Private ruling: FBT implications on musical instruments
Date of advice: 2 July 2015
Published: July 2015
Ruling period: FBT year ending 31 March 2016 | FBT year ending 31 March 2017 | FBT year ending 31 March 2018 | FBT year ending 31 March 2019 | FBT year ending 31 March 2020
Date scheme commenced: 1 April 2015

Ruling: Q1: Can instruments that are part of a salary package provided by an employer to its employees be described as "tools of trade" under paragraph 58X(2)(e) of the Fringe Benefits Tax Assessment Act 1986 (FTBAA)? | A1: Yes

Relevant facts and circumstances: The employer provides music teaching programs. The employer currently provides salary packages to employees of business items such as laptops and mobile phones. The employer plans to provide effective salary packaging of instruments to staff who, are involved in music teaching programs and are required to provide their own instruments. The instruments will be wholly owned by the employees. Private use of the instruments will be minimal. It is industry standard that performers supply their own instruments and this applies to this employer's employees. Employees will not be expected to provide non-portable instruments. A position description was provided with the ruling application as an example of the job descriptions of employees.

Relevant legislative provisions: Section 58X of the FBTAA

Reasons for decision: Summary: Instruments that are part of a salary package provided by the employer to its employees can be considered as "tools of trade" under paragraph 58X(2)(e) of the FTBAA. | Detailed Reasoning - Detailed reasoning: Section 58X of the FBTAA exempts from fringe benefits tax the provision of certain eligible work related items. Subsection 58X(1) of the FBTAA provides that the provision of an expense payment benefit, a property benefit or a residual benefit by an employer to an employee in respect of an eligible work related item will be an exempt benefit. Subsection 58X(2) of the FBTAA lists the items that, if provided primarily for use in the employee's employment, are 'eligible work related items' that may be subject to exemption. Included in this list at paragraph (e) is 'a tool of trade'. The term 'tool of trade' is not defined in the FBTAA and therefore it takes on its ordinary meaning. The definition of 'Tool' in the Macquarie Dictionary, 6 th edition, October 2013, includes: 1. an instrument, especially one held in the hand, for performing or facilitating mechanical operations, as a hammer, saw, file, etc. 2. any instrument of manual operation. 3. that part of a lathe, planer, drill, or similar machine, which performs the cutting or machining operation 4. the machine itself; a machine tool. 5. anything used like a tool to do work or effect some result. 6. anything used regularly in the course of a particular profession or occupation. It can be seen that, for a music teacher, an instrument would meet the requirements of the 6 th part of the definition, " anything used regularly in the course of a particular profession or occupation ". In Vaughn v. Official Trustee in Bankruptcy (1996) 71 FCR 34 ( Vaughn ) the expression 'tools of trade' was considered by the Full Federal Court by reference to The New Shorter Oxford English Dictionary (1993) as: 'Tool': 1. A thing used to apply manual force to an object or material, esp. a device designed for some particular mechanical function in a manual activity, as a hammer, a saw, a fork; an implement. 2. A thing (concrete or abstract) used in the carrying out of some occupation or pursuit; a means of effecting a purpose or facilitating an activity. 'Tools of Trade' : The basic equipment required for a particular occupation. For an item to qualify as a 'tool', whilst it must meet the necessary condition of being dependant on manual operation to give effect to its purpose, it can also be electrically powered. For instance it would be accepted that both a handsaw and a power saw used by a tradesperson would both be 'tools of trade'. By ignoring the wider term of 'equipment' and restricting the phrase to the actual tools themselves used in an occupation, the Court used the analogy of allowing a professional photographer's camera and filters but not the film used in the camera as a 'tool of trade'. In terms of the dictionary definition quoted in Vaughan , a thing will qualify as a tool, where it meets either definition rather than a composite or both. In terms of definition (1), these instruments do not apply manual force to another object. For that reason, they would not qualify as a 'tool' under those terms. Through definition (2) however, it is accepted that an instrument is a thing which is used in carrying out a music teacher's occupation, and on that basis would still qualify as a 'tool'. The other main requirement for exemption is that the eligible work related item must be primarily for use in the employee's employment. An item is primarily for use in an employee's employment if it is provided principally to enable an employee to do their job. ' FBT - a guide to employers' provides that an employer must use a reasonable basis to determine whether an item is primarily for use in the employee's employment. The applicant has advised that the employees require instruments in order to perform the duties of their positions, and therefore they wish to make available the option of salary packaging these instruments. The applicant advises that any private use of the instruments provided under these packages will be minimal. It is therefore considered that an instrument that is necessary for teaching and other duties that arise within the scope of the employment of the staff members would be considered a 'tool of trade' under paragraph 58X(2)(e) of the FBTAA .