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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012253246534

Ruling

Subject: Fringe benefits tax - minor benefits

Question 1

Is the payment of a fee a taxable fringe benefit pursuant to the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No. However, a fringe benefit may arise when an employee becomes a registered user.

Question 2

Will the benefit that arises from the employee being a registered user be an exempt benefit as a minor benefit pursuant to section 58P of the FBTAA?

Answer

A ruling can not be given in relation to this question as the answer will depend upon the factual circumstances. However, guidance to assist you is provided in the attached Reasons for decision.

Question 3

Are the discount benefits accruing to employees from accessing the Gateway and obtaining the discounts, special prices or rebate taxable fringe benefits pursuant to the FBTAA?

Answer

No

Question 4

If the answer to question 4 is yes, what is the taxable value of the benefit of discounts, special prices or rebate received by an employee?

Answer

Not applicable

Question 5

If the answer to question 3 is yes, what is the taxable value of any benefit of a rebate received by an employee?

Answer

Not applicable

This ruling applies for the following periods:

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

Relevant facts and circumstances

You are considering a proposal to enter into an arrangement with an unrelated party for the provision of an employee benefits program.

Under the proposal you will pay a set-up fee and an annual fee for various services including enabling employees access to discounts and special prices on a range of goods and services.

Under the proposal the unrelated organisation will ensure:

By using the Gateway, employees are able to receive discounts on the purchase of food, petrol, travel, insurance, mobile phones and fashion. The employee purchases the products directly from the retailer, and pays the retailer directly.

Alternatively, the employee may receive a cash rebate on their purchase. Under this arrangement the employee pays the full retail price to the retailer. The retailer pays the rebate being the discount otherwise receivable, into the employee's account where it can be withdrawn by the employee by directly transferring the balance to a bank account.

If an employee ceases employment with you, their account will remain open for a period of six weeks from their termination date to allow time to withdraw the rebate balance in their account.

Employees access the Gateway through the internet

To become a registered user an employee has to the validated. While the arrangements for doing this may vary between employer clients, generally the unrelated organisation will validate on first registration using a payroll number and then manage movements in employees by means of a regular (usually monthly) upload from the employer's payroll of all valid payroll.

Once a user is registered, log in is by username (email) and a password of at least 8 characters which the user must set.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 40

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Section 51

Fringe Benefits Tax Assessment Act 1986 Section 58P

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 149(1)

Reasons for decision

Will a fringe benefit arise from the arrangement?

A fringe benefit is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as follows:

This definition was considered by the Full Federal Court in Federal Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16; 2007 ATC 4236 (Indooroopilly) which concluded that a 'benefit' could only be a 'fringe benefit' if it was provided by one of four possible 'providers' to one of two possible 'recipients'.

The four possible providers as listed in paragraphs (c) to (ea) of the 'fringe benefit' definition are:

The two possible recipients are an employee or an associate of an employee.

The Full Court also concluded that where the identity of the employees capable of receiving the benefit at the time it was provided was not known at the 'provision time' then the benefit could not be a 'fringe benefit'.

Therefore, to determine whether a 'fringe benefit' will arise from the arrangement it is necessary to consider the following questions:

Will a 'benefit' be provided to an employee, or an associate of an employee?

If a 'benefit' is provided to an employee or an associate of an employee, is it provided by one of the four listed providers?

If a 'benefit' is provided to an employee or an associate of an employee by one of the four listed providers is it provided in respect of the employment of the employee?

If a 'benefit' is provided to an employee or an associate of an employee by one of the four listed providers and is provided in respect of the employment of the employee does it come within paragraphs (f) to (s) of the 'fringe benefit' definition?

Will a 'benefit' be provided to an employee, or an associate of an employee?

The term 'benefit' is defined in subsection 136(1) of the FBTAA to include:

Each of these can come within the definition of 'benefit' as money can be a 'property benefit', the provision of goods will be a 'property benefit' and the provision of services will be a 'residual benefit'.

In addition, the provision of the right to access the discounts and receive a rebate will be a 'benefit'.

Although each of these is a 'benefit', only some of them are provided to an employee, or an associate of an employee. They are:

The payment that you make to Unrelated organisation is a payment for services that Unrelated organisation will provide to you. As Unrelated organisation is not an employees, or an associate of an employee the payment of the fee does not involve the provision of a benefit to an employee or an associate of an employee. Therefore, it will not be a 'fringe benefit'. Similarly, the services provided to you by Unrelated organisation will not be a 'fringe benefit'.

Are the benefits provided to an employee provided by one of the four listed providers?

As set out above, the four listed providers are:

Each of the benefits is provided by Unrelated organisation which is neither the employer, nor an associate of the employer. Therefore, for the benefits to be a 'fringe benefit' the provision needs to come within either paragraph (e) or paragraph (ea) of the 'fringe benefit' definition.

In considering these paragraphs, the provision of the right to purchase goods and services at a discount and receive a Rebate will come within paragraph (e) as it is provided under an arrangement that you will have with Unrelated organisation.

The other two benefits will be provided by the retailer from whom the employee purchases the goods and/or services. As the transaction for the purchase of the goods and/or services is between the employee and the retailer without any employer involvement, paragraph (e) will not apply.

However, paragraph (ea) will apply as the employer in paying the fee and providing the employee details to Unrelated organisation is participating in, facilitating and promoting a scheme which the employer knows will enable participating employees to receive discounts and Rebate.

Therefore, each of the three identified benefits that may be provided to an employee or an associate of an employee under the arrangement will be provided by one of the four listed providers.

If a 'benefit' is provided to an employee or an associate of an employee by one of the four listed providers is it provided in respect of the employment of the employee?

The term 'in respect of' is defined in subsection 136(1) to include by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

In J & G Knowles & Associates Pty Ltd v. FCT 2000 ATC 4151; 44 ATR 22 (Knowles), the Full Federal Court in discussing whether a benefit was provided in respect of employment stated at ATC 4158:

While the width of the definition of 'fringe benefit' was designed to capture benefits that, in truth, were other than remuneration, the stated purpose suggests that asking whether the benefit is a product or incident of the employment will be helpful. If it is not then the benefit is likely to be extraneous to the employment and will not bear FBT, notwithstanding that the employment might have been a causal factor in the provision of the benefit.

The meaning of the term 'in respect of' was also considered in the context of the former paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936) by the Federal Court in Payne v. FC of T (1996) 66 FCR 299; 96 ATC 4407; (1996) 32 ATR 516 (Payne). In Payne, Mrs Payne joined a consumer loyalty program without her employer's knowledge. Mrs Payne was unable to cash in the flight reward (airline tickets) or transfer it to anyone else, but she was able to have the flight reward made out in the name of family members. The reward points Mrs Payne accrued from employer-paid travel (and some privately-paid travel) were used to acquire airline tickets in the name of her parents who travelled from England to visit her. The Commissioner assessed Mrs Payne on the value of the airline tickets that accrued from employer-paid travel. The Federal Court held Mrs Payne was not assessable in respect of the flight reward as she received the flight reward as a result of the personal contact she established with the airline on payment of the membership fee. In so doing, the Federal Court decided if there was a benefit given, it was given as a result of the personal contract between the taxpayer and the consumer loyalty program provider, notwithstanding the benefit arose as a 'consequence' of the employment.

In applying these decisions, the provision of the right to obtain the goods and services at a discount and a rebate has the necessary material connection with the employment of the employee as:

Therefore, the provision of the right is considered to be a benefit provided to an employee in respect of the employee's employment.

By contrast, the other benefits depend upon the employee being a registered user. Although this registration depends upon the user being an employee, the discounts, etc arise from the contractual rights the user receives on becoming a registered user.

In Taxation Ruling TR 1999/6 Income tax and fringe benefits tax: flight rewards received under frequent flyer and other similar consumer loyalty programs, it was concluded that flight rewards received under a consumer loyalty program, with two exceptions that do not exist in this arrangement were not subject to FBT as they result from a personal (that is, non-employment) contractual relationship.

In considering the views and reasoning set out in TR 1999/6, where the employee exercises the right as a registered user to purchase goods or services at a discount, the discount will arise from the personal contractual rights the employee has as a registered user, rather than from the employment relationship. Therefore, a fringe benefit will not arise from the benefits that arise from the purchase of goods and/or services at a discount and the receipt of a Rebate as these benefits are not provided in respect of the employment of the employee.

Does the entitlement to receive a discount and/or Rebate come within paragraphs (f) to (s) of the 'fringe benefit' definition?

For the purposes of this ruling the relevant paragraph to consider is paragraph (g) which provides that an exempt benefit will not be a fringe benefit.

A benefit that is a minor benefit will be an exempt benefit where the requirements of section 58P of the FBTAA are satisfied.

Section 58P states:

Guidance as to the application of both of these requirements is provided in Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12).

Was the notional taxable value of the minor benefit less than $300?

'Notional taxable value' is defined in subsection 136(1) of the FBTAA to mean:

That is, in calculating the 'notional taxable value' it is necessary to determine what the taxable value will be if the benefit is a 'fringe benefit'. The taxable value of a fringe benefit is established from a series of valuation rules contained within the FBTAA. To determine the appropriate method it is necessary to initially determine the type of benefit provided. For the purpose of this Ruling the most relevant benefits are property benefits and residual benefits.

Under section 40 a property benefit will arise when a person provides property to another person. The term 'provide' is defined in subsection 136(1) of the FBTAA in relation to property to mean:

In providing an employee with a right to obtain a discount, Unrelated organisation does not dispose of either a beneficial interest, or the legal ownership of property. Therefore, the benefit will not be a property benefit.

Accordingly, the benefit will be a residual benefit which is defined in section 45 of the FBTAA as being 'a benefit that is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive)'.

The taxable value of a residual fringe benefit will be calculated in accordance with the valuation rules provided by sections 48 to 51. These sections provide different valuation rules depending upon whether the residual benefit is:

Will the provision of the right be an in-house or external residual fringe benefit?

The definition of 'in-house residual fringe benefit' in subsection 136(1) provides different requirements depending upon whether the provider is the employer or an associate of the employer.

Where the provider is not the employer or an associate of the employer it is necessary to consider the application of paragraph (b) of the definition 'in-house residual fringe benefit' within subsection 136(1). For subparagraphs (b)(ii) and (iii) to be satisfied:

As neither of these requirements will be satisfied the provision of the right to obtain discounts and Rebate will not be an in-house residual fringe benefit.

Will the provision of the right be a period, or non-period residual fringe benefit?

In determining whether the benefit provided is a period benefit, subsection 149(1) states that a benefit shall be taken to be provided during a period if the benefit is provided during a period of more than one day and is not deemed by a provision of the FBTAA to be provided at a particular time or on a particular day. As the benefits are available for a period of more than one day the benefits will be a period residual benefit.

The valuation of an external period residual fringe benefit

Section 51 provides two alternative valuation rules for determining the taxable value of an external period residual fringe benefit that is not provided by the employer or an associate of the employer.

The relevant method will depend upon whether 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 benefit. Where the agreement involves the employer incurring expenditure in respect of the provision of the benefit the taxable value under paragraph 51(b) will be the amount of that expenditure.

As you will pay a fee to Unrelated organisation for the provision of the right to an employee, the taxable value of the benefit will be the amount paid to Unrelated organisation. Where this is less than $300 the requirements of paragraph 58P(1)(e) of the FBTAA will be met.

The criteria used to determine if it is unreasonable to treat the benefit as a fringe benefit

Infrequency and irregularity with which associated identical or similar benefits are provided

Paragraphs 187 to 189 of TR 2007/12 discuss what is meant by 'associated benefits':

Paragraph 188 states:

Paragraph 189 goes on to state:

Paragraph 190 explains what is meant by the phrase 'in connection with' as follows:

Paragraphs 200 to 208 discuss the terms 'infrequent and irregular' and 'identical' and 'similar' as follows:

From the information provided it appears the right will be provided once a year on an ongoing basis. This would be considered to be regular, but not frequent.

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

This criterion is discussed at paragraphs 218 to 224 of TR 2007/12 which state:

As discussed at paragraphs 215 to 217 of a benefit will be identical to another benefit when it is the same in all respects except for differences (if any) that are minimal or insignificant and do not affect the value of the other benefit. By contrast, a similar benefit as discussed in paragraph 204 of TR 2007/12 is a benefit that has a likeness or resemblance, especially in a general way.

As set out in paragraph 218 of TR 2007/12, this criterion requires a consideration of the sum of the taxable values in relation to both the current year and any other year of tax. From the information provided it is not possible to make a conclusion about this criterion as it is a question of fact for which no information has been provided.

Sum of the notional taxable values of any other associated benefits

This criterion is discussed at paragraphs 225 to 231 of TR 2007/12 which state:

As with the previous criteria it is not possible to make a conclusion about this criterion as it is a question of fact for which no information has been provided.

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

Given you know the amount paid for the right and know which employees have received the right there would appear to be no practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits.

Circumstances surrounding the provision of the minor benefit and any associated benefits

This criterion is discussed in paragraphs 236 to 244 of TR 2007/12. These paragraphs state:

In considering the two circumstances set out in subparagraph 58P(1)(f)(v) the provision of the benefits is not to assist the employee to deal with an unexpected event. However, it is noted that the purpose of the Agreement is stated as being:

This indicates the benefit may be being provided as a reward for services rendered.


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