Issue
In determining the taxable value of an in-house residual expense payment fringe benefit, under subsection 22A(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), will the lowest price at which an identical benefit is sold to a member of the public in terms of section 48 of the FBTAA reflect any reduction in premium provided by the Commonwealth Government to the employee under the Private Health Insurance Act 2007 ?
Decision
No. In determining the 'lowest price' in terms of section 48 of the FBTAA, the reduction in premium will constitute a recipients contribution and will not be included in that process.
Facts
In the terms of an agreement with its employee an employer agrees to pay the employee's liability under a private health insurance policy with a related company.
In his capacity as an employee, the employee receives a 12% discount from the full premium which would otherwise be payable under the policy.
The related company offers the same discount to employees of unrelated employers.
The Commonwealth Government provides a reduction in premium in respect of private health insurance cover for which the employee qualifies.
The reduction in premium is a percentage of the discounted premium which is otherwise payable.
Under his agreement with the employer the employee agrees to apply to become a participant in the premium reduction scheme.
Where the full premium payable is $3,000 and a 30% reduction in premium is claimed by the employee the calculation is as follows: $ Annual full premium 3,000 12% discount 360 Employee's liability 2,640 Reduction in premium 792 Amount paid by employer 1,848
$
Annual full premium | 3,000
12% discount | 360
Employee's liability | 2,640
Reduction in premium | 792
Amount paid by employer | 1,848
Reasons for Decision
The payment of the employee's private health insurance premium by the employer is an in-house residual expense payment fringe benefit in terms of subsection 136(1) of the FBTAA.
In determining the taxable value of the benefit under subsection 22A(2) of the FBTAA it is necessary to refer to section 48 of the FBTAA on the basis that if the service had been provided as a residual benefit, it would have constituted an in-house non period residual fringe benefit.
Under section 48 of the FBTAA the taxable value is calculated in relation to an employer in relation to a year of tax as being: (aa) if the benefit was provided to the recipient under a salary packaging arrangement - an amount equal to the notional value of the benefit at the comparison time; or (ab) if paragraph (aa) does not apply and the benefit is an airline transport fringe benefit - an amount equal to 75% of the stand-by airline travel value of the benefit at the comparison time; or (a) if neither paragraph (aa) nor (ab) applies and, at or about the comparison time, identical benefits were provided by the provider (i) ... and (ii) ... an amount equal to 75% of the lowest price at which an identical benefit was sold to a member of the public or (b) in any other case - an amount equal to 75% of the notional value of the benefit at the comparison time; reduced by the amount of recipients contribution (emphasis added)
If the amount paid by the employee to the employer is a 'recipients contribution', it will be deducted from 75% of the 'lowest price' and therefore cannot take part in the determination of the 'lowest price'. If it were then this amount would be taken into account twice.
The relevant definition of 'recipients contribution' in subsection 136 (1) FBTAA is: (a) ... (b) in relation to an expense payment fringe benefit provided in respect of the employment of an employee or an employer being a fringe benefit to which paragraph 20(a) applies - an amount paid to the provider or to the employer by the recipient or by the employee in respect of the provision of the fringe benefit.
In using the method in section 48 of the FBTAA to calculate the taxable value of an 'in-house residual fringe benefit', paragraph 22A(2)(b) of the FBTAA provides the calculation of 'recipients contribution'. However, the amount of the recipients contribution as defined in subsection 136(1) of the FBTAA in relation to the actual fringe benefit is still taken into account in this calculation.
By agreeing to claim the reduction in premium, an amount equal to that reduction is paid by the employee to the employer pursuant to their agreement in respect of the fringe benefit and will be a recipients contribution.
It will therefore not be taken into account in determining the 'lowest price' in section 48 of the FBTAA.
The lowest price at which an identical benefit would be offered to the public by the employer is the amount of the obligation to the insurer prior to any rebates or reductions to which a particular individual may be entitled as a result of the Private Health Insurance Act 2007 .
This situation may be contrasted with a manufacturer's rebate in relation to the cost price of a car which is dealt with in Taxation Ruling TR 2011/3 Fringe benefits tax: meaning of ' cost price' of a car, for the purpose of calculating the taxable value of car fringe benefits .
Subsection 136(1) of the FBTAA, defines 'cost price of a car' as being: (a) in relation to a car owned by a person (i) ... (ii) ... (A) the expenditure incurred by the person (other than expenditure in respect of registration or in respect of a tax on, or a transfer of, registration) that is directly attributable to the acquisition or delivery of the car...,
Paragraph 77 of TR 2011/3, states that 'expenditure incurred' in relation to the 'cost price of a car' is intended to reflect the net expenditure borne in acquiring a car. Therefore, a manufacturer's rebate will reduce the 'cost price of a car'. Manufacturer rebates are provided by the person trying to affect the sale, up to the point of delivery and as such would have a positive impact on the calculation of 'expenditure incurred'.
'Price' is not defined in the FBTAA and takes on its ordinary meaning. The Macquarie Dictionary Online defines price as being 'the sum of money or its equivalent for which anything is bought, sold or offered for sale'.
The Commonwealth Government reduction in premium is provided to the individual under the Private Health Insurance Act 2007 . It is not relevant to the process of determining the price at which a similar policy is to be offered for sale.
Accordingly, for these reasons, the lowest price would be $2,640.
Amendment History
Date of Amendment Part Comment 24 April 2026 Reason for Decision Minor grammatical and stylistic changes 24 April 2026 Business Line Updated to correct business line 24 April 2026 Date reviewed Updated review date 10 June 2016 Title Amend reference from ' Private Health Insurance Incentives Act 2007 ' to ' Private Health Insurance Act 2007 ' 10 June 2016 Issue Amend reference from ' Private Health Insurance Incentives Act 2007 ' to ' Private Health Insurance Act 2007 ' 10 June 2016 Reason for Decision Include reference to subsections 48(aa) and 48(ab) of FBTAA Amend reference to subsections 48(a) and 48(b) of FBTAA Amend reference to Macquarie Dictionary from '[MultiMedia], version 5.0.0, 1/10/01' to 'Online' Amend reference from ' Private Health Insurance Incentives Act 2007 ' to ' Private Health Insurance Act 2007 ' 10 June 2016 Legislative reference Include reference to subsections 48(aa) and 48(ab) of FBTAA Amend reference to subsections 48(a) and 48(b) of FBTAA Amend reference from ' Private Health Insurance Incentives Act 2007 ' to ' Private Health Insurance Act 2007 ' 10 June 2016 Other References Amend reference to Macquarie Dictionary from '[MultiMedia], version 5.0.0, 1/10/01' to 'Online' 10 June 2016 Keywords Include insurance premium
Date of Amendment | Part | Comment
24 April 2026 | Reason for Decision | Minor grammatical and stylistic changes
24 April 2026 | Business Line | Updated to correct business line
24 April 2026 | Date reviewed | Updated review date
10 June 2016 | Title | Amend reference from ' Private Health Insurance Incentives Act 2007 ' to ' Private Health Insurance Act 2007 '
10 June 2016 | Issue | Amend reference from ' Private Health Insurance Incentives Act 2007 ' to ' Private Health Insurance Act 2007 '
10 June 2016 | Reason for Decision | Include reference to subsections 48(aa) and 48(ab) of FBTAA Amend reference to subsections 48(a) and 48(b) of FBTAA Amend reference to Macquarie Dictionary from '[MultiMedia], version 5.0.0, 1/10/01' to 'Online' Amend reference from ' Private Health Insurance Incentives Act 2007 ' to ' Private Health Insurance Act 2007 '
10 June 2016 | Legislative reference | Include reference to subsections 48(aa) and 48(ab) of FBTAA Amend reference to subsections 48(a) and 48(b) of FBTAA Amend reference from ' Private Health Insurance Incentives Act 2007 ' to ' Private Health Insurance Act 2007 '
10 June 2016 | Other References | Amend reference to Macquarie Dictionary from '[MultiMedia], version 5.0.0, 1/10/01' to 'Online'
10 June 2016 | Keywords | Include insurance premium