Edited version of your written advice

Authorisation Number: 1051520507023

NOTICE

This edited version has been found to be misleading or incorrect. It does not represent the ATO’s view of the relevant law.

This notice must not be taken to imply anything about:

● the binding nature of the private advice issued to the applicant

● the correctness of other edited versions.

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 24 May 2019

Ruling

Subject: Fringe benefits tax – minor benefits

Question 1

Will the provision of discounted goods and services by the external supplier to employees of the employer give rise to a fringe benefit pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Do property fringe benefits arise pursuant to section 40 and subsection 136(1) of the FBTAA?

Answer

Yes

Question 3

Do residual fringe benefits arise pursuant to section 45 and subsection 136(1) of the FBTAA?

Answer

Yes

Question 4

Will the payment for access to the external supplier’s portal by the employer for its employees constitute a fringe benefit pursuant to subsection 136(1) of the FBTAA?

Answer

No

Question 5

If the answer to Question 4 is No, can an objection be lodged under section 78A of the FBTAA in respect of assessments outside of the three year limit?

Answer

Yes

This ruling applies for the following periods

Year ended 31 March 2019

Year ended 31 March 2020

Year ended 31 March 2021

Year ended 31 March 2022

The scheme commenced on

1 April 2015

Relevant facts

The employer entered into an arrangement with an external supplier to provide a rewards program to each of the employer’s Full Time, Part Time or Contract (exceeding 12 months) employees. The employer has been paying fringe benefits tax on the program on the basis that the benefit was paid quarterly and not annually. The Rewards program is referred to in recruitment advertising for positions with the employer but not included in signed offers of employment.

The earlier Agreement between the employer and the external supplier was for a rolling two year term while the later document is for an annual term with renewal contracts required each year. No further documents have been signed. It is the employer’s intent to keep the arrangement flexible by limiting the term to twelve months and is actively reviewing options for replacing the current arrangement.

The service allows employees of the employer to access an external web portal/site, which allows employees of the employer to access a range of goods and services at a discounted price.

Employees who choose to purchase goods and services will deal directly with the external supplier and the featured businesses in a personal capacity.

The employer does not negotiate any of the discounted rates and terms with the external supplier.

The employer does not receive any commission or other incentives from the supplier of the service.

The employer pays less than $300 per employee per annum, paid by quarterly instalments for the program.

Once payment has been made by the employer, there is no obligation whatsoever upon the employees to access or use the site. It is completely at the employee’s discretion and not all employees take advantage of the offer.

The employer will not know or be involved with any decision by the employee to utilise the web portal/site.

The external supplier provides the same services to the general public and other organisations.

None of the exempt benefits covered by Part III of the FBTAA will apply in the event that an employee of the employer is provided with a good or service that the employee purchases on the external supplier’s portal at a discount.

The discounted goods and services are not provided under a salary sacrifice arrangement.

Once an employee of the employer ceases employment with the employer, that employee will no longer have access to the external web portal site.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 40

Fringe Benefits Tax Assessment Act 1986 Section 42

Fringe Benefits Tax Assessment Act 1986 Section 43

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Section 48

Fringe Benefits Tax Assessment Act 1986 Section 49

Fringe Benefits Tax Assessment Act 1986 Section 50

Fringe Benefits Tax Assessment Act 1986 Section 51

Fringe Benefits Tax Assessment Act 1986 Section 58P

Fringe Benefits Tax Assessment Act 1986 Section 74

Fringe Benefits Tax Assessment Act 1986 Section 78A

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 148(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 149

Taxation Administration Act 1953 Subsection 14ZW(1)(aaa)

Reasons for decision

Question 1

Will the provision of discounted goods and services by the external supplier to employees of the employer give rise to a fringe benefit pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

The definition of ‘fringe benefit’ is provided in subsection 136(1) of the FBTAA:

in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

(i) the employer or an associate of the employer; and

(ii) the arranger or another person; or

(ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer:

(i) participates in or facilitates the provision or receipt of the benefit; or

(ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;

and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

in respect of the employment of the employee, but does not include:

(f) …

(g) a benefit that is an exempt benefit in relation to the year of tax; or

…

(s)…

In order to determine whether the provision of discounted goods and services to employees of the employer constitutes a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA, a discussion is provided below in respect of whether each element or condition of the definition of a fringe benefit is satisfied.

A benefit is provided

Subsection 136(1) of the FBTAA provides a broad definition of a ‘benefit’ as including:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property: …

‘Provide’ is defined in subsection 136(1) as:

(a) in relation to a benefit – includes allow, confer, give, grant or perform; and

(b) in relation to property – means dispose of (whether by sale, gift, declaration of trust or otherwise);

(i) if the property is a beneficial interest in property but does not include legal ownership – the beneficial interest; or

(ii) in any other case – the legal ownership of the property.

Upon payment by the employer of a fee to the external supplier, each employee of the employer is able to access the external supplier’s portal/site. Once logged into the portal, each employee of the employer is presented with a number of goods and services that are able to be purchased as a discount.

Therefore, for the purposes of the FBTAA, a benefit will only be provided when an employee of the employer accesses the external supplier’s portal and purchase a discounted good and/or service.

As such, the provision of a benefit in the definition of a ‘fringe benefit’, as defined in subsection 136(1) of the FBTAA, is satisfied.

The benefit is provided to an employee or an associate of the employee

An ‘employee’ is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee.

Based on the facts provided, only employees of the employer are entitled to access the external supplier’s portal.

In FC of T v Indooroopilly Children Services (QLD) Pty Ltd [2007] FCAFC 16, it was held that references to ‘the employee’ throughout the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA were to a particular employee, the identity of whom is known with sufficient particularity at the time a benefit is provided to that employee. This principle was also held in Essenbourne Pty Ltd v FC of T 2002 ATC 5201 (Essenbourne).

At the time a benefit (being the receipt by an employee of a good or service that they purchased at a discount through the external supplier’s portal) is provided to an employee of the employer, the identity of that employee would be known.

Therefore, as the benefit is provided to certain (identifiable) employees of the employer, the benefit is provided to an employee, which satisfies the definition of a ‘fringe benefit’, as defined in subsection 136(1) of the FBTAA.

The benefit is provided by an employer, an associate of the employer or a third party

‘Employer’ is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer.

This element of the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA would be satisfied if, as per paragraph (e) of the definition, the relevant benefit is provided by a person (the ‘arranger’) other than the employer or an associate of the employer under an arrangement between the employer (or an associate of the employer) and the arranger. For the purposes of paragraph (e) of the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA, an ‘arrangement’ as defined in paragraph (a) of the definition of an ‘arrangement’ in subsection 136(1) of the FBTAA is:

any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, by legal proceedings…

The agreement between the employer and the external supplier, (the ‘arranger’/third party) under the proposed scheme, whereby the external provider will provide access to their online portal for employees of the employer to purchase discounted goods or services in return for the payment by the employer of a fee to the external provider, is an arrangement within the definition of an ‘arrangement’ in subsection 136(1) of the FBTAA.

Therefore, as the benefit (being the receipt by an employee of a good or service that they purchased at a discount through the external supplier’s portal) is provided by a third party (the external supplier) under an arrangement it entered into with the employer, the condition in the definition of a ‘fringe benefit’ that a benefit is provided by an employer, an associate of the employer or a third party under an arrangement with an employer, is satisfied.

The benefit is provided in respect of the employment of the employee

As per subsection 136(1) of the FBTAA, ‘in respect of’ in relation to the employment of an employee includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee:

● whether or not the benefit also relates to some other matter or thing

● whether the employment is past, present or future

● whether or not the benefit is surplus to the recipient’s requirements

● whether or not the benefit is also provided to another person

● whether or not the benefit is offset by any inconvenience or disadvantage

● whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment

● whether or not the provision of the benefit is in the nature of income, and

● whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles), the full Federal Court, in examining the meaning of ‘in respect of’ an employee’s employment, held that the phrase required a ‘nexus, some discernible and rational link, between the benefit and employment’, though noted that ‘what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment’. A similar view was also held in Essenbourne.

The full Federal Court in Knowles also suggested that it would be useful to ask ‘whether the benefit is a product or incident of the employment’.

The connection between the benefit(s) that would be received by an employee of the employer (if they choose to exercise their right to access the external supplier’s portal and purchase a discounted good or service) and their employment would be material and sufficient, and not merely causal. If it were not for the employees’ employment with the employer and the arrangement between the employer and the external supplier, the employees of the employer would not be entitled to access any benefit (being the purchase of the goods or services at a discount).

On the basis of the above, a benefit provided to an employee of the employer would be considered to be ‘in respect of the employee’s employment’.

As such, the condition that a benefit is provided in respect of the employment of the employee in the definition of a ‘fringe benefit’ is satisfied.

The benefit is not excluded from the definition of fringe benefit

A benefit which comes within paragraphs (f) to (s) of the ‘fringe benefits’ definition in subsection 136(1) of the FBTAA is excluded from being a fringe benefit. Relevantly, paragraph (g) excludes a benefit that is an exempt benefit from being a fringe benefit.

As per the facts of the proposed scheme, none of the exempt benefits covered in Part III of the FBTAA will apply in the event an employee of the employer is provide with a good or service that the employee purchases on the external supplier’s portal at a discount.

As such, the condition that the benefit is not excluded from the definition of a ‘fringe benefit’ is satisfied.

Each of the conditions of the definition of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA are satisfied. Therefore, the provision of discounted goods and services by the external supplier to employees of the employer will give rise to a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA.

Question 2

Do property fringe benefits arise pursuant to section 40 and subsection 136(1) of the FBTAA?

Under subsection 136(1) and section 40 of the FBTAA, a ‘property benefit’ will arise when a person provides property to another person. The term ‘provide’ is defined in subsection 136(1) of the FBTAA in relation to property to mean:

dispose of (whether by sale, gift, declaration of trust or otherwise):

(i) if the property is a beneficial interest in property but does not include legal ownership – the beneficial interest; or

(ii) in any other case – the legal ownership of the property.

‘Property’ is defined in subsection 136(1) of the FBTAA to mean intangible property and tangible property.

According to the Fringe benefits tax – a guide for employers publication, a property fringe benefit arises when an employer provides an employee with free or discounted property. It further states the ‘property’ includes:

● goods (including gas and electricity, unless provided through a reticulation system) and animals

● real property, such as land and buildings, and

● rights to property, such as shares or bonds.

As goods (not services) constitute tangible property for the purposes of the FBTAA, only the provision of discounted goods by the external supplier to employees of the employer constitute the provision of property benefits for the purposes of section 40 of the FBTAA.

A property fringe benefit is defined in subsection 136(1) of the FBTAA as ‘a fringe benefit that is a property benefit.’ As explained above, the benefits provided are fringe benefits and are property benefits, therefore they are property fringe benefits.

Valuation of property fringe benefits

The methods used to value a property fringe benefit are contained in sections 42 and 43 of the FBTAA. Section 42 applies if the property fringe benefit is an ‘in-house’ property fringe benefit and section 43 applies if the property fringe benefit is an ‘external’ property fringe benefit.

An ‘in-house property fringe benefit’ is defined in subsection 136(1) of the FBTAA as follows:

in-house property fringe benefit, in relation to an employer, means a property fringe benefit in relation to the employer in respect of tangible property;

(a) where both of the following conditions are satisfied:

(i) the provider is the employer or an associate of the employer; and

(ii) at or about the provision tie, the provider carried on a business that consisted of or included the provision of identical or similar property principally to outsiders; or

(b) where all of the following conditions are satisfied:

(i) the provider is not the employer or an associate of the employer;

(ii) the property was acquired by the provider from the employer or an associate of the employer (which employer of associate in this definition called the seller): and

(iii) at or about the provision time, both the provider and the seller carried on a business that consisted of or included the provision of identical or similar property principally to outsiders.

‘Provider’ is defined in subsection 136(1) of the FBTAA as ‘the person who provides the benefit’.

The provider in the scheme is therefore the external supplier and as such, paragraph (a) of the definition of ‘in-house property fringe benefit’ in subsection 136(1) of the FBTAA is not satisfied.

Paragraph (b) of the definition on ‘in-house property fringe benefit’ in subsection 136(1) of the FBTAA is also not satisfied as the property will not be acquired by the provider (the external supplier) from the employer.

The provision of the property is therefore not an ‘in-house property fringe benefit’.

An ‘external property fringe benefit’ is defined in subsection 136(1) as:

in relation to an employer, means a property fringe benefit in relation to the employer other than an in-house property fringe benefit.

Therefore, the taxable value of the property fringe benefit that would arise from the provision of a good/product to an employee of the employer who purchases that good/product at a discount through the external supplier’s online portal will be determined in accordance with section 43 of the FBTAA.

Section 43 of the FBTAA provides three alternate valuation methods. The appropriate valuation method depends upon whether the provider is the employer or an associate of the employer and whether the employer incurs expenditure in relation to the provision of the property.

Section 43 of the FBTAA states:

Subject to this Part, the taxable value of an external property fringe benefit in relation to an employer in relation to a year of tax is:

(a) where the provider was the employer or an associate of the employer and the recipients property was purchased by the provider under an arm’s length transaction at or about the provision time- the cost price of the recipients property to the provider;

(b) where the provider was not the employer or an associate of the employer and the employer, or an associate of the employer, incurred expenditure to the provider under an arm’s length transaction in respect of the provision of the property – the amount of that expenditure; or

(c) in any other case – the notional value of the recipients property at the provision time;

reduced by the amount of the recipients contribution.

Paragraph (a) in section 43 of the FBTAA would not apply in the scheme, as the provider, being the external supplier, is not the employer or an associate of the employer. Further, paragraph (b) in section 43 of the FBTAA does not apply as the employer does not incur expenditure to the provider (the external supplier) in relation to the provision of a good/product to an employee of the employer.

Therefore, the taxable value of property fringe benefits provided to employees of the employer are determined under paragraph (c) in section 43 of the FBTAA.

‘Notional value’ is defined in subsection 136(1) of the FBTAA to mean:

The amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arm’s length transaction.

Guidance for determining this amount is provide by Taxation Determination TD 93/231 Fringe benefits tax: what is an acceptable method for determining the ‘notional value’ of a property fringe benefit for the purposes of section 42 and 43 of the Fringe Benefits Tax Assessment Act 1986? (TD 93/231).

Paragraphs two to five of TD 93/231 state:

2. To ascertain the ‘notional value’ of a property fringe benefit the employer must determine the amount the employee would have to pay for a comparable (on the basis of age, type and condition) benefit under an arm’s length transaction.

3. This Office will accept a number of ways of obtaining the notional value including:

- the price of comparable goods advertised in local newspapers and/or relevant magazines or similar publications,

- the price paid for comparable goods at a public auction,

- the price of comparable goods at a second-hand store, or

- the market value of the goods determined by a qualified valuer.

4. The lowest value obtained using any of these methods will be acceptable.

5. Valuation methods which are not acceptable to this Office include the lease residual value, the tax written value or the ‘best offer’ made by an employee.

In Walstern v. Federal Commissioner of Taxation [2003] FCA 1428; (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423, Hill J in discussing notional value stated at ATC 5092:

As already noted, the valuation formula depends upon the ‘notional value’ in relation to the provision whether of property or of a benefit to each of the Medichs. From the definition it follows that the question to be asked is what is the amount that each of the Medichs could reasonably be expected to have been required to pay to obtain the benefit from the provider under an arm’s length transaction. The provider in the present case is Walstern. Hence the question in relation to Mr Ronald Medich, is how much he could reasonably be expected to have been required (i.e., by Walstern) to pay to Walstern to obtain the interest obtained by him in the fund, assuming the transaction between Walstern and him to be at arm’s length.

Therefore, the notional value of an external property fringe benefit that arises from the provision of a good/product to an employee of the employer who purchases that good/product at a discount through the external supplier’s online portal will be the amount that the employee could reasonably be expected to have been required to pay the external supplier for that good/product.

As the external supplier’s discounted goods/products are available for sale and will be available to all employees of the employer, the notional value of the external property fringe benefit would therefore be the amount an employee of the employer would pay for a good(s)/product(s), after taking into account the discount.

‘Recipient’s contribution’ is defined in subsection 136(1) of the FBTAA as:

(a) in relation to a car parking fringe benefit, a property fringe benefit, a residual fringe benefit or a board fringe benefit, being a fringe benefit provided in respect of the employment of an employee of an employer, means the amount of any consideration paid to the provider or to the employer by the recipient or by the employee in respect of the provision of the recipients parking, the recipients property, the recipients benefit or the recipients meal, as the case may be, reduced by the amount of any reimbursement paid to the recipient in respect of that consideration; and…

Therefore, under the scheme, the taxable value of an external value of an external property fringe benefit will be nil as the employee of the employer will make a recipient’s contribution equal to the taxable value of the discounted good/product.

Question 3

Do residual fringe benefits arise pursuant to section 45 and subsection 136(1) of the FBTAA?

As discussed in question 2, the provision of discounted goods by the external supplier to employees of the employer constitutes the provision of property benefits for the purposes of section 40 of the FBTAA. With respect to the provision of discounted services by the external supplier, the most relevant type of benefit is a residual fringe benefit.

Section 45 of the FBTAA states:

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of subdivision A of Divisions 2 to 11 (inclusive).

According to the Fringe benefits tax – a guide for employers publication, a residual fringe benefit could include the provision of services (such as travel or professional or manual work).

As the provision of discounted services (not goods) by the external supplier to employees of the employer are not benefits pursuant to Divisions 2 to 11 of the FBTAA, they constitute the provision of residual benefits pursuant to section 45 of the FBTAA.

Subsection 136(1) of the FBTAA defines a residual fringe benefit as a ‘..fringe benefit that is a residual benefit.’ As explained at Question 1, the provision of the discounted services is a fringe benefit. Therefore, the provision of the discounted services is a residual fringe benefit.

Valuation of residual fringe benefits

The taxable value of a residual fringe benefit that arises under the scheme will be calculated in accordance with the valuation rules provided by section 48 to 51 of the FBTAA. These sections provide different valuation rules depending upon whether the residual benefit is:

(a) in-house non-period residual fringe benefit (section 48 of the FBTAA)

(b) in-house period residual fringe benefit (section 49 of the FBTAA)

(c) external non-period residual fringe benefit (section 50 of the FBTAA), or

(d) external period residual fringe benefit (section 51 of the FBTAA).

Broadly, an ‘in-house residual fringe benefit’ is a residual benefit provided by an employer or associate of the employer as part of their business activities. An ‘external residual fringe benefit’ is a benefit that is not an in-house residual fringe benefit.

The distinction between a ‘period’ and a ‘non-period’ residual fringe benefit depends on the definition of ‘period residual fringe benefit’ in subsection 136(1) and section 149 of the FBTAA.

A ‘period residual fringe benefit’ is defined as a residual fringe benefit that is provided during a period. Under subsection 149(1) of the FBTAA, a benefit is taken to be provided during a period if, and only if, it is provided and subsists during a period of more than one day and is not deemed to be provided at a particular time or on a particular day. The effect of this is that, generally, where a residual fringe benefit is provided and subsists for more than one day, it is a period residual fringe benefit.

The relevant benefit (being the provision of a discounted service(s) by the external supplier to employees of the employer) constitutes an external fringe benefit, as the benefit is not provided by the employer or an associate of the employer as part of its business activities. Therefore, sections 48 and 49 of the FBTAA do not apply to the scheme.

The provision of a discounted service(s) by the external supplier to employees of the employer occurs during a period of more than one day. Therefore, the benefit is an external period residual fringe benefit.

The valuation rules relating to an external period residual fringe benefit is set out in section 51 of the FBTAA:

Subject to this Part, the taxable value of an external period residual fringe benefit in relation to an employer in relation to a tear of tax is:

(a) where the provider was the employer or an associate of the employer and the recipients overall benefit was purchased by the provider under an arm’s length transaction – the amount paid or payable by the provider in respect of the recipients current benefit;

(b) where the provider was not the employer or an associate of the employer and the employer, or an associate of the employer, incurred expenditure to the provider under an arm’s length transaction in respect of the provision of the recipients current benefit – the amount of that expenditure; or

(c) in any other case – the notional value of the recipients current benefit;

reduced by the amount of the recipients contribution insofar as it relates to the recipients current benefit.

The provider of a discounted service(s) is not the employer, nor does the employer incur expenditure to the provider. Hence, paragraph (c) applies.

Notional value is defined in question 2 above. The notional value of an external period residual benefit that will arise from the provision of a service to an employee of the employer who purchases that service at a discount through the external supplier’s online portal will be the amount that the employee could reasonably be expected to have been required to pay the external supplier for that service.

As the external supplier’s discounted services are available for sale and are available to all employees of the employer, the notional value of the external period residual benefit is therefore the amount an employee of the employer paid for the service, after taking into account the discount.

Therefore, the taxable value of an external period residual fringe benefit will be nil as the employee of the employer makes a recipient’s contribution equal to the taxable value of the discounted services.

Question 4

Will the payment for access to the external supplier’s portal by the employer for its employees constitute a fringe benefit pursuant to subsection 136(1) of the FBTAA?

The definition of ‘fringe benefit’ as provided in subsection 136(1) of the FBTAA is included in question 1.

It is accepted that the payment by the employer for access to the external supplier’s portal will give rise to a benefit as defined in subsection 136(1) of the FBTAA.

The fringe benefit will be a taxable fringe benefit unless excluded by any of paragraphs (f) to (s) of the definition of ‘fringe benefit’ in subsection 136(1) of the FBTAA. One exclusion is paragraph (g) stating that an exempt benefit will not be a fringe benefit. An exempt benefit includes minor benefits under section 58P of the FBTAA. A benefit will be minor, and exempt, if its notional taxable value is less than $300 and it would be unreasonable to treat the minor benefit as a fringe benefit considering the criteria stated in subsection 58P(1)(f):

(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.

In summarising these requirements, the benefit that arises from the payment by the employer for access to the external supplier’s portal will be an exempt minor benefit if:

(i) the notional taxable value of the benefit is less than $300; and

(ii) 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 benefits as a fringe benefit.

Guidance as to the application of both of these requirements is provided in Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12).

(i) Is the notional taxable value of the benefit less than $300?

The definition of ‘notional taxable value’ in subsection 136(1) of the FBTAA provides that the ‘notional taxable value’ of the benefit that arises from the payment by the employer for access to the external supplier’s portal is the amount that would be the taxable value if the benefit was a fringe benefit.

The benefit will be a residual benefit under section 45 of the FBTAA as it is a benefit that does not fit within the specific categories contained in Divisions 2 to 11 of the FBTAA.

The method used to calculate the taxable value of a residual benefit depends upon whether the benefit is an in-house benefit and whether it is provided for a period of more than one day.

Will the provision of the payment by the employer for access to the external supplier’s portal be an in-house or external residual fringe benefit?

In general terms, an in-house residual benefit requires the employer or an associate of the employer to be carrying on a business that consists of, or includes the provision of identical or similar benefits principally to outsiders. As the employer does not carry on a business that consists of, or includes the provision of identical or similar benefits principally to outsiders, the benefit will be an external residual benefit.

Will the provision of the free membership be a period, or non-period residual fringe benefit?

The benefit will be provided for more than one day, and therefore the benefit will be an external period residual benefit.

The valuation of an external period residual fringe benefit

The methods that are used to calculate the taxable value of an external period residual benefit are contained within section 51 of the FBTAA which is stated above in question 3.

As the provider is neither the employer, nor an associate of the employer, paragraph 51(a) will not apply. Paragraph 51(b) will apply because the employer will incur expenditure to the external supplier.

The notional value of the payment by the employer for access to the external supplier’s portal is less than $300 per annum per employee.

Is the benefit specifically excluded from section 58P?

In-house fringe benefits and tax-exempt body entertainment benefits are specifically excluded from being minor benefits, and as the payment by the employer for access to the external supplier’s portal is not either of these types of benefits, it is not specifically excluded from section 58P of the FBTAA.

(ii) The criteria used to determine if it is unreasonable to treat the benefit as a fringe benefit

The infrequency and irregularity with which associated identical or similar benefits are provided

Paragraphs 187 to 189 of TR 2007/12 discuss what is meant by ‘associated benefits’.

Paragraph 188 states:

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.

Paragraph 189 goes on to state:

In addition:

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

● an associated benefit does not include a benefit that is an exempt benefit under any provision of the FBTAA other than this section (that is, section 58P).

Paragraph 190 explains what is meant by the phrase ‘in connection with’ as follows:

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 expenses payment benefit.

Paragraphs 200 to 208 discuss the terms ‘infrequent and irregular’ and ‘identical’ and ‘similar’ as follows:

200. The first criterion to be considered is the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to the minor benefit or benefits that are given in connection with the minor benefit, are provided, or can reasonably be expected to be provided.

201. It is important to note that although this is the first criterion listed, it is not the main, or only, criterion and ‘regard must be had to all factors, even if only to consider that a particular factor is irrelevant in the circumstances’.

202. ‘Infrequency and irregularity’ and ‘identical or similar’ are not defined in the FBTAA and therefore take their ordinary meaning.

203. The Macquarie Dictionary defines ‘infrequent’ as:

1. happening or occurring at long intervals or not often

2. not constant, habitual or regular

and ‘irregular’ as:

2. not characterised by any fixed principle, method or rate: irregular intervals

204. The Macquarie Dictionary defines ‘identical’ as:

1. (something followed by to or with) corresponding exactly in nature, appearance, manner, etc.: this leaf is identical to that.

2. The very same: I almost bought the identical dress you are wearing

and ‘similar’ as:

1. having a likeness or resemblance, especially in a general way.

205. The decision in the NAB case is of some assistance in interpreting the meaning of the words ‘infrequency and irregularity’, as they are used in section 58P. In reaching a conclusion under section 58P, Ryan J said that the notional taxable value of the minor benefit, being the travel by taxi on a particular day was ‘small’. Ryan J then held that:

… on a broad view of the matters specified in paragraphs (F) of s58P(i) of the Act I am not able to conclude that it would be unreasonable to treat the presumptively minor benefit provided to Mr Brewster on 29 March 1988 as a fringe benefit in relation to the relevant year of tax.

206. Ryan J was able to find, on the evidence, that the associated benefits, being each journey by taxi cab undertaken in similar circumstances in the relevant tax year, were provided infrequently or irregularly to the employee. This was based on the facts before Court, including the facts that the employees were ‘shift workers’ and that they were entitled to the provision of transport by taxi cab at the end of afternoon shifts, both before and after night shifts, and before and after weekend shifts.

207. In Case 2/96 the term ‘infrequent and irregular’ was considered further. The AAT stated:

27. We do not think that the examples set out in the Draft Taxation Determination TD 94/D33 are of much assistance. Those examples focus on the ‘infrequency and irregularity’ factors set out in the section. Example 1 would have it that one taxi fare home (costing between $10 and $15) in each month would be sufficiently frequent and regular [sic] we think that this example is unlikely to be correct. It seems to us that there is a clear distinction to be drawn between benefits which are isolated or rare and benefits which are infrequent and irregular, and that the worked examples may have equated these concepts.

28. Taxation Determination TD 93/76 issued on 29 April 1993 focus [sic] on each of the tests in 58P(1)(f) in relation to redeemable vouchers; we do not think that the worked examples are of assistance in the present case.

29. Nor do we consider that, while accepting that the relevant employees are not shift workers, the ‘balance of probabilities’ test contended for by the applicant can be the correct test; the wording of paragraph (f)(i) does not suggest to us that such a test was intended for this purpose. There were some employees who performed overtime work regularly, and must reasonably have expected that taxi fares would be provided; they would naturally have been aware of the fact that they were covered for this purpose by a relevant award.

…

34. The Tribunal has come to the conclusion having regard to the test laid down in section 58P(1) that a benefit and its associated like benefits will be minor if, in relation to any given employee and in respect of each FBT year, the number of Total Trips is less than 48, or, on a monthly averaging basis, less than 4 per month. This view (which is inevitably somewhat arbitrary) is based on the view that that number of trips is likely to be infrequent, and having regard to the evidence as to the ad hoc nature of the applicant’s requirements, irregular; further the employee could not reasonably have expected them.

208. Having regard to the above, it is clear that the words ‘infrequent and irregular’ do not mean ‘isolated or rare’.

The benefit provided is the quarterly payment by the employer for access to the external supplier’s portal. Associated identical or similar benefits are the waiving of the other three quarterly fees. The provision of the benefit is potentially regular, being every quarter.

The benefit will be provided infrequently, being four times a year. The later document is for an annual term, which provides a benefit on four occasions.

The sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit in the current year of tax or any other year of tax

This criterion is discussed at paragraphs 218 to 224 of TR 2007/12 which state:

218. The second criterion to be considered is 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 or any other year of tax.

219. This criterion addresses the situation where there are multiple occasions where identical or similar benefits are provided to an employee.

220. In the NAB case Ryan J found that:

The sum of the presumptively minor benefit and all the associated benefits to Mr Brewster both in the current year of tax (amounting on the evidence to about $8,000) was substantial in the current tax years and might reasonably be expected to be similarly substantial in subsequent tax years.

221. The greater the value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will qualify as an exempt benefit.

222. The value of the benefits in the current year as well as in any other year must be taken into account when determining the total value of benefits for the purposes of this criterion.

223. This will apply to identical or similar benefits that have been provided in the past and are likely to be provided in the future.

224. Even if the value of each benefit is below the minor benefits threshold, the sum of the values of the benefits provided, being identical benefits in the current year of tax, the previous year and those that are reasonably expected to be provided in the future, are all taken into consideration under this criterion.

The notional taxable value of the minor benefit will be the quarterly fee. Associated benefits which are similar or identical to the minor benefit are the other three quarterly fees. The sum of the notional taxable value of the minor benefit and associated benefits that are identical or similar to the minor benefit will be the sum of the four quarterly fees, or the annual fee of less than $300.

The agreement between the employer and the external supplier is on an annual basis. Therefore, for each agreement there are no associated benefits that are similar or identical in any other years of tax.

The sum of the notional taxable value of the minor benefit and associated benefits that are identical or similar to the minor benefit in the current year of tax and any other year of tax for an annual agreement is less than $300.

The sum of the notional taxable values of any other associated benefits in the current year of tax or any other year of tax

This criterion is discussed at paragraphs 225 to 231 of TR 2007/12 which state:

225. The third criterion to be considered is the amount that is, or might reasonably be expected to be, the sum of the notional taxable of any other associated benefits provided in relation to be current year of tax or any other year of tax.

226. Other associated benefits will include benefits which themselves may also be minor benefits.

227. This criterion has regard to any other associated benefits; that is, associated benefits which are not identical or similar to the minor benefit. This will include those associated benefits which are provided in connection with the minor benefits and benefits which are identical or similar to a benefit provided in connection with the minor benefit.

Example 16: other associated benefits

228. A meal, which is a minor benefit, is provided in connection with a night’s accommodation and taxi travel. Each benefit under these circumstances is a separate benefit.

229. The total of the taxable values of the night’s accommodation and taxi travel, and any other accommodation or taxi travel provided in the current year, in a previous year and those that are reasonably expected to be provided in the future must be considered.

230. The ‘any other accommodation and taxi travel’ being identified as associated benefits for this purpose do not have to be provided in connection with meals. They only have to be identical or similar benefits to the accommodation and taxi travel that is provided in connection with the meal (minor benefit).

231. The greater the total value of the other associated benefits, in this case being the accommodation and the taxi travel, the less likely it is that the minor benefit, being the meal, will qualify as an exempt benefit. The other criteria used to determine if it is unreasonable to treat the minor benefit as a fringe benefit would need to be considered before any conclusion could be reached that the benefit is a minor benefit.

There are no other associated benefits in the current year of tax or any other year of tax.

The practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits

There is no practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits. The notional taxable value of the minor benefit is the amount of the quarterly fee. The notional taxable value of associated benefits is also the amount of the quarterly fee for each of the other quarterly fee payments in an annual agreement.

The circumstances surrounding the provision of the minor benefit and any associated benefits, including whether it was provided to the employee to assist with an unexpected event, and whether it was wholly or principally as a reward for services rendered by the employee

Consideration of the circumstances surrounding the provision of the minor benefit, indicate that the free membership is not provided to assist an employee to deal with an unexpected event.

Whether a benefit has been provided wholly or principally for services rendered or to be rendered will depend on the circumstances.

In some instances it is clear the benefit has been provided wholly or principally for services rendered or to be rendered, where for example, an employee enters into a salary sacrifice arrangement (SSA), because the benefits have been provided in substitution for salary and wages.

Other instances are less clear and require a careful consideration of the facts as illustrated by the example in TR 2007/12 at paragraph 241:

241 …On the other hand, although a Christmas party provided to employees and their families may be considered to be a reward for services rendered or to be rendered, it would not necessarily be considered to have been provided wholly or principally by way of reward for services rendered or to be rendered by the employee.

The payment by the employer for access to the external supplier’s portal is not provided as part of a SSA. As it is not part of an SSA, it cannot be said the benefit was provided ‘wholly or principally’ as a reward for services rendered or considered to have been provided as a substitute for salary, wages or bonuses.

The benefit is not provided to assist with an unexpected event, nor is it provided as part of a SSA.

Conclusion

The benefit of the payment by the employer for access to the external supplier’s portal is infrequent, being four times a year, but may be regular being every quarter. For an annual agreement, the benefit will be provided four times.

The sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit in the current year of tax or any other year of tax will be the sum of the notional taxable value of the minor benefit, being the quarterly fee, added to the three other quarterly fees, an annual total of less than $300. The sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit in the current year of tax or any other year of tax is therefore below $300.

There are no other associated benefits to the minor benefit.

There will be no practical difficulties in determining the notional taxable values of the minor benefit and ant associated benefits.

The benefit is not provided to assist an employee to deal with an unexpected event, nor is it provided wholly or principally as a reward for services rendered or to be rendered.

On balance, having regard to the above factors, it is concluded that it would be unreasonable to treat the benefit as a fringe benefit. The benefit is accepted as an exempt minor benefit.

Question 5

If the answer to Question 4 is No, can an objection be lodged under section 78A of the FBTAA in respect of assessments outside of the three year limit?

A Fringe Benefits Tax (FBT) assessment may be amended within three years of the original assessment date, as stated in section 74 of the FBTAA:

74(1) The Commissioner may, at any time within a period of 3 years after the original assessment date in relation to an assessment, amend the assessment by making such alterations or additions to it as the Commissioner thinks necessary.

…

74(4) No amendment effecting a reduction in the liability of an employer under an assessment shall be made after the end of 3 years after the original assessment date.

An FBT assessment reducing FBT liability can only be amended within three years of the original assessment date.

Alternatively, an objection can be lodged against FBT assessments, as stated in section 78A of the FBTAA:

An employer who is dissatisfied with an assessment may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.

Subsection 14ZW(1) of the Taxation Administration Act 1953 (TAA) states the following:

Subject to this section, the person must lodge the taxation objection with the Commissioner within:

…

(aaa) if the taxation objection is made under section 78A of the Fringe Benefits Tax Assessment Act 1986 or former section 160AL of the Income Tax Assessment Act 1936 – 4 years after the notice of the taxation decision to which it relates has been given to the person;

Under subsection 14ZW(2) of the TAA, where the relevant period for lodging an objection has expired, a taxpayer can lodge an objection, together with a written request that the objection be dealt with as if it had been lodged in time. Further information about this is available in our web publication Application for extension of time to lodge an objection: Objections.

For an objection to be accepted, it must:

● be in writing

● be lodged with the Commissioner within certain time limits

● state the grounds for the objection fully and in detail.

Therefore, you are able to request an amended assessment to reduce your FBT liability within three years of the original assessment, or lodge an objection within four years of the original assessment. If it is outside the four year period, you can request that the objection is dealt with as if it had been lodged in time.

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