With the advancement in IT and improved internet connectivity came the ridesharing industry, and confusion to regulators across the board – including revenue authorities such as the Australian Taxation Office (ATO). Were ridesharing cars 'taxis'? Did the FBT exemption for 'taxi travel' in the Fringe Benefits Tax Assessment Act 1986 (Cth) (FBT Act) extend to them?
We now have some clarity with the Royal Assent to the Treasury Laws Amendment (2019 Measures No.3) Bill 2019 (Cth), which amends the FBT Act to ensure that the FBT exemption can apply to benefits arising from 'taxi travel' undertaken by employees using eligible ridesharing transport, and addresses perceived anomalies in the FBT Act arising from the evolution in the concept of a 'taxi' in light of the advent of the ridesharing industry. The amendments apply retrospectively from the FBT year starting on 1 April 2019, and may provide employers with some welcome relief.
The evolution of the concept of 'taxi' for FBT
Under section 58Z of the FBT Act, a benefit arising from taxi travel by an employee that either begins or ends at the employee’s place of work, or which arises from certain taxi travel by an employee as a result of sickness or injury to the employee, is an exempt benefit that is not subject to FBT for the employer. The policy and purpose of this exemption was to allow employers to provide taxi travel as a safe means of transport for their employees in certain circumstances without facing the threat of FBT being imposed on the provision of such benefits. At the time, the FBT Act defined a 'taxi' to be "a motor vehicle licensed to operate as a taxi" – a definition which perhaps reflects a common general understanding of what a 'taxi' is.
In the 2017 Federal Court decision in Uber B.V. v Federal Commissioner of Taxation [2017] FCA 110, the Federal Court was asked to consider whether drivers providing ridesharing services to passengers under the UberX service supplied 'taxi travel' within the meaning of the GST Act, and consequently were required to obtain GST registration. In that case, the Federal Court found that ridesharing drivers did provide 'taxi travel' and accepted the ATO's own submission that the ordinary meaning of the word 'taxi' was "a vehicle available for hire by the public and which transports a passenger at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a taximeter".
Given that by this time the ridesharing industry and ridesharing drivers were (or shortly after became) subject to regulation in each jurisdiction, employers could be forgiven for taking the practical approach of interpreting the Uber decision to mean that the provision of eligible ridesharing transport to employees was clearly also exempt 'taxi travel' under section 58Z of the FBT Act (ie. given that ridesharing vehicles were regulated and also 'taxis' within the ordinary meaning). Such an approach would mean that there would be no need to rely on the 'minor benefits' FBT exemption and thereby ease the risk of FBT liability and the compliance burden in relation to ridesharing trips of employees paid for by their employers.
Despite an extensive consultation process spanning almost two years, the ATO were (to some commentators, in a contradictory manner) unable to reconcile the concepts of ‘taxi’ and 'taxi travel' for the purposes of the GST Act with the corresponding concepts in the FBT Act, and issued guidance in July 2019 stating that the FBT exemption did not extend to ride sharing transport.
The amendments to the FBT Act (which includes deletion of the abovementioned definition of 'taxi' in the FBT Act) means that the common sense practical approach has prevailed, while addressing potential anomalies in the application of the taxi travel FBT exemption (eg. ensuring that benefits provided by generous employers in the form of 'taxi travel' by limousine are not FBT exempt). This is a welcome development that keeps the FBT legislation up to date and ensures that the adoption of technology by businesses is not stifled.
Making full use of the new FBT exemption
Employers may wish to consider updating their employee travel policies in light of availability of the FBT exemption to make eligible 'taxi travel' via ridesharing services an option for providing safe transport for their employees. Further, as this exemption will apply from the FBT year starting on 1 April 2019, businesses should review their 2019-2020 FBT return and seek refunds of FBT paid in respect of ridesharing 'taxi travel' where appropriate.
Clayton Utz assisted Uber in relation to the consultation process with the ATO and we congratulate both Uber and the ATO with this development.