ATO Interpretative Decision
ATO ID 2010/97
Fringe Benefits Tax
Third party recipient deemed to be an associate: friend of an employeeFOI status: may be released
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Will benefits provided by an employer to its employee's friend be fringe benefits as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Decision
Yes. The benefits provided by the employer to its employee's friend are fringe benefits as defined in subsection 136(1) of the FBTAA as all of the requirements of the definition are satisfied including that the friend is an associate of the employee.
Facts
By reason of the employment relationship between the employer and an employee, an agreement is entered into whereby the employer provides the employee's friend (who is not an employee) with the ongoing use of a car.
The car is owned and maintained by the employer.
Each use of the car by the employee's friend is a 'benefit' as defined in subsection 136(1) of the FBTAA
Reasons for Decision
A 'fringe benefit' is defined in subsection 136(1) of the FBTAA as being a benefit that is provided by an employer or associate of the employer, to an employee or an associate of the employee, in respect of the employment of the employee.
On the basis that the other requirements of the definition of 'fringe benefit' have been satisfied, provided that the friend qualifies as an associate of the employee, the benefits will be fringe benefits.
Subsection 136(1) of the FBTAA 'associate' defined
Subsection 136(1) of the FBTAA provides a definition of 'associate'. 'Associate' has the same meaning in relation to a person as that expression has in relation to a person in section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). Section 318 of the ITAA 1936 covers a broad range of entities that are associates of natural persons, companies, partnerships and trustees. The term 'associate' includes relatives, partners, trustees and beneficiaries, and related companies.
Therefore consideration has to be given as to whether a friend is a 'relative' of the employee as a friend does not fall within any other class of 'associate' contained within section 318 of the ITAA 1936.
Section 318 of the ITAA 1936 provides that a 'relative' of a natural person will be an 'associate' of that person, The definition of 'relative' for the purpose of section 318 of the ITAA 1936 is the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), that is;
relative
of a person means:
The FBTAA also contains a definition of 'relative' in subsection 136(1). This definition states that 'relative' also has the meaning given by subsection 995-1(1) of the ITAA 1997.
Notwithstanding the wide meaning of 'relative' given above a friend does not fall within this definition.
As a 'friend' does not fall within any class of 'associate' contained within section 318 of the ITAA 1936, the friend is not an 'associate' of the employee as defined in subsection 136(1) of the FBTAA.
Subsection 148(2) of the FBTAA 'third party recipient' deemed to be an 'associate'
However, subsection 148(2) of the FBTAA provides an additional class or category of 'associate' by way of a deeming provision which also needs to be considered.
Subsection 148(2) of the FBTAA deems a third party to be an 'associate' of an employee where the third party receives a benefit provided under an 'arrangement' between the employer and the employee.
An 'arrangement' is defined in subsection 136(1) of the FBTAA and includes agreements, arrangements and promises.
As the employee and the company have an agreement in place which recognises that the friend has the use of the company car. There is an 'arrangement' in place between the employer and the employee.
As a consequence, the friend is deemed to be an 'associate' of the employee under subsection 148(2) of the FBTAA. The benefits provided by the employer to the friend are therefore benefits provided to an 'associate' of the employee.
This broad position was supported by the Full Federal Court decision in J & G Knowles and Associates Pty Ltd v. Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22. At paragraph 15 of the decision, the following is stated:
By s 148(2) where a benefit is provided to a person, other than the employee or an associate of the employee, under an agreement between the provider and the employee, the recipient shall be deemed an associate.
Accordingly, the benefits provided by the employer to its employee's friend are fringe benefits as defined in subsection 136(1) of the FBTAA as all of the requirements of the definition are satisfied including that the friend is an associate of the employee.
Date of decision: 22 April 2010Year of income: Year ended 31 March 2010
Legislative References:
Fringe Benefits Tax Assessment Act 1986
subsection 136(1)
subsection 148(2)
section 318 Income Tax Assessment Act 1997
subsection 995-1(1)
Case References:
J & G Knowles and Associates Pty Ltd v Commissioner of Taxation
(2000) 96 FCR 402
2000 ATC 4151
(2000) 44 ATR 22
Keywords
Fringe benefits tax
Fringe benefits
FBT arrangement
FBT associates
Date reviewed: 3 October 2017
ISSN: 1445 - 2782
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