Edited version of private ruling

Authorisation Number: 1011745332840

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Ruling

Subject: Fringe benefits tax - exempt benefit - eligible work related item - tool of trade

Question 1

Will the provision of an expense payment benefit in relation to a camera be an exempt benefit under section 58X of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as an eligible work related item in paragraph 58X(2)(e)?

Answer 1

Yes.

This ruling applies for the following period

1 April 2010 to 31 March 2012

Relevant facts

The employee works in the marketing department of their employer.

The employer is considering reimbursing the employee the expense incurred by the employee in purchasing a camera. The expense payment benefit in relation to the camera will be provided under an effective salary sacrifice arrangement in accordance with Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements.

The camera is used for work purposes to take photos of the employer's products, exhibition stands etc. The employee would also be using the camera for their own personal purposes. However, the camera will be used predominantly for work purposes.

The employee will be provided with only one camera in the form of a benefit in the fringe benefits tax (FBT) year.

The camera is a hand held device operated manually.

Reasons for decision

Section 58X of the FBTAA exempts from FBT the provision of certain eligible work related items.

Subsection 58X(1) of the FBTAA provides that the provision of an expense payment benefit, a property benefit or a residual benefit by an employer to an employee in respect of an eligible work related item will be an exempt benefit.

Subsection 58X(2) of the FBTAA lists the items that, if provided primarily for use in the employee's employment, are 'eligible work related items' that may be subject to exemption. Included in this list, at paragraph (e), is a 'tool of trade'.

The term 'tool of trade' is not defined in the FBTAA; therefore it takes on its ordinary meaning.

'Tool' is defined in the Macquarie Dictionary , [Multimedia], version 5.0.0, 1/10/01 as:

1. an instrument, especially one held in the hand, for performing or facilitating mechanical operations, as a hammer, saw, file, etc.

2. any instrument of manual operation.

The camera provided is a device that is manually operated by controls on its frame. It is therefore a tool of trade in terms of the Macquarie Dictionary definition above.

The meaning of 'tool of trade' has also been commented on in various court cases arising from the interpretation of various sections of bankruptcy law.

In Vaughn v. Official Trustee in Bankruptcy (1996) 71 FCR 34 ( Vaughn ) the expression 'tools of trade' was considered by the Full Federal Court by reference to The New Shorter Oxford English Dictionary (1993) as:

'Tool': 1. A thing used to apply manual force to an object or material, esp. a device designed for some particular mechanical function in a manual activity, as a hammer, a saw, a fork; an implement. Now also, a powered machine used for a similar purpose...2 trans. & fig. A thing (concrete or abstract) used in the carrying out of some occupation or pursuit; a means of effecting a purpose or facilitating an activity.

'Tools of Trade': The basic equipment required for a particular occupation.

For an item to qualify as a 'tool', whilst it must meet the necessary condition of being dependant on manual operation to give effect to its purpose, it can also be electrically powered. For instance it would be accepted that both a handsaw and a power saw used by a tradesperson would both be 'tools of trade'.

By ignoring the wider term of 'equipment' and restricting the phrase to the actual tools themselves used in an occupation, the Court used the analogy of allowing a professional photographer's camera and filters but not the film used in the camera as a 'tools of trade'.

In terms of the dictionary definition quoted in Vaughan, a thing will qualify as a tool, where it meets either definition rather than a composite or both. In terms of definition (1), although a camera's focus is adjusted manually, it could not be said to operate through the camera applying manual force to another object. For that reason, under this dictionary definition it would not qualify as a 'tool' under those terms.

But the dictionary definition (2) above in Vaughan case however, accepts that a 'tool of trade' is a thing which is used in carrying out one's occupation. On this basis the camera provided would still qualify as a 'tool' as it is a work related item necessary for the employee to undertake the duties of the employee's employment.

In summary, a tool of trade has the characteristics of being necessary for a person to undertake their occupation and being substantially manually operated. The tool itself may be large or small, and the person using it does not need to be in a "trade". The camera provided is a device that is manually operated by controls on its frame. The purpose of the camera is to enable the employee to take photos of the employer's products, exhibition stands etc. as part of the employee's duties in the marketing department position. Therefore the camera provided would qualify as a 'tool'.

With regard to the definition of 'tools of trade', it is considered that a camera would qualify as a tool of trade in circumstances where it is required to carry out the duties of the employee's employment.

The camera provided is required in carrying out the employee's duties in their occupation in the marketing department. Therefore it is considered to be a 'tool of trade' under paragraph 58X(2)(e) of the FBTAA.

Subsection 58X(3) of the FBTAA restricts the number of items for which the exemption is available to one of each of the listed items in subsection 58X(2) of the FBTAA per employee per year but subsection 58X(4) of the FBTAA extends the exemption to replacement items. The facts indicate that the camera is not a replacement item and that the employee will be provided with only one camera in the FBT year. As such, the requirements in subsections 58X(3) and 58X(4) are met.

The employee will use the camera predominantly for business purposes in the employee's employment in their marketing department role. Accordingly, the reimbursement of the expenses incurred by the employee in purchasing the camera will be exempt in accordance with section 58X of the FBTAA.