Private ruling: Fringe benefits tax - internet connections
Date of advice: 6 November 2017
Published: April 2018
Ruling period: 1 April 2017 - 31 March 2018 | 1 April 2018 – 31 March 2019 | 1 April 2019 – 31 March 2020
Date scheme commenced: 1 April 2017

Ruling: Q1: Will the Commissioner use his remedial powers to modify the operation of subsection 58D(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to: A. Include “internet services” in the same definition as ‘telephone services’, so the relocation exemption provision applies to the connection of internet services; B. Exclude the requirement to connect internet services within twelve months of the employee commencement date at the new locations; and C. Exclude the requirement for relocated employees to have the same internet connection at the former and new location and removal of the arm length provision. | A2: B. Invalid Private Ruling Question C. Invalid Private Ruling Question | Q2: Can ‘internet services’ be classified similarly as ‘telephone services’ as per subsection 58D(1) of the FBTAA and therefore be an exempt benefit? | A3: No | Q3: If the answer to question 2 is no, will the provision of ‘internet services’ give rise to a fringe benefit under subsection 136(1) of the FBTAA? | A4: Yes | Q4: Will the instalment costs of internet hardware in a house provided to an employee be included in the market value of the housing fringe benefit under subsection 27(1) of the FBTAA? | A5: No | Q5: Will the instalment costs of computer hardware in a house provided to an employee give rise to a fringe benefit under subsection 136(1) of the FBTAA? | A6: Yes | Q6: Does the minor benefit exemption under section 58P of the FBTAA apply to the internet instalment/set up costs when the taxable value is below $300? | A7: Yes

Relevant facts and circumstances: Eligible employees are offered assistance with costs to relocate on appointment or transfer. Employees must meet the eligibility requirements. One of the entitlements for eligible employees is the full cost of connecting or reconnection of one telephone and internet connection at the new centre. The organisation may also provide subsidised housing for eligible employees. These benefits are provided as an incentive to attract and retain staff. The employee enters into a tenancy agreement with the organisation as either a sole, individual or multi-tenancy arrangement. Furniture and equipment may be provided with the accommodation arrangement. The employee is required to pay a subsidised rental charge that is deducted from the employees’ fortnightly wage. Accommodation is located in remote and non-remote areas. Internet hardware includes the following: ● Cabling that runs from the road to the house; ● Internal wiring and cabling inside and outside the house; ● Modem that will remain permanently in the house; and ● Satellite dishes. Proposal The organisation is proposing to provide internet connectivity for its employee housing in rural and remote locations (the employer to cover the installation cost and the employee is responsible for ongoing monthly internet service charges). This proposal is to ensure employees who are relocating and eligible for subsidised housing are provided with internet access with no additional installation costs. Some work is encouraged to be done from home rather than on the work premises. This is also workplace health and safety considerations. The organisation conducted an initial assessment of the available internet carriage types and communication providers with associated instalment plus setup costs for rural and remote locations. The assessment identified a variety of internet carriage types: Asymmetric Digital Subscriber Line (ADSL) which uses existing telephone copper lines, Optical fibre (National Broadband Network), Hybrid optical fibre and coaxial cable, wireless broadband (mobile service) and Satellite. In certain areas the choice of internet carriage type is limited. The proposal will adopt one or a combination of the following three internet service installation options: Option A. Employee internet choice: The employee enters into an agreement (contract) directly with the internet service provider. The organisation will reimburse the employee for the hardware installation and initial internet connections (setup costs). Advantages: ● The employee has the choice of internet provider and carriage service; ● There is less administration as the employee bears all responsibility for the connection and ongoing internet services; ● The organisation has no issues with ownership of internet hardware; ● After the hardware is installed in the dwelling the connection costs for subsequent employee tenants will be reduced. Disadvantages: ● This arrangement does not ensure that connectivity is a standard facility available at any given point to all employee housing in rural and remote areas should individual tenants choose not to arrange installation of hardware to enable connection to the internet. ● Reimbursement costs would be higher than through commercial arrangements negotiated by the organisation. ● These privately arranged connections could have residual issues, e.g. outstanding employee debts with internet provider and recovery of hardware. Option B. The employer arranges and pays for the hardware installation. The organisation enters into an arrangement with an internet provider to only install the internet hardware in the dwelling. The employee then enters into an agreement directly with the internet provider for the monthly service charges. Advantages: ● The organisation organises and covers the installation cost and the internet provider generally owns and maintains the internet hardware (e.g. satellite dish, cables); ● substantially limits the organisations involvement in connection to a one-off activity; ● the ongoing internet service arrangement is between the employee and the service provider; ● The organisation will have better bargaining powers for cheaper internet installation costs. Disadvantages: ● after the hardware is installed, future employees will be restricted to one internet provider, which in any case may be limited depending on location; ● more administration on organisation, as it is more complex to setup due to the different housing arrangements (not all premises are owned by government); ● less attractive for internet providers, as there is no ongoing service arrangements after installation. Option C. The employer provides internet services to employee. The organisation enters into an arrangement with an internet provider to connect and provide internet services. The organisation will then on-charge the employee for a standardised monthly internet service charge as it currently does for electricity and gas in multi-tenant housing. The ongoing internet service arrangement is between the employee and the service provider as for the provision of other utilities. Advantages: ● simple solution for employee and where service is shared by multiple tenants; ● substantially limits the organisations involvement in connection to a one-off activity; ● administrative arrangements for payroll deduction for utilities is established practice; ● the organisation will have better bargaining powers for cheaper internet costs. Disadvantages: ● there is no choice of internet service provider for the employee, which in any case may be limited depending on location; ● the organisation has more initial administration to setup internet services and on-going administration costs/responding to internet services issues. Further General Facts The organisation provides other fringe benefits to its employees. Some of these benefits could include the following:- ● Housing Accommodation(remote or non-remote areas) ● Electricity and gas (shared accommodation arrangements and remote area housing only) ● Living Away From Home Allowances (LAFHA) ● Relocation expense benefits ● Remote area holiday travel ● Car ● Car parking ● Other expense benefits (self-education / tolls / island fare travel / oversea travel), Entertainment, Loan / Debt waiver (salary overpayment arrangements). Some of these benefits listed above are exempt benefits. The non-exempt benefits provided to employees have the following approximate taxable value. ● Non-remote housing ● Electricity and Gas ● Relocations ● LAFHA. ● Remote area holiday travel. Currently the majority of internet connection employee reimbursements relate to bundled packages which include both telephone / ADSL internet connection. The organisation anticipates there will be less bundled telephone / ADSL and more NBN and satellite internet connections either arranged by the organisation or reimbursed by the organisation.

Relevant legislative provisions: Subsection 58D(1) of the Fringe Benefits Tax Assessment Act 1986 | Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 | Subsection 27(1) of the Fringe Benefits Tax Assessment Act 1986 | Section 58P of the Fringe Benefits Tax Assessment Act 1986 | Division 359 of Schedule 1 to the Tax Administration Act 1953 | Division 370 of Schedule 1 to the Tax Administration Act 1953 | Subsection 359-5(1) of the Schedule 1 of the Tax Administration Act 1953 | Subsection 148(1) of the Fringe Benefits Tax Assessment Act 1986 | Section 20 of the Fringe Benefits Tax Assessment Act 1986 | Section 20A of the Fringe Benefits Tax Assessment Act 1986 | Section 8-1 of the Income Tax Assessment Act 1997 | Section 45 of the Fringe Benefits Tax Assessment Act 1986 | Section 52 of the Fringe Benefits Tax Assessment Act 1986 | Section 50 of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision: Summary: Your question with respect to the Commissioner’s remedial power is invalid as private rulings relate to a particular taxpayer and their particular circumstances and the remedial power cannot be exercised in favour of a particular entity to make a determination only in respect of their particular circumstances. | Detailed Reasoning - Detailed reasoning: Division 359 of Schedule 1 to the Tax Administration Act 1953 (TAA) sets out the rules that are specific to private rulings. A private ruling is the Commissioner's written expression of how a relevant provision applies, or would apply, to a particular taxpayer in relation to a specified scheme as outlined in subsection 359-5(1) of Schedule 1 to the TAA. The Commissioner’s remedial power (CRP) is contained in Division 370 of Schedule 1 to the TAA. The Commissioner cannot provide a private ruling on the exercise of the CRP as: ● Private rulings relate to a particular taxpayer and their particular circumstances. ● The legislative framework governing the CRP makes it clear that any modification (by disallowable legislative instrument tabled in Parliament) applies generally, to all taxpayers or a specified subset of taxpayers. The CRP simply cannot be exercised in favour of a particular entity to make a determination only in respect of their particular circumstances. The Tax and Superannuation Laws Amendment (2016) Measures No. 2 Bill 2016 explanatory memorandum explains this as follows: 1.54 The Remedial Power cannot be used to modify the operation of a taxation law for a particular entity. This includes exercising the power in relation to a class that is so narrowly defined that it could practically only consist of a particular entity. This can be distinguished from a class that may be capable of consisting of many entities but actually only applies at any given time to one particular entity. 1.55 Having the Remedial Power apply broadly to entities and circumstances ensures that the power properly relates to taxation and helps prevent it from being exercised in an arbitrary way. This ensures that its use is consistent with the requirements of the Constitution. In consideration of the above we think the law in this case operates as it was intended. | Summary: No it is not possible to consider the internet connections as being the same as telephone lines under subsection 58D(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: The cost of connecting telephone services to accommodation occupied by an employee as a consequence of being relocated is exempt from fringe benefit tax (FBT) under subsection 58D(1) of the FBTAA. At this stage subsection 58D(1) of the FBTAA which covers the exemption for telephone lines does not take into account internet connections. It is not appropriate to consider the internet connection in the same light as a telephone connection. Whilst the internet connection may not be exempt under this section of the FBTAA it may be exempt under other sections of the act. | Summary: The provision of internet services in both remote and non-remote areas will constitute a fringe benefit and in particular an expenses payment fringe benefit. The taxable value of the benefit cannot be reduced by the otherwise deductible rule. | Detailed Reasoning - Detailed reasoning: A ‘fringe benefit’ is defined in subsection 136(1) of the FBTAA, which holds that the following conditions must be 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 between the employer or associate of the employer and the third party; or (d) 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. A discussion is provided below in respect of whether each element or condition of the definition of a fringe benefit is satisfied. | Detailed Reasoning - A benefit is provided: 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; … Based on the facts, under all three scenarios given to us, the organisation will be providing employees with an internet connection, by paying the internet provider directly or by reimbursing the employee for the internet connection costs. The provision by the employer to pay for the internet connection falls within the definition of a ‘benefit’ as defined in subsection 136(1) of the FBTAA. As such, the first condition (i.e. the provision of a ‘benefit’) of the definition of a ‘fringe benefit’ – as defined in subsection 136(1) of the FBTAA – would be satisfied. | Detailed Reasoning - The benefit is provided to an employee or an associate of the employee: An ‘employee’ is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee. The facts state that the internet connection is for employees to entice them to move to remote areas to work. Therefore, as the benefit (internet connection) is provided to employees, the second condition (i.e. a benefit is provided to an employee) of the definition of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA would be satisfied. | Detailed Reasoning - The benefit is provided by an employer, an associate of the employer or a third party: ‘Employer’ is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer. The organisation is the current employer and the service is being provided by a third party (the internet service provider). Therefore, the third condition (i.e. a benefit is provided by an employer) of the definition of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA would be satisfied. | Detailed Reasoning - The benefit is provided in respect of the employment of the employee: As per subsection 136(1) of the FBTAA, ‘in respect of’ in relation to the employment of an employee includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment. Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee: ● whether or not the benefit also relates to some other matter or thing; ● whether the employment is past, present or future; ● whether or not the benefit is surplus to the recipient's requirements; ● whether or not the benefit is also provided to another person; ● whether or not the benefit is offset by any inconvenience or disadvantage; ● whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment; ● whether or not the provision of the benefit is in the nature of income, and ● whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee. In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 ( Knowles ), the full Federal Court – in examining the meaning of ‘in respect of’ an employee’s employment – held that the phrase required a ‘nexus, some discernible and rational link, between the benefit and employment’, though noted that ‘what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment’. Based on the facts, the connection between the internet connections being received by employees while living in remote areas of Australia to perform their employment is material and sufficient, and not merely causal. As such, the fourth condition (i.e. a benefit is provided in respect of the employment of the employee) of the definition of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA would be satisfied. | Detailed Reasoning - The benefit is not specifically excluded from the definition of a fringe benefit: With respect to paragraphs (f) to (s) of the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA, the relevant paragraph to consider is paragraph (g) which provides that an exempt benefit will not be a fringe benefit. In considering whether the internet benefits provided falls within any of the exempt benefits listed in Part III of the FBTAA, it is necessary to initially determine the types of fringe benefits that are applicable under the FBTAA. In considering whether the benefit is a fringe benefit it is necessary to determine the type of benefit that has been provided. Under the arrangement the organisation will either provide an internet connection to the employees via a third party or will reimburse the cost of an internet connection paid by the employees. The provision of an internet connection to an employee who is living in either a remote area or a non-remote area will give rise to an expense payment benefit as outlined in section 20 of the FBTAA. Section 20 of the FBTAA provides that an expense payment benefit will arise in two ways: ● where the employer reimburses the employee for expenses they incur, or ● where the employer pays a third party (the internet provided) in satisfaction of expenses incurred by the employee. In the scenarios provided both of the above options are under consideration. As a result an expense payment benefit will arise. The benefits may be an exempt benefit under section 20A of the FBTAA if they are covered by a no-private-use declaration. Section 20A of the FBTAA exempts an expense payment fringe benefit that is covered by a ‘no-private-use’ declaration. An expense payment fringe benefit is exempt if three conditions are satisfied: 1. the employer has made a declaration (the ‘no-private-use’ declaration) covering all the expense payment fringe benefits for the FBT year for which the employer will only pay or reimburse such an amount as would result in the taxable value of the benefit being nil. In other words, the employer will reimburse or pay only employment-related expenses (this would result in the ODR reducing the taxable value of the benefit to nil) 2. the declaration is in a form approved in writing by the Commissioner, and 3. the declaration is made before the ‘declaration date’. The ‘declaration date’ is the date of lodgement of the FBT return for a particular year. This exemption is aimed at circumstances where an employer pays or reimburses only business expenses – in this case, the employer is able to provide an annual declaration stating that the benefits provided during the FBT year were only for employment-related purposes. Where the above mentioned conditions of section 20A of the FBTAA are satisfied, the benefits covered by the declaration are exempt benefits and the employer would not be required to obtain declarations from employees. Section 20A of the FBTAA would not apply in these circumstances as it is likely that the internet connection will be used for both work and private related reasons. | Detailed Reasoning - Otherwise Deductible Rule: If the employer does not make a ‘no-private-use declaration’ pursuant to sections 20A of the FBTAA, the provision of such benefits will not be exempt. As such, the provision of an internet connection benefit in these circumstances will be a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA. However, in such circumstances, the Otherwise Deductible Rule (ODR) may still apply to reduce the taxable value of the associated fringe benefits to nil/by the amount that an employee would have been entitled to claim as a one-off income tax deduction had the employee incurred and paid unreimbursed expenditure in respect of the relevant fringe benefits. The ODR only applies where the employee would have been entitled to a once-only deduction for the internet expenditure paid by the employer. A ‘once-only’ deduction is defined in subsection 136(1) of the FBTAA to mean one that is wholly or partly allowable under the income tax law in only one income year. The above-mentioned ODR is stipulated in section 24 of the FBTAA in respect of expense payment fringe benefits. For an employer to reduce the taxable value of a fringe benefit under the ODR, an employee would have had to incur the relevant expense solely relating to the performance of their employment-related duties and that expense would have to be wholly deductible to that employee for income tax purposes. Under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) you can only claim deductions for work-related expenses where they were incurred in the course of gaining or producing your assessable income, and are not of a capital, private or domestic nature. You cannot claim a deduction for the cost of installing or connecting to the internet as it is a capital expense. Therefore, where the above internet connection benefits are provided/funded by the employer, the taxable value of those benefits cannot be reduced to nil using the ODR. | Detailed Reasoning - Conclusion: Internet connection benefits provided by the organisation for employees in either remote or non-remote areas will constitute an expense payment fringe benefit and will be subject to FBT. | Summary: Certain factors are disregarded in determining the market value of the right to occupy a unit of accommodation. The provision of an internet connection will not be included in the calculation when valuing a housing benefit. | Detailed Reasoning - Detailed reasoning: The valuation rules applying to a housing fringe benefit depend on whether the accommodation is outside Australia, in a non-remote part of Australia or in a remote area of Australia. Miscellaneous Taxation Ruling MT 2025: Guidelines for Valuation of Housing Fringe Benefits (MT 2025) covers the methods used for valuing various types of accommodation provided to employees. The valuation criteria for ascertaining the market rental value of houses, flats, apartments and home units located in residential areas of cities and towns are covered in paragraphs 12 to 16 of MT 2025 as follows: 12. Section 27 of the Act requires certain factors to be disregarded in determining the market value of the right to occupy a unit of accommodation. First, any rights of the occupant to have expenses associated with the occupancy, (e.g., electricity or gas) that are incurred by the occupant but paid by the employer or someone else are disregarded. (Where the right of occupancy carries with it the provision of gas or electricity without charge to the employee the market rental value of the housing benefit would need to reflect that condition.) Second, any onerous conditions of the occupancy that relate to the occupant's employment (e.g., being on call for duty) are disregarded. 13. That means, in effect, that the right to occupy the unit of accommodation is to be valued according to what it would command for rent in an open market situation, without taking into account any special employment conditions or associated expenses of the occupant that might be paid by another person. The object is to ascertain the market rental value by reference to the property that is occupied, and to disregard any matters particular to the person or persons who occupy it. 14. In normal valuation practice, the market rental is what a willing but not anxious person would be prepared to pay the owner to occupy the particular premises in their existing condition if they were put on the open market for rent. Ordinarily, market rental is to be ascertained by comparison with similar properties, on the basis that the best evidence of the market rental value of a property is to be found by examining the rents obtained for comparable properties in the locality. 15. In making that comparison, it is necessary to take into account the general physical condition of the unit of accommodation, including the number of rooms, the standard of the facilities, (e.g., heating, cooling, cooking), the existence and condition of inclusions such as furniture, carpets, drapes and blinds, and so on. Another factor that affects the rental value is the location and setting of the unit, i.e., whether or not it is in an inner or outer suburb of a city or in a country town, on a rural property, how far it is from community amenities, whether it is affected by industrial noise and pollution, and so on. 16. It will not normally be a difficult matter to arrive at a market rental value of a unit of accommodation that is in a city or town where there is a rental market for similar or broadly similar units. A three bedroom house in a capital city, for example, could be valued by ascertaining through enquiry of real estate agents or perusal of classified advertisements the range of rents charged for similar houses in the neighbouring area. If necessary, an agent could be asked to nominate the market rental that the house could command. Chapter 10 of the Fringe Benefit Tax: a guide for employers (NAT 1054) also provides guidance in calculating the taxable value of employee provided accommodation. In summary of the above, in effect, that the right to occupy the unit of accommodation is valued according to what it would command for rent in an open market situation, without taking into account any special employment conditions or associated expenses of the occupant that might be paid by another person. The object is to ascertain the market rental value by reference to the occupied property, and to disregard any matters particular to the person or people who occupy it. We consider the instalment of computer hardware into a house or unit of accommodation where the organisations employees will live will not be included in the calculation when determining the market value of the property. | Summary: Cost of computer hardware and the installation of this equipment such as satellite dishes, modems and internal and external cabling that is paid for by the employer will give rise to a residual fringe benefit. As the Commissioner considers these to be capital expenses the ODR cannot be used to decrease the taxable value of the fringe benefit. | Detailed Reasoning - Detailed reasoning: The definition of a fringe benefit was discussed in detail at question 3. A discussion is provided below to determine if the elements of the definition of a fringe benefit has been satisfied. | Detailed Reasoning - A benefit being provided: The term benefit is defined in subsection 136(1) of the FBTAA to include: 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: i) the performance of work (including work of a professional nature), whether with or without the provision of property; The provision of computer hardware in houses occupied by employees satisfies the definition of a benefit. The above requirement would only be satisfied if the facility is provided to current employees, and not to third parties. | Detailed Reasoning - The benefit is provided to an employee or an associate of the employee: An ‘employee’ is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee. The facts state that the computer hardware equipment is for employees to entice them to move to remote areas to work by providing them with good internet service. Therefore, as the benefit (computer hardware equipment) is provided to employees, the second condition (i.e. a benefit is provided to an employee) of the definition of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA would be satisfied. | Detailed Reasoning - The benefit is provided by an employer, an associate of the employer or a third party: ‘Employer’ is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer. The organisation is the current employer and the service is being provided by a third party. Therefore, the third condition (i.e. a benefit is provided by an employer) of the definition of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA would be satisfied. | Detailed Reasoning - The benefit is provided in respect of the employment of the employee: As per subsection 136(1) of the FBTAA, ‘in respect of’ in relation to the employment of an employee includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment. Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee: ● whether or not the benefit also relates to some other matter or thing; ● whether the employment is past, present or future; ● whether or not the benefit is surplus to the recipient's requirements; ● whether or not the benefit is also provided to another person; ● whether or not the benefit is offset by any inconvenience or disadvantage; ● whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment; ● whether or not the provision of the benefit is in the nature of income, and ● whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee. In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 ( Knowles ), the full Federal Court – in examining the meaning of ‘in respect of’ an employee’s employment – held that the phrase required a ‘nexus, some discernible and rational link, between the benefit and employment’, though noted that ‘what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment’. Based on the facts, the connection between the computer hardware equipment being received by employees while living in remote areas of Australia to perform their employment is material and sufficient, and not merely causal. As such, the fourth condition (i.e. a benefit is provided in respect of the employment of the employee) of the definition of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA would be satisfied. | Detailed Reasoning - The benefit is not specifically excluded from the definition of a fringe benefit: With respect to paragraphs (f) to (s) of the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA, the relevant paragraph to consider is paragraph (g) which provides that an exempt benefit will not be a fringe benefit. In considering whether the internet benefits provided by the organisation fall within any of the exempt benefits listed in Part III of the FBTAA, it is necessary to initially determine the types of fringe benefits that are applicable under the FBTAA. In considering whether the benefit is a fringe benefit it is necessary to determine the type of benefit that has been provided. Under the arrangement the organisation will pay a third party to install computer hardware in houses occupied by their employees. | Detailed Reasoning - Is the benefit a residual benefit?: Section 45 of the FBTAA states that: 'A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive). The provision and use of computer hardware equipment in a house does not fall within any provision of Subdivision A of Division 2 to 11 inclusive of the FBTAA, thus section 45 of the FBTAA is met and it is a residual benefit. Chapter 18 of the Fringe Benefit Tax: a guide for employers (NAT 1054) states there are two main types of residual fringe benefits, in-house residual fringe benefits and external residual fringe benefits. | Detailed Reasoning - In-house residual fringe benefits: A residual benefit is an in-house residual fringe benefit if the provider is the employer or an associate of the employer and the benefit is identical or similar to rights, services, facilities , etc. provided to the public in the ordinary course of business. As the employer is not a provider of internet/computer hardware, the residual benefit will not be an in-house residual benefit. | Detailed Reasoning - External residual fringe benefits: Any residual fringe benefit that is not an in-house residual fringe benefit is an external residual fringe benefit. An external residual fringe benefit arises where: ● the residual fringe benefit is provided by the employer or associate but the benefit is not of a kind provided to the public in the ordinary course of business; or ● the employer or associate of the employer arranges for the residual benefit to be provided by a third party. We consider that the provision of the computer hardware would constitute an external residual fringe benefit. | Detailed Reasoning - Taxable value and otherwise deductible rule: When the employer purchases and installs the computer hardware in the houses that their employees are living in, they will be providing a residual fringe benefit to their employees. The fringe benefit will be an external non-period residual fringe benefit which means that its taxable value will be the amount the employer pays for the equipment. This is in accordance with section 50 of the FBTAA. The taxable value of the residual fringe benefit may be reduced in accordance with the otherwise deductible rule under section 52 of the FBTAA. Broadly, this means that the taxable value may be reduced to the extent that your employee would have been entitled to an income tax deduction if you had not paid for the equipment. The extent to which the equipment expense would be an allowable income tax deduction if incurred by an employee is determined under the general deduction provisions in section 8-1 of the ITAA 1997. The general deduction provisions allow a deduction for all losses and outgoings to the extent which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. The words 'incurred in gaining or producing your assessable income' mean in the course of gaining or producing such income. The occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if no assessable income is produced, what would have been expected to produce assessable income: Ronpibon Tin NL v FC of T (1949) 78 CLR 47 ( Ronpibon Tin ); Federal Commissioner of Taxation v Payne [2001] HCA 3; 2001 ATC 4027 ( Payne ). In this case, the employer will be purchasing hardware to be installed in houses occupied by employees for their personal and private use and possibly for work related purposes also. It is considered these items are capital in nature, and their purchase is not an allowable deduction under paragraph 8-1(2)(a) of the ITAA 1997. As it has been established that the benefits being provided/funded by the employer are capital in nature the taxable value of those benefits cannot be reduced to nil using the ODR. | Summary: Expense payment benefits that have a notional taxable value of less than $300 can be classified as exempt minor benefits. | Detailed Reasoning - Detailed reasoning: Expense payment benefits can be exempt in certain circumstances where they meet the requirements of the minor benefits exemption contained in section 58P of the FBTAA. Section 58P of the FBTAA states: | Detailed Reasoning - 58P Exempt benefits – minor benefits: (1) 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) the benefit is not an airline transport benefit; (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 benefits, 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) in the case of a tax-exempt body entertainment benefit where provider incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision of entertainment to the employee or an associate of the employee: (i) the provision of entertainment to the employee or the associate of the employee, as the case may be: (A) is incidental to the provision of entertainment to outsiders; and (B) neither consist of, nor is provided in connection with, the provision of a meal (other than a meal consisting of light refreshments) to the employee or the associate of the employee, as the case may be; or (ii) the entertainment is provided to the employee or the associate of the employee, as the case may be: (A) on eligible premises of the employer; and (B) solely as a means of recognising the special achievements of the employee in a matter relating to the employment of the employee; (e) the notional taxable 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 employee to deal with an unexpected event; and (B) whether the benefit concerned was provided otherwise than wholly or 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. Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits summarises the requirements of section 58P: 6 A minor benefit is an exempt benefit under section 58P where: ● the notional taxable value of the minor benefit is less than $300; and ● 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. Fringe benefits tax: a guide for employers (NAT 1054) summaries: Minor benefits are exempt benefits. A minor benefit is a benefit which is both : ● less than $300 in value (before 1 April 2007 the amount was less than $100), and ● unreasonable to treat as a fringe benefit. | Detailed Reasoning - Less than $300 in value: A minor benefit is a benefit which has a ‘notional taxable value’ of less than $300. The notional taxable value of a minor benefit is, broadly, the amount that would be the taxable value if the benefit was a fringe benefit. Where you provide an employee with separate benefits that are in connection with each other (for example, a meal, a night’s accommodation and taxi travel) you need to look at each individual benefit provided to the employee to see if the notional taxable value of each benefit is less than $300. … If the notional taxable value of a benefit is less than $300, you then need to determine if it would be unreasonable to treat the benefit as a fringe benefit. | Detailed Reasoning - Criteria for determining whether it would be unreasonable to treat the minor benefit as a fringe benefit: The following five criteria need to be considered when deciding if it would be unreasonable to treat the minor benefit as a fringe benefit: 1. The infrequency and irregularity with which associated benefits, being benefits that are identical or similar to the minor benefit and benefits given in connection with the minor benefit are provided. The more frequently and regularly associated benefits are provided, the less likely that the minor benefit will qualify as an exempt benefit. 2. The total of the notional taxable values of the minor benefit and identical or similar benefits to the minor benefit. The greater the total value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will qualify as an exempt benefit. 3. The likely total of the notional taxable values of other associated benefits – that is, those provided in connection with the minor benefit. For example, where a meal, which is a minor benefit, is provided in connection with a night’s accommodation and taxi travel, which themselves may or may not be a minor benefit, the total of their taxable values must be considered. The greater the total value of other associated benefits, in this case being the accommodation and the taxi travel, the less likely it is that the minor benefit will qualify as an exempt benefit. 4. The practical difficulty in determining what would be the notional taxable value of the minor benefit and any associated benefits. This would include consideration of the difficulty for you in keeping the necessary records in relation to the benefits. 5.the circumstances in which the minor benefit and any associated benefits were provided. This would include consideration as to whether the benefit was provided as a result of an unexpected event, and whether or not it could be considered principally as being in the nature of remuneration. If, after considering the five criteria, you conclude that it would be unreasonable to treat the benefits as a fringe benefit, the benefit will be an exempt benefit. In determining whether it is reasonable to treat a minor benefit as exempt, the provision of the relevant minor benefit cannot be considered in isolation. Section 58P(1)(f) of the FBTAA makes it clear that any "associated benefits" must also be taken into account. If an employee receives a minor benefit without any associated benefits, the benefit will almost certainly be exempt under section 58P. However, if an employee receives a number of benefits, each benefit provided to the employee may no longer be an exempt minor benefit if the value of all the benefits is aggregated. The term "associated benefit" is defined in subsection 58P(2) of the FBTAA as being a benefit is an associated benefit in relation to a minor benefit if, and only if : (1) any of the following applies: (a) the benefit is identical or similar to the minor benefit (b) the benefit is provided in connection with the provision of the minor benefit (c) the benefit is identical or similar to a benefit provided in connection with the provision of the minor benefit (2) the benefit and the minor benefit both relate to the same employment of a particular employee, and (3) the benefit is not an exempt benefit by virtue of any other provision of the Act. While neither "identical" nor "similar" are defined in the act, some guidance as to their meaning in the context of section 58Pof the FBTAA can be taken from the definition of "identical benefit" in subsection 136(1). Identical benefit is defined in relation to a residual fringe benefit to mean another benefit that is "the same in all respects, except for differences (if any) that are minimal or insignificant and do not affect the value". In the context of section 58P, a benefit would be identical to the minor benefit if it were either the same as the minor benefit or if any difference was too minimal to be significant or to affect its value. Identical benefits have the same value. Allowing that identical benefits may differ in some small respects, "similar" benefits need only be of the same kind. A benefit that is similar to a minor benefit must at least resemble the minor benefit in some respect. A gift of a bottle of wine at Christmas time may be similar to a minor benefit of a bottle of whiskey, but a bottle of perfume would not. As stated above, this concept of an associated benefit recurs in the determination of whether it would be unreasonable to treat a minor benefit as a fringe benefit. In fact, in each of the matters that are specified as relevant, associated benefits must be taken into account. TR 2007/12 provides further guidance on associated benefits. In particular at paragraph 190-191. 190. A benefit that is provided 'in connection with' the minor benefit is one that is provided in conjunction with the minor benefit. For example if accommodation, board and electricity benefits are provided in conjunction with the payment of minor telephone expenses, these benefits are provided in connection with the telephone expense payment benefit. 191. The term 'in connection with' is potentially wide but it is to be interpreted in the context of the statute in which it is contained: see Davies J in Hatfield v. Health Insurance Commission (1987) 15 FCR 487 at 491; 77 ALR 103 at 106-107. Wilcox J also stated in Our Town FM Pty Ltd v. Australian Broadcasting Tribunal (No. 1) (Our Town FM case) 16 FCR 465 at 479; 77 ALR 577 at 591-592 in the context of paragraph 5(1)(b) of the Administrative Decisions (Judicial Review) Act 1977 that: The words 'in connection with' have a wide connotation, requiring merely a relation between one thing and another. They do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v. Miller (1958) 8 FCR 153 at 154, 160, 163. In determining whether a benefit provided to an employee qualifies for the minor benefits exemption in section 58P of the FBTAA 1986, the criteria set out in paragraph 58P(1)(f) requires a consideration of any other associated benefits that have been provided before concluding whether it would be reasonable to treat the minor benefit as a fringe benefit. All five criteria must be considered. No single criterion on its own will determine whether it is unreasonable to treat the benefit as a fringe benefit. Each of the above five criteria is discussed further below. | Detailed Reasoning - i) Infrequency and irregularity: The terms 'infrequency' and 'irregularity' are not defined and therefore take their ordinary meanings. The Macquarie Dictionary defines 'infrequent' as: 1. happening or occurring at long intervals or not often. 2. not constant, habitual or regular: infrequent visits and "irregular" as not characterised by any fixed principle, method or rate: irregular intervals. Also, 'irregular' is defined as: not characterised by any fixed principle, method or rate: irregular intervals . On the basis of this application, the provision of the expense payment fringe benefit by way of either reimbursing the employee or paying a third party on behalf of the employee to connect the internet to the house where employees live is provided on an irregular basis once a year or less. As such it is reasonably concluded that the benefit is provided as in infrequent and irregular basis. This criterion is satisfied. | Detailed Reasoning - ii) Value of the minor benefit and identical or similar associated benefits: Under this test we must consider 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. This criterion addresses the situation where there are multiple occasions where identical or similar benefits are provided to an employee. This criterion addresses the situation where there are multiple occasions where identical or similar benefits are provided to an employee. In this case the total taxable value of the benefits provided are clearly stated and documented. Some of the expenses are over $300 and would not qualify for the minor benefits exemption; however some of the expenses are less than $300 and are clearly documented in the spreadsheet provided. The benefit is not provided as an ongoing entitlement in connection with identical or similar associated benefits in the year of tax, nor is it provided as a result of a salary sacrifice arrangement where the application of TR 2007/12 will make it a taxable benefit. This criterion is satisfied. | Detailed Reasoning - iii) Value of benefits connected with the minor benefit: This test addresses the situation where other benefits are provided in conjunction with or to facilitate the provision of the minor benefit. Also, the notional taxable value of the associated benefits in the current year as well as in any other year must be taken into account when determining the total value of benefits for the purposes of this criterion. In summary, regard must be had to the likely taxable values of the minor benefit and benefits that are provided in connection with the provision of the minor benefit. The smaller the cumulative value of the other associated benefits the more likely that this unreasonableness criterion will be satisfied. In this case more than one type of benefit is being provided. The Commissioner would regard the provision of the internet connection an associated benefit to the remote area housing benefit and the connection and re-connection of certain utilities (in this case being electricity and or gas and telephone). However as these benefits are exempt benefits they are not considered in these circumstances. It is noted that the organisation does provide housing benefits in non-remote areas along with electricity and gas. In this situation the benefits provided are not exempt and are therefore considered associated benefits. Due to the large number of employees who receive these benefits at varying amounts it is difficult to give a specific value of the associated benefits that would be considered connected to the provision of the internet provided to the employees. This criterion is satisfied for the remote areas that are receiving the benefit of the internet connection but not satisfied for the non-remote area housing that receives the same benefit. | Detailed Reasoning - iv) Practical difficulty: This test considers the practical difficulty for the employer in determining the notional taxable values of the minor benefit (if it is not a car benefit) and any associated benefits. In this case the benefits provided are identified, have a specific total value, are properly recorded and can be accounted for as per your application. The employer cannot claim that it is practically difficult to determine the value of the benefits. However it is not reasonable to apply this test/criterion alone to exclude the benefit of being an excluded minor benefit. | Detailed Reasoning - v) Circumstances in which the benefit is provided: Under this test, we consider the circumstances surrounding the provision of the benefit and any associated benefits including, but without limiting criteria (i) to (iv), whether the benefit concerned was provided: a. to assist the employee to deal with an unexpected event; and b. otherwise than wholly or principally by way of a reward for services rendered, or to be rendered, by the employee (paragraph 58P(1)(v)). A benefit provided as a result of a contingency is more likely to be treated as an exempt benefit. Conversely, a benefit that is principally in the nature of remuneration is less likely to be treated as an exempt benefit. Based on the present facts, the expense fringe benefits provided was not provided to assist employees dealing with an unexpected event. On the facts, it is not wholly or principally a reward for services. It is to entice employees to move to remote areas to undergo their employment. This criterion is satisfied. A minor benefit is a benefit which has a 'notional taxable value' of less than $300. The notional taxable value of a minor benefit is, broadly, the amount that would be the taxable value if the benefit was a fringe benefit. We note that on the facts provided some internet connections being provided by the organisation cost more than $300 and therefore cannot be considered under the minor benefit exemption. | Detailed Reasoning - Conclusion: We applied the reasonable person test in order to make a decision that is fair and reasonable to the taxpayer. After considering all factors outlined in subparagraphs 58P(1)(f)(i)to(v) of the FBTAA and the weigh given to each criterion above, on balance we determine that the benefits provided by way of an internet connection for employees living in both remote and non-remote areas would be exempt benefits under section 58P.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions. | A. Invalid Private Ruling Question