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