Edited version of your written advice

Authorisation Number: 1012989590441

Date of advice: 29 March 2016

Ruling

Subject: Fringe benefits tax

Question 1

Are points considered to be property fringe benefits as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Does a fringe benefit arise at the time when points are awarded to an employee?

Answer

Yes

Question 3

If the answer to question 2 is no, does a fringe benefit arise at the time when the employee redeems the points?

Answer

Not applicable

Question 4

Can the minor benefits exemption under section 58P of the FBTAA apply to exempt points awarded to employees on an irregular and infrequent basis where on each occasion the value is less than $300?

Answer

Decline to rule

This ruling applies for the following periods:

Year ended 31 March 2016

Year ended 31 March 2017

Year ended 31 March 2018

Year ended 31 March 2019

Year ended 31 March 2020

The scheme commences on:

The scheme has commenced

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You launched an employee reward and recognition program.

Employees can be awarded 'points' which they can redeem for a selection of products, for example, merchandise or gift cards.

Any employee can nominate another employee or team for recognition. Nominations are referred to the employee's manager who determines whether and how many points should be awarded.

Each point is valued at $X. You can run regular reports that show all the points that have been credited to each employee.

Points cannot be redeemed for cash, or transferred to another employee.

There is no limit to the number of points an employee may accumulate however the points expire two years from the date that they are awarded.

Employees can unconditionally redeem points as soon as they are allocated up to the limit of their points balance while employed with you.

Employee service awards are granted through the program. Employees will receive points related to their years of service.

Employees do not pay tax on the points received.

You pay a third party for points redeemed by employees during the previous month.

You pay all other costs associated with the program including any applicable FBT that arises for employees who receive the rewards under the program.

Where an employee is given termination notice, he or she will be notified to redeem any unused points before his or her final day. After this you will freeze the employee's account and the employee will lose any unused points.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 40,

Fringe Benefits Tax Assessment Act 1986 section 58P,

Fringe Benefits Tax Assessment Act 1986 subsection 136(1),

Fringe Benefits Tax Assessment Act 1986 section 154,

Taxation Administration Act 1953 subsection 357-110(1) of Schedule 1 and

Taxation Administration Act 1953 subsection 359-5(1) of Schedule 1.

Reasons for decision

Questions 1 and 2

Summary

A property fringe benefit as defined in subsection 136(1) of the FBTAA will arise at the time when points are allocated to an employee.

Detailed reasoning

A property fringe benefit as defined in subsection 136(1) of the FBTAA means 'a fringe benefit that is a property benefit'.

A property benefit as defined in subsection 136(1) of the FBTAA means 'a benefit referred to in section 40, but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III'.

Under section 40 in Part III of the FBTAA, if an employee is provided with property, the provision of the property is taken to constitute a benefit provided to the employee at the time it is provided.

Where a person does anything which results in the creation of property in another person, section 154 of the FBTAA deems the property to be provided when it comes into existence.

Under the relevant definitions in subsection 136(1) of the FBTAA property can be tangible property and intangible property. Tangible property means:

goods and includes:

(a) animals, including fish; and

(b) gas and electricity.

Intangible property means real property, a chose in action and any other property that is not tangible property.

Under the program employees who receive points may unconditionally redeem those points to purchase merchandise or gift cards. Those points will be benefits and intangible property as defined in subsection 136(1) of the FBTAA. This is because they are not goods or any other form of tangible property as defined in the FBTAA and they will confer the employees with the right to obtain goods or services at the time that they are allocated.

The points will be the provision of a property benefit under section 40 of the FBTAA at the time that they are allocated to the employee. They will be a fringe benefit if you provide them to your employee in respect of his or her employment.

The phrase 'in respect of' in relation to the employment of an employee is defined in subsection 136(1) of the FBTAA 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. Federal Commissioner of Taxation (2000) 96 FCR 402; [2000] FCA 196; 2000 ATC 4151; (2000) 44 ATR 22 the Federal Court considered the meaning of in respect of employment in the FBTAA. The Court noted that what has to be established in determining if a benefit is in respect of employment is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment.

An employee will be awarded points as a result of being nominated by another employee for recognition and his or her manager determining whether and how many points should be awarded.

There is a direct and material relationship between the employee's employment and the provision of the points such that the points are provided in respect of employment.

To the extent that they are not exempt benefits under section 58P of the FBTAA, a property fringe benefit as defined in subsection 136(1) of the FBTAA will arise at the time when points are allocated to an employee.

Question 4

Summary

The Commissioner may decline to rule where the Commissioner considers that the correctness of a private ruling would depend on which assumptions are made about a future event or other matter.

Detailed reasoning

Subsection 359-5(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that:

The Commissioner may, on application, make a written ruling on the way in which the Commissioner considers a relevant provision applies or would apply to you in relation to a specified scheme. Such a ruling is called a private ruling.

For the Commissioner to rule on how a provision of the law applies to a taxpayer in relation to a particular scheme, we must know the relevant facts of the scheme.

The Commissioner can only rule on whether a particular benefit is an exempt benefit under section 58P of the FBTAA if the circumstances surrounding the provision of the benefit to the employee are known.

Under subsection 357-110(1) of Schedule 1 to the TAA:

If the Commissioner considers that the correctness of a private ruling or an oral ruling would depend on which assumptions are made about a future event or other matter, the Commissioner may:

(a) decline to make the ruling; or

(b) make such of the assumptions as the Commissioner considers to be most appropriate.

The Commissioner therefore declines to rule on whether the minor benefits exemption under section 58P of the FBTAA would apply to exempt points awarded to employees on an irregular and infrequent basis where on each occasion the value is less than $300.

Additional information

The following guidance on section 58P of the FBTAA is provided:

The Commissioner's view on the application of the minor benefits exemption is explained in Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits and in the ATO publication Fringe benefits tax - a guide for employers.

A benefit is an exempt benefit under section 58P of the FBTAA where:

• the notional taxable value of the benefit is less than $300 and

• it is considered that it is unreasonable to treat the benefit as a fringe benefit.

Generally there are five criteria which need to be considered when deciding if it would be unreasonable to treat a benefit as a minor benefit:

• the frequency and regularity with which associated benefits which are identical or similar to the benefit are provided

• the total of the notional values of the benefit and identical or similar benefits

• the likely total of the notional taxable values of other associated benefits

• the practical difficulty in determining what would be the notional taxable value of the benefit and any associated benefits

• the circumstances in which the benefit and any associated benefits were provided.

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

• identical or similar to the minor benefit

• provided in connection with the provision of the minor benefit or

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

In addition:

• the associated benefit and the minor benefit must relate to the same employment of a particular employee and

• a benefit that is an exempt benefit under another provision of the FBTAA will not be an associated benefit.

The circumstances in which a benefit will be provided in connection with the provision of the minor benefit are discussed in paragraphs 190 to 192 of TR 2007/12:

190. A benefit that is provided 'in connection with' the minor benefit is one that is provided in conjunction with the minor benefit. For example if accommodation, board and electricity benefits are provided in conjunction with the payment of minor telephone expenses, these benefits are provided in connection with the telephone expense payment benefit.

191. The term 'in connection with' is potentially wide but it is to be interpreted in the context of the statute in which it is contained: see Davies J in Hatfield v. Health Insurance Commission (1987) 15 FCR 487 at 491; 77 ALR 103 at 106-107. Wilcox J also stated in Our Town FM Pty Ltd v. Australian Broadcasting Tribunal (No. 1) (Our Town FM case) 16 FCR 465 at 479; 77 ALR 577 at 591-592 in the context of paragraph 5(1)(b) of the Administrative Decisions (Judicial Review) Act 1977 that:

The words 'in connection with' have a wide connotation, requiring merely a relation between one thing and another. They do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v. Miller (1958) 8 FCR 153 at 154, 160, 163.

192. In determining whether a benefit provided to an employee qualifies for the minor benefits exemption in section 58P, the criteria set out in paragraph 58P(1)(f) requires a consideration of any other associated benefits that have been provided before concluding whether it would be unreasonable to treat the minor benefit as a fringe benefit. Interpreting the words 'in connection with' broadly is consistent with the purpose of section 58P where it is necessary to consider all other benefits that have been provided in conjunction with the minor benefit to determine whether the exemption under section 58P applies.

As explained in the reasons for decision for questions 1 and 2, under the program employees will be provided with a property benefit each time that they are awarded points.

If the value of the points awarded on a particular occasion is less than $300, when you assess whether it would be unreasonable to treat that property benefit as a fringe benefit you must take into account other points that the employee has received during the year.

The following examples of employee incentive and recognition awards are provided in TR 2007/12:

Example 8: staff incentive scheme

88. An employer operates a monthly Sales Incentive Scheme for the benefit of its employees. Employees who achieve their monthly sales targets are rewarded with store vouchers having a face value of less than $300 which are redeemable for goods or services at the nearby shopping centre. There is an expectation from past experience that most employees will achieve this target.

89. An employee does achieve this target and is provided with a store voucher. The employee has achieved the target on a number of occasions and has received other store vouchers both in the current and previous years of tax.

90. The value of the store voucher is below the minor benefits threshold and therefore it is necessary to consider the criteria listed in paragraph 58P(1)(f) to determine if it would be unreasonable to treat the minor benefit as a fringe benefit.

91. Vouchers, which are identical or similar, can reasonably be expected to be provided to the employee on a frequent and regular basis.

92. Even though the value of each benefit is below the minor benefits threshold, the sum of the values of the associated benefits in this year and other years is considered to be substantial.

93. There would be no difficulties in determining the value of the benefit; the benefit was not provided to assist the employee deal with an unexpected event; and the benefit is wholly or principally a reward for services rendered.

94. On balance, having regard to the various criteria in paragraph 58P(1)(f), it would be concluded that it would not be unreasonable to treat the benefit as a fringe benefit.

95. Accordingly, the benefit provided to the employee is not an exempt benefit.

Example 9: staff recognition

96. An employer recognises the effort of an employee who has worked diligently over a period of time and who has met a particularly tight work project deadline. The benefit provided as a result of this recognition is not part of any formal staff incentive scheme.

97. The employer provides the employee with a store voucher with a value of less than $300.

98. The employee had also been recognised on another occasion in the current year and a previous year and was provided with similar store vouchers, each with a value of less than $300.

99. The value of the store voucher is below the minor benefits threshold and therefore it is necessary to consider the criteria listed in paragraph 58P(1)(f) to determine if it would be unreasonable to treat the minor benefit as a fringe benefit.

100. Due to the ad hoc nature of the recognition by the employer, vouchers which are identical or similar are not reasonably expected to be provided to that employee on a frequent and regular basis.

101. The sum of the values of the minor benefit and any associated benefits in this year and other years would not be substantial.

102. There would be no difficulties in determining the value of the benefit, the benefit is not provided to assist with an unexpected event and the benefit is provided wholly or principally as a reward for services rendered.

103. On balance, having regard to all of the criteria in paragraph 58P(1)(f), it would be concluded that it is unreasonable to treat the benefit as a fringe benefit.

104. Accordingly, the benefit provided to the employee is an exempt benefit.

When points are provided to your employees under the program you may choose to self-assess whether the benefits that arise are exempt benefits under section 58P of the FBTAA using the guidance provided in TR 2007/12.

If you encounter situations where you are uncertain about how benefits provided to a particular employee should be treated, you may consider applying for a separate private ruling on the application of section 58P of the FBTAA to the benefits provided to that particular employee.

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