Edited version of private advice

Authorisation Number: 5010064978496

Date of advice: 26 May 2020

Ruling

Subject: In-house property fringe benefits and in-house residual fringe benefits

Question 1

Are the food boxes provided by the employer to its employees ("the Employee Food Boxes") "In-house fringe benefits" under section 136(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 2

Can the taxable value of the Employee Food Boxes be reduced under section 62 of the Fringe Benefits Tax Assessment Act 1986 by up to $1,000 per employee?

Answer

Yes

Question 3

Are the Voucher Codes used by the employer to facilitate the provision of the Employee Food Boxes, a "fringe benefit" under section 136(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

This ruling applies for the following periods:

FBT year 1 April 2018 to 31 March 2019

FBT year 1 April 2019 to 31 March 2020

FBT year 1 April 2020 to 31 March 2021

FBT year 1 April 2021 to 31 March 2022

FBT year 1 April 2022 to 31 March 2023

The scheme commenced on:

1 April 2018

Relevant facts and circumstances

The employer

The employer is an Australian resident company.

The employer carries on a business of preparing, selling and delivering food boxes, under 2 different brands.

The employer operates online with food orders, delivery, and payment made through two websites. The employer has no retail shop fronts in Australia.

The employer provides food boxes to its employees (Employee Food Boxes). These food boxes are identical to the food boxes that are sold to the general public and must be ordered online using the same websites as the general public.

The reason the employer provides Employee Food Boxes is to allow its employees to experience the food, delivery and ordering process experienced by the customers. The employees may provide feedback on their experience, which the employer uses as part of its marketing and product development procedures.

Provision of Employee Food Boxes

To be eligible for Employee Food Boxes, each employee must sign an agreement (Employee Food Boxes - Terms and Conditions).

To facilitate the provision of the Employee Food Boxes, the employees are provided with a personalised code ("a Voucher Code"). The Voucher Code allows each employee to obtain their Employee Food Boxes through the customer websites. Under the Employee Food Boxes - Terms and Conditions, every employee that has been working for the employer for more than 6 months is eligible for one free food box per month.

For example, an employee is provided with a Voucher Code that entitles the employee to a discount on the food boxes ordered. If the food boxes ordered cost more than the voucher value, the employee must pay the difference. If the food boxes ordered cost less than the voucher value, the remaining credits are forfeited and cannot be carried forward. For all customers and employees, the cost of each of the food boxes includes the provision of a delivery service.

The Employee Food Boxes - Terms and Conditions provide that:

·        the Voucher Codes cannot be transferred by the recipient employee for use by anyone else;

·        the Voucher Codes cannot be redeemed for cash;

·        Any unused Voucher Codes are forfeited on 31 March at the end of each FBT year;

·        The Voucher Codes cannot be used in conjunction with any other promotional or discount codes;

·        The eligible employees are not required to pay for Voucher Codes and the Voucher Codes are not provided under a salary packaging arrangement

·        The food boxes obtained using the Voucher Codes are not consumed by the employees at their place of work.

Order and verification system and processes

The Voucher Code system allows the employer to facilitate the distribution of Employee Food Boxes through its existing customer websites. The procedure that is followed by employees is set out below.

For an employee ordering food boxes for the first time:

·        The employee selects the desired food box using the employer website;

·        The employee enters their personal details, including their full name, delivery address, email address and contact number. (Pursuant to the employee's terms and conditions, these details must match the details recorded for the specific employee);

·        The employee enters their delivery preferences, including date and time of delivery;

·        Enter payment methods and details. It is at this stage that the employee is prompted to provide their Voucher Code;

·        Once the employee orders from the website, he or she will become a registered user. For any further orders, the employee can login to their account containing prefilled address, name, email and phone details.

For employees who have ordered food boxes previously:

·        The employee must login to their existing account on the relevant customer website;

·        The employee selects their desired food boxes to order;

·        The employee confirms their pre-filled name, address, phone and email details are correct (pursuant to the employee's terms and conditions, these details must match the details recorded for the specific employee);

·        Enter payment methods and details. The employee will be prompted to enter a Voucher Code at this stage.

Integrity measures to prevent the transferability of the Voucher Codes

The employer uses integrity measures to ensure that the Voucher Codes cannot be transferred or used by anyone other than the recipient employee. This system ensures that Employee Food Boxes are only delivered if the employee and delivery details recorded against the Voucher Code matches the employee details used on the online order form.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 41

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 section 62

Fringe Benefits Tax Assessment Act 1986 section 136

Reasons for decision

All legislative references are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise stated.

Question 1

Summary

The food boxes provided by the employer to its employees constitute in-house fringe benefits.

Detailed reasoning

Are the Employee Food Boxes fringe benefits?

The definition of a fringe benefit in subsection 136(1) requires that:

·        a benefit is provided to an employee or an associate of employee;

·        the benefit is provided by the employer or an associate of the employer or under an arrangement with a third-party;

·        the benefit is in in respect of the employment of the employee; and

·        the benefit is not an exempt fringe benefit, for example salary and wages.

The provision of the Employee Food Boxes constitutes a 'benefit', given the broad definition of that term including any privilege, service or facility (subsection 136(1)). The Employee Food Boxes are also provided by the employer to its employees in respect of their employment and the benefit is not an exempt fringe benefit. Therefore, the provision of the food boxes is a fringe benefit.

What type of fringe benefit are the Employee Food Boxes?

The provision of the Employee Food Boxes results in the employees receiving:

·        The ingredients for pre-packed meals such as fruit, vegetables, fish and meat; and

·        A delivery service, being the delivery of the food boxes to the employee's home.

Section 40 provides that where the provider (the employer) provides property to another person ("the recipient"), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient.

Property is defined in section 136 to mean tangible and intangible property. Section 136 provides that Tangible Property means "goods" and includes but is not limited to "animals" and "fish".

Section 136 provides that Intangible Property means real property, a chose in action and any other kind of property other than tangible property.

The food that is provided in the Employee Food Boxes is tangible property consisting of fresh fruit, vegetables, fish and meat and are therefore property fringe benefits.

A property fringe benefit is an "in-house property fringe benefit" only if:

·        the property is tangible property;

·        the provider is the employer or an associate of the employer;

·        at or about the provision time, the provider carried on a business that included the provision of identical or similar property principally to outsiders (subsection 136(1)).

In the case of the employer, the food boxes, which are tangible property, are provided to the employees by their employer. Also, the employer does carry on a business involving the provision of identical food boxes to outside customers. Accordingly, the Employee Food Boxes are in-house property fringe benefits.

Property fringe benefits are exempt from FBT if they are provided to, and consumed by, employees on a working day and on the business premises of the employer (subsection 41(1)). The Employee food boxes are not exempt property fringe benefits, as they are not consumed by the employees on the business premises of their employer.

What type of fringe benefit is the delivery service?

A benefit is a residual fringe benefit if the benefit is not a benefit by virtue of any other provision of the FBTAA (section 45). The provision of a service to an employee is generally taken to be a residual fringe benefit.

A residual fringe benefit is an "in-house residual fringe benefit" when it is provided by an employer to an employee, and the employer carried on a business that consisted of providing identical or similar benefits to outsiders (subsection 136(1)).

Consistent with the food boxes sold by the employer to the general public, the Employee Food Boxes are delivered to the employee's home. The delivery service provided to the employees is a residual fringe benefit. The delivery service is an "in-house residual benefit" as it is a service that is ordinarily provided to customers of the employer's business.

Conclusion:

The food boxes provided to the employees are identical to the food boxes sold and delivered to the general public. The food boxes provided to the employees constitutes the provision of two in-house fringe benefits:

·        The food, being an in-house property fringe benefit; and

·        The delivery service, being an in-house residual fringe benefit.

Question 2

Summary

The food boxes provided to the employees constitute in-house fringe benefits and are eligible for the section 62 reduction in taxable value of up to $1,000 per employee per FBT year.

Detailed reasoning

Subsection 62(1) provides that the sum of the taxable values of all the in-house fringe benefits provided to an employee in an FBT year shall be reduced by:

·        $1,000, if the sum of the taxable value exceeds $1,000; or

·        the sum of the taxable values, if the sum of the taxable values of the in-house fringe benefit is less than $1,000.

Subsection 62(1) does not apply to in-house fringe benefits provided under a salary packing arrangement.

The employer provided employee food boxes (being in-house property fringe benefits) and a delivery service of the food boxes (being in-house residual fringe benefits) to its employees. The employee food boxes, and delivery service were not provided under a salary packaging arrangement.

Conclusion:

As the requirements of subsection 62(1) have been satisfied, the employer may reduce the taxable value of each employee's Employee Food Boxes by up to $1,000 per employee in an FBT year.

Question 3

Summary

Issuing the Voucher Code to employees does not constitute a fringe benefit under subsection 136(1) at the time of issue but rather is an administrative aid in facilitating the later provision of food boxes to the employee.

Detailed reasoning

To facilitate the provision the Employee Food Boxes, the employer uses its existing customer websites along with a Voucher Code provided to the employee. The employees are issued with a monthly Voucher Code that allows the employee to redeem an Employee Food Box using the customer website. The Voucher code used to redeem the Employee Food Box is specific to each employee, cannot be exchanged for cash and is non-transferrable.

ATO ID 2014/17 considers the FBT implications of an employer providing their employees with a voucher or coupon entitling the employee to merchandise that the employer sells to the public. This ATOID confirmed that the employer does not provide a fringe benefit when the voucher is granted. Rather, the employer provides the employee with an in-house property fringe benefit when the employee subsequently redeems the voucher/coupon for merchandise.

The employer's factual circumstances are consistent with ATO ID 2014/17 because:

·        The employer provides merchandise to its employees in recognition of their employment;

·        The Voucher Code can only be redeemed on a customer website. The merchandise and the mode of delivery is the same as that sold by the employer to the general public;

·        The identity of the employee is reconciled against the Voucher Code before the food box can be obtained and only by the employee that has been allocated the Voucher Code;

·        The Voucher Code cannot be redeemed for cash or transferred for use to any other person; and

·        The Voucher Code only permits food boxes up to a certain value to be redeemed. If the food boxes ordered costs less than the voucher value, the remaining credits are forfeited and cannot be carried forward. If a food box costs more than the voucher value, the employee is required to pay the difference.

ATO ID 2014/17 confirms that:

The issue of the voucher/coupon does not constitute a fringe benefit... at the time of issue but is an administrative aid in facilitating the later provision of merchandise to the employee.

The benefit under subsection 136(1) therefore is the provision of the merchandise by the employer. The employer provides the benefit when the employee redeems the voucher/coupon for the merchandise.

The employer provides food boxes to its employees through its existing online customer interface. The Voucher Code provides the mechanism by which the employee redeems the merchandise. The Voucher Code and the customer website is an automated system that allows food boxes to be provided to staff.

Accordingly, the provision of the Voucher Code is not a fringe benefit. It is an "administrative aid for facilitating the later provision of merchandise to the employee". Pursuant to ATO ID 2014/17, a fringe benefit under section 136(1) only arises "when the employee redeems the voucher/coupon for the merchandise"

Conclusion:

The issue of the Voucher Code does not constitute a fringe benefit under subsection 136(1) at the time of issue. It is merely an administrative aid in facilitating the later provision of food boxes to the employee.