Edited version of private advice

Authorisation Number: 1012631948931

Ruling

Subject: Property fringe benefits

Question 1

Is merchandise, which is sold in the ordinary course of the employer's business, and which is provided by the employer to employees through the redemption of a voucher:

a) A property benefit in accordance with section 40 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

b) If so, is the benefit an in-house property fringe benefit in accordance with subsection 136(1) of the FBTAA?

c) If so, is the benefit subject to the valuation rules in section 42 and section 62 of the FBTAA?

Answer

a) Yes

b) Yes

c) Yes

Question 2

Is merchandise, which is sold in the ordinary course of the employer's business, and which is sold at a discount by the employer to its employees and/or associates of its employees through the use of a 'staff discount coupon':

a) A property benefit in accordance with section 40 of the FBTAA?

b) If so, is the benefit an in-house property fringe benefit in accordance with subsection 136(1) of the FBTAA?

c) If so, is the benefit subject to the valuation rules in section 42 and 62 of the FBTAA?

Answer

a) Yes

b) Yes

c) Yes

This ruling applies for the following periods:

1 April 2012 - 31 March 2013

1 April 2013 - 31 March 2014

1 April 2014 - 31 March 2015

1 April 2015 - 31 March 2016

1 April 2016 - 31 March 2017

The scheme commences on:

1 January 2010

Relevant facts and circumstances

1. Under the employer's HR policy, employees are entitled to vouchers to obtain the employer's merchandise or coupons to purchase the employer's merchandise at a discount.

Vouchers

2. New employees are entitled to up to certain amount of merchandise upon joining.

3. Otherwise, ongoing employees are entitled to up to a certain amount of merchandise per quarter.

4. Ongoing employees are also entitled to certain amounts of new season merchandise.

5. The exchange and resale of the merchandise provided under these arrangements is forbidden.

6. No payment is required from the employees for the provision of the merchandise.

7. The relevant manager provides the employees with a voucher.

8. Each voucher number is unique to the relevant merchandise offer.

9. Each Voucher is individually numbered and the number is recorded as being provided to the particular employee.

10. Each Voucher is surrendered upon redemption (that is, can only be used once) and the redeemed Voucher number recorded in the employer's sales system.

11. The identity of the employee must be reconciled against the Voucher before the merchandise can be obtained.

12. The merchandise can only be obtained from a retail store (not online).

13. The merchandise can only be obtained in person by a current employee.

14. The merchandise is not provided under a salary sacrifice arrangement.

15. The relevant merchandise is, otherwise, exactly the same as that sold by the employer to the general public.

Coupons

16. All employees are entitled to Coupons giving access to the following merchandise of the employer per quarter (every 3 months):

(i) X number of merchandise at 50% off retail price.

(ii) X number of merchandise at 30% off retail price.

17. The employees pay the residual amount (discounted price) after the application of the relevant discount to the retail price to the employer's merchandise.

18. The exchange and resale of the merchandise provided under these arrangements is forbidden.

19. Each Coupon is individually numbered and the number is recorded as being provided to the particular staff member.

20. Each Coupon is surrendered upon redemption (that is, can only be used once) and the redeemed coupon number recorded in the employer's sales system.

21. The Coupons also have an expiry date.

22. The merchandise can only be obtained from a retail store (not online).

23. The Coupons are used on presentation at the employer's retail store by either the relevant employee or by an associate of the employee.

24. The relevant employee need not be present at the retail store when an associate of that employee uses the Coupon.

25. The merchandise is not provided under a salary sacrifice arrangement.

Relevant legislative provisions

Section 40 of the Fringe Benefits Tax Assessment Act 1986

Section 42 of the Fringe Benefits Tax Assessment Act 1986

Section 62 of the Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Issue 1

Question 1

Property benefit

1. Section 40 of the FBTAA deals with 'property benefits' and states as follows:

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.

2. Subsection 136(1) of the FBTAA provides the following definitions which are relevant to property benefits:

'property' means:

(a) intangible property; and

(b) tangible property.

'tangible property' means goods and includes:

(a) animals, including fish; and

(b) gas and electricity.

'intangible property' means:

(a) real property;

(b) a chose in action; and

(c) any other kind of property other than tangible property;

but does not include:

(a) a right arising under a contract of insurance; or

(b) a lease or licence in respect of real property or tangible property.

'property benefit' means a benefit referred to in section 40, but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III.

 'property fringe benefit' means a fringe benefit that is a property benefit.

3. The term 'benefit' is also defined in subsection 136(1) as including 'any right (including any right in relation to, and an interest in, real or personal property), privilege, service or facility.'

4. The provision of the voucher/coupon and the later redemption of that voucher/coupon to obtain merchandise involves two distinct actions.

5. The issue of the voucher/coupon does not constitute a fringe benefit for the purposes of the FBTAA at the time of issue but is an administrative aid in facilitating the later provision of merchandise to the employee.

6. The 'benefit' under subsection 136(1) therefore is the provision of the merchandise by the employer. The employer 'provides' the benefit when the employee redeems the voucher/coupon for the merchandise.

7. Support for this view is found in Taxation Ruling TR 1999/10 which provides the following guidance in respect of 'Life Gold Passes' and 'Severance Passes' given to members of Federal Parliament on their 'retirement':

22. On 'retirement' from Federal Parliament, Members may be issued with either a Life Gold Pass or a Severance Pass which may entitle the holder of the pass and his or her spouse to travel benefits. Similar travel entitlements are available for Members of State and Territory Parliaments.

23. We consider that the issuing of a Life Gold Pass or Severance Pass has no income taxation implications. The value of travel benefits received through the use of these passes does not form part of either a Member's or a Member's spouse's assessable income. However, travel benefits received from the use of a Life Gold Pass or Severance Pass are residual fringe benefits and the provider of the pass may be subject to fringe benefits tax when the passes are used for travel (paragraphs 84 to 88).

...

86. We do not consider that the issuing of passes under the Life Gold Pass and Severance Pass Schemes attracts any income tax implications. However, travel benefits received in relation to each use of a Gold Pass or Severance Pass by a Member will be taxed as a residual benefit, within the meaning of section 45 of Division 12 of the FBTAA, to the provider of the pass.

8. As stated above, 'property' means 'intangible property' and 'tangible property'. Tangible property means goods, animals, gas and electricity.

9. 'Goods' is not a defined term in the FBTAA. It therefore takes on its ordinary meaning.

10. The Macquarie Dictionary Sixth Edition, 1 October 2013 defines the term 'good' relevantly as:

30. (plural) possessions, especially movable effects or personal chattels.

31. (plural) articles of trade; wares; merchandise, especially that which is transported by land.

…

33.  an item of merchandise.

11. As merchandise is a 'good' the benefit provided is a property benefit. Further, as the property benefit was provided in recognition of employment it is a 'property fringe benefit' as defined in subsection 136(1).

In-house property fringe benefit

12. A property fringe benefit is an 'in- house property fringe benefit' where certain conditions are satisfied. The term 'in-house 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 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 time, the provider carried on a business that consisted of or included the provision of identical or similar property principally to outsiders.

…

13. In this case, the benefit is an in-house property fringe benefit, as it is a property fringe benefit, it is provided by the employer, and at or about the provision time, the employer carried on a business that consisted of or included the provision of identical or similar property principally to outsiders.

14. Accordingly, where the employer has provided an employee with a voucher/coupon, which the employee can redeem for merchandise from a participating retail store of the employer, either free or at a discount, the employer provides the employee with an 'in-house property fringe benefit' as defined subsection 136(1) when the employee redeems the voucher/coupon for the merchandise, not when the voucher/coupon is issued.

Taxable value of the in-house property fringe benefit

15. Subsection 42(1) of the FBTAA sets out the taxable value of an in-house property fringe benefit.

16. It was determined at paragraph 13 above that the benefit is an in-house property fringe benefit. Therefore, subsection 42(1) of the FBTAA applies in determining the taxable value of the in-house property fringe benefit.

17. Section 62 of the FBTAA allows a reduction in the aggregate taxable value of in-house fringe benefits of up to $1,000.

18. The reduction does not apply from the 22 October 2012 where the benefit is accessed under a salary sacrifice arrangement, unless the transitional rules apply.

19. The in-house benefits are not provided under a salary sacrifice arrangement.

20. Therefore, section 62 of the FBTAA will apply.