CASE 2/96

Members:
J Block SM
G Stanford M
T Sheehen M

Tribunal:
Administrative Appeals Tribunal

Decision date: 22 December 1995

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J Block (Senior Member), G Stanford and T Sheehen (Members)

The Applicant sought review of decisions by the Respondent disallowing objections by the Applicant against notices of assessment issued in respect of the fringe benefits tax years ending 31 March 1990, 31 March 1991 and 31 March 1992 respectively; excepting only that the amounts differ, the issues raised as regards fringe benefits tax (``FBT'') in relation to each of the three fringe benefits tax years (collectively the ``FBT Years'' and individually an ``FBT Year'') are the same.

2. The Applicant was represented by Mr JW Durack SC of Counsel and the Respondent was represented by Mr K Balmer. Oral evidence was given by an executive of the Applicant who will be referred to in these reasons as ``B''. The Tribunal accepted into evidence the documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act and also one exhibit (numbered A1), being an affidavit by B sworn on 7 December 1995.

3. It may be noted at the outset that the assessments relate to FBT both in respect of a loan fringe benefit and also in relation to the provision of taxi travel to employees of the Applicant. At the outset of the hearing, Counsel for the Applicant advised the Tribunal that the Applicant's application as regards the loan fringe benefit would not be pursued; accordingly the FBT assessed in respect of the loan fringe benefit, and also the penalty referable to it, must stand.

Issues before the Tribunal

4. The issues to be considered by the Tribunal are:

• (a) whether the provision of taxi travel by the Applicant to its employees in the FBT Years in question constituted taxable fringe benefits having regard to the provisions of the Fringe Benefits Tax Assessment Act (``the Act'') and in particular sections 20 (read with section 144), 47(6) and 58P of the Act;
• (b) the extent to which the penalties imposed in the assessments should be remitted.

The legislation

5. The relevant sections of the Act will be quoted as and to the extent necessary as they are dealt with in these reasons.

The evidence

6. B gave evidence on behalf of the Applicant, both orally and pursuant to the affidavit which is Exhibit A1; Mr Balmer on behalf of the Respondent did not cross-examine B at any length; moreover Mr Balmer accepted, as regards Schedules 1, 2 and 3 to Exhibit A1 firstly that the Total Amounts as reflected therein are correctly calculated net of the fee payable to Cabcharge, and secondly that in respect of each Schedule those amounts which are referable to ``office'' and ``depot-con note deliv'' do not attract FBT; accordingly the employees of the Applicant with whom the Tribunal is concerned are those set out in the Schedules, and named as such therein; evidence was given that all of the relevant employees are female.

7. B gave evidence to the effect that:

• (a) each of the three Schedules and more particularly the calculation under the head of ``% of Available Trips'' in each Schedule is calculated in respect of each relevant employee by reference to 250 working days in each year, and making the same allowance for each employee as regards holiday and sick leave; this calculation results in a notional calculation for each employee in each FBT year of 500 possible trips; the Tribunal notes that these notional numbers may, in reality, be somewhat high;
• (b) the relevant taxi trips relate in the main to trips from the office of the Applicant to the home of the employee, although in some instances, the term ``home'' for this purpose should properly be construed as a reference to the home of the employee's parents or other relatives or babysitter, for the purpose of collecting that employee's children; those trips (from the Applicant's offices) are referred to, for purposes of brevity, as ``work trips''; by contrast the term ``home trips'' is used to refer to those trips (and it was accepted that work trips far exceeded home trips) made by employees from their homes to their place of employment;
• (c) in respect of all taxi trips, and whether work trips or home trips, the Applicant did not contact the taxi company, leaving it in the employee to select a taxi company of her choice;
• (d) as set out in Exhibit A1, paragraph 7, employees would not generally know, in

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  relation to any particular day, whether their services would be required in respect of overtime work, until later in that day, given that the level of work to be done on each day fluctuated, and that requests were made for overtime work on an ad hoc basis;
• (e) the requirements of the Applicant as regards overtime work was seasonal and in particular tended to increase during the period of three months before Christmas, whereas by contrast the months of January and February tended to require relatively little overtime work; (see paragraph 8 of Exhibit A1);
• (f) all employees engaged in EDP operations in each of the Years under review were, as set out in paragraph 9 of Exhibit A1, employed under the Clerks (Road Transport & Customs Clearing Industry) Consolidated Award which requires the employer to provide transport (inter alia) where a female employee works overtime before 6:30 am or beyond 8:00 pm;
• (g) as set out in paragraph 10 of Exhibit A1 almost all of the employees in the EDP section travelled by train, bus or ferry or a combination of these services, to and from work for the Applicant, and all or almost all of them bought weekly tickets covering both the outward and return journeys by one or a combination of the means of transport referred.

8. The credibility of B was not contested by Mr Balmer and his evidence, both oral and pursuant to Exhibit A1 is accepted by the Tribunal. It may be noted in this context that Mr Balmer conceded also that the Applicant had been helpful to the Respondent in relation to the audit which preceded the issues of the assessments in question. It may be said that there was little or no issue as to the facts.

9. From the outset of the hearing, it was accepted that the decision in
National Australia Bank Ltd v FC of T 93 ATC 4914 (referred to in brief as the ``NAB case'' or the ``NAB judgment'') would be of considerable importance in relation to the issues. The facts in the NAB case are similar (with one notable exception) to the facts referable to the Applicant; that distinction as between the facts in the NAB case and the facts in the Applicant's case is that in relation to the work trips, the Bank's procedures were such that taxis were engaged by telephone by the shift manager, the shift supervisor or a person delegated by one of them. In accordance with paragraph 34 of Mr Wright's affidavit (referred to at pages 4935 and 4936 of the NAB judgment), it was also the Bank's procedure, where two or more employees were travelling to destinations within the same locality or one destination was on the way to another destination, that the person engaging taxis would arrange for one taxi to be shared by those employees. Put in other words, and in the NAB case, and in respect of work trips, but not home trips, it was the employer who selected the taxi company; by contrast, and in respect of the Applicant both work and home trips were treated in the same way, and in such manner that it was the employee who selected the taxi company. Counsel for the Applicant asked the Tribunal to distinguish the NAB decision, on a contractual basis, and having regard to the allegations in clause 16 of Exhibit A1, as to the replacement of Yellow Cabs of Australia Pty Ltd by Cabcharge Australia Pty Ltd; the Tribunal considers that these particular considerations are not such so as to allow it to draw any relevant distinction.

10. The Schedules to B's affidavit indicate that some employees did during the FBT Years have more (and in some cases many more) trips by taxi than did others.

11. It was suggested that in respect of each Schedule the percentage set out under the head of ``% of Available Trips'' might realistically and for practical purposes be doubled, more particularly given that home trips were comparatively rare.

12. It was accepted that the Schedules to B's affidavit were calculated in certain respects in a manner which is in certain respects arbitrary; in particular it assumes for each employee the same number of work days; however the Tribunal accepts that for practical purposes (notwithstanding the Respondent's ``Response to Direction given 15 November 1995'' reading, as to paras (b) and (c), ``only when the date and cost of each trip by each employee is known in relation to relevant employers can any judgment be made as to what is regular or irregular use of taxis''), that the Schedules had been compiled with a sufficient degree of accuracy.

13. It will be noted (as appears from paragraph 15 below) that Ryan J in the NAB case, drew no distinction as regards work trips

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and home trips, as regards the nature of the contractual arrangement; in particular he found that even where the employee commissions the taxicab from his or her home the analysis favoured by him remained available for the reasons set out in his judgment and part of which is quoted in paragraph 15.

14.  Expense payment benefits

Mr Balmer for the Respondent contended (albeit somewhat hesitantly) that the taxi benefits could constitute expense payment benefits within Division 5; reference was made in this context to sections 20 and 144 of the Act; it is unnecessary to act out section 20, having regard to paragraph 15 below; section 144 reads as follows:

``144. For the purposes of Part III, any conduct by a person that effects or results in a discharge or extinction of an obligation of another person to pay an amount to a third person shall be taken to constitute the payment of the amount by the first- mentioned person.''

15. The Tribunal finds that the payments in question do not constitute expense payment benefits in accordance with sections 20 and 144 of the Act; the Tribunal is, in the context bound, by the judgment in the NAB case, a part of which [93 ATC pp 4939-4940] is set out below, both because of its relevance to this question (and others) as follows:

``A good deal of attention in the course of argument was devoted to an analysis of the contractual arrangements which may be said to have been made between the taxi cab operator on the one hand, and the employee or the Bank on the other. It was the Commissioner's contention that the provision of travel by taxi cab is an expense payment benefit within s. 20 of the Act. That section provides:

`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.'

Little assistance is gleaned for the purpose of this analysis by endeavouring to impute to the taxi cab operator or driver a belief as to the person with whom the contract of carriage is made. On the evidence, it can be inferred only that the taxi cab operator is content to accept, as consideration for provision of the service, the right, arising from delivery of the Cabcharge voucher, to claim from Cabcharge the cost of providing the service. If the taxi cab operator thought about it at all, he or she would probably regard the contract of carriage as being made with the party having the contractual right to discharge the cost by means of the Cabcharge voucher; i.e. the Bank.

What I regard as the preferable view, that the contract is between the taxi cab operator and the Bank, accommodates the arrangement under which the shift supervisor arranges for the attendance of one or more taxi cabs and two or more employees travel in the same cab. The contract which the taxi cab operator then and there makes is to attend at the Bank's premises and convey one or more of its employees as directed, in consideration of the provision by the Bank of a warrant authorizing the cost of the conveyance to be met by Cabcharge on the Bank's account. Even where the employee commissions the taxi cab from his or her home, the analysis which I favour remains available because the employee can be regarded as the agent of the Bank, having actual authority, evidenced by the possession of the Cabcharge voucher, to conclude a contract with the taxi cab operator on behalf of the Bank. This view derives some support from the fact that the Bank was under a legal obligation imported by cl 20A of the Bank Officials' (Federal) 1963 Award to convey Mr Brewster, on at least some occasions, from and to his home before or after the commencement of a shift. (Emphasis added)

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On this analysis there is no scope for the operation of s. 144 of the Act which has been invoked by Counsel for the Commissioner. By that section:

`For the purposes of Part III, any conduct by a person that effects or results in a discharge or extinction of an obligation of another person to pay an amount to a third person shall be taken to constitute the payment of the amount by the first- mentioned person.'

The view which I take of the contractual arrangement is that no obligation is imposed on the employee. Accordingly, the provision of the warrant for payment in the form of a Cabcharge voucher does not effect or result in a discharge or extinction of an obligation of the employee to pay any amount to the taxi cab operator.''

In this particular context, and if any reinforcement of this view were necessary, the Tribunal notes that it agrees with and adopts Clause 5 of Applicant's Outline of Submissions, from which we quote as follows:

``Expense Payment Benefit - Division 5

This division cannot apply because the Applicant does not, by honouring the cabcharge vouchers which it authorises, make a payment in discharge of an obligation of its employee to pay an amount to a third person. The only obligation to make a payment which the employee incurs is an obligation to make payment to the taxicab driver. It is not this obligation which is discharged by the Applicant's payment to Cabcharge Australia Pty Ltd (sec 20(a)).

Where there is an actual payment by an employer to honour the cabcharge vouchers sec 144 ought not to have a separate deeming operation. In any event the only effect of sec 144 is to deem conduct to constitute `the payment of the amount'. It does not deem the conduct to constitute that payment to be `in discharge, in whole or in part, of an obligation' of the employee to pay an amount to a third person. Deeming provisions are required to be construed strictly (
FC of T v Comber 86 ATC 4171 at 4177,
Woodlock v Commissioner of Land Tax (1974) 5 ATR 57 (Supreme Court); (1975) 2 NSWLR 97 (Court of Appeal)) and only for the purpose for which they are resorted to. It would be especially inappropriate to extend by implication the express application of a statutory fiction where, as here, an actual payment is made by the employer but not in discharge of any obligation of the employee.

Nor does the Applicant reimburse its employees in respect of expenditure incurred (see the discussion in
Roads & Traffic Authority of NSW v FC of T 93 ATC 4508 at 4512).''

16. Residual benefits

The Applicant conceded that the relevant benefits must be residual benefits within sec 45 of the Act, and as such will be fringe benefits, as defined, unless exempt in relation to the FBT Years, within paragraph (g) of the definition.

17.  Section 47(6) of the Act

It is necessary in the first instance to consider section 47(6) of the Act which is set out as follows:

``Where:

• (a) a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee;
• (aa) in the case of a standard year of tax - the motor vehicle is not:
  • (i) a taxi let on hire to the provider (emphasis added); or
  • (ii) a car, not being:
    • (A) a panel van or utility truck; or
    • (B) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and
• (b) there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than:
  • (i) work-related travel of the employee; and
  • (ii) other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular;

the benefit is an exempt benefit in relation to the year of tax.''

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18. Specifically, as regards section 47(6), the Tribunal considers that it must be concerned in particular with section 47(6)(aa)(i) of the Act.

19. The relevant part of the NAB judgment [93 ATC pp 4940-4941] reads as follows:

``Were it not for the presence in that subsection of paragraph (aa), I would have regarded a benefit constituted by provision of conveyance of an employee in a taxi cab as not consisting of `the provision or use' of a motor vehicle. See e.g. my observations in
Kirby v FC of T 87 ATC 4503 at 4515; (1987) 14 FCR 563 at 578. However, the insertion into the Act by Act No 139 of 1987 of paragraph (aa) indicates that `use of a motor vehicle' in paragraph (a) was regarded by the legislature as capable of comprehending a passenger's travel in a taxi. Faced with the prima facie consequences of the amendment Counsel for the Bank argued that the `provider' referred to in s. 47(6)(aa)(i) should be identified, in the present circumstances, as the taxi driver. I reject that contention. In my view, `provider' in the context afforded by the reference in the introductory words of s. 47(6)(a) to `the employment of a current employee' and the references to `employee' and `an associate of the employee' in s. 47(6)(b), means the employer or an associate of the employer of the relevant employee. To give `provider' in paragraph (aa) the meaning contended for by the Bank would have the entirely capricious result of taking away the exemption if the taxi cab happened to be let on hire to the driver or operator but preserving it when the conveyance was provided in a cab owned by the driver or operator.

I accept the submission of Counsel for the Bank that, on the principles of statutory construction endorsed by in
No 20, Cannon Street Ltd v Singer & Friedlander Ltd [1974] Ch 229 at 235, sub-paragraph (ii) of paragraph (aa) has no application to the provision or use of a motor vehicle which is a taxi within the meaning of sub-paragraph (i).''

20. Counsel for the Applicant invited the Tribunal, at some length and with considerable eloquence, to distinguish the case of the Applicant from the NAB case. He contended that, unlike the position in the NAB case the taxis were not let on hire to the employer (or provider) but rather and in each case let on hire to the employee. He drew attention in particular to p. 4939 of the NAB decision, noting that the Applicant did not engage taxis (at least in relation to work trips); rather the employees made the necessary arrangements, organising their own cabs, even in many instances nominating the drivers. Mr Durack contended, in effect, that Ryan J might, in relation to home trips, have come to a different conclusion as to the applicability of paragraph (aa) if the Bank had not played the contractual role which it did in relation to work trips.

21. While Mr Durack's contention was well argued, the Tribunal considers that the wording underlined in paragraph 15 as to the nature of the contract in respect of home trips, does not depend for its force on the existence of the NAB case fact situation in respect of work trips; the underlined part of the NAB decision quoted in paragraph 15 is equally applicable to home and work trips; that decision is of course binding on us and Section 47(6) cannot for this reason apply.

22.  Section 58P of the Act

It remains for the Tribunal to consider whether the Applicant is relieved from liability to fringe benefits tax by section 58P which so far as is relevant, provides:

``(1) Where:

• (a) a benefit (in this section called a `minor benefit') is provided in, or in respect of, a year of tax (in this section called the `current year of tax') in respect of the employment of an employee of an employer;
• ...
• (e) the notional taxable value of the minor benefit in relation to the current year of tax is small; and
• (f) having regard to:
  • (i) the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to:
    • (A) the minor benefit; or
    • (B) benefits provided in connection with the provision of the minor benefit;

    have been or can reasonably be expected to be provided;

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  • (ii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of the minor benefit and any associated benefits, being benefits that are identical or similar to the minor benefit, in relation to the current year of tax or any other year of tax;
  • (iii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of any other associated benefits in relation to the current year of tax or any other year of tax;
  • (iv) the practical difficulty for the employer in determining the notional taxable values in relation to the current year of tax of:
    • (A) if the minor benefit is not a car benefit - the minor benefit; and
    • (B) if there are any associated benefits that are not car benefits - those associated benefits; and
  • (v) the circumstances surrounding the provision of the minor benefit and any associated benefits including, but without limiting the generality of the foregoing:
    • (A) whether the benefit concerned was provided to assist the employee to deal with an unexpected event; and
    • (B) whether the benefit concerned was provided otherwise than wholly or principally by way of a reward for services rendered, or to be rendered, by the employee;

  it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefit in relation to the employer in relation to the current year of tax;

the minor benefit is an exempt benefit in relation to the current year of tax.

(2) For the purposes of this section, a benefit is an associated benefit in relation to a minor benefit if, and only if:

• (a) any of the following subparagraphs applies:
  • (i) the benefit is identical or similar to the minor benefit;
  • (ii) the benefit is provided in connection with the provision of the minor benefit;
  • (iii) the benefit is identical or similar to a benefit provided in connection with the provision of the minor benefit;
• (b) the benefit and the minor benefit both relate to the same employment of a particular employee; and
• (c) the benefit is not an exempt benefit by virtue of a provision of this Act other than this section.''

23. In considering the tests in section 58P(1)(f), regard must be had to all factors, even if only to consider that a particular factor is irrelevant in the circumstances; (
Peabody v FC of T 93 ATC 4104).

24. Counsel for the Applicant urged us to pay particular attention to the words ``or can reasonably be expected to be provided'' which appear at the end of paragraph (f)(i); he contended that that test (which is of course one only of a number of tests) will be satisfied only where, in relation to any given employee it could be said that it is more likely than not that that employee might be expected to work overtime, and thus become entitled to a taxi fare; on this basis, and if we were to accept the contentions of the Applicant in this regard, the only employees whose benefits would be caught for FBT would be those employees who, in relation to the Schedules to Exhibit A1 could be regarded as having a ``% of Available Trips'' which is greater than 50%. For reasons set out previously in paragraph 11, the Tribunal considers that it is realistic to double each percentage set out in each of Schedules 1, 2 and 3 to B's affidavit. On the basis of this test (effectively a balance of probabilities test) the benefits attributable to a few only of the employees would be caught.

25. Mr Balmer, when pressed for his views as to this aspect elected to submit that Draft Taxation Determination TD 94/D33 (since withdrawn) might nevertheless for this purpose be the correct interpretation.

26. Mr Durack drew attention to the explanatory memorandum; using the words of the Applicant's Outline of Submissions, ``That position was described precisely by the explanatory memorandum accompanying Act No 139 of 1987 as a situation where regular

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transport was provided to shift workers or others whose duties of employment are such that they regularly work late hours in the normal course of events''.

Mr Durack argued that the Applicant's employees are not shift workers, in contrast with the employees referred to in the NAB case; he pointed out also that the value of the benefit to Mr Brewster (referred to in the NAB decision) was $8,000, an amount considerably in excess of the value of the benefits to the Applicant's employers.

27. We do not think that the examples set out in the Draft Taxation Determination TD 94/D33 are of much assistance. Those examples focus on the ``infrequency and irregularity'' factors set out in the section. Example 1 would have it that one taxi fare home (costing between $10 and $15) in each month would be sufficiently frequent and regular we think that this example is unlikely to be correct. It seems to us that there is a clear distinction to be drawn between benefits which are isolated or rare and benefits which are infrequent and irregular, and that the worked examples may have equated these concepts.

28. Taxation Determination TD 93/76 issued on 29 April 1993 focus on each of the tests in 58P(1)(f) in relation to redeemable vouchers; we do not think that the worked examples are of assistance in the present case.

29. Nor do we consider that, while accepting that the relevant employees are not shift workers, the ``balance of probabilities'' test contended for by the Applicant can be the correct test; the wording of paragraph (f)(i) does not suggest to us that such a test was intended for this purpose. There were some employees who performed overtime work regularly, and must reasonably have expected that taxi fares would be provided; they would naturally have been aware of the fact that they were covered for this purpose by a relevant award.

30. Specifically in relation to paragraph (f):

• (a) we do not think that there is any practical difficulty as referred to in paragraph (iv);
• (b) as to whether the taxi fares were provided as a reward for services may be debatable (and see p. 4943 of the NAB judgment), although we are inclined to the view that they are likely to relate to services rendered or to be rendered; as to paragraph (v)(A) the benefit would be an unexpected event in respect of some employees but not in our view, to those of them who received the benefit regularly;
• (c) as set out previously we do not think that ``the reasonably be expected'' test in paragraph (f)(i) requires that it be expected on a balance of probabilities, but rather that the provision of the services, (and the provision of taxi fares) occurs (having regard to the opening words) infrequently and irregularly; it is of course conceivable that a benefit can be infrequent but regular, and it would seem that for this purpose a benefit will be minor for the purposes of paragraph (f)(i) if it is both infrequent and irregular;
• (d) we refer to paragraphs (ii) and (iii) in paragraphs 33 and 34 below.

31. It is of course clear that in respect of each employee, and in relation to each FBT Year, all taxi fares are associated benefits.

32. The ``one off loan'' illustration derived from the explanatory memorandum and referred to at p. 4942 of the NAB judgment is not apposite in this context. Further and again in relation to the explanatory memorandum and p. 4392, the employees with whom we are not concerned, while not shift workers, are also in some cases at least, not working late ``on an ad hoc basis'' ``to clear backlogs or meet particular deadlines''. For some, at least, of the employees, overtime work was not infrequent or irregular.

33. The ``Average $ per trip amount'' set out in the Schedules is, in our view, insufficient to take it outside the concept of ``minor benefit''.

34. The Tribunal has come to the conclusion having regard to the tests laid down in section 58P(1) that a benefit and its associated like benefits will be minor if, in relation to any given employee and in respect of each FBT year, the number of Total Trips is less than 48, or, on a monthly averaging basis, less than 4 per month. This view (which is inevitably somewhat arbitrary) is based on the view that that number of trips is likely to be infrequent, and having regard to the evidence as to the ad hoc nature of the applicant's requirements, irregular; further the employee could not reasonably have expected them. Moreover the value having regard to paragraphs (ii) and (iii) both on a per trip and an aggregated basis is

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sufficiently low to allow for a finding that it is minor. It is in the end result necessary to draw a line at some point, in each case in relation to the particular facts. We consider that in this case the line can appropriately be drawn, in relation to each employee, on this basis.

35. The Tribunal does not consider that the fact that employees had prepaid alternative travel is decisive, although it may bear on the concept of ``expected'' in paragraph (f)(i).

36. Penalties

The applicant argued that all penalties referable to the taxi fares should be remitted in part because it had co-operated in the audit, and in part because it is very likely that the law in this area will soon alter, and so that taxi fares in these circumstances will not attract FBT. We do not think that the latter point is in this context relevant; this matter is concerned with the FBT years previously referred to. As to the former point, Taxation Ruling TR 95/4, which deals with penalties, indicates that the ``culpability'' component was reduced by the Respondent in accordance with that ruling. In the circumstances we do not think it appropriate to make any finding as regards the Respondent's determination on penalties, although of course the effect of these Reasons is that penalties will fall away in relation to some of the employees. It was not seriously argued that the Respondent had erred as regards the imposition of penalties.

37. The decisions under review are thus remitted to the Respondent for recalculation in accordance with these Reasons.