Edited version of your written advice

Authorisation Number: 1051232483821

Date of advice: 5 June 2017

Ruling

Subject: Fringe Benefits Tax and Portable Electronic Devices

Question 1

Is an Accessory X a portable electronic device under paragraph 58X(2)(a) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes.

Question 2

Is measurement of use based on interaction with the Accessory X, rather than time worn, an appropriate method to determine whether the Accessory X is used primarily in the employee’s employment as required under paragraph 58X(2)(a) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No.

Question 3

If the Accessory X is a portable electronic device, is the provision of an Accessory X to a director in the circumstances outlined an exempt benefit under section 58X of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes.

This ruling applies for the following periods:

01/07/2016 to 30/06/2017

The scheme commences on:

01/07/2016

Relevant facts and circumstances

1. You are an Australian registered company, operating an accounting practice.

2. You have two directors, both of whom work in the practice and are employees. Their roles are to liaise with existing and prospective clients throughout the day, at your office, client offices or other agreed locations, supervise staff work performed and attend to the running of the practice.

3. You currently employ Y staff in addition to the directors.

4. Your directors provide their mobile phone numbers to clients and are regularly contacted on their mobile phones by clients throughout the work day.

5. You are proposing, for each of the 2 directors, to pay for an Accessory X each and provide this to the directors as a Fringe Benefit.

6. The Accessory X:

● is easily portable as it is designed to be worn on the wrist, and is waterproof and designed to be used away from an office environment

● is small and light, with a case weight (watch without a strap) of 52.4 grams

● has a built in battery for up to 18 hours of battery life

● is designed as a complete unit.

7. Each director currently owns a privately purchased Accessory X, however expects to update each Accessory X in the next 6 to 12 months.

8. The Accessory X has numerous functions, some of which are employment related, some of which are non-employment related.

9. The purpose of providing the Accessory X to the directors is to:

● allow the directors to maintain contact with all clients during client meetings without being intrusive

● ensure that meetings are running to schedule by monitoring the time

● allow simple checking of appointments when out of the office on work duties during the work day

● pay business expenses in store using the Accessory X, removing the need to carry the business credit card

● demonstrate the accounting applications on the Accessory X to existing and prospective clients

● receive notifications when clients perform certain tasks

● demonstrate to clients that you continue to lead the way with new technology

● unlock the directors’ computers when they return to their desk after being away.

10. The directors will use the Accessory X privately in order to:

● check the time out of work hours

● pay private expenses with a personal credit card using the Accessory X

● use a virtual assistant to set timers whilst cooking

● track exercise

● receive notifications from various applications.

11. The Accessory X will be available for work use for approximately 40 hours of the week and available for private use 65 hours per week.

12. Whilst the Accessory X will be worn in the hours above, actual interaction and direct use with the Accessory X is expected to be more than 50% work use. It is expected around 75% of the interaction time will be for work use and the remaining 25% for private use based on past experience of the directors.

13. You have not previously provided a similar accessory to the two directors in the Fringe Benefits Tax year.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 58X

Reasons for decision

Question 1

Is an Accessory X a portable electronic device under paragraph 58X(2)(a) of the Fringe Benefits Tax Assessment Act 1986?

Summary

An Accessory X is a portable electronic device under paragraph 58X(2)(a) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Detailed reasoning

Legislative Background

Section 40 of the FBTAA states:

Where, at a particular time, a person (in this section referred to as the provider) provides property to another person (in this section 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.

Section 58X of the FBTAA exempts certain work related items, including certain property benefits, from fringe benefits tax:

(1) 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.

(2) 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 trade.

(3) 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 benefit or a property benefit of the employee has arisen in relation to another item that has substantially identical functions to the later item.

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

(a) the later item is a replacement for the other item; or

(b) the later item is a portable electronic device, and the employer is a small business entity for:

(i) the year of income starting most recently after the start of the FBT year; or

(ii) the year of income ending most recently after the start of the FBT year.

Example:

For paragraph (a), 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.

ATO Interpretative Decision ATO ID 2008/133 Exempt Benefits: work related items - a portable electronic device gives the following guidance as to the meaning of 'portable electronic device’:

Taken together the dictionary meanings and characteristics of the previous listed items noted above indicate that the primary characteristics of 'a portable electronic device' for the purposes of this provision would be that the device is:

● easily portable and designed for use away from an office environment

● small and light

● can operate without an external power supply, and

● designed as a complete unit.

If a device has these characteristics it would be 'a portable electronic device' for the purposes of paragraph 58X(2)(a) of the FBTAA.

Analysis

The Accessory X is an item of property, which would be provided by you to your employees, the directors. As such, the provision of the Accessory X would be a property benefit under section 40 of the FBTAA.

The Accessory X has the following characteristics:

● It is easily portable as it is designed to be worn on the wrist, and is waterproof and designed to be used away from an office environment.

● It is small and light, with a case weight (watch without a strap) of 52.4 grams.

● It has a built in battery for up to 18 hours of battery life.

● It is designed as a complete unit.

These characteristics comply with the guidance provided by ATO ID 2008/133 for determining whether an item is 'a portable electronic device’ for the purpose of paragraph 58X(2)(a) of the FBTAA.

Conclusion

As such, the Accessory X is a portable electronic device for the purposes of paragraph 58X(2)(a) of the FBTAA.

Question 2

Is measurement of use based on interaction with the Accessory X, rather than time worn, an appropriate method to determine whether the Accessory X is used primarily in the employee’s employment as required under paragraph 58X(2)(a) of the Fringe Benefits Tax Assessment Act 1986?

Summary

Measurement of use based on interaction with the watch, rather than time worn, is not an appropriate method to determine whether the watch is used primarily in the employee’s employment as required under paragraph 58X(2)(a) of the FBTAA.

Detailed reasoning

Legislative Background

Sections 40 and 58X of the FBTAA are set out in the detailed reasoning for Question 1. Paragraphs 58X(1)(b) and 58X(2)(a) of the FBTAA together provide that a portable electronic device provided by an employer to an employee is exempted from fringe benefits tax where it is primarily for use in the employee's employment.

ATO Interpretative Decision ATO ID 2008/127 Exempt Benefits: work related items - primarily for use in the employee's employment provides the following guidance for determining whether a portable electronic device was provided primarily for use in an employee's employment:

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:

1. 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.

Generally, an employer will know whether a laptop computer is being provided chiefly or principally to enable the employee to undertake their employment duties. For example, the employee's job description, duty statement or employment contract can provide a basis for concluding that the laptop computer was primarily for business use.

Alternatively or in cases where it is evident that there are competing uses, in order to determine if the laptop computer is primarily for use in the employee's employment an employer could document such factors as:

● the reason or reasons the laptop computer was provided to the employee

● the type of work to be performed by the employee

● how the use of the laptop computer relates to the employee's employment duties and

● the employer's policy and any conditions relating to the use of a laptop computer.

The Explanatory Memorandum (EM 2015) for Tax Laws Amendment (Small Business Measures No.3) Bill 2015, which extended the work-related portable electronic devices exemption for small businesses, provides further guidance on when an item is 'primarily for use in an employee's employment’:

Work-related use test

3.15 An item is primarily for use in an employee's employment if it is provided principally to enable the employee to do their job. This is referred to as the 'work-related use test'.

3.16 When determining whether or not an item is primarily for use in an employee's employment, the decision is based on the employee's intended use at the time the benefit is provided to them. An employer does not have to look at the employee's actual usage over the FBT year to determine whether the item is used primarily in the employee's employment.

3.17 However, an employer must use a reasonable basis to determine whether an item is primarily for use in an employee's employment - for example, the employee's job description, duty statement or employment contract.

3.18 Alternatively, if an employer is aware that there may be private use of an item, they can document factors such as those listed below to determine whether the item is primarily for use in the employee's employment:

● the reason or reasons the item was provided to the employee; the type of work the employee will be performing; how the use of the item relates to the employee's employment duties; and

● the employer's policy and any conditions relating to the use of the item.

To summarise, a portable electronic device is 'primarily for use in an employee's employment’ if it is if it is provided principally to enable the employee to do their job. The decision of whether the device was provided on such a basis is based on the employee's intended use at the time the benefit is provided to them, as opposed to a retrospective consideration of how the item has actually been used. An employer must use a reasonable basis to determine whether an item is primarily for use in an employee's employment, documenting the factors relied upon where the employer is aware that there may be private use of the device.

Analysis

You expect that whilst the Accessory X will be worn for work use for approximately 40 hours of the week and for private use 65 hours per week, around 75% of the interaction time will be for work use and the remaining 25% for private use based on past experience of the directors. On this basis, you have stated that the Accessory X will be used primarily in the employee’s employment.

Subsection 58X(2) of the FBTAA states that a an item will be an eligible work related item (and as such an exempt benefit) if it is 'primarily for use in the employee’s employment’ [emphasis added]. The guidance in ATO ID 2008/127 and the EM 2015 indicates that the appropriate interpretation of 'primarily for use in the employee's employment’ is to look at the reasons for which an employer provided the portable electronic device, namely whether a device 'is being provided chiefly or principally to enable the employee to undertake their employment duties.’ ATO ID 2008/127 states:

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.

Under subsection 58X(2), there is no requirement that the actual or retrospective usage of a portable electronic device, such as Accessory X, be ascertained, based on interaction time or otherwise, in order to conclude that the device is primarily for use in the employee's employment.

Instead, such a conclusion can be based on evidence such as the employee's job description, duty statement or employment contract, or documentation of the reasons for the provision of a device as they relate to the type of work performed and duties undertaken by the employee and any policies or conditions for use of the device.

Conclusion

As such, measurement of use based on interaction with the watch is not appropriate method to determine whether the Accessory X is used primarily in the employee’s employment as required under paragraph 58X(2)(a) of the FBTAA.

Question 3

If the Accessory X is a portable electronic device, is the provision of an Accessory X to a director in the circumstances outlined an exempt benefit under section 58X of the Fringe Benefits Tax Assessment Act 1986?

Summary

As the Accessory X is a portable electronic device, the provision of an Accessory X to a director in the circumstances outlined is an exempt benefit under section 58X of the FBTAA.

Detailed reasoning

Section 58X of the FBTAA is set out in the Detailed Reasoning for Question 1.

As concluded in Question 1, an Accessory X is a portable electronic device for the purposes of paragraph 58X(2)(a). Where the Accessory X is primarily for use in the employee's employment, it will be an eligible work related item, and as such would be an exempt benefit under paragraph 58X(1)(b).

The guidance in ATO ID 2008/127 and EM 2015 for determining whether a work-related item is 'primarily for use in the employee's employment’ is set out in the Detailed Reasoning for Question 2.

You are providing Accessory X to your employees for a variety for work-related purposes, which relate to the work and duties of the employees. These purposes include:

● maintaining contact with all clients during client meetings without being intrusive

● ensuring meetings are running to schedule by monitoring the time

● allowing simple checking of appointments when out of the office on work duties during the work day

● paying business expenses in store using the Accessory X, removing the need to carry the business credit card

● demonstrating the accounting applications on the Accessory X to existing and prospective clients

● receiving notifications when clients perform certain tasks

● demonstrating to clients that you continue to lead the way with new technology

● unlocking the directors’ computer when they return to their desk after being away.

As per ATO ID 2008/127, you are chiefly or principally providing the Accessory X to your employees to enable the employees to undertake their employment duties.

As such, the Accessory X that you will provide to your directors will be primarily for use in the employee's employment, as per paragraph 58X(2)(a), and therefore be eligible work related items.

As property benefits that are eligible work related items, the Accessory X will be exempt benefits, as per paragraph 58X(1)(b).

Conclusion

The provision of an Accessory X to a director in the circumstances outlined is an exempt benefit under section 58X of the FBTAA.

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