Private ruling: Fringe benefits tax: sick leave incentive scheme
Published: February 2015
Ruling period: 1 April 2014 - 31 March 2015
Date scheme commenced: 1 April 2014

Ruling: Q1: Will the provision under the sick leave incentive scheme of the maximum of four vouchers in an FBT year to the employee to the value of $75 each give rise to a fringe benefit as defined in subsection 136(1) of the FBTAA? | A1: No | Q2: Will the provision under the sick leave incentive scheme of the maximum of three vouchers in an FBT year to the employee to the value of $75 each give rise to a fringe benefit as defined in subsection 136(1) of the FBTAA? | A2: No | Q3: Will the provision under the sick leave incentive scheme of the maximum of two vouchers in an FBT year to the employee to the value of $75 each give rise to a fringe benefit as defined in subsection 136(1) of the FBTAA? | A3: No | Q4: Will the provision under the sick leave incentive scheme of the maximum of one voucher in an FBT year to the employee to the value of $75 give rise to a fringe benefit as defined in subsection 136(1) of the FBTAA? | A4: No | Q5: Will the provision under the sick leave incentive scheme of the maximum of four vouchers in an FBT year to the employee to the value of $16 each give rise to a fringe benefit as defined in subsection 136(1) of the FBTAA? | A5: No

Relevant facts and circumstances: The organisation is a tax exempt charity. The organisation operates a sick leave incentive scheme under which staff who, do not use any or all their sick leave entitlement receive a gift voucher. The voucher is a shopping gift card. Details of the scheme: The amount of personal/carer's leave accrued to an employee during the quarter will be compared to the amount of leave actually taken by the employee during the quarter. The proportion of the accrued leave that remains untaken will be applied against the 'potential payment' amount to determine the value of the voucher that is provided to the employee in respect of that quarter. The value of the voucher varies according to the amount of sick leave taken up to a maximum value of $75. For the purposes of this ruling the maximum quarterly entitlement will not exceed a $75 voucher per quarter. A voucher will not be provided to an employee if less than 20% of the leave accrued in a quarter remains (which means more than 80% was used). A voucher will not be provided to an employee if the calculated value of an employee's entitlement is less than $10. An employee's entitlement will be rounded to the nearest dollar. The following examples are based on a maximum quarterly entitlement (referred to in the example below as a 'Payment') of $75 per employee. These are examples only. The actual value of the voucher may change from time to time. The vouchers are not provided under a salary sacrifice arrangement. The value of vouchers is not included in the employee's payroll record in any way. The maximum number of gift vouchers an employee can receive per FBT year is four and therefore the maximum total value of the benefits per employee per FBT year is $300. An employee who works full time and has taken no sick leave at all across a year will receive the full incentive (4 x $75 vouchers). One or more employees will receive the maximum of 4 vouchers in the FBT year covered by this ruling. The employee will not receive 'associated benefits' as that term is defined in subsection 58P(2) of the FBTAA.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 58P | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Summary: The provision under the sick leave incentive scheme of vouchers to the employees, to the maximum of four vouchers per FBT year, are exempt minor benefits under subsection 58P(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), and therefore not a fringe benefits as defined in subsection 136(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: For the purposes of this ruling the relevant paragraph in the definition of a 'fringe benefit' contained in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), is paragraph (g) which provides that an exempt benefit will not be a fringe benefit. A benefit that is a minor benefit will be an exempt benefit where the requirements of subsection 58P(1) of the FBTAA are satisfied. Subsection 58P(1) of the FBTAA states: 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 benefit, 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 the 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 consists 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. The Commissioner's view on the application of section 58P of the FBTAA is provided in Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12). As relevant to the facts in this case, the provision of a voucher to the employee would be classified as a property benefit if it was a fringe benefit (i.e. not an exempt minor benefit). A benefit (minor benefit) that is provided to employees in an employment relationship, in the current year of tax, falls within paragraph 58P(1)(a) of the FBTAA. The benefit that arises from the provision of vouchers will be an exempt minor benefit if: (i) the benefit does not fall into paragraphs 58P(1)(b) to (d) of the FBTAA inclusive; (ii) the notional taxable value of the benefit is less than $300 (paragraph 58P(1)(e); and (iii) it can be concluded on the basis of the factors listed in paragraph 58P(1)(f) of the FBTAA that it would be unreasonable to treat the benefit as a fringe benefit. There are certain benefits that are specifically excluded from subsection 58P(1) of the FBTAA. These benefits are: • airline transport benefits; • expense payment benefits where, if the benefit was an expense payment fringe benefit, it would be an in-house fringe benefit; • property benefits where, if the benefit was a property fringe benefit, it would be an in-house fringe benefit; and • residual benefits where, if the benefit was a residual fringe benefit, it would be an in-house fringe benefit. Furthermore, where: • a tax-exempt body entertainment is provided, and • the provider incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision of entertainment to an employee or an associate of the employee such benefits are excluded from consideration for exemption under subsection 58P(1) of the FBTAA. The provisions under paragraphs 58P(1)(b) to (d) of the FBTAA are now considered, with regards to the provision of vouchers provided under the sick leave incentive scheme. The employer provides vouchers to the qualifying employee on a quarterly basis up to a maximum of four $75 vouchers per year. In this case, each benefit under consideration (minor benefit) will not be an airline transport benefit, or a tax-exempt entertainment benefit. Also, each minor benefit will not be an in-house expense payment, property or residual benefit as the employer is not providing such benefits to its clients in the ordinary course of business. Paragraphs 58P(1)(b) to (d) of the FBTAA are not satisfied and therefore consideration for the minor benefit exemption can continue. Paragraph 58P(1)(e) states the notional taxable value of the minor benefit in relation to the current year of tax is less than $300. The notional taxable value outlined in paragraph 58P(1)(e) of the FBTAA, is the taxable value of the minor benefit (as if it were a fringe benefit) and calculated accordingly under the relevant FBTAA Division. In this case, the notional taxable value is what the employer paid to receive the vouchers from a third party in an arms-length transaction. That is, up to $75 per voucher. Each voucher an employee receives per quarter is a benefit and may be considered for exemption under subsection 58P(1) of the FBTAA as its notional taxable value for the purposes of paragraph 58P(1)(e) of the FBTAA being a maximum of $75 is less than $300. Paragraph 58P(1)(f) of the FBTAA identifies the five factors that need to be considered and applied to determine if it would be unreasonable, having regard to the five specified factors, to treat each voucher (the minor benefit) as a fringe benefit, in the current year of tax. The five factors are discussed below. | Detailed Reasoning - Infrequency and irregularity with which associated identical or similar benefits are provided (subparagraph 58P(1)(f)(i) of the FBTAA): The employee will not certainly qualify for a voucher every quarter; unless they continuously limit the amount of sick leave. 'Associated benefit' is defined in subsection 58P(2) of the FBTAA. 58P(2) [Associated benefit] For the purposes of this section, a benefit is an associated benefit in relation to a minor benefit if, and only if: (a) any of the following subparagraphs applies: (i) the benefit is identical or similar to the minor benefit; (ii) the benefit is provided in connection with the provision of the minor benefit; (iii) the benefit is identical or similar to a benefit provided in connection with the provision of the minor benefit; (b) the benefit and the minor benefit both relate to the same employment of a particular employee; and (c) the benefit is not an exempt benefit by virtue of a provision of this Act other than this section. 'Infrequent' and 'irregular' are not defined terms and take their ordinary meaning. Generally infrequent means at long intervals and irregular means not characterised by any fixed intervals. 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 (subparagraph 58P(1)(f)(ii) of the FBTAA). Sum of the notional taxable values of any other associated benefits (subparagraph 58P(1)(f)(iii) of the FBTAA) Practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits (subparagraph 58P(1)(f)(iv) of the FBTAA) Circumstances surrounding the provision of the minor benefit and any associated benefits (subparagraph 58P(1)(f)(v) of the FBTAA) These factors will now be considered and applied to each of the factual scenarios relevant to questions 1 to 5 that are raised in this ruling. | Detailed Reasoning - Question 1 - maximum of four vouchers to the employee to the value of $75 each: • The provision of 4 vouchers in the year of tax is considered to be frequent and regular • the sum of the notional taxable value of the minor benefit and any associated benefits in the FBT year and in other years (being a maximum of $300 per year) is not considered to be substantial • there are no other associated benefits provided • the employer is expected to have little or no practical difficulty in calculating the notional taxable value of the minor benefit and the associated benefits provided to the employee. Vouchers are acquired in arm's length transactions and the employer is expected to hold the relevant business records • each voucher is not provided to assist the employee to deal with an unexpected event, and • each voucher is provided otherwise than wholly or principally by way of a reward for services rendered or to be rendered by the employee. That is, notwithstanding that the scheme may encourage employees to be at work more, the scheme is not work performance based such as a sales incentive scheme. In the circumstances, having considered and applied paragraph 58P(1)(f) of the FBTAA, we consider that the argument for concluding it would be unreasonable to treat the provision of each voucher to the employee as a fringe benefit, is a little more compelling than the argument for concluding it would be a fringe benefit. Therefore each minor benefit provided under the factual scenario described in question 1 will be an exempt benefit under section 58P of the FBTAA. | Detailed Reasoning - Question 2 - maximum of three vouchers to the employee to the value of $75 each: • The provision of 3 vouchers in the year of tax is considered to be frequent and regular • the sum of the notional taxable value of the minor benefit and any associated benefits in the FBT year and in other years (being a maximum of $225 per year) is not considered to be substantial • there are no other associated benefits provided • the employer is expected to have little or no practical difficulty in calculating the notional taxable value of the minor benefit and the associated benefits provided to the employee. Vouchers are acquired in arm's length transactions and the employer is expected to hold the relevant business records • each voucher is not provided to assist the employee to deal with an unexpected event, and • each voucher is provided otherwise than wholly or principally by way of a reward for services rendered or to be rendered by the employee. That is, notwithstanding that the scheme may encourage employees to be at work more, the scheme is not work performance based such as a sales incentive scheme. In the circumstances, having considered and applied paragraph 58P(1)(f) of the FBTAA, we consider that the argument for concluding it would be unreasonable to treat the provision of each voucher to the employee as a fringe benefit, is a little more compelling than the argument for concluding it would be a fringe benefit. Therefore each minor benefit provided under the factual scenario described in question 2 will be an exempt benefit under section 58P of the FBTAA. | Detailed Reasoning - Question 3 - maximum of two vouchers to the employee to the value of $75 each: • The provision of two vouchers in the year of tax is not considered to be frequent and regular • the sum of the notional taxable value of the minor benefit and any associated benefits in the FBT year and in other years (being a maximum of $150 per year) is not considered to be substantial • there are no other associated benefits provided • the employer is expected to have little or no practical difficulty in calculating the notional taxable value of the minor benefit and the associated benefit provided to the employee. Vouchers are acquired in arm's length transactions and the employer is expected to hold the relevant business records • each voucher is not provided to assist the employee to deal with an unexpected event, and • each voucher is provided otherwise than wholly or principally by way of a reward for services rendered or to be rendered by the employee. That is, notwithstanding that the scheme may encourage employees to be at work more, the scheme is not work performance based such as a sales incentive scheme. In the circumstances, having considered and applied paragraph 58P(1)(f) of the FBTAA, it would not be unreasonable to treat the provision of each voucher to the employee as a fringe benefit. Therefore each minor benefit provided under the factual scenario described in question 3 will not be an exempt benefit under section 58P of the FBTAA. | Detailed Reasoning - Question 4 - maximum of one voucher to the employee to the value of $75: • The provision of one voucher in the year of tax is considered to be provided infrequently but on a regular basis • the sum of the notional taxable value of the minor benefit and any associated benefits in the FBT year and in other years (being a maximum of $75 per year) is not considered to be substantial • there are no other associated benefits provided • the employer is expected to have little or no practical difficulty in calculating the notional taxable value of the minor benefit provided to the employee. The voucher is acquired in arm's length transaction and the employer is expected to hold the relevant business records • the voucher is not provided to assist the employee to deal with an unexpected event, and • each voucher is provided otherwise than wholly or principally by way of a reward for services rendered or to be rendered by the employee. That is, notwithstanding that the scheme may encourage employees to be at work more, the scheme is not work performance based such as a sales incentive scheme. In the circumstances, having considered and applied paragraph 58P(1)(f) of the FBTAA, it would be unreasonable to treat the provision of the voucher to the employee as a fringe benefit. Therefore the minor benefit provided under the factual scenario described in question 4 will be an exempt benefit under section 58P of the FBTAA. | Detailed Reasoning - Question 5 - maximum of four quarterly vouchers to the employee to the value of $16 each: • The provision of four vouchers in the year of tax is considered to be frequent and regular • the sum of the notional taxable value of the minor benefit and any associated benefits in the FBT year and in other years (being a maximum of $64 per year) is not considered to be substantial • there are no other associated benefits provided • the employer is expected to have little or no practical difficulty in calculating the notional taxable value of the minor benefit and the associated benefits provided to the employee. Vouchers are acquired in arm's length transactions and the employer is expected to hold the relevant business records • each voucher is not provided to assist the employee to deal with an unexpected event, and • each voucher is provided otherwise than wholly or principally by way of a reward for services rendered or to be rendered by the employee. That is, notwithstanding that the scheme may encourage employees to be at work more, the scheme is not work performance based such as a sales incentive scheme. In the circumstances, having considered and applied paragraph 58P(1)(f) of the FBTAA, it would be unreasonable to treat the provision of each voucher to the employee as a fringe benefit. Therefore each minor benefit provided under the factual scenario described in question 5 will be an exempt benefit under section 58P of the FBTAA.