A recent decision in the Administrative Appeals Tribunal (AAT) about how much Fringe Benefits Tax an employer was liable for on a subsidized health insurance program provided to employees highlights the practical problems employers face in making sure they meet their obligations to provide a safe system of work. Gadens Brisbane acted for the employer in this case.

Lake Fox Limited (Lake Fox) is a major Australian trucking company which, in addition to its general transport operations, is a specialist mover of explosives for the mining industry and provides logistics support for defence organisations.

Lake Fox, like most employers in the transport and mining sectors, has many legal obligations on how it carries out its business activities. Specific legislation requires a health management system to be put in place, to ensure that employees are fit to carry out their duties. Heavy transport operators in particular are subject to "Fatigue Management" legislation, which imposes legal responsibilities on all parts of the supply chain, from management and drivers through to end consumers.

When the Fatigue Management legislation was first established, the directors of Lake Fox decided to put in place an employee health management system to help improve employee fitness, reduce the risk of accidents and assist the company in meeting its statutory obligations. Lake Fox made arrangements with MBF/BUPA to offer a corporate health insurance plan, and to subsidise the premiums paid by its employees.

Lake Fox approached the Australian Taxation Office (ATO) in 2009 to work out the Fringe Benefits Tax (FBT) cost of its employee health program. The company took the reasonable view that any part of the health insurance subsidy that related to health care for employee families was probably private expenditure, and that perhaps not all the health insurance expense for employees themselves would be directly related to their fitness to drive heavy transport vehicles.

While some officers in the ATO agreed with the company view, one of the difficulties in getting the Commissioner's acceptance may have been the idea that health issues are a private matter and if work didn't cause the health problem then the costs of health care are not tax deductible. While this may sound plausible, it is not quite how tax law works, or how it is administered by the ATO. For example, depending on how specific arrangements are structured, the cost of a weight-loss program for an executive may be exempt from FBT even though offending donuts might be eaten on the weekend or away from the office.

Lake Fox felt strongly about the inequity of taxing health management arrangements and so took the matter to the AAT, asking that at least part of its subsidy payment be exempt from FBT. The AAT decision handed down on 4 May 2012 held that, because the payments were in respect of health insurance and not direct payments for health services, the black letter provisions of the FBT legislation meant that Lake Fox has to pay FBT on all the subsidies it provides to employees.

After three years of dealing with the ATO, Lake Fox is naturally very disappointed with the AAT decision and the current FBT law, as it does not seem to have developed alongside the increasingly strict and detailed legislation requiring employers to implement effective health management systems.

Lake Fox, and the heavy transport industry generally, take their obligations to employees and the wider Australian road-using community very seriously. Lake Fox is considering whether or not to appeal the AAT decision. In the meantime we expect that industry associations will be lobbying the Government, and the opposition, for changes to the taxation laws so that genuine steps to manage employee health are not unfairly taxed.

Gadens Brisbane will continue to assist Lake Fox to find practical ways of meeting its taxation and employee health obligations.

Butting heads with the Commissioner of Taxation can end badly. Recently Kathleen Conway reviewed four decisions of the Administrative Appeals Tribunal (AAT). Click here to view.

For more imformation, please contact

Brisbane
Damian O'Connor P +61 7 3231 1647 E doconnor@qld.gadens.com.au

This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.