Edited version of your written advice

Authorisation Number: 1012876547338

Date of advice: 15 September 2015

Ruling

Subject: Fringe benefits tax implications of gift cards

Question 1

Does the Commissioner consider the merchandise acquired using the gift cards provided by the employer to its employees an in-house property fringe benefit as defined in subsection 136(1) of the FBTAA?

Answer

Yes

Question 2

Does the Commissioner consider the gift cards issued to the employees to be an external property fringe benefit as defined in subsection 136(1) of the FBTAA?

Answer

No

This ruling applies for the following periods

FBT years ended 31 March 2016 - 2019

The scheme commences on

1 April 2015

Relevant facts and circumstances

The employer is a retailer, selling merchandise throughout retail stores in Australia and overseas.

The employer periodically provides incentives to its Australian retail employees as part of the company's overall employee reward program.

The relevant rewards consist of a gift card to obtain merchandise from the employer's retail stores up to a certain value.

For the purposes of ensuring appropriate record keeping, and compliance with the reward policy, the scheme is implemented in the following way:

i) The employer provides the relevant employee with a store gift card, with the predetermined dollar value loaded onto the card to be redeemed at participating stores.

ii) The gift cards provided can be redeemed by the employee for goods that the employer markets to the public up to the predetermined value loaded on each card.

iii) The gift cards are individually numbered and assigned to a particular employee.

iv) A register of gift cards is maintained to record the gift cards provided to each employee. Upon redemption of the gift card in store, the employee's ID is linked with the final sales docket/purchase at the point of sale, to ensure that the value of goods provided to the employee is no more than the dollar value provided to them pursuant to the reward.

The merchandise for which the gift card is redeemed is exactly the same as that sold by the employer to the general public.

Employees do not pay for the gift cards or for the merchandise.

Each gift card is surrendered upon redemption.

The value that is loaded onto the gift cards provided to the employees generally exceeds $300 in value for each employee over the financial year.

Relevant legislative provisions

Section 40 of the FBTAA

Subsection 136(1) of the FBTAA

Reasons for decision

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.

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:

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

(e) 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.

The provision of a gift card and the later redemption of that gift card to obtain merchandise, involves two distinct actions.

In accordance with ATO Interpretative Decision 2014/17, if the provision of the gift card merely constitutes an administrative aid in facilitating the later provision of merchandise to the employee, then the issue of the gift card does not constitute a fringe benefit for the purposes of the FBTAA at the time of issue.

The following factors indicate that the provision of the card and the consequent provision of merchandise should be considered to be part of the one seamlessly integrated arrangement to provide the merchandise to the relevant employees:

a) The gift cards are provided to employees as part of the rewards and recognition program

b) They can only be used to obtain the employer's merchandise up to the amount determined by the rewards and recognition program

c) They are individually numbered and assigned to a particular employee.

The 'benefit' under subsection 136(1) is the provision of the merchandise by the employer. The employer provides the benefit when the employee redeems the gift card for the merchandise.

Support for this view is also 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.

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

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

The Macquarie Dictionary Sixth Edition, 1 October 2013 defines the term 'goods' as:

…

2.  articles of trade; wares; merchandise, especially that which is transported by land.

…

As merchandise is 'goods' 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) of the FBTAA.

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) of the FBTAA 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.

 ...

In this case, the provision of the goods upon redemption of the card is an in-house property fringe benefit as the employer carries on a business that consists of or includes the provision of identical or similar property principally to outsiders.

An external property fringe benefit is defined in subsection 136(1) of the FBTAA to mean a property fringe benefit other than an in-house property fringe benefit. As explained above, the Commissioner accepts that the issue of the card 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. The issue of the card is therefore not an external property fringe benefit as defined in subsection 136(1) of the FBTAA.