Edited version of private advice

Authorisation Number: 1052236055980

Date of advice: 10 April 2024

Ruling

Subject: Work related exempt benefits

Question

Will the provision of Virtual Reality headsets to employees be exempt under S58X of the Fringe Benefit Tax Assessment Act 1986 (FBTAA 1986)?

Answer

Yes. The provision of the Virtual Reality headset provided to employees will be exempt under S58X of the FBTAA 1986.

This ruling applies for the following period:

Fringe Benefit Tax (FBT) Year Ended 31 March 20XX

FBT Year Ended 31 March 20XX

FBT Year Ended 31 March 20XX

FBT Year Ended 31 March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

The Employer is a company that creates virtual reality (VR) games.

The staff will be provided with VR headsets.

The headset will also be used to test the games during game development.

Employees will not be provided another headset in the same year unless it is replacement for a broken one.

The VR headset:

•         is small, light in weight and can be handheld.

•         can be operated by battery power.

•         will be able to act as a replacement for a laptop or personal computer.

•         will be predominately use for work-related purposes.

•         has a life span of three to four years.

Relevant legislative provisions

Fringe Benefit Tax Assessment Act 1986 Section 20

Fringe Benefit Tax Assessment Act 1986 Section 40

Fringe Benefit Tax Assessment Act 1986 Section 45

Fringe Benefit Tax Assessment Act 1986 Section 58X

Reasons for decision

Section 58X of the FBTAA 1986 provides an exemption for benefits relating to the provision of certain work-related items. Subsection 58X(1) of the FBTAA states that the following:

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.

Subsection 58X(2) of the FBTAA includes a list of items that, if provided primarily for use in an employee's employment, will be 'eligible work-related items'. However, section 58X of the FBTAA states that there are circumstances where the exemption does not apply. Specifically, subsection 58X(3) and subsection 58X(4) mention that:

Subsection 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.

Subsection 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, or is an employer covered by subsection (5), for:

a.            the year of income starting most recently after the start of the FBT year; or

b.            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.

In summary, there are four conditions that must be met for the provision of the VR headset by XXXX. to be an exempt benefit under section 58X of the FBTAA:

1.             The benefit provided must be an expense payment fringe benefit, property fringe benefit or residual fringe benefit.

2.             The benefit provided must be in respect of an eligible work-related item.

3.             The item provided must not be a substantially identical item to an earlier one provided in the same FBT year.

4.             If the item is substantially identical, it must be a replacement item, or the employer is a small business entity.

Each of these conditions is considered further below.

Is the provision of the Virtual Reality (VR) headset an expense payment, property benefit or residual benefit?

Subsection 136(1) of the FBTAA defines a residual benefit to mean a benefit that is a residual benefit by virtue of section 45.

Section 45 of the FBTAA states that a benefit is a residual benefit for the purposes of the FBTAA if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). In basic terms, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA.

Division 5 and 11 are relevant to this ruling and are discussed below. The other divisions are not relevant to the arrangement subject to this ruling.

Division 5 of the FBTAA applies to expense payment fringe benefits. Section 20 of the FBTAA states that:

Where a person (in this section referred to as the provider):

(a)          makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b)          reimburses another person (in this section also referred to as the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

Applying the above to the facts, there is no payment made nor was there a reimbursement made for an expenditure incurred by the employee. Therefore, there cannot be an expense payment fringe benefit provided.

Division 11 applies to property fringe benefits. Section 40 of the FBTAA states that:

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.

The definition of 'provide' in subsection 136(1) of the FBTAA is

(a)          in relation to a benefit - includes allow, confer, give, grant or perform; and

(b)          in relation to property - means dispose of (whether by sale, gift, declaration of trust or otherwise);

          (i)          if the property is a beneficial interest in property but does not include legal ownership - the beneficial interest; or

          (ii)          in any other case - the legal owner of the property.

With application to the facts, the employer is providing an employee with a VR headset. This would be a property fringe benefit as the employer (the provider) is giving their employee (the recipient) a VR headset. Therefore, the provision of the VR headset to the employees would be a property fringe benefit and would not be considered an expense payment fringe benefit or residual fringe benefit (by virtue of being a property fringe benefit).

Has an eligible work-related item been provided to the employee?

Subsection 58X(2) of the FBTAA lists the following as eligible work-related items if the item is primarily used in the employee's employment:

•         a portable electronic device;

•         an item of computer software;

•         an item of protective clothing;

•         a briefcase;

•         a tool of trade.

Although, the term "portable electronic device" is not defined in FBTAA, ATO ID 2008/133 provides guidance on what is considered a "portable electronic device". As follows:

"... 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.

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

Accordingly, as the VR headset can operate on its own battery power source, is small and light, easily portable and designed as a complete system for use away from an office environment, it would be a portable electronic device under paragraph 58X(2)(a) of the FBTAA. Correspondingly, the VR headset would be an eligible work-related item as it is primarily used for work and is a portable electronic device.

Will the headset provided be substantially identical to a former item provided in the same year?

As per the facts, the employer does not provide employees more than one headset per year. The only scenario where this occurs is if a headset is broken, and another is required. This would mean that subsection 58X(3) would apply as an identical headset has been provided in the same FBT year. This headset would be a substantially identical item and therefore not an eligible work-related item. However, if subsection 58X(4) applies, the provision of the replacement item will still be considered an eligible work-related item.

Where the above scenario occurs, will the provision of the headset still be exempt?

As previously stated subsection 58X(4) states that section 58X does not apply where the following conditions are met:

•         the later item is a replacement for the other item; or

•         the later item is a portable electronic device, and the employer is a small business entity, or is an employer covered by subsection (5).

Subsection 58X provides an example of a replacement item. As follows: "...

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 provision of another headset will be a replacement item where one provided earlier in the year is broken or is outdated due to new developments in technology.

Will the provision of the VR headset be exempt under section 58X of the FBTAA?

As outlined earlier, the employer:

•         provides a property fringe benefit by giving their employees VR headsets.

•         provides a portable electronic device (the VR headset) that is primarily used for the employee's work.

In addition, as outlined in the facts provided, the employer:

•         generally, does not provide more than one headset per year.

•         only provides more than one headset per year when it a replacement for a broken one.

Therefore, the provision of the VR headsets will be exempt under section 58X of the FBTAA as all conditions have been met.