Income tax: does the 'otherwise deductible rule' apply to reduce the taxable value of fringe benefits provided to associates of employees?

No. The 'otherwise deductible rule' does not apply to benefits provided to associates to employees. The operation of the 'otherwise deductible rule' is limited to benefits provided directly to employees.

The term 'associate' is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). It carries the same meaning as subsection 26AAB(14) of the Income Tax Assessment Act 1936 . The definition is very broad and includes relatives, partners, trustees, beneficiaries and related companies.

This determination does not deal with fringe benefits provided jointly to employees and their associates. Example: An employer provides two low interest loans which give rise to loan fringe benefits, one to an employee and one to the employee's spouse. Both the employee and the spouse invest their loan monies in shares. Treatment of the employee's loan : A declaration is provided by the employee to his employer stating that the loan was used wholly for income producing purposes (as required by paragraph (c) of subsection 19(1) of the FBTAA). The 'otherwise deductible rule' enables the taxable value of this loan fringe benefit to be reduced to nil. Treatment of the spouse's loan : Even though the spouse's loan is also used for income producing purposes, there is no reduction in the taxable value of this loan fringe benefit. The 'otherwise deductible rule' does not apply because the spouse is not an employee, but is an associate of the employee.