Edited version of your private ruling

Authorisation Number: 1012472373494

Ruling

Subject: FBT: minor exempt benefits

Question 1

Will the provision of vouchers valued at $XX per voucher be an exempt minor benefit under subsection 58P(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

1 April 2015 to 31 March 2016

The scheme commenced on

1 January 2013.

Relevant facts and circumstances

1. The business commenced trading recently.

2. This scheme or arrangement commenced from 1 January 2013.

3. The employer currently operates shops in a state of Australia.

4. This is the only non-cash benefit provided to employees.

5. The employer has acquired Y vouchers at $XX per voucher.

6. To achieve better sales revenue, these vouchers are distributed to shops that meet sales targets.

7. Each shop that meets the quarterly sales target will be issued with a number of vouchers. Generally, this equates to 1 voucher per employee every three months.

8. There are XX employees. Each shop is of equal size and generally has Y employees.

9. Z vouchers can be issued per shop per year.

10. An employee can receive a number of vouchers per fringe benefit year, valued at $XX.

11. Shops that don't meet the sales targets will have their share of vouchers carried forward in the pool of vouchers.

12. Any future shop expansion plans will mean the same proportionate distribution of particular vouchers will occur in a FBT year dependant on meeting sales targets.

13. The employees are largely unskilled.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 58P(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 58P(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Summary

The provision of vouchers to employees, during the current year of tax, is an exempt minor benefit under subsection 58P(1) of the Fringe Benefits Tax Assessment Act 1986.

Detailed reasoning

For the purposes of this ruling the relevant paragraph in the definition of a 'fringe benefit' contained in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), 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 subsection 58P(1) of the FBTAA are satisfied.

Subsection 58P(1) of the FBTAA states:

Where:

(a) a benefit (in this section called a 'minor benefit') is provided in, or in respect of, a year of tax (in this section called the 'current year of tax') in respect of the employment of an employee of an employer;

(b) the benefit is not an airline transport benefit;

(c) in the case of an expense payment benefit, a property benefit or a residual benefit - if the minor benefit were an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit, as the case may be, in relation to the employer, the expense payment fringe benefit, the property fringe benefit or the residual fringe benefit, as the case requires, would not be an in-house fringe benefit;

(d) in the case of a tax-exempt body entertainment benefit where the provider incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision of entertainment to the employee or an associate of the employee:

(i) the provision of entertainment to the employee or the associate of the employee, as the case may be:

(A) is incidental to the provision of entertainment to outsiders; and

(B) neither consists of, nor is provided in connection with, the provision of a meal (other than a meal consisting of light refreshments) to the employee or the associate of the employee, as the case may be; or

(ii) the entertainment is provided to the employee or the associate of the employee, as the case may be:

(a) on eligible premises of the employer; and

(b) solely as a means of recognising the special achievements of the employee in a matter relating to the employment of the employee;

(e) the notional taxable value of the minor benefit in relation to the current year of tax is less than $300; and

(f) having regard to:

(i) the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to:

(A) the minor benefit; or

(B) benefits provided in connection with the provision of the minor benefit;

have been or can reasonably be expected to be provided;

(ii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of the minor benefit and any associated benefits, being benefits that are identical or similar to the minor benefit, in relation to the current year of tax or any other year of tax;

(iii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of any other associated benefits in relation to the current year of tax or any other year of tax;

(iv) the practical difficulty for the employer in determining the notional taxable values in relation to the current year of tax of:

(A) if the minor benefit is not a car benefit - the minor benefit; and

(B) if there are any associated benefits that are not car benefits - those associated benefits; and

(v) the circumstances surrounding the provision of the minor benefit and any associated benefits including, but without limiting the generality of the foregoing:

(A) whether the benefit concerned was provided to assist the employee to deal with an unexpected event; and

(B) whether the benefit concerned was provided otherwise than wholly or principally by way of a reward for services rendered, or to be rendered, by the employee;

it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefit in relation to the employer in relation to the current year of tax;

the minor benefit is an exempt benefit in relation to the current year of tax.

The Commissioner's view on the application of section 58P of the FBTAA is provided in Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12).

In your case, the provision of vouchers to employees would be classified as a property benefit (if it were a fringe benefit) and not subject to the minor benefits exemption test.

A benefit (minor benefit) that is provided to employees in an employment relationship, in the current year of tax, falls within paragraph 58P(1)(a) of the FBTAA.

The benefit that arises from the provision of particular vouchers will be an exempt minor benefit if:

(i) the benefit does not fall into paragraphs 58P(1)(b) to (d) of the FBTAA inclusive;

(ii) the notional taxable value of the benefit is less than $300 (paragraph 58P(1)(e); and

(iii) it can be concluded on the basis of the factors listed in paragraph 58P(1)(f) of the FBTAA that it would be unreasonable to treat the benefit as a fringe benefit.

First requirement:

There are certain benefits that are specifically excluded from subsection 58P(1) of the FBTAA. These benefits are:

· airline transport benefits;

· expense payment benefits where, if the benefit was an expense payment fringe benefit, it would be an in-house fringe benefit;

· property benefits where, if the benefit was a property fringe benefit, it would be an in-house fringe benefit; and

· residual benefits where, if the benefit was a residual fringe benefit, it would be an in-house fringe benefit.

Furthermore, where:

· a tax-exempt body entertainment is provided, and

· the provider incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision of entertainment to an employee or an associate of the employee,

such benefits are excluded from consideration for exemption under subsection 58P(1) of the FBTAA.

The provisions under paragraphs 58P(1)(b) to (d) of the FBTAA are now considered, with regards to the provision of particular vouchers.

The employer provides vouchers to their employees (usually a particular number per shop) whose shop meets sales targets.

The provision of vouchers by an employer, to their employees will not be an airline transport benefit.

The minor benefit will not be an in-house expense payment, property or a residual benefit as they are not providing the same goods and services supplied to their clients to their employees. The prospective minor benefit it is not an in-house benefit under expense payment, property or a residual benefit.

Moreover, the employer is not a tax exempt body and therefore does not provide entertainment to its employees.

Paragraphs 58P(1)(b) to (d) of the FBTAA are not satisfied. The employer is a standard employer for FBT purposes and satisfies the first requirement to meeting the minor exempt benefits provisions.

Second Requirement:

As stated in the facts of the arrangement, each voucher an employee receives is valued at $XX Each voucher is a minor benefit. The maximum number of vouchers an employee can receive per FBT year is four and therefore the maximum value of the benefit per employee per FBT year is $XX.

The notional taxable value (NTV) outlined in paragraph 58P(1)(e) of the FBTAA, is the taxable value of the minor benefit (as if it were a fringe benefit) and calculated accordingly under the relevant FBTAA divisions. In most cases, the NTV of the minor benefit will be what the employer has incurred in obtaining the benefit.

In this case, the NTV is what the employer paid to receive the particular vouchers from a third party in an arms length transaction that is $XX per voucher. As stated an employee may receive a maximum of four vouchers per FBT year. As each voucher is an equivalent benefit, their values are totalled in determining if the $300 minor benefits limit has been exceeded.

Therefore, the notional taxable value of each potential minor benefit is less than $300 per employee in the current FBT year of tax. Hence the requirement under paragraph 58P(1)(e) of the FBTAA is met.

Third Requirement:

Finally, paragraph 58P(1)(f) of the FBTAA states it would be unreasonable, having regard to the five specified factors, to treat the minor benefit as a fringe benefit, in the current year of tax. The five factors (conditions) being:

Infrequency and irregularity with which associated identical or similar benefits are provided (subparagraph 58P(1)(f)(i) of the FBTAA)

An employee will not get a voucher every quarter; unless the shop meets the sales targets.

'Associated benefits' are defined in subsection 58P(2) of the FBTAA. Generally, these benefits are identical or similar to the benefit provided or provided in connection with the minor benefit. For example, a taxi fare to go to the cinema theatre would be an associated benefit.

'Infrequent' and 'irregular' are not defined terms and take their ordinary meaning. Generally infrequent means at long intervals and irregular means not characterised by any fixed intervals.

In your case, the vouchers are the only non-cash benefits provided to employees, no associated benefits are provided, and provided a maximum of four times a FBT year. Therefore their provision is considered 'infrequent and irregular', and this condition is met.

Sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit (subparagraph 58P(1)(f)(ii) of the FBTAA).

The value of the vouchers is $XX each. The sum of the NTV of the minor benefits is valued at a maximum of $XX per employee per FBT year, which is below the threshold.

This amount is not substantial. Therefore, this condition is met.

Sum of the notional taxable values of any other associated benefits (subparagraph 58P(1)(f)(iii) of the FBTAA)

There are no associated benefits provided. Therefore, this condition is met.

Practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits (subparagraph 58P(1)(f)(iv) of the FBTAA)

The employer has little difficulty in calculating the NTV of the vouchers provided to employees. vouchers are acquired for $XX per voucher.

Therefore, this condition is not met.

Circumstances surrounding the provision of the minor benefit and any associated benefits (subparagraph 58P(1)(f)(v) of the FBTAA)

Lastly, it is accepted that each employee receives this non-cash benefit by way of a reward for services rendered by performing duties as required by their employer.

The particular vouchers are not provided to assist the employee deal with an unexpected event. Therefore, this condition is met.

In conclusion, taking into account all the factors discussed earlier, it would be unreasonable to treat the provision of vouchers to employees, who meet the shops sales targets, as a fringe benefit, under paragraph 58P(1)(f) of the FBTAA.

Therefore the minor benefit is an exempt benefit in relation to the current year of tax.

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