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Edited version of private ruling
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Ruling
Subject: Fringe benefits tax - long service award benefit
Question 1
In determining whether a long service award is exempt pursuant to section 58Q of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), is the notional taxable value of the long service award benefit determined in accordance with paragraph 43(c) of the FBTAA?
Answer
Yes.
Question 2
Is the notional taxable value as determined under paragraph 43(c) of the FBTAA, the cost that you incur in providing the benefit?
Answer
No.
This ruling applies for the following periods:
Year ended 31 March 2012
Year ended 31 March 2013
Year ended 31 March 2014
Year ended 31 March 2015
Year ended 31 March 2016
The scheme commences on:
1 April 2011
Relevant facts and circumstances
You, and some entities that are 'associates' for FBT purposes, operate a business that sell items to the public.
You provide formal recognition by way of a gift (an award) to its employees who have contributed to your success through long employment tenure.
As part of your business operations you also sell items that are the same as the awards to the general public. The item that is awarded as a Service Recognition award to an employee is specifically prepared so that is visually distinguishable to the item that is sold to customers.
The cost of providing the item will be less than the arm's length value of the item.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986 Section 58Q,
Fringe Benefits Tax Assessment Act 1986 Section 43 and
Fringe Benefits Tax Assessment Act 1986 Subsection 136(1).
Reasons for decision
All references made in these reasons for decision are to the FBTAA.
Question 1
Summary
In determining whether a long service award is exempt pursuant to section 58Q, the notional taxable value of the long service award benefit is determined in accordance with paragraph 43(c).
Detailed reasoning
In order to determine if a long service award is exempt pursuant to section 58Q it is necessary to determine the notional taxable value of that long service award benefit. Notional taxable value is defined in subsection 136(1).
The item that you provide to your employees as a long service award would be an external property fringe benefit if it is not an exempt benefit. This is because:
§ it is property
§ you provide it to your employees in respect of their employment, and
§ the property is intangible and therefore would not be an in-house property fringe benefit.
The taxable value of an external property fringe benefit is determined in accordance with section 43.
You did not purchase the property under an arms length transaction, therefore paragraph (a) does not apply. Paragraph (b) does not apply as you, the employer, are the provider of the benefit. Consequently, paragraph (c) applies.
Question 2
Summary
The notional taxable value as determined under paragraph 43(c) of is not the cost that you incur in providing the benefit.
Detailed reasoning
Notional value is defined in subsection 136(1):
In relation to the provision of property or another benefit to a person, means 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.
In order to determine the notional value it is necessary to ascertain the amount that your employees could reasonably be expected to have been required to pay to obtain the property from you under an arm's length transaction.
This is not a difficult to ascertain as you sell such property to members of the public. The price paid by a customer is what your employee could reasonably be expected to pay under an arm's length transaction.
This is confirmed in Taxation Determination TD 93/231:
2. To ascertain the 'notional value' of a property fringe benefit the employer must determine the amount the employee would have been required to pay for a comparable (on the basis of age, type and condition) benefit under an arm's length transaction.
The items provided to your employees are the same, other than in their appearance, as those that you provide to customers and are therefore comparable.
Therefore, the notional taxable value as determined under paragraph 43(c) is not the cost that you incur in providing the benefit but rather the retail price of the items that you provide.