ATO Interpretative Decision

ATO ID 2012/58

Fringe Benefits Tax

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Issue

Where an employee is provided with a benefit which arose out of priority of access for his or her child in an approved centre based long day care service: will the benefit be a residual benefit that is exempt under subsection 47(8) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision

Yes. The benefit which arose out of priority of access is a residual benefit which is exempt under subsection 47(8) of the FBTAA.

Facts

An employer entered into an agreement with a child care service (the service). In exchange for a payment made by the employer to the service, the service would provide priority of access for a certain number of child care places for the children of the employer's employees in its long day care service.

The employer made the payment and the service gave priority of access for the agreed number of child care places.

The employees of the employer gain an advantage or privilege over other parents who may wish to use the service. This advantage or privilege is granted by way of a priority level of access to child care.

At the time of the employer contribution and at the time priority of access was granted the service was an approved centre based long day care service as evidenced by a certificate of approval issued by the Secretary of the Department of Education Employment and Workplace Relations (DEEWR).

The certificate of approval is issued under section 195 of the A New Tax System (Family Assistance) (Administration) Act 1999 (FAA Act).

The application form for approval (available from DEEWR) notes that it is a condition of approval that services comply with:

1.

the eligibility rules set out in the Child Care (Eligibility of Child Care Services for Approval and Continued Approval) Determination 2000 (CCS Approval Determination);

2.

the family assistance law (including the FAA Act); and

3.

other Commonwealth, State or Territory child care laws.

The CCS Approval Determination contains rules concerning priority of access and payments by employers to obtain priority of access.

The relevant Administrative Arrangements Order dated 14 October 2010 (AAO) provides a detailed description of each department and Minister responsibilities. Under the AAO, DEEWR is responsible for 'Early childhood and childcare policy and programs'. The AAO provides, relevant to DEEWR, that the 'Legislation administered by the Minister' includes the FAA Act, 'insofar as it relates to child care benefit, child care rebate, child care services and registered carers'.

Under the AAO, there is more than one Minister and more than one department with responsibilities under the FAA Act.

A Minister with responsibilities as it relates to child care benefit, child care rebate, child care services and registered carers within the FAA Act, as administered by DEEWR, under the 'Early childhood and childcare policy and programs', would include the Minister for Employment Participation and Childcare.

Reasons for Decision

Subsection 47(8) of the FBTAA provides (as relevant to an approved centre based long day care service):

If:

(a)

a residual benefit provided in respect of the employment of an employee arose out of priority of access, for a child or children of the employee, to:

(v)

an approved centre based long day care service within the meaning of the A New Tax System (Family Assistance) (Administration) Act 1999;

and

(b)

in order to obtain that priority of access, the employer of the employee, or an associate of the employer, made a contribution under a program administered by the Families Department;

the residual benefit is an exempt benefit.

'Families Department' is defined in subsection 136(1) of the FBTAA to have the meaning given by the Income Tax Assessment Act 1997 (ITAA 1997).

'Families Department' is defined in section 995-1 of the ITAA 1997:

means the Department that:

(a)

deals with matters arising under section 1 of the A New Tax System (Family Assistance) (Administration) Act 1999 and

(b)

is administered by the Families Minister.

'Families Minister' is also defined in section 995-1 of the ITAA 1997 to mean:

the Minister administering section 1 of the A New Tax System (Family Assistance) (Administration) Act 1999.

'a residual benefit provided in respect of the employment of an employee arose out of priority of access, for a child or children of the employee'

Employees gain an advantage or privilege over other parents who may wish to use the service, by way of a priority level of access to child care.

This advantage or privilege is a benefit which arises out of the priority of access, and is a 'benefit' as defined in subsection 136(1) of the FBTAA. This benefit does not fall within any other category of benefit, and gives rise to a 'residual benefit' as defined in subsection 136(1) FBTAA.

The residual benefit is provided in respect of the employment of the employee.

'to an approved centre based long day care service within the meaning of the A New Tax System (Family Assistance) (Administration) Act 1999'

At the time priority of access was provided for a child of an employee of the employer, the service was an approved centre based long day care service as described in the FAA Act.

'in order to obtain that priority of access, the employer of the employee, or an associate of the employer, made a contribution under a program administered by the Families Department'

The employer made a contribution to the service to secure child care places for children of its employee's. This contribution was made in accordance with the service's approval under the FAA Act and compliance with the CCS Approval Determination.

DEEWR administers 'Priority of Access' under the FAA Act, the CCS Approval Determination and under its 'Early childhood and childcare policy and programs'.

As described above, 'Families Department' means the department that deals with matters arising under section 1 of the FAA Act and the 'Families Minister' means the Minister who administers section 1 of the FAA Act.

Section 1 of the FAA Act sets out the short title of the Act.

There is more than one Minister and more than one department with responsibilities under the FAA Act.

In these circumstances and under section 19A of the Acts Interpretation Act 1901 a reference to 'the Minister' and a reference to 'the Department' should be taken to be the Minister who administers the provision in respect of the 'relevant matter' and the Department which deals with the 'relevant matter'. The relevant matter in the FAA Act is as that Act deals with child care services.

Therefore, the reference to the 'Families Department' under paragraph 47(8)(b) of the FBTAA would include DEEWR. The reference to 'Families Minister' in section 995-1 ITAA 1997 would include the Minister for Employment Participation and Childcare.

The reference to 'a program' administered by DEEWR in subsection 47(8) of the FBTAA would include the broader program of 'Early childhood and childcare policy and programs'.

In order that an employer could make a contribution under the program administered by DEEWR, the service would, at the time of the employer payment, need to be compliant with the FAA Act and CCS Approval Determination as evidenced by the certificate of approval.

During the year of tax:

1.

a residual benefit arose out of priority of access for a child of an employer's employee which was provided in respect of the employment of the employee under paragraph 47(8)(a) of the FBTAA;

2.

the priority of access was to an approved centre based long day care service within the meaning of the FAA Act and under subparagraph 47(8)(a)(v) of the FBTAA; and

3.

in order to obtain the priority of access, the employer made a contribution under a program administered by DEEWR (the Families Department) under paragraph 47(8)(b) of the FBTAA.

Therefore the residual benefit will be an exempt benefit under subsection 47(8) of the FBTAA.

Additional compliance alternative for employers

As shown in the Reasons for Decision above, it may be a difficult process for an employer to determine whether a residual benefit which arises out of priority of access to a child care service is an exempt benefit. The employer would have to consider, at the provision time, matters such as who is the relevant Minister, what is the relevant department and what is the relevant departmental program.

The current DEEWR approval process for a centre based long day care service requires the applicant to comply with the eligibility rules in the CCS Approval Determination, the family assistance law and other Commonwealth, State or Territory child care laws.

Under the DEEWR approval process, the requirements under subsection 47(8) of the FBTAA regarding compliance with the FAA Act, relevant department and relevant program would also be satisfied. Even with changes to administrative arrangements, the relevant department (and its Minister) would be administrating the child care approval process and under a relevant departmental child care program which included 'priority of access guidelines'.

Where, at the time of the employer contribution and at the time that priority of access is provided, the child care service holds a current certificate of approval as a centre based long day care service issued under section 195 of the FAA, this will provide the employer with sufficient evidence of:

1.

approval as a 'approved centre based long day care service' for the purposes of subparagraph 47(8)(a)(v) of the FBTAA; and

2.

that the child care operator is providing priority of access and accepting employer contributions to obtain that priority of access, under a program administered by the 'Families Department' for the purposes of paragraph 47(8)(b) of the FBTAA.

Therefore, a residual benefit which arises out of priority of access to an approved centre based long day care service, as evidenced by a certificate of approval, should be accepted as being an exempt benefit under subsection 47(8) of the FBTAA where the certificate covers both the time of the employer contribution and the time that priority of access was granted.

Year of income:  year ending 31 March 2011

Legislative References:
A New Tax System (Family Assistance) (Administration) Act 1999
   Section 1
   Section 195

Other References:
Child Care (Eligibility of Child Care Services for Approval and Continued Approval) Determination 2000
Administrative Arrangements Order 14 October 2010

Keywords
Exempt benefits
FBT child care
Fringe benefits
Fringe benefits tax
Residual fringe benefits

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  22 June 2012
Date reviewed:  2 October 2014

ISSN: 1445-2782