Edited version of your written advice

Authorisation Number: 1013048992211

Date of advice: 11 July 2016

Ruling

Subject: Fringe benefits tax - exempt benefits - provision of certain work related items

Question 1

Is an Accessory 1 considered to be a portable electronic device in accordance with subsection 58X(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Would an Accessory 1 provided under arrangement one be primarily for use in the employee's employment?

Answer

Yes

Question 3

Would an Accessory 1 provided under arrangement two be primarily for use in the employee's employment?

Answer

Yes

Question 4

Does an Accessory 1 have substantially identical functions to an Accessory 2 for the purposes of subsection 58X(3) of the FBTAA?

Answer

No

This ruling applies for the following periods:

In a number of Fringe Benefits Tax Years commencing in the year ending 20xx

The scheme commences on:

In the year ended 20xx

Relevant facts and circumstances

The arrangement

You intend to provide an Accessory 2 and subsequently an Accessory 1 to your employee during the same Fringe Benefits Tax (FBT) year.

The Accessory and Accessory 1will be provided under either of the two following arrangements:

Arrangement 1:

You purchase both the Accessory 2 and Accessory 1and provide them to the employee.

When you provide the items to the employee, the items become the property of the employee.

The employee will arrange their own service provider and is responsible for paying the bill for the service use.

Arrangement 2:

You enter into an effective salary sacrifice arrangement (SSA) with your employee in accordance with the meaning provided by Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/10).

Under the terms of the SSA your employee will purchase an Accessory 2 and Accessory 1 in the same FBT year and you will reimburse the employee for the cost of the items. The reimbursement for both items will occur in the same FBT year.

The employee will arrange their own service provider and is responsible for paying the bill for the service use.

Employee Duties of Employment

As part of their duties of employment the employee is required to travel between multiple worksites multiple times per day and liaise on a constant basis with other members of their team.

You have stated that the use of the Accessory 1 will allow them to stay easily contactable whilst travelling between workplaces and the use of the Accessory 1 and Accessory 2 together will enable the employee to schedule meetings, respond to work related emails and conduct phone or video link ups while at various sites.

The employee will use the Accessory 1 and Accessory 2 to connect to the employer's environment and access data such as calendar, appointments, email, messaging, and contacts.

The employer is currently trialling the use of wearable technology for various benefits relating to efficiency gains and occupational health and safety. You require your employee to use the Accessory 1 to participate in and report on the testing.

You have procedures in place that restrict and control the employee's use of their electronic devices.

Accessory 1 Features

This ruling is restricted to consideration of the Accessory 1 as advertised for sale in Australia in June 20xx. Later updates to the features of the Accessory 1 may change the answers to this ruling and the questions would need to be reconsidered.

The relevant Australian website (website provided) provides the following information about the Accessory 1 currently available in Australia in June 20xx (information can be obtained through general information displayed, the video 'Guided Tours and the Accessory 1 User Guide):

• to use some of the Accessory 1's features it must be paired and in the vicinity of an Accessory 2 or later other related version

• when the Accessory 1 is not paired with or not in the vicinity of the users Accessory the Accessory 1's functions are restricted to:

• playing music from a synced playlist

• using the Accessories world clock, alarm, timers and stopwatch

• using the activity and workout apps

• seeing the users heart rate

• displaying photos from synced photo albums in the Photos app

• make purchases

• the Accessory 1 is designed for brief interactions and to be easy to use when the user is on the move - it is designed to let the user do things they are used to doing on their phone but in a more convenient and less obtrusive way

• when the Accessory 1 is paired with and in the vicinity of the user's Accessory the Accessory 1:

• gives the wearer a discreet tap when they receive a notification, is activated by the wearer simply raising their wrist and turned off by the wearer lowering their wrist

• can be used to receive and display various messages but sending or responding to messages and emails is limited to sending short, pre-set phrases. You must switch to the Accessory to use a keyboard to send or reply to relevant messages

• has a handoff feature which allows the user to move from the Accessory 1 to the Accessory 2 without losing focus on what they are doing. For example if the user wants to switch to the Accessory 2 to reply to an email using the onscreen keyboard this feature allows the user to easily and quickly open the same email and finish their reply. This feature works with Mail, Messages, Phone, Reminders, and Calendar can be used to make and receive phone calls

• can be used to check and update the users calendar however calendar settings must be adjusted on the Accessory

• when the Accessory 1 is within network range that the Accessory has connected to before, you can still do the following (even if the Accessory is turned off):

• send and receive Digital Touch messages

• send and receive messages using messages

• make and receive phone calls (if the user has access calling enabled and they are within range of a suitable network that the Accessory has connected to before)

• check current weather conditions

Relevant legislative provisions

Fringe Benefits Assessment Act 1986 subsection 20(b)

Fringe Benefits Assessment Act 1986 section 40

Fringe Benefits Assessment Act 1986 section 58X

Reasons for decision

Question 1

Is an Accessory 1considered to be a portable electronic device in accordance with subsection 58X(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The Accessory 1 is a portable electronic device according to subsection 58X(2) of the FBTAA.

Detailed Reasoning

You intend to provide an Accessory 2 and Accessory 1 to your employee during the same FBT year. The items will be provided under one of two arrangements. Under arrangement one, you will purchase the items and provide them to the employee. Under the second arrangement you will enter into an effective SSA with the employee in accordance with TR 2001/10 and the employee will purchase an Accessory 2 and Accessory 1 and you will reimburse the employee for the cost of the items (in the same FBT year). Under either arrangement the two items will be the property of the employee and may or may not be purchased at the same time and included on the same invoice. The employee will arrange their own service provider and payment arrangement for use of the items under either arrangement.

Under arrangement one you will be providing your employee with a property benefit in accordance with section 40 of the FBTAA.

Under arrangement two you will be providing your employee with an expense payment benefit in accordance with subsection 20(b) of the FBTAA.

Section 58X of the FBTAA provides an FBT exemption for certain eligible work related items that are provided by an employer to an employee as a property, expense payment or residual benefit.

Subsection 58X(1) states:

Any of the following benefits provided by an employer to an employee of the employer in respect of the employee's employment is an exempt benefit:

(a) an expense payment benefit where the recipients expenditure is in respect of an eligible work related item;

(b) a property benefit where the recipients property is an eligible work related item;

(c) a residual benefit where the recipients benefit consists of the making available of an eligible work related item.

Subsections 58X(2) and 58X(3) of the FBTAA provide limitations on the subsection 58X(1) exemption. They state:

58X(2) Subject to subsection (3), each of the following is an eligible work related item if it is primarily for use in the employee's employment:

(a) a portable electronic device;

(b) an item of computer software;

(c) an item of protective clothing;

(d) a briefcase;

(e) a tool of trade.

58X(3) An item (the later item) listed in subsection (2) is not an eligible work related item if, earlier in the FBT year, an expense payment benefit or a property benefit of the employee has arisen in relation to another item that has substantially identical functions to the later item.

That is, a property, expense payment or residual benefit provided by an employer to an employee, in respect of the employee's employment, will be an exempt benefit if:

(1) the recipients expenditure is in respect of an eligible work related item (expense payment benefit) or the recipients property is an eligible work related item (property benefit) or the recipients benefit consists of the making available of an eligible work related item (residual benefit); and

(2) the eligible work related item is primarily for use in the employee's employment; and

(3) an expense payment benefit or a property benefit of the employee has not arisen earlier in the FBT year in relation to another item that has substantially identical functions to the eligible work related item being considered.

As detailed above, subject to subsection 58X(3) of the FBTAA and the requirement that the item is primarily for use in the employee's employment, items that fall into one of the categories listed in paragraphs 58X(2)(a) to 58X(2)(e) of the FBTAA are considered to be eligible work related items for the purposes of section 58X of the FBTAA.

Regarding the list of eligible work related items provided by paragraphs 58X(2)(a) to 58X(2)(e), of the types of items listed, the most applicable to the Accessory 1is the 'portable electronic device'.

Is the Accessory 1 a 'portable electronic device'?

The term 'portable electronic device is not defined in the FBTAA.

The ATO has considered the meaning of a 'portable electronic device' and provided an explanation of the phrase in Chapter 20 of the publication Fringe benefits tax - a guide for employers (FBT Guide for Employers)(NAT 1054) which states:

A portable electronic device is a device that is all of the following:

• easily portable and designed for use away from an office environment

• small and light

• can operate without an external power supply

• designed as a complete unit.

Examples of portable electronic devices include a mobile phone, calculator, personal digital assistant, laptop, portable printer, and portable global positioning system (GPS) navigation receiver.

ATO Interpretative Decision ATOID 2008/133 Fringe Benefits Tax Exempt Benefits: work related items - a portable electronic device (ATOID 2008/133) provides further guidance on the meaning of 'portable electronic device' for the purposes of paragraph 58X(2) of the FBTAA in the context of considering whether a GPS navigation system is a portable electronic device. ATO ID 2008/133 states:

Subsection 58X(2) of the FBTAA includes a list of items that, if provided primarily for use in an employee's employment, can be considered as 'eligible work related items'.

The list in subsection 58X(2) of the FBTAA is as follows:

(a) portable electronic device

(b) ….

A 'portable electronic device' is included in the list. However, the FBTAA does not provide a definition of 'a portable electronic device'; therefore it takes on its ordinary meaning.

The Macquarie Dictionary, [Multimedia] version 5.0.0, 1/10/01. defines 'portable' as:

2. easily carried or conveyed by hand.

The Macquarie Dictionary, [Multimedia] version 5.0.0, 1/10/01. defines 'electronic' as:

2. of, relating to, or concerned with electronics or any devices or systems based on electronics.

The meaning of the words 'a portable electronic device' should be restricted to the characteristics of the words that precede the word device. That is, the meaning of 'a portable electronic device' is limited to a device that is easily carried by hand and is based on electronics.

The Tax Laws Amendment (Budget Measures) Act 2008 repealed the former subsection 58X(2) of the FBTAA. Previously under subsection 58X(2) of the FBTAA the list of exempt items included, as relevant;

• a mobile phone or car phone

• a calculator

• an electronic diary, a personal digital assistant or similar item

• a notebook computer, laptop computer or similar portable computer, and

• a portable printer designed for use with a notebook computer, laptop computer or similar portable computer,

This previous list of exempt items had become outdated because of changes in technology, for example, many portable electronic devices have more than one function and other work-related electronic devices have become available.

'A portable electronic device' is a generic term which would include but is not restricted to items which were previously exempt under subsection 58X(2) of the FBTAA and items of new technology which may have characteristics similar to those previously listed items.

'A portable electronic device' is a generic term which would include but is not restricted to items which were previously exempt under subsection 58X(2) of the FBTAA and items of new technology which may have characteristics similar to those previously listed items.

Taken together the dictionary meanings and characteristics of the previous listed items noted above indicate that the primary characteristics of a 'portable electronic device' for the purposes of this provision would be that the device is:

• easily portable and designed for use away from an office environment

• small and light

• can operate without an external power supply, and

• designed as a complete unit.

If a device has these characteristics it would be 'a portable electronic device' for the purposes of paragraph 58X(2)(a) of the FBTAA.

The Accessory 1 is easily portable and designed for use away from an office environment, small and light, can operate without an external power supply and is designed as a complete unit. It is a similar device to the types of devices listed in the FBT Guide for Employers and ATO ID 2008/133. The current model Accessory 1 as advertised for sale in Australia in June 20xx is a portable electronic device for the purposes of paragraph 58X(2)(a) of the FBTAA.

Question 2

Would an Accessory 1 provided under arrangement one be primarily for use in the employee's employment?

Summary

The intended use of the Accessory 1provided under arrangement one is to enable the employee to be easily contactable while travelling and to test the benefits of wearable technology. It is reasonable to conclude that the intended use of the Accessory 1 is primarily for use in the employee's employment.

Detailed Reasoning

Section 58X(2) of the FBTAA requires that for an item that is a portable electronic device according to paragraph 58X(2)(a) of the FBTAA to meet the definition of an 'eligible work related item' the device must be primarily for use in the employee's employment.

ATO Interpretative Decision ATO ID 2008/127 Fringe Benefits Tax Exempt Benefits: work related items - primarily for use in the employee's employment (ATO ID 2008/127), provides guidance in determining whether an item is primarily for use in the employee's employment in this context. In discussing whether a laptop computer was 'primarily for use in the employee's employment' ATO ID 2008/127 states:

The word 'primarily' is not defined in the FBTAA, therefore it takes on its ordinary meaning. The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'primarily' as:

1. in the first place; chiefly; principally.

The employer in applying section 58X of the FBTAA is required to have a basis for concluding that the laptop computer is 'primarily for use in the employee's employment'. This conclusion is based on intended use at the time the benefit is provided to the employee that is, why the laptop computer was provided to an employee 'in the first place'.

There is no requirement to reach this conclusion by reference to usage which can only be ascertained retrospectively. Rather this conclusion is determined by reference to the available evidence at the time the benefit is provided.

Generally, an employer will know whether a laptop computer is being provided chiefly or principally to enable the employee to undertake their employment duties. For example, the employee's job description, duty statement or employment contract can provide a basis for concluding that the laptop computer was primarily for business use.

Alternatively or in cases where it is evident that there are competing uses, in order to determine if the laptop computer is primarily for use in the employee's employment an employer could document such factors as:

• the reason or reasons the laptop computer was provided to the employee

• the type of work to be performed by the employee

• how the use of the laptop computer related to the employee's employment duties and

• the employer's policy and any conditions relating to the use of a laptop computer.

As the employer provides the employee with a laptop computer for use by the employee in their main employment duty that is, regularly visiting clients which requires ready access to a laptop computer for producing and updating work reports between client visits, any personal use of the laptop computer is considered to be incidental to business use.

Accordingly, the laptop computer is primarily for use in the employee's employment as required by subsection 58X(2) of the FBTAA.

The Explanatory Memorandum for Tax Laws Amendment (Small Business Measures No.3) Bill 2015 provides further guidance:

Work-related use test

3.15 An item is primarily for use in an employee's employment if it is provided principally to enable the employee to do their job. This is referred to as the 'work-related use test'.

3.16 When determining whether or not an item is primarily for use in an employee's employment, the decision is based on the employee's intended use at the time the benefit is provided to them. An employer does not have to look at the employee's actual usage over the FBT year to determine whether the item is used primarily in the employee's employment.

3.17 However, an employer must use a reasonable basis to determine whether an item is primarily for use in an employee's employment - for example, the employee's job description, duty statement or employment contract.

3.18 Alternatively, if an employer is aware that there may be private use of an item, they can document factors such as those listed below to determine whether the item is primarily for use in the employee's employment:

• the reason or reasons the item was provided to the employee; the type of work the employee will be performing; how the use of the item relates to the employee's employment duties; and

• the employer's policy and any conditions relating to the use of the item.

To summarise, to determine whether an item is 'primarily for use in the employee's employment' for the purposes of applying section 58X of the FBTAA, the relevant consideration is the intended use of the item at the time the benefit is provided to the employee, as opposed to a retrospective consideration of how the item has actually been used.

As discussed in ATO ID 2008/127 and the Explanatory Memorandum for Tax Laws Amendment (Small Business Measures No.3) Bill 2015 it is considered reasonable to conclude that the intended use of an item is primarily in the employee's employment based on the employees job description, duty statement or employment description or, where there are competing work and private uses, the following factors can assist:

• the reason or reasons the item is being provided to the employee

• the type of work to be performed by the employee

• how the use of the item relates to the employee's employment duties

• the employer's policy and any conditions relating to the use of the item.

You have stated that you intend to provide the Accessory 1 to your employee who is required as part of their duties of employment to travel between multiple worksites multiple times per day and liaise on a constant basis with other members of their team. The Accessory 1 is being provided to allow the employee to stay easily contactable whilst travelling between workplaces and the use of the Accessory 1 and Accessory together will enable the employee to schedule meetings, respond to work related emails and conduct phone or video link ups while at various sites.

The employee will use the Accessory 1 and Accessory 2 to connect to the employer's environment and access data such as calendar, appointments, email, messaging, and contacts.

The employer is currently trialling the use of wearable technology for various benefits relating to efficiency gains and occupational health and safety. You require your employee to use the Accessory 1to participate in and report on the testing.

You have procedures in place that restrict and control the employee's use of their electronic devices.

We consider that it is reasonable to conclude that the intended use of the Accessory 1is primarily for use in the employee's employment. The Accessory 1 is a portable electronic device that is primarily for use in the employee's employment and is therefore an 'eligible work related item' in accordance with the requirements of subsection 58X(2) of the FBTAA (subject to 58X(3) of the FBTAA).

Question 3

Would an Accessory 1 provided under arrangement two be primarily for use in the employee's employment?

Summary

The intended use of the Accessory 1 provided under arrangement two is to enable the employee to be easily contactable while travelling and to test the benefits of wearable technology. It is reasonable to conclude that the intended use of the Accessory 1 is primarily for use in the employee's employment.

Detailed Reasoning

Under arrangement two you enter into an effective salary sacrifice arrangement (SSA) with your employee in accordance with the meaning provided by Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/10).

Under the terms of the SSA your employee will purchase an Accessory 2 and Accessory 1 and you will reimburse the employee for the cost of the items. The reimbursement for both items will occur in the same FBT year.

Refer to the reasoning in question two above. As discussed in question two, in determining whether an item is 'primarily for use in the employee's employment' for the purposes of applying section 58X of the FBTAA, the relevant consideration is the intended use of the item at the time the benefit is provided to the employee. Whether the benefit is provided through a salary sacrifice arrangement or not does not change the employee's intended use at the time the benefit is provided and has no impact on this determination.

The same reasoning as discussed in question two above can be applied to conclude that the Accessory 1, when provided under arrangement two, is a portable electronic device that is primarily for use in the employee's employment and is therefore an 'eligible work related item' in accordance with the requirements of subsection 58X(2) of the FBTAA (subject to 58X(3) of the FBTAA).

Question 4

Does an Accessory 1 have substantially identical functions to an Accessory 2 for the purposes of subsection 58X(3) of the FBTAA?

Summary

An Accessory 1 does not have substantially identical functions to an Accessory 2 for the purposes of subsection 58X(3) of the FBTAA.

Detailed Reasoning

You intend to provide an Accessory 2 and Accessory 1 to your employee in the same FBT year as either expense payment or property benefits. An Accessory 2 is a portable electronic device that will be an eligible work related item in accordance with subsection 58X(2) of the FBTAA where it is provided primarily for use in the employee's employment. As concluded above the Accessory 1 is also a subsection 58X(2) eligible work related item in these circumstances.

As discussed in question one above, the classification of an item as an eligible work related item under subsection 58X(2) of the FBTAA is subject to subsection 58X(3) of the FBTAA. Subsection 58X(3) restricts the exemption for eligible work related items to only allow an exemption for one eligible work related item per year if the subsequent item has substantially identical functions to the first.

Subsection 58X(3) states:

58X(3) [Later Items]

An item (the later item) listed in subsection (2) is not an eligible work related item if, earlier in the FBT year, an expense payment or a property benefit of the employee has arisen in relation to another item that has substantially identical functions to the later item.

In summarising, subsection 58X(3) will only allow the Accessory 1 to be considered an eligible work related item if it does not have substantially identical functions to the Accessory 2.

The term 'substantially identical functions' is not defined in the FBTAA.

The meaning of 'substantially identical functions' in the context of subsection 58X(3) is discussed in the FBT Guide for Employers which states:

Substantially identical functions

An eligible work related item will not be exempt from FBT if earlier in the same FBT year you have provided your employee, by way of an expense payment benefit, with an item that has substantially identical functions.

It is the features or design specifications that are examined when determining whether items have substantially identical functions, not the intended use of the items.

Items will have substantially identical functions where the functions of two items are the same in most respects. However, items may be different in a number of ways which do not impact on an item's function. For example, colour, shape, brand and design would not generally be relevant considerations when determining whether two items have substantially identical functions.

Where a tablet computer can perform the functions of a laptop computer, even in a reduced capacity, it would be considered to have substantially identical functions to the laptop computer. However, where a tablet computer is designed primarily as a means of digital media consumption, rather than creation, it would not have substantially identical functions to a laptop.

Example - Items do not have substantially identical functions

An employer gives their employee a laptop during the FBT so that they can work from home and access their email, prepare work related material such as word processing documents and complex spreadsheets and access the internet.

In the same FBT year, the employer gives that employee a tablet as it is more portable than the laptop and is useful for the employee when they are travelling. The tablet is designed to access email and browse the internet. It is not designed to create word processing documents or complex spreadsheets. The tablet does not have substantially identical functions to the laptop computer and would not be considered to be able to replace the laptop. The tablet would also be exempt from FBT, provided it was used primarily for work-related purposes.

The meaning of 'substantially identical functions' in the context of subsection 58X(3) has also been considered in numerous National Tax Liaison Group Fringe Benefits Tax Subcommittee meetings (NTLG FBT Subcommittee Meeting), the minutes of which provide some further guidance.

In the meeting of ddmmyy the ATO discussed the difficulties that can arise in resolving this question. The minutes state:

The ATO stated that given the advances in technology and ongoing convergence of technologies, it remains the case that in some circumstances it will come down to a question of fact and application of judgement based on an understanding of the specifications and functions of different devices as to whether two 'portable electronic devices' have substantially identical functions…

…the ATO confirmed that the intended use of an item is not a factor that will assist is determining whether two items in fact have 'substantially identical functions'. (Sic)

The ATO also advised members that the reforms to section 58X were specifically enacted to ensure an item, firstly, must be provided primarily for use in the employee's employment. Secondly, to ensure the law would not become outdated due to advances in technology, terms including 'portable electronic device' and 'substantially identical functions' were adopted for the reforms to section 58X.

In the meeting of ddmmyy the ATO provided guidance consistent with the discussion comparing laptops and tablets in the FBT Guide for Employers. The minutes state:

In the context of section 58X, items will have substantially identical functions' where the functions of two items are the same in most respects. However, items may be different in a number of ways which do not impact on an item's functions. For example colour, shape, brand and design would not generally be relevant considerations when determining whether two items have substantially identical functions.

In applying the 'substantially identical functions' test in a practical sense to the scenarios put forward by the ICAA, it is considered that a 'mobile phone', with calendar/organiser functionality does not have 'substantially identical functions' to a PDA. They may have some functions in common however they do not have functions that are the same in most respect.

The example put forward in the ICAA submission refers to the iPad as being one of a new generation of tablet computers. In a general discussion, it was accepted by the ATO that the iPad would not have substantially identical functions to a laptop computer.

The iPad has limited functionality in comparison to a laptop. An iPad might be said to be designed as a means of digital media consumption rather than creation. It would also be accepted that the iPad was not designed to replace a laptop, an iPad does not have functions that are the same in most respects to a laptop. It was agreed that an iPad and a laptop do not have substantially identical functions.

Although it was agreed that the iPad does not have substantially identical functions to a laptop, the ATO reminded members that an employer still needs to be satisfied that an iPad is to be used 'primarily for use in the employee's employment' - subsection 58X(2).

In applying the 'substantially identical functions' test in relation to portable computers more generally, which includes laptops, tablets, netbooks and ultraportables, an employer would need to determine whether two portable computers have substantially identical functions. It was agreed difficulties may arise in some scenarios, particularly where items are similar in functionality but do not have identical functions. It will be a question of fact in such circumstances as to whether such items have substantially identical functions.

Considering the guidance above, it is important to reiterate that it is the design functions of the two items that must be compared, not their intended uses. Further, features which do not impact on an item's function such as colour, shape and design are not generally relevant when considering whether items have substantially identical functions. That is, if it was the case that an employee intended to only use the Accessory 1and Accessory in exactly the same way, limiting the use to the functions in common, this would not be a determining factor in making a conclusion that the items actually have substantially identical functions.

The FBT Guide for Employers and the Minutes of the ddmmyy NTLG FBT Subcommittee Meeting compare tablets and laptops and consider the following relevant factors to conclude that the items specifically considered in their examples do not have substantially identical functions for the purposes of subsection 58X(3) of the FBTAA:

• the iPad/tablet model being considered has limited functionality in comparison to a laptop and is designed as a means of digital media consumption rather than creation (it is designed to access email and browse the internet not create word processing documents or complex spreadsheets)

• the iPad/tablet model being considered is more portable than a laptop and given its limited functions it not designed to replace a laptop

Crucially, the Accessory 1 as it is advertised for sale in Australia in June 20xx:

• must be paired with an relevant Accessory 2, or subsequent device and be within the required proximity of that Accessory in order to utilise many of the features of the Accessory 1 (relevantly for example, messaging, accessing email and making and receiving phone calls)

• can receive messages or emails but sending or responding is limited to sending short, pre-set phrases or dictating a reply and sending it as audio or text. You must switch to the Accessory to use a keyboard to send or reply to text messages and emails

We consider that the Accessory 1 as it is currently advertised for sale in Australia in June 20xx compared with the Accessory 2 is analogous to the iPad/tablet and laptop examples discussed in the FBT Guide for Employers and the Minutes of the ddmmyy NTLG FBT Subcommittee Meeting. The Accessory 1 must be paired with and in the vicinity of an Accessory 2 or later model to perform all of its functions whereas the Accessory 2 can perform all of its functions independently to any other devices. Even when paired with the Accessory 2, the Accessory 1 has limited functionality in comparison to the full functionality of the Accessory 2. Particularly considering the Accessory 1's ability to display messages and emails and its significantly limited ability to respond to or compose messages and emails, it appears that the Accessory 1 is designed as a means of communication and media consumption rather than creation. Given these differences and the fact that the Accessory 1 must be paired with the Accessory 2, it would not be accepted that the Accessory 1 was designed to replace an Accessory 2. Considering these factors it is our conclusion that the Accessory 1 as it is currently advertised for sale in Australia in June 20xx does not have substantially identical functions to the Accessory 2 for the purposes of subsection 58X(3) of the FBTAA.

For your information

From the commencement of the period covered by this ruling subsection 58X(4) limits the application of subsection 58X(3) to not have effect where the later item is a replacement for the earlier item. The subsection 58X(4) limitation has been broadened with effect from 20xx and applicable in relation to the 20xx-yy FBT year and later FBT years and states:

58X(4) However, subsection (3) does not apply if:

(a) the later item is a replacement for the other item; or

(b) the later item is a portable electronic device, and the employer is a small business entity for:

(i) the year of income starting most recently after the start of the FBT year, or

(ii) the year of income ending most recently after the start of the FBT year.

Example:

For paragraph (a), the later item would be a replacement for the other item if the other item were lost or destroyed, or needed replacing because of developments in technology.

That is, for the 20xx-yy or later FBT years, if you are a small business entity according to paragraph 58X(4)(b) of the FBTAA, portable electronic devices provided in accordance with section 58X of the FBTAA will be exempt without requiring consideration of the subsection 58X(3) substantially identical functions test.