Fringe benefits tax: employer clients of the Eclipx Group who participate in its bus travel benefit scheme

This Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.

The relevant provisions dealt with in this ruling are: • section 45 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) • subsection 47(6) of the FBTAA. All references in this Ruling are to the FBTAA unless otherwise stated.

The class of entities to which this Ruling applies is employers who are clients of Eclipx Group Limited, FleetPlus Pty Limited and Fleet Partners Pty Limited (Eclipx Group) that provide a smartcard to their employees to facilitate travel on buses between the employees' places of residence and their places of employment.

The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 7 to 18 of this Ruling.

If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: • this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled, and • this Ruling may be withdrawn or modified.

This Ruling applies from 1 April 2017 to 31 March 2023. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).

The following description of the scheme is based on information provided by the applicant.

Eclipx Group will enter into contractual arrangements with state based transport authorities (State Providers) in respect of bus travel on behalf of its employer clients.

The State Providers will provide the employer with travel smart cards (smartcard) which act as an electronic fare collection system.

The smartcard can only be used by an employee when they are a current employee. It is non-transferable and is registered in the employee's name.

Participating employees enter into a salary sacrifice arrangement for the cost of the travel authorised by and incurred by the employer.

The employees must acknowledge the terms and conditions of use of the smartcard and sign a declaration which states that the smartcard will only be used for transport between the employee's place of residence and their place of employment.

Each employee nominates a default trip with the following details: • principal work location • home location • bus route number/reference • zones travelled or closest bus stop number to home and work. Employees also provide the details relevant to any additional work locations.

The State Provider will give Eclipx Group smartcard usage reports on a weekly, fortnightly or monthly basis. Eclipx Group will review the reports as received, to determine if the employee has deviated from the default trip. If any unauthorised use of the smartcard is identified, the employee will be required to repay the employer for any unauthorised benefits received.

Eclipx Group will notify employees via email after the first and second offences as a reminder of program conditions. It will contact the employee by email and phone on the third instance. Employees who have misused the smartcard three times will have the smartcard and program benefit terminated.

Where an employee ceases employment or wishes to leave the scheme the smartcard must be returned to the employer. Eclipx Group will arrange for any balance to be refunded to the employee less the required Pay As You Go withholding.

Where an employee goes on leave for more than 8 weeks, they are required to notify the employer and the smartcard will be made inactive so that it cannot be used.

If a smartcard is lost or stolen, the employee is required to notify the State Provider to cancel the old smartcard and issue a replacement.

The employee's use of the smartcard provided by the employer is a residual benefit as per section 45.

The residual benefit that arises from the use of the smartcard is an exempt benefit under subsection 47(6) if the private use of the smartcard is for bus travel between the employee's place of residence and place of work.

Section 45 provides that a benefit is a residual benefit if it is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). Divisions 3 to 10 are not relevant to this scheme. Division 2 and Division 11 may be relevant to this scheme.

Division 2 applies to car fringe benefits. The definition of a car in subsection 136(1) refers to subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). Under subsection 995-1(1) of the ITAA 1997, a car is defined as a 'motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers'. As such, a bus does not fall within the definition of car and is not covered by Division 2.

Division 11 applies to property fringe benefits. Section 40 states: Where, at a particular time, a person (in this section referred to as the provider) provides property to another person (in this section referred to as the recipient), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

The definition of 'provide' in subsection 136(1) is: (a) in relation to a benefit-includes allow, confer, give, grant or perform; and (b) in relation to property-means dispose of (whether by sale, gift, declaration of trust or otherwise): (i) if the property is a beneficial interest in property but does not include legal ownership-the beneficial interest; or (ii) in any other case-the legal ownership of the property.

There is no disposal of the legal ownership or beneficial interest in the bus as required by the definition of provide in relation to the property. Therefore the bus is not provided by the employer to the employee and the benefit is not covered by Division 11.

As the benefit provided by the employer does not fall within any of the provisions of Subdivision A of Divisions 2 to 11 it is a residual benefit as per section 45.

Subsection 47(6) outlines the conditions that must be met for a residual benefit to qualify as an exempt benefit, stating: 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) the motor vehicle is not: (i) a taxi let on hire to the provider; 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.

There are two conditions the residual benefit must meet in paragraph 47(6)(a).

Firstly, it must be the provision or use of a motor vehicle. The definition of a motor vehicle in subsection 136(1) refers to subsection 995-1(1) of the ITAA 1997. Under subsection 995-1(1) of the ITAA 1997, a motor vehicle 'means any motor-powered road vehicle (including a 4 wheel drive vehicle)'. A bus is a motor vehicle.

ATO Interpretative Decision ATO ID 2001/313 Fringe benefits tax: exempt residual benefit outlines the Commissioner's view in relation to the use of a bus for the purposes of subsection 47(6). The smartcard provided by the employer allows the employees to travel on the bus and this travel is considered to be the use of the bus. Therefore the first condition is met.

Secondly, paragraph 47(6)(a) contextualises the residual benefit as being provided 'in respect of the employment of a current employee'. As the smartcards are provided to employees who must return them to the employer when their employment ends this satisfies the other condition in paragraph 47(6)(a).

To satisfy paragraph 47(6)(aa), the motor vehicle must not be a taxi let on hire to the provider, or a car (other than a panel van, utility truck or other road vehicle designed to carry a load of less than 1 tonne and not designed to carry passengers). As a bus is neither a taxi let on hire to the provider or a car, paragraph 47(6)(aa) is satisfied.

Paragraph 47(6)(b) requires that in order for the residual benefit to be exempt, any private use must be limited to work-related travel and that any other private use is minor, infrequent and irregular. Subsection 136(1) defines both private use and work-related travel: private use , in relation to a motor vehicle, in relation to an employee or an associate of an employee, means any use of the motor vehicle by the employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee. work-related travel , in relation to an employee, means: (a) travel by the employee between: (i) the place of residence of the employee; and (ii) the place of employment of the employee or any other place from which or at which the employee performs duties of his or her employment; or (b) travel by the employee that is incidental to travel in the course of performing the duties of his or her employment.

The private use permitted under the declaration is between the employee's places of residence and employment only. This satisfies the definition of work-related travel provided in subsection 136(1). Thus, subparagraph 47(6)(b)(i) is also satisfied.

Subparagraph 47(6)(b)(ii) requires that other private use of the motor vehicle by the employee or an associate of the employee be minor, infrequent and irregular. Under the proposed arrangement, other private use of the motor vehicle that is not work-related, or use by anyone other than the employee, is expressly prohibited. Eclipx Group monitors the use of the smartcard which may be cancelled where an employee does not comply with the prohibition.

As there is no private use of the bus other than for work-related travel during the FBT year and at the time the employee is provided with the residual benefit, subparagraph 47(6)(b)(ii) is satisfied.

The residual benefit, which consists of the use of the smartcard for work-related travel on the bus, satisfies subsection 47(6) and is therefore an exempt benefit.

The following is a detailed contents list for this Ruling: Paragraph Summary - what this ruling is about 1 Relevant provision(s) 2 Class of entities 3 Qualifications 4 Date of effect 6 Scheme 7 Ruling 19 Appendix 1 - Explanation 21 Appendix 2 - Detailed contents list 38