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This edited version has been archived due to the length of time since original publication.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 written advice

Authorisation Number: 1013048992211

Date of advice: 11 July 2016

Ruling

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

Question 1

Is an Accessory 1 considered to be a portable electronic device in accordance with subsection 58X(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Would an Accessory 1 provided under arrangement one be primarily for use in the employee's employment?

Answer

Yes

Question 3

Would an Accessory 1 provided under arrangement two be primarily for use in the employee's employment?

Answer

Yes

Question 4

Does an Accessory 1 have substantially identical functions to an Accessory 2 for the purposes of subsection 58X(3) of the FBTAA?

Answer

No

This ruling applies for the following periods:

In a number of Fringe Benefits Tax Years commencing in the year ending 20xx

The scheme commences on:

In the year ended 20xx

Relevant facts and circumstances

The arrangement

You intend to provide an Accessory 2 and subsequently an Accessory 1 to your employee during the same Fringe Benefits Tax (FBT) year.

The Accessory and Accessory 1will be provided under either of the two following arrangements:

Arrangement 1:

You purchase both the Accessory 2 and Accessory 1and provide them to the employee.

When you provide the items to the employee, the items become the property of the employee.

The employee will arrange their own service provider and is responsible for paying the bill for the service use.

Arrangement 2:

You enter into an effective salary sacrifice arrangement (SSA) with your employee in accordance with the meaning provided by Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/10).

Under the terms of the SSA your employee will purchase an Accessory 2 and Accessory 1 in the same FBT year and you will reimburse the employee for the cost of the items. The reimbursement for both items will occur in the same FBT year.

The employee will arrange their own service provider and is responsible for paying the bill for the service use.

Employee Duties of Employment

As part of their duties of employment the employee is required to travel between multiple worksites multiple times per day and liaise on a constant basis with other members of their team.

You have stated that the use of the Accessory 1 will allow them to stay easily contactable whilst travelling between workplaces and the use of the Accessory 1 and Accessory 2 together will enable the employee to schedule meetings, respond to work related emails and conduct phone or video link ups while at various sites.

The employee will use the Accessory 1 and Accessory 2 to connect to the employer's environment and access data such as calendar, appointments, email, messaging, and contacts.

The employer is currently trialling the use of wearable technology for various benefits relating to efficiency gains and occupational health and safety. You require your employee to use the Accessory 1 to participate in and report on the testing.

You have procedures in place that restrict and control the employee's use of their electronic devices.

Accessory 1 Features

This ruling is restricted to consideration of the Accessory 1 as advertised for sale in Australia in June 20xx. Later updates to the features of the Accessory 1 may change the answers to this ruling and the questions would need to be reconsidered.

The relevant Australian website (website provided) provides the following information about the Accessory 1 currently available in Australia in June 20xx (information can be obtained through general information displayed, the video 'Guided Tours and the Accessory 1 User Guide):

Relevant legislative provisions

Fringe Benefits Assessment Act 1986 subsection 20(b)

Fringe Benefits Assessment Act 1986 section 40

Fringe Benefits Assessment Act 1986 section 58X

Reasons for decision

Question 1

Is an Accessory 1considered to be a portable electronic device in accordance with subsection 58X(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The Accessory 1 is a portable electronic device according to subsection 58X(2) of the FBTAA.

Detailed Reasoning

You intend to provide an Accessory 2 and Accessory 1 to your employee during the same FBT year. The items will be provided under one of two arrangements. Under arrangement one, you will purchase the items and provide them to the employee. Under the second arrangement you will enter into an effective SSA with the employee in accordance with TR 2001/10 and the employee will purchase an Accessory 2 and Accessory 1 and you will reimburse the employee for the cost of the items (in the same FBT year). Under either arrangement the two items will be the property of the employee and may or may not be purchased at the same time and included on the same invoice. The employee will arrange their own service provider and payment arrangement for use of the items under either arrangement.

Under arrangement one you will be providing your employee with a property benefit in accordance with section 40 of the FBTAA.

Under arrangement two you will be providing your employee with an expense payment benefit in accordance with subsection 20(b) of the FBTAA.

Section 58X of the FBTAA provides an FBT exemption for certain eligible work related items that are provided by an employer to an employee as a property, expense payment or residual benefit.

Subsection 58X(1) states:

Subsections 58X(2) and 58X(3) of the FBTAA provide limitations on the subsection 58X(1) exemption. They state:

That is, a property, expense payment or residual benefit provided by an employer to an employee, in respect of the employee's employment, will be an exempt benefit if:

As detailed above, subject to subsection 58X(3) of the FBTAA and the requirement that the item is primarily for use in the employee's employment, items that fall into one of the categories listed in paragraphs 58X(2)(a) to 58X(2)(e) of the FBTAA are considered to be eligible work related items for the purposes of section 58X of the FBTAA.

Regarding the list of eligible work related items provided by paragraphs 58X(2)(a) to 58X(2)(e), of the types of items listed, the most applicable to the Accessory 1is the 'portable electronic device'.

Is the Accessory 1 a 'portable electronic device'?

The term 'portable electronic device is not defined in the FBTAA.

The ATO has considered the meaning of a 'portable electronic device' and provided an explanation of the phrase in Chapter 20 of the publication Fringe benefits tax - a guide for employers (FBT Guide for Employers)(NAT 1054) which states:

A portable electronic device is a device that is all of the following:

ATO Interpretative Decision ATOID 2008/133 Fringe Benefits Tax Exempt Benefits: work related items - a portable electronic device (ATOID 2008/133) provides further guidance on the meaning of 'portable electronic device' for the purposes of paragraph 58X(2) of the FBTAA in the context of considering whether a GPS navigation system is a portable electronic device. ATO ID 2008/133 states:

The list in subsection 58X(2) of the FBTAA is as follows:

The Accessory 1 is easily portable and designed for use away from an office environment, small and light, can operate without an external power supply and is designed as a complete unit. It is a similar device to the types of devices listed in the FBT Guide for Employers and ATO ID 2008/133. The current model Accessory 1 as advertised for sale in Australia in June 20xx is a portable electronic device for the purposes of paragraph 58X(2)(a) of the FBTAA.

Question 2

Would an Accessory 1 provided under arrangement one be primarily for use in the employee's employment?

Summary

The intended use of the Accessory 1provided under arrangement one is to enable the employee to be easily contactable while travelling and to test the benefits of wearable technology. It is reasonable to conclude that the intended use of the Accessory 1 is primarily for use in the employee's employment.

Detailed Reasoning

Section 58X(2) of the FBTAA requires that for an item that is a portable electronic device according to paragraph 58X(2)(a) of the FBTAA to meet the definition of an 'eligible work related item' the device must be primarily for use in the employee's employment.

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 this context. In discussing whether a laptop computer was 'primarily for use in the employee's employment' ATO ID 2008/127 states:

The Explanatory Memorandum for Tax Laws Amendment (Small Business Measures No.3) Bill 2015 provides further guidance:

Work-related use test

To summarise, to determine whether an item is 'primarily for use in the employee's employment' for the purposes of applying section 58X of the FBTAA, the relevant consideration is the intended use of the item at the time the benefit is provided to the employee, as opposed to a retrospective consideration of how the item has actually been used.

As discussed in ATO ID 2008/127 and the Explanatory Memorandum for Tax Laws Amendment (Small Business Measures No.3) Bill 2015 it is considered reasonable to conclude that the intended use of an item is primarily in the employee's employment based on the employees job description, duty statement or employment description or, where there are competing work and private uses, the following factors can assist:

You have stated that you intend to provide the Accessory 1 to your employee who is required as part of their duties of employment to travel between multiple worksites multiple times per day and liaise on a constant basis with other members of their team. The Accessory 1 is being provided to allow the employee to stay easily contactable whilst travelling between workplaces and the use of the Accessory 1 and Accessory together will enable the employee to schedule meetings, respond to work related emails and conduct phone or video link ups while at various sites.

The employee will use the Accessory 1 and Accessory 2 to connect to the employer's environment and access data such as calendar, appointments, email, messaging, and contacts.

The employer is currently trialling the use of wearable technology for various benefits relating to efficiency gains and occupational health and safety. You require your employee to use the Accessory 1to participate in and report on the testing.

You have procedures in place that restrict and control the employee's use of their electronic devices.

We consider that it is reasonable to conclude that the intended use of the Accessory 1is primarily for use in the employee's employment. The Accessory 1 is a portable electronic device that is primarily for use in the employee's employment and is therefore an 'eligible work related item' in accordance with the requirements of subsection 58X(2) of the FBTAA (subject to 58X(3) of the FBTAA).

Question 3

Would an Accessory 1 provided under arrangement two be primarily for use in the employee's employment?

Summary

The intended use of the Accessory 1 provided under arrangement two is to enable the employee to be easily contactable while travelling and to test the benefits of wearable technology. It is reasonable to conclude that the intended use of the Accessory 1 is primarily for use in the employee's employment.

Detailed Reasoning

Under arrangement two you enter into an effective salary sacrifice arrangement (SSA) with your employee in accordance with the meaning provided by Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/10).

Under the terms of the SSA your employee will purchase an Accessory 2 and Accessory 1 and you will reimburse the employee for the cost of the items. The reimbursement for both items will occur in the same FBT year.

Refer to the reasoning in question two above. As discussed in question two, in determining whether an item is 'primarily for use in the employee's employment' for the purposes of applying section 58X of the FBTAA, the relevant consideration is the intended use of the item at the time the benefit is provided to the employee. Whether the benefit is provided through a salary sacrifice arrangement or not does not change the employee's intended use at the time the benefit is provided and has no impact on this determination.

The same reasoning as discussed in question two above can be applied to conclude that the Accessory 1, when provided under arrangement two, is a portable electronic device that is primarily for use in the employee's employment and is therefore an 'eligible work related item' in accordance with the requirements of subsection 58X(2) of the FBTAA (subject to 58X(3) of the FBTAA).

Question 4

Does an Accessory 1 have substantially identical functions to an Accessory 2 for the purposes of subsection 58X(3) of the FBTAA?

Summary

An Accessory 1 does not have substantially identical functions to an Accessory 2 for the purposes of subsection 58X(3) of the FBTAA.

Detailed Reasoning

You intend to provide an Accessory 2 and Accessory 1 to your employee in the same FBT year as either expense payment or property benefits. An Accessory 2 is a portable electronic device that will be an eligible work related item in accordance with subsection 58X(2) of the FBTAA where it is provided primarily for use in the employee's employment. As concluded above the Accessory 1 is also a subsection 58X(2) eligible work related item in these circumstances.

As discussed in question one above, the classification of an item as an eligible work related item under subsection 58X(2) of the FBTAA is subject to subsection 58X(3) of the FBTAA. 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 subsequent item has substantially identical functions to the first.

Subsection 58X(3) states:

58X(3) [Later Items]

In summarising, subsection 58X(3) will only allow the Accessory 1 to be considered an eligible work related item if it does not have substantially identical functions to the Accessory 2.

The term 'substantially identical functions' is not defined in the FBTAA.

The meaning of 'substantially identical functions' in the context of subsection 58X(3) is discussed in the FBT Guide for Employers which states:

Substantially identical functions

Example - Items do not have substantially identical functions

The meaning of 'substantially identical functions' in the context of subsection 58X(3) has also been considered in numerous National Tax Liaison Group Fringe Benefits Tax Subcommittee meetings (NTLG FBT Subcommittee Meeting), the minutes of which provide some further guidance.

In the meeting of ddmmyy the ATO discussed the difficulties that can arise in resolving this question. The minutes state:

In the meeting of ddmmyy the ATO provided guidance consistent with the discussion comparing laptops and tablets in the FBT Guide for Employers. The minutes state:

Considering the guidance above, it is important to reiterate that it is the design functions of the two items that must be compared, not their intended uses. Further, features which do not impact on an item's function such as colour, shape and design are not generally relevant when considering whether items have substantially identical functions. That is, if it was the case that an employee intended to only use the Accessory 1and Accessory in exactly the same way, limiting the use to the functions in common, this would not be a determining factor in making a conclusion that the items actually have substantially identical functions.

The FBT Guide for Employers and the Minutes of the ddmmyy NTLG FBT Subcommittee Meeting compare tablets and laptops and consider the following relevant factors to conclude that the items specifically considered in their examples do not have substantially identical functions for the purposes of subsection 58X(3) of the FBTAA:

Crucially, the Accessory 1 as it is advertised for sale in Australia in June 20xx:

We consider that the Accessory 1 as it is currently advertised for sale in Australia in June 20xx compared with the Accessory 2 is analogous to the iPad/tablet and laptop examples discussed in the FBT Guide for Employers and the Minutes of the ddmmyy NTLG FBT Subcommittee Meeting. The Accessory 1 must be paired with and in the vicinity of an Accessory 2 or later model to perform all of its functions whereas the Accessory 2 can perform all of its functions independently to any other devices. Even when paired with the Accessory 2, the Accessory 1 has limited functionality in comparison to the full functionality of the Accessory 2. Particularly considering the Accessory 1's ability to display messages and emails and its significantly limited ability to respond to or compose messages and emails, it appears that the Accessory 1 is designed as a means of communication and media consumption rather than creation. Given these differences and the fact that the Accessory 1 must be paired with the Accessory 2, it would not be accepted that the Accessory 1 was designed to replace an Accessory 2. Considering these factors it is our conclusion that the Accessory 1 as it is currently advertised for sale in Australia in June 20xx does not have substantially identical functions to the Accessory 2 for the purposes of subsection 58X(3) of the FBTAA.

For your information

From the commencement of the period covered by this ruling subsection 58X(4) limits the application of subsection 58X(3) to not have effect where the later item is a replacement for the earlier item. The subsection 58X(4) limitation has been broadened with effect from 20xx and applicable in relation to the 20xx-yy FBT year and later FBT years and states:

58X(4) However, subsection (3) does not apply if:

That is, for the 20xx-yy or later FBT years, if you are a small business entity according to paragraph 58X(4)(b) of the FBTAA, portable electronic devices provided in accordance with section 58X of the FBTAA will be exempt without requiring consideration of the subsection 58X(3) substantially identical functions test.


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