Edited version of private advice

Authorisation Number: 1052162384227

Date of advice: 21 September 2023

Ruling

Subject: Minor benefits exemption

Question 1

Does the provision of Reward Points (RPs) by XX to relevant employees as part of the recognition programme constitute the provision of a property benefit pursuant to section 40 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Does one instance of the provision of RPs to employees as part of the recognition programme constitute an exempt benefit for the purposes of section 58P of the FBTAA?

Answer

Yes

Question 3

Does the provision of RPs as part of the recognition program outlined in Examples one to six of this ruling, constitute an exempt benefit for the purposes of section 58P of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

FBT year ending 31 March 2024

FBT year ending 31 March 2025

FBT year ending 31 March 2026

FBT year ending 31 March 2027

The scheme commenced on:

1 April 2023

Relevant facts and circumstances

XX builds people management platforms for small to medium size businesses.

RPs is a programme set up by XX as part of the 'Recognition' offering of the human resource platform:

(a)          One RP is currently valued at $AUD 1.00. However, this value could potentially increase or decrease. It is noted that any changes in value will not affect the ability of RPs to be easily valued.

(b)          The intention of the RPs is to be distributed to employees as a way to recognise the behaviours and efforts of employees throughout the year in an ad-hoc manner. Reasons for the provision of RPs to employees include, but are not limited to, birthday or work anniversaries, going above and beyond in their role, or operating in a manner that exemplifies the employers' values.

(c)           RPs are not provided by XX under any formal or structured incentive program.

(d)          RPs are simply a way to provide discretionary gifts and emphasise gratitude to XX employees. XX terms and conditions for the awarding of RPs clearly advises that they are awarded at the discretion of the gifter. The gifter can be colleagues and management alike. No entitlement is created within the framework whereby employees have an entitlement, legal or otherwise, to demand RPs for any particular completed act of service.

(e)          The RPs may be used to redeem goods on the XX marketplace, which provides discounts on a wide range of goods and services.

(f)            These discounts are available to all XX employees.

(g)          Further, these discounts are not exclusive to XX, but made available to other members of the general public whether through sales promotions or other employer discount programs.

(h)          In accordance with XX's terms and conditions, RPs are not redeemable for cash.

(i)            If employees do not issue or redeem any RPs within a 24-month period, XX has the discretion to cancel the RPs sitting in the account.

On the discretionary awarding of the RP, the RP goes from the employer's pool of RPs into an employees' XX account, as a thank you to the employee. The provision of that HP gives the employee the right to use the RP to purchase goods or be re-gifted to other relevant employees. It can be used immediately on awarding of the RP, or pooled by the employee to accumulate value and purchase goods of a higher value.

Scenarios in which employees may be recognised under the hero points programme

1.            Client/Customer Feedback - a way to recognise employees when clients or customers provide exceptional feedback about the individual, and the customer service they provided.

2.            Thank you - a mechanism to say thank you for going above and beyond what was

expected in their role.

3.            Values - role modelling our organisation's values, known as 'hero shout outs'.

4.            Project or delivery excellence - Reward for the achievement of a major project delivery milestone for which the individual or team displays ongoing dedication and effort.

5.            Extending beyond defined remit - Reward for employees extending themselves

beyond their core remit, by driving a quarterly theme initiative or stepping into support

another team.

6.            Innovation - Recognition for creating or delivering new innovation in the space of product, customer experience & service or internal efficiency.

To demonstrate the scenarios above, we provide the following examples

Example 1 - Belinda receives 4 RP awards over the course of the FBT year, valued at $250 in

total.

1. $50 award to say thank you from the team; helped the team with their technology issues as the

team transitioned to Microsoft from Google.

2. $50 award for role modelling the organisation's values.

3. $50 award for showing care to her colleagues in challenging times.

4. $100 award for going above and beyond the expectations of her role.

Example 2 - Sam receives 3 RP awards over the course of the FBT year, valued at $200 in total.

1. $50 award for stepping up and helping another team during a particularly busy month.

2. $100 award for developing an innovative new process to reduce the workload of administrative

staff.

3. $50 shout-out award for always showing care to their team members and being aware when

they are struggling.

Example 3 - Rebecca receives 3 RP awards over the course of the FBT year, valued at $125 in

total.

1. $50 award for winning a team innovation competition on the team building day, by designing an

application to assist with keeping track of invoicing.

2. $25 shout-out award for showing care to a colleague during a difficult week.

3. $50 award to say thank you from a different team for stepping up to assist when they were short-staffed.

Example 4 - Ron receives 4 RP awards over the course of the FBT year, valued at $150 in total.

1. $50 award for exceptional client feedback on a difficult and long project.

2. $25 award for thank you from the team for arranging a work lunch after a particularly stressful

period.

3. $50 shout-out award for demonstrating the value of making a difference in the office by

implementing an anonymous feedback system that drove positive change.

4. $25 shout-out award for showing care to multiple team members who were struggling at

work.

Example 5 - Juliet receives 2 RP awards over the course of the FBT year, valued at $150 in total.

1. $100 hero shout-out award for demonstrating the value of integrity during a difficult client project.

2. $50 award for showing significant care to a member of the public while conducting their job. outside of the office

Example 6 - Zak receives 1 RP award over the course of the FBT year, valued at $200 in total.

1. $200 award for extending themselves above their usual role to assist the executive team during a large merger process

Relevant legislative provisions

Fringe benefits tax assessment act 1986 section 40

Fringe benefits tax assessment act 1986 section 58P

Fringe benefits tax assessment act 1986 subsection 136(1)

Reasons for decision

Issue

Question 1

Does the provision of (RPs) by XX to relevant employees as part of the RP recognition programme constitute the provision of a property benefit pursuant to section 40 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Summary

When RPs are awarded, the requirements of a property benefit in section 40 of the FBTAA are met. A property benefit arises when the discretionary awarding of the RPs goes from the employer's pool of RPs into an employees' XX account.

Detailed reasoning

The definition of a 'fringe benefit' in subsection 136(1) of the FBTAA requires that the following

conditions are 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

(d)          between the employer or associate of the employer and the third party; or

(e)          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.

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; ...

(ii) the provision of, or of the use of facilities for, entertainment,

recreation or instruction; or

(iii) the conferring of rights, benefits or privileges for which

remuneration is payable in the form of a royalty, tribute, levy or

similar exaction;..."

Given the broad definition of a benefit, it is considered that RPs would constitute a benefit for the purposes of FBT. The relevant category of benefit that arises when employees are provided with RPs is a property benefit.

A property benefit is a benefit referred to in section 40 of the FBTAA but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III.

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 136 defines Property as:

(a)          Intangible property and

(b)          tangible property.

Intangible property is further defined under section 136 as:

(a) real property;

(b) a chose in action; and

(c) any other kind of property other than tangible property;

but does not include:

(d) a right arising under a contract of insurance; or

(e) a lease or licence in respect of real property or tangible property."

While tangible property is defined under section 136 as "goods and includes:

(a) animals, including fish; and

(b) gas and electricity.

The RPs are a right provided to the employee, to use or not use at their discretion, and with no physical provision of tangible property, accordingly the provision of a RP is considered to be intangible property.

Under section 40 a property benefit is taken to be provided at the time the property is provided to the employee.

In this case, on the discretionary awarding of the RP, the RP goes from the employer's pool of RPs into an employees' XX account, as a thank you to the employee. The provision of that RP gives the employee the right to use the RP to purchase goods or re-gifted to other relevant employees. It can be used immediately on awarding of the RP, or pooled by the employee to accumulate value and purchase good of a higher value.

When RPs are awarded, the employer provides intangible property to the employees. The requirements of a property benefit in section 40 of the FBTAA are met. The property benefit arises when the RPs go into an employees' XX account.

It is also considered that the RPs are provided by the employer to employee, in respect of the employment of the employee. If no exemptions are applicable a property fringe benefit will arise.

A property exemption is provided in section 41 of the FBTAA. However, in this case the property exemption does not apply as the property is not provided to, and consumed by, the employee on a working day and on business premises of the employer.

Question 2

Does the provision of one instance of RPs to employees as part of the RPs reward and recognition programme constitute an exempt benefit for the purposes of section 58P of the FBTAA?

Answer

Yes

Summary

One instance of the provision of RPs (valued at less than $300) would meet the requirements of an exempt minor benefit as it would be unreasonable to treat the benefit as a fringe benefit, and the taxable value is less than $300, therefore a property fringe benefit would not arise.

Detailed reasoning

The minor benefits exemption is set out in section 58P of the FBTAA:

58P (1) [Tests for exemption] Where:

(a)          a benefit (in this section called a minor benefit) is provided in, or in respect of, a year of tax (in this section called the current year of tax) in respect of the employment of an employee of an employer;

(b)          ...

(c)           in the case of an expense payment benefit, a property benefit or a residual benefit - if the minor benefit were an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit, as the case may be, in relation to the employer, the expense payment fringe benefit, the property fringe benefit or the residual fringe benefit, as the case requires, would not be an in-house fringe benefit:

(d)          ...

(e) the notional value of the minor benefit in relation to the current year of tax is less than $300; and

(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 employer to deal with an unexpected event; and

(B)         whether the benefit concerned was provided otherwise than wholly in 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.

(2) [Associated benefit] For the purposes of this section, a benefit is an associated benefit in relation to a minor benefit if, and only if:

(a) any of the following subparagraphs applies:

(i) the benefit is identical or similar to the minor benefit;

(ii) the benefit is provided in connection with the provision of the minor benefit;

(iii) the benefit is identical or similar to a benefit provided in connection with the provision of the minor benefit;

(b) the benefit and the minor benefit both relate to the same employment of a particular employee; and

(c) the benefit is not an exempt benefit by virtue of a provision of this Act other than this section.

Paragraph 58P(1)(c) specifies that the minor benefits exemption does not apply to in-house property fringe benefits. The RPs are not considered to be an in-house property fringe benefit.

Paragraph 8 of TR 2007/12 states that a benefit will be an exempt benefit under section 58P where the following two conditions are met:

(a) the notional taxable value of the minor benefit is less than $300, and

(b) it would be concluded that it would be unreasonable, having regard to the specified criteria in paragraph 58P(1)(f), to treat the minor benefit as a fringe benefit.

Paragraph 58P(1)(f) sets out criteria to determine if it is unreasonable to treat the minor benefit as a fringe benefit.

These key areas are:

(a)          Infrequency and irregularity;

(b)          the total annual value of the benefits;

(c)           the total annual value of associated benefits;

(d)          the difficulty in valuing the benefits; and

(e)          the circumstances surrounding the provision of benefits.

One instance of the provision of RPs for less than $300, meets the requirements of an exempt minor benefit, as:

(a)          They are provided in respect of the employment of an employee as they are only provided to employees of the relevant employers who utilise the platform created by XX;

(b)          They are not an in-house fringe benefit as the employer is not in the business of providing RPs to

(c)           the general public;

(d)          The benefit has been provided infrequently and irregularly; and

(e)          The taxable value is less than $300.

It is considered that as the requirements are met, the exemption would apply and a property fringe benefit would not arise.

Question 3

Does the provision of RPs as part of the RPs recognition program outlined in Examples one to six of this ruling, constitute an exempt benefit for the purposes of section 58P of the FBTAA?

Answer

Yes

Summary

The requirements of an exempt minor benefit would be met for the purposes of section 58P of the FBTAA and therefore a property fringe benefit would not arise.

Detailed reasoning

We have determined that one instance of the of RPs for less than $300, meets the requirements of an exempt minor benefit as it would be unreasonable to treat the benefit as a fringe benefit. However, we will now consider whether the minor benefit exemption under section 58P will apply where RPs with a notional value of less than $300 are provided up to four times per year as outlined in Examples one to six of the in the facts of this ruling.

As per the discussion above, Paragraph 58P(1)(f) sets out criteria to determine if it is unreasonable to treat the minor benefit as a fringe benefit.

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

Infrequency and irregularity are not defined in the FBTAA and therefore take their ordinary meaning.

Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12) states the following:

203. The Macquarie Dictionary defines 'infrequent' as:

1.            happening or occurring at long intervals or not often

2.            not constant, habitual or regular and 'irregular' as:

and 'irregular' as:

3.            not characterised by any fixed principle, method or rate: irregular intervals.

204. The Macquarie Dictionary defines 'identical' as:

1.            (sometimes followed by to or with) corresponding exactly in nature, appearance, manner, etc.: this leaf is identical to that.

2.            the very same: I almost bought the identical dress you are wearing.

and 'similar' as:

1. having a likeness or resemblance, especially in a general way.

Paragraph 2 of TR 2007/12 states that

In applying the 'infrequency and irregularity' criterion, it is not appropriate to stipulate the maximum number of times associated benefits that are identical or similar to a minor benefit, or benefits in connection with the minor benefit, can be provided before the criterion is not met. However, the more often and regularly those benefits are provided, the less likely it is that this criterion would be met.

Paragraph 96 to 100 of TR 2007/12 provides an example of a staff recognition programme where:

96. An employer recognises the effort of an employee who has worked diligently over a

period of time and who has met a particularly tight work project deadline. The benefit

provided as a result of this recognition is not part of any formal staff incentive scheme.

97. The employer provides the employee with a store voucher with a value of less than $300.

98. The employee had also been recognised on another occasion in the current year and a previous year and was provided with similar store vouchers, each with a value of less than $300.

"100. Due to the ad hoc nature of the recognition by the employer, vouchers which are identical or similar are not reasonably expected to be provided to that employee on afrequent and regular basis.

In this case, RPs will be provided up to 4 instances of less than $300 each per employee per year. There will be no expectation from the employees, nor legal entitlement created with employees, that they receive an allocation of RPs for completion of a specific task, metric or of a set amount, at a set date. The discretionary decision to provide an allocation of RPs would be ad hoc in nature and not linked to specific targets that the employee is set.

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

The term 'notional taxable value' is defined in subsection 136(1):

'notional taxable value', in relation to a benefit provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer, means the amount that, if it were assumed that:

(a)          in the case of a car benefit - the car benefit was a residual benefit; and

(b)          in all cases - the benefit was a fringe benefit in relation to the employer in relation to the year of tax;

would be the taxable value of the fringe benefit in relation to the year of tax.

Reference is made under paragraph 58P(1)(f) to 'associated benefits'. If a nexus can be established between the exempt benefit and any associated benefits, then the value of those associated benefits need to be added to the total value of the benefit.

An associated benefit, in the context of minor benefits. is a benefit that is identical or similar to the minor benefit, as stated in subparagraphs 58P(1)(f)(ii) and 58P(2)(a)(i) of the FBTAA.

Paragraph 224 of TR 2007/12 states:

Even if the value of each benefit is below the minor benefits threshold, the sum of the values of the benefits provided, being identical benefits in the current year of tax, the previous year and those that are reasonably expected to be provided in the future, are all taken into consideration under this criterion.

In Examples one to six of the facts, employees have been recognised for their efforts on up to four occasions and awarded RPs with a value of less than $300 on each occasion. The total sum of the values of the benefit plus the associated benefits which are identical or similar ranges between $125 and $250.

The sum of the notional taxable value is not likely to be substantial.

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 which states:

225. The third criterion to be considered is the amount that is, or might reasonably be expected to be, the sum of the notional taxable value of any other associated benefits provided in relation to be current year of tax or any other year of tax.

226. Other associated benefits will include benefits which themselves may also be minor benefits.

227. This criterion has regard to any other associated benefits; that is, associated benefits which are not identical or similar to the minor benefit. This will include those associated benefits which are provided in connection with the minor benefits and benefits which are identical or similar to a benefit provided in connection with the minor benefit.

In this case there are not any other associated benefits connected to RPs being awarded.

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

There is no practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits.

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.

RPs would not be provided to employees as an alternative to remuneration, that is, they are not a reward for services. It is purely to be used for ad hoc recognition such as exceptional service to a customer, demonstrating XX values in difficult times and going over and above an employees' standard role.

As an employee has no entitlement to the RPs, it is discretionary, employees similarly would not

be in a position to demand an award of RPs for the provision of any service provided, task undertaken or result achieved.

On balance, having regard to the various criteria in paragraph 58P(1)(f) discussed above, it would be concluded that it would be unreasonable to treat the benefit as a fringe benefit.

Accordingly, the benefits provided to the employees in Examples one to six of this ruling are exempt benefits under 58P of the FBTAA; and a property fringe benefit would not arise.