ATO ID 2014/17: Property fringe benefits: redemption of voucher/coupon by a retail store employee for merchandise retailed by their employer.
Date of decision: 14 May 2014
Year of income: 1 April 2012 - 31 March 2013 1 April 2013 - 31 March 2014 1 April 2014 - 31 March 2015
Business line: Private Groups and High Wealth Individuals

Issue
When a retail store employer provides an employee with a voucher/coupon, entitling the employee to merchandise from a participating retail store of the employer, has the employer provided the employee with an in-house property fringe benefit as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
No, the employer provides the employee with an in-house property fringe benefit as defined in subsection 136(1) of the FBTAA when the employee redeems the voucher/coupon for merchandise at a participating retail store of the employer.

Facts
The employer operates retail stores. In recognition of the employment of the employee the employer provides the employee with a voucher/coupon at regular intervals during the year. No monetary value is specified, nor loaded, on the voucher/coupon. The voucher/coupon can be redeemed at participating stores operated by the employer. The voucher/coupon can be redeemed for a specified type of merchandise up to a specified number of items within a specified time of its issue date. If the employee does not redeem the voucher/coupon by the expiry date it will be forfeited. The employee does not pay for the voucher/coupon or for the merchandise. Each voucher/coupon is individually numbered and the number is recorded as being provided to that particular employee. Each voucher/coupon is surrendered upon redemption (that is, it can only be used once) and the redeemed voucher number is recorded in the employer's sales system. The identity of the employee must be reconciled against the voucher/coupon before the merchandise can be obtained. The merchandise can only be obtained in person by the employee. The merchandise is, otherwise, exactly the same as that sold by the employer to the general public.

Reasons for decision
Summary: (All legislative references are to the FBTAA). Section 40 deals with property benefits and states as follows: 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. Subsection 136(1) provides the following definitions which are relevant to property benefits: property means: (a) intangible property; and (b) tangible property. The term benefit is also defined in subsection 136(1) as including 'any right (including any right in relation to, and an interest in, real or personal property), privilege, service or facility'. The provision of the voucher/coupon, and the later redemption of that voucher/coupon to obtain merchandise, involves two distinct actions. The issue of the voucher/coupon does not constitute a fringe benefit for the purposes of the FBTAA 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. Support for this view is found in Taxation Ruling TR 1999/10 which provides the following guidance in respect of Life Gold Passes and Severance Passes given to members of Federal Parliament on their retirement: 22. On 'retirement' from Federal Parliament, Members may be issued with either a Life Gold Pass or a Severance Pass which may entitle the holder of the pass and his or her spouse to travel benefits. Similar travel entitlements are available for Members of State and Territory Parliaments. 23. We consider that the issuing of a Life Gold Pass or Severance Pass has no income taxation implications. The value of travel benefits received through the use of these passes does not form part of either a Member's or a Member's spouse's assessable income. However, travel benefits received from the use of a Life Gold Pass or Severance Pass are residual fringe benefits and the provider of the pass may be subject to fringe benefits tax when the passes are used for travel (paragraphs 84 to 88). ... 86. We do not consider that the issuing of passes under the Life Gold Pass and Severance Pass Schemes attracts any income tax implications. However, travel benefits received in relation to each use of a Gold Pass or Severance Pass by a Member will be taxed as a residual benefit, within the meaning of section 45 of Division 12 of the FBTAA, to the provider of the pass. As stated above, property means intangible property and tangible property. Tangible property means goods, animals, gas and electricity. The term goods is not defined in the FBTAA. It therefore takes on its ordinary meaning. The Macquarie Dictionary Sixth Edition, 1 October 2013 defines the term good relevantly as: 30. (plural) possessions, especially movable effects or personal chattels. 31. (plural) articles of trade; wares; merchandise, especially that which is transported by land. ... 33. an item of merchandise. As merchandise is a good the benefit provided is a property benefit. Further, as the property benefit was provided in recognition of employment it is a property fringe benefit as defined in subsection 136(1). A property fringe benefit is an in-house property fringe benefit where certain conditions are satisfied. The term in-house property fringe benefit is defined in subsection 136(1) as: In relation to an employer, means a property fringe benefit in relation to the employer in respect of tangible property: (a) Where both of the following conditions are satisfied: (i) the provider is the employer or an associate of the employer; and (ii) at or about the provision time, the provider carried on a business that consisted of or included the provision of identical or similar property principally to outsiders. In this case, the benefit is an in-house property fringe benefit, as it is a property fringe benefit, it is provided by the employer, and at or about the provision time, the employer carried on a business that consisted of or included the provision of identical or similar property principally to outsiders. Accordingly, where the employer has provided an employee with a voucher/coupon, which the employee can redeem for merchandise from a participating retail store of the employer, the employer provides the employee with an in-house property fringe benefit as defined subsection 136(1) when the employee redeems the voucher/coupon for the merchandise, not when the voucher/coupon is issued.

Legislative references: Fringe Benefits Tax Assessment Act 1986 section 40 subsection 136(1)
Related public rulings and determinations: TR 1999/10
Related ATO interpretative decisions: ATO ID 2010/35
Other references: Macquarie Dictionary Sixth Edition, 1 October 2013
Subject references: Fringe benefits tax Property fringe benefits FBT tangible property In-house property fringe benefits