Edited version of private ruling

Authorisation Number: 1011583201880

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: In-house property fringe benefit

Question 1

Does the notification letter provided to the winning employee, facilitating the provision of the employer's stock, meet the definition of an 'in-house property fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA ) allowing the employer to reduce the taxable value of the fringe benefit by $1,000 under section 62 of the FBTAA.

Answer:

No.

This ruling applies for the following period:

1 April 2009 to 31 March 2010

The scheme commenced on

1 April 2009

Relevant facts

The employer has many employees spread across many locations in different states operating its national support office, distribution centre and retail sales.

The employer offers a variety of products to their members and the public.

The employer provides stock to its employees that are ordinarily supplied to the public as incentive to achieve store targets as established in various challenges during the year.

A notice system is used as a means for accurate and efficient record keeping of such stock movements, confirming the employees understanding of the sale incentive.

The employer has three types of challenges.

Two challenges are held quarterly. The winning store achieves sales more than the store targets set by management. The other challenge is based on capturing more clients for a specific product that is sold through the employers stores.

The winning store manager distributes the stock to its employees based on their attendance during the quarter.

A written notification in the form of a letter is provided to the winning employee(s).

The notification is provided to the store when the stock is received by the employee, as a way of facilitating the transaction and to effectively manage accurate record keeping requirements for accounting and auditing purposes.

The yearly sales challenge is based on the stores growth percentages over the prior year sales. This challenge divides the stores into small, medium and large.

A notification letter is provided to each employee that confirms the employee's understanding of the rewards system in relation to the sales challenge.

The letter provides a means for which only those employees who have achieved the various challenge targets are entitled to stock.

Furthermore, the letter is for the employer to record the provision of goods (reduction in stock) and the dollar value of the goods provided to the employee.

The employer operates an electronic point of sale system that is integrated with its accounting system.

The letters are:

· non-transferable (i.e. they can only be redeemed by the employee who is named on the letter)

· has no dollar value

· not able to be converted to money and are not redeemable for money if the entire amount on the notification letter is not utilised and

· can only be redeemed at the employer stores.

Assumptions

All employees including managers are notified of the winner(s) via the company's internal electronic system.

Goods taken are captured at the point of sale.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 40

Fringe Benefits Tax Assessment Act 1986 Section 42

Fringe Benefits Tax Assessment Act 1986 Section 62

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Issue 1

Question 1

Detailed reasoning

In-house property fringe benefits

Subsection 136(1) of the FBTAA defines 'in-house property fringe benefit' that requires a property fringe benefit to be in respect of 'tangible' property.

The term 'property' is defined in subsection 136(1) of the FBTAA to mean both intangible property and tangible property.

The terms 'tangible property' and 'intangible property' are defined in subsection 136(1) of the FBTAA as follows:

"intangible property" means:

(a) real property;

(b) a chose in action; and

(c) any other kind of property other than tangible property;

but does not include:

(d) a right arising under a contract of insurance; or

(e) a lease or licence in respect of real property or tangible property'.

whereas

"tangible property" means goods and includes:

(a) animals, including fish; and

(b) gas and electricity.'

A property benefit must be 'tangible property', in order to satisfy the definition of 'in-house property fringe benefit' and allows the employer to reduce this fringe benefit by $1000.

If the property benefit is not 'tangible property', it will fall within the definition of 'intangible property'.

To satisfy the definition of 'tangible property', the notification letter, not being 'animals, including fish' or 'gas and electricity', must constitute 'goods'.

'Goods' is not a defined term in the FBTAA and therefore the literal meaning is used.

The Macquarie Dictionary (Macquarie Multimedia) version 5.0.0 - 01/10/01 defines the term 'good' as:

27. (plural) possessions, especially movable effects or personal chattels.
28. (plural) articles of trade; wares; merchandise, especially that which is transported by land.
29. an item of merchandise.

The term 'benefit' is defined in subsection 136(1) of the FBTAA as including 'any right (including a right in relation to, and an interest in) real or personal property, privilege, service or facility'.

A notification letter (considered equivalent to a voucher or gift card) in the circumstances described confers rights on the employee, being the employer's promise to provide 'goods' up to a certain value.

When the notification letter is provided to an employee, the rights conferred are 'benefits' in accordance with subsection 136(1) of the FBTAA.

Subsection 136(1) of the FBTAA defines 'provide', in relation to property, to mean dispose of (whether by sale, gift, declaration of trust or otherwise) the beneficial interest in property or the legal ownership of property.

The rights that exist as a bearer of the notification letter, which allows the employee to receive goods up to a certain value, are property. The benefit is a property benefit. The employer 'provided' the benefit when the notification letter was given to the employee.

The property benefit was provided as a reward for services performed and it is a 'property fringe benefit' as defined in subsection 136(1) of the FBTAA.

The benefit that the notification letter represents, being the employer's promise to provide goods up to a certain value (rights or entitlements), does not constitute possessions, articles of trade or an item of merchandise and is not 'goods' for the purposes of the FBTAA.

The employer, in providing an employee with a notification letter, is providing:

· a property benefit in accordance with section 40 of the FBTAA and

· that property is 'intangible property' as defined in subsection 136(1) of the FBTAA .

As the notification letter provided to an employee is not 'tangible property', the letter does not satisfy the definition of in-house property fringe benefits in subsection 136(1) of the FBTAA .

Therefore, the employer cannot access the concessional valuation under section 62 of the FBTAA and has to pay Fringe Benefits Tax on all intangible property fringe benefits provided.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).