Fringe Benefits Tax Assessment Regulations 2018

The foundational concept in these regulations is the “excluded fringe benefit”. Under subsection 5E(3) of the Act, the regulations may prescribe benefits that are not fringe benefits for FBT purposes. If a benefit falls within one of the prescribed categories, it is removed from the FBT base entirely, meaning the employer does not have to pay FBT on it and does not need to report it on an FBT return. The exclusion is not the same as an exemption under other provisions of the Act; it operates at the definitional level, so the benefit is never a fringe benefit in the first place. This has implications for record-keeping and reporting, as excluded benefits do not contribute to the employer’s fringe benefits taxable amount.

The regulations create a series of conditional and category-specific exclusions. For example, the health care services exclusion (regulation 6) requires that the service be emergency or essential health care provided outside Australia, that the employee or associate is an Australian citizen or permanent resident, that the employee’s place of employment is outside Australia when the service is provided, and that no Medicare benefit is payable. The exclusion covers both direct payment by the employer and reimbursement of the employee’s payment. The Defence Force exclusions (regulation 7) are tied to specific types of assistance provided under the Defence Act 1903 or Defence Determination 2016/19, and many require that the member be directed to change residence by the Department of Defence, linking the fringe benefit to official relocation requirements.

The concept of “eligible urban area” and “census population” are relevant for the police housing rent exclusion in regulation 8(5), where the police member’s usual place of residence must be at least 100 kilometres from an eligible urban area with a census population of not less than 130,000. This reflects a policy of supporting police in remote postings. “Supplementary car rate” is defined in the Act as a rate per kilometre for valuing car fringe benefits where the car’s cost base is not used; regulation 15 fixes this rate at 0.63 cents per kilometre, which is a low rate, likely to minimise the taxable value of car fringe benefits in certain circumstances.

The “disabled persons’ car parking permit” concept is used in regulations 12 and 14 to exclude car parking benefits for employees with disabilities. It requires a permit issued by the appropriate state or territory authority authorising parking in a disabled persons’ car parking space. The space must be in a public car parking area and designated for exclusive use of disabled persons. This exclusion removes from FBT what would otherwise be a car parking fringe benefit or eligible car parking expense payment benefit.

These regulations primarily affect employers who provide fringe benefits in the specific categories prescribed. The FBT Act imposes tax on employers, not employees, so the compliance burden falls on employers to identify and correctly classify benefits as excluded, and to maintain documentation proving the conditions are met. The regulations also affect employees who receive these benefits, as excluded benefits are not included in their reportable fringe benefits amount, which may affect their own tax liabilities, adjusted taxable income for Family Tax Benefit purposes, or higher education loan repayment thresholds.

The Defence Force exclusions affect the Department of Defence and other Commonwealth entities employing Defence members, as well as the members themselves. The regulations cover both serving members in Australia and those serving away from their dependants. The police exclusions affect Commonwealth, state and territory police forces and services, covering sworn members. The health care services exclusion affects employers providing health care services to employees posted overseas, such as private companies with expatriate staff, non-government organisations, or the Department of Foreign Affairs and Trade. The pooled or shared car exclusion affects any employer that makes a car available to multiple employees for private use at different times, which is common in small businesses, fleet arrangements, or community organisations.

Commonwealth employees benefit from exclusions for living-away-from-home allowances, accommodation expenses, and components of overseas living allowances. This affects the Australian Public Service and other Commonwealth agencies that post employees domestically or internationally. The disabled persons’ car parking exclusions affect employers that provide parking to employees with disabilities, potentially covering any workplace that operates a car parking facility for employees.

Employers who use the instalment method under section 110 of the Act to pay FBT in quarterly instalments are affected by regulation 13, which provides a formula to vary the notional tax amount based on changes in the FBT rate. This affects employers who need to adjust their instalments to avoid overpayment or underpayment. The supplementary car rate in regulation 15 affects any employer who uses the statutory formula method for valuing car fringe benefits and qualifies for the supplementary rate - this rate applies to certain cars used for business purposes beyond the basic statutory percentage method.

The regulations do not impose direct duties on employers; rather, they confer a right to treat certain benefits as excluded from FBT. The key duty for an employer is to satisfy the conditions of each exclusion before relying on it. This is not a mere option - if the employer incorrectly treats a benefit as excluded when it does not meet the conditions, the employer may underpay FBT and be subject to penalties and interest under the general anti-avoidance and administration provisions of the Act. The right to treat a benefit as excluded is contingent on objective facts, and the employer bears the burden of proof should the ATO challenge the classification.

For health care services (regulation 6), the employer must ensure the service is provided outside Australia, is emergency or essential health care, and that no Medicare benefit is payable. The employer should keep records of the service location, the nature of the service, and the employee’s or associate’s citizenship or permanent residency status. For Defence Force exclusions (regulation 7), the employer (likely the Department of Defence) must have directed the member to change residence for removal and storage; the assistance must be in accordance with a determination under section 58B of the Defence Act 1903; and for child tuition assistance, the child must be enrolled in a different school because of the directed relocation. These conditions require specific documentation: copies of direction orders, determinations, school enrolment records.

For police car exclusions (regulation 8(2)), the car must be fitted with police radio, concealed or portable warning lights, and concealed or portable sirens. The employer must ensure the car is so equipped and that the member has the car at or near their place of residence to enable response to crime or public safety events. For remote housing rent (regulation 8(5)), the employer must verify the distance from eligible urban areas and the census population. For new dwelling purchase costs (regulation 8(6)), the purchase must occur within four years after the member commences duties after a required change of residence.

The pooled car exclusion (regulation 10) requires that the car be available for private use of more than one employee. The employer must have arrangements in place where multiple employees use the car at different times, not just nominally. This exclusion applies to each such employee. For the disabled parking exclusions (regulations 12 and 14), the employer must ensure a valid disabled persons’ car parking permit is displayed on the car. The employee must be entitled to use a disabled persons’ car parking space under state or territory law. Employers should sight the permit and keep a record.

Regulation 13 gives employers a right to vary their notional tax amount by applying the prescribed formula. This is a right, not an obligation - an employer may choose not to vary and instead accept the default notional tax amount. The formula adjusts the base year notional tax amount by the ratio of current year tax rate to base year tax rate, reflecting FBT rate changes since 1 April 2006. Employers must calculate this correctly to avoid instalment errors.

The regulations themselves do not create penalties. Penalties arise from the Fringe Benefits Tax Assessment Act 1986 for non-compliance. Misclassifying a benefit as excluded when it does not meet the conditions would lead to an understatement of the employer’s fringe benefits taxable amount, resulting in a shortfall amount. Under the Act, the employer would be liable for additional FBT plus administrative penalties under the Taxation Administration Act 1953. The rate of penalty depends on whether the shortfall resulted from a failure to take reasonable care, a reckless or intentional disregard, or an avoidance scheme. There are no specific penalty provisions in these regulations.

Enforcement is by the Australian Taxation Office (ATO) through its usual audit and compliance activities. Employers that claim exclusions should expect the ATO to verify conditions, particularly for unusual or large benefits. For example, the health care services exclusion could attract scrutiny if services appear not to be emergency or essential, or if the Australian citizenship requirement is not met. The Defence Force and police exclusions are less likely to be challenged because they apply to government entities with established policies, but errors in documentation could still lead to disputes.

The pooled car exclusion (regulation 10) may be a focus area for the ATO because it removes what would otherwise be car fringe benefits for each employee. The employer must demonstrate that the car is genuinely available for private use by more than one employee. If only one employee uses the car in practice, the exclusion may not apply. Similarly, the Commonwealth overseas living allowance exclusion (regulation 11(3)) requires that the payment includes specific adjustments or allowances, and the characterisation of those components must match the regulation.

Employers that vary notional tax amounts under regulation 13 must apply the formula correctly. Errors in the base year rate of tax or current year rate of tax could lead to incorrect instalments, but because this is a variation of a provisional amount, the employer would reconcile at year end and pay any shortfall with the annual return, potentially with general interest charge.

The regulations are made under the Fringe Benefits Tax Assessment Act 1986 and must be read in conjunction with that Act. The definitions in regulation 5 cross-reference several other Commonwealth Acts and instruments. “Census population” and “eligible urban area” take their meaning from subsection 140(3) of the Act. “Household effects” refers to paragraph 58B(2)(a) of the Act, which is a provision about the value of fringe benefits. “Medicare benefit” has the meaning given by the Health Insurance Act 1973, which is relevant to the health care services exclusion. “Permanent resident” of Australia is defined by the Australian Citizenship Act 2007, tying the health care exclusion to immigration and citizenship status.

The Defence Force exclusions in regulation 7 refer to the Defence Determination 2016/19, Conditions of service, and to determinations made under section 58B of the Defence Act 1903. This means that the fringe benefit treatment is dependent on the existence and content of those determinations. If the Defence Department changes the determination, the scope of the exclusion could change without amendment to these regulations. Similarly, the meaning of “dependant of a member of the Defence Force” is defined by reference to the Defence Determination 2016/19.

The Commonwealth overseas living allowance exclusion (regulation 11(3)) ties to payments made by the Commonwealth or Commonwealth entities under the Public Governance, Performance and Accountability Act 2013. This aligns the FBT treatment with the Commonwealth’s own remuneration frameworks. The regulations also repeal the Fringe Benefits Tax Regulations 1992 (Schedule 1), but transitional provisions (regulation 16) preserve the old regulations for tax years starting before 1 April 2018. This means two sets of regulations apply depending on the tax year in question, which adds complexity for employers dealing with historical years.

The disabled persons’ car parking permit concept interacts with state and territory laws that govern the issue of such permits. The regulations do not prescribe what constitutes a valid permit; that is left to the states and territories. This could lead to inconsistencies if permit standards differ across jurisdictions, but the regulation simply requires a permit issued by the appropriate authority.

The supplementary car rate in regulation 15 interacts with the car fringe benefit valuation provisions in section 136(1) of the Act. The rate is used in the statutory formula method for calculating the taxable value of a car fringe benefit when the employer does not use the operating cost method. The 0.63 cents per kilometre rate is extremely low compared to actual per-kilometre costs, which suggests its effect is to minimise the taxable value for a narrow category of cars, potentially for cars used only incidentally for private purposes.

The source text provided is the original version of the Fringe Benefits Tax Assessment Regulations 2018 as made on 13 September 2018 and commencing on 1 October 2018. It does not include any subsequent amendments. The regulations replaced the Fringe Benefits Tax Regulations 1992, which were repealed by Schedule 1. The commencement table shows the whole instrument commenced on 1 October 2018, but the application provision (regulation 16) states it applies to years of tax starting on or after 1 April 2018. This means the effective date for compliance is 1 April 2018, while the instrument itself commenced legally on 1 October 2018, covering the gap between the start of the 2018-19 FBT year (1 April 2018) and the date of making.

Since the source text is the original version, no amendment history can be derived from it. However, users should note that the regulations may have been amended subsequent to the provided text. The Australian Federal Register of Legislation would have the current compilation. It is possible that amendments have been made to update the supplementary car rate, add new excluded benefits, or adjust definitions. For example, the supplementary car rate of 0.63 cents per kilometre may have been changed in later years. Users should check the latest version for current law.

The repeal of the 1992 Regulations is a significant amendment history event. Those old regulations contained different exclusions and rates. The 1992 Regulations continue to apply for tax years before 1 April 2018, so historical matters may still require reference to the old instrument. The transition preserves the status quo for closed tax years, avoiding retrospective changes to employers’ FBT liabilities.

The source text does not mention any litigation or court cases. The regulations themselves have likely been the subject of very few judicial decisions, because they are detailed and prescriptive, leaving little room for interpretive disputes. Most FBT litigation in Australia has focused on the broader provisions of the Fringe Benefits Tax Assessment Act, such as the definition of ‘car fringe benefit’, ‘otherwise deductible’ rules, or the meaning of ‘fringe benefit’ itself. Secondary challenges to the validity of regulations are rare.

It is possible that the exclusions for pooled cars (regulation 10) or the disabled persons’ parking exclusion (regulations 12 and 14) have been considered by the Administrative Appeals Tribunal in objections, but no decisions are recorded in the source. The Commonwealth overseas living allowance exclusion in regulation 11(3) may have been tested in relation to whether particular payments fall within the defined adjustment categories. The Defence Force and police exclusions are unlikely to generate litigation because they apply to government employers that are unlikely to dispute the ATO’s interpretation; any disputes would likely be internal.

The variation of notional tax amount under regulation 13 uses a formula that is mechanical, so disputes would be rare. The supplementary car rate is set by regulation and has been stable; there is no reported case challenging its reasonableness or application.

Given the absence of cited cases, a prudent practitioner should be aware that while litigation history is sparse, the ATO may issue public rulings or determinations interpreting these regulations. The existence of a specific exclusion does not prevent the ATO from arguing that the benefit is not covered by the exclusion based on the facts. Practitioners should search ATO databases for any rulings on the specific exclusions.

Several potential traps arise from the detailed conditions in these regulations. For the health care services exclusion (regulation 6), only emergency or essential health care services are covered. Routine check-ups or elective procedures outside Australia would not qualify. The service must be provided outside Australia, and the employee’s place of employment must be outside Australia when the service is provided. If the employee is on leave in another country but normally works in Australia, the exclusion likely does not apply. The requirement that no Medicare benefit be payable means if Medicare would pay for the service had it been provided in Australia, the exclusion may not apply even if no claim is made. This could be complex for services that Medicare covers overseas under reciprocal health care agreements.

For Defence Force exclusions, many are contingent on a direction to change residence from the Department of Defence. A voluntary relocation does not qualify. The child tuition assistance exclusion (regulation 7(2)(g)) requires that the child must be enrolled in a different school because of the direction. If the child would have changed schools anyway (e.g., due to year level), the exclusion may not apply. For police car exclusions (regulation 8(2)), all conditions must be met: the car must be used by the employer, fitted with police radio, concealed warning lights and concealed sirens, and the member must have the car at or near the residence to respond to events. A car without sirens or lights, even if used for police duties, does not qualify.

The pooled car exclusion (regulation 10) is often misunderstood. It only applies if the car is applied to or available for private use of more than one employee. If only one employee ever uses the car privately, the exclusion does not apply, even if other employees are nominally permitted to use it. The example in the regulation (three employees at different times) suggests actual use, not mere availability. Employers should have records showing multiple employees actually using the car for private travel.

The disabled persons’ parking exclusions (regulations 12 and 14) require a valid permit displayed on the car. If the permit is expired, not displayed, or the employee is not the driver or passenger, the exclusion does not apply. The exemption only covers the provision of parking facilities; it does not extend to other car parking benefits such as the reimbursement of parking expenses.

Regulation 11(2) excludes living-away-from-home allowance fringe benefits and expense payment fringe benefits for accommodation for Commonwealth employees who are required to live away from their normal residence. But the exclusion only applies if the accommodation is required solely because the duties require the employee to live away. If the employee chooses to live away for personal reasons, the exclusion does not apply. The term “solely” is strict.

The supplementary car rate of 0.63 cents per kilometre (regulation 15) is a very low figure. In 2018, the ATO’s reasonable amount per kilometre for car expenses was much higher (e.g., 66 cents for the first 5,000 business km for 2017-18). The supplementary rate is used in a specific statutory formula context, not as a general benchmark. Its effect is to produce a very low taxable value for certain car fringe benefits. Employers should ensure they are using the correct rate for the correct method.

Regulation 13 varies the notional tax amount only for employers who have a base year and use item 4 of the table in subsection 110(1). The formula uses the base year rate of tax and current year rate of tax from the Fringe Benefits Tax Act 1986. If the rate has not changed, the formula yields the same amount. The prescribed day of 1 April 2006 is the date from which the variation mechanism applies; employers must use their notional tax amount as at that date. This may cause confusion for employers who started after 2006.

To comply with these regulations, an employer must first determine whether any benefit it provides falls within one of the prescribed exclusions. This requires a systematic review of benefit types, especially for employers in the affected sectors: Commonwealth agencies, Defence, police, organisations with overseas employees, and those with pooled cars or disabled employees. The employer should establish internal policies and checklists for each exclusion, documenting the satisfaction of each condition.

For health care services (regulation 6), employers should maintain records of the location and nature of the service, the employment location at the time, the employee’s or associate’s citizenship or permanent residence status, and a statement that no Medicare benefit is payable (e.g., a letter from the treating provider or a statutory declaration). For reimbursement benefits, keep receipts and proof of payment.

For Defence Force and police exclusions (regulations 7 and 8), the relevant government entity will typically have administrative processes for documenting direction to change residence, accommodation allocation, and the fitting of police cars. Ensure that these processes capture the information needed for FBT purposes, such as the date of direction, the school enrolment change for tuition assistance, and the type of housing benefit (whether attached to a police station or remote). For the police car exclusion, maintain an inventory of car equipment (radio, lights, sirens) and a log of when the vehicle is at the member’s residence and used for emergency response.

For the pooled or shared car exclusion (regulation 10), implement a booking system or roster showing that more than one employee uses the car for private travel. Keep records of each employee’s private use including dates, times, and odometer readings. If only one employee uses the car, the exclusion is unlikely to apply. For the disabled persons’ parking exclusions (regulations 12 and 14), sight and copy the permit, verify its validity, and ensure it is displayed on the car each time the parking benefit is provided. The employer may need to train employees to display the permit.

For Commonwealth employees (regulation 11), ensure that living-away-from-home allowances and accommodation expense payments are only treated as excluded when the accommodation is required solely because duties require living away. If the employee’s family accompanies them and the employer provides a family-sized dwelling, the benefit may still be excluded if the accommodation is necessary for duty performance. Keep documents as to why the accommodation is required. For overseas living allowances (regulation 11(3)), identify and document the components corresponding to the named adjustments, allowances and supplements. The employer should review the remuneration system to ensure that payments characterised as cost of living adjustments, post adjustments, or child-related allowances are indeed such components.

For notional tax variation (regulation 13), employers using instalments should calculate the varied amount using the formula annually. Obtain the base year rate of tax from the Fringe Benefits Tax Act 1986 for the base year, and the current year rate for the current year. Multiply the base year notional tax amount by the ratio. If the FBT rate has not changed, no variation is needed; the formula yields the same amount. Keep records of the calculation.

For the supplementary car rate (regulation 15), employers using the statutory formula method for car fringe benefits should apply the rate of 0.63 cents per kilometre only if the car qualifies for the supplementary rate under section 136(1) of the Act. That provision requires that the car’s cost base be less than the luxury car tax threshold or such other criteria. Review the Act to confirm applicability; the regulation merely sets the rate, not the conditions for use.

Finally, maintain all records for the statutory retention period (generally five years after the FBT return is lodged). If the ATO reviews a year, the employer must be able to demonstrate that each condition of the exclusion was met. The lack of a specific exclusion for a benefit does not prevent the benefit from being a fringe benefit; the employer must assess other exemption provisions in the Act. The regulations only remove benefits from the definition; they do not make something a fringe benefit that otherwise would not be.