What you need to know
- The Treasury Laws Amendment (2019 Measures No. 3) Bill 2019 (Bill) has passed both houses of Parliament and awaits Royal assent.
- Once passed into law, the Bill will amend the definition of "taxi" in the Fringe Benefits Tax Assessment Act 1986 (FBT Act) to align the definition with the definition of "taxi travel" in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
- As a result, travel by Uber and other ride sourcing services will now qualify for fringe benefits tax (FBT) exemptions on the same footing as traditional taxis.
What you need to do
- Where employers have restricted employee travel to traditional taxis for FBT related reasons, they should review their employee travel policies in light of these amendments.
- The amendments will apply to the 2019/20 FBT year and later FBT years. Employers that have already lodged their FBT returns and paid FBT on travel provided through ride sourcing services since 1 April 2019 should review their returns and may claim a refund of the FBT paid where the exemption now applies. Employers that are yet to lodge their 2019/20 FBT returns should lodge on the basis of the amended law.
Background
The FBT Act contains an exemption from FBT for certain transport provided by employers to employees. Very broadly, the exemption applies to a benefit arising from "taxi" travel by an employer where the travel is a single trip beginning or ending at the employee's place of work; or if the travel results from sickness or injury.
Formerly, the FBT Act defined a taxi as "a motor vehicle licensed to operate as a taxi". In 2019, the ATO released guidance stating that the reference to "licensed to operate as a taxi" in this definition meant that the definition only applied to a vehicle licensed by the relevant State or Territory to operate as a taxi and did not extend to ride sourcing services provided in a vehicle that was not licensed to operate as a taxi by a State or Territory.
The ATO reached this view notwithstanding that drivers of vehicles providing travel services through ride sourcing platforms have been held to be providing "taxi travel" for GST purposes, and are required to be registered for GST and remit GST on fares to the ATO.
This difference in treatment of ride sourcing between the FBT and GST rules arose because the GST definition of "taxi travel" is different to the definition in the FBT Act. Under the GST Act, "taxi travel" is defined as "travel that involves transporting passengers by taxi or limousine for fares", without any reference to a "licensing" requirement. In 2017, the Federal Court held that this definition extended to travel involving the transportation of passengers for a fare by way of a car or other motor vehicle and was not limited to State or Territory licensed taxis (Uber B.V. v Commissioner of Taxation [2017] FCA). As such, the provision of travel services through ride sourcing platforms is the provision of "taxi travel" for GST purposes, irrespective of whether the vehicle is licensed as a taxi.
The amendments
The result of the ATO's view on the FBT definition of taxi led to the anomalous outcome that the provision of travel services through Uber and other ride sourcing platforms was subject to GST in the same way as traditional taxis but ineligible for the benefit of the FBT exemptions.
The outcome was also inconsistent with the policy of the FBT exemption, the purpose of which is to exempt from FBT the cost of certain basic travel (eg, between work and home) provided to employees in ordinary motor vehicles.
Further, this interpretation placed ride sourcing services at a competitive disadvantage with taxis and led to many employers stopping (or discouraging) their employees from using ride sourcing services for travel between work and home on the basis that it would not be FBT exempt (effectively increasing the cost and compliance burden of ride sourcing as compared to traditional taxi travel). This is contrary to the general economic policy of deregulating the taxi industry and allowing ride sourcing providers to operate as genuine competitors to taxis in the marketplace.
To deal with these concerns the Bill amends the FBT definition of taxi to align with the GST definition, except that travel by limousine will be excluded (on the basis that the FBT exemption was not intended to support the provision of taxpayer subsidised luxury transport). This preserves the original policy intent of the FBT exemption of exempting basic employee travel from FBT and also puts ride sourcing services and traditional taxis on a level playing field in so far as the tax law is concerned (from both a GST and FBT perspective).
The amendments have been welcomed by the ride sourcing platforms (eg, Uber's press release can be accessed here) and should also be welcomed by employers, as it will provide greater flexibility in providing basic travel to their employees where they may previously have prevented or discouraged employees from using ride sourcing platforms in favour of traditional taxis for FBT reasons.
What steps you should take
The Bill amends the definition of taxi travel in the FBT Act for the 2019/20 and later FBT years, providing employers with some limited retrospectivity. This departs from the position in the exposure draft (released in September last year) which contemplated the amendments being prospective only.
This means that employers that are yet to lodge their 2019/20 FBT returns should lodge on the basis of the amended law. Employers that have already lodged their FBT returns for the 2019/20 year should review their returns and may claim a refund of any FBT paid on the basis that ride sourcing services did not qualify for the FBT exemptions previously available only to traditional taxis.
Authors: Sanjay Wavde, Partner and Barbara Phair, Partner.
