Edited version of private advice

Authorisation Number: 1052335939701

Date of advice: 13 December 2024

Ruling

Subject: Miscellaneous exempt benefits

Question 1

Will the provision of a Virtual Reality headset to employees be exempt under section 58X of the Fringe Benefit Tax Assessment Act 1986 (FBTAA 1986)?

Answer 1

Yes

This ruling applies for the following periods:

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 provides a range of ICT services.

The Employer will supply certain staff with a Virtual Reality (VR) headset to be primarily used in the employee's employment.

The VR headsets will be used as mobile personal productivity devices to access email, documents and spreadsheets and attend online meetings.

Employees will not be provided more than one VR headset per FBT year unless a replacement is required.

The VR headset:

•                is easily portable and designed for use away from an office

•                is small and light

•                can operate without an external power supply

•                is designed as a complete unit.

Relevant legislative provisions

Fringe Benefit Tax Assessment Act 1986 section 40

Fringe Benefit Tax Assessment Act 1986 section 58X

Fringe Benefit Tax Assessment Act 1986 section 136(1)

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'. These are:

(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.

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 the Employer 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?

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.

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 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?

The Employer does not provide employees more than one headset per year. The VR headset provided is not substantially identical to another item provided in the same year. If a headset is broken, the Employer will provide another as required. As this second VR headset would be substantially identical item, it would not be 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?

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, the Employer:

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

•                Will only provide 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.

Other matters to consider

Small businesses can provide employees with more than one work-related portable electronic device in an FBT year - even if they have substantially identical functions. A small business is a business with an aggregated turnover of less than $XX million in an income year that starts or ends in the relevant FBT year.