Edited version of your written advice

Authorisation Number: 1051232412171

Date of advice: 05 Jun 2017

Ruling

Subject: Fringe Benefits Tax and Portable Electronic Devices

Question 1

Are Accessories YZ a portable electronic device under paragraph 58X(2)(a) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

If Accessories YZ are a portable electronic device, is the provision of Accessories YZ to a director, in the circumstances outlined, an exempt benefit under section 58X of the FBTAA?

Answer

Yes.

This ruling applies for the following periods:

01/07/2016 to 30/06/2017

The scheme commences on:

01/07/2016

Relevant facts and circumstances

1. You are an Australian registered company, operating an accounting practice.

2. You have two directors, both of whom work in the practice and are employees. Their roles are to liaise with existing and prospective clients throughout the day, at the office, client offices or other agreed locations, supervise staff work performed and attend to the running of the practice.

3. Your directors provide their mobile phone numbers to clients and are regularly contacted on their mobile phones by clients throughout the work day.

4. One director has previously used a headset for making and receiving calls, however it often does not connect in time to receive a call, sound quality has been at times distracting to callers and it is often not secure in staying attached to the director’s ear.

5. You are proposing, for one or both of the directors, to pay for a pair of Accessories YZ each and give this to the directors as a Fringe Benefit for their use at work and on occasion personally.

6. The Accessories YZ:

● are designed to be worn in a user’s ear, and are therefore easily portable

● have a protective charging case, designed to be use outside office environments

● have, together with the case, a weight of 46 grams which is small and light

● have a built in battery for between 5 and 24 hours of battery life

● are two individual devices, but they are designed and sold as a complete unit, and are unavailable for purchase individually.

7. The Accessories YZ are capable of serving many functions including:

● operating as wireless headphones

● operating as wireless headset for making voice calls

● using a virtual assistant to make calls and adjust volume

● seamlessly switching between computer, mobile phone and Accessories YZ for phone calls.

8. The purpose of providing the Accessories YZ is to allow the directors to:

● make and receive client calls throughout the work day quickly and with clear voice in an open plan environment

● continue work calls starting in the office and moving outside the office (such as on the way to a client appointment)

● listen to work related videos and presentations within the open plan office without disrupting other staff

● listen to work related videos and presentations between client meetings out of the office

● demonstrate to clients that A Squared Advisers continue to lead the way with new technology.

9. The Accessories YZ may be used privately by the directors from time to time, however it is expected this will be a small amount of the actual usage (30% or less).

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 58X

Acts Interpretation Act 1901 (Cth) section 23

Reasons for decision

Question 1

Are Accessories YZ a portable electronic device under paragraph 58X(2)(a) of the FBTAA?

Summary

Accessories YZ are a portable electronic device under paragraph 58X(2)(a) of the FBTAA.

Detailed reasoning

Legislative Background

Section 40 of the FBTAA states:

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.

Section 58X of the FBTAA exempts certain work related items, including certain property benefits, from fringe benefits tax:

(1) 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.

(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.

(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.

(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.

The word 'device’ is not defined in the FBTAA therefore it takes on its ordinary meaning. The Australian Oxford Dictionary [Multimedia] (2 ed. 2004) 18/05/17 defines 'device’ as:

1. a thing made or adapted for a particular purpose, especially a mechanical contrivance.

ATO Interpretative Decision ATO ID 2008/133 Exempt Benefits: work related items - a portable electronic device gives the following guidance as to the meaning of 'portable electronic device’:

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 word 'unit’ is not defined in ATO ID 2008/133 or the FBTAA therefore it takes on its ordinary meaning. The Australian Oxford Dictionary [Multimedia] (2 ed. 2004) 18/05/17 defines 'unit’ as:

1. an individual thing, person, or group regarded as single and complete, especially for purposes of calculation.

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.

The Explanatory Memorandum for the Tax Laws Amendment (Budget Measures) Bill 2008 (EM 2008) states in relation to the former subsection 58X(2):

1.11 The list of exempt items has also 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.

The EM 2008 further states that:

1.16 These amendments:

− [have the effect that] the list of work-related items will also be updated to deal with changes in technology

To summarise, the list of specific electric devices was replaced with the general description of a 'portable electronic device’, that is primarily for use in the employee’s employment, so that the exemptions provided for in section 58X would remain relevant as technology changed.

Section 58X is interpreted according to the Acts Interpretation Act 1901 (Cth) (AIA). Paragraph 23(b) of the AIA states that in any Act:

words in the singular number include the plural and words in the plural number include the singular.

The principle of paragraph 23(b) of the AIA is that stated by the Board of the Privy Council in Blue Metal Industries Ltd v Dilley (1969) 117 CLR 651; [1970] AC 827 (Blue Metal Industries) (at 656):

By s 21 of the Interpretation Act, 1897 (NSW) it is enacted that in all Acts, unless the contrary intention appears, words in the singular shall include the plural and words in the plural shall include the singular. Such a provision is of manifest advantage. It assists the legislature to avoid cumbersome and over-elaborate wording. Prima facie it can be assumed that in the processes which lead to an enactment both draughtsman and legislators have such a provision in mind. It follows that the mere fact that the reading of words in a section suggests an emphasis on singularity as opposed to plurality is not enough to exclude plurality. Words in the singular will include the plural unless the contrary intention appears. But in considering whether a contrary intention appears there need be no confinement of attention to any one particular section of an Act. It must be appropriate to consider the section in its setting in the legislation and furthermore to consider the substance and tenor of the legislation as a whole.”

The substance and tenor of the FBTAA, in the context of the legislative history of subsection 58X(2), does not reveal any contrary intention to the principle in paragraph 23(b) of the AIA and guidance in Blue Metal Industries. That is, the singular word of 'device’ is taken to include the plural words of 'devices’. This is supported by the EM 2008, which indicates that the phrase 'portable electronic device’ is used in paragraph 58X(2)(a) to flexibly accommodate changes in technology, rather than serving as a rigid definition.

This reading of 'device’, as also including 'devices’, in paragraph 58X(2)(a) is also supported by ATO ID 2008/133. The final characteristic listed that indicates if a device is a 'portable electronic device’ is that the device is 'designed as a complete unit’. As per the definition of 'unit’ in the Macquarie Dictionary, this would also encompass a 'group [of devices] regarded as single and complete’. As such, multiple devices designed as a complete, single group would be considered to be designed as a single unit. Where such a group of devices also satisfies the other characteristics in ATO ID 2008/133, then that group of devices would be a 'portable electronic device’ for the purposes of paragraph 58X(2)(a) of the FBTAA.

Analysis

The Accessories YZ are items of property, which would be provided by you to your employees, the directors. As such, the provision of the Accessories YZ would be a property benefit under section 40 of the FBTAA.

The Accessories YZ has the following characteristics:

● They are designed to be worn in a user’s ear, and are therefore easily portable.

● They have a protective charging case, designed to be used outside office environments.

● They have, together with the case, a weight of 46 grams which is small and light.

● They have a built in battery for between 5 and 24 hours of battery life.

● They are two individual devices, but they are designed and sold as a complete unit, and are unavailable for purchase individually.

As a pair of Accessories YZ are designed as one unit of devices, they are encompassed within the term 'device’ in paragraph 58X(2)(a), as per paragraph 23(b) of the AIA.

These characteristics comply with the guidance provided by ATO ID 2008/133 for determining whether an item is 'a portable electronic device’ for the purpose of paragraph 58X(2)(a) of the FBTAA.

Conclusion

As such, the Accessories YZ are a portable electronic device for the purposes of paragraph 58X(2)(a) of the FBTAA.

Question 2

If Accessories YZ are a portable electronic device, is the provision of Accessories YZ to a director, in the circumstances outlined, an exempt benefit under section 58X of the Fringe Benefits Tax Assessment Act 1986?

Summary

The provision of Accessories YZ to a director, in the circumstances outlined, is an exempt benefit under section 58X of the FBTAA.

Detailed Reasoning

Legislative Background

Sections 40 and 58X of the FBTAA are set out in the detailed reasoning for Question 1. Paragraphs 58X(1)(b) and 58X(2)(a) of the FBTAA together provide that a portable electronic device provided by an employer to an employee is exempted from fringe benefits tax where it is primarily for use in the employee's employment.

ATO Interpretative Decision ATO ID 2008/127 Exempt Benefits: work related items - primarily for use in the employee's employment provides the following guidance for determining whether a portable electronic device was provided primarily for use in an employee's employment:

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 relates to the employee's employment duties, and

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

The Explanatory Memorandum for Tax Laws Amendment (Small Business Measures No.3) Bill 2015 (EM 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, a portable electronic device is 'primarily for use in an employee's employment’ if it is if it is provided principally to enable the employee to do their job. The decision of whether the device was provided on such a basis is based on the employee's intended use at the time the benefit is provided to them, as opposed to a retrospective consideration of how the item has actually been used. An employer must use a reasonable basis to determine whether an item is primarily for use in an employee's employment, documenting the factors relied upon where the employer is aware that there may be private use of the device.

Analysis

You are providing Accessories YZ to your employees for a variety for work-related purposes, which relate to the work and duties of the employees. These purposes include:

● making and receive client calls throughout the work day quickly and with clear voice in an open plan environment

● continuing work calls starting in the office and moving outside the office (such as on the way to a client appointment)

● listening to work related videos and presentations within the open plan office without disrupting other staff

● listening to work related videos and presentations between client meetings out of the office

● demonstrating to clients that you continue to lead the way with new technology.

As per ATO ID 2008/127, you are chiefly or principally providing the Accessories YZ to your employees to enable the employees to undertake their employment duties.

As such, the Accessories YZ that you will provide to your directors will be primarily for use in the employee's employment, as per paragraph 58X(2)(a), and therefore be eligible work related items.

As property benefits that are eligible work related items, the Accessories YZ will be exempt benefits, as per paragraph 58X(1)(b).

Conclusion

The provision of Accessories YZ to a director in the circumstances outlined is an exempt benefit under section 58X of the FBTAA.