Issue
In terms of the definition of 'associate' as provided for at subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and as expressed in the accompanying diagram, is company W an associate of the employer company E?
Decision
Yes. Company W is an 'associate' of employer company E as provided for in subsection 136(1) of the FBTAA.
Facts
Company W is an electricity producer which sells electricity to an unrelated third party electricity retailer.
Company E is an employer that reimburses their employee's electricity expenses which are incurred to the third party electricity retailer.
Company E is 100% owned and controlled by company D which in turn is 90% owned and controlled by company A.
Company W is 90% owned and controlled by company A.
The payments of the electricity expenses by the employer company E are expense payment benefits under section 20 of the FBTAA and their taxable value is to be calculated under Division 5, Subdivision B of the FBTAA.
Reasons for Decision
In order to calculate the taxable value of an expense payment fringe benefit, it is necessary to consider if a benefit is an 'in house' benefit and therefore subject to concessional valuation rules. In turn a benefit will be an 'in house' benefit only if the expenditure that is reimbursed by the employer was incurred in purchasing goods or services that the employer or an associate sells to customers in the ordinary course of their business. Therefore, it needs to be determined if company W is an associate of company E (employer).
The definition of 'associate' within subsection 136(1) of the FBTAA refers to the definition of 'associate' as provided for in section 318 (formerly section 26AAB) of the Income Tax Assessment Act 1936 (ITAA 1936).
Subsection 318(2) helps determine who are associates of a company. In this case, the employer, Company E, is under the control of Company D, who is under the control of Company A, who is also a parent company of Company W.
For the purposes of this Part, the following are associates of a company (in this subsection called the primary entity (in this case, company E));
Paragraph 318(2)(d) will apply to deem company A, a parent company of company E. (d) another entity (in this paragraph called the controlling entity ) where: (i) the primary entity is sufficiently influenced by: (A) the controlling entity; or (B) the controlling entity and another entity or entities; or (ii) a majority voting interest in the primary entity is held by: (A) the controlling entity; or (B) the controlling entity and the entities that, if the controlling entity were the primary entity, would be associates of the controlling entity because of subsection (1), because of subparagraph (i) of this paragraph, because of another paragraph of this subsection or because of subsection (3);
In this case, the primary entity (Company E) is under 100 per cent control of Company D who is further controlled by Company A (application of subparagraph 318(2)(d)(i)(b).
The next step is determining if Company W is an associate of Company E.
Paragraph 318(2)(e) states: (e) another company (in this paragraph [is] called the controlled company ) where: (i) the controlled company is sufficiently influenced by: (A) the primary entity; or (B) another entity that is an associate of the primary entity because of another paragraph of this subsection; or (C) a company that is an associate of the primary entity because of another application of this paragraph; or (D) 2 or more entities covered by the preceding sub-subparagraphs; or (ii) a majority voting interest in the controlled company is held by: (A) the primary entity; or (B) the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection; or (C) the primary entity and the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and the other paragraphs of this subsection;
The application of the above section concludes that Company A is in control of Company W, and through subparagraph 318(2)(e)(i)(B), company A, being an associate of company E, means that Company W is also an associate of Company E.
On that basis, company W is an 'associate' of company E under the definition of 'associate' contained in section 318 of the ITAA 1936 and as a consequence in terms of the subsection 136(1) definition of 'associate' in the FBTAA.
Amendment History
Date of Amendment Part Comment 11 March 2026 Reasons for decision Update to punctuation 11 March 2026 Business Line Update to business line 16 January 2015 Facts Corrected minor spelling error. 16 January 2015 Reasons for decision Corrected minor spelling error. 16 January 2015 Reasons for decision Replaced references to section 26AAB with references to section 318 of the ITAA 1936. 16 January 2015 Reasons for decision Rewrite to insert information and explanation regarding section 318 of the ITAA 1936. 16 January 2015 Legislative references Removed referencs to subparagraph 136(1)(c)(i) of FBTAA. Removed references to section 26AAB, and to subsections, paragrapahs and subparagraphs under section 26AAB.
Date of Amendment | Part | Comment
11 March 2026 | Reasons for decision | Update to punctuation
11 March 2026 | Business Line | Update to business line
16 January 2015 | Facts | Corrected minor spelling error.
16 January 2015 | Reasons for decision | Corrected minor spelling error.
16 January 2015 | Reasons for decision | Replaced references to section 26AAB with references to section 318 of the ITAA 1936.
16 January 2015 | Reasons for decision | Rewrite to insert information and explanation regarding section 318 of the ITAA 1936.
16 January 2015 | Legislative references | Removed referencs to subparagraph 136(1)(c)(i) of FBTAA. Removed references to section 26AAB, and to subsections, paragrapahs and subparagraphs under section 26AAB.