Fringe benefits tax - a guide for employers

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Chapter 12 - Airline transport fringe benefits

12.1 Overview

Changes have been made to the FBT law relating to airline transport fringe benefits. Under these changes, there is no longer a separate category of fringe benefit for airline transport fringe benefits. Airline transport fringe benefits are now taxed under the in-house benefit provisions and the way the taxable value is calculated has been changed.

This document explains the treatment of airline transport fringe benefits under the current law and also under the previous law. Employers in the airline or travel agent industry need to be aware of these changes.

Summary of changes to airline transport fringe benefits

Table of changes to airline transport fringe benefits

Previous law	Current law
Airline transport fringe benefits were a separate category of fringe benefit with its own valuation methodology.	Airline transport fringe benefits are not a separate category of fringe benefit - they are now either in-house property or in-house residual fringe benefits and are taxed under the in-house benefit rules.
The taxable value of an airline transport fringe benefit was the stand-by value less the employee contribution.	The taxable value of an airline transport fringe benefit is aligned with the in-house benefit valuation method and is calculated as 75% of the stand-by airline travel value of the benefit, less the employee contribution.
For domestic flights, the value was broadly 37.5% of the lowest publicly advertised economy airfare charged by the provider (or a carrier where relevant), at or about the time of travel, over that route.	Where the transport is on a domestic route, the stand-by airline travel value is 50% of the carrier's lowest standard single economy airfare for that route as publicly advertised during the year of tax.
For international flights, the value was broadly 37.5% of the lowest fare published in Australia as charged by any carrier for travel over that route in the 12 months preceding the end of the year of tax.	Where transport is on an international route, the stand-by airline travel value is 50% of the lowest of any carrier's standard single economy airfare for that route as publicly advertised during the year of tax.

When do these changes apply?

These changes apply to airline transport fringe benefits provided after 7.30pm AEST on 8 May 2012.

Because airline transport fringe benefits provided after 7.30pm AEST on 8 May 2012 are taxed under the in-house benefit provisions, when you prepare your FBT return for the year ended 31 March 2014 onwards, airline transport fringe benefits will be included under the Property or Residual categories in the Details of fringe benefits provided item on the return (currently item 23).

12.2 What is an airline transport fringe benefit?

Airline transport fringe benefits provided before 7.30pm AEST on 8 May 2012

An airline transport fringe benefit arises where employees (or their associates) of airlines or travel agents are provided with free or discounted air travel subject to the stand-by restrictions customarily applying to employees in the airline industry.

Free or discounted air travel that is not subject to such restrictions is a residual fringe benefit.

Airline transport fringe benefits provided after 7.30pm AEST on 8 May 2012

An airline transport fringe benefit is an in-house property fringe benefit or an in-house residual fringe benefit to the extent the benefit is the provision of transport in a passenger aircraft operated by a carrier (including any incidental services on board the aircraft). The transport must be subject to the stand-by restrictions that customarily apply in the airline industry, for example, free or discounted air travel provided by airlines or travel agents to their employees (or associates) that is subject to stand-by restrictions.

See also:

• 17 Property fringe benefits
• 18 Residual fringe benefits

12.3 Taxable value

Airline transport fringe benefits provided before 7.30pm AEST on 8 May 2012

The taxable value of the fringe benefit is the stand-by value, less the employee contribution.

Airline transport fringe benefits provided after 7.30pm AEST on 8 May 2012

The taxable value of an airline transport fringe benefit is aligned with the in-house benefit valuation method and is calculated as 75% of the stand-by airline travel value of the benefit, less any employee contribution.

12.4 Stand-by value

Airline transport fringe benefits provided before 7.30pm AEST on 8 May 2012

The stand by value for airline fringe benefits provided before 7.30pm AEST on 8 May 2012 is outlined below and differs depending on whether the travel is domestic or international travel.

Domestic travel

Table for domestic travel

Domestic travel type	Stand-by value
On a scheduled passenger air service the benefit provider operates.	37.5% of the lowest publicly advertised economy airfare the provider charges for travel: at or about that time and for travel over that route.
Not on a scheduled passenger air service the provider operates.	37.5% of the lowest publicly advertised economy airfare a carrier charges for travel: at or about that time and for travel over that route.
On a combination of scheduled passenger air services where there is no: scheduled passenger air service the provider operates over that route at or about that time carrier operating a scheduled passenger air service over that route at or about that time.	37.5% of the lowest combination of publicly advertised economy airfares carriers charge for travel: at or about that time and for travel over that route.

The lowest publicly advertised airfare can be obtained from any published material produced by airlines that is available to the public.

In any other case, the stand-by value is 75% of the market value, at or about that time, for travel over that domestic route.

International travel

Table for international travel

International travel type	Stand-by value
On a scheduled passenger air service the benefit provider operates.	37.5% of the lowest published airfare the provider charges for travel over that international route.
Not on a scheduled passenger air service the provider operates.	37.5% of the lowest economy air fare charged by a carrier: at or about that time and for travel over that route.
On a combination of scheduled passenger air services where there is no: scheduled passenger air service the provider operates carrier operating a scheduled passenger air service over that route at or at about that time.	37.5% of the lowest combination of economy airfares carriers charge: at or about that time and for travel over that route.

The lowest published fare for these purposes is the lowest fare published in Australia the carrier charges for travel over that route in the 12 months before the end of the fringe benefits tax (FBT) year. This includes advance purchase but not group discounts.

In any other case, the stand-by value is 75% of the market value, at or about that time, for travel over that international route.

Airline transport fringe benefits provided after 7.30pm AEST on 8 May 2012

The stand-by airline travel value of the benefit differs, depending on whether the transport is over a domestic route or over an international route.

Domestic or international travel scenario

If the travel is on..	Then the stand-by travel value..
a domestic route	is 50% of the carrier's lowest standard single economy airfare for that route as publicly advertised during the year of tax. This means the provider must use the lowest standard single economy airfare of the carrier that provided the transport.
an international route	is 50% of any carrier's standard single economy airfare for that route as publicly advertised during the year of tax. This means the provider can use the lowest standard economy airfare of any carrier that provides commercial airfares over the relevant route.

Domestic and international route

A domestic route means a route in which the flight's departure and arrival are both within Australia. An international route is a route in which the flight's departure or arrival (or both) are outside of Australia.

Standard single economy airfare

The standard single economy airfare is the economy airfare that an ordinary customer would be expected to pay in order to travel the same route in that year of tax.

It does not include the use of any of the following for determining the stand-by airline travel value:

• group booking fares
• one-off fares
• heavily discounted fares as part of a marketing campaign

Example: standard single economy airfare over an international route

An employer that is an airline provider gives one of its employees a free return flight overseas, subject to stand-by restrictions. Included in the flight are a checked luggage allowance, meals and in-flight entertainment.

Another airline provides flights over the same route. Their advertised fare is lower but does not include checked luggage, meals or in-flight entertainment.

In determining the taxable value of the overseas flight provided to its employee, the employer can use the lower fare advertised by the other airline.

Example: group booking fares

An airline provider offers discounted fares where a group booking is made of more than 10 people. Because this discounted fare is not a single economy airfare it cannot be used as a comparable airfare in determining the stand-by airline travel.

Example: marketing campaign

GoCheap (an airline) is attempting to increase its market share and decides to set up a three month marketing campaign and as part of that, put out a select number of fares per flight over a couple of major routes during the off-peak season that are only $1.

The discounted fares are far below the cost price of the service and do not reflect the standard single economy airfare for that particular route and therefore cannot be used as a comparable airfare in determining the stand-by airline travel value.

Example: travel agent and marketing campaign

A travel agent is determining the stand-by airline travel value for an airline transport fringe benefit provided to one of its employees. The airline transport fringe benefit provided to the employee was transport in a GoCheap passenger aircraft from Sydney to Perth.

When determining the lowest standard single economy airfare, the travel agent finds a GoCheap airfare per the example above that is only $1 over the Sydney to Perth route.

Even though the travel agent may not be aware that the flight is far below cost price, the travel agent is able to determine that the flight is heavily discounted as part of a marketing campaign because it is so far below the average range of fares for that route (which the travel agent determines is between $150 and $500 plus).

The travel agent then determines that the GoCheap airfare does not reflect a standard single economy airfare and it is therefore not a comparable airfare that can be used to determine the stand-by airline travel value.

Publicly advertised during the year of tax

In determining the stand-by airline travel value, you need to determine the relevant airfare that is publicly advertised during the relevant year of tax that the transport began.

The term 'publicly advertised' includes the internet, newspapers, television and radio, as well as any other medium in which a member of the public would be able to reasonably determine the cost of the fare.

Example: 2013-2014 is the year of tax

Axel, an employee of an Australian airline, is travelling on an international carrier that is in an interline arrangement with his employer.

Having waited for a few days to get onto a flight to travel home to Australia as part of the stand-by restrictions, Axel is finally able to get on a flight on the 31 March 2014.

Even though the flight lands in Australia on 1 April 2014 local time, the relevant year of tax in determining the stand-by travel value is the 2013-14 FBT year.

Example: 2014-15 is the year of tax

Following on from the example above, assume Axel is unable get onto the 31 March 2014 flight and instead boards on 1 April 2014. In that case, the relevant year of tax is the 2014-2015 FBT year.

12.5 Reduction in taxable value where expenditure would have been deductible to the employee

The taxable value of an airline transport fringe benefit may be reduced in accordance with the 'otherwise deductible' rule, but only if the recipient of the benefit is the employee. Broadly, this means that the taxable value may be reduced by the amount the employee would have been entitled to claim as an income tax deduction if both of the following conditions are satisfied:

• the seat on the airline flight is not provided as a fringe benefit
• the employee acts as a consumer or member of the public in purchasing the ticket.

For example, if an employee bought a seat on an airline flight in order to travel to perform employment-related duties, the cost would be wholly deductible for income tax purposes. Under the otherwise deductible rule, if you (the employer) provided the ticket to the employee so they could travel to perform employment-related duties, the taxable value of the fringe benefit would be nil, regardless of the amount of employee contribution you required.

Applying the otherwise deductible rule produces different results, depending on whether any employee contribution was intended to be for the private element of the fringe benefit. This is because the employee is entitled to an income tax deduction for expenditure incurred on the portion of the fringe benefit used to derive assessable income, but not for expenditure incurred on the portion used for private or domestic purposes.

Commonly, the taxable value of an airline transport fringe benefit is wholly 'otherwise deductible' or wholly taxable. If it is wholly 'otherwise deductible', there is no FBT payable. If it is wholly taxable, there is no reduction. However, the taxable value of an airline transport fringe benefit may be partially 'otherwise deductible'.

For an explanation of how the otherwise deductible rule is applied for residual fringe benefits, refer to section  18.7 of Residual fringe benefits.

12.6 Substantiation requirements

If you use the otherwise deductible rule, you must have documentation to substantiate the extent to which the purchase price of the airline ticket would have been 'otherwise deductible' to the employee. You must obtain the documentation from the employee before lodging the relevant FBT return. Where the documentation is an Airline transport benefit declaration by the employee, it must be in a form approved by the Commissioner of Taxation (refer to Declarations ).

Travel diary

A 'travel diary' is a diary or similar document that must be obtained from the employee where the following apply:

• the airline transport is provided for travel  
  • within Australia
  • for more than five consecutive nights, and
  • that is not exclusively for performing employment-related duties (the fact that the business travel requires the employee to stay away over a weekend will not, in itself, mean the trip is not undertaken exclusively in the course of their employment), or
• the airline transport fringe benefit is provided for travel outside Australia for more than five consecutive nights.

In determining whether a travel diary needs to be kept, you need to look at the number of nights the employee is away from home. The number of nights away from home includes transit time.

A travel diary shows the nature of each work or business activity, where and when it took place, the duration of the activity and the date the entry was made.

The requirement to obtain a travel diary is waived where:

• the employee is performing employment-related duties as a member of an aircrew travelling outside Australia
• the residual benefit is for accommodation, or is otherwise incidental to the travel.

Employee declaration

You must obtain an Airline transport benefit declaration , except where any of the following apply:

• the airline transport fringe benefit is used exclusively in the course of performing employment activities
• there is a requirement to keep a travel diary
• the requirement to keep a travel diary is waived because the employee is a member of an international aircrew.

12.7 Concessions

The taxable value of an airline transport fringe benefit may qualify for the 'in-house' benefits concession of up to $1,000, as explained in section  19.5 of Reductions in fringe benefit taxable value.

Changes and updates

The electronic version of the guide is reviewed on a quarterly basis. The following tables detail any major changes and updates made to this chapter at each review.

November 2013

Section	Changes and updates
Various	Updated chapter to include law changes where an airline transport fringe benefit is provided after 7.30pm AEST on 8 May 2012

ATO references:
NO Fringe benefits tax - a guide for employers