Annual FBT Update. April 2003

Transcription

1 Annual FBT Update Table of Contents (i) TABLE OF CONTENTS FINDING YOUR WAY AROUND THIS ANNUAL FBT UPDATE There are four sections reflecting the various players: Section 1 Politicians, Committees & Boards Section 2 Parliament Section 3 Courts & Tribunals Section 4 ATO Releases 1. POLITICIANS, COMMITTEES & BOARDS... 1 (1) FBT Employee Entitlement Funds (Costello) AUSTRALIAN PARLIAMENT LEGISLATION & REGULATIONS... 2 (a) Acts Which Received Royal Assent (b) Bills Awaiting Royal Assent (c) Bills Laid Aside or Removed from Notice Paper (d) Bills Before Parliament (1) Taxation Laws Amendment Bill (No. 4) (2) Taxation Laws Amendment Bill (No.5) (3) Taxation Laws Amendment Bill (No. 8) (e) Regulations Promulgated - Income Tax COURTS & TRIBUNALS Courts... 4 (1) Employee Benefit Trust No FBT liability but no deductions (Essenbourne Pty Limited v C of T)... 4 (2) What is a public benevolent institution? (Trustees of the Indigenous Barristers' Trust v C of T)... 6 (3) What is a public benevolent institution? (Ambulance Service of New South Wales v C of T) Tribunals (1) What is a public benevolent institution? (Vibrational Individuation Programme Inc and Commissioner of Taxtion) (2) The salary sacrifice that failed! (Wood and C of T)... 12

2 (ii) Table of Contents Complimentary Edition 4. ATO RELEASES Rulings and Draft Rulings (1) Salary sacrifice (TR 2001/10A) Determinations & Draft Determinations (1) Taxable value of fringe benefits (TD 2002/13) (2) The Car Parking for the (FBT) year commencing on 1 April 2002 (TD 2002/14) (3) Cents per Kilometre Rates for the Private Use of a Motor Vehicle Other Than a Car (TD 2002/6) (4) The Indexation Factors for Valuing Non-Remote Housing for the FBT (FBT) Year Commencing on 1 April 2002 (TD 2002/7) (5) The Exemption Threshold for the (FBT) Year Commencing on 1 April 2002 (TD 2002/8) (6) The Reasonable Food Component of a Living-Away-From-Home Allowance for Expatriate Employees for the FBT Year Commencing on 1 April 2002 (TD 2002/9). 15 (b) Interpretative Decisions (1) (2) (3) (c) Fact Sheets (1) Fringe benefits tax reform - the interaction between FBT and GST (d) Other Publications & Updates (1) 2003 FBT Return (2) 2003 FBT Return Guide (3) Salary sacrifice, EBT return problems, FBT & PSI issues (NTLG FBT Subcommittee Minutes 15 August 2002) (4) Current FBT Issues (NTLG FBT Sub Committee Minutes) (5) Other (03)

3 (1) 1. POLITICIANS, COMMITTEES & BOARDS (1) FBT Employee Entitlement Funds (Costello) Source: (368041) The Hon Peter Costello MP, Treasurer of the Commonwealth of Australia The Government will provide a FBT (FBT) exemption for certain payments to prescribed employee entitlement funds from 1. Employee entitlement funds may be set up to protect employee entitlements in the event of insolvency, or to provide for entitlements, such as redundancy and long service leave. The Tax Office has ruled that payments into such funds will be subject to FBT from 1. However, payments made by the funds to an employee are also taxable in the hands of the employee as either eligible termination payments or as salary and wages depending on the circumstances of payment. As a result, payments into employee entitlement funds would be effectively taxed twice - once as a fringe benefit when paid into the fund and once when paid out of the fund. To ensure this does not occur, the Government will exempt from FBT certain payments to employee entitlement funds that have been prescribed in regulations. The Commissioner of Taxation will be responsible for advising the Government on whether funds meet the criteria required in order to be prescribed. This will allow the Commissioner to distinguish between bona fide funds and funds with the object of tax minimization. Editor This announcement relates to issues raised and reflected in the NTLG Sub-committee minutes set out in part 3.4 below. The fact that the measure announced will commence from 1 appears to complement the matters recorded in the minutes that the Commissioner would not seek to initiate taxation of the contributions until that date. It would have been preferable if the Treasurer had assured contributors to such funds that contributions made before 1 will also be exempt from FBT.

4 (2) Complimentary Edition 2. AUSTRALIAN PARLIAMENT 2.1 LEGISLATION & REGULATIONS Source: Australian Parliament House Website (402365) These legislation notes were prepared by Gavin Macrae of Hall & Wilcox Lawyers. Telephone: (a) Nil Acts Which Received Royal Assent (b) Nil Bills Awaiting Royal Assent (c) Bills Laid Aside or Removed from Notice Paper 2002 Nil (d) Bills Before Parliament (1) Taxation Laws Amendment Bill (No. 4) 2003 Introduced to the House 13 February 2003, passed the House on 6 March 2003, introduced to the Senate on 19 March The Bill proposes to amend the 1997 Act by: providing a CGT roll-over to a fund "that amends or replaces its trust deed in order to be approved as an approved worker entitlement fund". making a number of amendments in relation to non-assessable non-exempt income amounts, and aims to clarify, standardise and rationalise the recognition and treatment of these amounts. Apart from making minor and technical amendments, the Bill proposes to insert Subdivision 11-B which outlines particular kinds of non-assessable non-exempt income. Division 59, which would consist of numerous operative provisions in relation to non-assessable non-exempt income amounts, such as compensation under firearms surrender arrangements, mining payments and bonus payments made to certain older Australians, would also be inserted. This Bill also proposes to amend the Administration Act by: amending the FBT Assessment Act 1986 No. 39 (Cth). providing a fringe benefit tax exemption for certain payments to approved worker entitlement funds. (2) Taxation Laws Amendment Bill (No.5) 2003 Introduced to the House on 27 March The Bill makes a range of amendments in relation to: FBT exemptions for public hospitals; (03)

5 Australian Parliament Legislation & Regulations (3) a reduction to the effective tax on the excessive component of an ETP paid by a superannuation fund. (3) Taxation Laws Amendment Bill (No. 8) 2002 Introduced to the House on 5 December The Bill proposes a number of reforms, including proposals to: recognise capital gains or losses that arise while shares that are part of an employee share scheme are held in trust and where the employee elects to be taxed at the time they acquire the shares or the rights to the shares; ensure that the 12-month minimum qualifying period for the capital gains tax 50% discount for such shares begins from the time the trustee acquires the shares; make minor, technical amendments to provisions relating to capital gains tax, FBT, gift deductions and other taxation provisions. (e) Nil Regulations Promulgated - Income Tax

6 (4) Complimentary Edition 3. COURTS & TRIBUNALS 3.1 Courts (1) Employee Benefit Trust No FBT liability but no deductions (Essenbourne Pty Limited v C of T) Source (385636) Essenbourne Pty Limited v C of T [2002] FCA 1577 (17 December 2002) Kiefel J. URL: This case summary was prepared by Andy Milidoni of Hall & Wilcox, Lawyers, Issue Whether a contribution made to an Employee Benefit Trust ( EBT ) was: an allowable deduction pursuant to subsection 51(1) of the 1936 Act; part of a tax scheme producing tax benefits pursuant to section 177F of the 1936 Act; and a fringe benefit pursuant to section 136(1) of the FBTAA. Facts Essenbourne ( the Taxpayer ), conducted a car dealership business. The three brothers were directors and shareholders of the Taxpayer which commenced in Since 1991, the Taxpayer established and made deductible contributions to the : Essenbourne Superannuation Fund ( ESF ) of which the three brothers, their wives and their parents were members; Employee Share Plan ( ESP ) in 1994 of which the three brothers were members and the purpose of which was to tie the brothers to the business for a period of up to 5 years; and Employee Benefit Trust ( EBT ) in 1997 of which the three brothers were members, and would have equal entitlements which would become fixed at some later stage. Under the EBT, the Taxpayer contributed $252, and claimed a deduction for this amount in the 1997 income year. The three brothers subscribed for 84,000 units in the EBT at an issue price of $1.00 and borrowed the money from the EBT to fund this subscription. Bonus units were to be issued, giving each member a fixed entitlement to trust property. Before the issue of the bonus units, the members did not have a fixed entitlement to the contributions made. Taxpayer s contention The Taxpayer submitted that the EBT was established for two reasons: primarily, to establish an EBT for the purpose of providing incentives to the members of the EBT to continue working in the Taxpayer s business; and secondly, to establish a investment vehicle for the brothers for the purpose of making investments for their retirement in a tax effective way. The Assessment The Commissioner disallowed the deduction both under subsection 51(1) and applied Part IVA. He also assessed the Taxpayer to fringe benefit tax ( FBT ) in respect of the contribution of $252,000 paid to the EBT. Pursuant to section 67 of the FBTAA, penalties were imposed on the Taxpayer on the basis that the Taxpayer engaged in a scheme to avoid FBT. Decision - Subsection 51(1) In determining whether the contribution was an allowable deduction pursuant to the second positive limb of subsection 51(1) of the Act, the question to be determined was whether the contribution made to the EBT was an outgoing necessarily incurred in carrying on a business for the purpose of gaining or producing income...except to the extent to which, they are losses or outgoings of capital or of a capital nature (03)

7 Courts & Tribunals Courts (5) The purpose of the outgoing is relevant to determining the character of the outgoing. Her Honour examined the reasons behind the establishment of the EBT and accepted the Commissioner s submission that the dominant purpose of establishing the EBT and making the contributions was to develop an asset base for the brothers in the event of the business being sold and that the Taxpayer shifted its profits to the EBT as to take advantage of the tax deduction it claimed. Her Honour concluded that: the payment was simply to provide for the three brorthers and at the same time to obtain the advantages outlined... A sharing of profits by the three brothers does not have the necessary connexion to Essenbourne s business. The outgoing is not deductible. Her Honour went on to find that the outgoing was of a capital nature as the outgoing was not referable to the conduct of its [the Taxpayer s] income producing business. Decision - Part IVA Her Honour found that Part IVA did not apply because: section 177C(1)(c) was not satisfied. This paragraph requires that the scheme result in a deduction being allowable which would otherwise not be allowable but for the scheme. As the contribution was not found to be deductible under subsection 51(1) of the Act, Part IVA was found not to apply; and no dominant tax purpose could be established. If the Taxpayer s primary purpose was to obtain a tax deduction, it would have made contributions to both the ESF or the ESP, which would have been allowable deductions. This is supported by the fact that the contribution amount of $252, would have been an allowable deduction if paid to the ESF on the grounds that the amount was compliant with the age based deductions limits for each member applicable at the time. Her Honour concluded: In my view it is not possible to conclude that the company would have done nothing and retained the substantial profits in 1997, particularly given its history of contributions for the family members as employees. Any of the alternative steps it might take increased salary or contributions, all involve deductions for Essenbourne, if one is to consider Sam Marino as the focus. Without that focus it would have likely have paid to the Superannuation Fund as before. Decision - FBT The Commissioner argued that for the purposes of imposing FBT it is not necessary that an employee be in receipt of the benefit where it has been provided to an associate and that once the payment is made to an associate all that needs to be done is to calculate the taxable value of the benefit so provided. Her Honour rejected this: The difficulty in the Commissioner s approach is that it does not identify a benefit to a particular employee. The statute may deem a benefit to be provided to an employee where it is provided to the employee s trustee, but this would not obviate the apparent necessity to identify the employee in question. The definition of fringe benefit would appear to require the identification of the employee to whom the benefit is provided. This is the principal contention of Essenbourne. It was not enough to satisfy the nexus requirements in the definition of fringe benefit under section 136(1) of the FBTAA that the same benefit may be provided to multiple recipients without regard to the individual identity of each employee participating in the benefit. For a benefit to be a fringe benefit, the benefit must be provided in connection with a particular employee. In this case, until the issue of Bonus Units, none of the brothers would individually benefit from the contribution. Accordingly, his Honour found that no FBT was payable by the Taxpayer when the contribution to the EBT was made.

8 (6) Courts & Tribunals Tribunals Complimentary Edition Editor: The significance of the Commissioner succeeding on the denial of the deduction under subsection 51(1) and failing on the Part IVA ground is that the Commissioner may only amend the last 4 years of the Taxpayer s assessments. Under Part IVA, the Commissioner may issue determinations to amend the last 6 years of the Taxpayer s assessments. Most taxpayers participated in these EBTs in the income years 1995 and beyond. The Commissioner may be out of the time to amend taxpayer s returns in the early years of these schemes. To the extent that other employee benefits trust schemes operate in similar way to the EBT, it can be argued that this decision would invalidate any FBT assessments raised in respect of contributions made. This decision also contradicts the Commissioner s view in Taxation Ruling 99/5 as it relates to the provision of fringe benefits to employee benefits trusts of this kind where the members do not have fixed entitlements to the contribution when paid to the trustee. We do note that this decision does not eliminate the imposition of FBT on these contributions. FBT would arise when any of the members of these employee benefits trusts are given entitlements to all or part of the contributions made. It therefore becomes a timing issue where members are give fixed entitlements to contributions made to these types of trusts, FBT will arise. Where the fixed entitlement arises at some point later, an employer s FBT is deferred until that time. This decision must be taken in its context and individual employee benefit trust arrangements would need to be examined to gauge what relief, if any, this decision gives. (2) What is a public benevolent institution? (Trustees of the Indigenous Barristers' Trust v C of T) Source (385616) [2002] FCA 1474 (28 November 2002 Gyles. J Issue Is the trust a deductible gift recipient within the meaning of the Act? Facts The Trust was established by deed dated 6 August The critical parts of the deed, for present purposes, are as follows: "WHEREAS A. It is recognised by the body of members of the New South Wales Bar Association that indigenous persons seeking to make a career at the New South Wales Bar are frequently in circumstances of poverty, suffering or misfortune, both financially and culturally, which constitute a significant obstacle to the pursuit of their chosen career. B. For the purposes of facilitating the pursuit of the practice of the law by indigenous persons and in order to make provision for the objects set out in this deed, the Settlor wishes to create the trusts hereinafter set out and thereby to establish a Trust Fund The Trustees of the Indigenous Barristers' Trust - The Mum Shirl Fund ("the Trust") sought endorsement of the Trust as a deductible gift recipient pursuant to s of the 1997 Act. The Deputy Commissioner of Taxation refused that endorsement. The Trust objected, and following an unfavourble objection decision the Trust brought the matter to Court. Trustee s Contention The primary contention on behalf of the Trust is that it is a "public benevolent institution" within Item of the Table in s of the Act, and so entitled to be endorsed as a "Deductible Gift Recipient" pursuant to s ATO Contention The respondent's particular submissions, in summary, were: that the class of persons to whom the Trust will provide benefits is too limited to constitute "the public"; that the activities of the Trust do not fall within the terms "relief of poverty, sickness, destitution or helplessness"; and (03)

9 that the Trust does not constitute an institution. Decision Courts & Tribunals Courts (7) Counsel for the Trust... submits that all indigenous persons are potentially recipients of assistance and that they or, alternatively, needy indigenous persons form an appreciable section of the public. I agree with that submission. It is true that, particularly in the short term, there may be few indigenous persons with the qualifications or motivation to seek assistance. Indeed, that, in a sense, is the condition to be alleviated. The question, rather, is who might be benefited by the benevolence. The only restrictions upon the class are the need to be indigenous and disadvantaged. The fact that only some of a larger class can be catered for is not to the point. In Perpetual Trustee Co Ltd v Commissioner of Taxation (Cth) (1931) 45 CLR 224, Royal Naval House could only accommodate a fraction of the petty officers and men in His Majesty's Australian Navy and lower ratings from warships from foreign countries, yet the public nature of the institution was not questioned (eg, per Evatt J at 235). It would unduly constrict the benefit intended by the legislature in granting the exemption in question if it is only available in relation to those who are able to cater for or benefit all or most of or a substantial number of a potentially large section of the public. Further, in my opinion, the fact that the Bar of New South Wales may be relatively small compared with the general population is of little relevance. There are no restrictions on admission apart from qualification. Most (if not all) potential indigenous barristers do not have the necessary financial and social support to achieve that aim. Community support may be strong in other ways but it is not able to provide the necessary financial backing to commence practice as a barrister. Their very impecuniosity is what prevents these persons from starting practice as a barrister. It is this impediment which the Fund exists to overcome, or, at least, ameliorate. It was submitted that, in this way, the use of the gift fund will be directed only at the relief of poverty for that group. It was argued that poverty in this sense is, of course, relative but it is well established that the law does not require that the persons to be benefited should be destitute or even on the border of destitution. The submission for the respondent is that a public benevolent institution is limited to the precise description by Starke J (in the Royal Naval House Case at 232): "[A]n institution organised for relief of poverty, sickness, destitution, or helplessness." (emphasis added) To take one phrase from one judgment, out of context, is not an adequate way of understanding the effect of the decision. After the passage quoted, Starke J went on to say: "The Royal Naval House has none of these characteristics: it is organized for the accommodation and recreation of the naval forces of His Majesty and its hospitality is also extended to the naval forces of other countries. It would surprise English-speaking people, I think, to learn that in the Royal Naval House naval forces are accommodated and entertained at a public benevolent institution." In my opinion, the ratio decidendi (on the Royal Naval House case) was that a public benevolent institution must relieve disadvantage or misfortune rather than benefit a worthy community objective. The nature of such disadvantage was not the issue and was not decided. It is not, in my opinion, limited to any particular examples given by individual judges in that case. In particular, it was not held that benevolence is limited to the relief of poverty as that phrase was understood according to the law of charitable trusts. Indeed, all of the justices framed their description of benevolence disjunctively. (3) What is a public benevolent institution? (Ambulance Service of New South Wales v C of T) Source (412762) Ambulance Service of New South Wales v Deputy Commissioner of Taxation for the Commonwealth of Australia [2002] FCA 1023 (16 August 2002) URL: What was the issue? Is the Ambulance Service of New South Wales, is a "public benevolent institution" for the purposes of: Subs 57A(1) of the he FBT Act; and Item of Table 4 appearing after, and referred to in, subs 78(4) of the 1936 Act. What was the background to the dispute? The Commissioner s primary contention was that the (taxpayer) was sufficiently governmental in character that is in its constitution, funding and functions not to fall, or to be capable of falling, within the accepted meaning of the phrase "public benevolent institution".

10 (8) Courts & Tribunals Tribunals Complimentary Edition What were the facts? What was the decision? (32) Two matters are worthy of comment at this point. First, the benevolent or charitable element of the phrase is for the relief of suffering or misery. This characteristic of a "benevolent institution" is likely to evoke sympathy, and, concomitantly, generosity from well-disposed people. In those circumstances, the revenue exemptions, such as s 78 of the ITA Act, can be seen as intended to encourage such well-disposed people to give to such objects. The existence of public control is not inimical to the creation of a desire in well-disposed people to support an institution which relieves distress; nor is it inimical to the encouragement, by statutory revenue exemption, of such relieving activity and support thereof. (37) Thus, at this (pre World War II) time, the courts treated the question whether any given body fell within the phrase "public benevolent institution" as a matter of popular or ordinary meaning at that particular time. Nevertheless, decided cases identified legal issues affecting or influencing the answering of that question. They illuminated its meaning. One theme seen in the judgments of Latham CJ and Starke J was the requirement, for the satisfaction of the "public" element of the phrase, for there to be at least a degree of public control, meaning government control.... No case had been decided on the basis that the governmental control was so extensive and complete as to render ineligible the institution (if it be one) from being seen as a "public benevolent institution". (42) With respect, the view that the question is an entirely legal one, to be dealt with by the application of past authority, irrespective of the present common understanding of the composite phrase in the currently spoken English language, is difficult to reconcile with what those High Court authorities say: for example see Starke J and Dixon J in Perpetual, supra at and 233 ([9] above); Starke J in Public Trustee, supra at 100 ([14] above); Latham CJ, Starke J and Rich J in The Little Company of Mary, supra at , 386 and ([23], [24] and [27] above); McTiernan J in Maughan, supra at ([30] above). Nor, with respect, did Street CJ put the matter thus in the ACOSS case. (77) Based on the authority of the Fire Brigades case and the Mines Rescue case I am bound to undertake an enquiry concerning the Ambulance Service involving the following questions: whether it is a "government body" or "purely governmental body"; whether it is a "emanation of government"; whether the functions which it performs are regarded as "governmental responsibilities"; and whether the functions it performs are "functions on behalf of government". (78) This enquiry is to be undertaken by reference to the constitution, funding and control of the body and a process of characterisation of the functions undertaken as governmental or not. (82) In discharging the task referred to in [81] above, it is relevant to understand not only the present day constitution and function of the applicant, but also how it has come to the position it has now. (86) The membership of the board was partly composed of appointments by the Governor but largely composed of persons elected by existing brigades, which I take it were non-governmental voluntary organisations... (87) The Governor could for sufficient cause suspend or remove any board member (s 8). Provision was made for the funding of the board from Consolidated Revenue, and also from contributions from the public which appeared to be matched by subsidies from the Government (ss 2, 12, 19 and 20).... (88) From time to time after 1919 amendments were made to the 1919 Act. In 1924 s 21A was inserted which made it unlawful for any person to collect funds by "public appeal" (defined generally, but so as to expressly include "art unions, carnivals, bazaars, or fancy fairs") except with the sanction of the board. I would take from this and the continuation of the notion of "contributors" (set out in s 14A after 1924) and from the continued recognition of contributions from the public and government funds, that funding for ambulance services was envisaged as coming from Consolidated Revenue and from the public. (90) In 1956, the constitution of the board was widened. (94) In 1972, the 1919 Act was repealed in whole. It was replaced by the Ambulance Service Act 1972 (NSW) (the 1972 Act). (03)

11 Courts & Tribunals Courts (9) An Act to re-organise the provision of ambulance services throughout New South Wales; for this purpose to constitute the New South Wales Ambulance Board and to define its powers, authorities, duties and functions; to provide for the establishment of a contribution scheme; to repeal the Ambulance Transport Service Act, 1919, and certain other enactments; and for purposes connected therewith. (107) The 1972 Act did not expressly identify the Board as representing the Crown. (108) In 1976, the Ambulance Services Act 1976 (NSW) (the 1976 Act) was passed. It repealed in whole the 1972 Act. The preamble to the 1976 Act was in the following terms: An Act relating to the provision of ambulance services in New South Wales; to make provision for the acquisition of property by the New South Wales Ambulance Board; to amend the Local Government Act, 1919, and certain other Acts in certain respects; to repeal the Ambulance Service Act, 1972, and to make prior provisions consequential thereon. (109) The major change wrought by the 1976 Act was the incorporation of such ambulance services as had been provided by the Board under the 1972 Act into the Health Commission of New South Wales (the Commission). Subsection 5(1) of the 1976 Act provided as follows: (121)... Before dealing (with the Ambulance Services Act 1990 (NSW) (the 1990 Act)) it is fair to observe, I think, that the changes to the regimes governing ambulance services since before 1919 reflect a gradual shift from community provided services, to governmental involvement in, and to a degree ultimate control of, services, but in a context of significant community participation, and finally, in 1976, to the absorption of the ambulance service into an entity representing the Crown which took over the role of a Department of State. (122) The (taxpayer) is a corporation established under the 1990 Act and represents the Crown (s 4). The applicant's affairs are controlled by the Ambulance Service Board (the Board) (ss 5 and 6). The Board (and so the affairs of the applicant) is subject to the control and direction of the Minister (s 7). (123) All the directors of the Board are appointed by the Minister, except one director elected by staff and the Chief Executive Officer (CEO) (s 8). The CEO is appointed by the Governor and is subject to Part 2A of the Public Sector Management Act 1988 (NSW) dealing with "public sector executives". The (taxpayer) cannot remove the CEO from office (subs 9(3)). The Governor may remove any director (s 11). (124) The applicant's primary function is to provide, conduct, operate and maintain ambulance services (par 12(1)(a)), which expression means services relating to the work of rendering first aid to, and transport of, sick and injured persons (see the definition of "ambulance services" in subs 3(1)); it also has other functions which are largely incidental (pars 12(1)(b)-(i); and subss 12(2) and (3)). (125) The conditions of employment, including salaries, wages and remuneration of the employees of the (taxpayer) (other than the CEO) are to be determined from time to time by the Health Administration Corporation, except insofar as provision is otherwise made by law (subs 15(1)). The Health Administration Corporation is itself a statutory body representing the Crown: see par 9(2)(f) of the Health Administration Act 1982 (NSW). Staff of the (taxpayer) are not, however, covered by Part 2 of the Public Sector Management Act. The (taxpayer) is also able to appoint honorary ambulance officers (s 14). (133) Evidence was led before me as to the activities of the applicant. None of it was contested. The activities involve rescue, administration of emergency medical attention and transport to and from hospital. I am content to accept that many of those employed by the (taxpayer) discharge their tasks with care, kindness, compassion and with a recognition of the dignity and needs of individuals. To a degree, no doubt, this is a product of the nature of the calling and the long and proud history of service to the public by ambulance officers. (134) The service is represented on many community committees, especially in areas relevant to the need for, and provision of, emergency medical services. To a not insignificant degree, such matters reflect a spirit of community service which, I think it fair to say, infuses the applicant. (135) It is also fair to say that the activities of the (taxpayer) in the provision of services very often give relief to distress or suffering. That is inherent in the nature of the services. (138) The (taxpayer) engages in educational activities promoting a knowledge of first aid, both at schools and in the wider community. (139) There are 85 honorary ambulance officers, 2,300 uniformed officers and about 375 administrative and support staff.

12 (10) Courts & Tribunals Tribunals Complimentary Edition (140) The applicant's activities are funded, in part, from user charges (as to about one quarter); government contributions meet the balance of expenses, apart from donations. Fees are charged for transport, but not for the ministering of first aid or medical treatment. (141) Insurance can be taken out against the contingency of ambulance fees. This insurance is available via a scheme under the Insurance Levies Act 1982 (NSW) or through private health insurance. Payments by insurers are placed into Consolidated Revenue, not given to the applicant. (143) The (taxpayer) charges a fee for attendance at commercial profit making events such as professional rugby league matches and horse racing, but it does not charge for attendances at non-commercial or community events such as the Gay and Lesbian Mardi Gras and Anzac Day services. (144) The (taxpayer) maintains a Special Purposes and Trust Fund for, inter alia, donations, legacies and bequests. Apart from money donations (directly made or through community fundraising), there are "donations in kind", such as cordless telephones or computers. (145) The amount of donations varies from year to year. In the financial year ended 30 June 1997 the total expenses of the (taxpayer) were $192,454,000 (including amortisation and depreciation). This was met by $51,438,000 of charges, $134,920,000 of government funds, $648,000 of donations, gifts and contributions, $272,000 from interest on investments and $2,061,000 in sundry revenue. (146) Thus, not insignificant donations are made by the public, though, in the context of the operating expenses of the (taxpayer) it is not material to the overall financial viability of the organisation. That said however, it reflects a degree of perception in the community that the organisation is one whose tasks and activities are deserving of voluntary and gratuitous support. (147) Whilst the Minister appoints the directors and the Governor can dismiss them, and whilst the Board is subject to the control and direction of the Minister, it is worthy of note who the directors are. They are not, with the exception of the CEO, public servants. They are people from different walks of life in the community who have managerial or other qualifications thought to be adequate for the task of running an ambulance service.... (148)... Naturally, the (taxpayer) emphasises its public nature, even if there be government control and the relief which the applicant's activities indubitably bring to members of the public. There was no dispute that the (taxpayer) is an institution. (149) Thus, in one sense, the three words, severally, can be seen to be satisfied. That, of course, as was common ground, is not the proper approach. The (taxpayer) must answer the meaning or description of the phrase as a whole. (151) That the (taxpayer) is governmental in character cannot be denied. It represents the State. It is controlled by the Minister. However, for myself, I would hesitate to call it "purely" governmental. As part of the Health Commission from 1976 to 1990 it could legitimately be so described. It was virtually part of a Department of State. Indeed, during this period, it may well not have answered the description of an "institution": cf Maughan, supra at 398 ([34] above). It is no longer so organised. It is now a separate entity. Though directed and controlled, the Board is made up of members of the wider community, not public servants. (152) However, the fact that the ambulance service was run by a quasi-department of State for fifteen years is important. It reflects a clear recognition in government that the provision of an ambulance service is a responsibility of government. I do not see the re-organisation under the 1990 Act as a reflection of any renunciation of that responsibility; rather, I see it as an attempt better to manage and deal with the responsibility.... (153) Thus viewed, the (taxpayer) is a representative of State which, overwhelmingly funded out of Consolidated Revenue, discharges functions seen in the statute and statutory history as, by the fourth quarter of the twentieth century, governmental in nature. (154) The development of the responsibility of government in this area and the interplay and interrelationship of government and community, as reflected in the changes under relevant statutes over the twentieth century, highlight the need to hold fast to the task of answering the question whether the body today answers the description of a "public benevolent institution" in ordinary English. The seminal cases discussed earlier were handed down before the post-war expansion of the welfare state. (155)... However, I think it fair to say that the provision of properly staffed and functioning ambulance services is today seen by the community as something ultimately for which the government answers. Whilst the applicant's staffing is supplemented by volunteers, and whilst its activities in the community are supplemented, or perhaps, complemented, by organisations such as St John Ambulance, few people, understanding how the (taxpayer) was constituted, funded and run, would view it as anything other than the State of New South Wales providing (03)

13 Courts & Tribunals Courts (11) ambulance services.... Further, one cannot ignore that, however constituted, the (taxpayer) attracts not only donations, but also volunteers, to the discharge of its tasks. The volunteer honorary ambulance officers make up over 3% of the officer staff. (156) I have not found the resolution of the question at all easy. The (taxpayer) is plainly governmental. It carries out functions which in a modern, developed economy are expected, as a given, to be available. The government has undertaken responsibility, through an entity which is controlled by it and which represents it, to provide those services. (157) However, in the light of the Fire Brigades case and the Mines Rescue case, the degree of governmental character that I have identified makes a conclusion that the (taxpayer) is a "public benevolent institution" difficult. The relief of suffering and distress is achieved by an entity carrying out government policy, controlled by and representing the State. Though recognising the task is one of applying the ordinary English meaning of the phrase, I conclude, not without reluctance, in the light of these two cases, that the relief of distress and suffering which the applicant's activities bring about is not through benevolence, but through the successful discharge or execution of government policy and that, properly understood, by reference to its constitution, funding, control and activities, the (taxpayer) does not answer the description of a "public benevolent institution". 3.2 Tribunals (1) What is a public benevolent institution? (Vibrational Individuation Programme Inc and Commissioner of Taxtion) Source (402410) Vibrational Individuation Programme Inc and Commissioner of Taxation [2003] AATA 158 (13 February 2003) (DJ Trowse (Member)) URL:. Issue Was the Vibrational Individuation Programme Inc. ( VIP ) a public benevolent institution? Should VIP be endorsed as a deductible gift recipient under subdivision 30-BA of ITAA97. Background The phrase public benevolent institution has no legislative definition. Facts The Commissioner, relied on authorities such as the High Court decision in Perpetual Trustee Co. Ltd v FCT to issue Taxation Determination TD 93/11 which states his definition of a public benevolent institution to be one which satisfies all of the following: has as its main or predominant object, the relief of poverty, sickness, suffering, distress, misfortune, destitution, or helplessness; is carried on without purpose of private gain for particular persons; is established for the benefit of a section or class of the public; the relief is available without discrimination to every member of that section of the public which the organisation aims to benefit; and the aid is given directly to those in need. The Commissioner did not believe VIP met all of his criteria. Decision The Tribunal held that the activities of VIP, including such things as providing remedial care, counselling, education and support for people suffering mental and physical diseases and addictions to behaviours and substances, constituted sufficient contribution to the welfare of the community to enable VIP to be endorsed as a deductible gift recipient under subdivision 30-BA of the Act.

14 (12) Courts & Tribunals Tribunals Complimentary Edition (2) The salary sacrifice that failed! (Wood and C of T) Source (402411) Wood and Commissioner of Taxation [2003] AATA 17 (10 January 2003) W.G. McLean, Member What are the issues? Were the amounts purportedly made the subject of a salary sacrifice arrangement assessable income of the taxpayer? Was a memorandum to a HR Manager an effective salary sacrifice arrangement? What were the facts? Mr Wood (the taxpayer) commenced employment with the Victorian Public Service on 13 February 1961 and after approximately 37 years of service, retired on 13 December 1998 During the taxpayer's 37 years employment with the Victorian Public Service, he progressively accrued an increasing entitlement to long service leave, which he could have taken periodically as paid long service leave or accrued and received as a payment in lieu of long service leave upon the termination of his employment. The Victorian Public Service assessed Mr Wood as entitled to receive on his retirement several bonuses. Between the period 1 January 1995 to 30 June 1997, the taxpayer could have forfeited his abovementioned bonus assessments, totalling $28,625.00, unless certain conditions set out in clause 5 of his employment contract were met. Those conditions were met when Mr Wood terminated his employment due to his retirement. On 25 November 1998, approximately two weeks preceding his retirement, Mr Wood wrote the following memorandum "Subject - Retirement Benefits" to Ms Irene Hutchinson, human resources consultant, Victorian Auditor-General's Office: Dear Ms Hutchinson, As I have elected to retire from the Public Service, effective from 14 December 1998, can you please facilitate the following arrangements in relation to termination payments: 1. payment of accumulated performance bonuses under my previous contract direct to VICSUPER as soon as possible. It is understood that this treatment is acceptable as per advice from Peter Salway, Public Service Commissioner; 2. arrange for the post 1978 component of my accumulated long service leave to be paid also to VICSUPER; and 3. pay the pre 1978 component of my accumulated long service directly to me. Thanking you for your assistance. Yours faithfully, [signature] What was the decisions? In this case, the taxpayer did not reach a formal written SSA with his employer, in respect of the payment to VicSuper of his total performance bonuses amounting to $42,870 and his post-17 August 1978 accrued long service leave entitlement amounting to $53,521.86, as he customarily did in respect of the payment of his annual remuneration package. Mr Wood simply wrote to his employer and requested that his accrued bonus and long service leave entitlements totalling $96, be paid to VicSuper instead to himself. The Tribunal concurs with the respondent's above views regarding effective and ineffective SSA, set out in tax ruling TR2001/10, and finds that an effective SSA was not made between the taxpayer and his employer in respect of payment to VicSuper of the taxpayer's accrued performance bonuses and accrued long service leave, totalling $96, During Mr Wood's period of employment with the Victorian Public Service he earned and accrued entitlements to salary and wages in the form of performance bonuses assessed by his employer between 1 January 1995 and 14 December 1998, totalling $42,870 and untaken accrued long service leave. It is clear that Mr Wood acknowledged this fact when he wrote to his employer on 25 November 1998 "Subject - Retirement Benefits" requesting his employer to pay his accumulated performance bonuses and post-1978 accumulated long service leave to VicSuper. Accordingly, Mr Wood directed that an entitlement to receive salary or wages that had been earned, be paid in the form other than salary or wages. (03)

15 Courts & Tribunals Courts (13) Editor The report highlights the difficulties faced by a taxpayer who take a matter to the AAT. A critical piece of evidence was a letter written by the taxpayer s former employer to the ATO describing performance related incentives to the taxpayer.

16 (14) ATO Releases Determinations Complimentary Edition 4. ATO RELEASES 4.1 Rulings and Draft Rulings (1) Salary sacrifice (TR 2001/10A) The addendum clarifies how Taxation Ruling TR 2001/10 applies to an employee who enters into an effective 'salary sacrifice arrangement' (SSA) and subsequently takes leave that accrued prior to the commencement of the SSA. The effect of the 4.2 Determinations & Draft Determinations URL: (1) Taxable value of fringe benefits (TD 2002/13) Source TD 2002/13 (329591) 01 For the FBT year commencing on 1 April The rate of 6.05 per cent is to be used to calculate the taxable value of: A fringe benefit provided by way of a loan; A car fringe benefit where an employer chooses to value the benefit using the operating cost method. (2) The Car Parking for the (FBT) year commencing on 1 April 2002 (TD 2002/14) Source TD 2002/14 (329596) URL: The car parking threshold for the FBT year commencing on 1 April 2002 is $5.96. (3) Cents per Kilometre Rates for the Private Use of a Motor Vehicle Other Than a Car (TD 2002/6) Source: TD 2002/6 (327852) URL: The rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car for the FBT (FBT) year commencing on 1 April 2002 are: Engine capacity Rate per kilometre cc 36 cents Over 2500cc 43 cents Motor cycles 11 cents (03)

17 (15) (4) The Indexation Factors for Valuing Non-Remote Housing for the FBT (FBT) Year Commencing on 1 April 2002 (TD 2002/7) Source: TD 2002/7 (327862) URL: Non-remote housing The indexation factors for the purpose of valuing non-remote housing for the FBT year commencing 1 April 2002 are: New South Wales Western Australia Victoria Tasmania Queensland Australian Capital Territory South Australia Northern Territory These factors are based on movements in the rent sub-group of the Consumer Price Index. (5) The Exemption Threshold for the (FBT) Year Commencing on 1 April 2002 (TD 2002/8) Source: TD 2002/8 (327863) URL: The exemption threshold for the FBT year commencing on 1 April 2002 is $5,747. This replaces the amount of $5,505 that applied in the previous year. (6) The Reasonable Food Component of a Living-Away-From-Home Allowance for Expatriate Employees for the FBT Year Commencing on 1 April 2002 (TD 2002/9) Source: TD 2002/9 (327864) URL: The amounts listed below are acceptable as a food component for the FBT year commencing 1 April The amounts result from the indexation of the previous year s food component. per week per week One adult $164 Two adults and three children $345 Two adults $263 Three adults and one child $345 Three adults $296 Three adults and two children $394 Two adults and one or two children $296 Four adults $394 ( Adults for this purpose are persons aged 12 years or more). While this Determination will apply to the majority of cases, it will be open, of course, to any individual expatriate employee to establish a higher level of spending by reference to receipts or detailed records maintained for such period, e.g., 12 weeks, as would be sufficient to reflect a long-term expenditure pattern. (b) URL: Interpretative Decisions (1) /1 FBT: In-house residual fringe benefit - investment related service 2003/7 2003/25 FBT: Third party recipient deemed to be an associate - same sex partner of an employee FBT: Exempt Benefits - Small Business Car Parking

18 (16) ATO Releases Determinations Complimentary Edition 2003/ / / / / / /233 FBT: exempt benefits - duties of employee relating to a public hospital Remote area housing: reduction of taxable value - remote area housing loan interest Remote area housing: reduction of taxable value - residential property and employee's mortgage loan repayments Remote area housing: reduction of taxable value - remote area housing rent Remote area housing: reduction of taxable value - residential property and employee's purchase consideration Foreign Earnings - value for rent free accommodation provided in New Zealand Loan fringe benefits: Agreement made for the repayment of overpaid salary 11/04/ / / /104 8 FBT - provision of a share or right to an employee by an entity that administers the employee share scheme is not a fringe benefit 2/10/2002 FBT: Exempt benefits - work-related preventative health care Simplified Tax System (STS) accounting method - timing of deductions for FBT (FBT) instalments (3) 2001 FBT 'otherwise deductible' rule 2001/ / / /294 FBT: Living Away From Home Allowance Car Parking Fringe Benefits FBT : Status of A Cemetery Trust (2) / / / / / / / / /926 FBT - Changing the basis for valuing car fringe benefits (Withdrawn) - Eligibility for Family Tax Benefit - taxpayer in receipt of Parenting Payment (Withdrawn) - Family Tax Benefit - recipient of parenting payment - adjusted taxable income FBT: Exempt remote area housing benefits Superannuation Contributions Tax: Reportable fringe benefits total and the calculation of adjusted taxable income 17/4/2002 FBT: In-house residual fringe benefits 31/5/2002 FBT: Expense payment fringe benefit - payments made to a home mortgage offset facility account Car Fringe Benefits: Log book requirements - high integrity electronic devices FBT: minor benefits exemption and interest free loans 2001/ / / / / / / / / /803 FBT : Status of a Public Benevolent Institution Health Care Provider for FBT (FBT) purposes. Lump sum payment received for removal of motor vehicle from remuneration package FBT : Religious Practitioner's Exemption FBT: Administrative costs of salary packaging FBT: Salary sacrifice arrangements involving loans with redraw facilities FBT: Exempt Benefits - Work-related Counselling Public benevolent institution: Organisation Representing Members' Views Regarding Rural Fire Fighting Taxation Classification of a Trust FBT: Exempt loan benefits FBT: Living away from home and expenditure incurred in respect of accommodation 2002/960 FBT - employer contributions to Trustee of its employee share scheme are not a fringe benefit 2/10/2002 (03)