FBT - Otherwise Deductible Rule

Anyone have any experience with this, I am currently liaising with both the ATO an accounting firm on whether or not this rule can be applied to associates.

I have been looking at TD 93/90 and to me it looks like the rule does not apply to associates. But the 3rd para seems to add ambiguity.


Cheers

 

Matt, In general do you feel comfortable with this approach for a mum and dad investor? A & B own 50% each, A SS all interest...

When your talking assosicates how are you defining it???

Cheers

 

DA ... this is precisely the type of scenario I am envisaging and I am trying to get a definitive answer on the "rule". To me it seems contrary to the intention of the law that via SS a high income earner could use the rule to obtain a greater tax saving.

Associate - I am defining it this is being a relative of the employee

 

I thought the standard way round this is to have a joint loan.

I believe the National Australia Bank v FCT, 93 ATC 4914 has established the principle that a joint loan between the employee and associate is 100% otherwise deductible when used to gain their assessable income.

Of course, this is a salary sacrificing opportunity for the higher income earner.

I have not kept up to date on this one.

Cheers,

Rob

 

Thanks for the lead Rob...I'll have another looksy.

 

OK, almost did my head in reading the NAB case.

Also found this ATO ID 2005/219 - Loan Fringe Benefits: otherwise deductible rule - joint loans and the National Australia Bank decision

Now am I still being a bit thuck - does this mean it only applies where the employer makes the joint loan, or any joint loan (from 3rd parties) of the employees that the employer pays the interest?

 

The short answer is "I don't know".

How far is the Commissioner prepared to accept this "legal fiction" ?

He might attack it as an external residual benefit depending on the contract with the 3rd party, and argue case law does not apply. However s.52 describes the "recipient" in relation to the employer.

Or possibly he could argue a s.20 expense payment benefit for the difference, but similarly s.24 refers only to a "recipient".

However, as I read s.16(1) it just talks about a "provider" and not necessarily the employer, likewise "recipient" instead of employee.

I think the Commissioner may be mistaking the requirements for "otherwise deductible" with those for "exempt benefits".

Most exemptions only relate to the employee and not their associates, e.g. s.41 exempt property benefits only available to "employees".

I would be most interested to hear any opinions on this one ...

Cheers,

Rob

 

Of course, if you follow my argument, then even a loan wholly to an associate should be otherwise deductible which clearly is not accepted practice.

So how far is the Commissioner prepared to go with his "legal fiction" and associates of the employer ???

Cheers,

Rob

 

After all that rambling, I opened up the FBTAA86 and actually read it carefully.

It clearly states the first requirement for the otherwise deductible rule in s.19(1)(a) is that the recipient is an employee. Likewise s.24(1)(a) and s.44(1)(a).

However, there is no such statement for the provider to be the employer ???

Cheers,

Rob