Miscellaneous Taxation Ruling

MT 2046

Fringe benefits tax : application to payment by income tax-exempt employers of higher education contribution scheme debts of their employees

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FOI status:

PREAMBLE

Advice was sought from this Office recently on whether fringe benefits tax liabilities arise to income tax-exempt employers who, as part of administrative policies (e.g., bursary schemes, continuing education schemes or other similar schemes), pay or reimburse debts incurred by their employees under the Higher Education Contribution Scheme ('HECS').

2. The usual situation where an employer pays an expense incurred by an employee would be that the amount of the expense paid would be deductible to the employer for income tax purposes and the employer would be liable to pay fringe benefits tax in respect of the payment. However, subsection 51(6) of the Income Tax Assessment Act 1936 ('the ITAA') expressly prevents the payment of a HECS debt from being deductible for income tax purposes. The non-deductibility extends not only to a taxpayer paying his or her own HECS debt but also to an employer paying or reimbursing a HECS debt incurred by an employee.

3. In order to avoid a double detriment to an employer who pays HECS on behalf of an employee, section 64A of the Fringe Benefits Tax Assessment Act 1986 ('the FBTAA') applies to reduce the taxable value of the fringe benefit to the extent that a deduction has been denied to the employer by subsection 51(6) of the ITAA.

RULING

4. Income tax-exempt employers remain liable to pay fringe benefits tax on the payment or reimbursement of HECS debts incurred by their employees. Section 64A of the FBTAA applies only where a deduction would have been allowable but for subsection 51(6) of the ITAA - that is not the situation with an employer who is exempt from income tax. The question of a double detriment does not arise.

5. The taxable value of the fringe benefit is the full HECS amount paid or reimbursed by the income tax-exempt employer.

COMMISSIONER OF TAXATION
5 April 1990

References

ATO references:
NO 89/5103-9

Date of effect:
Immediate

Date original memo issued:
9.2.90

Subject References:
FRINGE BENEFITS TAX
HIGHER EDUCATION CONTRIBUTION SCHEME

Legislative References:
FRINGE BENEFITS TAX ASSESSMENT ACT 1986; SECTION 64A
INCOME TAX ASSESSMENT ACT 1936; SUBSECTION 51(6)