ATO Interpretative Decision

ATO ID 2006/248

Fringe Benefits Tax

Exempt Benefits: work related item - tool of trade
FOI status: may be released
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Can a microscope that is provided by an employer to an employee be described as a 'tool of trade' under paragraph 58X(2)(e) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?


Yes. The microscope is a 'tool of trade' under paragraph 58X(2)(e) of the FBTAA.


The employee is a scientist.

The employee will be reimbursed by the employer for the expense incurred in purchasing a microscope. It is part of a salary packaging arrangement.

The microscope although electrically powered is manually operated and is used to examine microscopic organisms.

Reasons for Decision

Section 58X of the FBTAA exempts from FBT the provision of certain eligible work related items. Subsection 58X(1) of the FBTAA provides that the provision of an expense payment benefit, a property benefit or a residual benefit by an employer to an employee in respect of an eligible work related item will be an exempt benefit.

Subsection 58X(2) of the FBTAA lists the items that, if provided primarily for use in the employee's employment, are 'eligible work related items' that may be subject to exemption. Included in this list, at paragraph (e), is 'a tool of trade'.

The term 'tool of trade' is not defined in the FBTAA; therefore it takes on its ordinary meaning.

'Tool' is defined in the Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 as:

an instrument, especially one held in the hand, for performing or facilitating mechanical operations, as a hammer, saw, file, etc.
any instrument of manual operation.

The meaning of 'tool of trade' has also been commented on in various court cases arising from the interpretation of various sections of bankruptcy law.

In Vaughn v. Official Trustee in Bankruptcy (1996) 71 FCR 34 (Vaughn) the expression 'tools of trade' was considered by the Full Federal Court by reference to The New Shorter Oxford English Dictionary (1993) as:

'Tool': 1. A thing used to apply manual force to an object or material, esp. a device designed for some particular mechanical function in a manual activity, as a hammer, a saw, a fork; an implement. Now also, a powered machine used for a similar purpose...2 trans. & fig. A thing (concrete or abstract) used in the carrying out of some occupation or pursuit; a means of effecting a purpose or facilitating an activity.
'Tools of Trade' : The basic equipment required for a particular occupation.

For an item to qualify as a 'tool', whilst it must meet the necessary condition of being dependant on manual operation to give effect to its purpose, it can also be electrically powered. For instance it would be accepted that both a handsaw and a power saw used by a tradesperson would both be 'tools of trade'.

By ignoring the wider term of 'equipment' and restricting the phrase to the actual tools themselves used in an occupation, the Court used the analogy of allowing a professional photographer's camera and filters but not the film used in the camera as a 'tool of trade'.

In terms of the dictionary definition quoted in Vaughan, a thing will qualify as a tool, where it meets either definition rather than a composite or both. In terms of definition (1), although a microscope's focus is adjusted manually and it is electrically powered, it could not be said to operate through the microscope applying manual force to another object. For that reason, it would not qualify as a 'tool' under those terms.

Through definition (2) however, it is accepted that it is a thing which is used in carrying out a scientist's occupation and as such on that basis would still qualify as a 'tool'.

With regard to the definition of 'tools of trade', it is considered that a scientist's microscope would equate with a professional photographer's camera and as such qualify as a 'tool of trade'.

Therefore as the microscope is manually operated by the scientist the microscope is considered to be a 'tool of trade' under paragraph 58X(2)(e) of the FBTAA.

Note: Before a conclusion can be reached as to whether or not the benefit relating to the provision of the microscope is an exempt benefit under section 58Xof the FBTAA, a consideration of the other requirements stipulated in subsections 58X(3) and 58X(4) would be needed.

Date of decision:  28 August 2006

Year of income:  Year ended 31 March 2007

Legislative References:
Fringe Benefits Tax Assessment Act 1986
   section 58X
   subsection 58X(1)
   subsection 58X(2)
   paragraph 58X(2)(e)
   subsection 58X(3)
   subsection 58X(4)

Case References:
Vaughan v. Official Trustee in Bankruptcy
   (1996) 71 FCR 34

Other References:
The New Shorter Oxford English Dictionary(1993)
The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01

Exempt benefits
FBT expense payment
Fringe benefits
Fringe benefits tax

Siebel/TDMS Reference Number:  4889275; 1-5T2SHDZ

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  8 September 2006
Date reviewed:  1 December 2014

ISSN: 1445-2782

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