Private ruling: Whether the reimbursement paid to employees for a portable electronic device is an exempt benefit
Published: January 2013
Ruling period: Year ending 31 March 2013 | Year ending 31 March 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the provision of a $X reimbursement by the employer to employees be an exempt benefit pursuant to section 58X of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: No. | Q2: Will the provision of a $X reimbursement be an exempt minor benefit pursuant to section 58P of the FBTAA? | A2: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The employer's plan is to provide a reimbursement to encourage executives to purchase their own portable electronic device (device). This reimbursement will be available to Directors, Managers and Team Leaders where a significant percentage of the employee's duties require attendance at meetings and committees. This is due to the fact that the most productive and easily justifiable employment use of the device would be the reading of documents pertinent to the meeting attended. The reimbursement is intended to enable the employee to recoup the cost of the portion of use of the device that will be for employment purposes. The employee will be required to complete a form indicating that a significant portion of the device's use will be for employment purposes. A tax invoice will be required to provide evidence of the device's purchase. Regardless of the initial cost the reimbursement will be capped at $X. The reimbursement will only be able to be obtained once every 2 years. No associated or similar benefits are provided to the employees to that of these benefits.

Relevant legislative provisions: Section 20 of the Fringe Benefits Tax Assessment Act 1986 | Section 58P of the Fringe Benefits Tax Assessment Act 1986 | Section 58X of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision: Summary: As the device is not primarily for use in the employee's employment, it is not an eligible work related item and so not an exempt benefit under paragraph 58X(1)(a) of the FBTAA. | Detailed Reasoning - Detailed reasoning: Section 58X provides: 58X. Exempt benefits-provision of certain work related items 58X(1). Any of the following benefits provided by an employer to an employee of the employer in respect of the employee's employment is an exempt benefit: (a) an expense payment benefit where the recipients expenditure is in respect of an eligible work related item; (b) a property benefit where the recipients property is an eligible work related item; (c) a residual benefit where the recipients benefit consists of the making available of an eligible work related item. 58X(2). Subject to subsection (3), each of the following is an eligible work related item if it is primarily for use in the employee's employment: (a) a portable electronic device; (b) an item of computer software; (c) an item of protective clothing; (d) a briefcase; (e) a tool of trade. 58X(3). An item (the later item ) listed in subsection (2) is not an eligible work related item if, earlier in the FBT year, an expense payment benefit or a property benefit of the employee has arisen in relation to another item that has substantially identical functions to the later item. 58X(4). However, the rule in subsection (3) does not apply if the later item is a replacement for the other item. Example: The later item would be a replacement for the other item if the other item were lost or destroyed, or needed replacing because of developments in technology. In general terms, the employer is seeking exemption for an expense payment benefit where the recipients expenditure (the employee's expenditure) is in respect of a tablet. In order to qualify for exemption under section 58X the employer would need to satisfy the following requirements: · the benefit is provided in respect of the employee's employment; · the benefit is an expense payment benefit; · the expense payment benefit is one where the recipients expenditure is in respect of an 'eligible work related item' under paragraph 58X(1)(a). An item is an 'eligible work related item' where: · the recipients expenditure is on a 'portable electronic device'; · there is no other expense payment benefit or property benefit provided earlier in the FBT year in relation to an additional portable electronic device with substantially identical functions as the device; · the device is primarily for use in the employee's employment. | Detailed Reasoning - The benefit is provided in respect of the employee's employment: In the circumstances of this case, the reimbursement is intended to enable the employee to recoup the cost of the portion of use of the device that will be for employment purposes. The employee will be required to complete a form indicating that a significant portion of the device's use will be for employment purposes. The benefit provided is considered to be provided in respect of the employee's employment. | Detailed Reasoning - The benefit is an expense payment benefit: Section 20 of the FBTAA provides: Where a person (in this section referred to as the 'provider'): (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the 'recipient') to pay an amount to a third person in respect of expenditure incurred by the recipient; or (b) reimburses another person (in this section also referred to as the 'recipient'), in whole or in part, in respect of an amount of expenditure incurred by the recipient; the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient. In the circumstances of this case, the employee selects and purchases a device from a vendor. Upon production of a tax invoice, evidencing the purchase, the employer reimburses $X of the expenditure to the employee. The payment made by the employer, by reimbursement to the employee, is taken to constitute the provision of an expense payment benefit provided by the employer to the employee under section 20. | Detailed Reasoning - The device is a portable electronic device: The recipients expenditure incurred by the employee is in respect of the purchase of a device. The term 'portable electronic device' is not defined and therefore takes on its ordinary meaning. The Macquarie concise dictionary 5th edition 2009 defines 'portable' and 'electronic' as: · portable: 2. easily carried or conveyed by hand · electronic: 2. of, relating to, or concerned with electronics or any devices or systems based on electronics That is, a portable electronic device could be a device that is easily carried by hand and is electronic. A device is small, lightweight, portable, can operate without external power and is designed to operate as a complete unit. The device is an item which is a portable electronic device under paragraph 58X(2)(a) of the FBTAA. | Detailed Reasoning - One portable electronic device with substantially identical functions per FBT year: The phrase 'substantially identical functions' is not defined and therefore takes on its ordinary meaning. The Macquarie concise dictionary 5th edition 2009 defines 'identical', 'substantial' and 'function' as: · identical: 1. corresponding exactly in nature, appearance, manner etc · substantial: 7. relating to the substance, matter, or material of a thing; 8. of or relating to the essence of a thing; essential, material or important · function: 1. the kind of action or activity proper to a person, thing or institution In the circumstances of this case, no similar benefits are provided. Further, the reimbursement in respect to the device will only be available once every two years. There is no expense payment benefit or property benefit which arises earlier in the FBT year in relation to another item under subsection 58X(3) of the FBTAA. Subsection 58X(3) of the FBTAA does not apply. | Detailed Reasoning - Whether the device is primarily for use in the employee's employment: The term 'primarily' is not defined and therefore takes on its ordinary meaning. The Macquarie concise dictionary 5th edition 2009 defines 'primarily' as: 1. in the first place; chiefly; principally 2. in the first instance; at first; originally The Oxford Dictionary of English 3rd Edition 2010 defines 'primarily' as: for the most part; mainly: around 80 per cent of personal computers are used primarily for word processing Whether a device is intended primarily for use in the employee's employment will depend on whether the device is used for the most part, mainly or principally, in the employee's employment. That is where the dominant or prevailing use of the device over any other competing use would be for use in the employee's employment. The reimbursement of $X to the employee is stated to be "intended to enable the employee to recoup the cost of the portion of the use of the device that will be for employment purposes". This statement provides for personal use of the device as well as use in the employee's employment. The $X reimbursement being only a partial reimbursement of the price of the tablet would suggest that the dominant or prevailing use of the device is not for use in the employee's employment. It is not possible to conclude that the employment related use of the device dominates or prevails over any personal use. As such, it cannot be concluded that the device is primarily for use in the employee's employment. As the device is not primarily for use in the employee's employment, it is not an eligible work related item and so not an exempt benefit under paragraph 58X(1)(a) of the FBTAA. | Summary: The reimbursement of the expense will be considered to be a minor benefit pursuant to section 58P of the FBTAA and as such is an exempt benefit. | Detailed Reasoning - Detailed reasoning: Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement explains the difference between an allowance and a reimbursement for the purposes of determining whether a payment is a fringe benefit under the FBTAA. Paragraph 3 of TR 92/15 states: · 3. A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessarily disbursed. In general, the provider considers the expense to be its own and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A requirement that the recipient refunds unexpended amounts to the employer adds further weight to that presumption. As the employee making a claim is required to provide a tax invoice as evidence of the devices purchase (i.e. vouch for the expense), this demonstrates that the payment is a reimbursement. As stated in paragraph 1 of TR 92/15 "most reimbursements will fall for consideration under the FBTAA" and are expense payment benefits as defined under section 20 of the FBTAA. However section 58P of the FBTAA exempts benefits which are minor, providing the tests set down in subsection 58P(1) of the FBTAA are satisfied. Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits sets out the Commissioner's view on the application of section 58P of the FBTAA. Paragraph 8 of TR 2007/12 states: 8. A minor benefit is an exempt benefit under section 58P 3 where: · the notional taxable value of the minor benefit is less than $300; 4 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. Paragraphs 194 to 198 of TR 2007/12 provides the following in respect to the application of paragraph 58P(1)(f) of the FBTAA: 194. Paragraph 58P(1)(f) contains five specific criteria to which regard must be had in reaching such a conclusion (see Appendix 3 at paragraph 278 of this Ruling). 195. 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. 196. In considering the scope of the exemption it will be necessary to look to the nature of the benefit provided and give due weight to each of the criteria. 197. The weight given to each criterion will vary depending on the circumstances surrounding the provision of each benefit. 198. The conclusion that must be reached after having considered the five criteria is an objective one. It is a 'reasonable person' test. That is, what would a reasonable person conclude after having regard to all the relevant circumstances surrounding the provision of the minor benefit? The provision does not give the Commissioner discretion. The five specific criteria are: · Infrequency and irregularity with which associated identical or similar benefits are provided; · Sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit; · Sum of the notional values of any other associated benefits; · Practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits; and · Circumstances surrounding the provision of the minor benefit and any associated benefits. Associated benefits are defined in subsection 58P(2) of the FBTAA as: 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. After applying the five criteria in paragraph 58P(1)(f) of the FBTAA it would be unreasonable to not treat the benefit as a minor fringe benefit because only one benefit is available in any FBT year, with no associated benefits provided, and the sum of the notional taxable values of these particular benefits is $X (which is less than the $300 limit prescribed). However, we also need examine whether the benefit is provided as part of a salary sacrifice arrangement (SSA) and whether the benefit is an in-house benefit. | Detailed Reasoning - SSA: Paragraph 16 of TR 2007/12 provides: 16. The minor benefit exemption in section 58P does not apply to benefits that are provided to an employee under a SSA. A SSA arises where an employee forgoes part of their salary in order to receive another benefit. The benefits in this particular case are not provided under a SSA. | Detailed Reasoning - In-house benefits: Section 58P of the FBTAA does not apply to exempt all benefits that have a notional taxable value of less than $300. Paragraph 11 of TR 2007/12 provides: 11. First, there are certain benefits that are specifically excluded from section 58P. These 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. The exemption specifically excludes an expense payment benefit where, if the benefit was an expense payment fringe benefit, it would be an in-house fringe benefit. As in-house expense payment fringe benefit would arise where the expenditure reimbursed is in respect of purchasing goods or services that the employer sell to customers in the ordinary course of business. To be an in-house fringe benefit the employer would have to sell the particular device in the ordinary course of business. This is not the case and therefore the benefit is not an in-house fringe benefit.

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