Edited version of your written advice

Authorisation Number: 1012891721705

Date of advice: 3 November 2015

Ruling

Subject: Provision of Benefits under Employee Incentive Program Funded by Third Parties

Question 1

Will fringe benefits, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, arise when points under the Employee Incentive Program are allocated?

Answer

No.

Question 2

Will fringe benefits, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, arise when employees of the Employer receive a benefit under the Employee Incentive Program where the points redeemed relate to rebates issued by the suppliers of the Employer?

Answer

Yes.

Question 3

Will fringe benefits, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, arise when employees of the Employer receive a benefit under the Employee Incentive Program where the points redeemed relate to 'team member of the month' awards as determined by the Employer?

Answer

Yes.

Question 4

Will fringe benefits, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, arise when employees of the Employer receive a benefit under the Employee Incentive Program where the points redeemed relate to rebates issued by an Associated Entity of the Employer?

Answer

Yes.

Question 5

Will a fringe benefit, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, arise when the Employer pays the administration fee for the Employee Incentive Program from rebate amounts issued by the suppliers of the Employer?

Answer

No.

The period to which this ruling applies

1 April 2015 to 31 March 2020

Date in which the scheme commences

1 April 2015

Relevant facts and circumstances

The Employer operates a number of businesses throughout Australia. As part of the operation of the businesses, certain retail products are stocked for sale throughout each business.

The suppliers of the retail products are not related entities of the Employer.

Certain suppliers offer a rebate to the Employer under their respective supplier agreements for the purpose of incentivising the Employer's employees to increase sales of their respective products and reward them for doing so.

The purpose of this program, the 'Employee Incentive Program', is to allow suppliers to incentivise and encourage the sale of certain supplier products over a selected period by providing employees of the Employer with a direct benefit for meeting sales targets set by the Employer's suppliers.

Provision of Products

The Employer has partnered with the provider of the Employee Incentive Program, as a third party entity at arm's length to administer the Employee Incentive Program for the Employer's employees, as provided in the Service Agreement entered into between these parties. The Employee Incentive Program provider operates the system on a 'points' basis, where employees of the Employer accrue points which can be allocated to certain products/benefits at the discretion of the employee. The process for the operation of the Employee Incentive Program is as follows:

1. Supplier Agreement: As part of a supplier agreement or rebate agreement, a supplier of the Employer states an amount that will be paid in relation to the Employee Incentive Program.

2. Notice from Supplier: A supplier of the Employer will inform the Employer that they will receive a rebate at the end of the month to allocate to employees that achieve a certain criteria. These rebates are guaranteed and provided for under the supplier agreements between the supplier and the Employer. Employees of the Employer are informed of the criteria, such as the business selling the highest number of a specified product.

3. Payment by Supplier: At the conclusion of the relevant period, the supplier provides the cash rebate, which is transferred to a separate bank account by the Employer, which solely consists of funds contributed by the Employer's suppliers, and by an Associated Entity of the Employer, for the Employee Incentive Program.

4. Distribution of Points: Each quarter, the Employer determines the distribution of the points to their employees based on the supplier's criteria.

5. Excess Points: Where excess funds are available, the Employer also issues points to employees on internally-based criteria, such as an 'employee of the month' award.

6. Allocation of Points: the Employer provides the details of point allocations to the provider of the Employee Incentive Program, who allocates the points through an online portal. As per the policy of the Employee Incentive Program, point allocations are only made available to recipients once the supplier has approved the allocation and deposited funds into the Employer's separate bank account for the Employee Incentive Program.

7. Accrual of Points: Reward points are allocated to the Employer's employees, and accrue in an online account for each employee. Each employee is provided with unique access details to be able to access the online portal which records their accumulated points and facilitates the redemption of points.

8. Redemption of Points: At the employee's discretion, the employee may apply the accrued points to a range of items available through an online portal. The employee may choose to contribute an amount towards the item if they do not have sufficient points for the purchase. Reward points may be redeemed by the employee for a range of different items. An employee may redeem points for multiples of the same item. The items are not items that are sold to the public by the Employer.

9. Cost of Reward: When a product is claimed, the cost is charged by the provider of the Employee Incentive Program to the Employer. This is paid through the bank account which isolates the supplier rebates which are to be applied to staff and funds are solely held for the Employee Incentive Program. A rebate for the Employee Incentive Program is treated separately to all other rebates offered by a supplier.

Employee Incentive Program Points System

The Employee Incentive Program is provided in the form of a points system, where a certain number of accumulating points are issued to an employee. Points are allocated on a quarterly basis to employees who have achieved various targets or goals. Points can arise through the following circumstances:

1. Under existing supplier agreements, certain suppliers contract to contribute a certain amount (such as a percentage of sales or a fixed amount) towards providing employees with points. These rebates are allocated to staff by determining the sales of each specific business, and then to the employees of that business apportioned for the number of hours worked.

2. Further points are provided to employees through a 'team member of the month' awards system. The funds for the provision of these points are paid by a supplier under the existing supplier agreement.

3. Points are also awarded in relation to the number of customers purchasing the products of an Associated Entity of the Employer.

Operation of the Employee Incentive Program

The following is of note in relation to the Employee Incentive Program:

1. Contribution of funds: Funds are only contributed to the Employer's separate bank account for the Employee Incentive Program by suppliers of the Employer, as well as by an Associated Entity of the Employer. The Employer does not contribute funds to the bank account.

2. Administrative cost: A fixed monthly fee is charged by the provider of the Employee Incentive Program for the continued operation of the program. This fee is paid from the Employer's separate bank account for the Employee Incentive Program.

3. Nil Cost to the Employer: As the administrative costs and redemption costs are paid from the Employer's separate bank account for the Employee Incentive Program (which is wholly funded by supplier rebates), the Employer incurs no cost in the operation of the Employee Incentive Program.

4. Non-transferrable: Reward points received by employees are non-transferrable, and are forfeited when the employee ceases their employment with the Employer. Points may only be redeemed through the online site provided as part of the Employee Incentive Program.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 148(1)

Income Tax Assessment Act 1936 Section 318

Reasons for decision

Question 1

Will fringe benefits, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, arise when points under the Employee Incentive Program are allocated?

Summary

The allocation of points under the Employee Incentive Program will not give rise to a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.

Detailed reasoning

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA, which holds that the following conditions must be satisfied:

1. A benefit is provided at any time during the year of tax.

2. The benefit is provided to an employee or an associate of the employee.

3. The benefit is provided by:

a. their employer; or

b. an associate of the employer; or

c. a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or

d. a third party other than the employer or an associate of the employer, if the employer or an associate of the employer:

i. participates in or facilitates the provision or receipt of the benefit; or

ii. participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

4. The benefit is provided in respect of the employment of the employee.

5. The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

In order to determine whether the allocation of points to the Employer's employees under the Employee Incentive Program constitutes a 'fringe benefit' as defined in subsection 136(1) of the FBTAA, a discussion is provided below in respect of whether each element or condition of the definition of a fringe benefit is satisfied.

A benefit is provided

Subsection 136(1) of the FBTAA provides a broad definition of a 'benefit' as including:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:


(a) an arrangement for or in relation to:


(i) the performance of work (including work of a professional nature), whether with or without the provision of property; …

In ATO Interpretative Decision (ID) ATO ID 2014/17 'Property fringe benefits: redemption of voucher/coupon by a retail store employee for merchandise retailed by their employer', the provision of a voucher/coupon and the later redemption of that voucher/coupon to obtain merchandise were considered to involve two distinct actions.

The issue of the voucher/coupon was an administrative aid in facilitating the later provision of merchandise to the employee. The 'benefit' as defined in subsection 136(1) of the FBTAAA was therefore the provision of the merchandise by the employer. The employer provides the benefit when the employee redeems the voucher/coupon for the merchandise. The same principle was applied in Class Ruling (CR) CR 2014/56 'Fringe benefits tax: Corporate clients of Dell Australia Pty Ltd (Dell Australia) who participate in the Dell Australia employee purchase program'.

The view held in both ATO ID 2014/17 and CR 2014/56 as referenced above is supported by Taxation Ruling (TR) TR 1999/10 'Income tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits, deductions and recoupments'. In TR 1999/10, where retired Federal Members of Parliament are provided with travel entitlements or 'passes', the issuing of such passes are not considered to attract any income tax implications, however travel benefits received in relation to each use of these passes will be taxed as a residual benefit within the meaning of section 45 of Division 12 of the FBTAA.

Conversely to ATO ID 2014/17 and CR 2014/57, in CR 2013/77 'Fringe benefits tax: rewards received by an employee under the LM High Flyers incentive program', the taxing point was the provision of frequent flyer points. This is because the points were property, as the points provided the employee with rights to receive certain goods or services under the terms and conditions of the Frequent Flyer program. The circumstances in CR 2013/77 differs by the fact that the points were purchased from the program operator and, as such, had a value (this principle applied to the circumstances in ATO ID 2010/135 'Fringe benefits tax: gift cards'), and the fact that the points could be used by the employee even after their employment ceased. The circumstances in CR 2013/77 and ATO ID 2010/135 are not comparable to the Employee Incentive Program.

The schemes in TR 1999/6 'Income tax and fringe benefits tax: flight rewards received under frequent flyer and other similar consumer loyalty programs' and Law Administration Practice Statement PS LA 2004/4 'Taxing consumer loyalty program rewards' - pertaining to consumer loyalty programs - can be distinguished from the Employer's scheme, which is an employee incentive program.

The Employer's scheme is comparable to the situations in ATO ID 2014/17 and CR 2014/56. The allocation of points to the Employer's employees under the Employee Incentive Program is merely an administrative mechanism to facilitate the later provision of products to the Employer's employees upon redemption of those points. Hence, points allocated to the Employer's employees under the Employee Incentive Program do not constitute a 'benefit' as defined in subsection 136(1) of the FBTAA. It is only the subsequent receipt by the Employer's employees of products upon redemption of points allocated to those employees under the Employee Incentive Program that fall within the definition of a 'benefit' as defined in subsection 136(1) of the FBTAA.

As the allocation of points to the Employer's employees under the Employee Incentive Program does not constitute a 'benefit', the first condition (i.e. the provision of a 'benefit') of the definition of a 'fringe benefit' - as defined in subsection 136(1) of the FBTAA - is not satisfied. As such, it is not necessary to consider the other elements of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.

Conclusion

The first condition of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is not satisfied. Therefore, the allocation of points to the Employer's employees under the Employee Incentive Program will not give rise to a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.

Question 2

Will fringe benefits, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, arise when employees of the Employer receive a benefit under the Employee Incentive Program where the points redeemed relate to rebates issued by the suppliers of the Employer?

Summary

The receipt by the Employer's employees of a product(s) through the redemption of points under the Employee Incentive Program - pertaining specifically to rebates issued by the suppliers of the Employer - will give rise to a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.

Detailed reasoning

The definition of a 'fringe benefit', as defined in subsection 136(1) of the FBTAA, is provided in the response to Question 1 above.

In order to determine whether the receipt by the Employer's employees of a benefit through the redemption of points under the Employee Incentive Program (pertaining specifically to rebates issued by the suppliers of the Employer) constitutes a 'fringe benefit' as defined in subsection 136(1) of the FBTAA, a discussion is provided below in respect of whether each element or condition of the definition of a fringe benefit is satisfied.

A benefit is provided

As per the response to Question 1 above, it is the receipt by the Employer's employees of products upon redemption of points allocated to those employees under the Employee Incentive Program (and not the allocation of points themselves) that falls within the definition of a 'benefit' as defined in subsection 136(1) of the FBTAA.

As such, the first condition (i.e. the provision of a 'benefit') of the definition of a 'fringe benefit' - as defined in subsection 136(1) of the FBTAA - is satisfied.

The benefit is provided to an employee or an associate of the employee

An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee.

Based on the facts provided, only employees (full-time, part-time and casual) of the Employer are eligible to receive points under the Employee Incentive Program.

In FC of T v Indooroopilly Children Services (QLD) Pty Ltd [2007] FCAFC 16, it was held that references to 'the employee' throughout the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA were to a particular employee, the identity of whom is known with sufficient particularity at the time a benefit is provided to that employee. This principle was also held in Essenbourne Pty Ltd v FC of T 2002 ATC 5201 (Essenbourne).

At the time the benefit (the receipt of a chosen product(s)) is provided to the applicable employee of the Employer (upon the redemption of points that have been allocated to that employee), the identity of that employee is known.

Therefore, as the benefit (the receipt of a product(s) upon redemption of points allocated to the Employer's employees) provided under the Employee Incentive Program is provided to certain (identifiable) employees of the Employer, the second condition (i.e. a benefit is provided to an employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is provided by an employer, an associate of the employer or a third party

'Employer' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer.

The definition of 'associate' adopts the meaning of that term given by Income Tax Assessment Act 1936 (ITAA 1936). The list of the associates of a company (the 'Primary Entity') is contained in subsection 318(2) of the ITAA 1936. Associates of the Primary Entity include the following:

• Another entity which has 'sufficient influence' over the primary entity, either in its own right or in conjunction with other entities.

• Another entity which holds a majority voting interest in the Primary Entity, either in its own right or in conjunction with other entities which would be treated as its associates under any of the other tests described in subsections 318(1), (2) or (3) of the ITAA 1936.

• A company which is sufficiently influenced by: (a) the Primary Entity; (b) another company, partnership, trustee or other person classed as an associate of the Primary Entity by virtue of subparagraph 318(2)(e)(i)(B) of the ITAA 1936; or (c) a company which is itself classed as an associate of the Primary Entity by reason of the application of the rules in paragraphs 318(2)(a), (b), (c) or (d) of the ITAA 1936; or (d) two or more of the above entities.

• A company where a majority voting interest is held by: (a) the Primary Entity; (b) entities which are classed as associates of the Primary Entity under any of the other rules in subsection 318(2) of the ITAA 1936; or (c) the Primary Entity and entities which are classed as associates of the Primary Entity under any of the other rules in subsection 318(2) of the ITAA 1936.

A company is 'sufficiently influenced' by others if, according to paragraph 318(6)(b) of the ITAA 1936, the company or its directors are accustomed to act in accordance with the directions, instructions or wishes of those others, or are under an obligation (formal or informal) to do so, or might reasonably be expected to do so.

This element of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA would also be satisfied if, as per paragraph (e) of the definition, the relevant benefit is provided by a person (the 'arranger') other than the employer or an associate of the employer under an arrangement between the employer (or an associate of the employer) and the arranger. For the purposes of paragraph (e) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA, an 'arrangement' - as defined in paragraph (a) of the definition of an 'arrangement' in subsection 136(1) of the FBTAA is:

any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings…

The Service Agreement between the Employer and the provider of the Employee Incentive Program (the 'arranger'/third party) is an arrangement within the definition of an 'arrangement' in subsection 136(1) of the FBTAA.

Therefore, as the benefit under the Employee Incentive Program is provided by a third party under an arrangement it entered into with the Employer, the third condition (i.e. a benefit is provided by an employer, an associate of the employer or a third party under an arrangement with an employer) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is provided in respect of the employment of the employee

As per subsection 136(1) of the FBTAA, 'in respect of' in relation to the employment of an employee includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee:

• whether or not the benefit also relates to some other matter or thing

• whether the employment is past, present or future

• whether or not the benefit is surplus to the recipient's requirements

• whether or not the benefit is also provided to another person

• whether or not the benefit is offset by any inconvenience or disadvantage

• whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment

• whether or not the provision of the benefit is in the nature of income, and

• whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles), the full Federal Court - in examining the meaning of 'in respect of' an employee's employment - held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'. A similar view was also held in Essenbourne.

The full Federal Court in Knowles also suggested that it would be useful to ask 'whether the benefit is a product or incident of the employment'.

The case of Payne v FC of T 66 FCR 299; 96 ATC 4407; (1996) 32 ATR 516 (Payne) concerned the assessability of airline tickets received by a member of the Qantas Frequent Flyer program under the former paragraph 26(e) of the ITAA 1936. Former paragraph 26(e) of the ITAA 1936 included as assessable income the value to the taxpayer of all allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to them in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by the taxpayer.

In considering the application of the former paragraph 26(e) of the ITAA 1936, the Federal Court in Payne distinguished the decision of the Full High Court in the case of Smith v FCT (1987) [1987] HCA 48; 164 CLR 513; 19 ATR 274; 87 ATC 4883 (Smith). In particular, Foster J said in Payne at ATC 4424:

It must be remembered that there were significant differences between the facts in Smith's case and those in the instant case, and statements in the judgments in Smith must be read against the background of those differences. In Smith, the payment was made by the employer. It was made pursuant to a scheme instituted by the employer. It was a scheme from which the employer derived benefit, namely enhancement of its employees' skills in the performance of their work. The payment was intended to be an encouragement to employees to undertake the extra training involved in the scheme. It was accepted as such by the employees who undertook the training.

In the present case, these features are totally lacking. The benefit was received under a scheme instituted by Qantas for its benefit. The employer had no part in the scheme as such. The employer did not arrange for the employee to participate in the scheme. It did not pay for the employee's participation in the scheme. It did not even, so far as the facts show, encourage its employees to participate in the scheme. It did nothing to provide the benefit alleged to be taxable in the employee's hand.

The facts provided by the Employer in respect of the Employee Incentive Program are comparable to the circumstances that existed in Smith as:

• the allocation of points under the Employee Incentive Program (used by the Employer's employees to acquire benefits upon redemption of allocated points) is determined by the Employer;

• the Employee Incentive program has been instituted by the Employer;

• the Employer's involvement in the scheme contributed to/facilitated the ultimate receipt of benefits by select employees of the Employer under the Employee Incentive Program;

• the Employee Incentive Program is a scheme from which the Employer derived a benefit, namely increased sales revenue;

• the Employer arranged for its employees to participate in the scheme; and

• the Employee Incentive program was intended to be an encouragement for the Employer's employees.

Therefore, the connection between the benefits received by the Employer's employees under the Employee Incentive Program and their employment is material and sufficient, and not merely causal. If it were not for the employees' employment with the Employer and the arrangements between the Employer and the provider of the Employee Incentive Program, as well as the rebate agreements between the Employer and certain suppliers and an Associated Entity, the Employer's employees would not be able to receive any benefits under the Employee Incentive Program.

On the basis of the above discussion, a benefit (the receipt of a product(s) upon redemption of points allocated to the Employer's employees - attributable to rebates issued by the suppliers of the Employer) provided to an employee of the Employer would be considered to be 'in respect of the employee's employment'.

As such, the fourth condition (i.e. a benefit is provided in respect of the employment of the employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

While this condition is satisfied in respect of benefits provided to the Employer's employees that are attributable to rebates issued by the suppliers of the Employer, this condition would equally be satisfied - for the same reasons as discussed above - in circumstances where the provision of benefits to the Employer's employees are attributable to rebates issued by an Associated Entity or in respect of the Employer's 'team member of the month' awards. The benefits provided to the Employer's employees under either circumstance are due to the points awarded by the Employer in respect of the performance of the employee.

The benefit is not specifically excluded from the definition of a fringe benefit

It is assumed for the purposes of this Private Ruling that a product(s) or benefit(s) provided to an employee of the Employer upon the redemption of points allocated to that employee is not a benefit that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

As such, the fifth condition (i.e. the benefit provided is not specifically excluded) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA has not been addressed for the purposes of this Private Ruling.

Conclusion

Each of the conditions of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA are satisfied. Therefore, the receipt by the Employer's employees of a product(s) through the redemption of points under the Employee Incentive Program - pertaining specifically to rebates issued by the suppliers of the Employer - will give rise to a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.

Question 3

Will fringe benefits, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, arise when employees of the Employer receive a benefit under the Employee Incentive Program where the points redeemed relate to 'team member of the month' awards as determined by the Employer?

Summary

The receipt by the Employer's employees of a benefit through the redemption of points under the Employee Incentive Program - that relate to 'team member of the month' awards (as determined by the Employer) - will give rise to a fringe benefit as per the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA.

Detailed reasoning

The definition of a 'fringe benefit', as defined in subsection 136(1) of the FBTAA, is provided in the response to Question 1 above.

In order to determine whether the receipt by the Employer's employees of a benefit through the redemption of points under the Employee Incentive Program (pertaining specifically to 'team member of the month' awards) constitutes a 'fringe benefit' as defined in subsection 136(1) of the FBTAA, a discussion would be warranted in respect of whether each element or condition of the definition of a fringe benefit is satisfied.

However, as per the discussion in the response to Question 2 above, the conditions for a benefit (in this case, the receipt of a product(s) upon redemption of points allocated to select employees of the Employer) to be a 'fringe benefit' as defined in subsection 136(1) of the FBTAA were considered to be satisfied regardless of whether the benefits provided to the Employer's employees were attributable to:

• rebates issued by the suppliers of the Employer

• rebates issued by an Associated Entity, or

• excess funds for 'team member of the month' awards.

This is because the benefits provided to the employees under either circumstance are due to the points awarded in respect of the performance of the employee.

Therefore, with specific regard to the receipt by the Employer's employees of a benefit through the redemption of points under the Employee Incentive Program that relate to 'team member of the month' awards (as determined by the Employer), each of the conditions of the definition of a 'fringe benefit' - as defined in subsection 136(1) of the FBTAA - are satisfied on the same basis as per the principles discussed in the response to Question 2 above.

Conclusion

Each of the conditions of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA are satisfied. Therefore, the receipt by the Employer's employees of a benefit through the redemption of points under the Employee Incentive Program - that relate to 'team member of the month' awards (as determined by the Employer) - will give rise to a fringe benefit as per the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA.

Question 4

Will fringe benefits, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, arise when employees of the Employer receive a benefit under the Employee Incentive Program where the points redeemed relate to rebates issued by an Associated Entity of the Employer?

Summary

The receipt by the Employer's employees of a benefit through the redemption of points under the Employee Incentive Program - pertaining specifically to rebates issued by an Associated Entity - will give rise to a fringe benefit as per the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA.

Detailed reasoning

The definition of a 'fringe benefit', as defined in subsection 136(1) of the FBTAA, is provided in the response to Question 1 above.

In order to determine whether the receipt by the Employer's employees of a benefit through the redemption of points under the Employee Incentive Program (pertaining specifically to rebates issued by an Associated Entity) constitutes a 'fringe benefit' as defined in subsection 136(1) of the FBTAA, a discussion would be warranted in respect of whether each element or condition of the definition of a fringe benefit is satisfied.

However, as per the discussion in the response to Question 2 above, the conditions for a benefit (in this case, the receipt of a product(s) upon redemption of points allocated to select employees of the Employer) to be a 'fringe benefit' as defined in subsection 136(1) of the FBTAA were considered to be satisfied regardless of whether the benefits provided to the Employer's employees were attributable to:

• rebates issued by the suppliers of the Employer

• rebates issued by an Associated Entity, or

• excess funds for 'team member of the month' awards.

This is because the benefits provided to the employees under either circumstance are due to the points awarded in respect of the performance of the employee.

Therefore, with specific regard to the receipt by the Employer's employees of a benefit through the redemption of points under the Employee Incentive Program that relate to rebates issued by an Associated Entity, each of the conditions of the definition of a 'fringe benefit' - as defined in subsection 136(1) of the FBTAA - is satisfied on the same basis as per the principles discussed in the response to Question 2 above.

Conclusion

Each of the conditions of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA are satisfied. Therefore, the receipt by the Employer's employees of a benefit through the redemption of points under the Employee Incentive Program - pertaining specifically to rebates issued by an Associated Entity - will give rise to a fringe benefit as per the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA.

Question 5

Will a fringe benefit, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986, arise when the Employer pays the administration fee for the Employee Incentive Program from rebate amounts issued by the suppliers of the Employer?

Summary

Payment of the administration fee for the Employee Incentive Program by the Employer out of the rebate amounts issued by the suppliers of the Employer will not give rise to a fringe benefit as per the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA.

Detailed reasoning

The definition of a 'fringe benefit', as defined in subsection 136(1) of the FBTAA, is provided in the response to Question 1 above.

In order to determine whether the payment by the Employer of the administration fee for the Employee Incentive Program (out of the rebate amounts issued by the Employer's suppliers) constitutes a 'fringe benefit' as defined in subsection 136(1) of the FBTAA, a discussion is provided below in respect of whether each element or condition of the definition of a fringe benefit is satisfied.

A benefit is provided

According to ATO ID 2001/333 Fringe benefits tax: Administrative costs of salary packaging, where an administrative service is provided to an employer by an external service provider, no fringe benefit liability will arise as no benefit has been provided to an employee within the meaning of the word 'benefit' as defined under subsection 136(1) of the FBTAA. As such, a benefit will not arise when the Service Agreement is between the provider of the Employee Incentive Program and the Employer (the client), and the Employer is liable for the cost of the administrative services provided by the provider of the Employee Incentive Program.

As the payment of the administration fee for the Employee Incentive Program by the Employer out of the rebate amounts issued by the suppliers of the Employer does not constitute a 'benefit' as defined in subsection 136(1) of the FBTAA, the first condition (i.e. the provision of a 'benefit') of the definition of a 'fringe benefit' - as defined in subsection 136(1) of the FBTAA - is not satisfied. As such, it is not necessary to consider the other elements of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.

Conclusion

The first condition of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is not satisfied. Therefore, payment of the administration fee for the Employee Incentive Program by the Employer out of the rebate amounts issued by the suppliers of the Employer will not give rise to a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.