Question
We are a Council. If we allow our staff to salary sacrifice their Council rates can we apply the FBT in-house benefit valuation rules and the $1,000 in-house benefit reduction to reduce the FBT impost?
Answer
The discharging of an employee’s municipal rates obligation by foregoing salary under an effective salary sacrifice arrangement is a fringe benefit as defined.
The ATO generally consider such a benefit to be a residual benefit. Unfortunately, the ATO also take the view that such a benefit cannot be an in-house residual fringe benefit and is therefore not eligible for the section 49 in-house benefit 75% valuation rules and the section 62 $1,000 in-house benefit taxable value reduction .
To be an in-house benefit the provider must have carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders.
The ATO take the view that Council rates are not an amount due for services provided but, rather, are a tax.
Further, the question of whether or not a Council is conducting a business when providing public services was considered for the purposes of Bank Account Debits Tax in Taxation Rulings MT 2002 and MT 2011. The position taken in those rulings was that local government bodies, such as the Council, are engaged in the provision of government services and are not carrying on a business in that respect.
Based on the above, full FBT would apply to the proposed arrangement.
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