Edited version of private advice

Authorisation Number: 1051523848710

Date of advice: 31 May 2019

Ruling

Subject: Exempt benefits

Question

If a safety award exceeds $200, but is less than $300, can the minor benefits exemption be utilised?

Answer

Yes

This ruling applies for the following period

1 April 2017 to 31 March 2020

The scheme commenced on

1 April 2017

Relevant facts

The employer currently operates a Safety Incentive Scheme which rewards staff annually with a voucher.

The value of the voucher is dependent on the number of points linked to safety objectives that have been achieved throughout the financial year. The voucher values are tiered, with a minimum amount of less than $200, and a maximum amount of between $200 and $300. The targets are contributed to by all staff together, and points are allocated globally.

There is no guarantee that points will be met or that vouchers will be issued, but there is a reasonable expectation that the minimum voucher amount can be achieved.

The value of the vouchers in the 2017/2018 Fringe Benefits Tax (FBT) year was between $200 and $300. This was the first year that the vouchers exceeded $200. The employer paid FBT on these vouchers as they exceeded the $200 safety awards threshold.

The value of the vouchers in the 2018/2019 FBT year was less than $200, and no FBT applied

The projected value of the vouchers for the 2019/2020 FBT year is between $200 and $300.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Section 51

Fringe Benefits Tax Assessment Act 1986 Section 58P

Fringe Benefits Tax Assessment Act 1986 Section 58R

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

If a safety award exceeds $200, but is less than $300, can the minor benefits exemption be utilised?

Safety awards are discussed in section 58R of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as follows:

Where:

(a) one or more safety award benefits are provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer; and

(b) the notional taxable value of that safety award benefit, or the sum of the notional taxable values of those safety award benefits, I relation to that year of tax, does not exceed $200;

the safety award benefit, or the safety award benefits, as the case may be,

are exempt benefits in relation to that year of tax.

A safety award is only an exempt benefit if the value of an individual award, or the sum of several awards does not exceed $200 in a year of tax. However, a benefit of less than $300 will be a minor benefit, and may be an exempt benefit, if 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 provision of a shopping voucher by the employer 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 provision of a shopping voucher by the employer is what the employer has incurred in obtaining the shopping voucher. That is, the notional taxable value is the face value of the shopping voucher. In this case the notional taxable value of the shopping voucher is less than $300.

Section 58P does not apply to exempt all benefits that have a notional taxable value of less than $300. Benefits that are specifically excluded include residual benefits where, if the benefit was a residual fringe benefit, it would be an in-house fringe benefit.

Is the shopping voucher a residual 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 shopping voucher by the employer 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 shopping voucher 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, as follows:

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 benefit of the shopping voucher is provided by the employer. The employer purchased the shopping voucher under an arm's length transaction from a third party entity. The amount paid by the employer for each shopping voucher for the year ending 31 March 2020 is projected to be between $200 and $300. The taxable value of each shopping voucher is therefore between $200 and $300.

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 shopping vouchers 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 an annual shopping voucher. The benefit is provided infrequently, being once a year. The provision of the shopping voucher depends on reaching targets, which is not guaranteed. The shopping voucher may not be provided in a particular year, or any year, if targets are not met. The provision of the shopping voucher may be irregular and infrequent, and are subject to reaching targets.

It is accepted that the benefit will be infrequent and irregular. This criterion is satisfied.

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 provision of a shopping voucher is between $200 and $300. The provision of the shopping voucher is not guaranteed to be received each, as it is subject to meeting targets. There is no guarantee that a shopping voucher will be provided in any year of tax other than the current year. There is no guarantee that there will be associated benefits that are identical or similar to the minor benefit in the current year of tax and any other year of tax.

Excluding the possibility of being provided with a shopping voucher in 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 is between $200 and $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 the employer is expected to pay for a shopping voucher, namely, between $200 and $300.

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 provision of a shopping voucher 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 provision of a shopping voucher 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. However, the provision of a shopping voucher is provided for reaching targets, and therefore is provided wholly or principally as a reward for services rendered by the employee.

National Tax Liaison Group view on the safety award value issue

Where the value of a safety award(s) exceeds $200, but is less than $300, was considered by the NTLG (National Tax Liaison Group) FBT Sub-committee Minutes - 12 August 2010. It was concluded that benefits in relation to safety issues could be treated as a minor benefit in appropriate cases. Two examples were provided, of which the more relevant to your circumstances, is the following:

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.

Conclusion

The provision of a shopping voucher is not guaranteed, but is subject to meeting targets. If targets are met, an annual shopping voucher will be provided. Due to linking the provision of the shopping voucher to meeting targets, the shopping voucher may not be provided in any other years. The provision of a shopping voucher can be considered to be ad hoc in nature, as in 'Example 9: staff recognition', paragraph 100. above, where it was concluded that 'vouchers which are identical or similar are not reasonably expected to be provided to that employee on a frequent and regular basis'.

Depending on the circumstances, the provision of a shopping voucher may be irregular and infrequent.

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 between $200 and $300. As the provision of a shopping voucher is not guaranteed in other years, due to the ad hoc nature mentioned above, the possibility of associated benefits which are identical or similar to the minor benefit in the current year of tax or any other year of tax can be disregarded.

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 any associated benefits.

The benefit is not provided to assist an employee to deal with an unexpected event, is not part of a SSA, but is provided wholly or principally as a reward for services rendered or to be rendered.

On balance, having regard to the above factors; and in keeping with the NTLG view on the safety award value issue, 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.

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