Edited version of private advice

Authorisation Number: 1052160229998

Date of advice: 19 December 2023

Ruling

Subject: FBT - minor benefits

Question

Will the gift card provided under the employee recognition program be exempt under 58P of the Fringe Benefit Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

Year Ended 31 March 2024

Year Ended 31 March 2025

Year Ended 31 March 2026

Year Ended 31 March 2027

The scheme commenced on:

1 January 2024

Relevant facts and circumstances

The Employer is intending to create an employee recognition and reward program. The purpose of this program is to enable employees to recognise fellow employees for their contributions. Employees can be nominated under the employer's core values.

The reward part of the program runs bi-annually and involves selected employees receiving a prize of a $250 gift card.

The gift card cannot be exchanged for cash. However, it can be used at any stores that allow the use of a Visa card.

The nomination process requires employees to submit a nomination form outlining which of the core values the nominated employee is being recognised for and detail how that value was demonstrated. A nomination can be submitted at any time and employees cannot self-nominate.

The Employer employs over 1000 staff in Australia and all employees are eligible to nominate and be nominated provided the following criteria is met:

•         Must be a current employee at the time the award is issued

•         Must not have been issued an unsatisfactory work performance plan or have not been issued with a disciplinary outcome in relation to misconduct, under performance or any other matter in the last 12 months

•         Must have received a professional development plan (PDP) rating of 'achieved' in either the mid-year or the end of year review process, whichever was most recent.

•         A new employee still within the probation period without any performance concerns

•         Who has successfully completed their probationary period, who has a current PDP but has not yet participated in a mid-year or end-of-year review and does not have any known performance concerns

•         Is the individual recipient of a nomination that was placed either between 1 March to 31 August or 1 September to 28 February (or 29 February on a leap year) (depending on which bi-annual award is being considered)

•         Performance and behaviour are in accordance with all policies and procedures

•         If an employee has won an award for one of the core values, they are not eligible for another award (in any category) within a twelve-month period.

The purpose of this program is to enable employees to recognise fellow employees for their contributions. Employees can be nominated under the employer's core values of integrity, respect, collaboration and achievement.

The nominations are vetted and then reviewed and assessed by a panel of representatives to select between 5-10 winners. To avoid bias, panel members cannot assess their own nominations (whether received or submitted) or one from their direct reports or managers.

It is possible that no employee has shown the traits required to be awarded the prize and therefore the gift card will not be award for the value. Similarly, there may be two winners for the one category as a once-off exemption if two employees show the traits.

This program does not intend to supersede any programs that are run on a local level. It provides the opportunity for all employees nationally to have input into a recognition program.

There is a local rewards program which operates on a monthly basis. The local office employees nominate their local colleagues for a reward. All nominations go into a hat and one nomination is drawn from the hat. The winner in the office receives a $50 gift voucher, and the nominator also receives $50 gift voucher. This program is specific to only that office.

Relevant legislative provisions

Fringe Benefit Tax Assessment Act 1986 Section 40

Fringe Benefit Tax Assessment Act 1986 Section 43

Fringe Benefit Tax Assessment Act 1986 Section 45

Fringe Benefit Tax Assessment Act 1986 Section 50

Fringe Benefit Tax Assessment Act 1986 Section 58P

Fringe Benefit Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

The term 'benefit' is defined in subsection 136(1) for the FBTAA including:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility.

A gift card in the circumstance described confers rights on the bearer, being the merchant's promise to provide goods or services up to the stored value on the gift car. When an employer gives a gift card to an employee, the rights conferred are 'benefits' under subsection 136(1) of the FBTAA.

A benefit of less than $300 will be a minor benefit, and may be an exempt benefit, if it would be unreasonable to treat the minor benefit as a fringe benefit considering the criteria stated in subsection 58P(1)(f):

(f) having regard to:

(i) the infrequency and irregularity with which associated benefits, being benefits

that are identical or similar to:

(A) the minor benefit; or

(B) benefits provided in connection with the provision of the minor benefit:

have been or can reasonably be expected to be provided;

(ii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable

values of the minor benefit and any associated benefits, being benefits that are identical or similar

to the minor benefit, in relation to the current year of tax or any other year of tax;

(iii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable

values of any other associated benefits in relation to the current year of tax or any other year of

tax;

(iv) the practical difficulty for the employer in determining the notional taxable values in relation to the current year of tax of:

(A) if the minor benefit is not a car benefit - the minor benefit; and

(B) if there are any associated benefits that are not car benefits - those associated benefits; and

(v) the circumstances surrounding the provision of the minor benefit and any associated benefits including, but without limiting the generality of the foregoing:

(A) whether the benefit concerned was provided to assist the employee to deal with an

unexpected event; and

(B) whether the benefit concerned was provided otherwise than wholly or principally by

way of a reward for services rendered, or to be rendered, by the employee;

it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefit in relation to the employer in relation to the current year of tax:

the minor benefit is an exempt benefit in relation to the current year of tax.

To summarise these requirements, the benefit that arises from the provision of the gift card by the employer will be an exempt minor benefit if:

(i) the notional taxable value of the benefit is less than $300; and

(ii) it can be concluded on the basis of the factors listed in paragraph 58P(1)(f) of the FBTAA that it would be unreasonable to treat the benefits as a fringe benefit.

Guidance to the application of these requirements is provided in Taxation Ruling TR 2007/12 Fringe benefit tax: minor benefits (TR 2007/12).

(i) The notional taxable value of the benefit is less than $300

The definition of 'notional taxable value' in subsection 136(1) of the FBTAA provides that the 'notional taxable value' of the benefit that arises from the provision of a gift card by the employer is the taxable value of benefit if it were a fringe benefit.

Section 58P does not exempt all benefits that have a notional taxable value of less than $300. Benefits that are specifically excluded include in-house fringe benefits.

Property fringe benefit

The benefit of the gift card is considered an external property fringe benefit under section 40 of the FBTAA.

The rights that exist as a bearer of a gift card, which allows the bearer to receive goods or services up to the stored value, are considered property

As the benefit is accordingly 'intangible property' it does not satisfy the definition of 'in-house property fringe benefit' in subsection 136(1) of the FBTAA. Subsequently it is considered an external property fringe benefit.

The external property fringe benefit, being the gift card, will be provided by the employer. It is assumed that the purchase of the gift cards will be under an arm's length transaction/s from a third-party entity. The amount paid by the employer for each gift card awarded is $250, being the taxable value as defined under section 43 of the FBTAA. The taxable value of each gift card is therefore below $300 thus satisfying this requirement.

Is the benefit specifically excluded from section 58P of the FBTAA?

In-house fringe benefits and tax-exempt body entertainment benefits are specifically excluded from being minor benefits, and as the payment by the employer for gift cards is not either of these types of benefits, it is not specifically excluded from section 58P of the FBTAA

(ii) It can be concluded on the basis of the factors listed in paragraph 58P(1)(f) of the FBTAA that it would be unreasonable to treat the benefits as a fringe benefit.

TR 2007/12 explains the five criteria that must be considered before a benefit can be considered unreasonable to be treated as a fringe benefit.

Infrequency and irregularity with which associated, identical or similar benefits are provided

TR 2007/12 discusses what is meant by 'associated benefits' (paragraphs 187-190) and the terms 'infrequent and irregular' and 'identical' and 'similar' (paragraphs 200-208).

The benefit provided is a gift card. The benefit is provided very infrequently to an employee (being at maximum once every 1.5 years). The provision of the gift card is not guaranteed as it is dependent on being nominated and awarded the prize thus being irregular. The provision of the gift card will be irregular and infrequent and is subject to being nominated and judged. Furthermore, while there is a local program that provides similar benefit, the instance of when an employee would receive a reward under both programs within the same year would be infrequent.

It is accepted that the benefit will be infrequent and irregular. This criterion is satisfied.

The sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit in the current year of tax or any other year of tax

This criterion is discussed under paragraph 224 of TR 2007/12.

The notional taxable value of the gift card provided is $250. The provision of the gift card is not guaranteed to be received as it is dependent on being nominated and awarded the prize. There is no guarantee that there will be associated benefits that are identical or similar to the minor benefit in the current year of tax and any other year of tax.

However, there is a possibility that an employee is awarded a prize under both the local program and the national program which results in the taxable value of the minor benefit being $300. This value should not be considered as it is unreasonable to expect an employee to win both prizes in the same year given that one is awarded by pure chance and the other is an award that is judged by the panel process.

Therefore, the sum of the notional taxable value of the minor benefit and associated benefits that are identical or similar to the minor benefit in the current year of tax and any other year of tax is under $300 and thus under the minor benefit limit.

The sum of the notional taxable values of any other associated benefits in the current year of tax or any other year of tax

This criterion is explained at paragraphs 225 to 227 of TR 2007/12.

There are no other associated benefits that are being provided with the provision of the gift card. Therefore, the sum of any other associated benefits will be nil.

The practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits

There is no difficulty in determining the notional taxable values of the minor benefit and any associated benefits. The notional taxable value of the minor benefit is the amount the employer is expected to pay for the gift card/s when applicable.

The circumstances surrounding the provision of the minor benefit and any associated benefits, including whether it was provided to the employee to assist with an unexpected event, and whether it was wholly or principally as a reward for services rendered by the employee

Considering the circumstances around providing the minor benefit to the employee, the benefit was not provided to assist with an unexpected event.

Whether a benefit has been provided wholly or principally for services rendered or to be rendered will depend on the circumstances.

In some instances, it is clear the benefit has been provided wholly or principally for services rendered or to be rendered, where for example, an employee enters into a salary sacrifice arrangement (SSA), because the benefits have been provided in substitution for salary and wages.

To determine instances where it is not clear and require a careful consideration of the facts, the example in TR 2007/12 at paragraph 241 can be used as the basis:

241 ...On the other hand, although a Christmas party provided to employees and their families may be considered to be a reward for services rendered or to be rendered, it would not necessarily be considered to have been provided wholly or principally by way of reward for services rendered or to be rendered by the employee.

The gift card provided by the employer, following in line with the example, would not be principally or wholly provided as a reward for services rendered or considered to be a substitute for salary, wages or bonuses. The gift card is provided by nominating employees who represent company values and therefore cannot be wholly or principally considered as a reward for services rendered by the employee.

Conclusion

The provision of a gift card to an employee is not guaranteed, but subject firstly to being nominated and then successfully selected. If an employee is not selected, they will not be provided a gift card. The process runs twice a year allowing for two sets of employees to win a gift card. The gift card can only be given to an employee once every 1.5 years as employees can only be nominated once per year.

As such the provision of the gift card/s is considered to be ad hoc in nature and align with example 9 of TR 2007/12 at paragraphs 96 to 104.

The sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit in the current year of tax or any other year of tax will be less than $300.

The provision of the gift cards is irregular and infrequent due to the process stated above. There are no other associated benefits provided with the minor benefit.

There will be no practical difficulties in determining the notional taxable values of the minor benefit and any associated benefits.

The benefit is not provided to assist an employee to deal with an unexpected event, is not part of a SSA, or provided wholly or principally as a reward for services rendered or to be rendered.

On balance, having regard to the above factors, it is concluded that it would be unreasonable to treat the benefit as a fringe benefit. The benefit is accepted as an exempt minor benefit.