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Ruling

Subject: home use program

Question 1

Will a fringe benefit arise from the use of equipment pursuant to a Home Use Program?

Answer

No

Question 2

If a fringe benefit does otherwise arise, will the taxable value of the benefit be reduced to nil because of the recipients' contribution?

Answer

Not answered as answer to question 1 was no

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

The scheme commences on:

1 July 2011

Relevant facts and circumstances

The employer is considering making equipment available to all staff for business and personal use under a home use program (HUP).

The employer arranges with the equipment provider under their contract to allow their employees access to the HUP

Under the agreement:

· Each employee will contract to gain access to the equipment directly from the provider paying a fee of $X

· The employee's usage rights of their HUP will only continue while remains employed by the employer

· Access to the HUP will cease upon termination of employment or expiration of the employer's contract with the provider

The results from a search of the internet on Date X showed that similar equipment can be acquired under similar circumstances for less than $300.

Relevant legislative provisions

FBTAA section 45

FBTAA section 51

FBTAA section 58X

FBTAA section 58P

FBTAA subsection 136(1)

Reasons for decision

Will a fringe benefit arise from the employee's use of equipment under a Home Use program?

An employee who participates in the HUP is able to obtain the equipment for use at home.

The term 'benefit' is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to:

Include any right (including a right in relation to, and an interest in, real or personal property, privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property; . . .

The use of equipment under the HUP meets the definition of a benefit.

Is the benefit a fringe benefit?

The definition of 'fringe benefit' in also contained in subsection 136(1) of the FBTAA and in part provides that a benefit will be a fringe benefit where it is:

o provided to an employee or an associate of an employee;

o by the employer, an associate of the employer or a third party either under an arrangement that comes within paragraph (e) of the 'fringe benefit' definition or in circumstances that come within paragraph (ea) of the 'fringe benefit' definition;

o is provided in respect of the employment of the employee; and

o does not come within paragraphs (f) to (s) of the 'fringe benefit' definition.

In this case the HUP program is provided by to employees via the employer's agreement with the provider and is only available to employees because of that arrangement. If the employee left their employment, or the agreement between the employer and the provider was terminated then the employee is not able to use of the equipment.

For the benefit to not be a fringe benefit we need to look at is the exclusions in paragraphs (f) to (s) of the 'fringe benefit' definition and in particular paragraph (g) which provides that a benefit that is an exempt benefit will not be a fringe benefit.

One exemption that may apply is the minor benefits exemption contained under section 58P of the FBTAA. Guidance on the possible application of this section is contained within Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits and paragraph 8 states:

A minor benefit is an exempt benefit under section 58P where:

o the notional taxable value of the minor benefit is less than $300; and

o it would be concluded that it would be unreasonable, having regard to the specified criteria in paragraph 58P(1)(f), to treat the minor benefit as a fringe benefit.

The criteria that need to be address to meet the second dot point are listed in the electronic version of our publication Fringe benefits tax - a guide for employers in chapter 20.8 and it states in part:

The following five criteria need to be considered when deciding if it would be unreasonable to treat the minor benefit as a fringe benefit.

1. The infrequency and irregularity with which associated benefits, being benefits that are identical or similar to the minor benefit and benefits given in connection with the minor benefit, are provided. The more frequently and regularly associated benefits are provided, the less likely that the minor benefit will qualify as an exempt benefit.

2. The total of the notional taxable values of the minor benefit and identical or similar benefits to the minor benefit. The greater the total value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will qualify as an exempt benefit.

3. The likely total of the notional taxable values of other associated benefits - that is, those provided in connection with the minor benefit. For example, where a meal, which is a minor benefit, is provided in connection with a night's accommodation and taxi travel, which themselves may or may not be a minor benefit, the total of their taxable values must be considered. The greater the total value of other associated benefits, in this case being the accommodation and the taxi travel, the less likely it is that the minor benefit will qualify as an exempt benefit.

4. The practical difficulty in determining what would be the notional taxable value of the minor benefit and any associated benefits. This would include consideration of the difficulty for you in keeping the necessary records in relation to the benefits.

5. The circumstances in which the minor benefit and any associated benefits were provided. This would include consideration as to whether the benefit was provided as a result of an unexpected event, and whether or not it could be considered principally as being in the nature of remuneration.

There are a number of benefit types excluded from the exemption being tax exempt body entertainment benefits, airline transport benefits and in-house fringe benefits.

The benefit being provided would be neither tax exempt body entertainment or a airline transport benefit. In addition the benefit is not an in-house fringe benefit because to be an in-house fringe benefit the employer and the equipment provider would have to be associates as defined under subsection 136(1) of the FBTAA.

The notional taxable value of the fringe benefit

The notional taxable value is defined in subsection 136(1) of the FBTAA and is the taxable value of the fringe benefit which in this case would be the taxable value of the residual fringe benefit. Given the employee gets extended use of the equipment the benefit would be an external period residual fringe benefit with the taxable value determined under section 51 of the FBTAA which states:

Subject to this Part, the taxable value of an external period residual fringe benefit in relation to an employer in relation to a year of tax is:

(a) where the provider was the employer or an associate of the employer and the recipients overall benefit was purchased by the provider under an arm's length transaction - the amount paid or payable by the provider in respect of the recipients current benefit;

(b) where the provider was not the employer or an associate of the employer and the employer, or an associate of the employer, incurred expenditure to the provider under an arm's length transaction in respect of the provision of the recipients current benefit - the amount of that expenditure; or

(c) in any other case - the notional value of the recipients current benefit;

reduced by the amount of the recipients contribution insofar as it relates to the recipients current benefit.

As the provider is not the employer, or an associate of the employer paragraph 51(a) will not apply. Paragraph 51(b) also will not apply as neither the employer, nor an associate of the employer incur expenditure to the provider.

Therefore, paragraph 51(c) apples and the taxable value is 'the notional value of the recipients current benefit reduced by the amount of the recipient's contribution insofar as it relates to the recipients current benefit'. Subsection 136(1) of the FBTAA defines the term 'notional value' to mean:

. . . the amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arm's length transaction.

Guidance on how to determine the 'notional value' of a property fringe benefit is contained in Taxation Determination TD 93/231 Fringe benefits tax: what is an acceptable method for determining the 'notional value' of a property fringe benefit for the purpose of sections 42 and 43 of the Fringe Benefits Tax Assessment Act 1986? and paragraphs 2 to 4 of Taxation Determination TD 93/231 state

To ascertain the 'notional value' of a property fringe benefit the employer must determine the amount the employee would have to pay for a comparable (on the basis of age, type and condition) benefit under an arm's length transaction.

This Office will accept a number of ways of obtaining the notional value including:

- the price of comparable goods advertised in local newspapers and/or relevant magazines or similar publications;

- the price paid for comparable goods at a public auction;

- the price of comparable goods at a second-hand store; or

- the market value of the goods determined by a qualified valuer.

The lowest value obtained using any of these methods will be acceptable.

Although this Taxation Determination relates to the 'notional value' of a property fringe benefit it can also be used to calculate the 'notional value' of a residual fringe benefit.

In this case the benefit being provided to an employee is the use of equipment with the employee being required to pay $X to gain access. The restriction being that the employee can only use the equipment while they are employed with the employer. In addition they can only use it while the employer maintains their contract with the provider.

In other words the access to the equipment is part of the employer's arms length arrangement between the provider and for the employee to use it the employer must maintain their agreement with the provider. If the employer's agreement didn't exist there is no evidence to suggest that the employees would still be available to gain access to the equipment for $X

What we need to work out what under an arms length transaction the employee would be able to buy (at a restricted level) access to the equipment if the agreement between the provider and the employer didn't exist. In what a person would have to pay under an arm's length agreement it would be reasonable to conclude that it would be less than the price for full use.

In applying TD 93/231, a search of prices shows that the equipment can be acquired in less restricted circumstances to the HUP for use for less than $300. Therefore it would be reasonable to conclude that a more restricted use could be obtained for less than $300.

Therefore although it is not accepted that the notional value is $X it is reasonable to conclude that it is less than $300.

Is it unreasonable to treat the benefit as a fringe benefit?

As stated above the five criteria are:

o the infrequency and irregularity with which associated identical or similar benefits are provided;

o the sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit;

o the sum of the notional taxable values of any other associated benefits;

o the practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits; and

o the circumstances surrounding the provision of the minor benefit and any associated benefits.

For the purposes of the minor benefits exemption the term 'associated benefits' is defined in subsection 58P(2) of the FBTAA to mean a benefit that is any of the following:

o identical or similar to the minor benefit;

o provided in connection with the provision of the minor benefit; or

o identical or similar to a benefit provided in connection with the provision of the minor benefit.

Once the employee gains access to the equipment there are no further benefits provided of a similar nature or in connection with the benefit. There are no associated benefits to be considered when examining the criteria listed under paragraph 58P (1) (f) of the FBTAA.

The benefit provided in HUP is a once off benefit. Even if the employee does receive the use of other equipment it would not be provided on a frequent or regular basis.

As the employee deals directly with the provider the employer may not be aware of which employee will be using the equipment at any given moment but the notional taxable value would be the same for each employee.

The benefit is not provided to assist with an unexpected event but as it is available to all employees it cannot be seen as being in the nature of remuneration.

Therefore in looking at the facts of this case and the application of section 58P of the FBTAA it would be unreasonable to treat the benefit as a fringe benefit ,so the second dot point in paragraph 8 of TR 2007/12 is also satisfied.

Conclusion

As both dot points in TR 2007/12 have been satisfied the provision of the equipment under the HUP is exempt under section 58P of the FBTAA

As the benefit is an exempt benefit, then as per paragraph (g) of the definition of a fringe benefit contained in subsection 136(1) of the FBTAA, the benefit is not a fringe benefit.

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