Private ruling: Fringe benefit tax - portable electronic devices
Date of advice: 30 August 2016
Published: October 2016
Ruling period: FBT year ending 31 March 2016 | FBT year ending 31 March 2017
Date scheme commenced: 1 April 2015

Ruling: Q1: Will subsection 58X(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply if you provide an employee with the use of multiple electronic devices (an mobile phone, portable device, and/or a laptop computer) during the same Fringe Benefit Tax (FBT) year? | A1: Yes.

Relevant facts and circumstances: You provide the use of a mobile phone to some of your employees. You provide the use of a portable device to some of your employees. You provide the use of a laptop computer to some of your employees. Some employees may receive the use of multiple items during the same Fringe Benefits Tax (FBT) year. You purchase the devices and provide them to your employees. When you provide the items to your employees, the items remain your property. Portable device features This ruling is restricted to consideration of the portable device as advertised for sale in Australia at July 2016. Later updates to the features of the device may change the answer to this ruling and the questions would need to be reconsidered. The Australian specific website provides the following information about the device currently available in Australia. • The portable device is designed as an internet communications device. For example, it can be used to read and send email and view reports on the internet. • The portable device can be used as an e-book reader. • The portable device can be used as a multimedia device, such as video viewing. • The portable device is a platform for third-party applications. • The portable device does not have a physical keyboard.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 58X

Reasons for decision: Summary: You provide some of your employees with the use of multiple devices during the same FBT year. Those electronic devices include a mobile phone, portable device and laptop computers. Under the arrangement, you are making those electronic devices available for use to your employees. Thus you are providing a residual fringe benefit to your employees. Subsection 58X(1) of the FBTAA provides an exemption for certain eligible work related items that are provided by an employer to an employee as property, expense payment or residual benefit. Subsection 58X(1) states: 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. Subsections 58X(2) and 58X(3) of the FBTAA provide limitations. They state: 58X(2) Subject to subsection (3), each of the following is an eligible worked 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. In summary, a property, expense payment or residual benefit provided by an employer to an employee, will be an exempt benefit if: (1) the benefit is provided in respect of an eligible work related item; and (2) the eligible work related item is primarily for use in the employee's employment; and (3) Subsection 58X(3) does not apply. Under your arrangement, you make available items to your employees, which will constitute a residual fringe benefit. | Detailed Reasoning - Eligible work related item: Referring to the list of eligible work related items provided by paragraph 58X(2)(a) to (e), of the types of items listed, the most applicable to the items you provide to your employee is the 'portable electronic device'. The term 'portable electronic device' is not defined in the FBTAA. The Commissioner has considered the meaning of a 'portable electronic device' and provided an explanation of the term in Chapter 20 of the Fringe benefit tax - a guide for employers (FBT Guide for Employers)(NAT 1054), which states: A portable electronic device is a device that is all of the following: • easily portable and designed for use away from an office environment • small and light • can operate without external power supply • designed as a complete unit. Examples of portable electronic devices include a mobile phone, calculator, personal digital assistant, laptop, portable printer, and portable global positioning system (GPS) navigation receiver. Referring to the FBT Guide for Employers, it is accepted that the mobile phone, the portable device and laptop computers are portable electronic devices for the purpose of section 58X of the FBTAA. | Detailed Reasoning - The eligible work related item is primarily for use in the employee's employment: For the purpose of this ruling, we assume that those items are primarily for use in the employee's employment. Therefore, whether those items are primarily for use in the employee's employment is not considered in this private binding ruling. | Detailed Reasoning - Subsection 58X(3): The classification of an item as an eligible work related item under subsection 58X(2) of the FBTAA is subject to subsection 58X(3) of the FBTAA. Subsection 58X(3) limits the exemption to one eligible work related item per year if the subsequent item has substantially identical functions to the first. Subsection 58X(3) of the FBTAA will only apply if an expense payment or a property benefit of the employee has arisen earlier in the FBT year in relation to another item that has substantially identical functions to the eligible work related item. You stated that you purchase those items and make them available for use to your employees, and those items will remain property of you. Under this arrangement, you will be providing your employees with a residual fringe benefit. Since you have not provided your employees with a property or an expense payment fringe benefit, subsection 58X(3) of the FBTAA will not apply. In summary, subsection 58X(1) of the FBTAA will apply to provide an FBT exemption for the items you provide to your employees. This paper will consider whether those electronic devices have substantially identical functions even though subsection 58X(3) of the FBTAA does not apply. The term' substantially identical functions' is not defined in the FBTAA. The meaning of 'substantially identical functions' in the context of subsection 58X(3) is discussed in the FBT Guide for Employers which states: | Detailed Reasoning - Substantially identical functions: An eligible work related item will not be exempt from FBT if earlier in the same FBT year you have provided your employee, by way of an expense payment or property benefit, with an item that has substantially identical functions. It is the features or design specifications that are examined when determining whether items have substantially identical functions, not the intended use of the items. Items will have substantially identical functions where the functions of two items are the same in most respects. However, items may be different in a numbers of ways which do not impact on an item's function. For example, colour, shape, brand and design would not generally be relevant considerations when determining whether two items have substantially identical functions. Where a tablet computer can perform the functions of a laptop computer, even in a reduced capacity, it would be considered to have substantially identical functions to the laptop computer. However, where a tablet computer is designed primarily as a means of digital media consumption, rather than creation, it would not have substantially identical functions to a laptop. | Detailed Reasoning - Example - Items do not have substantially identical functions: An employer gives their employee a laptop during the FBT year so that they can work from home and access their email, prepare work related material such as word processing documents and complex spreadsheet and access the internet. In the same FBT year, the employer gives that employee a tablet as it is more portable than the laptop and is useful for the employee when they are travelling. The tablet is designed to access email and browse the internet. It is not designed to create word processing documents or complex spreadsheets. The tablet does not have substantially identical functions to the laptop computer and would not be considered to be able replace the laptop. The tablet would also be exempt from FBT, provided it was primarily for work-related purposes. | Detailed Reasoning - The Mobile phone and the portable device: The portable device as it is currently advertised for sale in Australia is not capable of making or receiving phone calls. Referring to the guidance in the FBT Guide for Employers, it is considered that the mobile phone does not have substantially identical functions to the portable device. | Detailed Reasoning - The mobile phone and laptop computers: Laptop computers are normally not capable of making or receiving phone calls on its own. Referring to the guidance the FBT Guide for Employer, it is considered that the mobile phone and laptop computers do not have substantially identical functions. | Detailed Reasoning - The portable device and laptop computers: The meaning of 'substantially identical functions' in the context of subsection 58X(3) has also been considered in National Tax Liaison Group Fringe Benefits Tax Subcommittee meetings (NTLG FBT Subcommittee Meeting). In the relevant, the ATO provided guidance in relation to the specific portable device and laptop computers. The minutes of which state: The example put forward in the ICAA submission refers to the mobile device as being one of a new generation of tablet computers. In a general discussion, it was accepted by the ATO that the mobile device would not have substantially identical functions to a laptop computer. The mobile device has limited functionality in comparison to a laptop. A mobile device might be said to be designed as a means of digital media consumption rather than creation. It would also be accepted that the mobile device was not designed to replace a laptop. Although a mobile device may have some functions in common to a laptop, an mobile device does not have functions that are the same in most respects to a laptop. It was agreed that an mobile device and a laptop computer do not have substantially identical functions. Although the specific portable device has been updated several times since 2010, most of its key features remain unchanged. Considering the guidance above, it is accepted that the portable device and laptop computers do not have substantially identical functions. In summary, the mobile phone, the portable device and laptop computers do not have substantially identical functions. | Detailed Reasoning - For your information: Subsection 58X(4) limits the application of subsection 58X(3) to not have effect where the later item is a replacement for the earlier item. The subsection 58X(4) limitation has been broadened with effect from 1 April 2016 and applicable in relation to the 2016-2017 FBT year and later FBT years, it states: 58X(4) However, subsection (3) does not apply if: (a) the later item is a replacement for the other item; or (b) the later item is a portable electronic device, and the employer is a small business entity for: (i) the year of income starting most recently after the start of the FBT year, or (ii) the year of income ending most recently after the start of the FBT year. | Detailed Reasoning - Example:: For paragraph (a), 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. That is, if those items are replaced in order to keep up with developments in technology, then subsection 58X(3) will not apply. Furthermore, for the 2016-2017 or later FBT years if the employer is a small business entity according to paragraph 58X(4)(b) of the FBTAA, portable electronic devices provided in accordance with section 58X of the FBTAA will be exempt without requiring consideration of the substantially identical functions test.