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Ruling

Subject: Fringe benefits tax - exempt benefits - provision of certain work related items

Question 1

Will the provision of a camera be an exempt benefit under section 58X of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Will the provision of a flash to be used with the camera be an exempt benefit under section 58X of the FBTAA?

Answer

Yes

Question 3

Will the provision of a macro camera lens to be used with the camera be an exempt benefit under section 58X of the FBTAA?

Answer

Yes

Question 4

Will the provision of a second macro camera lens to be used with the camera be an exempt benefit under section 58X of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

The scheme commences on:

Not yet commenced

Relevant facts and circumstances

You intend to purchase the following items ('the items') for your employee:

· a camera

· a flash unit

· a macro camera lens

· a second macro camera lens

Your employee will then have the purchase price of these items deducted from their salary over a period of time via a salary sacrifice arrangement.

The items will be used primarily for work-related use.

Your employee is required to take high-resolution macro photographs in the course of their employment.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 58X

Fringe Benefits Tax Assessment Act 1986 subsection 58X(2)

Fringe Benefits Tax Assessment Act 1986 subsection 58X(3)

Reasons for decision

Question 1

Will the provision of a camera be an exempt benefit under section 58X of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

You intend to purchase the following items ('the items') for your employee:

· a DSLR camera

· a flash unit

· a macro camera lens

· a second macro camera lens

Section 40 of the FBTAA sets out the circumstances where the purchase of an item will be a property benefit. Section 40 states:

Where, at a particular time, a person (in this section referred to as the provider) provides property to another person (in this sections referred to as the recipient), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

Each item you are purchasing and providing to your employee comes within the definition of 'intangible property' in subsection 136(1) of the FBTAA. Therefore, you will provide a property benefit when you provide these items to your employee.

A property benefit may be an exempt benefit if the item provided constitutes an eligible work related item for the purposes of section 58X of the FBTAA.

Section 58X states:

58X(1) [Exempt benefits]

Any of the following benefits provided by an employer to an employee of the employer in respect of the employee's employment is an exempt benefit:

a) an expense payment benefit where the recipients expenditure is in respect of an eligible work related item;

b) a property benefit where the recipients property is an eligible work related item;

c) a residual benefit where the recipients benefit consists of the making available of an eligible work related item.

In summarising, the benefits you are providing to your employee may be exempt under section 58X if the following conditions are satisfied:

1. you are providing a benefit to your employee

2. the benefit you are providing is in respect of your employee's employment

3. the benefit is either an expense payment benefit, a property benefit or a residual benefit

4. the benefit being provided is in respect of an eligible work related item

1. Are you providing a benefit to your employee?

As established above, the provision of the camera to your employee will constitute a property benefit.

2. Is the benefit in respect of your employee's employment?

You will be providing the camera to your employee in order to enable them to fulfil the duties of their employment. Your employee will be using the camera primarily for work related use. Thus, we accept that you are providing the benefit in respect of your employee's employment.

3. Is the benefit an expense payment benefit, a property benefit or a residual benefit?

As established above, the benefit is a property benefit.

4. Is the benefit provided in respect of an eligible work related item?

Subsection 58X(2) provides a definition of 'eligible work related items' for the purposes of applying section 58X.

Subsection 58X(2) states:

58X(2) [Eligible work related items]

Subject to subsection (3), each of the following is an eligible work related item if it is primarily for use in the employee's employment:

a) a portable electronic device;

b) an item of computer software;

c) an item of protective clothing;

d) a briefcase;

e) a tool of the trade

Therefore, to be considered to be an eligible work related item, the item must satisfy the following two requirements:

· be primarily for use in the employee's employment

· be one of the following:

· a portable electronic device

· an item of computer software

· an item of protective clothing

· a briefcase

· a tool of the trade

In regards to the first requirement, ATO Interpretative Decision ATO ID 2008/127 Fringe Benefits Tax Exempt Benefits: work related items - primarily for use in the employee's employment (ATO ID 2008/127), provides guidance in determining whether an item is primarily for use in the employee's employment. In discussing whether a laptop computer was 'primarily for use in the employee's employment' ATO ID 2008/127 states:

The word 'primarily' is not defined in the FBTAA, therefore it takes on its ordinary meaning. The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'primarily' as:

in the first place; chiefly; principally.

The employer in applying section 58X of the FBTAA is required to have a basis for concluding that the laptop computer is 'primarily for use in the employee's employment'. This conclusion is based on intended use at the time the benefit is provided to the employee that is, why the laptop computer was provided to an employee 'in the first place'.

There is no requirement to reach this conclusion by reference to usage which can only be ascertained retrospectively. Rather this conclusion is determined by reference to the available evidence at the time the benefit is provided.

The camera will be used in the employee's employment. You have stated an intention that the item will be used primarily in the employee's employment. Applying the principles of ATO ID 2008/127 we accept that item will be used primarily in the employee's employment.

Regarding the second requirement, of the types of items listed, the most applicable to the camera are the 'tool of the trade' and 'portable electronic device'.

Tool of the trade

The term 'tool of the trade' is not defined in the FBTAA. ATO Interpretative Decision ID 2006/248 Fringe Benefits Tax Exempt Benefits: work related item - tool of trade (ATO ID 2006/248) provides guidelines for interpreting the term in the context of the section 58X exemption.

ATO ID 2006/248 firstly discusses the meaning of the term 'tool' within the phrase 'tool of the trade' as follows:

The term 'tool of the 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:

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

2. any instrument of manual operation

ATO ID 2006/248 then discusses and applies the meaning of the phrase 'tool of the trade' as determined by the case Vaughn v Official Trustee in Bankruptcy (1996) 71 FCR 34; [1996] 1053 FCA 1 (Vaughn). ATO ID 2006/248 states:

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 the 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 considering the requirements listed above, ATO ID 2006/248 concluded that a scientist's microscope was a tool of the trade. ATO ID 2006/248 states:

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 'tool 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.

In summary, according to ATO ID 2006/248 an item will be a tool of the trade if it meets the following requirements:

· it is a thing dependant on manual operation to give effect to its purpose (although it can be electrically powered)

· it meets either of the following definitions provided by Vaughn:

1. it is a thing or a powered machine used to apply manual force to an object

2. it is a basic tool used in a particular occupation

You intend to purchase a camera for your employee. In considering the first requirement listed above as discussed in ATO ID 2006/248, the camera is dependant on manual operation to give effect to its purpose. In the course of their employment your employee is required to take high-resolution photographs. Therefore the DSLR camera meets the requirements of the second definition provided by Vaughn as a basic tool used in your employee's occupation.

We accept that the camera is an eligible work related item within the meaning of subsection 58X(2) as a tool of the trade and as such, it does not need to be considered whether the camera is a portable electronic device. As the camera is an eligible work related item and the other requirements of section 58X have been fulfilled, the provision of the camera as a property benefit will be an exempt benefit under section 58X if the FBTAA.

Question 2

Will the provision of a flash to be used with the camera be an exempt benefit under section 58X of the FBTAA?

You have stated without the external flash your employee could not take the accurate photographs that he is required to as part of his employment. Therefore the flash meets the requirements of the second Vaughn definition as a basic tool used in your employee's occupation.

By applying the reasoning discussed above, it can be concluded that the flash is a tool of the trade and that the requirements of section 58X are satisfied. Therefore we accept that the provision of this flash as a property benefit will be an exempt benefit under section 58X of the FBTAA.

Question 3

Will the provision of a macro camera lens to be used with a DSLR camera be an exempt benefit under section 58X of the FBTAA?

You have provided that the particular lens you intend to purchase is required as due to its functions it will enable your employee to take the type of detailed photographs they are required take in their employment. Therefore the lens meets the requirements of the second Vaughn definition as a basic tool used in your employee's occupation.

By applying the reasoning discussed above, it can be concluded that this lens is a tool of the trade and that the requirements of section 58X are satisfied. Therefore we accept that the provision of this lens as a property benefit will be an exempt benefit under section 58X of the FBTAA.

Question 4

Will the provision of a second macro camera lens to be used with a DSLR camera be an exempt benefit under section 58X of the FBTAA?

You have advised that the second lens you intend to provide for your employee will enable your employee to take a different type of photograph of a different subject matter than they would with the first lens. Therefore the lens meets the requirements of the second Vaughn definition as a basic tool used in your employee's occupation.

By applying the reasoning discussed above, it can be concluded that this lens is a tool of the trade in accordance with subsection 58X(2) of the FBTAA and that the requirements of section 58X are satisfied.

However, the classification of an item as an eligible work related item under subsection 58X(2) of the FBTAA is subject to subsection 58X(3). Subsection 58X(3) restricts the exemption for eligible work related items to only allow an exemption for one eligible work related item per year if the second or subsequent item has substantially identical functions to the first.

Subsection 58X(3) states:

58X(3) [Later items]

An item (the later item) listed in subsection (2) is not an eligible work related item if, earlier in the FBT year, an expense payment or a property benefit of the employee has arisen in relation to another item that has substantially identical functions to the later item.

58X(4) [Replacement items]

However, the rule in subsection (3) does not apply if the later item is a replacement for the other item.

Example:

The later item would be a replacement for the other item if the other item were lost or destroyed, or needed replacing because of developments in technology.

In summarising, subsection 58X(3) will only allow this second lens to be considered an eligible work related item if it is does not have substantially identical functions to the first lens discussed above at question three.

The term 'substantially identical functions' is not defined in the FBTAA. ATO Interpretative Decision ATO ID 2003/80 Capital Allowances identical or substantially identical depreciating assets (ATO ID 2003/80) provides some guidance as to how the phrase should be interpreted. Although ATO ID 2003/80 discussed the meaning of 'identical or substantially identical depreciating assets' for the purposes of paragraph 40-80(2)(d) of the Income Tax Assessment Act 1997 (ITAA 1997) its reasoning and conclusions are applicable to your situation as the phrase 'substantially identical functions' is used in the same way in the FBTAA as the similar phrase is used in the ITAA 1997.

ATO ID 2003/80 states:

Whether depreciating assets are identical or substantially identical is a question of fact. Assets are identical if they are the same in all respects. Assets are substantially identical if they are the same in most respects even though there may be some minor or incidental differences. Factors that need to be considered include colour shape, function, texture, composition, operation, brand and design. The weighting of each factor may vary from asset to asset.

Broadly speaking, the curtain, venetian blind and holland blind are similar because they are forms of window coverings. In that sense, their function is also similar because they provide privacy, control the amount of light entering the window and offer aesthetic qualities. However, these similarities in this case do not make the assets identical or even substantially identical.

The assets are different in a number of ways, some of which are more significant than others. The assets are of a different construction, operation and composition, they are of a different design and colour and they are for different rooms of the house that contain different window openings. The nature and extent of these differences support the view that they are neither identical nor substantially identical depreciating assets for the purpose of paragraph 40-80(2)(d) of the ITAA 1997.

Although the lenses may both serve the same or similar broad purpose, they have different magnifying capabilities and will be used for different purposes. The two lenses will assist your employee in taking the different photographs they require of the different subject matter that they are required to photograph.

Considering these factors with regard to the reasoning provided by ATO ID 2003/80 we consider that the two lenses you intend to provide to your employee are not substantially identical.

Therefore, we accept that the provision of this lens as a property benefit will be an exempt benefit under section 58X of the FBTAA.

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