Security provided at an employee’s home – subject to FBT?

We regularly read of scenarios where employees are provided with security (security guards or a security patrol) at their home due to safety concerns related to their employment. The security may be directed at ensuring protection/safety of the employee/other occupants of the home and/or protection of the property.

Occasionally we get a TaxEd member question as to whether these costs are subject to FBT.

A common immediate reaction to this question is to assume that surely such an occurrence could hardly be said to be a benefit/fringe benefit and even if it were, there must be a FBT exemption available.

Unfortunately, as discussed below, the provision of security at an employee’s home is likely to be both a benefit and fringe benefit meaning FBT will generally be payable. It is also unlikely an exemption or a reduction in taxable value is available.

On a positive note, from an employee’s perspective, this type of a benefit may be an “excluded fringe benefit” and as such not a Reportable Fringe Benefit (RFB). However this outcome is conditional on the circumstances surrounding the provision of the security meeting specific conditions (see further below) . Meeting the conditions for exclusion as an RFB cannot simply be assumed either.

Editors note: It is difficult to reconcile the policy logic of excluding such benefits from the RFB provisions while simultaneously imposing FBT liability on the employer.

A benefit?

The starting point is whether the provision of security constitutes a “benefit” at all within the meaning of section 136(1) of the Fringe Benefits Tax Assessment Act 1986 ( FBTAA):

“benefit” includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a)  an arrangement for or in relation to:

(i)  the performance of work (including work of a professional nature), whether with or without the provision of property;

(ii)  the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

(iii)  the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b)  a contract of insurance; or

(c)  an arrangement for or in relation to the lending of money.

The supply of security at an employee’s residence would likely be a right or service and therefore a “benefit”. The argument that something is not a benefit because, for example, the security may also benefit the public and not solely for the employee or that, from the employee’s perspective, the security may be an unwanted intrusion is countered in section 148 of the FBTAA which states,

Provision of benefits

A reference in this Act to the provision of a benefit to a person in respect of the employment of an employee is a reference to the provision of such a benefit:

• whether or not the benefit is also provided in respect of, by reason of, by virtue of, or for or in relation directly or indirectly to, any other matter or thing;
• whether the employment will occur, is occurring, or has occurred;
• whether or not the benefit is surplus to the needs or wants of the recipient;
• whether or not the benefit is also provided to another person;
• whether or not the benefit is, to any extent, offset by any inconvenience or disadvantage;
• whether or not the benefit is provided or used, or required to be provided or used, in connection with that employment;
• whether or not the provision of the benefit is, or is in the nature of, income; and
• whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

A fringe benefit

Once there is a “benefit,” it must also constitute a “fringe benefit”.

Section 136(1) defines a fringe benefit as

“fringe benefit” , in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

                     (a)  provided at any time during the year of tax; or

                     (b)  provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

                     (c)  the employer; or

…”

Where an employer arranges and funds the security provided at the employee’s home and the security is required in connection with/results from the employees employment the requirements of the definition are generally satisfied and the “benefit” is therefore a “fringe benefit”. An FBT liability would naturally then arise unless a reduction to the taxable value or an exemption applies. 

Otherwise deductible

Section 52 of the FBTAA provides that the taxable value of a residual fringe benefit (which would encompass the benefit in question) may be reduced to the extent that, had the recipient (the employee) incurred and paid unreimbursed expenditure in respect of the provision of the benefit the recipient would have been entitled to a once only deduction for such expenditure under either the Income Tax Assessment Act 1936 and/or Income Tax Assessment Act 1997.

Section 8-1(1) of the Income Tax Assessment Act 1997 provides:

You can deduct from your assessable income any loss or outgoing to the extent that:

                     (a)  it is incurred in gaining or producing your assessable income; or

                     (b)  it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income.

             (2)  However, you cannot deduct a loss or outgoing under this section to the extent that:

                     (a)  it is a loss or outgoing of capital, or of a capital nature; or

                     (b)  it is a loss or outgoing of a private or domestic nature; or

                     (c)  it is incurred in relation to gaining or producing your * exempt income or your * non-assessable non-exempt income; or

                     (d)  a provision of this Act prevents you from deducting it”.

Generally, expenses such as a security system at the employee’s place of residence protecting their home would be considered private or domestic in nature. Even where the motivation for supplying security is entirely employment-related, the nexus is to the employee’s home, not to an income-producing activity or place of business. The same logic applies to travel costs from home to work being non-deductible under section 8-1 given the home is not the place of employment where the employee carries out their income producing activities, The same analysis also prevents the otherwise deductible rule from reducing the taxable value of security guard/security patrols costs . The taxable value is therefore not able to be reduced under the otherwise deductible rule.

There are no other specific FBT exemptions available and the section 58P minor benefit exemption is also unlikely to be available given the taxable value of the benefit will be $300 or more.

A Reportable Fringe Benefit?

Where FBT is payable, the question arises as to whether the benefit is also a Reportable Fringe Benefit (RFB) meaning the taxable value (grossed up at the type 2 rate of 1.8868) must be included on the employee’s income statement. RFBs flow through various income tests (Medicare levy surcharge, child support, HECS repayment thresholds, etc.).

Section 5E of the FBTAA provides that certain fringe benefits are “excluded benefits” and as such are not included when determining an employees RFBs,

Section 5(E(3) provides:

 (3)  “An excluded fringe benefit is a fringe benefit:

….

 (l)  that is provided to address a security concern:

  (i)  relating to the personal safety of an employee, or an associate of an employee; and

 (ii)  that arises in respect of the employee’s employment.

Section 5E(6) further provides:

Security concerns relating to employees or associates

 (6)  A fringe benefit referred to in paragraph (3)(l) is an excluded fringe benefit only to the extent that its provision is consistent with a threat assessment in relation to the employee or associate made by a person who is recognised by:

 (a)  a relevant industry body or government body; or

 (b)  the Commissioner;

as competent to make threat assessments.

Section 5E(6) is not merely a “best efforts” requirement, it is a gateway condition. The excluded fringe benefit status will only apply where:

1. A formal threat assessment has been conducted in relation to the specific employee or associate;
2. That assessment was made by a person recognised as competent to make such assessments by either a relevant industry or government body, or by the Commissioner; and
3. The provision of the security is consistent with that threat assessment (i.e. the response is proportionate and justified by the assessed threat).

The FBT legislation has, through section 5E(3)(l), expressly recognised that security provided to address a genuine, employment-related threat to an employee’s personal safety is subject to FBT but sufficiently warrants exclusion from being a RFB.

It may be difficult to reconcile the policy logic of excluding such benefits from the RFB provisions while simultaneously imposing FBT liability on the employer.

If the legislation has determined that a formally assessed, employment-driven security benefit is not the kind of benefit that should affect an employee’s RFB’s, the principled position would be to extend that logic to its natural conclusion and exempt such benefits from FBT altogether.

The current framework, which taxes the employer while shielding the employee, produces an inconsistent result that appears to lack a coherent policy foundation.

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This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.