Edited version of private advice

Authorisation Number: 1052317413280

Date of advice: 15 November 2024

Ruling

Subject: FBT - excluded fringe benefits

Question 1

Is the payment of or reimbursement of utilities associated with the provision of residential accommodation an expense payment benefit under section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

If the answer to question 1 is yes, will the accommodation expense payment benefit exemption under section 21 of the FBTAA apply?

Answer

No.

Question 3

If the answer to question 2 is no, will an expense payment fringe benefit arise under subsection 136(1) of the FBTAA?

Answer

Yes.

Question 4

Are the expense payment fringe benefits that arise specifically excluded from being reportable fringe benefits under Regulation 11 of the Fringe Benefits Tax Assessment Regulations 2018 (FBTAR)?

Answer

Yes.

This ruling applies for the following periods:

1 April 20XX to 31 March 20XX

1 April 20XX to 31 March 20XX

1 April 20XX to 31 March 20XX

1 April 20XX to 31 March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

The Employer has a number of employees in various locations across Australia and overseas. Internationally deployed employees are responsible for maintaining relationships with international organisations and trading partners.

Employees who undertake long-term overseas postings (commonly for a X year period) are on living-away-from-home arrangements to perform the duties of their employment. While deployed on overseas postings, employees are provided with a variety of benefits, including:

•         living-away-from-home allowances, such as cost of living adjustment and child supplement allowances

•         residential accommodation

•         utilities in connection with residential accommodation

•         private medical and dental expenditure, and

•         child education.

Depending on the posting location, the utility expenses paid for or reimbursed by the Employer for employees on overseas postings include (but not limited to) the following:

•         electricity

•         gas

•         water

•         fuel/oil

•         garbage collection

•         sewerage, and

•         heating.

Relevant legislative provisions

Fringe Benefits Tax Assessment Regulations 2018 regulation 11

Fringe Benefits Tax Assessment Act 1986 paragraph 5E(3)(1)

Fringe Benefits Tax Assessment Act 1986 section 21

Fringe Benefits Tax Assessment Act 1986 section 31

Fringe Benefits Tax Assessment Act 1986 subsection 47(5)

Tax Laws Amendment (2012 Measures No. 4) Act 2012

Reasons for decision

Issue

FBT- Excluded Fringe Benefits

Question 1

Is the payment of or reimbursement of utilities associated with the provision of residential accommodation an expense payment benefit under section 20 of the FBTAA?

Summary

The payment of or reimbursement of utility expenses incurred in connection with the provision of accommodation is an expense payment benefit under section 20 of the FBTAA.

Detailed reasoning

Expense payment benefits

In the current case, the Employer is either paying or reimbursing employees amounts for utility expenses incurred while they are working overseas. Payment or reimbursement of expenses may be an expense payment benefit.

Section 20 of the FBTAA states:

Where a person (in this section referred to as the provider):

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

Reimbursement

The ordinary meaning of the word "reimburse", according to the Macquarie Dictionary Online, is either "to make repayment for expense or loss incurred" or "to pay back; refund; repay".

Accordingly, 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 requires the employee to provide original receipts and related documentation to substantiate the exact amount of the reimbursement and any income tax deduction the Employer is entitled to claim.

Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement states at paragraph 10:

The definition of 'reimburse' under subsection 136(1) of the FBTAA is wide enough to include payments made before expenses are incurred. However, whether payment is made before or after expenses are incurred by the recipient, it qualifies as a reimbursement when the provider considers the expense to be its own and the recipient incurs the expense on behalf of the provider. As a result, a requirement that the recipient vouch or substantiate expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A further indication of a reimbursement is where the recipient is required to refund unexpended amounts to the provider.

Accordingly, it is not necessary for the recipient to have incurred expenditure before a payment is made by the provider.

In these circumstances, the Employer is either paying or reimbursing the employee for utility expenses incurred while they are required to live-away-from-home in an overseas country while performing their job. This will give rise to an expense payment benefit.

Conclusion

The payment or reimbursement of an employee's utilities associated with the provision of residential accommodation by the Employer, whilst the employees are required to work overseas, constitutes an 'expense payment benefit' under section 20 of the FBTAA.

Question 2

If the answer to question 1 is yes, will the accommodation expense payment benefit exemption under section 21 of the FBTAA apply?

Summary

No. The exemption cannot apply, as the payment for utilities by the Employer to their employees while they are required to live overseas to perform their duties is a separate expense benefit being provided in addition to the accommodation benefit and therefore the requirements of section 21 of the FBTAA are not satisfied.

Detailed reasoning

The general effect of section 21 of the FBTAA is that an expense payment benefit that relates to the payment or reimbursement of expenditure incurred by an employee on accommodation, in circumstances where the employee is required to live away from his normal residence to carry out his employment duties is an exempt benefit.

Under section 21 of the FBTAA, an expense payment benefit:

•         provided in respect of accommodation for eligible family members,

•         required 'solely because the employee's duties of employment require the employee to live away from his or her normal residence',

is an exempt benefit where:

•         sections 31C and 31D, and the relevant subparagraphs of 31F are satisfied, and

•         the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment.

Where an employee is provided with an accommodation component of a living-away-from-home allowance (LAFHA), he or she is required to substantiate expenditure on accommodation in order for that portion of the allowance to be exempt from FBT (assuming other conditions for exemption are also met). Alternatively, the Employer may pay directly or reimburse accommodation costs, obtaining documentary evidence of the expenses where these were initially incurred by the employee. These will also be exempt from FBT (on the assumption that other conditions for exemption under the LAFHA rules are also met).

The provision of utilities and other expenses associated with the accommodation provided under a LAFH arrangement is discussed in the National Tax Liaison Group (NTLG) FBT Tax Sub-committee meeting minutes - 8 November 2012.The discussion acknowledges there are different arrangements that exist in relation to the provision of accommodation to employees. This extends to arrangements where the cost of the utilities cannot be dissected from the lease or licence costs or value of the accommodation - such as in the case of a serviced apartment or campsite style accommodation. In other arrangements, however, the utilities may be billed separately. The provision of utilities may be by way of expense payments or residual benefits.

It was agreed that the outcome as to whether the utility costs form part of the accommodation costs depends on the actual facts. Generally, if the costs of utilities cannot be dissected from the lease or licence costs of the accommodation, they will be considered to be part of the accommodation costs.

In the current case, depending on the posting location, the utility expenses paid for or reimbursed by the Employer for employees on overseas postings include (but not limited to) the following:

•         electricity

•         gas

•         water

•         fuel/oil

•         garbage collection

•         sewerage, and

•         heating.

In these circumstances the items are identified separately and are considered to be separate benefits, in addition to the benefits relating to the lease or licence costs of the accommodation.

Conclusion

Only utilities costs that cannot be dissected from the accommodation arrangement will be exempt under section 21 of the FBTAA. In this instance the exemption does not apply as the payment or reimbursement of the utilities by the Employer for employees who are required to live-away-from-home to perform their duties is considered a separate and identifiable benefit from the lease or licence costs of the accommodation benefit being provided.

Question 3

If the answer to question 2 is no, will an expense payment fringe benefit arise under subsection 136(1) of the FBTAA?

Answer

The payment or reimbursement of the utility expenses is an expense payment fringe benefit as it meets all of the criteria.

Detailed reasoning

Fringe benefits

Under subsection 136(1) of the FBTAA, an 'expense payment fringe benefit' means a fringe benefit that is an expense payment benefit. A 'fringe benefit' as defined in subsection 136(1) is:

•         a benefit provided at any time during the year of tax

•         a benefit provided to the employee or to an associate of an employee, by the employer, or an associate of the employer, or a third party in an arrangement with the employer

•         in respect of employment

•         not an exempt benefit, and

•         not excluded by paragraphs (f) to (s).

The definition of 'benefit' in subsection 136(1) of the FBTAA is very broad and includes any right, privilege, service or facility. As concluded in question 1, the amount paid or reimbursed in respect of an employee's utility expenses whilst working overseas constitutes an 'expense payment benefit'. This benefit is provided during the year of tax. The benefit is provided by the Employer to an employee. The benefit is provided in respect of the employee's employment as it is provided while the employee is working overseas on a long-term posting. The exemption in section 21 does not apply, and the benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA.

Conclusion

The reimbursement or payment of an employee's utility expenses by the Employer whilst the employee is required to work overseas constitutes an expense payment fringe benefit pursuant to subsection 136(1) of the FBTAA.

Question 4

Are the expense payment fringe benefits that arise specifically excluded from being reportable fringe benefits under Regulation 11 of the Fringe Benefits Tax Assessment Regulations 2018 (FBTAR)?

Answer

The fringe benefits that arise are excluded fringe benefits under Regulation 11 of the FBTAR and therefore, they are 'excluded fringe benefits' for the purposes of paragraph 5E(3)(i) and are excluded from being Part XIB reportable fringe benefits.

Detailed reasoning

Reportable fringe benefits amount

An employee who is provided with fringe benefits may have a reportable fringe benefit amounts total for a year of income under Part XIB of the FBTAA. An employee's 'reportable fringe benefits amount' from an employer is generally the grossed-up value of the employee's individual fringe benefits amount from that employer. Section 5E of the FBTAA explains how the employee's individual fringe benefits amount is worked out. It is noted that the taxable values of some fringe benefits are excluded from the calculation.

Excluded fringe benefits are listed in subsection 5E(3) of the FBTAA. Paragraph 5E(3)(i) includes 'benefits prescribed by the regulations. The regulations that are relevant to the FBTAA are the FBTAR.

Subsection 11(1) of the FBTAR specifies a number of fringe benefits that are an 'excluded fringe benefit' for the purposes of paragraph 5E(3)(i) of the FBTAA.

Paragraphs 11(2)(b) and 11(2)(c) of the FBTAR provide that certain expense payment fringe benefits and residual fringe benefits provided to a 'Commonwealth employee' will be a prescribed benefit for the purposes of paragraph 5E(3)(i) of the FBTAA and will, therefore, be an 'excluded fringe benefit':

11(2)

A fringe benefit provided to an employee of the Commonwealth is covered by this subsection if the benefit:

(a)  ...

(b)  is an expense payment fringe benefit that:

                                              i.        is not exempt under section 21 of the Act; and

                                              ii.        relates to accommodation that is required solely because the duties of the employee's employment require the employee to live away from the employee's normal residence; or

(c)   is a residual fringe benefit that:

                                              i.         is not exempt under subsection 47(5) of the Act; and

                                              ii.        relates to accommodation that is required solely because the duties of the employee's employment require the employee to live away from the employee's normal residence.

...

It is noted that none of the other fringe benefits specified in the FBTAR are relevant to the fringe benefits that are the subject of this ruling.

'Relates to accommodation'

The term 'relates to accommodation'or 'in respect of accommodation' and the word 'accommodation' are not defined in the FBTAA.

Given no definition is available in the FBTAA, guidance can be sought regarding the intention of the provisions from the Explanatory Statement.

The Explanatory Statement to the Fringe Benefits Tax Amendment Regulation 2013 (No. 1) accompanied the introduction of former paragraphs 9(2)(b) and 9(2)(c) [now paragraphs 11(2)(b) and 11(2)(c)] of the FBTAR into the regulations. This Explanatory Statement notes that, for employees, this regulation ensures that certain benefits are not included in their payment summaries as reportable fringe benefits (for the purpose of determining their entitlement to access a number of government concessions/benefits) after reforms to the living-away-from-home allowance and benefits.

Therefore, the regulations seek to exclude both living-away-from-home benefits paid as an allowance, and benefits that relate to accommodation, whether they be expense payment or residual fringe benefits. The intention of the regulations is to ensure there are not unintended and inequitable outcomes for employees who are required to live away from their normal residence in order to undertake their official duties of employment.

Whilst the term 'relates to' is broad, it does require an examination of the relationship between the accommodation and the expense in question. In these instances, we are satisfied that there is a sufficient relationship between the accommodation and the utility costs that are paid in relation to that accommodation. Therefore, in these instances, the Commissioner accepts utility costs do 'relate to' accommodation.

Conclusion

In circumstances where either an expense payment fringe benefit arises when the employer pays for, or reimburses, an employee's utility expenses whilst the employee is required to live away from their normal residence, and the section 21 exemption does not apply; paragraphs 11(2)(b) or 11(2)(c) of the FBTAR respectively would be satisfied.

As such, an amount paid or reimbursed by the Employer in respect of an employee's utility expenses whilst the employee is on an overseas posting will constitute an 'excluded fringe benefit' pursuant to paragraph 5E(3)(i) of the FBTAA. This amount does not contribute to the employee's individual fringe benefits amount, used to calculate the employee's reportable amount.

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