Type 1 non-exempt amount (¶14-430)

+

Individual grossed-up Type 2 non-exempt amount (¶14-430)

−

Capped threshold amount (¶14-435)

−

Capped salary packaged entertainment amount (¶14-438)

The method of calculating the aggregate non-exempt amount for the 2018 FBT year is (s 5B(1E)): Step 1:

Determine the Type 1 individual base non-exempt amount and Type 2 individual base non-exempt amount for the employee (¶14-430). Gross-up these amounts by 2.0802 and 1.8868 respectively.

Step 2:

Subtract $17,000 if the employer is a government body, public hospital, public ambulance service or a hospital carried on by a non-profit society or association. If this calculation results in a negative amount, substitute zero for that employee.

Step 3:

Subtract $30,000 if the employer is a registered PBI or registered HPC. If this calculation results in a negative amount, substitute zero.

Step 4:

If the amount calculated under Step 2 or 3 is positive, reduce that amount (but not below nil) by the lesser of: (a) $5,000; and (b) so much of the employee’s individual grossed-up non-exempt amounts as relates to salary packaged meal entertainment and entertainment facility leasing benefits

Step 5:

Sum the per employee amounts calculated under Step 4 to determine the total amount for all employees. This is the employer’s aggregate non-exempt amount.

For the legislative flowchart of the above steps, see ¶14-440 and for illustrative workpapers see ¶14-470 and ¶14-475.

¶14-430 Individual base non-exempt amount The Type 1 Individual base non-exempt amount (s 5B(1H)) and the Type 2 Individual base non-exempt amount (s 5B(1J)) include all fringe benefits provided by an exempt employer to their employees other than: • meal entertainment (¶11-810) regardless of whether an election has been made to determine the taxable value in accordance with Div 9A (see ¶11-830) • car parking fringe benefits (see ¶4-000) • fringe benefits attributable to entertainment facility leasing (see ¶5-370). However, from 1 April 2016, these exclusions do not apply where the meal entertainment and entertainment facility leasing benefits are provided under salary packaging arrangements (¶14-435 and ¶14-438). The calculation of the individual base non-exempt amount is pictorially illustrated at ¶14-440.

¶14-435 Capped threshold amounts The capped thresholds for the 2018 FBT year of $17,000 and $30,000 apply for each employee even if the employee was not employed for the whole of the FBT year. For example, if an employee was only employed by a PBI for the period 1 July 2017 to 31 December 2017 and the total grossed-up value of fringe benefits provided was $21,000, no FBT is payable. The capped amounts are not required to be prorated according to the period of employment during the FBT year. Since 1 April 2016, the grossed-up taxable value of salary packaged meal entertainment and entertainment facility leasing benefits is included in the capped threshold amounts. If the inclusion of the salary packaged meal and entertainment benefits causes the employee to exceed the capped threshold, the FBT exemption still applies provided the cap is not exceeded by more than the lesser of: • $5,000, and • the total grossed-up taxable value of salary packaged meal entertainment and entertainment facility leasing benefits (¶14-438). Prior to 1 April 2016 salary packaged meal entertainment and entertainment facility leasing benefits were not included in an employee’s capped threshold. AFB ¶56-400 to ¶56-530; AFT ¶800-250.

¶14-438 Salary packaged meal and other entertainment benefits From 1 April 2016, a separate single grossed-up cap of $5,000 applies for salary packaged meal entertainment and entertainment facility leasing expenses for employees of s 57A employers (s 5B(1E), Step 4). The single $5,000 cap is available for each employee of an employer in an FBT year. If an employee

works for more than one employer, the employee is entitled to the $5,000 cap for each employer they work for in an FBT year. The amount of benefits exceeding the grossed-up cap of $5,000 is included when calculating whether the value of all benefits received by an employee exceeds their capped threshold amount (¶14-435). AFB ¶62-180 to ¶62-185; AFT ¶800-250.

¶14-440 Legislation flowchart — aggregate non-exempt amount The total of the individual grossed-up non-exempt amount for all employees is the aggregate non-exempt amount.

¶14-460 Example A public hospital has one employee who is provided with a car, car parking and is reimbursed for meal entertainment of $2,000 during the FBT year. The calculation of the aggregate non-exempt amount shown on the FBT return is summarised below. All benefits are assumed to be Type 1. Fringe benefits Car (car benefit)

Taxable value 13,000

Car parking (Div 10A car parking benefit)

3,000

Car parking (expense payment benefit)

4,000

Restaurant meals (expense payment benefit)

   2,000

Taxable value of fringe benefits provided by public hospital

$22,000

Less: Car parking

(3,000)

  : Meal entertainment

(2,000)

Type 1 individual base non-exempt amount

17,000

Individual gross-up Type 1 non-exempt amount

35,363

Less: Exemption cap Item 14C: Aggregate non-exempt amount

  17,000 $18,363

¶14-470 Workpaper 6: Aggregate non-exempt amount (no salary packaged entertainment benefits)

¶14-475 Workpaper 6A: Aggregate non-exempt amount (with salary packaged entertainment benefits)

FBT COMPLIANCE CHECKLIST ¶14-600 Overview The following provides a checklist of important aspects of the calculation of the taxable value of some fringe benefits. It also includes references to the commentary on the particular category of benefit and/or the relevant pro forma workpaper.

¶14-610 Car fringe benefits — statutory formula method 1. Car benefits. Has a car been applied to a private use or made available for the private use of an employee? See ¶3-100. 2. General ledger. Are separate general ledger accounts used to record car expenses where both the statutory formula and cost basis methods are used? Also, are employee contributions towards the taxable value of this fringe benefit separately identified in the general ledger to facilitate preparation of the FBT return? 3. Statutory percentage. Was the car acquired after 7.30 pm AEST on 10 May 2011 (¶3-500)? Was the car held before that time and therefore continues to qualify as a grandfathered car (¶3-510)? 4. Base value. The base value of an employer’s car is reduced where an employee has provided their car as a trade-in. See ¶3-560. 5. Older vehicles. Has the base value of cars which have been held for more than four years been reduced by one-third? See ¶3-560. The reduction does not apply to non-business accessories. 6. Exempt vehicles. Have work-related cars, unregistered cars and certain cars owned by personal services entities been excluded? See ¶3-200. 7. Kilometres travelled. When a car is not held for the entire FBT year it is necessary to annualise the number of kilometres to determine the correct statutory fraction. 8. Days available for private use. Have the non-private use days of cars been documented to support a reduction in the taxable value? See ¶3-590. 9. Employee contributions. Have any employees contributed towards the running costs of the car? It is irrelevant that it arises from private use. Fuel and oil can be shown on the declaration but receipts are required for other expenditure (¶3-590). GST is payable on cash contributions but not on third party expenses paid by the employee (¶3-500). 10. Summary. Has a schedule summarising the calculation of the taxable value of car fringe benefits provided to each employee been prepared? See ¶3-520. 11. GST gross-up rate. Car fringe benefits using the statutory formula method are Type 1 or Type 2 benefits depending on the date of acquisition of the car (¶3-560).

¶14-620 Car fringe benefits — cost basis method 1. Car benefits. Has a car been applied to a private use or made available for the private use of an employee? See ¶3-100. 2. General ledger. Are separate general ledger accounts used to record car expenses descriptive of the nature and characteristics (eg GST-inclusive, deductible) of the expenditure incurred? Also, are employee contributions towards the taxable value of this fringe benefit separately identified in the

general ledger to facilitate preparation of the FBT return? 3. Cost price. The cost price of an employer’s car is reduced where an employee has provided their car as a trade-in. See ¶3-720. 4. Exempt vehicles. Have work-related cars, unregistered cars and certain cars owned by personal services entities been excluded? See ¶3-200. 5. Logbooks. Are valid logbooks maintained to support the cost basis method? See ¶3-670. 6. Odometer records. Have odometer records been kept? See ¶3-690. 7. Employee contributions. Have any employees contributed towards the running costs of the car? It is irrelevant that it arises from private use. Fuel and oil can be shown on the declaration but receipts are required for other expenditure (¶3-690). GST is payable on cash contributions but not on third party expenses paid by the employee (¶3-600). 8. Summary. Has a schedule summarising the calculation of the taxable value of car fringe benefits provided to each employee been prepared? See ¶3-650. 9. GST gross-up rate. Car fringe benefits using the cost basis method are a mixture of Type 1 and Type 2 benefits.

¶14-630 Car parking fringe benefits 1. Car parking benefits. Did the employer provide parking facilities to an employee or associate at the place of employment or on leased premises? See ¶4-100. 2. General ledger. Is a separate general ledger account used to record car parking expenditure meeting the requirements of Div 9A? Also, are employee contributions towards the taxable value of this fringe benefit separately identified in the general ledger to facilitate preparation of the FBT return? 3. Commercial parking station. Have details of fees charged by commercial car parking stations located within 1 km of the employer-provided parking facilities been obtained? See ¶4-160. 4. Valuation method. Choose between using the commercial parking station, market value and average commercial parking station fee methods. Prepare a workpaper to evidence this choice. See Workpaper 2 at ¶4-395. 5. Parking benefits. Choose between the actual usage, 12-week register and statutory formula methods. See Workpapers 3 to 5 commencing at ¶4-565. 6. Small business exemption. If the parking is provided by a small business employer the car parking benefit may be exempt. See ¶4-200. 7. Other exemptions. If the parking is provided by certain organisations or to a disabled person the car parking benefit is exempt. See ¶4-200. 8. Summary. Has a schedule summarising the calculation of the taxable value of car parking fringe benefits been prepared (see ¶4-385) from which individual employee car parking benefits can be readily determined? 9. GST gross-up rate. Car parking fringe benefits may be Type 1 or Type 2. For example, car parking at a commercial parking station is generally subject to the Type 1 gross-up rate.

¶14-640 Expense payment fringe benefits

1. Expense payment benefits. Was an expense incurred by an employee paid or reimbursed that was not a business expense? 2. General ledger. Are general ledger accounts descriptive of the nature and characteristics (eg GSTinclusive, deductible) of the expenditure incurred? 3. Car allowance. A car allowance paid on a cents per kilometre basis is included on the employee’s payment summary and is generally not subject to FBT (¶5-240). 4. Employee travel. Have travel diaries been completed and filed for all employees who have been away from their usual place of residence for more than five nights? See pro forma workpapers at ¶5525 and ¶5-540. 5. Meal entertainment. Has an election been made to adopt the 50/50 method of determining the value of meal entertainment? All food or drink while on business travel and sustenance is not entertainment (¶11-800). 6. Employee contributions. Did the employee contribute towards the taxable value of the fringe benefit and is this amount separately identified in the general ledger to facilitate preparation of the FBT return? See ¶5-300. 7. Otherwise deductible rule. Would the expenditure paid or reimbursed have been wholly or partly deductible if incurred by the employee? See ¶5-410. 8. In-house expense payment benefits. The total of ALL in-house fringe benefits are subject to a reduction in taxable value of $1,000. See ¶13-140. 9. Declaration. Have declarations to support a reduction in taxable value been obtained and filed? See ¶5-510. 10. Recurring expense payment fringe benefits declaration. This declaration may be prepared by employees where the business/private use proportions remain relatively constant. The declaration should be filed in the employer’s permanent FBT compliance file to support the taxable value calculations in current and future FBT returns. See ¶5-510. 11. No-private-use declaration. This declaration should be prepared where the employer has a defined and enforced policy of only reimbursing or paying expenses that would result in a nil taxable value. See ¶5-210. 12. Living-away-from-home declaration. Have the accommodation costs of an employee living-awayfrom-home been paid? If “yes” this declaration must be obtained from the employee before lodgment of the FBT return. See ¶5-220. 13. Summary. Has a schedule summarising the calculation of the taxable value of expense payment fringe benefits provided to each employee been prepared? See Workpaper 6 at ¶5-650. 14. GST gross-up rate. Expense payment fringe benefits may be Type 1 or Type 2 depending upon the type of expenditure incurred by the employee that is paid or reimbursed.

¶14-650 Loan and debt waiver fringe benefits 1. Loan benefits. Was a loan made to an employee or associate? However, a genuine expense advance repaid within six months is not a loan benefit. See ¶6-100 and ¶6-200. 2. Debt waiver benefits. Have any amounts owed by employees been written off or forgiven? A bad debt is not a debt waiver. See ¶11-620 and ¶11-640. 3. General ledger. Is a separate general ledger account used to record employee loans made for an

income-producing rather than a private purpose? 4. Otherwise deductible rule. Would the interest on the loan have been wholly or partly deductible if incurred by the employee? See ¶6-410. 5. Declaration. Have declarations for the current FBT year in support of a reduction in taxable value been obtained and filed? See ¶6-520. 6. Summary. Has a schedule summarising the calculation of the taxable value been prepared to facilitate the preparation of the FBT return and to calculate reportable fringe benefits? See Workpaper 2 (¶6-585) and Workpaper 3 (¶11-790). 7. GST gross-up rate. Loans and debt waiver fringe benefits are Type 2 benefits.

¶14-660 Housing fringe benefits 1. Housing benefits. Has an employee been provided with housing accommodation that is their usual place of residence? See ¶7-100. 2. General ledger. Is a separate general ledger account used to record employer payments for the provision of housing benefits to employees? 3. Exempt benefits. Is the housing provided to a live-in care worker or in a remote area? See ¶7-200. 4. Base year. Is a base year election required in respect of Australian accommodation this FBT year? See Workpaper 2 at ¶7-585. 5. Indexation. Has the statutory annual value for the prior FBT year been indexed? See Workpaper 3 at ¶7-595. 6. Employee contributions. Did the employee contribute towards the taxable value of the fringe benefit and is this amount separately identified in the general ledger to facilitate preparation of the FBT return? See ¶7-420. 7. Summary. Has a schedule summarising the calculation of the taxable value been prepared to facilitate the preparation of the FBT return and to calculate reportable fringe benefits? See Workpaper 4 at ¶7-600. 8. GST gross-up rate. Residential accommodation is input taxed and is therefore a Type 2 benefit. However, if the housing accommodation is provided in a hotel, motel, etc, it will generally be a Type 1 benefit. Note: It is recommended that a housing agreement is prepared but this is not a legislative requirement. See Workpaper 1 at ¶7-575.

¶14-670 Living-away-from-home (LAFH) allowance fringe benefits 1. LAFH allowance benefit. Has an employee been paid an amount to compensate for being required to live away from their normal residence (¶8-110)? 2. General ledger. Is a separate general ledger account used to record LAFH allowance payments to employees to distinguish them from other allowances? 3. Employee allowances. Review all allowances paid during the FBT year to ensure they have been correctly characterised. LAFH allowances are not required to be shown on the employee’s payment summary unlike, for example, travel allowances, etc. See ¶5-120. 4. Concessional treatment. For concessional FBT treatment to apply to LAFH allowance periods from 1 October 2012, ensure that an employee has maintained an Australian home (¶8-510; ¶8-520) or

has worked on a fly-in fly-out or drive-in drive-out (¶8-530) basis. If not, concessional treatment may still be available if the transitional rules (¶8-380) apply. 5. Exempt food component. Determine the reasonable food component or use the Commissioner’s annual determination (¶8-350). 6. Substantiation. For LAFH allowance periods from 1 October 2012, ensure that the employee has complied with the substantiation requirements for accommodation expenses, and for food and drink expenses where the latter exceeds the amount that the Commissioner considers reasonable (¶8540). 7. Declarations. Has a LAFH allowance declaration been supplied by the employee (¶8-550)? 8. Summary. Has the calculation of the taxable value of each employee’s LAFH allowance been prepared? This explains the reductions in taxable value (ie reasonable accommodation and exempt food components) that must be shown on the FBT return (¶8-610). 9. GST gross-up rate. LAFH allowance fringe benefits are Type 2 benefits. Note: It is recommended that a LAFH allowance agreement is prepared but this is not a legislative requirement (¶8-600).

¶14-680 Property fringe benefits 1. Provision of property. Has any property been provided to an employee at less than the market price, for example, manufactured products of the employer, motor vehicles or computers? See ¶9100. 2. General ledger. Are separate general ledger accounts used to record the consideration received from employees for: i. the purchase of company products, and ii. provision of other property? Also, does the general ledger entry give sufficient details of the nature of the property provided to enable the correct valuation rule to be applied? 3. Disposal of assets. Has any employer property been provided to an employee or associate, eg cars during the FBT year. See Workpaper 3 at ¶9-640. However, FBT is not payable on leased employer cars acquired at their residual value by employees (¶9-390). 4. Pricing policy. FBT compliance costs can be minimised by all property being sold for no less than the amount determined in accordance with the property fringe benefits valuation rules (¶9-520). 5. Employee contributions. Did the employee contribute towards the taxable value of the fringe benefit and is this amount separately identified in the general ledger to facilitate preparation of the FBT return? See ¶9-300. 6. Otherwise deductible rule. Would the property benefit have been wholly or partly deductible if expenditure equal to the benefit had been incurred by the employee? See ¶9-420. 7. In-house property benefits. The total of ALL in-house fringe benefits is subject to a reduction in taxable value of $1,000. See ¶13-140. 8. Declaration. Have declarations in support of a reduction in taxable value been obtained and filed? See ¶9-600. 9. Recurring property fringe benefits declaration. Should this declaration be prepared by employees where the business/private use proportions remain relatively constant? If “yes” the declaration should

be filed in the employer’s permanent FBT compliance file to support the taxable value calculations in current and future FBT returns. See ¶9-620. 10. Summary. Has a schedule summarising the calculation of the taxable value of property fringe benefits provided to each employee been prepared? See Workpaper 4 at ¶9-650. 11. GST gross-up rate. Property fringe benefits may be Type 1 or Type 2 depending upon the type of property provided, eg goods manufactured by the employer are subject to the Type 2 gross-up rate.

¶14-690 Residual fringe benefits 1. Use of property or supply of services. Have any property or services been provided for the private use of an employee, for example, free or discounted employer services or the use of hire cars and commercial vehicles that are not cars? See ¶10-100. 2. General ledger. Are separate general ledger accounts used to record any consideration received from employees for the use of employer property or the provision of employer services? 3. Exemptions. Do any of the concessions available for the use of commercial vehicles, access to child care facilities and transport concessions, etc, apply? See ¶10-200. 4. Employee contributions. Did the employee contribute towards the taxable value of the fringe benefit and is this amount separately identified in the general ledger to facilitate preparation of the FBT return? See ¶10-300. 5. Otherwise deductible rule. Would the residual benefit have been wholly or partly deductible if expenditure equal to the benefit had been incurred by the employee? See ¶10-420. 6. In-house residual benefits. The total of ALL in-house fringe benefits is subject to a reduction in taxable value of $1,000. See ¶13-140. 7. Declaration. Have residual fringe benefit declarations supporting reductions in taxable value for the current FBT year been obtained and filed? See ¶10-610 and ¶10-620. 8. Recurring residual fringe benefits declaration. Should this declaration be prepared by employees where the business/private proportions remain relatively constant? If “yes” this should be prepared and filed in the employer’s “permanent” FBT compliance file to support the taxable value calculations in current and future FBT returns. See ¶10-630. 9. No-private-use declaration. Where there is a defined and enforced policy of prohibiting private use of certain residual benefits, this declaration should be prepared. See ¶10-600. For example, if procedures in place prohibit the private use of vehicles that are not cars. See ¶10-210. 10. Summary. Has a schedule summarising the calculation of the taxable value of property fringe benefits provided to each employee been prepared? See Workpaper 5 at ¶10-640. 11. GST gross-up rate. May be Type 1 or Type 2 depending upon the use of property or services provided.

¶14-695 Appendix: Notice of non-lodgment

REPORTABLE FRINGE BENEFITS INTRODUCTION Roadmap of reportable fringe benefits

¶15-000

Individual fringe benefits and individual quasi-fringe benefits ¶15-010 Reporting requirement

¶15-020

Employer reporting

¶15-030

Reportable fringe benefits reconciliation

¶15-040

Employee consequences

¶15-050

Reportable fringe benefits flowchart

¶15-060

REPORTING REQUIREMENT Overview

¶15-100

Individual fringe benefits amount

¶15-110

Excluded fringe benefits

¶15-120

Apportionment of fringe benefits

¶15-130

Record-keeping exemption

¶15-140

Individual quasi-fringe benefits amount

¶15-150

Employers exempt due to s 57A or s 58

¶15-160

Fringe benefits tax return

¶15-170

Workpaper 1: Reportable fringe benefits amount

¶15-175

EMPLOYER REPORTING Overview

¶15-200

Taxable employers

¶15-210

Employers exempt due to s 57A or s 58

¶15-220

Payment summary

¶15-230

Misstatement of reportable fringe benefits

¶15-240

EMPLOYEE CONSEQUENCES Overview

¶15-300

Annual income tax return

¶15-310

Tax liabilities and government concessions

¶15-320

INTRODUCTION ¶15-000 Roadmap of reportable fringe benefits All employers, other than exempt employers, are required to report certain fringe benefits (¶15-010) if the total taxable value of fringe benefits provided to an employee exceeds $2,000 (¶15-020). Reportable fringe benefits for the FBT year are shown on the employee’s payment summary for the

income year ending 30 June (¶15-030). Employers should reconcile the total reportable fringe benefits provided to employees with the taxable value of fringe benefits shown on the FBT return (¶15-040). Employees must include the reportable fringe benefits amounts shown on all payment summaries in their personal income tax return (¶15-050). The flowchart at ¶15-060 provides a pictorial overview of the steps involved in determining and recording the reportable fringe benefits amount on the payment summary of each employee.

¶15-010 Individual fringe benefits and individual quasi-fringe benefits Both the individual fringe benefits amount and the individual quasi-fringe benefits amount are relevant in determining whether an employee has a reportable fringe benefit. The individual fringe benefits amount is the employee’s share of the taxable value of all fringe benefits provided during the FBT year less excluded fringe benefits. Example Michelle is provided with fringe benefits with the following taxable values: car fringe benefits ($5,000), car parking fringe benefits ($2,000) and expense payment fringe benefits ($1,000). The individual fringe benefits amount is $6,000 as the parking fringe benefits ($2,000) is an excluded fringe benefit.

The individual quasi-fringe benefits amount is the employee’s share of the taxable value of all quasi-fringe benefits provided during the FBT year less excluded fringe benefits. Quasi-fringe benefits are benefits that would be fringe benefits but for the exemptions from FBT in s 57A and 58. For example, the taxable value of all benefits provided to an employee of a registered public benevolent institution (PBI) qualifies for consideration as a reportable fringe benefit even though FBT may not be payable due to the capping threshold (¶15-160). Therefore, the above example is also applicable to these employers.

¶15-020 Reporting requirement An employee has a reportable fringe benefits amount if the sum of the following amounts for the FBT year exceeds $2,000: • individual fringe benefits amount, and • individual quasi-fringe benefits amount. Example An employee (Mark) is provided with expense payment fringe benefits with a taxable value of $2,000 during the FBT year by ABC Ltd. No other fringe benefits are provided and ABC Ltd is not subject to s 57A or s 58. ABC Ltd does not have a reportable fringe benefit for Mark because the individual fringe benefits amount ($2,000) does not exceed the threshold.

For more details, see ¶15-100 to ¶15-175.

¶15-030 Employer reporting If an employee has a reportable fringe benefits amount for the 2018 FBT year (¶15-020), the employer must: • gross-up this amount by 1.8868, and • show the grossed-up amount on the employee’s payment summary (1 July to 30 June).

Example: 2018 FBT year An employee (Joanne) is employed by a PBI and is provided with the following quasi-fringe benefits: car fringe benefits ($4,000), car parking fringe benefits ($1,500) and property fringe benefits ($1,000). Joanne’s individual quasi-fringe benefits amount is $5,000 as the car parking fringe benefits are excluded. The PBI shows a reportable fringe benefits amount on Joanne’s 30 June payment summary of $9,434 (ie $5,000 × 1.8868).

For more details, see ¶15-200 to ¶15-240.

¶15-040 Reportable fringe benefits reconciliation The taxable value of all fringe benefits, including those exempt due to s 57A, is required to be reported at Item 23 of the FBT return (¶14-010). Accordingly, reportable fringe benefits provided should be reconciled to the taxable value of benefits recorded on the FBT return. Note: Benefits exempt due to s 58 are not shown in the summary of fringe benefits provided by the employer (ie Item 23 of the FBT return) but are reportable fringe benefits (¶15-010). Accordingly, this different treatment needs to be taken into consideration when reconciling the FBT return and the total of all reportable fringe benefits provided to employees.

¶15-050 Employee consequences The total of reportable fringe benefits provided by all employers is required to be shown on the employee’s income tax return. This amount is taken into consideration when determining various income tax concessions and entitlement to certain government benefits. For more details, see ¶15-300 to ¶15-320.

¶15-060 Reportable fringe benefits flowchart The starting point for determining the reportable fringe benefits amount for the current income year (30 June) is the taxable value of benefits shown on the last FBT return (31 March).

REPORTING REQUIREMENT ¶15-100 Overview An employee of a taxable employer has a reportable fringe benefit if (s 135P(1)): • one or more fringe benefits are provided during the FBT year (1 April to 31 March), and • the individual fringe benefits amount (¶15-110) provided by the employer exceeds $2,000. From 1 April 2016, salary packaged meal entertainment and entertainment facility leasing expenses are reportable and are included in determining whether the $2,000 threshold is exceeded. Employers subject to a reduction in the amount of FBT payable due to s 57A or s 58 are required to include the individual quasi-fringe benefits amount when applying the above test (¶15-160). All employers must be able to substantiate how the taxable value of fringe benefits and quasi-fringe benefits have been allocated to each employee (¶15-130), including where an election has been made to apply the record-keeping exemption (¶15-140). Employers should also ensure that the sum of the individual fringe benefits and individual quasi-fringe benefits provided to all employees reconciles with the amounts shown on the FBT return (¶15-170).

¶15-110 Individual fringe benefits amount The individual fringe benefits amount is the sum of the employee’s share of the taxable value of each

fringe benefit other than excluded fringe benefits (s 5E(2)). The individual fringe benefits amount for an employee may be calculated as follows: Step 1: Prepare a summary of the taxable value of all fringe benefits received by the employee or an associate. Step 2: Determine the amount of any excluded fringe benefits (¶15-120). Step 3: Subtract Step 2 from Step 1. For some fringe benefits it will be necessary to determine the employee’s share of the taxable value of a single fringe benefit provided to more than one employee (¶15-130). Also, the above steps do not apply where the employer has elected to apply the small business record-keeping exemption (¶15-140). The following examples illustrate the determination of an employee’s individual fringe benefits amount. Example 1 During the 2018 FBT year, an employer (XYZ Pty Ltd) waives a debt of $2,500 that is owed by an employee (Angela) and therefore provides a debt waiver fringe benefit with a taxable value of $2,500. XYZ Pty Ltd did not provide any other fringe benefits to Angela during the year and therefore Angela has a reportable fringe benefits amount for the year of income ending on 30 June 2018.

Example 2 During the 2018 FBT year, an employer (ABC Pty Ltd) provided an employee (Neil) with a car fringe benefit with a taxable value using the statutory formula method of $2,000. ABC Pty Ltd did not provide any other fringe benefits to Neil during the FBT year and therefore Neil does not have a reportable fringe benefits amount for the income year ending 30 June 2018.

¶15-120 Excluded fringe benefits The following fringe benefits are specifically excluded from being reportable fringe benefits. Therefore they are not included when determining the individual fringe benefits amount (¶15-110) or the individual quasi-fringe benefits amount (¶15-150). Meal entertainment Meal entertainment (¶11-820) not provided under a salary packaging arrangement is an excluded fringe benefit whether provided by employers who make an election in accordance with Div 9A (¶11-800) or provided by way of an expense payment fringe benefit, property fringe benefit or residual fringe benefit (s 5E(3)(a)). Prior to 1 April 2016, meal entertainment was an excluded fringe benefit even if provided under a salary packaging arrangement. Car parking Car parking fringe benefits taxable under Div 10A (¶4-000) are an excluded fringe benefit. However, an expense payment fringe benefit (eg payment of an employee’s car parking) is not an excluded fringe benefit (s 5E(3)(b)). Pooled or shared cars A pooled car benefit is an excluded fringe benefit (FBTR reg 8). A “pooled car benefit” is: (i) a car benefit as described in s 7(1), that is car fringe benefit, or (ii) a car benefit as described in s 7(1) that would have been a car fringe benefit except that it is exempt, and (iii) the car benefit arises for more than one employee. Where the above requirements are satisfied, the car fringe benefit is an excluded fringe benefit in relation

to each employee provided with the car benefit. For example, if, in respect of the same car, the car benefit of one employee is a fringe benefit and the car benefit of the second employee is an exempt benefit, the car fringe benefit provided to the first employee is not a reportable fringe benefit. See ATO Interpretative Decisions ID 2008/20 (withdrawn) and ID 2008/21. The reporting exclusion will not apply where a car benefit is provided to one employee who, without the direction or consent of the employer, allows another employee to share the car. In this scenario, the ATO points out that the car benefit is only provided “in respect of the employment” of the first employee and therefore the exclusion cannot apply (NTLG FBT Sub-committee minutes — 15 November 2007). The reportable fringe benefits regime in Pt XIB does not contain any specific record-keeping obligations and the general record-keeping obligation is only relevant to the calculation of the employer’s FBT liability. However, the ATO has advised that employers must collect evidence to establish that a car benefit has arisen for more than one employee. For example, it would be sufficient if the employee who provides the employer with details of the number of kilometres travelled by the car to also confirm that the car was used by more than one employee for either private purposes or was parked overnight at the employee’s home in accordance with the employer’s written policy. The names of the employees engaged in the pooling of the car must be disclosed (NTLG FBT Sub-committee minutes — 12 November 2009 (Item 7)). Entertainment facility leasing expenses A fringe benefit whose taxable value is wholly or partly attributable to entertainment facility leasing expenses is an excluded fringe benefit except where it is provided under a salary packaging arrangement on or after 1 April 2016 (s 5E(3)(c)). “Entertainment facility leasing expenses” means expenses incurred in hiring or leasing corporate boxes, boats, planes and other premises or facilities for the purpose of providing entertainment. However, it does not include expenses attributable to the provision of food or drink or advertising expenses that are an allowable deduction under the ITAA 1936 or ITAA 1997 (¶5-370). Remote area concessions The taxable value of the following fringe benefits is an excluded fringe benefit: • Remote area residential fuel (s 5E(3)(e)). See ¶13-410. • Remote area housing (s 5E(3)(f)). See ¶13-420 to ¶13-460. • Amortised fringe benefit (s 5E(3)(g)). See ¶13-470. • Reducible fringe benefit (s 5E(3)(h)). See ¶13-480. • Occasional travel to a major population centre (s 5E(3)(j)). “Occasional” means two or three times a year (ATO Interpretative Decision ID 2009/24) and “major population centre” has the meaning in the Australian Bureau of Statistics, Year Book of Australia (NTLG FBT Sub-committee minutes — 12 May 2011 (Item 12)). See ¶13-490. • Freight costs for foodstuff (s 5E(3)(k)). Security risks A fringe benefit provided to address a security concern relating to the personal safety of an employee or an associate of the employee (eg death threat) that arises in respect of the employee’s employment is an excluded fringe benefit (s 5E(3)(l); 5E(6)). For example, residential burglar alarms, drive-by security patrols, personal bodyguards, personal protective equipment and protective modifications to a motor vehicle may qualify for this reporting exemption. To qualify: • the security concern must be in relation to the personal safety of an employee or an associate • the security concern must be in relation directly or indirectly to the employee’s employment

• an assessment of the security concern must be undertaken by a qualified person, and • the fringe benefit provided must be consistent with the above assessment. See ATO Fact Sheet, FBT reporting exclusion — personal security measures. Overseas health care costs Emergency and essential health care costs incurred by Australian resident employees or their associates who are also Australian residents are excluded fringe benefits. These costs must be paid or reimbursed while the employee is serving overseas and must not be covered by Medicare. See FBTR reg 5(2) and 5(3). Commonwealth overseas living allowance The payment of a Commonwealth overseas living allowance to an employee serving at an overseas post is an excluded fringe benefit to the extent that it includes any of the following amounts (FBTR reg 5(4)): (i) cost of living adjustment (ii) post adjustment (iii) child supplement (iv) child reunion supplement (v) 50% of the general adjustment. A “Commonwealth overseas living allowance” is a payment by the Commonwealth, a Commonwealth authority or a Commonwealth company to an employee serving at an overseas post (FBTR reg 5(6)). Defence Force personnel Certain fringe benefits provided to members of the Defence Force who are subject to the Defence Force Discipline Act 1982 and reside within the Commonwealth or any of its territories are excluded fringe benefits (FBTR reg 5(5)), eg a housing fringe benefit, rental assistance, education assistance for their children and travel assistance in particular circumstances. In addition, benefits provided to Australian Defence Force (ADF) members relating to the removal and storage of household effects as a result of relocations within the same locality, occurring at the direction of the Department of Defence, are excluded fringe benefits (FBTR reg 6). Externally marked emergency vehicles A car fringe benefit arising from the use of emergency vehicles for travel between home and work (including the site of an incident) is an excluded fringe benefit. Emergency vehicles are those used by an ambulance service, a firefighting service or a police service. However, only emergency vehicles that are marked as such on the exterior and are fitted with a flashing light and sirens (or similar device) qualify (FBTR reg 5(5A)). Police force or police service concessions A fringe benefit provided to a member of a police force or police service of the Commonwealth, a state or territory is an excluded fringe benefit in the circumstances indicated below (FBTR reg 7): • use by a police officer of a car that is garaged at the employee’s place of residence to enable the employee’s quick response to crime-related incidents where the car is fitted with a police radio and concealed or portable warning lights and siren • benefits associated with the removal or storage of household effects of police officers who are directed to change their residence by the police force or service that provides the benefit • housing benefits provided to police officers residing in housing that is attached to or adjacent to a police station

• housing rent paid or reimbursed for a unit of accommodation provided to a member of a police service whose usual place of residence is at least 100 km from an eligible urban area with a population of 130,000 or more • costs incidental to the purchase of a new dwelling (eg conveyancing costs) that occur because the officer is required to change their usual place of residence in order to perform work duties. The new dwelling must be acquired within four years after commencing their new duties. The meaning of “police service” is not defined in the FBTAA. However, s 4 of the Australian Federal Police Act 1979 provides that police services “includes services by way of the prevention of crime and the protection of persons from injury or death, and property from damage, whether arising from criminal acts or otherwise”. Also, “police support services” is defined in the same Act to mean: “services related to: (a) the provision of police services by an Australian or foreign law enforcement agency; or (b) the provision of services by an Australian or foreign intelligence or security agency; or (c) the provision of services by an Australian or foreign regulatory agency.” Accordingly, it would seem that the “police service” extends beyond police officers, police recruits and staff members as defined in, for example, s 2.2(1) of the Police Service Administration Act 1990 (Qld). LAFH benefit provided to Commonwealth employees Any of the following benefits provided on or after 1 October 2012 in relation to a Commonwealth employee is an excluded fringe benefit (FBTR reg 9): • a LAFH allowance under Div 7 (¶8-000), or • an expense payment benefit which is not exempt under s 21 (¶5-220) and relates to accommodation that is required solely because the duties of the person’s employment require the person to live away from the person’s normal residence, or • a residual benefit that is not exempt under s 47(5) (¶10-250) and relates to accommodation that is required solely because the duties of the person’s employment require the person to live away from the person’s normal residence. A “Commonwealth employee” is an employee of the Commonwealth (FBTR reg 9(3)), and therefore benefits provided to defence force members and Commonwealth police officers are exempt from being reportable fringe benefits. The reporting exemption applies to a LAFH allowance benefit under Div 7 which generally includes both an accommodation component and a food component (¶8-300). It also extends to accommodation provided by a Commonwealth government employer as an expense payment benefit or residual benefit. However, it does not include the food component of a LAFH benefit provided as an expense payment or property benefit under s 63 (¶13-620).

¶15-130 Apportionment of fringe benefits Unless an employer has elected to apply the small business record-keeping exemption (¶15-140), it will be necessary to apportion some fringe benefits between two or more employees to determine the individual fringe benefits amount or individual quasi-fringe benefits amount. The method of working out an employee’s share of the taxable value of a fringe benefit (s 5F) is summarised below. Individual benefits Where a fringe benefit is provided wholly to one employee the taxable value is allocated fully to that employee.

Example A director of a company is reimbursed for the education expenses of a child. The expense payment is a fringe benefit provided to a single employee and no other employee benefits from the payment. The director’s share of the expense payment fringe benefit is 100%.

Individually-valued shared benefits Where a fringe benefit is provided to more than one employee, the employer must apportion the taxable value on a basis that reasonably reflects the amount of the benefit received by each employee. Example Two employees are rewarded with an all-expenses-paid overseas holiday package for their joint efforts in streamlining back office accounting workflows. The holiday package is for two people and cannot be taken as two single holidays and has a taxable value of $5,000. In this circumstance, it would be reasonable for the employer to allocate the taxable value between the employees on a 50/50 split basis. Therefore, each employee’s share is $2,500.

However, it may not always be reasonable for the employer to apportion the taxable value equally based on the number of recipients. Accordingly, in other circumstances, the employer would be required to take into consideration other matters such as usage of the benefit. Example An employer allows employees to use a company-owned residential property located in a holiday resort area. Employees pay a nominal rent and use the property for varying periods throughout the year. The employer determines the taxable value of the property fringe benefits provided to employees based on the market value of the accommodation during the periods of use. In this circumstance, it would be reasonable to apportion the taxable value based on the periods of use by each employee.

Benefits valued in aggregate Where the taxable value of a fringe benefit is worked out using a single calculation, the employee’s share is so much of the total taxable value as is reasonably attributable to the employee after taking into account any relevant matters. Car fringe benefits are an example of a fringe benefit with a single calculation. However, a pooled car is not a reportable fringe benefit and therefore the taxable value is not required to be apportioned between employees (¶15-120). Methodology used Employers need to ensure that they maintain adequate records detailing the allocation of fringe benefits to avoid disputes with employees about the amount shown on employees’ payment summaries (¶15-230). Also, regardless of the method of apportioning fringe benefits between employees, the sum of each employee’s share of the taxable value must equal the taxable value of the fringe benefit.

¶15-140 Record-keeping exemption An employer required to lodge an FBT return may elect to determine the FBT liability using the aggregate fringe benefits amount for the employer’s most recent base year (¶2-740). Where an employer makes this election and one or more fringe benefits are provided to an employee during the year, the employee’s individual fringe benefits amount is determined by the employer in writing (s 5E(4)). Also, when the employer makes this determination the employer must ensure that (s 5E(5)): (i) the total of the individual fringe benefits amounts equals the aggregate fringe benefits amount used for working out the employer’s FBT liability for that base year, and (ii) where there is more than one employee in receipt of fringe benefits, the determination is reasonable

having regard to the fringe benefits provided to each employee. Accordingly, there is no requirement that the aggregate fringe benefits amount be reduced by the amount of excluded fringe benefits when determining the individual fringe benefits amount. Example Assume the aggregate fringe benefits amount applicable to an employer’s base year is $4,000, of which $1,000 is related to car parking — an excluded fringe benefit. Assume also that there is only one employee and the FBT rate is 47%. The employer would calculate the employer’s fringe benefits taxable amount as simply:

The amount of FBT payable by the employer is $7,547 × 47% = $3,547.09. With respect to the employee’s individual fringe benefits amount, the employer would need to make a written determination indicating that $4,000 had been provided to the employee (ie the entire aggregate fringe benefits amount must be allocated). The amount that would be included on the employee’s payment summary would be the grossed-up value of the benefits, being $7,547 (which includes an excluded fringe benefit).

¶15-150 Individual quasi-fringe benefits amount The individual quasi-fringe benefits amount is the sum of the employee’s share of the taxable value of each quasi-fringe benefit other than excluded fringe benefits (s 135Q(3)). The individual quasi-fringe benefits amount for an employee may be calculated as follows: Step 1: Prepare a summary of the taxable value of all quasi-fringe benefits received by the employee or an associate. Step 2: Determine the amount of any excluded fringe benefits (¶15-120). Step 3: Subtract Step 2 from Step 1 (¶15-130). For some quasi-fringe benefits, it will be necessary to determine the employee’s share of the taxable value of a single fringe benefit provided to more than one employee (¶15-130). Quasi-fringe benefits are benefits provided by certain organisations and by certain employers in respect of live-in residential care workers (¶15-160). These employers, although exempt from FBT on all or some of the benefits provided to employees, are still required to maintain supporting records of the taxable value of fringe benefits provided to employees.

¶15-160 Employers exempt due to s 57A or s 58 An employee of an employer exempt from FBT due to s 57A or s 58 has a reportable fringe benefits amount if (s 135Q(2)): • one or more benefits are provided during the FBT year, and • the sum of the individual fringe benefits amount (¶15-110) and individual quasi-fringe benefits amount (¶15-150) provided by the employer exceeds $2,000. Section 57A employers All benefits provided to employees by PBIs, government bodies employing hospital staff, ambulance services, non-profit hospitals and registered health promotion charities are exempt from FBT due to s 57A. However, there are caps on the amount of benefits provided to employees that are exempt from the

payment of FBT. For the 2018 FBT year, the relevant caps are $17,000 and $30,000 (¶14-400; ¶14-435). Live-in residential care workers Where an employer is a government body, a registered religious institution, or a certain type of non-profit company, and the employer’s activities include caring for elderly or disadvantaged persons (s 58), the following benefits provided to employees are exempt: • live-in accommodation provided by the employer • any form of fuel (including electricity) used for domestic purposes and provided in connection with the live-in accommodation • meals provided on the residential premises of the employer, and • food or drink (other than meals) for consumption on the residential premises of the employer, eg morning and afternoon tea. However, the exemption only applies if certain additional conditions are satisfied. In particular, the employee’s duties must principally consist of caring for elderly or disadvantaged persons and the employee must be required to live-in with such persons in order to care for them (¶12-720).

¶15-170 Fringe benefits tax return The starting point for determining the individual fringe benefits amount (¶15-110) and the individual quasifringe benefits amount (¶15-150) is the employer’s FBT return for the year ending 31 March. This is because Item 23 of the FBT return, which contains details of all fringe benefits provided, must be completed by all employers (¶14-000). The following example illustrates the calculation of the individual fringe benefits amount for Joe Joseph who is employed by ABC Pty Ltd (not subject to s 57A or s 58). Example Joe Joseph salary packages his car, car parking, laptop computer, superannuation contributions and private health insurance. Other benefits provided during the FBT year ending 31 March 2018 are food and drink at a staff Christmas party, use of his employer’s corporate box at a football venue and reimbursement of tickets to several sporting events.

Benefits Car (car benefit)

Taxable value 10,000

Car parking (Div 9A car parking benefit)

3,000

Car parking (expense payment benefit)

500

Laptop computer (expense payment benefit)

Nil

Superannuation contributions (residual benefit)

Nil

Christmas party — food and drink (residual benefit)

Nil

Corporate box — used by all employees (residual benefit)

1,000

Tickets to sporting events (residual benefit)

600

Reimbursement of restaurant meals (expense payment benefit)

500

Private health insurance (expense payment benefit)

    400

   Taxable value

$16,000

Less: excluded fringe benefits: Car parking

(3,000)

Corporate box

(1,000)

Meal entertainment

   (500)

   Individual fringe benefits amount

$11,500

Gross-up

 1.8868

   Reportable fringe benefit

$21,698

Note: It is assumed that the Christmas party is a minor benefit (¶12-100) and the laptop is an eligible work-related item (¶12-120). The superannuation contributions are not a fringe benefit (¶2-150).

In the above example, the individual fringe benefits amount calculated for Joe Joseph ($11,500) clearly exceeds the $2,000 threshold and therefore Joe has a reportable fringe benefit of $21,698. In addition to calculating the individual fringe benefits amount for Joe Joseph, ABC Pty Ltd needs to substantiate that all individual fringe benefits have been considered and that the total of these amounts reconciles with the amounts shown on the 2018 FBT return. Workpaper 1 (¶15-175) is provided to illustrate the overall reconciliation of reportable fringe benefits to the FBT return workpaper at ¶14-150. Workpaper 1 is prepared for each employee. Note: All s 57A employers will have a quasi-fringe benefits amount; however, a government body, registered religious institution and certain non-profit companies employing live-in residential care workers may also have an individual fringe benefits amount. Also, if Joe Joseph had been employed by a registered health promotion charity (s 57A employer) or a registered religious institution (s 58 employer) the reportable fringe benefit of $21,698 would have been the same.

AFB ¶67-000 to ¶67-470; AFT ¶800-280, ¶800-290, ¶832-160.

¶15-175 Workpaper 1: Reportable fringe benefits amount

EMPLOYER REPORTING ¶15-200 Overview Where an employee has a reportable fringe benefits amount, both a taxable employer (¶15-210) and certain exempt employers (¶15-220) must include this amount on the employee’s payment summary (¶15-230). Employers generally advise employees of how the reportable fringe benefit has been calculated and need to ensure the amount they have determined is accurate (¶15-240).

¶15-210 Taxable employers The following treatment applies to both taxable employers (¶14-200) and those employers entitled to a rebate of tax (¶14-300). If the individual fringe benefits amount (¶15-110) provided to an employee by any one employer is greater than $2,000, this amount is grossed-up using the following formula (s 135P(2)): Individual fringe benefits amount

×

      1        1 − Rate of tax for the year 

Example Tuan is employed by Ms Chan in a beauty salon. On 15 April 2017, Ms Chan buys Tuan a $4,000 necklace as a reward for all her hard work over the Christmas/New Year period. Ms Chan does not provide any other fringe benefits to Tuan. Tuan has a fringe benefit with a taxable value of $4,000 for the FBT year ending on 31 March 2018. As the individual fringe benefits amount for the FBT year exceeds $2,000, Tuan has a reportable fringe benefits amount for the year of income ending 30 June 2018 in respect of her employment with Ms Chan. The reportable fringe benefits amount that Ms Chan will have to include on Tuan’s payment summary is:

$4,000   ×

  1    1 − 0.47

= $4,000 × 1.8868 = $7,547

When determining the individual fringe benefits amount, all fringe benefits other than excluded fringe benefits need to be totalled. For example, a car fringe benefit plus a debt waiver fringe benefit plus a home mortgage fringe benefit. If this total is greater than $2,000, then this amount must be grossed-up as illustrated above and disclosed on the employee’s payment summary. Alternatively, if the total individual fringe benefits amount is no more than $2,000, then no amount is reported on the employee’s payment summary.

¶15-220 Employers exempt due to s 57A or s 58 If the sum of the individual fringe benefits amount and the individual quasi-fringe benefits amount provided to an employee by certain employers (¶15-160) is greater than $2,000, this amount is grossedup using the following formula (s 135Q(4)):

It should be noted that an employee of a s 57A employer will not have an individual fringe benefits amount because all benefits provided in respect of employment by that employer are exempt benefits.

Example In the FBT year ended 31 March 2018, a PBI (a s 57A employer) provides one of its employees, Andrew, with various fringe benefits that have a combined taxable value of $18,000. Andrew will have an individual fringe benefits amount of nil and a quasi-fringe benefits amount of $18,000. As the sum of these amounts is greater than $2,000, Andrew’s employer will have to report the grossed-up amount ($33,962) on Andrew’s payment summary for the year ended 30 June 2018.

However, an employee of an employer exempt from FBT due to s 58 may have both an individual fringe benefits amount and individual quasi-fringe benefits amount as illustrated in the example below. Example In the FBT year ended 31 March 2018, Danielle, a live-in residential care worker employed by the registered religious institution God’s Gift, received a car fringe benefit with a taxable value of $15,000. She also received accommodation fringe benefits with a taxable value of $5,000 and residential fuel fringe benefits with a taxable value of $2,000. Danielle will have an individual fringe benefits amount of $15,000 as the car fringe benefit is not an exempt benefit. She will also have an individual quasi-fringe benefits amount of $7,000 as both accommodation fringe benefits and residential fuel fringe benefits are exempt. As the sum of these amounts is greater than $2,000, Danielle will have a reportable fringe benefits amount of:

($15,000  +  $7,000)    ×

  1   1 − 0.47

= $22,000 × 1.8868 = $41,509 God’s Gift will have to report this amount on Danielle’s payment summary for the year ended 30 June 2018.

¶15-230 Payment summary Employers are required to show the reportable fringe benefits amount on the annual payment summary for each employee. All employers are required to provide a payment summary to each of their employees no later than 14 July (TAA 1953 s 16-155(1)(c)). However, if an employee ceases employment between 1 April and 30 June in a particular financial year, the payment summary is not required to be issued until 14 days after the end of the subsequent income year (TAA 1953 s 16-160(2)). Example Anna ceases employment with her employer (ABC Ltd) on 15 May 2018. Anna has a reportable fringe benefits amount of $7,477 for the 2018 FBT year and $4,486 for the period between 1 April 2018 and 15 May 2018. ABC Ltd is required to give Anna a 30 June 2018 payment summary that includes the reportable fringe benefits amount for the 2018 FBT year ($7,477) no later than 14 July 2018. ABC Ltd is required to give Anna a 30 June 2019 payment summary that includes the reportable fringe benefits amount for the 2019 FBT year ($4,486) no later than 14 July 2019.

There is no legislative requirement for employers to provide employees with a breakdown of the reportable benefits amount shown on their payment summary (TAA 1953 s 16-170). However, employers may choose to advise employees of how the reportable fringe benefits amount has been calculated to avoid disputes about the amount shown on the payment summary after it has been issued.

¶15-240 Misstatement of reportable fringe benefits If an employer has over or understated the amount of the reportable fringe benefits on a payment summary issued to an employee for an income year, a penalty of 20 penalty units may be payable (TAA 1953 s 16-175). However, this obligation imposed on employers to precisely allocate to employees their

share of fringe benefits provided during an FBT year has been ameliorated. The Commissioner has said that he will accept an understatement of up to $195 in the reportable fringe benefits amount on an employee’s payment summary — provided the understatement was not deliberate. However, if there is an understatement of more than $195, or if the Commissioner does not accept that the understatement was not deliberate, the employer may be prosecuted for failing to comply with its obligations (ATO Fringe benefits tax — a guide for employers, Chap 5.9; Practice Statement PS LA 2002/7 (withdrawn)). AFB ¶67-500 to ¶67-575; AFT ¶832-110, ¶832-140, ¶832-160, ¶976-883.

EMPLOYEE CONSEQUENCES ¶15-300 Overview The total of reportable fringe benefits provided to an employee by various employers is required to be shown on the employee’s annual income tax return (¶15-310). This amount does not form part of the calculation of the employee’s taxable income, but it may affect other tax obligations and government concessions (¶15-320).

¶15-310 Annual income tax return The reportable fringe benefits total must be shown by employees on their annual income tax return. The reportable fringe benefits total is the sum of each of the employee’s reportable fringe benefits amounts for the year of income in respect of the employee’s employment (s 135N). This amount must be shown on the employee’s income tax return as illustrated below. Example Edsel is employed by ABC Pty Ltd and works part-time for XYZ Pty Ltd. Edsel has a reportable fringe benefits amount of $21,698 for the 2018 FBT year from employment with ABC Pty Ltd (see ¶15-170 for calculation). He also has a reportable fringe benefits amount of $20,000 for the 2018 FBT year from his employment with XYZ Pty Ltd. Edsel’s reportable fringe benefits total to be shown in his 30 June 2018 income tax return is therefore:

$21,698 + $20,000 = $41,698

¶15-320 Tax liabilities and government concessions The reporting of fringe benefits amounts on payment summaries is aimed at ensuring that those benefits are taken into account when applying various government income tests to ensure that government benefits are provided to those individuals who need them. Reportable fringe benefits are taken into account for the purpose of: • Medicare levy surcharge • family tax benefit • child care benefit • parental income test for the youth allowance • deductions for personal superannuation contributions • tax offset for eligible spouse superannuation contributions • superannuation co-contribution

• child support obligations • Higher Education Loan Program (HELP) repayments, and • mature age worker tax offset. Medicare levy surcharge Reportable fringe benefits are included when calculating the Medicare levy surcharge but not the Medicare levy. The Medicare levy surcharge is imposed on a taxpayer’s taxable income by Medicare Levy Act 1986 s 8B to 8D and on reportable fringe benefits by the A New Tax System (Medicare Levy Surcharge — Fringe Benefits) Act 1999. Personal superannuation contributions Reportable fringe benefits may preclude taxpayers from claiming a deduction for personal superannuation contributions (ITAA 1997 s 290-160). Government superannuation co-contribution Reportable fringe benefits are taken into consideration when determining a taxpayer’s eligibility for the government co-contribution for personal superannuation contributions made on or after 1 July 2003. See the Superannuation (Government Co-contribution for Low Income Earners) Act 2003. Spouse superannuation tax offset The reportable fringe benefits of a spouse are taken into consideration when determining whether a taxpayer is entitled to the spouse superannuation contributions tax offset (ITAA 1997 s 290-230). Family assistance Reportable fringe benefits are included when determining a taxpayer’s eligibility for family assistance payments contained in A New Tax System (Family Assistance) Act 1999. Compulsory HELP and SFSS repayments Reportable fringe benefits are included when determining a taxpayer’s liability to make a loan repayment under the Higher Education Loan Program (HELP) or Student Financial Supplement Scheme (SFSS). AFB ¶67-600 to ¶67-690; AFT ¶832-110, ¶832-120, ¶832-140, ¶832-160, ¶976-883.

SALARY PACKAGING INTRODUCTION Overview

¶16-000

What is salary packaging?

¶16-010

Employer considerations

¶16-020

Employee considerations

¶16-030

Total employment cost

¶16-040

Effective salary sacrificing arrangements

¶16-050

What benefits can be salary sacrificed?

¶16-060

Valuing salary sacrificed benefits

¶16-070

Interaction of FBT and income tax

¶16-080

Salary packaging documentation

¶16-090

TAXABLE FRINGE BENEFITS Overview

¶16-100

Cars (motor vehicles)

¶16-110

Luxury cars

¶16-120

Novated leases

¶16-130

Associate leases

¶16-140

Car parking

¶16-150

Loans

¶16-160

Living-away-from-home allowances

¶16-170

Meal entertainment — taxable employers

¶16-190

EXCLUDED BENEFITS Overview

¶16-300

Employer superannuation contributions

¶16-310

Employee share schemes

¶16-350

Employee share trusts

¶16-360

EXEMPT BENEFITS Overview

¶16-400

Portable electronic devices

¶16-410

Long service awards

¶16-420

Travel to and from work

¶16-430

Frequent flyer benefits

¶16-440

In-house child care facilities

¶16-450

Meal entertainment — s 57A employers

¶16-460

Other exempt benefits

¶16-470

REDUCTIONS IN TAXABLE VALUE Overview

¶16-500

“Otherwise deductible” rule

¶16-510

Employee contributions

¶16-520

In-house fringe benefits

¶16-530

Remote area benefits

¶16-540

Expatriates and visiting overseas employees ¶16-550 EXEMPT & REBATABLE EMPLOYERS Overview

¶16-600

Section 57A employers

¶16-610

Rebatable employers

¶16-650

INTRODUCTION ¶16-000 Overview This chapter provides an overview of the features of salary packaging. It is organised according to whether the salary packaged item is a fringe benefit (¶16-100), excluded benefit (¶16-300), exempt benefit (¶16-400) or subject to a reduction in taxable value (¶16-500). Exempt and rebatable employers are considered separately (¶16-600). Salary packaging provides benefits to both employers (¶16-020) and employees (¶16-030). Employers need a system of measuring the total cost of employee remuneration (¶16-040). They must: • be aware of the interaction of FBT and income tax laws (¶16-080) • ensure that the benefit component is tax-effective (¶16-050), and • maintain appropriate documentation (¶16-090). Not all benefits can be salary packaged (¶16-060) and the amount of the after-tax advantage of an effective salary sacrifice arrangement varies according to the FBT category of the benefit provided (¶16070). The examples in this chapter relate to the 2017/18 FBT year.

¶16-010 What is salary packaging? Salary packaging is an arrangement whereby the employee’s total monetary remuneration for performing employment duties is taken in the form of cash and benefits instead of being paid wholly in the form of salary or wages. This procedure is called “salary sacrifice” because the employee sacrifices some part of what would otherwise have been paid as assessable income in return for certain selected benefits. A definition of a “salary packaging arrangement” is now contained in s 136(1) because the expression is used in various places in the FBTAA (¶9-396). Salary packaging used to be a popular strategy for reducing taxable income in order to minimise exposure to surcharges and levies, including the Medicare levy surcharge and child support payments. However, fringe benefits are now reported on employees’ payment summaries (¶15-200) and are taken into account in determining an employee’s liability for the Medicare levy surcharge and eligibility for certain tax concessions and government benefits (¶15-320).

As a consequence of the above changes, salary packaging is now primarily used as a means to maximise the net take-home pay of employees by taking advantage of exempt and concessionally taxed benefits. It may be particularly beneficial for employees of charities and certain concessional employers (¶16-600).

¶16-020 Employer considerations Salary packaging is offered by employers to attract employees and serve as incentives to fully embrace business and corporate goals. However, there can be significant administrative costs in establishing and maintaining a remuneration policy that includes the provision of employee benefits. Therefore, some employers may choose to offer only limited forms of packaging (such as offering only a car or superannuation contributions), limiting packaging to particular groups of employees (such as executives), offering only small benefits (such as computers), charging an administration fee or limiting the benefits to items that provide a specific incentive. The extent to which packaging can be used may be limited by industrial awards or employment agreements. Also, employers need to ensure that their salary sacrifice procedures comply with the Commissioner’s guidelines in Taxation Ruling TR 2001/10 to ensure their effectiveness for tax purposes (¶16-050).

¶16-030 Employee considerations Salary packaging is welcomed by employees to the extent that the salary sacrifice arrangement provides an after-tax cash saving and the benefits that may be substituted for salary or wages are useful. However, whether a particular salary package provides an after-tax cash saving is dependent upon the costing method adopted by the employer (¶16-040) and the FBT characteristics of the benefits included in the salary package (¶16-060). Other benefits of salary packaging from the employee’s perspective may include one or more of the following: • The financial burden of acquiring the item lies with the employer, not the employee. • The employer may be able to acquire the item at a lower cost than the employee. • The amount charged to the employee’s package is the GST-exclusive amount where the employer is registered for GST. Accordingly, the employee effectively obtains a discount on the purchase price of the benefit provided if no FBT is payable on the benefit. • The employee obtains a cash flow timing advantage by not having to wait until the end of the year to obtain a tax refund for deductible expenditure (¶16-510).

¶16-040 Total employment cost It is important for both employers and employees to understand how the value of the salary package and therefore the total cost to the business is calculated. Accordingly, employers need to have a consistent approach to costing and communicating the value of salary and benefits provided to employees. Many employers in Australia adopt an approach known as “total employment cost” or “total remuneration cost”. In broad terms, the total employment cost for any particular employee (or job category) is calculated by adding up the total of: • the gross salary or wages • the cost of the benefits provided, and • any FBT payable. Accordingly, the total employment cost will include employer superannuation contributions but other oncosts such as payroll tax, workers compensation and other levies and charges are not necessarily included. These costs are generally considered by both parties to be costs arising from the business activity of the employer rather than part of the remuneration of the employee.

The total employment cost provides the foundation on which a package can be created by establishing an overall amount from which the cost of individual reward elements can be deducted. For example, an employee may be given the choice of making up the total employment cost in a number of ways, depending on the benefits desired. Each benefit will have its own cost for the purposes of the total employment cost and is increased if FBT is payable. If the benefit is not subject to FBT, or is entitled to concessional FBT treatment, the cost will be lower than if the benefit is fully taxed.

¶16-050 Effective salary sacrificing arrangements A “salary sacrifice arrangement” (SSA) means an arrangement under which an employee agrees to forego part of the total remuneration that they would otherwise expect to receive as salary or wages in return for the employer or an associate of the employer providing benefits of a similar value. The main assumption made by the parties is that the employee is then taxed under the income tax laws only on the reduced salary or wages and that the employer is liable to pay FBT, if any, on the benefits provided. Importantly, as an SSA involves the substitution of benefits for amounts that would otherwise have been derived as salary or wages, the parties must be aware that the tax consequences will vary according to whether the arrangement is “effective”. The ATO has taken the position in Taxation Ruling TR 2001/10 that an SSA will be effective where the benefit is negotiated before the employee has earned the entitlement to receive the relevant amount as salary or wages. That is, if the remuneration that is forgone is that which the employee has already earned, the SSA is ineffective. A summary of the tax consequences is set out below. Benefits provided to an employee under an effective SSA: • are not assessable to the employee • are not subject to PAYG withholding • are subject to FBT (with some exceptions) • where the benefits are employer superannuation contributions to complying superannuation funds, they qualify as employer contributions for superannuation guarantee (SG) purposes, and the employer may be entitled to a tax deduction for the contributions. Benefits provided to an employee under ineffective SSAs: • are derived as salary or wages and are assessable to the employee (ITAA 1997 s 6-5; 6-10) • are subject to PAYG withholding • are not subject to FBT • where the benefits are superannuation contributions, they do not represent employer contributions for SG purposes; the contributions are considered as member contributions of the employee and the employer is usually not entitled to a tax deduction for the contributions. For example, in the case of bonuses, the provision of the benefit will need to be negotiated before the employee has earned the entitlement to receive the bonus. Dealing with an entitlement to take leave that has already accrued will be an ineffective SSA. The exchange of an entitlement to take leave for another benefit will cause the entitlement to be paid as salary or wages and to be derived as ordinary income. However, the taking of leave that accrued before the commencement of an SSA will not cause the SSA to be ineffective. The ATO has also provided further information in its fact sheet Salary sacrifice arrangements for employees (available at www.ato.gov.au).

Example 1: Effective salary sacrifice arrangement Megan receives a salary of $130,000 per annum. Under her employer’s discretionary bonus scheme, Megan is required to elect annually whether she wishes to have her bonus, if any, deposited to her bank account as salary or paid to her superannuation fund as employer superannuation contributions. On 1 June 2017, Megan submits a form electing to have any bonus for that (calendar) year contributed to her superannuation fund. On 15 July 2017, the employer decides that Megan is entitled to a bonus of $5,000, which it subsequently contributes to Megan’s superannuation fund. This will be an effective salary sacrifice arrangement, provided the bonus was not earned until the employer decided that Megan was entitled to it and the salary sacrifice arrangement was put in place before that event occurred. The bonus amount is not assessable income for Megan and will be treated as an employer superannuation contribution with 15% tax deducted within the fund. Note that employer superannuation contributions are concessional contributions (ITAA 1997 s 291-25; 291-165). An employee should take care to ensure that their concessional contributions cap for a year is not inadvertently exceeded as a result of sacrificing a future bonus the amount of which is not known at the time of the SSA as this may result in additional tax for the employee.

Example 2: Ineffective salary sacrifice arrangement James receives a salary of $130,000 per annum. He is advised that his entitlement under his employer’s annual bonus scheme is $8,000. He is given a choice to have the bonus paid into his bank account, contributed to superannuation or receive the equivalent value of units in a unit trust that is managed by his employer. He elects to receive units in the unit trust. This will be an ineffective salary sacrifice arrangement as James did not forego his entitlement to the income before that entitlement arose. He merely advised his employer how the bonus entitlement should be applied. The bonus is assessable income under ITAA 1997 s 6-5(4). The units are not a fringe benefit, but are treated as having been purchased by James. The agreement would similarly have been ineffective if he chose to have the amount contributed to superannuation. The bonus would be assessable income and the amount would be contributed as James’s personal superannuation contribution. Note that an employee’s personal contributions may be concessional contributions or non-concessional contributions (ITAA 1997 s 292-90). These contributions are counted against the relevant contributions cap for the year (¶16-310).

¶16-060 What benefits can be salary sacrificed? The benefits that may be provided to an employee as part of their salary package are: 1. fully taxed fringe benefits 2. concessionally taxed fringe benefits 3. exempt fringe benefits, and 4. excluded benefits. Each of the above categories, including benefits that cannot be salary packaged, is explained below. Fully taxed fringe benefits These are fringe benefits where the FBT taxable value of the benefit is the same as the monetary amount of the benefit. For example, private expenditure such as the purchase of household furniture or the reimbursement of a residential mortgage loan payment in respect of the employee’s home. This type of benefit provides no financial advantage to the employee other than possibly a saving of transaction costs and convenience, unless the benefit is provided by an employer that is entitled to an FBT exemption or rebate (¶16-600). If the employee’s marginal income tax and Medicare levy is less than the top 47% rate, fully taxed fringe benefits will result in excessive tax being paid, as the FBT cost (47% for the 2018 FBT year) will be greater than the employee’s income tax savings. Concessionally taxed fringe benefits These are fringe benefits where the FBT taxable value of the benefit is less than the monetary amount of the benefit. This may be due to the method of calculating the taxable value of the benefit such as car fringe benefits where the statutory formula method is used (¶16-100). Alternatively, this may be due to concession which allows the taxable value to be reduced. For example, where the “otherwise deductible” rule can be used or where an employee contribution can be made towards the taxable value of the benefit

(¶16-500). Concessionally taxed benefits generally provide a financial advantage for an employee on the top 47% income tax rate (including Medicare levy). They may also be financially advantageous for employees with lower marginal income tax rates, depending on the circumstances. Potential tax savings will be further enhanced if the employer is entitled to an FBT exemption or is a rebatable employer (¶16-600). Exempt fringe benefits These are benefits that are subject to a specific or general exemption from FBT. The most popular of these for salary packaging purposes are exempt work-related equipment and tools, such as portable computers, mobile phones, electronic organisers and PDAs (¶16-400). Because there is no FBT payable and the employer will generally qualify for GST input tax credits, these will be attractive to most employees if they are planning to purchase such items for themselves. The exemption for eligible work-related items in s 58X is available only where the item is used primarily for work purposes (based on intended use at the time, not actual use, but a reasonable basis for the claim is required). Excluded benefits These are benefits that are specifically excluded from the “fringe benefit” definition in the FBTAA and therefore are outside the FBT regime (¶16-300). Common examples are employer superannuation contributions and benefits under eligible employee share schemes. Superannuation contributions are a particularly popular salary packaging component due to their favourable income tax treatment and ease of administration (¶16-310). Employee share schemes are difficult to administer in a salary packaging context, and are more likely to be offered as a separate program, if at all (¶16-350). Benefits that cannot be salary packaged Generally, the above types of benefit can be salary packaged unless there is a prohibition in the FBTAA that effectively precludes the benefit from being the subject of an SSA. For example, minor benefits (¶12100) and work-related counselling (¶12-630) cannot be provided by way of a reward for services and therefore cannot be salary packaged.

¶16-070 Valuing salary sacrificed benefits The following tables illustrate the financial impact of sacrificing salary in return for the various types of benefits discussed at ¶16-060, assuming that the employer is not an exempt or rebatable employer (¶16600) for FBT purposes. Salary package cost Table 1 below illustrates the charge that would be made to an employee’s salary package for the different types of benefit that may be provided by an employer. This is based on FBT rates for the 2018 FBT year and marginal tax rates for the 2017/18 income year. Table 1: Salary forgone by packaging benefit Fully taxed benefit Benefit

Concessionally taxed benefit

Exempt benefit

Excluded benefit

$1,000 mortgage Car benefit: lease payment and running costs totalling $11,000 (car valued at $30,000 using the statutory formula method)

Laptop computer costing $3,300 (including GST), primarily for use in the employee’s employment

$10,000 superannuation contribution (net value is $8,500 after $1,500 contributions tax is deducted in the fund — this assumes the 15% additional tax for salary earners with income

over $250,000 does not apply) Taxable value of benefit FBT calculation

$30,000 × 20% = $6,000

$1,000

$1,000 × 1.8868* $6,000 × 2.0802** × × 47% 47%

Nil

Nil

–

–

FBT

 $887

 $5,866

Nil

Nil

Benefit cost

$1,000

$10,000**

$3,000**

$10,000

Charge against package

$1,887

$15,866

$3,000**

$10,000

 * Assuming no input tax credit is available in respect of the mortgage. ** Assuming an input tax credit is available. Pre-tax advantage Table 2 below shows the amount of before-tax salary that an employee on the top marginal tax rate (47% including the Medicare levy) would have to earn to acquire the benefits mentioned in Table 1. Where the amount of charge against the salary package (Table 1) is less than the before-tax salary required to fund the benefit (Table 2), the employee would be better off packaging the benefit than buying it with after-tax income. Table 2: Pre-tax advantage from packaging Fully taxed benefit

Concessionally taxed benefit

Exempt benefit

Excluded benefit

Before-tax salary required at 47% tax

$1,887

$20,755

$6,226 

$16,038

Less: tax of 47%

  $887

 $9,755

 $2,926*

$7,538

After-tax salary available to acquire the benefit

$1,000

$11,000

$3,300 

$8,500

Pre-tax advantage to employee

$0

$4,889

$3,226

$6,038

Percent advantage v salary forgone

0%

31%

108%

60%

* Assuming that the employee is not entitled to a deduction for the laptop computer.

It should be noted that the above tables are illustrative only, and the advantage from packaging (if any) needs to be calculated according to the particular circumstances of the employee and the benefits concerned. For example, the results will be different for employees with different marginal tax rates, for concessionally taxed benefits with different characteristics, for benefits that are partly used for deductible purposes (¶16-510) and in circumstances where the employee contributes toward the cost of a benefit (¶16-520).

¶16-080 Interaction of FBT and income tax The relationship between FBT and income tax can sometimes be complex, but can generally be summarised in the following rules (¶2-030):

• in general, if an item is subject to FBT it will not be subject to income tax. (This also applies to items that are specifically exempted from FBT) • although the marginal income tax rate for most employees is less than the 47% FBT rate, they may still save tax by packaging concessionally taxed fringe benefits such as motor vehicles. They can increase their savings further by making an after-tax contribution (recipient’s payment) toward the cost of a concessionally taxed fringe benefit (¶16-520) • in general, employees who are exempt from tax on their salaries will also be exempt from FBT on their fringe benefits (this may apply, for example, to certain expatriates) (¶16-550) • if an employee receives an allowance, the allowance will generally be treated as part of salary or wages, and will therefore be subject to income tax. On the other hand, if the employee is reimbursed for personal expenditure, the reimbursement is generally subject to FBT. To the extent that the expenses would have been deductible if incurred by the employee, the taxable value of the benefit will be reduced (¶16-510) • the employee cannot convert salary to a fringe benefit after it has been earned by simply directing that the salary be used to provide a benefit. The salary will remain subject to income tax. It is therefore important that the employee’s right to receive benefits is spelt out in a contract with the employer before the employee has earned the remuneration (¶16-050), and • payments of FBT are tax deductible to the employer. The FBT year runs from 1 April to 31 March while the income tax year runs from 1 July to 30 June. Generally, the FBT rate is set at the top marginal tax rate but the interaction with the Temporary Budget Repair Levy until 1 July 2017 created some misalignments: • the FBT rate is set at 47% but temporarily increased to 49% for the 2016 and 2017 FBT years (¶2020), and • the top personal marginal tax rate is set at 45% plus 2% Medicare levy but temporarily increased with the 2% Temporary Budget Repair Levy for the 2014/15, 2015/16 and 2016/17 income years. This created a misalignment for the periods 1 July 2014 to 31 March 2015 and 1 April 2017 to 30 June 2017 where the FBT rate was 2% lower than the total top personal tax rate. This may have opened a short window of opportunity to save tax through salary packaging; however, extreme care was required to ensure that the Pt IVA anti-avoidance provisions in the ITAA 1936 were not breached if strategies were implemented to take advantage of this window.

¶16-090 Salary packaging documentation Employers need to prepare effective documentation that clearly spells out what remuneration, in all of its forms, will be paid to the employee in exchange for the employee’s labour. In particular, they need to: • make sure the arrangement is effective for SSA purposes • document the terms of the remuneration arrangement • if the new SSA will supersede a prior arrangement, make sure that the prior arrangement is cancelled • in relation to a director or an office holder, make sure that the instrument which creates the office does not contain provisions in relation to the terms of remuneration which would preclude the parties entering into an effective SSA (¶16-050) • make sure the arrangement does not breach any applicable award or workplace agreement, and • ensure that the arrangement determines the agreed salary amount upon which superannuation guarantee obligations, annual leave entitlements and long service leave entitlements are to be

calculated.

TAXABLE FRINGE BENEFITS ¶16-100 Overview Taxable fringe benefits are only worthwhile to salary package if the method of determining the taxable value is concessional (see below), a reduction in taxable value is available (¶16-500) or the employer is exempt or rebatable (¶16-600). Cars are concessionally taxed where the statutory formula method of valuing car fringe benefits is used or the cost basis method is used due to the high level of business use (¶16-110). Cars may be provided under a novated (¶16-130) or associate lease (¶16-140) and luxury cars can be packaged at a reduced financial benefit to the employee (¶16-120). Car parking may be included in a salary package (¶16-150). However, there are limited advantages from providing loan benefits to employees (¶16-160). Living-away-from-home fringe benefits (¶16-170) and meal entertainment (¶16-190) are also considered. However, the packaging of meal entertainment is generally only beneficial where the employer is exempt or eligible to claim a rebate of FBT (¶16-600). For other categories of benefit that may be salary packaged, see ¶16-060.

¶16-110 Cars (motor vehicles) Motor vehicles can be an effective component of salary packaging for a number of reasons, including: • employees receive vehicle financing assistance • employers may be able to provide vehicles at a lower cost due to fleet discounts, and • cars are eligible for concessional FBT treatment under the statutory formula method of valuation. The FBT value of a car can be determined under the statutory formula or cost basis method. In general, where there is minimal business use, the statutory formula method (¶3-500) will be used to value the car for FBT purposes because it will typically produce a lower taxable value. On the other hand, where there is high business use typically the cost basis method (¶3-600) will produce a lower taxable value. There is no set break-even point at which the cost basis method produces a lower taxable value for FBT purposes. However, it often falls between 70%–80% business use of the car, depending on the level of car expenses and the kilometres travelled. A flat statutory rate of 20% applies to all car package arrangements from 1 April 2014. Employees can receive the benefit of any GST input tax credit that the employer may receive in relation to the cost of the car and/or the operating costs of the car (but for the 2018 FBT year, the 2.0802 gross-up factor will generally apply; see ¶2-510). Example 1: No business use Loren receives a salary package of $97,000 from her employer, Orbit Ltd. The agreement between Orbit Ltd and Loren is that the package will include any employer superannuation obligations. This example shows the benefit to Loren in her take-home pay by packaging a car, compared with not packaging a car.

Assumptions Cost of car Kilometres travelled Statutory percentage

$30,000 20,000 20%

Business percentage

Nil

Taxable value

$6,000

Gross-up factor

2.0802

Fringe benefits taxable amount

$12,481

FBT payable @ 47%

$5,866

Note: Since Loren’s car is leased, the gross-up factor is determined by reference to whether or not GST is included in the lease payments. It has been assumed that GST is included in all the lease payments and that Orbit Ltd is entitled to input tax credits. Therefore, the gross-up factor of 2.0802 has been used. The standard 20% statutory rate applies regardless of kilometres travelled. This rate applies to all arrangements from 1 April 2014. Car operating expenses per annum

Invoiced amount

Charge to   package (10/11)

Lease

7,920   

7,200    

Registration

1,000   

 1,000*   

Insurance

1,650   

1,500    

Repairs

1,430   

1,300    

  3,300  

  3,000    

 $15,300** 

 $14,000***

Fuel Total annual operating expenses

* As there is no GST on car registration, the charge to the package is the full price of the registration ** GST inclusive *** GST exclusive Note: The cost of the car operating expenses to the employer after an input tax credit of $1,300 is $14,000. Therefore, the charge to Loren’s package for car operating expenses is $14,000. The makeup of Loren’s package is:

Car operating expenses

$14,000

FBT on the car

$5,866

Salary

$70,442

Superannuation — SG (9.5%)

$6,692

Total salary package

$97,000

Comparison of Loren’s take-home pay amounts

Situation 1 — Salary, SG-super and no car: Salary

$88,584

Less: tax and Medicare levy at 2017/187 rates

$22,180

After-tax salary

$66,404

Less: car operating expenses

$15,300

Net take-home pay

$51,104

Situation 2 — Salary, SG-super and employer-provided car: Adjusted salary

$70,442

Less: tax and Medicare levy at 2017/18 rates

$15,850

New net take-home pay

$54,592

Loren’s is better off by $3,488 (ie $54,592 − $51,104)

Reconciliation Reduction in personal income tax

$6,330

Savings on GST

$1,300

Reduction in employer superannuation guarantee contributions

$1,724

Total savings

$9,354

Less: FBT cost on car

$5,866

Loren’s cash advantage

$3,488

Example 2: High business use In this example, we retain all the assumptions about Loren’s income and car running expenses. However, we now assume that the business use of Loren’s car is 80%. The cost-basis method is used to calculate the FBT payable, as this method produces a lower FBT payable where there is a high level of business use. FBT calculations:

Taxable value (operating costs $15,300 × 0.20)

$3,060

Gross-up factor

2.0802

Fringe benefits taxable amount ($3,060 × 2.0802)

$6,365

FBT payable ($6,365 × 47%)

$2,992

Note: The operating costs in the taxable value calculation are the GST-inclusive amounts. The makeup of Loren’s package would now be:

Car operating expenses

$14,000

FBT on car

$2,992

Salary

$73,067

Superannuation — SG (9.5%)

$6,941

Total salary package

$97,000

Comparison of Loren’s take-home pay amounts Situation 1 — Salary, SG-super and no car Salary 1

$88,584

Less: tax and Medicare levy at 2017/18 rates 2

$17,886

After-tax salary

$70,698

Less: car operating expenses

$15,300

Net take-home pay

$55,398

Note: 1. Loren’s employer will contribute $8,415 into the employee’s superannuation fund, which will be subject to 15% contributions tax of $1,262. 2. The taxable income amount is derived after deducting an amount for business use car expenses of $12,240 (ie $15,300 × 80%). 3. FBT rate is 47% for the 2018 FBT year.

Situation 2 — Salary, SG-super and employer-provided car Adjusted salary

$73,067

Less: tax and Medicare levy at 2017/18 rates

$16,755

New net take-home pay

$56,312

Loren is better off by $914 (ie $56,312 − $55,398)

Reconciliation Reduction in personal income tax

$1,131

Savings on GST

$1,300

Reduction in employer SG-super contributions

$1,474

Gross savings

$3,905

Less: FBT cost on car

$2,992

Loren’s cash advantage

  $913*

* Difference due to rounding

¶16-120 Luxury cars A “luxury car” is a car with a cost price that exceeds the “car limit” of $57,581 for the income year ending 30 June 2018 (Taxation Determination TD 2017/18). Depreciation on a luxury car cannot exceed the car limit unless the car is used for transporting disabled people (ITAA 1997 s 40-230). Luxury car leases, other than genuine short-term hire arrangements, are treated as loan transactions with the lessee (and not the lessor) being treated as the owner of the car. The lessee (employer) is entitled to deductions for depreciation (based on the “car limit”) and for the imputed interest component (but not the capital component) of the lease payments. Therefore, the tax benefits that would otherwise result from provision of the car are reduced. However, luxury cars can still be valuable package items. The FBT treatment of luxury cars is the same as for other cars, but an additional amount may be charged to the employee’s salary package to reflect the tax cost to the employer of non-deductible depreciation under the ITAA 1997.

¶16-130 Novated leases Cars can be provided in various ways. The employer may own the vehicle or lease it, or the employee may own the vehicle and be paid an allowance. Alternatively, the car can be leased by the employee, with the lease being novated to the employer. Novated leasing arrangements (¶3-150) are more popular in recent years because of factors such as: • the desire to shift responsibility for the car back to the employee when the employee leaves • the desire to save on income tax by substituting the provision of a car fringe benefit for salary, and

• the higher taxation of allowances in comparison to the concessional treatment of car benefits. The steps in implementing a novated lease are typically as follows: Step 1: the employee enters into a car finance lease with a finance provider. Step 2: the employee, employer and finance provider enter into a novation agreement that has the effect of transferring all the rights and obligations of the car finance lease to the employer. Step 3: the employer is obligated to make the lease payments to the finance provider. Step 4: upon completion of the lease payments or earlier termination of employment, all the remaining rights and obligations of the employer will be novated to the employee. Example This example illustrates the effect of a novated lease, using the statutory formula method of valuing the benefit. In effect, the taxation impact of using a novated lease is the same as if the employer had provided the car via a lease directly with a finance company.

Assumptions Car base value

$33,000

Kilometres travelled per year

20,000

Statutory percentage

20%

FBT rate (2018 FBT year)

47%

Gross-up factor

   2.0802

Employee’s marginal tax rate (including Medicare levy)

47%

Note: 1. The car base value is a GST-inclusive amount. 2. Because the car is leased and GST input tax credits are allowable, the car fringe benefit is a Type 1 benefit and the gross-up rate is 2.0802 for the 2018 FBT year. 3. A standard 20% statutory rate applies regardless of kilometres travelled to all lease arrangements from 1 April 2014.

FBT calculation $33,000 × 20% × 2.0802 × 47% =

$6,453

Annual running costs Lease Registration (no GST)

7,920 600

Insurance

1,100

Petrol and oil

3,300

Maintenance

1,100

Road service

     55

Total running costs (including GST)

$14,075

Amount charged to package (ie $13,475 × 10/11 + $600)

 12,850

Total charge to package including FBT (ie $6,453 + $12,850)

$19,303

Advantage to employee

Amount of pre-tax salary needed to cover car running costs of $14,075, ie $14,075 ÷ (1 − 47%)

$26,557

Less: actual charge to package for car running costs and FBT

$19,303

Advantage to employee ($7,254 salary − $3,410 tax)

 $3,844

Reconciliation Savings in personal income tax ($26,557 − $7,254) × 47%

9,072

Savings in GST ($13,475 ÷ 11)

1,225

Total savings

10,297

Less: FBT cost

   6,453

Net savings to employee

$3,844

Note: The FBT rate is 47% for the 2018 FBT year (¶2-020).

For a novated lease agreement to be effective, the lease must be fully novated in accordance with Taxation Ruling TR 1999/15.

¶16-140 Associate leases An associate lease is where the spouse (or other associate) of the employee owns a car and leases it under an operating lease to the employer for provision to the employee (or other associate). It is similar to a novated lease agreement (¶16-130) except that the employee’s associate is the lessor of the car rather than a financial institution. Under this arrangement, all expenses are included in the total employment cost (¶16-040) and the lease payments are assessable to the associate, who can claim depreciation and any interest costs as deductions. This may be a particularly appropriate arrangement for: • second and other vehicles • lower-salaried employees (see example below), and • small businesses where the provision of a car would not normally be contemplated. Many employers may not be willing to add to their existing administration burden by managing the expenses of additional benefit cars. An alternative is for the associate to pay all running costs and for this amount to be reflected in an increase in the lease payment to the associate.

¶16-150 Car parking Car parking benefits are often of particular benefit to city-based employees where the cost of parking is considerable. However, the benefits are generally subject to FBT. Tax-effective packaging is possible when there is no commercial car parking station, whose lowest daily parking fee exceeds $8.66 (2018 FBT year: Taxation Determination TD 2017/14), within a 1 km radius of the employer (¶4-150). Salary packaging is also attractive if the car parking is exempt from FBT, for example, where the employer is a small business entity or the employer’s total income for the previous year is less than $10m (¶12-205).

Example 1: Car parking fringe benefit There are two commercial parking stations within a 1 km radius of Francesca’s workplace. The lowest all-day parking fee for one is $9, and for the other is $7. Both parking stations are nearly 0.8 km from Francesca’s work, are uncovered and are usually full. Francesca’s employer has a limited number of car parking spaces in the basement of its business premises, with a market value of $12 per day, which it makes available to employees for $10 a day. Francesca’s employer is not eligible for the small business car parking exemption (¶12-205). Francesca decides to park in her employer’s parking facility, and to salary sacrifice the parking fees, less an employee contribution of $7 per day. Francesca’s marginal tax rate is 47%. Francesca’s employer uses the statutory formula method to determine the taxable value of car parking benefits and uses the commercial parking station method to determine the daily rate amount (¶4-340). The daily rate amount is $7 a day since this is the lowest all-day commercial parking station fee. The statutory formula method assumes 228 working days per year. By making an employee contribution of $7 per day, Francesca reduces the taxable value to nil, so that there is no FBT on the car parking benefit. GST will be payable on the employee cash contribution (¶16-520).

1 Annual cost without packaging (228 days × $10)

$2,280

Annual cost after packaging: 2 Employee contribution (228 days × $7)

1,596

3 Salary sacrifice amount: (1) − (2)

684

4 FBT: (13) below

  Nil

5 Reduction in pre-tax salary: (3) + (4)

684

6 Less: employee tax saving at 47%

321

7 Reduction in after-tax salary: (5) − (6)

  363

8 Annual after-tax cost to employee: (2) + (7)

$1,959

9 After-tax savings from packaging: (1) − (8)

$321

FBT calculation: 10 Taxable value before contribution (228 days × $7)

$1,596

11 Less: employee contribution

$1,596

12 Taxable value

Nil

13 FBT on car parking benefit

Nil

Example 2: Car parking small business exemption Within a 1 km radius of Dominic’s workplace, the cheapest commercial parking station charges $10 per day. Dominic’s employer has a few car parking spaces on its business premises. Because employee demand significantly exceeds the number of spaces available, the employer only allocates spaces to employees that agree to pay $2,000 per year by payroll deduction or by salary sacrifice. Dominic’s employer has a turnover of less than $10m and is eligible for the small business car parking exemption. Accordingly, there will be no FBT on the car parking benefits. Dominic decides to park in his employer’s car park, and to salary sacrifice $2,000 for the privilege. Dominic’s marginal tax rate is 47%.

1 Annual employee cost via payroll deduction

$2,000

Annual cost via salary sacrifice: 2 Salary sacrifice amount 3 Less: tax reduction at 47%

2,000  940

4 Reduction in after-tax salary

5 After-tax savings from packaging: (1)−(4)

$1,060

$940

Note: The FBT rate is 47% for the 2018 FBT year (¶2-020).

¶16-160 Loans The combined effect of the FBT and income tax treatment of loans means that there are only limited tax advantages arising from providing discounted loans to employees of employers that are taxable entities. The advantages lie mainly in convenience to the employee. Because of the costs of administration, there is a tendency for loans only to be offered: • to key employees, or • by employers in the business of moneylending. A benchmark interest rate is used to determine the taxable value of a loan provided as part of a salary sacrifice arrangement. For the 2018 FBT year, this rate is 5.25% (Taxation Determination TD 2017/3). Example Anastacia’s employer lends her $40,000 on 1 April 2017. It is an interest-only loan at the rate of 5% for four years. At the end of this four-year period, the loan must be repaid. During the first year interest is $2,000 ($40,000 × 5%). The notional interest is $2,100 ($40,000 × 5.25%). For FBT purposes, this creates a taxable value of $100 ($2,100 − $2,000).

Provided the relevant concessional caps (see below) are not breached: • s 57A employers (¶16-610) can provide interest-free or discounted loans with no FBT applicable, and • rebatable employers (¶16-650) can provide interest-free or discounted loans with reduced FBT. The concessional caps are $17,000 and $30,000 for the 2018 FBT year but were temporarily increased to $17,667 and $31,177 for the period from 1 April 2015 to 31 March 2017 (s 135Y). This was the period when the FBT rate was increased to reflect the impact of the Temporary Budget Repair Levy. The increase in the caps ensured the cash value of benefits provided was not eroded by the impact of the levy on FBT (¶14-335; ¶14-435).

¶16-170 Living-away-from-home allowances A living-away-from-home (LAFH) allowance is paid to an employee to compensate for additional expenses or disadvantages resulting from the employee having to temporarily live away from their normal residence. The taxation rules for FBT exemptions on LAFH allowances changed from 1 October 2012, with a 12month limit on the exemption for eligible employees (see ¶8-000; ¶8-600). Previously, FBT exemptions allowed employers to provide accommodation tax-free. LAFH allowances are now effectively removed from the FBT rules with any taxable value now being included in the employee’s assessable income.

¶16-190 Meal entertainment — taxable employers Meal entertainment benefits provided to an employee or associate are generally subject to FBT (¶11800).

If the employer elects to use the 50/50 split method to calculate the portion of meal entertainment that will be subject to FBT, the “meal entertainment fringe benefit” provided would be 50% of the price paid for the relevant meal entertainment. This often does not provide any advantage to the employee under current FBT rules. Example

Anthony’s total package is $120,000 and is comprised of: Salary Superannuation contribution

108,000   12,000 $120,000

Anthony negotiates with his employer, True Blue Discount Store, to package private entertainment. He decides that no adjustment is to be made to the level of his employer’s superannuation contributions amount of $12,000. In the current year Anthony’s meal entertainment amounts to $17,050, being: Regular meal entertainment

 5,500

Daughter’s wedding breakfast

11,550 $17,050*

* includes GST

True Blue Discount Store has elected to use the 50/50 split method and therefore the “meal entertainment fringe benefit” is $8,525. The remaining $8,525 is non-deductible entertainment to True Blue. No GST input tax credit is available on the non-deductible portion. This benefit is a Type 1 benefit with a gross-up factor of 2.0802 (for 2018 FBT year) and therefore the FBT cost applicable to this benefit is $8,335, as follows:

Taxable value

 8,525

Grossed-up amount (8,525 × 2.0802)

17,734

FBT $17,734 × 47%

 $8,335

The new makeup of Anthony’s package of $120,000 is: Meal entertainment (tax deductible portion) — $17,050 × 50% × 10/11

 7,750

Meal entertainment (tax non-deductible portion) — $17,050 × 50% × 1/0.70*

12,179

FBT

 8,335

Superannuation

 12,000

Adjusted salary

  79,736 $120,000

Note: 1. *Assume company tax rate of 30%. Small companies may pay a lower rate of tax. 2. No input tax credits are available regarding non-deductible meal entertainment. 3. The FBT rate is 47% for the 2018 FBT year (¶2-020).

The after-tax cost of Anthony’s package is $84,000 ($120,000 × 70%). Analysis Details

Cost

Cost after tax

Charge to package

Meals (deductible)

$7,750

$5,425

$7,750

Meals (non-deductible) — $17,050 × 50% × 1/0.70

$8,525

$8,525

$12,179

FBT

$8,335

$5,835

$8,335

Superannuation

$12,000

$8,400

$12,000

Adjusted salary

$79,736

$55,815

$79,736

$84,000

$120,000

Note: All “charges to package” are pre-tax to employer, therefore all “cost after tax” items need to be grossed-up.

Comparison of Anthony’s take-home pay amount Before packaging of meal entertainment Salary

$108,000

 Less: tax and Medicare levy at 2017/18 rates

$29,752

After-tax salary

$78,248

Less meal entertainment expenses

$17,050

Net take-home pay

$61,198

After packaging of meal entertainment Adjusted salary

$79,736

Less: tax and Medicare levy at 2017/18 rates

$19,056

New net take-home pay

$60,680

Anthony is worse off by $518 ($61,198 − $60,680) Reconciliation Personal income tax reduction ($29,752 − $19,056) Savings on GST

$10,696 $775

$11,471

Less: FBT

 $8,335

Non-deductible meal differential ($12,179 − $8,525):

 $3,654

Net benefit (detriment)

EXCLUDED BENEFITS ¶16-300 Overview

$11,989   $(518)

Excluded benefits are not subject to FBT and can therefore provide significant salary packaging advantages because the employee’s package is only debited with the cost of the benefit provided. Employer superannuation fund contributions are the most commonly packaged excluded benefit because they are generally easy to administer through the employer’s payroll system and the financial benefits can be readily calculated (¶16-310). Benefits provided under certain employee share schemes (¶16-350) and employee share trusts (¶16-360) are also excluded benefits but are often administered separately from any salary packaging program. For other categories of excluded benefit, see ¶2-150 and for other categories of benefit that may be salary packaged see, ¶16-060.

¶16-310 Employer superannuation contributions Superannuation is a very common component of salary packages and provides some significant potential tax savings for employees. However, superannuation is primarily a retirement savings vehicle and an employee generally does not have access to the contributions in the superannuation fund except in specified circumstances (ie when a “condition of release” in the superannuation law is met, eg retirement). This concept is called preservation. The value of superannuation contributions to the employee is essentially dependent on the employee’s retirement strategy. Employer superannuation contributions to an employee’s complying superannuation fund are not subject to FBT and are not included in the employee’s taxable income. This includes in-specie contributions made after 1 July 2007 (¶2-150). However, employer superannuation contributions for an employee’s spouse or other associate are not excluded from FBT. Employer contributions are taxed by the complying superannuation fund on receipt, but at a concessional rate of 15%. An additional 15% tax will apply to individuals with “income” over $250,000 in the year (Div 293 tax) — this threshold was reduced from $300,000 on 1 July 2017. Salary sacrifice contributions that exceed the concessional contributions cap due to contributions made from 1 July 2013 can be refunded and will be taxed at an individual’s marginal tax rate (less the 15% tax deducted in the fund) plus an interest rate penalty to allow for the delay in tax collection. Excesses that arise from concessional contributions before that date are taxed at the excess concessional tax rate of 30% plus Medicare levy. Example An employer offers its employees the possibility of sacrificing $5,000 of their salary into superannuation in addition to the superannuation guarantee contributions that they normally would have received. The effect for an employee on a gross package of $97,000 is as follows:

No salary sacrifice

Salary sacrifice

Salary

$88,584

$83,584

Superannuation guarantee (9.5% of original cash salary)

 $8,416

 $8,416

Salary sacrifice superannuation contribution

     –

 $5,000

$97,000

$97,000

Tax and Medicare levy at 2017/18 rates

$22,180

$20,384

Contributions tax (15%)

  $1,262

  $2,012

Net value of package to employee

$73,558

$74,604

Gross package before tax

Less taxes:

Source: CCH Master Financial Planning Guide

There is no tax on superannuation benefits withdrawn from a taxed superannuation fund after age 60. The ability to salary sacrifice tax-effectively to superannuation is limited by the concessional contributions cap. This cap includes all employer contributions (SG, salary sacrifice and voluntary), as well as personal deductible contributions (if eligible). This cap is $25,000 for the 2017/18 income year. This cap is indexed in future years.

¶16-350 Employee share schemes Benefits under certain types of employee share schemes (ESSs) are excluded benefits for FBT purposes, and are eligible for income tax concessions (¶2-150). Under these schemes the employee purchases shares at a discount or under SSAs or the shares may be allocated in lieu of a cash bonus. Restrictions apply to when the shares can be disposed of, so shares are held in trust until a particular vesting point. The tax rules changed from 1 July 2009 so that the “discount” on share purchases under an ESS is assessable income unless one of the following exemptions or deferral provisions applies: • Exemption scheme — a person who has adjusted taxable income of $180,000 or less will receive a $1,000 tax exemption if the scheme relates to ordinary shares. In this case, the first $1,000 of the discount is excluded from assessable income. To receive the exemption, there can be no risk of forfeiture and the share scheme needs to be offered to 75% of permanent employees with at least three years of service. The shares cannot be sold within the first three years unless employment is terminated. • Deferral scheme — if there is a real risk of forfeiture of the shares, tax on the discount will be deferred for up to seven years. The discount becomes assessable income at the earlier of the date when the employee is able to choose to sell the shares, employment is terminated or seven years. The share scheme needs to be offered to 75% of permanent employees with at least three years of service. • Salary sacrifice deferral — employees allocated shares under an SSA will have tax deferred on the sacrificed amount provided the sacrificed amount does not exceed $5,000 and is equal to the market value of the shares allocated. The share plan rules need to specifically state that the provisions in ITAA 1997 Div 83A apply. The market value of the allocated shares becomes assessable income at the earlier of the date when the employee is able to choose to sell the shares, employment is terminated or seven years. Note: A “real risk of forfeiture” applies where there is a genuine chance that the shares may not vest in the person’s name, eg due to the need to meet a performance hurdle or minimum employment period.

¶16-360 Employee share trusts Benefits under an employee share trust are not fringe benefits due to the exclusion in para (ha) of the definition of fringe benefit in s 136(1) (¶2-150). Any salary packaging arrangement involving an employee share trust must ensure that the benefit provided is exempt from FBT. For example, in ATO Interpretative Decision ID 2011/54, an employer established a trust that is permitted to make interest free loans to employees. The employer loans money to the trustee which is on-lent to employees at no interest. The employees acquire units in the trust with the money borrowed and the trust uses the same monies to acquire shares in the employer. Participating employees’ salary sacrifice an amount in return for the employer making a repayment of the employee loan from the trust. In that ID, the ATO states that the employer has provided an external expense payment fringe benefit the taxable value of which is not reduced by the otherwise deductible rule (ODR). Each loan repayment by the employer is an external expense payment fringe benefit since the para (ha) “fringe benefit” exclusion

does not apply because the trust lends money to acquire the shares (ATO Interpretative Decision ID 2010/108: employee share trust activities). The taxable value of the external expense payment fringe benefit is not reduced by the ODR because each repayment on the loan is a repayment of principal on an interest-free loan and the employee would not have been entitled to an income tax deduction had the employee incurred and paid these amounts. Taxpayer Alert TA 2011/5 warns about arrangements where the employer establishes an employee benefit arrangement for employees to acquire share units in a purported employee share trust, funded by way of a loan from the trustee which is repaid by the employer paying amounts which have been salary sacrificed by the employees. The ATO considers that such an arrangement may be an attempt by the employer to provide a benefit to employees without regard to the application of the FBT law as the taxable value of benefits provided is not included as part of the employer’s FBT liability.

EXEMPT BENEFITS ¶16-400 Overview Exempt benefits are not subject to FBT and can therefore provide significant salary packaging advantages because the employee’s package is only debited with the cost of the benefit provided. Portable electronic devices (eg laptop computers) can be salary packaged but the benefits of doing so have diminished since 13 May 2008 (¶16-410). Employees are able to top up the value of a long service leave benefit (¶16-420) and pay for travel to and from work in limited circumstances (¶16-430) via salary packaging. Frequent flyer benefits (¶16-440) and in-house child care facilities (¶16-450) may be included in an employee salary arrangement. However, the inclusion of food or drink in a salary package is only available where the employee is employed by, for example, a public benevolent institution (¶16-460). Some benefits exempt from FBT are specifically excluded from being included in an effective SSA. Other benefits will generally not be salary packaged because they are considered part of the employment contract (¶16-470).

¶16-410 Portable electronic devices Portable electronic devices including a portable computer, mobile phone, personal digital assistant or other portable electronic device are exempt from FBT (s 58X) and may be salary packaged. However, for items acquired after 7.30 pm AEST on 13 May 2008, the exemption only applies where they are primarily for use in the employee’s employment (¶12-120). The exemption in s 58X extends to the other eligible work-related items, ie computer software, protective clothing, briefcases and tools of trade. However, these items will generally not have a private use component (apart from the possible exception of a briefcase) and therefore are unlikely to be the subject of an SSA. Whether an eligible work-related item is “primarily for use in the employee’s employment” is determined at the time the item is first provided. That is, only the intended use of the item when provided is relevant — it is not necessary to consider the subsequent actual use of the item. Also, there is no legislative guidance on the extent of intended use. However, the ATO indicated at the NTLG FBT Sub-committee meeting — 14 August 2008 that the intended employment use must be paramount when the employer provides the benefit but does not need to be more than 50%. As regards documentation to support that an item is primarily for use in the employee’s employment the ATO considers that generally, the employee’s job description, duty statement or employment contract will be sufficient. For example, see ATO Interpretative Decision ID 2008/127. A further restriction on salary packaging a portable electronic device is that only one can be provided to an employee in any FBT year, unless it is a replacement item (¶12-120). However, this restriction does not apply in relation to an employer who is a small business entity (annual turnover less than $10m) for the 2018 FBT year and later FBT years. Also, employees cannot claim a deduction for depreciation of a

work-related item acquired after 13 May 2008 that is exempt from FBT (¶2-055). Example: Portable computer On 1 July 2017, Mary’s employer gives her full ownership of a notebook computer purchased for $3,300 under a salary sacrifice arrangement. She uses the computer 100% for work. The benefit is fully FBT exempt and a full GST input tax credit is available. If Mary bought the computer herself, she could deduct $2,200 depreciation in the first year for the 100% work use. Mary’s base salary is $90,000, plus a fixed superannuation contribution of 10% of base salary (unaffected by salary sacrifice). The superannuation is ignored in the example below, as it is the same with or without packaging.

Salary

Without packaging

With packaging

$90,000

$87,000

Computer

$3,300

Less: input tax credit

        

    $300

Total excluding superannuation

$90,000

$90,000

Depreciation deduction

  $2,200

      0

Taxable income

$87,800

$87,000

Less: tax and Medicare levy at 2017/18 rates

$21,874

$21,562

Less: purchase of computer

 $3,300

     –   

Cash benefit after computer purchase

$64,826

$65,438

Mary is better off by

$612

Reconciliation: Reduced income tax and Medicare levy

$312

GST savings

$300

Total cash advantage

$612

Employee benefit program — laptop computers In Class Ruling CR 2011/105, a salary packaging provider facilitates the salary packaging of laptop computers provided to employees as an expense payment benefit. Under the program, employees select the laptop they wish to salary package from a list of laptops that the employer has identified as meeting the needs of their business activity. The employment duties of the employees may cover a wide range of responsibilities such as: recording client communications, working on business proposals and presentations, communicating remotely with colleagues, updating business files, preparing documentation in support of business processes and analysing business performance. The laptop is provided in a variety of circumstances: • Scenario 1: Employee is provided with a laptop computer at work and salary packages a second laptop that is used offsite. • Scenario 2: Employee is provided with a desktop computer and salary packages a second laptop that is used offsite. • Scenario 3: A large corporate offers to selected employees — based on role/seniority — the ability to

salary package a laptop computer that is used onsite and offsite. • Scenario 4: Employee is provided with a desktop computer and salary packages a second laptop. The laptop is used by the employee to check emails after work hours in order to prepare their workload for the following day. It is not used offsite. • Scenario 5: Employee is provided with a desktop computer, a smart phone for use while working offsite and salary packages a second laptop that is used offsite. The ATO concludes that in Scenarios 1, 2, 3 and 5 the dominant or prevailing use of the offsite laptop is for activities which can be described as being for use in the employee’s employment. These activities are a substantial use of the offsite laptop and prevail over any other use including incidental personal use. Accordingly, the primarily for use in the employee’s employment test (¶12-120) is satisfied and the salary packaged benefit is exempt. However, in Scenario 4 it is not possible to conclude that the employmentrelated use of the offsite laptop dominates or prevails over any incidental private use and is therefore not exempt under s 58X.

¶16-420 Long service awards Contributions towards a long service leave award may be salary packaged provided the total value of the award otherwise meets the requirements of s 58Q. Long service award benefits typically take the form of a property fringe benefit (eg a watch with a predetermined value set by the employer) and are exempt up to $1,000 for 15 years’ service and $100 for each additional year, if certain conditions are satisfied (¶12-240). Example The service recognition policy of ABC Pty Ltd states that after 15 years of service each employee will be entitled to receive a watch with a value of $250. However, the employment policy of ABC Pty Ltd permits employees to salary package an amount so that a higher value watch can be awarded. An employee salary packages an amount of $750 and a watch with a notional taxable value of $1,000 is provided by ABC Pty Ltd. No FBT will be payable.

However, if the employee and employer entered into the SSA for the sole or dominant purpose of enabling the employer to obtain the benefit of s 58Q, the exemption is not available. For example, an award granted to a director/shareholder of a private company where no other employees are entitled to such awards is not entitled to claim the s 58Q exemption (NTLG FBT Sub-committee minutes — 17 November 2005).

¶16-430 Travel to and from work The costs incurred by an employer to provide transport for an employee between their place of residence and place of employment may be salary packaged. However, this is generally only possible without the payment of FBT where the employer: • carries on business of providing transport to the public and the employee is employed in that business or the employee’s duties are performed in the police service (¶10-280) • arranges for the use of a motor vehicle, other than a car, to transport employees to and from work (¶10-230), or • provides “fly-in fly-out” transport arrangements to employees who work on an oil rig at sea or in a remote area (¶10-290). The above exemptions are limited to the provision of residual fringe benefits and therefore expenditure incurred by an employee and paid or reimbursed by an employer (ie expense payment benefit) is not

eligible for the exemption. Taxi travel beginning or ending at the employee’s place of work is also exempt from FBT regardless of the category of fringe benefit provided (¶12-180).

¶16-440 Frequent flyer benefits Benefits received by an employee from membership of a frequent flyer program are not subject to FBT or income tax. However, where a high volume of business expenses is used to generate rewards for an employee there may be potential FBT or income tax consequences (Taxation Ruling TR 1999/6; Practice Statement PS LA 2004/4 (GA)). Due to the indeterminate nature of the frequent flyer benefits or other consumer loyalty programs it is generally inappropriate to formally include them as part of an employee’s salary package. However, there is no such restriction on a benefit that entitles an employee to use an airport lounge membership paid for by an employer (¶12-160).

¶16-450 In-house child care facilities Child care provided to an employee’s child in a child care facility that is located on the employer’s business premises is an exempt benefit (¶10-260). The notional value of the child care can be salary packaged by the employee, with a resulting savings in income tax. However, the significance of the in-house child care FBT exemption as a salary packaging strategy has been largely eliminated by the generous child care subsidies that are now available through the federal government’s Child Care Benefit and the Child Care Tax Rebate. These subsidies are available only in relation to costs incurred by the family, not the employer. Accordingly, the relative value of tax benefits versus child care subsidies needs to be examined before opting into an in-house child care SSA. In Esso Australia Ltd v FC of T 98 ATC 4953, it was held that the FBT child care exemption for facilities provided on the “business premises” of an employer applied to premises leased jointly by the taxpayer and two other companies solely for the purpose of providing child care facilities to employees. In other words, an employer need not have exclusive possession of child care premises for the premises to qualify as the employer’s “business premises” (see also Taxation Ruling TR 2000/4).

¶16-460 Meal entertainment — s 57A employers Food or drink provided by the recipient’s employer on its business premises and consumed by the employee on the same working day is exempt from FBT unless provided under an SSA. Meal card arrangements can be used by employees of s 57 employers (¶16-610) to salary package food and drink because meal entertainment is not included by these employers when determining the fringe benefits taxable amount (s 5B(1L)). Accordingly, they do not have to rely on the exemption in s 41(1) to avoid paying FBT on salary packaged employee meals (¶9-225). See, for example, Class Rulings CR 2007/16 and CR 2007/86.

¶16-470 Other exempt benefits Some categories of exempt benefit cannot be salary packaged due to a prohibition on them being provided as a reward for employment services. For example, minor benefits (¶12-100) and work-related counselling (¶12-630). Other benefits exempt from FBT are not salary packaged because they are necessary for the employee to carry out their employment duties. For example, newspapers (¶12-140), memberships (¶12-160), safety awards (¶12-260), relocation costs (¶12-310) and benefits provided to care workers (¶12-720).

REDUCTIONS IN TAXABLE VALUE

¶16-500 Overview Fringe benefits where the employer is entitled to a reduction in taxable value are beneficial to salary sacrifice because the amount of FBT charged to the employee’s salary package is reduced. Salary packaging a benefit where the “Otherwise deductible” rule applies provides a cash flow timing advantage to the employee (¶16-510). Employee contributions can be beneficial where the employee’s effective marginal tax rate is below the FBT rate of 47% (2018 FBT year) (¶16-520). In-house fringe benefits are concessionally taxed and a maximum reduction in the taxable value of $1,000 per employee is available if the benefits are not provided under a salary packaging arrangement (¶16530). Remote area benefits (¶16-540) and benefits provided to expatriate and overseas employees (¶16-550) may be salary packaged. Fringe benefits where a reduction in taxable value is available have comparable salary packaging advantages to concessionally taxed benefits (¶16-100) but are not as beneficial as excluded benefits (¶16-300) and exempt benefits (¶16-400).

¶16-510 “Otherwise deductible” rule FBT may be reduced where the cost of providing the benefit would have been tax deductible to the employee if the employee had personally paid for it (¶13-120). For example, an employer may pay the premiums for an employee’s income protection insurance policy. If the employee had paid those premiums, the employee could have claimed a full tax deduction for them and therefore the FBT is reduced to nil. The following are other favourable salary packaging consequences of the otherwise deductible rule reducing, in whole or in part, the taxable value of a salary packaged benefit: (1). The employee effectively obtains a discount on the purchase price of the benefit provided where the employer is entitled to an input tax credit and the GST exclusive amount is debited to the employee’s salary package. However, if the application of the otherwise deductible rule does not reduce the taxable value of the benefit to nil the employee’s salary package will be debited with some FBT. (2). The employee obtains a cash flow timing advantage from the benefit being salary packaged. This is because it saves the employee from, for example, incurring the expenditure on the benefit out of after-tax income and then waiting until the end of the financial year to claim a tax deduction. Employees cannot salary package expenditure that would otherwise be subject to the limitation on noncommercial expense deductions (ITAA 1997 Div 35) to reduce the amount of FBT otherwise payable (¶2070).

¶16-520 Employee contributions FBT on a benefit will be reduced if the employee makes a contribution towards the cost of the benefit (¶13-160). For every dollar that the employee contributes, the taxable value of the benefit is reduced by a dollar. If the contribution equals the taxable value, FBT will be reduced to nil. This can be an effective strategy for providing concessionally taxed benefits to employees who are on a marginal tax rate lower than the FBT rate of 47% (2018 FBT year). However, employee contributions may have GST implications for the employer. Employers will be required to account for GST amounting to 1/11th of an employee’s cash contribution. On the other hand, non-cash contributions by employees, such as the payment by employees of fuel expenses in respect of an employer-provided car benefit, will not be subject to GST in the hands of the employer (¶2-030).

Example 1 Katherine is provided with a car fringe benefit by her employer, Orbit Ltd, which is registered for GST purposes. During the 2018 FBT year, Katherine makes a cash contribution of $4,400 directly to her employer towards the running costs of the car. • Orbit Ltd will have to remit $400 (1/11th of $4,400) of that contribution in respect of GST. • Orbit Ltd can deduct the full $4,400 of the contribution when calculating the taxable value of the car for FBT purposes.

Example 2 Thomas is provided with a car fringe benefit for the entire 2018 FBT year by his employer, Blue Gum Developments, which is registered for GST purposes. Thomas makes a contribution towards the running costs of the car by paying for the petrol, oil and servicing. During the 2018 FBT year, the total of these costs amounted to $2,900. In these circumstances, the ATO advises that Thomas’s contribution is not considered to be a contribution for the supply of the car fringe benefit for GST purposes, but instead would have been a contribution for the supply of those items or services by a third party, namely the service station (Taxation Ruling TR 2001/2). Therefore: • Blue Gum will not account to the ATO for GST in respect of Thomas’s purchases. • Blue Gum can deduct the full $2,900 of the non-cash contribution when calculating the taxable value. • If the cost of the car provided to Thomas is $30,000 and the statutory fraction is 0.20, the taxable value is calculated as follows:

$30,000 × 0.20

$6,000

Less employee contribution

$2,900

Taxable value

$3,100

¶16-530 In-house fringe benefits An in-house fringe benefit is one that relates to goods or services provided to an employee or associate that are identical or similar to those supplied to the public in the ordinary course of business of the employer. For example, the sale of products manufactured by an employer and sold to employees at concessional prices is a typical example of when this reduction will have application. Concessional taxable value rules apply to in-house expense payment fringe benefits (¶5-300), in-house property fringe benefits (¶9-380) and in-house residual fringe benefits (¶10-350). In addition, employers are able to reduce the total taxable value of in-house fringe benefits provided during the FBT year to each employee by up to $1,000 if salary packaged (s 62; ¶13-140).

¶16-540 Remote area benefits Employers with a remote area workplace are in a position to provide their employees with a significant after-tax benefit by assisting with their accommodation in some way. Remote area housing provided by all employers is exempt from FBT (¶12-480). A 50% concession is available in relation to a number of other remote area benefits such as housing loan interest, residential fuel, loss on sale of home, remote area holiday travel and rent (¶13-400). The particular wording of FBTAA s 60(2A) is such that where the employer reimburses 50% of the cost of remote area rent, no FBT is payable (¶13-440).

¶16-550 Expatriates and visiting overseas employees

An employee who is classified as an Australian resident working overseas for at least 91 consecutive days will only have their remuneration exempt from Australian tax if they are: • an aid or charitable worker working for a recognised non-government organisation • a government aid worker, or • specified government employee (eg defence and police force personnel deployed overseas). In these cases, any accompanying fringe benefit will be exempt from FBT. This also applies if the employee is a non-resident whose source of income is overseas (¶2-030). Since 1 July 2016, employees of an Australian government agency who work overseas for not less that 91 continuous days in the delivery of official development assistance are not able to claim an exemption on the income they earn while overseas (ITAA 1936 s 23AG(1AA)(a)). There are various other FBT concessions that apply to benefits provided to employees posted overseas, or for overseas employees posted to Australia. These concessions include home leave (¶13-520) and children’s education expenses (¶13-540), a wide range of relocation and resettlement costs (¶12-310) and medical treatment costs (¶12-560). The extent of these concessions offers considerable scope for tax-effective salary packaging. LAFH allowances (¶16-170) and “fly-in fly-out” transport arrangements (¶16-430) are also relevant when considering the salary package of expatriates.

EXEMPT & REBATABLE EMPLOYERS ¶16-600 Overview Section 57A employers (¶16-610) are exempt from FBT (within limits) and rebatable employers (¶16-650) are entitled to a rebate (reduction) on their FBT liability. The rebate is 47% for the 2018 FBT year. This enables these employers to provide more favourable salary packaging opportunities to their employees than employers that are subject to FBT on all fringe benefits provided. See Class Rulings CR 2009/52 (meal card), CR 2010/13 (mortgage payments), CR 2011/97 (meal entertainment card), CR 2011/98 (entertainment facility leasing expenses card) and CR 2011/99 (living expenses card). Some employers are wholly exempt from FBT (¶2-240). ATO calculator Public benevolent institutions and health promotion charities (¶16-610) and rebatable employers (¶16650) may use the ATO’s Not-for-profit FBT calculator for their FBT calculations. The calculator takes into account the effects of GST and the relevant cap ($30,000 for the 2018 FBT year). Note that the calculator provides an estimate only (based on the information provided) and the exact amount of FBT can only be calculated on lodgment of the organisation’s FBT return.

¶16-610 Section 57A employers Benefits provided by employers that qualify as public benevolent institutions (PBIs), government bodies employing hospital staff, certain non-profit hospitals, providers of ambulance services and health promotion charities are exempt from fringe benefits tax under s 57A (see ¶14-400 and ¶14-435). However, the exemption is subject to the following capping thresholds for the 2018 FBT year: • $17,000 for an employee of a hospital or public ambulance service, or • $30,000 for an employee of a registered health promotion charity or a non-hospital PBI. Since 1 April 2016, the grossed-up taxable value of salary packaged meal entertainment and entertainment facility leasing benefits is included in the capping threshold. If the inclusion of the salary packaged meal and entertainment benefits causes the employee to exceed the applicable capping threshold, the FBT exemption still applies provided the cap is not exceeded by more than the lesser of:

• $5,000, and • the total grossed-up taxable value of salary packaged meal entertainment and entertainment facility leasing benefits. Non-reportable fringe benefits The following non-reportable fringe benefits provided to each employee are not included when calculating the amount of FBT payable by s 57A employers: (a) meal entertainment (¶11-810) (b) car parking benefits (¶4-110) (c) entertainment facility leasing expenses (¶15-120). Fringe benefits taxable amount The calculation of the fringe benefits taxable amount is explained at ¶14-400. For an illustration of salary packaging see Class Rulings CR 2010/36 and CR 2008/24. It is important to note that the above treatment applies to each exempt employer of an employee. For example, a person who works part time for two different PBIs will be eligible for the full exemption limit of $30,000 for the 2018 FBT year from each employer. Example: Public hospital employer Roberto is employed by a public hospital that is exempt from FBT up to the grossed-up limit of $17,000 per employee. Roberto arranges with the hospital to pay home mortgage payments on his behalf, amounting to $9,000 per year. Under the arrangement with the hospital, there is no change in Roberto’s superannuation entitlements. Roberto’s base salary is $95,000 per year. The grossed-up mortgage payments are less than the limit and are therefore exempt from FBT.

Salary

Without packaging

With packaging

$95,000

$86,000

Mortgage payments

$9,000

FBT payable (see below)

       

    Nil

Total package, excluding superannuation

$95,000

$95,000

Less: tax and Medicare levy at 2017/18 rates

$24,682

$21,217

After-tax salary

$70,318

$64,783

Less: mortgage payments

 $9,000

   –   

Net cash remaining

$61,318

$64,783

Roberto is better off by

$3,465

Reconciliation: Income tax & Medicare savings Less: FBT (2018 FBT year) Net savings

FBT calculation:

$3,465    Nil $3,465

Taxable value

$9,000

Gross-up factor

 1.8868

Taxable amount

$16,981

Less: exempt amount (limit $17,000)

$16,981

Taxable amount

Nil

FBT rate (2018 FBT year)

47%

FBT payable

   Nil

In Class Ruling CR 2013/36, the salary packaging of benefits provided to employees of s 57A employers is facilitated by the issuing of prepaid Visa or Mastercard Employee Benefits Cards (EBC). Under the scheme, employees who have entered into an SSA with their employer are issued with an EBC. The employer transfers salary sacrificed amounts to the bank which are then “loaded” onto the EBC, which does not have a name printed on it. All monies “loaded” onto the EBC remain the property of the employer. The employee can only access the amount loaded onto the EBC to make purchases. The ATO concludes that an expense payment benefit is not provided at the time the employee uses the card because the expense discharged by the card is incurred by the employer. Instead, the employer provides a tax-exempt body entertainment benefit (s 38), property benefit (s 40) or residual benefit (s 45), as applicable. The benefit will be a GST-creditable benefit (Type 1) if the requirements of s 149A are satisfied. Also, where the value of the benefits provided to an employee does not exceed the above capped amounts, they will be exempt under s 57A.

¶16-650 Rebatable employers For the 2018 FBT year, rebatable employers (¶14-300) are entitled to a rebate of 47% of the FBT otherwise payable. The amount of the rebate is limited to benefits having a grossed-up taxable value of $30,000 for each employee. It is important to note that the above treatment applies to each rebatable employer of an employee. For example, a person who works part time for two different rebatable employers will be eligible for the full exemption limit of $30,000 from each employer. Since 1 April 2016, the grossed-up taxable value of salary packaged meal entertainment and entertainment facility leasing benefits is included in the capping threshold. If the inclusion of the salary packaged meal and entertainment benefits causes the employee to exceed the capping threshold, the FBT rebate still applies provided the cap is not exceeded by more than the lesser of: • $5,000, and • the total grossed-up taxable value of salary packaged meal entertainment and entertainment facility leasing benefits. Example: Rebatable employer Melinda is employed by a rebatable employer. She has a salary package of $105,000 plus a fixed amount of superannuation. She arranges for her employer to pay home mortgage payments on her behalf, amounting to $14,400 annually. The grossed-up taxable value of these payments is $27,170. As this is below the $30,000 limit, the entire amount is eligible for the 47% FBT rebate.

Salary

Without packaging

With packaging

$105,000

$83,832

Mortgage payments FBT payable (see below)

$14,400         

  $6,768

Total package, excluding superannuation

$105,000

$105,000

Less: tax and Medicare levy at 2017/18 rates

$28,582

$20,469

After-tax salary

$76,418

$63,363

Less: mortgage payments

$14,400

       

Net cash remaining

$62,018

$63,363

Melinda is better off by

$1,345

Reconciliation: Income tax & Medicare savings

$8,113

Less: FBT (2018 FBT year)

$6,768

Net savings

$1,345

FBT calculation: Taxable value

$14,400

Gross-up factor

 1.8868

Taxable amount

$27,170

FBT rate (2018 FBT year) FBT before rebate

  47% $12,770

Less: FBT rebate (47%)

$6,002

FBT payable

$6,768

For a further illustration of salary packaging by rebatable employers, see FBT changes to salary packaged meal and other entertainment benefits available on the ATO website (www.ato.gov.au).

CASE TABLE All references in this Case Table are to the paragraph (¶) of the text in which the citation occurs.

A Paragraph Atwood Oceanics Australia Pty Ltd v FC of T 89 ATC 4808

¶8-140

Australian Council for Overseas Aid v FC of T 80 ATC 4575 ¶12-840

B Paragraph BERT Pty Ltd as Trustee for the BERT Fund (No 2) v FC of T 2013 ATC ¶10-332 ¶12-280 Best v FC of T 2005 ATC 2184

¶8-140; ¶8-170

Boral Resources (WA) Ltd v FC of T 98 ATC 2158

¶2-810

C Paragraph Caelli Constructions (Vic) Pty Ltd v FC of T 2005 ATC 4938

¶9-120

Case 2/96 96 ATC 131

¶12-110; ¶12-980

Case 28/97 97 ATC 321

¶7-420

Case 54/95 95 ATC 447

¶8-170

Case 58/94 94 ATC 498

¶3-180

Case J63 77 ATC 537

¶3-120

Case M10 80 ATC 76

¶3-120

Case Z25 92 ATC 247

¶3-120

Cohen v FC of T 2000 ATC 4424

¶11-600

Collis v FC of T 96 ATC 4831

¶9-388

Compass Group (Vic) Pty Ltd (as Trustee for White Roche & Associates Hybrid Trust) v FC of T 2008 ATC ¶10-051

¶8-130

Crane v FC of T 2005 ATC 2032

¶8-140; ¶8-170

D Paragraph David Securities Pty Ltd & Ors v Commonwealth Bank of Australia 92 ATC 4658 ¶11-620 Dean v FC of T 97 ATC 4762

¶2-150

E Paragraph Essenbourne Pty Ltd v FC of T 2002 ATC 5201

¶2-130

Esso Australia Ltd (Childcare) v FC of T 98 ATC 4953

¶4-140; ¶16-450

G Paragraph Granby Pty Ltd v FC of T 95 ATC 4240

¶9-388; ¶9-390; ¶10-390

H Paragraph Hancox v FC of T 2012 ATC ¶10-285

¶8-120

Hancox v FC of T 2013 ATC ¶20-401

¶8-120

Home Health Pty Ltd v FC of T 2013 ATC ¶10-325

¶12-905

The Hunger Project Australia v FC of T 2013 ATC ¶20-399 ¶12-840 The Hunger Project Australia v FC of T 2014 ATC ¶20-458 ¶12-840

I Paragraph Indooroopilly Children Services (Qld) Pty Ltd v FC of T 2007 ATC 4236 ¶2-130

J Paragraph J & G Knowles & Associates v FC of T 2000 ATC 4151

¶2-130

Jetto Industries Pty Ltd v FC of T 2009 ATC ¶10-090

¶3-180; ¶3-300

John Holland Group Pty Ltd & Anor v FC of T 2015 ATC ¶20-510 ¶10-430

K Paragraph Kumagai Gumi Co Ltd v FC of T 99 ATC 4316

¶2-080; ¶10-180

L Paragraph Lake Fox Ltd v FC of T 2012 ATC ¶10-248

¶12-610; ¶12-620

Launceston Legacy v FC of T 87 ATC 4635

¶12-840

Lunney v FC of T [1958] HCA 5

¶10-430

M Paragraph Maratech CMDL Pty Ltd v FC of T 97 ATC 4033

¶8-170

Maughan v FC of T (1942) 66 CLR 388

¶12-840

Minproc Engineers Ltd v FC of T 98 ATC 2170

¶2-810

Mt Gibson Manager Pty Ltd v FC of T 98 ATC 4012 ¶2-810

N Paragraph National Australia Bank Ltd v FC of T 93 ATC 4914

¶2-070; ¶10-180; ¶10-320; ¶12-110; ¶13-120

Navy Health Ltd v FC of T [2007] FCA 931

¶12-890

O Paragraph Overseas Aircrew Basing Ltd v FC of T 2009 ATC ¶20-089 ¶2-120

P Paragraph Pamas Foundation (Inc) v DFC of T 92 ATC 4161 ¶12-905 Pollak Partners and DFC of T, Re 94 ATC 2213

¶9-430

Q Paragraph Qantas Airways Ltd; FC of T v 2014 ATC ¶20-477 ¶4-150

R Paragraph Roads and Traffic Authority of NSW v FC of T 93 ATC 4508

S Paragraph Sent v FC of T 2012 ATC ¶20-364

¶2-150

¶2-150; ¶8-140

Starrim Pty Ltd v FC of T 2000 ATC 4460

¶2-130

Stratton v Simpson (1970) 125 CLR 138

¶12-905

T Paragraph Taxpayer v FC of T [2013] AATA 566

¶7-360

Tubemakers of Australia v FC of T 93 ATC 4207 ¶2-150

V Paragraph Virgin Blue Airlines Pty Ltd v FC of T 2010 ATC ¶20-188 ¶4-180 Virgin Blue Airlines Pty Ltd v FC of T 2010 ATC ¶20-226 ¶4-180

W Paragraph Walstern Pty Ltd v FC of T 2003 ATC 5076

¶2-130

Westpac Banking Corp v FC of T 96 ATC 5021

¶10-180

Y Paragraph Young Men’s Christian Association of Melbourne v FC of T (1926) 37 CLR 351 ¶12-905

SECTION FINDING LIST This Finding List enables the reader to locate commentary on specific legislative provisions. Opposite each provision listed you will find references to the paragraph numbers in the text at which the relevant commentary appears.

COMMONWEALTH A New Tax System (Family Assistance) Act 1999 Section

Paragraph

Generally ¶15-320 A New Tax System (Goods and Services Tax) Act 1999 Section

Paragraph

9-75(3)

¶2-060

Pt 4-2 Div 111 (111-1–111-30) ¶2-510 A New Tax System (Medicare Levy Surcharge — Fringe Benefits) Act 1999 Section

Paragraph

Generally ¶15-320 Acts Interpretation Act 1901 Section

Paragraph

2B “business day” ¶2-540 Australian Charities and Not-for-profits Commission Act 2012 Section

Paragraph

25-5

¶12-900

Generally

¶12-475; ¶14310

Australian Federal Police Act 1979 Section

Paragraph

Generally ¶15-120 Charities Act 2013 Section

Paragraph

5

¶12-890

5(b)(ii)

¶12-890

11

¶12-890

12

¶12-890

13

¶12-890

Generally ¶12-900 Charities (Consequential and Transitional Provisions) Act 2013 Section Paragraph Sch 2 — item 2 ¶12-900 — item 3 ¶12-900 Consular Privileges and Immunities Act 1972 Section

Paragraph

Generally

¶2-240; ¶12-810

Corporations Act 2001 Section

Paragraph

Generally ¶12-905 Crimes Act 1914 Section Paragraph 4AA

¶2-820

Crimes (Taxation Offences) Act 1980 Section

Paragraph

Generally ¶2-830 Criminal Code Act 1995 Section

Paragraph

Generally ¶2-730 Defence Force Discipline Act 1982 Section

Paragraph

Generally ¶15-120 Diplomatic Privileges and Immunities Act 1967 Section

Paragraph

Generally

¶2-240; ¶12-810

Extension of Charitable Purpose Act 2004 Section Paragraph 4

¶12-900

Fair Work (Registered Organisations) Act 2009 Section

Paragraph

Generally ¶14-310

Fringe Benefits Tax Act 1986 Section

Paragraph

Generally ¶2-010 Fringe Benefits Tax (Application to the Commonwealth) Act 1986 Section

Paragraph

Generally ¶2-010; ¶2140 Fringe Benefits Tax Assessment Act 1986 Section

Paragraph

5(b)(ii)

¶12-890

5B

¶2-510

5B(1B)

¶14-210; ¶14-230

5B(1C)

¶14-220; ¶14-230

5B(1E)

¶2-260; ¶12-830; ¶14-420; ¶14-438

5B(1H)

¶14-430

5B(1J)

¶14-430

5B(1L)

¶16-460

5C(3)

¶2-510; ¶14-210

5C(4)

¶2-510; ¶14-220

5E(2)

¶2-510; ¶2-610; ¶15-110

5E(3)

¶2-620

5E(3)(a)

¶15-120

5E(3)(b)

¶15-120

5E(3)(c)

¶15-120

5E(3)(e)

¶15-120

5E(3)(f)

¶15-120

5E(3)(g)

¶15-120

5E(3)(h)

¶15-120

5E(3)(j)

¶15-120

5E(3)(k)

¶15-120

5E(3)(l)

¶15-120

5E(4)

¶15-140

5E(5)

¶15-140

5E(6)

¶15-120

5F

¶15-130

6

¶2-020

6A

¶2-020

Pt III Div 2 (7–13)

¶12-920; ¶12-980

7

¶3-110; ¶15-120

7 “car benefit”

¶4-130

7(1)

¶12-930; ¶15-120

7(1)(b)

¶3-140

7(2)

¶3-180

7(2A)

¶3-180

7(3)

¶3-180

7(4)

¶3-180

7(5)

¶3-160

7(6)

¶3-140; ¶3-520

7(7)

¶3-140

8(2)

¶5-465; ¶10-230; ¶12-930

8(2)(a)

¶3-220

8(2)(b)(i)

¶3-220

8(2)(b)(ii)

¶3-220

8(3)

¶3-240

8(4)

¶3-260

9(1)

¶3-500

9(2)

¶3-520

9(2)(a)(i)

¶3-525

9(2)(a)(ii)

¶3-525

9(2)(e)

¶3-500

10(1)

¶3-600

10(2)

¶3-600

10(2)(a)

¶3-670

10(3)(a)

¶3-600

10(3)(a)(i)

¶3-610

10(3)(a)(ii)

¶3-610

10(3)(a)(iii)

¶3-620; ¶3-630

10(3)(a)(iv)

¶3-620; ¶3-630

10(3)(a)(v)

¶3-610

10(3)(a)(vi)

¶3-620; ¶3-630

10(3)(c)

¶3-600

10(3A)

¶3-610

10(5)

¶3-300

10A

¶3-600; ¶3-670; ¶3-690

10B

¶3-600; ¶3-670; ¶3-690

11(1)

¶3-620

11(1A)

¶3-620

11(1AA)

¶3-620

11(1B)

¶3-630

11(2)

¶3-630

12

¶3-620

13

¶3-620; ¶3-635

13(2)

¶3-525

13(4)

¶3-525

Pt III Div 3 (14–24)

¶11-640

14

¶11-620

15

¶11-680

16(1)

¶6-110

16(2)

¶6-140

16(3)

¶6-160

16(4)

¶6-160

16(5)

¶6-140

17(1)

¶6-220

17(2)

¶6-220

17(3)

¶6-240

17(4)

¶6-260

18

¶6-300

19

¶6-410; ¶13-120

19(1)(b)

¶6-430

19(1)(ba)

¶6-430

19(1)(c)

¶6-520

19(1)(ca)

¶6-540

19(1)(e)

¶6-450

19(1)(f)

¶6-470

19(1)(f)(ii)

¶6-470

19(1)(g)

¶6-470

19(2)

¶6-410

19(5)

¶6-480

20

¶5-110

20A

¶2-720; ¶5-210

21

¶5-220; ¶8-380; ¶15-120

22

¶5-120; ¶5-240

22A(1)

¶5-340

22A(2)

¶5-360

23

¶5-320

24

¶2-070; ¶5-410; ¶13-120

24(1)(b)

¶5-420

24(1)(ba)

¶5-420

24(1)(c)

¶5-505

24(1)(d)

¶5-525

24(1)(e)

¶2-720; ¶5-520

24(1)(ea)

¶5-530

24(1)(f)

¶5-530

24(1)(g)

¶5-440

24(1)(h)

¶5-460

24(1)(j)

¶5-460

24(1)(l)

¶5-470

24(9)

¶5-470

Pt III Div 6 (25–28)

¶7-200

25

¶7-110

26(1)(a)

¶7-320

26(1)(b)

¶7-340

26(1)(c)

¶7-360

26(2)(a)

¶7-370

26(2)(b)

¶7-370

27

¶7-390

28(5)

¶7-380

30(1)

¶8-170

30(1) “LAFH allowance benefit”

¶8-110

30(1) “normal residence”

¶8-130

30(1)(b)

¶8-130

30(2)

¶8-170

31

¶8-310; ¶8-330

31(3)

¶8-310

31(4)

¶8-310

31A

¶8-320; ¶8-330

31B

¶8-330

31C

¶8-510

31D

¶8-520

31E

¶8-530

31F

¶8-550

31G

¶8-540

31G(1)(b)

¶8-540

31G(2)(b)

¶8-540

31H

¶8-350

31H(2)

¶8-350

Pt III Div 8 (former)

¶9-100; ¶9-155; ¶10-170

32 (former)

¶9-155; ¶9-394; ¶10-170

35

¶11-420

36

¶11-480

37

¶11-520

Pt III Div 9A (37A–37CF)

¶11-800; ¶11-820; ¶11-830; ¶11-860; ¶14-330; ¶14-430; ¶14630; ¶15-120; ¶15-170

37AA

¶11-830

37AB

¶11-830

37AC

¶11-810

37AD

¶11-810

37AD(a)

¶11-810

37AD(c)

¶11-810

37AF

¶12-100

37BA

¶11-840

37CB(1)

¶11-850

37CB(2)

¶11-850

37CC

¶11-850

37CD

¶11-850

37CD(3)

¶11-850

Pt III Div 10 (38–39)

¶11-800; ¶11-920

38

¶11-910; ¶16-610

39

¶11-930

Pt III Div 10A (39A–39GH)

¶2-620; ¶4-140; ¶12-190; ¶12-200; ¶14-320; ¶14-350; ¶14460; ¶15-120

39A

¶4-150

39A(1)(a)(i)

¶4-140

39A(1)(a)(ii)

¶4-150

39A(1)(a)(iii)

¶4-150; ¶4-160

39A(1)(b)

¶4-170

39A(1)(c)

¶4-130

39A(1)(d)

¶4-120

39A(1)(e)

¶4-180

39A(1)(f)

¶4-180

39A(1)(g)

¶4-190

39AA

¶4-160

39AB

¶4-160

39B

¶4-150

39C

¶4-310

39D

¶4-320

39D(1)

¶4-320

39DA

¶4-330

39DA(1)

¶4-330

39E

¶4-160; ¶4-360

39F

¶4-560

39FA

¶4-340

39FB

¶4-340

39FC

¶4-340

39G

¶4-540

39GA(1)

¶4-340; ¶4-350

39GB

¶4-350

39GC

¶4-350

39GE

¶4-540

39GG

¶4-540

Pt III Div 11 (40–44)

¶9-100; ¶9-155

40

¶9-110; ¶16-610

41

¶9-220

41(1)

¶9-220; ¶16-460

41(2)

¶9-225

42

¶9-300; ¶9-384; ¶9-450

42(1)(a)(i)

¶9-381; ¶9-383; ¶9-384

42(1)(a)(ii)

¶9-381; ¶9-384

42(1)(a)(iii)

¶9-381; ¶9-385

42(1)(aa)

¶9-381; ¶9-382

42(1)(ab)

¶9-382

42(1)(b)

¶9-386

42(1)(c)

¶9-387

43

¶9-300; ¶9-340

43(a)

¶9-120

44

¶9-420; ¶13-120

44(1)(b)

¶9-430

44(1)(ba)

¶9-430

44(1)(c)

¶9-520

44(1)(d)

¶9-540

44(1)(da)

¶9-560

44(1)(f)

¶9-440

44(1)(g)

¶9-450

44(1)(h)

¶9-450

44(5)

¶9-480

Pt III Div 12 (45–52)

¶9-100; ¶10-170; ¶10-360; ¶12-920; ¶12-980

45

¶10-110; ¶16-610

46(1)

¶10-120

46(2)

¶10-140; ¶10-150

47(1)

¶10-280

47(1)(c)

¶2-720

47(1A)

¶10-285

47(2)

¶10-260

47(3)

¶10-220

47(5)

¶5-220; ¶8-380; ¶10-250; ¶15-120

47(6)

¶10-230; ¶10-280; ¶10-360; ¶12-940

47(6A)

¶10-240

47(7)

¶8-530; ¶10-290; ¶10-430

47(8)

¶10-270

47A

¶2-720; ¶10-210

48–51

¶10-300

48(aa)

¶10-351; ¶10-353

48(ab)

¶10-353

48(a)

¶10-355

48(b)

¶10-357

49(aa)

¶10-351; ¶10-353

49(ab)

¶10-353

49(a)

¶10-355

49(b)

¶10-357

50(a)

¶10-320

50(b)

¶10-320

50(c)

¶10-320

51(a)

¶10-320

51(b)

¶10-320

51(c)

¶10-320

52

¶10-420; ¶13-120

52(1)

¶10-430

52(1)(b)

¶10-430

52(1)(ba)

¶10-430

52(1)(c)

¶10-520

52(1)(d)

¶10-540

52(1)(e)

¶10-450

52(1)(g)

¶10-470

52(1)(h)

¶10-470

52(1)(h)(iii)

¶10-470

52(1)(h)(iv)

¶10-470

52(1)(h)(v)

¶10-470

52(5)

¶10-480

53(1)

¶12-930

53(2)

¶12-940

54

¶12-950

55

¶12-800

56

¶12-810

57

¶12-790; ¶16-460

57A

¶2-200; ¶2-510; ¶2-530; ¶2-610; ¶2-900; ¶5-370; ¶9-225; ¶12-830; ¶12-855; ¶14-010; ¶14-200; ¶14-230; ¶14-400; ¶14410; ¶14-438; ¶15-010; ¶15-020; ¶15-040; ¶15-100; ¶15-160; ¶15-170; ¶15-220; ¶16-160; ¶16-600; ¶16-610

57A(1)

¶12-840

57A(2)

¶12-475; ¶12-850

57A(2)(b)

¶12-850

57A(3)

¶12-860

57A(3)(a)

¶12-475

57A(3)(b)

¶12-475

57A(4)

¶12-475; ¶12-870

57A(5)

¶12-880

58

¶2-610; ¶2-900; ¶12-720; ¶15-010; ¶15-020; ¶15-040; ¶15100; ¶15-160; ¶15-170; ¶15-220

58A

¶12-320; ¶13-240

58AA

¶12-340

58B

¶12-360

58C(1)

¶12-370

58C(2)

¶12-380; ¶12-400

58C(2)(aa)

¶12-400

58C(3)–(5)

¶12-400

58D

¶12-420

58E

¶12-440

58F

¶12-460; ¶13-220

58F(a)

¶12-460

58F(b)

¶12-460

58F(c)(i)

¶12-460

58F(c)(ii)

¶12-460

58G(1)

¶12-190

58G(1)(a)

¶12-195

58G(1)(b)

¶12-200

58G(2)

¶12-210

58G(3)

¶12-215

58GA

¶12-205

58GA(1)(d)(i)

¶12-205

58GA(1)(d)(ii)

¶12-205

58GA(2)

¶12-205

58H

¶12-140

58J(1)

¶12-520

58J(2)

¶12-530

58K

¶12-540

58L

¶12-560

58L(2)–(5)

¶12-560

58LA

¶12-580

58M

¶12-620

58M(1)

¶12-600; ¶12-610; ¶12-620; ¶12-630; ¶12-640

58M(2)

¶12-610; ¶12-620; ¶12-650

58N

¶12-660

58P

¶2-220; ¶9-220; ¶9-340; ¶12-100; ¶12-110; ¶12-980

58P(1)

¶12-100

58P(1)(a)

¶12-100; ¶12-980

58P(1)(b)

¶12-980

58P(1)(c)

¶12-100; ¶12-980

58P(1)(d)

¶12-100; ¶12-980

58P(1)(e)

¶12-100; ¶12-980

58P(1)(f)

¶12-100; ¶12-110; ¶12-980

58P(1)(f)(i)(A)

¶12-110

58P(1)(f)(ii)

¶12-110; ¶12-980

58P(1)(f)(iii)

¶12-110; ¶12-980

58P(1)(f)(iv)

¶12-980

58P(1)(f)(v)

¶3-280; ¶12-980

58P(1)(i)

¶12-980

58P(2)

¶12-100

58P(2)(a)(i)

¶12-100

58P(2)(a)(ii)

¶12-100; ¶12-980

58P(2)(a)(iii)

¶12-100; ¶12-980

58P(2)(b)

¶12-100

58P(2)(c)

¶12-100

58PA

¶12-280

58PB

¶12-280

58PB(4)

¶12-280

58Q

¶12-240; ¶16-420

58R

¶12-260

58S

¶12-680

58T

¶12-740

58U

¶12-730

58V

¶12-750

58W

¶12-290

58X

¶2-220; ¶12-120; ¶12-130; ¶16-060; ¶16-410

58X(1)

¶12-120

58X(1)(c)

¶12-130

58X(3)

¶12-120

58X(4)

¶12-120

58X(4)(b)

¶12-120

58Y

¶12-160

58Z

¶12-100; ¶12-180

58Z(1)

¶12-180

58Z(2)

¶12-180

58ZB

¶12-700

58ZC

¶12-475; ¶12-480

58ZD

¶12-500

Pt III Div 14 (59–65A)

¶2-400; ¶2-440; ¶5-400; ¶9-400; ¶10-400; ¶14-020

59

¶13-410

60

¶13-470; ¶13-480

60(1)

¶13-420

60(2)

¶13-430

60(2A)

¶13-440; ¶16-540

60(3)

¶13-450

60(4)

¶13-460

60(5)

¶13-470

60(6)

¶13-480

60(7)

¶13-480

60AA(4)

¶13-480

60A

¶13-485; ¶13-495

60A(1)

¶13-495

60A(4)

¶13-495

61

¶13-485; ¶13-490

61(1)(f)

¶13-490

61A

¶13-520

61B

¶13-220

61C(1)

¶13-320; ¶13-340

61C(2)

¶13-320

61C(3)

¶13-340

61D

¶13-360

61E

¶13-240

61F

¶13-260

61G

¶13-640

62

¶13-140; ¶13-495; ¶16-530

63

¶8-380; ¶13-620; ¶15-120

63A

¶11-860; ¶13-660

65A

¶13-540

65CC

¶13-480

Pt III Div 15 (65D–65F)

¶2-220; ¶5-530; ¶6-540; ¶9-560; ¶10-560

65J

¶2-540; ¶12-885

65J(1)

¶14-310

65J(1)(b) (former)

¶12-905

65J(1)(baa) (former)

¶12-905

65J(2A)

¶14-315

65J(2B)

¶14-320; ¶14-335

65J(2E)

¶14-330

65J(2F)

¶14-330

65J(2H)

¶14-335

65J(2J)

¶14-335

65J(3)

¶12-905

65J(5)

¶14-310

65J(6)

¶14-315

66

¶2-530

67

¶2-850; ¶3-505

67(2)

¶2-850

67(3)

¶2-850

68

¶2-530

69

¶2-530

70D

¶2-550; ¶2-820

72

¶2-530

73

¶2-530; ¶2-750

74(3)

¶2-530

74(6A)

¶2-530

90

¶2-540

103(1)

¶2-540

103(2)

¶2-540

110

¶2-540

111

¶2-540

112

¶2-540

123

¶2-735

123(5)

¶2-750

123(6)

¶2-750

123A

¶3-690

123B

¶2-750

123C–123E

¶2-260

123C(1)

¶12-840

123C(2)

¶12-840

123D(2)

¶12-880

123E

¶14-310

123E(1)

¶14-310

123E(2)

¶14-310

124

¶2-840

129

¶2-840

132

¶2-730; ¶2-740; ¶2-820; ¶3-670

132A

¶2-740

135A–135L

¶2-740

135K(4)

¶2-740

135K(5)

¶2-740

Pt XIB (135M–135Q)

¶15-120

135N

¶15-310

135P(1)

¶2-610; ¶15-100

135P(2)

¶15-210

135Q

¶2-610

135Q(2)

¶15-160

135Q(3)

¶15-150

135Q(4)

¶2-630; ¶15-220

Pt XIC (135R–135X)

¶2-140

135Y

¶12-830; ¶16-160

136(1)

¶2-900; ¶3-100; ¶3-690; ¶4-100; ¶5-120; ¶5-505; ¶7-110; ¶8100; ¶9-360; ¶9-386

136(1) “airline transport fringe benefit”

¶9-394; ¶10-100

136(1) “annualised number of whole kilometres”

¶3-515

136(1) “arm’s length transaction”

¶9-388

136(1) “board meal”

¶11-420

136(1) “business journey”

¶3-600; ¶3-670

136(1) “business kilometre”

¶3-600

136(1) “business use percentage”

¶3-600

136(1) “car expense”

¶3-610; ¶12-930

136(1) “car parking fringe benefit”

¶4-100

136(1) “disease”

¶12-880

136(1) “domestic services”

¶12-740

136(1) “eligible dining facility”

¶11-420

136(1) “eligible premises”

¶11-420

136(1) “employee”

¶2-120

136(1) “employer”

¶2-140

136(1) “entertainment facility leasing” (EFL)

¶5-370

136(1) “expense payment fringe benefit” ¶5-100 136(1) “external property fringe benefit”

¶9-320

136(1) “fringe benefit”

¶2-100; ¶5-120; ¶16-360

136(1) “housing fringe benefit”

¶7-100

136(1) “housing right”

¶7-110

136(1) “in respect of”

¶2-130

136(1) “industrial instruments”

¶12-280

136(1) “living-away-from-home allowance fringe benefit”

¶8-100

136(1) “loan fringe benefit”

¶6-100

136(1) “meal entitlement day”

¶11-420

136(1) “notional value”

¶9-390

136(1) “obligation”

¶11-620

136(1) “odometer records”

¶3-690

136(1) “once-only deduction”

¶2-070; ¶5-420; ¶9-430

136(1) “personal services”

¶12-740

136(1) “property”

¶9-120

136(1) “property fringe benefit”

¶9-100

136(1) “provide”

¶9-140

136(1) “recreational facility”

¶10-260

136(1) “registered charity”

¶12-475; ¶14-310

136(1) “registered health promotion charity”

¶12-880

136(1) “registered public benevolent institution”

¶12-840

136(1) “residual fringe benefit”

¶10-100

136(1) “salary packaging arrangement”

¶9-396; ¶16-010

136(1) “small business entity”

¶12-120

136(1) “statutory evidentiary document”

¶2-735

136(1) “statutory food amount”

¶13-620

136(1) “tangible property”

¶9-120

136(1) “work-related travel”

¶3-220

136AB

¶2-150

137(1)

¶2-120

138(3)

¶5-470; ¶6-480; ¶9-480; ¶10-480; ¶12-980; ¶13-120

140

¶12-475

140(1)

¶12-475

140(1A)

¶12-475

140(1)(a)(i)

¶12-475

140(1)(a)(ii)

¶12-475

140(1B)(a)

¶12-475

140(1B)(c)

¶12-475

140(1B)(d)

¶12-475

140(1C)

¶12-475

140(1CA)

¶12-475

140(1D)

¶12-475

140(3)

¶12-475

141

¶6-340

141(2)(c)

¶6-340

142(1)

¶13-420; ¶13-430

142(1A)

¶13-440

142(2)

¶13-450

142(2A)

¶13-470

142(2B)

¶13-480

142(2C)

¶13-460

142(2E)

¶13-420; ¶13-430; ¶13-440; ¶13-450; ¶13-460; ¶13-470; ¶13480

142(3)(a)

¶13-440

142(3)(b)

¶13-420

142(3)(c)

¶13-430

142(3)(d)

¶13-450

142(3)(e)

¶13-460

142(3)(f)(i)

¶13-470

142(3)(f)(ii)

¶13-480

142A

¶12-320; ¶13-485

142A(1)

¶12-460

143

¶13-495

143(1)

¶13-485

143A

¶12-460

143A(c)

¶12-460

143A(d)

¶12-460

143A(e)

¶12-460

143A(f)

¶12-460

143A(g)

¶12-460

143B

¶13-520; ¶13-540

143C

¶13-520

143D

¶12-320

143E

¶12-650

145

¶11-620

147

¶5-110

148(1)

¶2-130

148(2)

¶2-120

148(2A)

¶2-120

149

¶7-120; ¶10-120

149A

¶2-510; ¶16-610

150

¶5-160

152A

¶2-710

152B

¶5-370

153

¶9-150; ¶10-160

154

¶9-140

155

¶9-140

156

¶9-120; ¶10-180

157

¶7-320

157(2)

¶12-475

158

¶9-220; ¶10-220; ¶11-420

159

¶2-120

162(1)

¶3-140

162C

¶3-515

162F

¶3-690

162G(1)

¶3-670

162H

¶3-670

162K

¶3-670; ¶3-690

162N

¶10-240

165

¶2-830

166

¶2-830

167

¶2-830

Fringe Benefits Tax Regulations 1992 Regulation Paragraph 4

¶12-220

5(2)

¶15-120

5(3)

¶15-120

5(4)

¶15-120

5(5)

¶15-120

5(5A)

¶15-120

5(6)

¶15-120

6

¶15-120

7

¶15-120

8

¶15-120

9

¶15-120

9(3)

¶15-120

13A

¶12-220

14

¶13-280

Income Tax Assessment Act 1936 Section

Paragraph

23AG

¶2-080; ¶2-120

23AG(1AA)

¶2-080

23AG(1AA)(a)

¶16-550

23L

¶2-035

26AF

¶2-150

26AFA

¶2-150

27H

¶2-150

47A

¶2-150

51AEA

¶2-050; ¶11-840; ¶11-850

51AEB

¶2-050; ¶11-850

51AEB(1)

¶11-850

51AEB(2)

¶11-850

51AEC

¶5-370

51AH

¶2-055; ¶2-070; ¶5-440; ¶5-460; ¶5-480; ¶6-490

51AJ

¶2-055; ¶6-450; ¶6-470; ¶6-490; ¶9-440; ¶9-450; ¶9-490; ¶10-450; ¶10-490

65(1B)

¶2-150

82A

¶5-420; ¶6-430; ¶9-430; ¶10-430; ¶13-120

99A

¶12-280

Pt III Div 7A (109B–109ZE)

¶2-150

109D(1)

¶2-150

109D(1AA)

¶2-150

109N

¶2-150

109Y

¶2-150

148(2)

¶2-120

159P

¶12-560

Pt IVA (177A–177G)

¶2-800

262A

¶2-730

Pt IX Div 7A (former)

¶6-200

318

¶2-120

Sch 2

¶12-475

Income Tax Assessment Act 1997 Section

Paragraph

4-15

¶2-070

6-5

¶5-120; ¶16-050

6-5(4)

¶16-050

6-10

¶16-050

8-1

¶2-070; ¶5-120; ¶5-370; ¶5-420; ¶5-440; ¶5-520; ¶6-430; ¶9220; ¶9-440; ¶10-430; ¶11-820; ¶12-100

15-2

¶3-190

15-70

¶2-035; ¶3-190; ¶5-120

25-20

¶10-430

Pt 2-5 Div 28 (28-1–28-185)

¶5-120; ¶5-420; ¶5-520; ¶6-430; ¶9-430; ¶9-520; ¶10-430; ¶10-520; ¶13-120; ¶13-280

28-13

¶5-460; ¶6-470; ¶9-450; ¶10-470

Pt 2-5 Div 30 (30-1–30-320)

¶2-120

30-15

¶14-310

Pt 2-5 Div 32 (32-1–32-90)

¶11-840; ¶11-910; ¶13-660

32-5

¶5-370

32-10

¶11-810; ¶11-820

32-20

¶11-480; ¶11-860; ¶11-910

32-30

¶9-220

32-65

¶12-630

32-75

¶5-370

Pt 2-5 Div 35 (35-1–35-55)

¶2-070; ¶5-410; ¶6-410; ¶9-420; ¶10-420; ¶13-120; ¶16-510

35-10(1)

¶2-070

35-10(2)

¶2-070

35-10(2E)

¶2-070

35-10(4)

¶2-070

40-45(1)

¶2-055; ¶12-120

40-72

¶3-620

40-100

¶3-620

40-230

¶3-620; ¶16-120

40-285

¶3-620

50-15

¶14-310

50-40

¶14-310

50-50

¶14-310

50-52

¶14-310

50-55

¶14-310

50-70

¶14-310

Pt 2-40 Div 83A (83A-1–83A-340)

¶2-150; ¶16-350

Pt 2-42

¶2-065; ¶13-640

86-70

¶3-260

118-130

¶8-510

130-85(4) “employee share trust”

¶2-150

Div 245 (245-1–245-265)

¶11-600

245-40(a)

¶11-600

290-160

¶15-320

290-230

¶15-320

291-25

¶16-050

291-165

¶16-050

292-90

¶16-050

328-110

¶12-120; ¶12-205

Div 775 (775-5–775-315)

¶9-120

Pt 5-30 Div 900 (900-1–900-250)

¶6-430; ¶9-430; ¶10-430; ¶13-120

Pt 5-30 Div 900 Subdiv 900-E (900-100– ¶5-420; ¶5-505; ¶13-120 900-135) 995-1

¶2-900; ¶12-205

International Organisations (Privileges and Immunities) Act 1963 Section

Paragraph

Generally ¶12-800 Medicare Levy Act 1986 Section Paragraph 8B

¶15-320

8D

¶15-320

Police Service Administration Act 1990 (Qld) Section Paragraph 2.2(1)

¶15-120

Retirement Savings Accounts Act 1997 Section

Paragraph

Generally ¶2-150 Small Superannuation Accounts Act 1995 Section

Paragraph

Generally ¶12-290 Superannuation (Government Co-contribution for Low Income Earners) Act 2003 Section

Paragraph

Generally ¶15-320 Tax Agent Services Act 2009 Section

Paragraph

Generally ¶2-550 Taxation Administration Act 1953 Section

Paragraph

8ZE

¶2-850

Pt IVC (14ZL–14ZZS)

¶2-810

14ZU

¶2-810

Sch 1

¶2-900

— Sch 1 s 12-1

¶2-120

— Sch 1 s 12-35

¶5-120

— Sch 1 s 16-155

¶2-630

— Sch 1 s 16-155(1)(c)

¶15-230

— Sch 1 s 16-160(2)

¶15-230

— Sch 1 s 16-170

¶15-230

— Sch 1 s 16-175

¶15-240

— Sch 1 Pt 4-15

¶2-560

— Sch 1 s 255-5(1)

¶2-560

— Sch 1 Pt 4-25 Subdiv 284-B (284-70– ¶2-820 284-95) — Sch 1 s 284-75

¶2-550

— Sch 1 s 286-75

¶2-550

— Sch 1 s 286-80

¶2-560

— Sch 1 s 286-80(4A)

¶2-560

— Sch 1 Pt 4-50 Div 340 (340-1–34025)

¶2-840

— Sch 1 s 350-10

¶2-840

— Sch 1 s 353-10(1)

¶2-840

— Sch 1 s 353-15

¶2-840

— Sch 1 Pt 5-35 Div 426 (426-1–426170)

¶12-840; ¶12-880; ¶14-310

Taxation Laws Amendment (2011 Measures No 5) Act 2011 Section

Paragraph

Generally ¶3-510

RULINGS FINDING LIST This list shows details of the paragraphs where you will find specific rulings, determinations and other ATO statements in the text. The list is arranged into three categories: • Income Tax Rulings and Determinations, covering both draft and final rulings in the TR, IT and TD series • Other Rulings and Determinations, incorporating class rulings and miscellaneous rulings on FBT • ATO Guidelines, covering both draft and final practical compliance guidelines in ATO • ATO Statements and Interpretative Decisions (ID), containing non-binding statements of the Commissioner's views.

INCOME TAX RULINGS AND DETERMINATIONS Taxation Rulings Order

Paragraph

TR 92/15

¶5-120

TR 92/17

¶12-720; ¶12-790

TR 93/6

¶6-220

TR 93/12

¶12-120

TR 94/27

¶12-475

TR 95/24

¶2-040

TR 96/7

¶2-730

TR 96/26

¶4-150; ¶4-180; ¶4-320; ¶4-340

TR 97/17

¶11-810; ¶11-820; ¶11-860; ¶11-875

TR 97/23

¶3-610

TR 98/17

¶8-510

TR 1999/6

¶2-130; ¶16-440

TR 1999/10

¶2-120; ¶9-360

TR 1999/15

¶3-150; ¶16-130

TR 2000/4

¶3-180; ¶4-140; ¶9-220; ¶10-260; ¶16-450

TR 2001/2

¶2-060; ¶2-360; ¶2-510; ¶3-500; ¶3-600; ¶3-635; ¶16-520

TR 2001/10

¶2-150; ¶16-020; ¶16-050

TR 2003/16

¶12-120

TR 2004/6

¶5-520

TR 2005/9

¶2-730

TR 2005/16

¶2-120

TR 2007/12

¶3-280; ¶3-600; ¶3-670; ¶12-100; ¶12-110; ¶12-115; ¶12980

TR 2011/3

¶3-635

TR 2011/4

¶12-890

TR 2011/5

¶2-810

TR 2012/8

¶2-130

TR 2013/6

¶2-070

Draft Taxation Rulings Draft Ruling

Paragraph

TR 2017/D5

¶2-130; ¶6-110; ¶6410

TR 2017/D6

¶7-160; ¶8-135; ¶8140

Income Tax Rulings Order

Paragraph

IT 28

¶9-340

IT 2167

¶8-510

IT 2509

¶3-150

IT 2675

¶9-220; ¶11-820

Taxation Determinations Determination

Paragraph

TD 92/162

¶5-370

TD 93/20

¶5-420; ¶9-430; ¶10-430; ¶13-120

TD 93/46

¶13-120

TD 93/64

¶12-520

TD 93/90

¶5-410; ¶6-410; ¶9-420; ¶10-420; ¶11-520; ¶13120

TD 93/96

¶13-120

TD 93/153

¶12-630

TD 93/231

¶9-390

TD 94/14

¶8-140

TD 94/16

¶3-180; ¶3-590

TD 94/25

¶11-860

TD 94/26 (withdrawn)

¶3-515

TD 94/28

¶3-525

TD 94/42

¶2-045

TD 94/54

¶4-120

TD 94/55

¶11-820

TD 94/96

¶8-530; ¶10-290

TD 94/97

¶8-530; ¶12-480; ¶12-680; ¶13-500

TD 95/17

¶6-220; ¶6-380

TD 95/18

¶6-220

TD 95/38

¶6-300

TD 95/49

¶10-290

TD 95/56

¶12-885

TD 95/57

¶2-130

TD 95/63

¶9-340; ¶9-390

TD 97/17

¶11-860

TD 97/19

¶3-590

TD 2004/20

¶2-040

TD 2004/21

¶2-530

TD 2006/39

¶3-120

TD 2008/2

¶12-905

TD 2008/10

¶6-120

TD 2008/11

¶11-620

TD 2011/1

¶2-080; ¶2-120; ¶2-140

TD 2013/20

¶2-070

TD 2014/25

¶9-120

TD 2014/28

¶9-120

TD 2015/12

¶2-260; ¶12-850; ¶12-855

TD 2017/2

¶2-740

TD 2017/3

¶6-360; ¶16-160

TD 2017/4

¶10-360

TD 2017/5

¶8-350; ¶8-360; ¶8-390

TD 2017/6

¶7-380

TD 2017/14

¶4-160; ¶16-150

TD 2017/18

¶16-120

TD 2017/19

¶5-520

OTHER RULINGS AND DETERMINATIONS Class Rulings Order

Paragraph

CR 2004/113

¶10-180

CR 2005/82

¶2-510

CR 2005/103

¶10-180

CR 2007/16

¶16-460

CR 2007/86

¶16-460

CR 2008/24

¶16-610

CR 2008/73

¶12-630

CR 2009/3

¶3-180

CR 2009/11

¶9-120; ¶9-320; ¶9-360

CR 2009/12

¶9-120; ¶9-320

CR 2009/29

¶12-610; ¶12-620; ¶12-630

CR 2009/52

¶16-600

CR 2010/7

¶12-600; ¶12-610; ¶12-620; ¶12-630

CR 2010/13

¶16-600

CR 2010/36

¶16-610

CR 2011/41

¶12-600; ¶12-620

CR 2011/71

¶5-360

CR 2011/97

¶16-600

CR 2011/98

¶16-600

CR 2011/99

¶16-600

CR 2011/105

¶16-410

CR 2012/28

¶12-280

CR 2012/67

¶12-630

CR 2012/84

¶12-280

CR 2012/95

¶12-280

CR 2013/10

¶3-180

CR 2013/36

¶16-610

CR 2013/43

¶12-630

CR 2013/77

¶9-340

CR 2013/78

¶12-280

CR 2016/31

¶3-670

CR 2016/37

¶3-670

CR 2016/44

¶3-670

CR 2016/47

¶3-670

CR 2016/56

¶3-670

CR 2016/91

¶3-670

CR 2016/95

¶3-670

CR 2017/19

¶3-670

CR 2017/65

¶3-670

CR 2017/76

¶3-670

GST Rulings

Order

Paragraph

GSTR 2001/3 ¶2-060; ¶2-510 Luxury Car Tax Determinations Determination Paragraph LCTD 2017/1

¶3-600

LCTD 2017/18 ¶3-600 Miscellaneous Taxation Rulings Order

Paragraph

MT 2016

¶2-130

MT 2019

¶2-130

MT 2022

¶9-386; ¶9-580

MT 2023

¶3-530

MT 2024

¶3-120; ¶3-220

MT 2025

¶7-340; ¶7-390

MT 2027

¶3-160; ¶5-490; ¶10360

MT 2033

¶3-220

MT 2034

¶10-360

MT 2038

¶5-540

MT 2044

¶13-140

MT 2050

¶13-160

ATO GUIDELINES Practical Compliance Guidelines Paragraph PCG 2016/10 ¶3-600 PCG 2016/14 ¶7-390 Draft Practical Compliance Guidelines Paragraph PCG 2017/D14 ¶3-220; ¶10-230

ATO STATEMENTS AND INTERPRETATIVE DECISIONS Practice Statements Statement

Paragraph

PS LA 2001/9 (withdrawn) ¶12-855 PS LA 2002/7 (withdrawn) ¶15-240

PS LA 2004/4 (GA)

¶2-130; ¶16-440

PS LA 2005/2

¶2-730

PS LA 2006/8

¶2-820

PS LA 2008/6

¶2-530

PS LA 2011/25

¶2-750

PS LA 2012/5

¶2-820

Interpretative Decisions Decision

Paragraph

ID 2001/255

¶4-140

ID 2001/309

¶10-260

ID 2001/313

¶10-230

ID 2001/332

¶12-790

ID 2001/333

¶2-150

ID 2001/543

¶12-630

ID 2001/803

¶5-220

ID 2002/102

¶3-300

ID 2002/412

¶12-480

ID 2002/517

¶5-420

ID 2002/925

¶3-670

ID 2003/157

¶13-430

ID 2003/159

¶13-440

ID 2003/160

¶13-460

ID 2003/316

¶2-130; ¶11-640

ID 2003/317

¶11-640

ID 2003/320

¶3-150

ID 2003/347

¶6-110

ID 2003/458

¶2-110

ID 2003/498

¶3-140; ¶10-180

ID 2003/688

¶2-130

ID 2003/689

¶12-620

ID 2003/1099

¶2-750; ¶3-670

ID 2004/211

¶9-120

ID 2004/293

¶12-460

ID 2004/301

¶12-620

ID 2004/385

¶3-300

ID 2004/528

¶3-525

ID 2004/557

¶12-620

ID 2004/706

¶8-170

ID 2004/852

¶3-180

ID 2004/935

¶12-205

ID 2005/109

¶9-220

ID 2005/146

¶11-830

ID 2005/156

¶12-480

ID 2005/366

¶12-100

ID 2006/52

¶13-540

ID 2006/93

¶4-360

ID 2006/159

¶2-120

ID 2006/196

¶13-140

ID 2006/197

¶13-140

ID 2006/248

¶12-120

ID 2006/253

¶3-635

ID 2006/294

¶6-240

ID 2006/333

¶12-500

ID 2007/45

¶4-540

ID 2007/140

¶3-600; ¶3-670

ID 2007/141

¶12-600

ID 2007/200

¶2-140

ID 2007/204

¶9-120

ID 2008/20 (withdrawn)

¶15-120

ID 2008/21

¶15-120

ID 2008/30

¶5-360

ID 2008/60

¶10-180

ID 2008/127

¶12-120; ¶16-410

ID 2008/133

¶12-120

ID 2008/158

¶12-120

ID 2008/159

¶12-120

ID 2008/160

¶12-120

ID 2009/24

¶15-120

ID 2009/45

¶5-370

ID 2009/127

¶12-885

ID 2009/140

¶10-230

ID 2009/141

¶5-370

ID 2010/97

¶2-120

ID 2010/108

¶2-150; ¶16-360

ID 2010/135

¶9-320; ¶9-360

ID 2010/142

¶2-150

ID 2010/151

¶9-120

ID 2010/163

¶10-230

ID 2010/182 (withdrawn)

¶12-480

ID 2010/183

¶12-480

ID 2011/28

¶3-140

ID 2011/33

¶2-150

ID 2011/47

¶3-520

ID 2011/54

¶2-150; ¶16-360

ID 2011/56

¶13-540

ID 2011/57

¶7-110

ID 2011/59

¶7-370

ID 2011/60

¶12-660

ID 2011/69

¶12-660

ID 2012/18

¶12-190

ID 2012/58

¶10-270

ID 2012/85

¶5-360; ¶10-355

ID 2012/86

¶5-360; ¶10-355

ID 2012/95

¶12-280

ID 2012/96

¶3-600

ID 2012/97

¶3-220; ¶3-600

ID 2012/98

¶3-220

ID 2013/8

¶12-340; ¶12-360; ¶12-370; ¶12-420; ¶12-460; ¶13-320; ¶13340

ID 2013/34

¶3-220

ID 2013/35

¶12-460

ID 2013/43

¶8-530

ID 2014/9

¶13-495

ID 2014/12

¶4-150

ID 2014/15

¶11-810

ID 2014/17

¶9-360

ID 2014/18

¶3-610

ID 2015/1

¶12-630

ID 2015/25

¶10-260

Taxpayer Alerts

TA

Paragraph

TA 2011/5 ¶16-360

ATO TECHNICAL DISCUSSION PAPERS TDP 2017/2 ¶12-180

INDEX All references are to paragraph numbers.

A Accommodation — see Housing benefits ACNC registration requirements

¶12-900

Airline transport fringe benefits definition

¶9-394

All-day parking definition Allowance

¶4-150 ¶5-120; ¶16-170

Appeals

¶2-810

Assessment

¶2-530

Associate definition

¶2-120

B BAS agents

¶2-550

Benchmark interest rate

¶6-360

Benefits board

¶11-420

car parking

¶4-110

cars

¶3-110

debt waiver definition

¶11-620 ¶2-110

exempt — see Exemptions expense payment

¶5-110

fringe benefit

¶2-100

housing

¶7-110

living-away-from-home allowance

¶8-110

loans meal entertainment

¶6-100; ¶6-110 ¶11-810

minor

¶12-100

motor vehicle parking

¶12-190

property

¶9-110

provided to employee or associate

¶2-120

remote area

¶12-470

reportable

¶15-000

residual

¶10-110

tax-exempt body entertainment

¶11-910

Board benefits

¶11-400

definition

¶11-420

Board fringe benefits

¶11-400

documentation

¶11-560

exemptions

¶11-440

taxable value

¶11-480

— reductions

¶11-520

— summary workpaper

¶11-590

C Car definition

¶3-120

Car benefits definition

¶3-110

— applied to private use

¶3-160

— available for private use

¶3-180

— car held by provider

¶3-140

— exclusions

¶3-190

— novated leasing arrangements

¶3-150

Car fringe benefits definition

¶3-100

exemptions

¶3-200

— car expenses

¶3-290

— minor benefits

¶3-280

— personal services entities

¶3-260

— unregistered cars

¶3-240

— work-related cars

¶3-220

reductions in taxable value

¶3-400

roadmap

¶3-000

taxable value

¶3-300

— cost basis method

¶3-600

— statutory formula method

¶3-500

Car fringe benefits — cost basis method

¶3-600

car expenses

¶3-610

car logbook and instructions

¶3-660; ¶3-670

cost price — definition — workpaper and instructions deemed depreciation employee declaration and instructions

¶3-635 ¶3-700; ¶3-720 ¶3-620 ¶3-680; ¶3-690

fuel expenses declaration

¶3-740

imputed interest

¶3-630

taxable value — calculation

¶3-640

— formula

¶3-600

— workpaper

¶3-650

Car fringe benefits — statutory formula method

¶3-500

annualised kilometres

¶3-515

base value

¶3-520

— adjustments

¶3-525

— workpaper and instructions

¶3-540; ¶3-560

employee declaration and instructions

¶3-580; ¶3-590

fuel expenses declaration

¶3-740

taxable value — calculation

¶3-530

— formula

¶3-500

— recipient’s payment

¶3-500

— workpaper Car parking benefits all-day parking fee

¶3-535; ¶3-540 ¶4-100; ¶14-630 ¶4-310; ¶4-360

car is owned, leased or provided

¶4-130

commercial parking station within 1 km

¶4-150

definition

¶4-110

facility is provided

¶4-120

facility on business premises

¶4-140

fringe benefits

¶16-150

parked for more than four hours

¶4-170

parked in vicinity of employment place

¶4-180

threshold

¶4-160

travel between home and work

¶4-190

Car parking exempt benefits disabled persons

¶12-220

expense payments

¶12-195

government educational institutions

¶12-215

non-profit employers

¶12-210

residual parking benefits

¶12-200

small business

¶12-205

Car parking fringe benefits

¶4-100; ¶14-630

definition

¶4-110

documentation

¶4-500

— actual usage, instructions

¶4-570

— actual usage method

¶4-520

— actual usage, workpaper

¶4-565

— statutory formula method

¶4-560

— statutory formula workpaper

¶4-585

— 12-week register, instructions

¶4-580

— 12-week register method

¶4-540

— 12-week register, workpaper

¶4-575

exemptions

¶4-200

reductions

¶4-400

roadmap

¶4-000

taxable value

¶4-300

— all-day parking fee, calculation

¶4-310; ¶4-360

— average cost method of valuation

¶4-330

— calculation

¶4-380

— commercial parking station method

¶4-310

— market value method

¶4-320

— statutory formula method

¶4-340

— 12-week register method

¶4-350

— valuation — valuation methods

¶4-310; ¶4-320; ¶4-330 ¶4-300; ¶4-370

valuation — workpaper

¶4-395

Car parking threshold

¶4-160

Car property benefits — see Property benefits Car residual benefits documentation

¶10-560

reductions in taxable value

¶10-470

Care workers live-in domestic employees

¶12-740

live-in help for elderly and disadvantaged persons

¶12-730

live-in residential care workers

¶12-720

non-live-in domestic employees (food and drink)

¶12-750

D Debt waiver benefits

¶11-600

definition

¶11-620

exemptions

¶11-640

Debt waiver fringe benefits

¶11-600

documentation

¶11-760

taxable value

¶11-680

— reductions

¶11-720

— summary workpaper

¶11-790

Declarations employee car declaration

¶3-580

— operating cost calculations

¶3-680

employer-provided vehicles other than cars

¶10-610

employment interview or selection test

¶13-720

expense payment benefits — no-private-use

¶5-630 ¶5-210; ¶5-620

— recurring expense payment

¶5-640

— requirement details

¶5-520

living-away-from-home allowance benefits

¶8-620

— FIFO or DIDO

¶8-640

— home maintained in Australia

¶8-630

medical/counselling/training car travel

¶13-730

no-private-use

¶10-600

property benefit

¶9-600

recurring expense

¶5-640

recurring property benefit

¶9-620

recurring residual benefit

¶10-630

relocation of employees — interviews or selection tests

¶13-720

— temporary accommodation

¶13-740

— transport

¶12-460

relocation transport

¶13-710

remote area holiday transport

¶13-750

residual benefits

¶10-620

— employer-provided vehicles other than cars

¶10-610

— no-private-use

¶10-600

— recurring residual benefits

¶10-630

Definitions accommodation component

¶8-150

ACNC registered company

¶12-720

actual fringe benefit

¶5-340

airline travel

¶9-155

all-day parking

¶4-150

arm’s length price

¶9-386

arm’s length transaction arrangement associate association benefit

¶10-390 ¶2-140; ¶2-850; ¶9-396 ¶2-120 ¶12-885 ¶2-110; ¶9-396

board benefit

¶11-420

board meal

¶11-420

business journey

¶3-600; ¶3-670

business kilometre

¶3-600

business premises

¶4-140

car

¶3-120

— held by provider

¶3-140

car benefit

¶3-110

car expense

¶3-610

car expense payment benefit

¶5-460

car fringe benefit

¶3-100

car loan benefit

¶6-470

car parking benefits

¶4-110

car parking fringe benefit

¶4-100

car property benefit

¶9-450

car residual benefit

¶10-470

charitable institution

¶14-310

charitable purpose

¶12-890

charity

¶12-890

commercial parking station

¶4-150

commitment

¶3-510

Commonwealth employee

¶15-120

Commonwealth overseas living allowance

¶15-120

comparison time

¶10-351

cost price

¶3-635; ¶9-340

counselling

¶12-630

debt waiver benefits

¶11-620

depreciated value

¶3-620

disease

¶12-880

disqualifying purpose

¶12-890

eligible car parking expense payment benefit

¶12-195

eligible dining facility

¶11-420

eligible family member

¶8-160

eligible overtime meal expense payment benefit

¶5-520

eligible pre-commencement loan

¶6-320

eligible premises

¶11-420

eligible urban area

¶12-475

emergency

¶12-660

employee

¶2-120

employee credit loan benefit

¶6-520

employee share loan benefit

¶6-520

employee share trust

¶2-150

employer

¶2-140

entertainment facility leasing expenses

¶15-120

exclusive employee expense payment benefit

¶5-520

exclusive employee property benefit

¶9-520

exclusive employee residual benefit

¶10-520

expense payment benefits

¶5-110

— allowance

¶5-120

— reimbursement

¶5-120

expense payment fringe benefit

¶5-100

extended travel expense payment benefit

¶5-520

extended travel property benefit

¶9-520

extended travel residual benefit

¶10-520

external expense payment fringe benefit

¶5-320

external property fringe benefit

¶9-320

family member

¶8-340; ¶8-350

food component

¶8-160

fringe benefits tax

¶2-100

— sec 57A employers

¶14-400

government body

¶12-720

housing benefits

¶7-110

housing loan relating to a dwelling

¶6-340

housing right

¶7-110

in-house property fringe benefit

¶9-360

in respect of

¶2-130; ¶4-120

individual fringe benefits

¶15-010

individual quasi-fringe benefits

¶15-010

institution

¶12-905

intangible property

¶9-120

interest

¶6-300

international aircrew expense payment benefit international aircrew residual

¶5-525; ¶9-540 ¶10-540

lease

¶7-120

licence

¶7-120

living-away-from-home (LAFH) allowance benefits

¶8-100; ¶8-110

loan

¶6-120

loan benefits

¶6-110

logbook records

¶3-670

luxury car

¶16-120

meal entertainment benefits

¶11-810

meal entitlement day

¶11-420

medical treatment

¶12-560

member of a religious order

¶12-790

minister of religion

¶12-790

no-private-use declaration

¶5-210

non-business accessory

¶3-520

non-profit association

¶12-885

non-profit club

¶12-885

non-profit organisation

¶12-885

non-profit society

¶12-885

normal residence

¶8-130

not-for-profit entity

¶12-890

notional taxable value

¶12-100

notional value

¶9-381; ¶9-390; ¶10-357; ¶10-390

obligation

¶11-620

occasional

¶15-120

once-only deduction period residual benefit place of residence

¶2-070; ¶5-420; ¶6-430 ¶10-120 ¶4-190; ¶7-160

police service

¶15-120

police support services

¶15-120

primary place of employment

¶4-180

property

¶9-120

property fringe benefit

¶9-100

provide

¶9-140

public hospital

¶12-855

rebatable employers

¶14-310

recipients contribution

¶13-160

recipients overall benefit

¶10-150

recipient’s payment

¶3-600; ¶13-160

recipients rent

¶7-420; ¶13-160

recreational facility

¶10-260

registered health promotion charity

¶12-880

registered public benevolent institution

¶12-840

registered religious institution

¶12-720

religious practitioner

¶12-790

remote area

¶12-475

reside

¶8-130

residual benefits

¶10-100

residual fringe benefit

¶10-100

salary or wages salary packaging salary packaging arrangement

¶2-150; ¶9-396 ¶16-010 ¶9-396

salary sacrifice arrangement

¶16-050

stand-by airline travel value

¶9-382

standard single economy airfare

¶9-382; ¶10-353

tangible property

¶9-120

tax benefit

¶2-850

tax-exempt body entertainment benefit

¶11-910

taxi

¶12-180

unit of accommodation

¶7-140

usual place of residence

¶7-160

work-related injuries

¶12-520

work-related trauma

¶12-520

worker entitlement funds

¶12-280

Depreciation car fringe benefit — cost basis method

¶3-620

limitation on employee depreciation claims

¶2-055

Documentation car parking fringe benefits

¶4-500

— actual usage, instructions

¶4-570

— actual usage method

¶4-520

— actual usage, workpaper

¶4-565

— statutory formula method

¶4-560

— statutory formula workpaper

¶4-585

— 12-week register, instructions

¶4-580

— 12-week register method

¶4-540

— 12-week register, workpaper

¶4-575

expense payment benefits — car expense payment benefits

¶5-530

— declaration

¶5-510

— evidence

¶5-505

— local and overseas travel

¶5-540

fringe benefits

¶2-700

— declarations

¶2-710

— record-keeping exemption

¶2-740

— retention of records

¶2-730

— statutory evidentiary

¶2-735

— substantiation discretion

¶2-750

— travel diary

¶2-720

housing agreement

¶7-500; ¶7-575

— base year election

¶7-540; ¶7-585

— current year housing benefit taxable value

¶7-595

— current year taxable value

¶7-560

— housing benefits — taxable value summary

¶7-600

loan fringe benefit

¶6-500

— car loan benefit

¶6-540

— declaration

¶6-520; ¶6-580

— taxable value

¶6-585

maintaining home in Australia

¶8-510

— DIDO requirements

¶8-530

— employee declarations

¶8-500; ¶8-520

— employee related expenses, workpaper

¶8-620

— FIFO requirements

¶8-530

— fly-in fly-out or drive-in drive-out employee declaration, workpaper

¶8-640

— home maintained in Australia declaration, workpaper

¶8-630

— home maintained in Australia, 12-months limitation

¶8-520

— LAFH agreement

¶8-560

— LAFH allowance tax value

¶8-560

— LAFH allowance taxable value, workpaper

¶8-610

— LAFH employee declarations

¶8-550

— LAFH expenditure substantiation

¶8-540

— LAFH expenses

¶8-540

property fringe benefits

¶9-500

— car property benefits

¶9-560

— declaration

¶9-520; ¶9-600

— recurring declaration

¶9-620

— sale of assets of employees

¶9-640

— sale of property to employees

¶9-580

— taxable value summary

¶9-650

— travel diary

¶9-540

residual benefits — car residual benefits

¶10-560

— declaration

¶10-520

— travel diary

¶10-540

Drive-in drive-out (DIDO) LAFH documentation — employee declaration, workpaper

¶8-640

— requirements

¶8-530

LAFH taxable value

¶8-320

E Education

¶12-670

approved student exchange programs

¶12-700

trainees under Australian Traineeship System

¶12-680

Employee awards and entitlements

¶12-230

deposits to Superannuation Holding Accounts Reserve

¶12-290

long service awards

¶12-240; ¶16-420

safety awards

¶12-260

worker entitlement contributions

¶12-280

Employee benefits excluded benefits

¶2-150

income tax return

¶15-030; ¶15-310

nexus with employment

¶2-130

not subject to income tax

¶2-035

provided by employer, associate or third party

¶2-140

provided to employee or associate

¶2-120

reportable fringe benefits

¶15-300–15-320

Employee health

¶12-510

compassionate travel

¶12-580

emergency assistance

¶12-660

in-house health care facilities

¶12-540

travel to obtain medical treatment

¶12-560

work-related counselling

¶12-630

work-related injuries

¶12-520

work-related injury insurance

¶12-530

work-related medical examinations

¶12-600

work-related medical screening

¶12-610

work-related preventative health care

¶12-620

work-related travel costs

¶12-650

Employees annual income tax return

¶15-310

car expenses

¶5-240

definition

¶2-120

expatriate employees and employment income

¶2-080

tax liabilities and government concessions

¶15-320

Employers benefits

¶2-110

cost of providing fringe benefits

¶2-045

definition

¶2-140

documentation

¶2-700

— declarations

¶2-710

— logbook records

¶2-725

— record-keeping exemption

¶2-740

— retention of records

¶2-730

— statutory evidentiary document

¶2-735

— substantiation discretion

¶2-750

— travel diary

¶2-720

employer's liability

¶2-020

exempt

¶2-240

— foreign governments

¶12-810

— international organisations

¶12-800

— religious institutions

¶12-790

FBT compliance flowchart

¶2-090

FBT liability is deductible

¶2-040

FBT provided to employee or associate

¶2-120

goods service tax (GST)

¶2-060

in-house fringe benefits

¶2-460

limitation on expense and depreciation claims

¶2-055

payment of tax

¶2-540

personal services income rules

¶2-065

rebatable employers — aggregate non-rebatable amount

¶14-320; ¶14-370; ¶14-375

— calculation

¶14-315

— capped rebate amount

¶14-335

— individual base non-rebatable amount

¶14-330

— legislation flowchart

¶14-340

— trade union

¶14-350

reportable fringe benefits — employee benefits

¶2-600 ¶15-030

— employee consequences

¶2-640

— employer reporting

¶2-630

— excluded

¶2-620

— reporting requirement

¶2-610

return

¶2-500

s 57A employers — aggregate non-exempt amount

¶2-260; ¶14-400 ¶14-420; ¶14-470; ¶14-475

— definition

¶14-410

— legislation flowchart

¶14-440

s 57A employers, exemptions

¶12-830

— ACNC registration requirements

¶12-900

— charities and charitable institutions

¶12-890

— government bodies employing hospital staff

¶12-850

— health promotion charities

¶12-880

— “institution” meaning

¶12-905

— non-profit hospitals

¶12-870

— non-profit organisations and associations

¶12-885

— public benevolent institutions

¶12-840

— “public hospital” meaning

¶12-855

— public hospitals and ambulance services

¶12-860

tax liabilities and government concessions

¶2-075

taxable amount

¶2-510

taxable employers

¶14-200

— calculation — example

¶14-230

— legislation flowchart

¶14-225

— type 1 aggregate amount

¶14-210

— type 2 aggregate amount

¶14-220

Entertainment — see Meal entertainment benefits

Entertainment facility leasing expenses

¶15-120

Excluded benefits

¶2-150

Exempt employers

¶2-240

foreign governments

¶12-810

international organisations

¶12-800

religious institutions

¶12-790

Exemptions — see also Miscellaneous exempt benefits car benefits

¶3-200

— cars owned by personal services entities

¶3-260

— expenses

¶3-290

— minor benefits

¶3-280

— unregistered cars

¶3-240

— work-related cars

¶3-220

expense payment fringe benefits

¶5-200

— employee car expenses

¶5-240

— LAFH accommodation

¶5-220

— no-private-use declaration

¶5-210

loans

¶6-200

property

¶3-220; ¶9-200

salary packaging arrangements, exclusions

¶9-225

Expatriate employees

¶2-080

Expense payment benefits

¶5-110; ¶5-140; ¶14-640

allowance — definition

¶5-120

definition

¶5-100

documentation

¶5-500

eligible incidental travel

¶5-520

eligible overtime meal

¶5-520

examples

¶5-170

exclusive employee

¶5-520

expenditure incurred by the recipient

¶5-160

extended travel

¶5-520

in-house — property

¶5-340

— residual

¶5-360

recurring expense declaration

¶5-640

reimbursement — definition

¶5-120

roadmap

¶5-000

travel diary

¶5-525

— workpaper

¶5-610

travel itinerary workpaper

¶5-600

Expense payment fringe benefits declarations — expense payment benefit

¶5-630

— no-private-use

¶5-620

— recurring expense payment benefits

¶5-640

— requirement details

¶5-520

exemptions

¶5-200

— employee car expenses

¶5-240

— LAFH accommodation

¶5-220

— no-private-use declaration

¶5-210

reductions

¶5-400

— application of Income Tax Assessment Act 1936 s 51AH

¶5-480

— business use of motor vehicles

¶5-490

— car expense payment benefit

¶5-460

— jointly provided expense payment benefits

¶5-470

— notional deduction

¶5-440

— once-only deduction

¶5-420

— “otherwise deductible” rule

¶5-410; ¶5-420

— road and bridge tolls

¶5-465

roadmap

¶5-000

taxable value

¶5-300

— entertainment facility leasing expenses

¶5-370

— in-house expense

¶5-340

— in-house property

¶5-340

— in-house residual

¶5-360

— summary workpaper

¶5-650

External property fringe benefit — see Property fringe benefits External residual fringe benefits — see Residual fringe benefits

F FBT — see Fringe benefits tax (FBT) FBT returns

¶14-000

aggregate fringe benefits amount

¶14-200

aggregate non-exempt amount

¶14-460

annual return and assessment

¶2-530

capped threshold amounts collection and recovery

¶14-435 ¶2-560

flowchart

¶14-090

in-house fringe benefits reduction

¶14-190

individual base non-exempt amount

¶14-430

legislation flowchart — aggregate non-exempt amount

¶14-440

notice of non-lodgment

¶14-695

payment of tax

¶2-540

penalties for not lodging return on time

¶2-560

preparation registered tax agents and BAS agents

¶14-010 ¶2-550

salary packaged meal and other entertainment benefits

¶14-438

s 57A employers

¶14-400

— aggregate non-exempt amount

¶14-420; ¶14-470; ¶14-475

— definition

¶14-410

— individual base non-exempt amount

¶14-430

taxable amount

¶2-510

workpapers — tax return

¶14-020

— taxable value

¶14-040

Fly-in fly-out (FIFO) arrangements

¶10-290

LAFH documentation — employee declaration, workpaper

¶8-640

— requirements

¶8-530

LAFH taxable value

¶8-320

Food and drink

¶12-950

board meal

¶11-420

living away from home (LAFH)

— reasonable amounts meal entitlement day

¶8-360 ¶11-420

Frequent flyer benefits salary packaging

¶16-440

Fringe benefits

¶2-100

aggregate amount — type 1

¶14-210

— type 2

¶14-220

categories

¶2-320

details of benefits provided — workpaper

¶14-150

documentation

¶2-700

— declarations

¶2-710

— record-keeping exemption

¶2-740

— retention of records

¶2-730

— statutory evidentiary document

¶2-735

— substantiation discretion

¶2-750

— travel diary

¶2-720

excluded benefits

¶2-150

exempt

¶2-200

— employers

¶2-240

— miscellaneous

¶2-220

— s 57A employers

¶2-260

nexus with employee’s employment

¶2-130

overview

¶11-000

provided by an employer, associate or third party

¶2-140

provided to employee or associate

¶2-120

rebatable employers

¶14-300

— definition

¶14-310

reductions in taxable value — Div 14 reductions

¶2-440

— in-house

¶2-460

— “otherwise deductible” rule

¶2-420

reportable

¶2-600

— employee consequences

¶2-640

— employer reporting

¶2-630

— excluded

¶2-620

— reporting requirement

¶2-610

returns

¶2-500

— annual return and assessment

¶2-530

— collection and recovery

¶2-560

— payment of tax

¶2-540

— registered tax agents and BAS agents

¶2-550

— taxable amount

¶2-510

taxable employers

¶14-200

— calculation — example

¶14-230

— legislation flowchart

¶14-225

— type 1 aggregate amount

¶14-210

— type 2 aggregate amount

¶14-220

taxable value — analysis — workpaper

¶2-300 ¶14-280

— categories

¶2-320

— employee contributions

¶2-360

— reductions in taxable value

¶2-400

— specific exemptions

¶2-340

terminology

¶2-900

Fringe benefits tax (FBT)

¶2-100

collection and recovery

¶2-560

compliance checklist

¶14-600

— car fringe benefits — cost basis method

¶14-620

— car fringe benefits — statutory formula method

¶14-610

— car parking fringe benefits

¶14-630

— expense payment fringe benefits

¶14-640

— housing fringe benefits

¶14-660

— LAFH allowance fringe benefits

¶14-670

— loan and debt waiver fringe benefits

¶14-650

— property fringe benefits

¶14-680

— residual fringe benefits

¶14-690

compliance flowchart

¶2-090

conditions for payment

¶2-100

definition

¶2-100

disputing payable

¶2-800

— miscellaneous administrative matters

¶2-840

— objections, reviews and appeals

¶2-810

— offences

¶2-830

— penalty tax

¶2-820

— tax avoidance arrangements

¶2-850

employee benefits not subjected to income tax

¶2-035

employer costs of providing fringe benefits

¶2-045

employer's liability — calculation

¶2-020

— deductible

¶2-040

entertainment expenditure

¶2-050

expatriate employees and employment income

¶2-080

goods service tax (GST)

¶2-060

interaction with other legislation

¶2-030

legislation

¶2-010

limitation on expense and depreciation claims

¶2-055

logbook records

¶2-725

nexus with employee’s employment

¶2-130

non-commercial loss rules

¶2-070

otherwise deductible rule

¶2-070

personal services income rules

¶2-065

rebatable employer — aggregate non-rebatable amount

¶14-320; ¶14-370; ¶14-375

— calculation

¶14-315

— capped rebate amount

¶14-335

— individual base non-rebatable amount

¶14-330

— legislation flowchart

¶14-340

— trade union

¶14-350

roadmap s 57A employers — aggregate non-exempt amount

¶2-000 ¶14-400 ¶14-420; ¶14-470; ¶14-475

— definition

¶14-410

— legislation flowchart

¶14-440

tax equalisation arrangement

¶2-080

tax liabilities and government concessions

¶2-075

terminology

¶2-900

Fuel and oil

motor vehicle fringe benefits

¶12-940

G Goods and services tax (GST) fringe benefit tax

¶2-060

H Hospitals exemptions

¶12-830

— non-profit hospitals

¶12-870

— “public hospital” meaning

¶12-855

— public hospitals and ambulance services

¶12-860

Housing benefits benefit arises

¶7-170

definition

¶7-110

lease — definition

¶7-120

licence — definition

¶7-120

unit of accommodation — definition

¶7-140

usual place of residence — definition Housing fringe benefits

¶7-160 ¶7-100; ¶14-660

documentation

¶7-500

— base year election

¶7-540

— base year election — workpaper

¶7-585

— current year taxable value

¶7-560

— current year taxable value — workpaper

¶7-595

— housing agreement

¶7-520

— housing agreement — workpaper

¶7-575

exemptions — circumstances

¶7-200

indexation factors

¶7-380

market rental value

¶7-390

reductions

¶7-400

— recipients rent

¶7-420

roadmap

¶7-000

statutory annual value

¶7-370

taxable value

¶7-300

— accommodation outside Australia

¶7-320

— Australian accommodation

¶7-340; ¶7-360

— hotel and motel accommodation, Australia

¶7-340

— indexation factors

¶7-380

— market rental value

¶7-390

— statutory annual value

¶7-370

Housing loans variable interest rate loan made before 3 April 1986

¶6-340

I In-house child care facilities salary packaging

¶16-450

In-house property fringe benefit

¶9-360

In-house residual fringe benefit

¶5-360

Interest

¶6-300

L LAFH — see Living-away-from-home allowance benefits Laptop computers exemption

¶12-120

internet access costs

¶12-130

self education

¶12-120

Leases housing — definition

¶7-120

novated leases — motor vehicles Licences housing

¶16-130

— definition Living-away-from-home accommodation Living-away-from-home allowance benefits

¶7-120 ¶10-250 ¶8-000; ¶14-670

accommodation component

¶8-150

definition

¶8-100

employer payment

¶8-120

non-deductible expenses

¶8-140

oil and gas rig employees

¶8-170

payment by employer

¶8-120

salary packaging usual place of residence Living-away-from-home allowance fringe benefits

¶16-170 ¶8-130; ¶8-135 ¶8-000; ¶14-670

Commonwealth employees — reportable fringe benefits

¶15-120

documentation — DIDO requirements — employee declarations

¶8-530 ¶8-500; ¶8-520

— employee related expenses, workpaper

¶8-620

— FIFO requirements

¶8-530

— fly-in fly-out or drive-in drive-out employee declaration, workpaper

¶8-640

— home maintained in Australia

¶8-510

— home maintained in Australia declaration, workpaper

¶8-630

— home maintained in Australia, 12-months limitation

¶8-520

— LAFH agreement

¶8-560

— LAFH allowance tax value

¶8-560

— LAFH allowance taxable value, workpaper

¶8-610

— LAFH expenditure substantiation

¶8-540

— LAFH expenses

¶8-540

exemptions

¶8-200; ¶10-250

LAFH agreement — workpaper

¶8-600

LAFH allowance — taxable value — workpaper

¶8-610

LAFH declaration — workpaper

¶8-620

limited to first 12 months

¶8-520

reductions in taxable value

¶8-400

taxable value

¶8-300

— DIDO basis

¶8-320

— exempt accommodation component

¶8-340

— exempt food component

¶8-350

— FIFO basis

¶8-320

— food component

¶8-160

— home in Australia employees

¶8-310

— list of countries by cost grouping

¶8-390

— reasonable food and drink amounts

¶8-360

— statutory food amounts

¶8-370

— summary workpaper

¶8-680

— transitional rules

¶8-380

Loan benefits

¶6-000

deferred interest loans

¶6-160

loan — definition

¶6-120

unpaid debts

¶6-140

Loan fringe benefits

¶6-000; ¶6-100

documentation

¶6-500

— car loan benefits

¶6-540

— declaration

¶6-520; ¶6-580

— statutory interest rates for loans made before 1 July 1986

¶6-590

exemptions

¶6-200

— employee expense advances

¶6-240

— loans by moneylenders

¶6-220

— relocation expense advances

¶6-260

fixed interest rate loan

¶6-320

reductions

¶6-400

— application of Income Tax Assessment Act 1936 s 51AJ deductions

¶6-490

— car loan benefits

¶6-470

— jointly provided loan benefits

¶6-480

— notional deduction

¶6-450

— once-only deduction

¶6-430

— “otherwise deductible” rule

¶6-410

taxable value

¶6-300

— benchmark interest rate loans

¶6-360

— calculation

¶6-380

— fixed interest rate loan made before 1 July 1986

¶6-320

— summary workpaper

¶6-585

— variable interest rate housing loan made before 3 April 1986

¶6-340

Logbook records

¶2-725

M Meal entertainment benefits

¶11-800

actual method

¶11-860

— flowchart

¶11-865

concessional methods

¶11-830

— 50/50 split method

¶11-840

— 12-week register method

¶11-850

definition

¶11-810

exclusions

¶11-820

food or drink tables — illustrations of the treatment

¶11-875

— off business premises

¶11-885

— on business premises

¶11-880

Miscellaneous exempt benefits

¶12-000; ¶12-050

application of “unreasonable” test

¶12-110

approved student exchange programs

¶12-700

approved worker entitlement funds

¶12-280

avoiding double counting

¶12-920

— car expenses

¶12-930

— food and drink in certain cases

¶12-950

— motor vehicle expenses

¶12-940

car parking — disabled persons

¶12-220

— expense payments

¶12-195

— government educational institutions

¶12-215

— non-profit employers

¶12-210

— residual parking benefits

¶12-200

— small business

¶12-205

care workers — see Care workers

compassionate travel

¶12-580

education

¶12-670

emergency assistance

¶12-660

employee awards and entitlements

¶12-230

employee health — see Employee health employment interviews and selection tests exempt employers

¶12-320 ¶2-240

— foreign governments

¶12-810

— international organisations

¶12-800

— religious institutions

¶12-790

home purchase costs

¶12-400

home sale costs

¶12-380

home sale or acquisition benefits

¶12-370

in-house health care facilities

¶12-540

LAFH–leasing of household goods

¶12-440

long service awards

¶12-240

membership fees and subscriptions

¶12-160

migrant language training

¶12-640

minor benefits

¶12-100; ¶12-980

motor vehicle parking

¶12-190

newspapers and periodicals

¶12-140

registered public benevolent institutions

¶12-840

relocation

¶12-310

relocation consultant costs

¶12-340

relocation transport

¶12-460

remote area

¶12-470

— housing

¶12-480

— meals

¶12-500

removal and storage of household effects

¶12-360

safety awards

¶12-260

s 57A employers

¶12-830

— ACNC registration requirements

¶12-900

— charities and charitable institutions

¶12-890

— government bodies employing hospital staff

¶12-850

— health promotion charities

¶12-880

— “institution” meaning

¶12-905

— non-profit hospitals

¶12-870

— non-profit organisations and associations

¶12-885

— public benevolent institutions

¶12-840

— “public hospital” meaning

¶12-855

— public hospitals and ambulance services

¶12-860

superannuation holding accounts reserve

¶12-290

taxi travel

¶12-180

trainees under Australian traineeship system

¶12-680

travel to obtain medical treatment

¶12-560

utilities

¶12-420

N Non-commercial losses Novated car leases

¶2-070 ¶3-150; ¶16-130

O Objections, reviews and appeals

¶2-810

Offences

¶2-830

Oil and gas rig employees

¶8-170

Otherwise deductible rule board fringe benefits

¶11-520

conditions

¶13-120

expense payment fringe benefits

¶5-410

loan fringe benefits

¶6-410

non-commercial loss rules

¶2-070

property fringe benefits

¶9-420

residual fringe benefits

¶10-420

Overseas employment

¶13-500

education of children

¶13-540

holiday transport

¶13-520

Overtime meal expense benefits

¶5-520

P Penalty tax

¶2-820

Personal services income payments to associates rules

¶13-640 ¶2-065

Place of residence definition

¶7-160

LAFH allowance benefits — definition

¶8-130

— normal residence

¶8-130

— usual place of residence

¶8-130; ¶8-135

Property definition

¶9-120

Property benefits

¶9-110

property — definition

¶9-120

provide — definition

¶9-140

— with residual benefit

¶9-150

Property fringe benefits

¶9-100; ¶14-680

documentation

¶9-500

— car property benefits

¶9-560

— declaration

¶9-520; ¶9-600

— recurring declaration

¶9-620

— sale of assets of employees

¶9-640

— sale of property to employees

¶9-580

— travel diary

¶9-540

examples

¶9-160

exemptions

¶9-200

— property consumed on employer’s premises

¶9-220

external — definition

¶9-320

— valuation

¶9-340

in-house — definition

¶9-360

— valuation

¶9-380

notional value — definition

¶9-390

property — definition

¶9-120

provide — definition

¶9-140

reductions

¶9-400

— car property benefits

¶9-450

— jointly provided property benefits

¶9-480

— notional deduction

¶9-440

— once-only deduction

¶9-430

— “otherwise deductible” rule

¶9-420

roadmap

¶9-000

taxable value

¶9-300

taxable value summary workpaper

¶9-650

Public benevolent institution

¶12-840

Public hospital

¶12-855

R Reasonable food and drink amounts Rebatable employers aggregate non-rebatable amount

¶8-360 ¶14-300; ¶14-310 ¶14-320; ¶14-370; ¶14-375

calculation of rebate

¶14-315

capped rebate amount

¶14-335

individual base non-rebatable amount

¶14-330

legislation flowchart

¶14-340

salary packaging

¶16-650

Reductions in taxable values

¶2-400; ¶13-000; ¶13-100

application of Income Tax Assessment Act 1936 s 51AH

¶5-480

application of Income Tax Assessment Act 1936 s 51AJ

¶9-490; ¶10-490

board fringe benefits

¶11-520

car expense payment benefit

¶5-460

car loan benefits

¶6-470

car residual benefits Div 14 reductions

¶10-470 ¶2-440

employee contributions

¶13-160

entertainment component

¶13-660

expense payment fringe benefit in-house fringe benefits

¶5-400 ¶2-460; ¶13-140

jointly provided expense payment benefits

¶5-470

jointly provided loan benefits

¶6-480

jointly provided residual benefits

¶10-480

LAFH allowance benefits LAFH food

¶8-400 ¶13-600; ¶13-620

loan fringe benefits

¶6-400

motor vehicles

¶13-200

— basic and supplementary car rates

¶13-280

— employment interviews and selection tests

¶13-240

— relocation transport

¶13-220

— work-related medicals, counselling and training

¶13-260

non-deductible payments to associates

¶13-640

notional deduction

¶6-450; ¶10-450

once-only deduction

¶6-430; ¶10-430

“otherwise deductible” rule

¶2-420; ¶5-420; ¶6-410; ¶10-420

residual fringe benefits

¶10-400

road and bridge tolls

¶5-465

waiver fringe benefits

¶11-720

Reimbursement — see Expense payment benefits; Expense payment fringe benefits Religious institutions Relocation of employees

¶12-790 ¶12-310; ¶13-300

connection and re-connection of utilities

¶12-420

consultant engagement costs

¶12-340

home purchase costs

¶12-400

home sale costs

¶12-380

interviews and selection tests

¶12-320

— declaration

¶13-720

leasing of household goods while LAFH

¶12-440

relocation transport

¶12-460

— declaration

¶13-710

removal and storage of household effects

¶12-360

temporary accommodation — declaration

¶13-740

— meals

¶13-360

— near former location

¶13-320

— near new location

¶13-340

Remote areas definition

¶12-470; ¶13-400 ¶12-475

holiday transport — declaration

¶13-750

— definition

¶13-485

— no ceiling

¶13-490

— subject to ceiling

¶13-495

housing

¶12-480

housing loans

¶13-420

— interest

¶13-430

housing rent

¶13-440

meals for primary production employees

¶12-500

residential fuel

¶13-410

residential property — fuel

¶13-410

— option fee

¶13-470

— payment

¶13-460

— provision

¶13-450

— repurchase consideration

¶13-480

Reportable fringe benefits

¶15-000; ¶15-100

amount

¶15-175

apportionment

¶15-130

employee consequences

¶2-640; ¶15-050; ¶15-300

— annual income tax return

¶15-310

— tax liabilities and government concessions

¶15-320

employees

¶15-030

employer reporting

¶2-630; ¶15-200

— employers exempt

¶15-220

— misstatement

¶15-240

— payment summary

¶15-230

— taxable employers

¶15-210

employers — exempt

¶15-160

— taxable amount, calculation

¶15-140

excluded fringe benefits

¶15-120

exempt benefits — live-in residential care workers

¶15-160

flowchart

¶15-060

individual amount

¶15-110

individual fringe benefits — definition

¶15-010

individual quasi-fringe benefits — amount, calculation

¶15-150

— definition

¶15-010

reconciliation

¶15-040

record-keeping exemption

¶15-140

reporting requirement

¶15-020

tax return — calculation

¶15-170

Residual benefits

¶10-110

airline travel

¶10-170

comparison time

¶10-150

non-period residual benefit

¶10-130

period residual benefit

¶10-120

property provided with a residual benefit

¶10-160

regular billing periods

¶10-140

roadmap

¶10-000

Residual fringe benefits compliance checklist

¶14-690

declarations

¶10-620

— employer-provided vehicles other than cars

¶10-610

— no-private-use

¶10-600

— recurring residual benefit

¶10-630

definition

¶10-100; ¶10-110

documentation

¶10-500

— car residual benefits

¶10-560

— declaration

¶10-520

— travel diary

¶10-540

examples

¶10-180

exemptions

¶10-200

— child care, priority access contributions

¶10-270

— FIFO transport arrangements

¶10-290

— LAFH accommodation

¶10-250

— motor vehicles other than cars

¶10-230

— no-private-use declaration

¶10-210

— public transport business

¶10-280

— public transport provided to police officers

¶10-285

— recreational and child care facilities

¶10-260

— unregistered vehicles

¶10-240

— use of employer’s property

¶10-220

reductions

¶10-400

— car residual benefits

¶10-470

— “otherwise deductible” rule

¶10-420

roadmap

¶10-000

taxable value

¶10-300

— external residual fringe benefit, definition

¶10-310

— in-house airline transport property

¶9-382

— in-house airline transport residual benefit

¶10-353

— in-house benefits, definition

¶10-340

— in-house benefits, valuation

¶10-350

— in-house identical residual benefit

¶10-355

— in-house other property — in-house packaged residual benefit — in-house property acquired for resale

¶9-387 ¶10-351 ¶9-386

— in-house residual fringe benefits, definition

¶10-340

— in-house residual fringe benefits, valuation

¶10-350

— in-house retail market property — in-house salary packaged residual benefit — in-house similar property — in-house similar residual benefit — in-house wholesale property

¶9-384 ¶10-351 ¶9-385 ¶10-357 ¶9-383

— motor vehicles, valuation

¶10-360

— notional value, definition

¶10-390

— valuation

¶10-300

— valuation of external fringe benefits

¶10-320

— valuation of in-house benefit

¶10-350

Returns — see FBT returns

Reviews

¶2-810

S Salary packaging arrangement associated leases

¶16-000 ¶9-396 ¶16-140

basics — benefits that can be packaged

¶16-060

— documentation

¶16-090

— effective arrangements

¶16-050

— employee considerations

¶16-030

— employee contributions

¶16-520

— employer considerations

¶16-020

— expatriates and visiting overseas employees

¶16-550

— FBT and income tax interaction

¶16-080

— in-house fringe benefits

¶16-530

— “otherwise deductible” rule

¶16-510

— remote area benefits

¶16-540

— total employment costs

¶16-040

— valuing benefits

¶16-070

car parking

¶16-150

cars

¶16-110; ¶16-120

definition

¶16-010

employee share schemes

¶16-350

employee share trusts

¶16-360

employer superannuation contributions

¶16-310

excluded fringe benefits

¶16-300

exempt and rebatable employers

¶16-600

exempt benefits

¶16-400; ¶16-470

frequent flyer benefits

¶16-440

in-house child care facilities

¶16-450

in-house property

¶9-381

LAFH allowances

¶16-170

loans

¶16-160

long service awards

¶16-420

meal and other entertainment benefits

¶14-438

meal entertainment

¶16-190; ¶16-460

novated leases

¶16-130

portable electronic devices

¶16-410

rebatable employers

¶16-650

reductions in taxable value

¶16-500

s 57A employers

¶16-610

taxable fringe benefits

¶16-100

travel to and from work

¶16-430

Salary sacrifice — see Salary packaging Statutory formula method car fringe benefits — formula

¶3-500

— taxable value, calculation

¶3-530

— workpaper

¶3-535

car parking fringe benefits — documentation — workpapers

¶4-500; ¶4-520; ¶4-540; ¶4-560 ¶4-585

T Tax agents

¶2-550

Tax avoidance arrangements

¶2-850

Tax-exempt body entertainment fringe benefits

¶11-900

definition

¶11-910

documentation

¶11-950

exemptions

¶11-920

taxable value

¶11-930

Taxable employers

¶14-200

Taxable value

¶2-300

actual method

¶11-860

arm’s length transaction

¶9-388

board benefits

¶11-480

— reductions

¶11-520

car fringe benefits

¶3-300

— car applied to private use

¶3-160

— car available for private use

¶3-180

— car held by the provider

¶3-140

— cost basis method

¶3-600

— exempt car fringe benefits

¶3-200

— statutory formula method

¶3-500

car parking benefits — all day parking fee

¶4-360

— average cost method

¶4-330

— car is owned, leased or provided

¶4-130

— commercial parking station method

¶4-310

— commercial parking station within 1 km

¶4-150

— daily rate amount

¶4-340

— facility is provided

¶4-120

— facility on business premises

¶4-140

— loan fringe benefits

¶6-300

— market value method

¶4-320

— 1 km distance, measuring

¶4-150

— parked for more than four hours

¶4-170

— parked in vicinity of employment place

¶4-180

— roadmap

¶4-000

— statutory formula method

¶4-340

— taxable value calculation

¶4-380

— total value of car parking benefits

¶4-350

— travel between home and work

¶4-190

— twelve-week register method

¶4-350

— valuation methods

¶4-300; ¶4-370

concessional methods

¶11-830

debt waiver benefit

¶11-600

— taxable value

¶11-680

— taxable value, reductions

¶11-720

expense payment benefits

¶5-320

— entertainment facility leasing expenses

¶5-370

— in-house expense

¶5-340

— in-house property

¶5-340

— in-house residual

¶5-360

FIFO or DIDO employees

¶8-320

— requirements

¶8-530

fringe benefits

¶2-300

— categories

¶2-320

— employee contributions

¶2-360

— specific exemptions

¶2-340

housing benefits

¶7-300

— accommodation outside Australia

¶7-320

— Australian accommodation

¶7-340; ¶7-360

— indexation factors

¶7-380

— market rental value

¶7-390

— statutory annual value

¶7-370

LAFH allowance benefits

¶8-300

— DIDO basis

¶8-320

— exempt accommodation component

¶8-340

— exempt food component

¶8-350

— FIFO basis

¶8-320

— food component

¶8-160; ¶8-350

— home in Australia employees

¶8-310

— list of countries by cost grouping

¶8-390

— reasonable food and drink amounts

¶8-360

— statutory food amounts

¶8-370

— summary workpaper

¶8-680

— transitional rules

¶8-380

LAFH employees, others

¶8-330

loan benefits

¶6-300

— variable interest rate housing loan made before 3 April 1986

¶6-340

otherwise deductible rule — reductions

¶5-420

property benefits

¶9-300

residual benefits — external — in-house airline transport property

¶10-310 ¶9-382

— in-house airline transport residual benefit

¶10-353

— in-house benefits, definition

¶10-340

— in-house benefits, valuation

¶10-350

— in-house identical residual benefit

¶10-355

— in-house other property — in-house packaged residual benefit

¶9-387 ¶10-351

— in-house property acquired for resale

¶9-386

— in-house residual fringe benefits, definition

¶10-340

— in-house residual fringe benefits, valuation

¶10-350

— in-house retail market property — in-house salary packaged residual benefit — in-house similar property — in-house similar residual benefit — in-house wholesale property

¶9-384 ¶10-351 ¶9-385 ¶10-357 ¶9-383

— motor vehicles, valuation

¶10-360

— notional value, definition

¶10-390

— summary workpaper

¶10-640

— valuation

¶10-300

— valuation of external fringe benefits

¶10-320

— valuation of motor vehicles

¶10-360

Travel diary

¶2-720

documentation

¶5-540

expense payment benefits

¶5-525

extended property fringe benefits

¶9-540

residual fringe benefits

¶10-540

workpapers — travel diary

¶5-610

— travel itinerary

¶5-600

U Unit of accommodation definition

¶7-140

Usual place of residence definition

¶7-160

W Work-related injuries

¶12-520

Worker entitlement funds definition Workpapers board benefits

¶12-280

— taxable value summary

¶11-590

car benefits — cost basis method — cost price

¶3-700

— declaration

¶3-680

— fuel expenses declaration

¶3-740

— logbook

¶3-660

— taxable value

¶3-650

car benefits — statutory formula method — base value

¶3-540

— declaration

¶3-580

— declaration — fuel expenses

¶3-740

— taxable value

¶3-535

car parking benefits — actual usage method

¶4-565

— statutory formula method

¶4-585

— summary

¶4-385

— 12-week register method

¶4-575

— valuation

¶4-395

debt waiver benefits — taxable value summary

¶11-790

expense payment benefits — declaration

¶5-630

— no-private-use declaration

¶5-620

— recurring expense declaration

¶5-640

— taxable value summary

¶5-650

— travel diary

¶5-610

— travel itinerary

¶5-600

fringe benefits tax return — aggregate non-exempt amount

¶14-470; ¶14-475

— aggregate non-rebatable amount

¶14-370; ¶14-375

— details of fringe benefits

¶14-150

— in-house fringe benefits

¶14-190

— taxable value — analysis

¶14-280

— taxable value — reductions

¶14-170

housing benefits — base year election

¶7-585

— current year taxable value

¶7-595

— housing agreement

¶7-575

— taxable value summary

¶7-600

LAFH allowance benefits — agreement

¶8-600

— employee related expenses

¶8-620

— fly-in fly-out or drive-in drive-out employee declaration

¶8-640

— home maintained in Australian declaration

¶8-630

— taxable value

¶8-610

— taxable value summary

¶8-680

loan benefits — declaration

¶6-580

— taxable value summary

¶6-585

property benefits — declaration

¶9-600

— recurring benefit declaration

¶9-620

— sale of assets

¶9-640

— taxable value summary

¶9-650

reduction in taxable value declarations — employment interviews

¶13-720

— medicals/counselling/training car travel

¶13-730

— relocation – temporary accommodation

¶13-740

— relocation transport

¶13-710

— remote area holiday transport

¶13-750

residual benefits — declaration

¶10-620

— declaration: motor vehicles

¶10-610

— declaration: no-private-use

¶10-600

— declaration: recurring benefits

¶10-630

— taxable value summary

¶10-640