Edited version of your written advice

Authorisation Number: 1051369042294

Date of advice: 10 May 2018

Ruling

Subject: FBT exemption – portable electronic device

Issue 1

Question 1

In respect of the devices that are provided to the taxpayer’s employees under a salary sacrifice arrangement, do they qualify as eligible work related items under section 58X of the Fringe Benefits Tax Assessment Act 1986, so that they are exempt benefit?

Answer

Yes.

Question 2

In respect of the devices that are provided to the taxpayer’s employees under a salary sacrifice arrangement, do they qualify as eligible work related items under section 58X of the Fringe Benefits Tax Assessment Act 1986, so that they are exempt benefit?

Answer

Yes.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In recent years, it has become prevalent for certain employees of the taxpayer utilise certain electronic devices in performing their work duties.

The taxpayer’s employees routinely carry the devices, which are small, lightweight, can operate from their own self-contained battery power source and are designed as complete units for use in certain environment.

The taxpayer is supportive of using the electronic devices by these employees, as well as recognises the need of the employees to utilise available technology and devices to assist them in their work.

The taxpayer is aware that some employees already purchase their own items of the devices and seek applicable income tax deductions upon completion of their individual income tax returns in consultation with their own tax advisors.

In 20XX, the taxpayer commenced a rollout of the devices to some of its employees and introduced compatible internal system in support of use of the devices.

There are many and varied devices available on the market in different price range. These items are primarily designed and marketed for use in performing the type of duties that the taxpayer’s employees perform at work.

The taxpayer does not mandate any particular product or item; it provides employees with certain minimum device performance specifications as well as configuring settings. The taxpayer would recommend the employees to purchase the same device as those already provided for internal management purpose.

The general practice will be that, the employees purchase their own devices outright out of their own pocket, and subsequently claim reimbursements of the funds from the salary packaging account managed by an external provider.

Relevant legislative provisions

Fringe Benefit Tax Assessment Act 1986

Issue 1

Unless otherwise stated, all legislative references are to the Fringe Benefit Tax Assessment Act 1986 (FBTAA).

Question 1

Reasons for decision

Pursuant to section 20, an expense payment benefit arises where an employer pays or reimburses expenses incurred by an employee.

Where the taxpayer’s employees forego part of their remuneration amounts to purchase the devices under a salary sacrifice arrangement, an expense payment fringe benefit arises.

Paragraph 19 of the Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/10) explains that, the term salary sacrifice arrangement (SSA) means an arrangement under which an employee agrees to forego part of his or her total remuneration, that he or she would otherwise expect to receive as salary or wages, in return for the employer or someone associated with the employer providing benefits of a similar value. The main assumption made by the parties is that the employee is then taxed under the income tax laws only on the reduced salary or wages and that the employer is liable to pay FBT, if any, on the benefits provided.

The type of benefits provided in salary by employers to employees includes expense payment fringe benefits: paragraph 20 of the TR 2001/10.

One of the two common ways in structuring a salary package is that, on a total remuneration cost basis, the employee can select a mix of salary and permitted benefits so that the total cost to the employer, including FBT on the provided benefits stays the same. It can allow employees to give up part of their salary entitlement in return for desired benefits that are not assessable to the employee, but are taxable or exempt fringe benefits.

In this case, the devices are provided as part of a SSA by an external salary packaging provider under an arrangement with the taxpayer (employer).

In consideration that whether provision of the devices is a taxable or exempt fringe benefit, section 58X provides an exemption for expense payment benefits relating to the provision of certain work related items.

To qualify for the exemption, the benefit must be for an eligible work related item that is provided to the employee in respect of the employee’s employment: subsection 58X(1) and the item must be provided primarily for use in the employee’s employment: subsection 58X(2).

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

A portable electronic device is included in the list in subsection 58X(2): paragraph 58X(2)(a).

The FBTAA does not provide a definition of a ‘portable electronic device’. In the ATO Interpretative Decision ID 2008/133 Fringe Benefits Tax Exempt Benefits: work related items - a portable electronic device (ATO ID 2008/133), the Commissioner considers that, if a device has the following primary characteristics, it would be a ‘portable electronic device’ for purpose of paragraph 58X(2)(a):

● 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.

In this case, the devices can operate on their own self-contained battery power source, are small and lightweight, easily portable and designed as a complete unit for use in certain environment, they are considered as portable electronic devices under paragraph 58X(2)(a).

The word ‘primarily’ is not defined in the FBTAA. The 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) states that the word ‘primarily’ takes 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 ATO ID 2008/127 further explains that, it is only necessary to consider the intended use of the item by reference to the available evidence at the time the benefit is provided, and not actual future use. The employee’s job description, duty statement or employment contract can provide a basis for conclusion.

In this case, it has become prevalent for the taxpayer’s employees to carry and utilise the devices in performing their duties at work.

According to the employees’ position description documents, their responsibilities involve large amount of work that requires them to use the devices at work.

In addition to the descriptions of the employees’ positions, the taxpayer recognises the need for the employees to utilise available technology and the devices to assist them in their work, it is considered that, the devices are provided primarily for use in the employees’ employment.

The items will not be exempt, if earlier in the FBT year, an item with substantially identical functions was provided: subsection 58X(3), unless the later item is a replacement for the earlier provided item: paragraph 58X(4). Subsection 58X(3) does not apply to small business entities.

In applying subsection 58X(3), it is necessary to consider whether a work-related item has substantially identical functions to an item provided earlier in the FBT year.

In this case, the specified devices have certain functions that can assist the employees in performing their daily duties at work, the taxpayer provides the employees with requirements of the minimum performance specifications and configuring settings.

Generally, it will be an easy matter to determine if two devices have substantially different functions, unless difficulties arise where items are similar in appearance and/or functionality. 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 items of devices have substantially identical functions.

This test in subsection 58X(3) does not simply limit the exemption to the provision of more than one ‘substantially identical’ work-related item, it extends to more than one expense payment or property benefit. Accordingly, if the employer provides multiple expense payments with respect to one item spanning more than one FBT year, then another item cannot be provided as an expense payment benefit in either the first or second year of payments.

A replacement item is one that is required because the earlier item was lost, destroyed or needed to be replaced due to developments in technology. A second item used as a back-up item is not exempt under section 58X: NTLG FBT Subcommittee minutes of meeting, 14 May 2009.

Therefore, provision of the devices to the employees through a SSA by an external salary packaging provider under an arrangement with the taxpayer constitutes an expense payment fringe benefit under section 20.

The items are portable electronic devices under paragraph 58X(2)(a), they are provided in respect of the taxpayer’s employees’ employment and primarily for use in the employees’ employment.

Provided that, in one FBT year, an employee is only provided with one item of device with identical functions under such an arrangement, unless it is a replacement that is required because the earlier item is lost, destroyed or needed to be replaced due to technology development, it is an exempt fringe benefit.

Question 2

Reasons for decision

Pursuant to section 20, an expense payment benefit arises where an employer pays or reimburses expenses incurred by an employee.

Where the taxpayer’s employees forego part of their remuneration amounts to purchase the devices under a salary sacrifice arrangement, an expense payment fringe benefit arises.

Paragraph 19 of the Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/10) explains that, the term salary sacrifice arrangement (SSA) means an arrangement under which an employee agrees to forego part of his or her total remuneration, that he or she would otherwise expect to receive as salary or wages, in return for the employer or someone associated with the employer providing benefits of a similar value. The main assumption made by the parties is that the employee is then taxed under the income tax laws only on the reduced salary or wages and that the employer is liable to pay FBT, if any, on the benefits provided.

The type of benefits provided in salary by employers to employees includes expense payment fringe benefits: paragraph 20 of the TR 2001/10.

One of the two common ways in structuring a salary package is that, on a total remuneration cost basis, the employee can select a mix of salary and permitted benefits so that the total cost to the employer, including FBT on the provided benefits stays the same. It can allow employees to give up part of their salary entitlement in return for desired benefits that are not assessable to the employee, but are taxable or exempt fringe benefits.

In this case, the devices are provided as part of a SSA by an external salary packaging provider under an arrangement with the taxpayer (employer).

In consideration that whether provision of the devices is a taxable or exempt fringe benefit, section 58X provides an exemption for expense payment benefits relating to the provision of certain work related items.

To qualify for the exemption, the benefit must be for an eligible work related item that is provided to the employee in respect of the employee’s employment: subsection 58X(1) and the item must be provided primarily for use in the employee’s employment: subsection 58X(2).

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

A portable electronic device is included in the list in subsection 58X(2): paragraph 58X(2)(a).

The FBTAA does not provide a definition of a ‘portable electronic device’. In the ATO Interpretative Decision ID 2008/133 Fringe Benefits Tax Exempt Benefits: work related items - a portable electronic device (ATO ID 2008/133), the Commissioner considers that, if a device has the following primary characteristics, it would be a ‘portable electronic device’ for purpose of paragraph 58X(2)(a):

● 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.

In this case, the devices can operate on their own self-contained battery power source, are small and lightweight, easily portable and designed as a complete unit for use in certain environment, they are considered as portable electronic devices under paragraph 58X(2)(a).

The word ‘primarily’ is not defined in the FBTAA. The 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) states that the word ‘primarily’ takes 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 ATO ID 2008/127 further explains that, it is only necessary to consider the intended use of the item by reference to the available evidence at the time the benefit is provided, and not actual future use. The employee’s job description, duty statement or employment contract can provide a basis for conclusion.

In this case, it has become prevalent for the taxpayer’s employees to carry and utilise the devices in performing their duties at work.

According to the employees’ position description documents, their responsibilities involve large amount of work that requires them to use the devices at work.

In addition to the descriptions of the employees’ positions, the taxpayer recognises the need for the employees to utilise available technology and the devices to assist them in their work, it is considered that, the devices are provided primarily for use in the employees’ employment.

The items will not be exempt, if earlier in the FBT year, an item with substantially identical functions was provided: subsection 58X(3), unless the later item is a replacement for the earlier provided item: paragraph 58X(4). Subsection 58X(3) does not apply to small business entities.

In applying subsection 58X(3), it is necessary to consider whether a work-related item has substantially identical functions to an item provided earlier in the FBT year.

In this case, the specified devices have certain functions that can assist the employees in performing their daily duties at work, the taxpayer provides the employees with requirements of the minimum performance specifications and configuring settings.

Generally, it will be an easy matter to determine if two devices have substantially different functions, unless difficulties arise where items are similar in appearance and/or functionality. 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 items of devices have substantially identical functions.

This test in subsection 58X(3) does not simply limit the exemption to the provision of more than one ‘substantially identical’ work-related item, it extends to more than one expense payment or property benefit. Accordingly, if the employer provides multiple expense payments with respect to one item spanning more than one FBT year, then another item cannot be provided as an expense payment benefit in either the first or second year of payments.

A replacement item is one that is required because the earlier item was lost, destroyed or needed to be replaced due to developments in technology. A second item used as a back-up item is not exempt under section 58X: NTLG FBT Subcommittee minutes of meeting, 14 May 2009.

Therefore, provision of the devices to the employees through a SSA by an external salary packaging provider under an arrangement with the taxpayer constitutes an expense payment fringe benefit under section 20.

The items are portable electronic devices under paragraph 58X(2)(a), they are provided in respect of the taxpayer’s employees’ employment and primarily for use in the employees’ employment.

Provided that, in one FBT year, an employee is only provided with one item of device with identical functions under such an arrangement, unless it is a replacement that is required because the earlier item is lost, destroyed or needed to be replaced due to technology development, it is an exempt fringe benefit.