Private ruling: Fringe benefits tax
Published: June 2012
Ruling period: Year ended 31 March 2013 | Year ended 31 March 2014 | Year ended 31 March 2015 | Year ended 31 March 2016 | Year ended 31 March 2017
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the use of the benefit card by the employee or the spouse of the employee to obtain the general merchandise give rise to a property benefit? | A1: Yes | Q2: Will the provision of general merchandise to an employee or the spouse of the employee under the plan be a fringe benefit? | A2: Yes | Q3: Will the taxable value of the property fringe benefit be reduced by the amount specified under section 62 of the Fringe Benefits Tax Assessment Act 1986 ? | A3: 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. You are a retailer of products in Australia operating from a network of stores. You cater for consumer and commercial customers. You would like to introduce a salary sacrifice arrangement where employees would agree to forgo part of their future entitlement to salary and wages in return for you providing the employees with benefits. These benefits would consist only of the general merchandise that you sell to the public in your outlets and would be provided to either the employee or spouse of the employee. Employees cannot use the card to pay bills, purchase online, by phone, email post or tax The plan is open to your current permanent full time and permanent part time employees. It is not open to casual employees or retired employees. The plan is voluntary and an employee can elect to sacrifice up to $xxx of their future unearned pre-tax salary per year. Employees nominate a salary reduction. Salary will be reduced by this amount in the following year. Deduction will be made to future pre-tax salary. The employees who participate will receive a plastic card (the benefit card) that will be loaded with the value equal to the salary sacrificed amount plus 10% (up to $1000). At a certain point in the year the employee will receive an email reminding them to spend the balance by a set time and with details regarding refund details if the balance is not spent. The benefit card has no value other than being a means by which an employee can obtain goods, and the card cannot be exchanged for case or transferred or used by any other person. The employee can only redeem the benefit card for goods that you sell to the general public within a store that you operate. The redemption of benefits occurs at the current point of sale selling price of the item less employee discount. Employees must specified identification before using the benefit card. Where the entire balance of the benefit card is not spent by a certain date, 10/11 th of the balance (if greater than $5) will be paid to the employee as pre-tax salary. The payment will be subject to PAYG withholding. The employee may also allow their spouse to have a benefit card linked to the employee's benefit card to redeem goods that you sell to the general public within a store that you operate. The employee's spouse must display the specified identification at the point of sale. Failure to comply with, or abuse of, the plan may result in the loss of access to the plan and possible disciplinary action up to, an including, termination of employment. Non-compliance or abuse at the point of sale will result in the cancellation of enrolment. Where an employee resigns before all salary sacrifice reductions have occurred, then the salary sacrifice arrangement is altered. The outstanding salary sacrifice amount will be reduced from the final salary payment to the employee. It is noted that such salary payments do not include any accrued leave entitlements also paid out at the time of resignation. Where the employee's final salary payment is not of sufficient size to allow the outstanding salary sacrifice payment to be fully reduced, then the employee is obligated to reimburse you out of their own pocket. Such a reimbursement will likely be made via a reduction in the after-tax payment of accrued leave entitlements.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Section 40, | Fringe Benefits Tax Assessment Act 1986 Section 42, | Fringe Benefits Tax Assessment Act 1986 Section 62, | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1) and | Income Tax Assessment Act 1936 Subsection 318(1).

Reasons for decision: Summary: The use of the benefit card by the employee or the spouse of the employee to obtain general merchandise will give rise to a property benefit. The card itself will not be a separate benefit. | Detailed Reasoning - Detailed reasoning: Under the plan employees will enter into a salary sacrifice arrangement (SSA) in which they will forgo salary in return for the benefit card which allows them to obtain general merchandise from your stores. A SSA is an arrangement between an employer and an employee, whereby the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer or associate providing them with benefits of a similar value. The main assumption made by the parties is that the employee is then taxed under the income tax laws only on the reduced salary or wages and that the employer is liable to pay FBT, if any, on the benefits provided. An effective SSA involves the employee agreeing to receive part of his or her total amount of remuneration as benefits before the employee has earned the entitlement to receive that amount as salary or wages. An ineffective SSA involves the employee directing that an entitlement to receive salary or wages that has been earned is to be paid in a form other than as salary or wages. The SSA that you are proposing will be an effective SSA as: · under the plan your employees will agree to forgo an amount prior to becoming entitled to that amount as salary · in return they will receive the benefit card which they can use to obtain general merchandise and · any salary sacrificed amount that is not used will be paid as gross salary to the employee and PAYG will be withheld. In order to determine if the use of the benefit card will be a property benefit, we must consider what the benefit is that will be provided to your employees. Benefit is defined in subsection 136(1) to include any right, privilege, service or facility. A property benefit will arise under section 40 where a person provides property to another person. The definition of 'property' in subsection 136(1) includes intangible and tangible property. Subsection 136(1) defines 'intangible property' to include: (a) real property (b) a chose in action; and (c) any other kind of property other than tangible property; but does not include: (d) a right arising under a contract of insurance; or (e) a lease or licence in respect of real property or tangible property. Subsection 136(1) defines 'tangible property' to mean 'goods and includes: animals, including fish; and gas and electricity'. The provision of the benefit card and the later use of these cards to obtain goods involve two distinct separate actions. However, the following facts indicate that the provision of the benefit cards and the consequent provision of general merchandise should be considered to be part of the one seamlessly integrated arrangement to provide the merchandise to the relevant employees: The benefit card can only be redeemed by the employee or spouse of the employee on presentation of specified identification at the point of sale. They are non-transferable. They can only be used to obtain general merchandise to the amount determined under the plan. They can only be redeemed at point of sale at a store that you operate. Fraudulent use of the cards may result in loss of access to the program. It is also considered that the provision of the card should be viewed as being merely the most convenient way of facilitating the provision of merchandise by the employer to the nominated employee. Therefore, it is the provision of the merchandise that should be treated as being the sole relevant property benefit in such a particular case for the purposes of the Fringe Benefits Tax Assessment Act 1986 . However, it should be noted that whether such a view holds in other circumstances is wholly dependent on the facts of the specific case. | Summary: The provision of general merchandise to an employee or spouse of the employee under the Plan will be a fringe benefit as defined in subsection 136(1). | Detailed Reasoning - Detailed reasoning: We have already established that the provision of the general merchandise will be a property benefit. For it to be a fringe benefit it must satisfy the definition of a fringe benefit in subsection 136(1). Under that subsection, a benefit will be a fringe benefit if it is provided to · an employee or · an associate of an employee by · an employer · associate of an employer, or · a third party in an arrangement with an employer in respect of the employee's employment and it is not excluded by paragraphs (f) to (s) of subsection 136(1). The first requirement is satisfied as you will be providing the benefits to employees and associates of employees. Under subsection 136(1) the term associate has the meaning given by section 318 of the Income Tax Assessment Act 1936 . Subsection 318(1) of the ITAA 1936 includes a relative as an associate of a natural person. A relative, which is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997, includes a spouse in paragraph (a) of that definition. The second requirement is satisfied as you, the employer, will be providing the benefits. The third requirement is that you provide the benefits to employees in respect of their employment. The term 'in respect of' in relation to the employment of an employee in subsection 136(1) includes 'by reason of, by virtue of , or for or in relation directly or indirectly to, that employment'. The full Federal Court in J and G Knowles and Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; (2000) 44 ATR 22; (2000) 2000 ATC 4151; [2000] FCA 196, examined the meaning of 'in respect of' in relation to fringe benefits tax and 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… The connection between the provision of the property to your employees and their employment will be more than just causal. The benefits will be provided to the employees as part of their remuneration under a SSA. Therefore you will be providing the benefits in respect of an employee's employment. Lastly, the benefit is not one of the excluded benefits listed in paragraphs (f) to (s) the definition. This list includes '…a benefit that is an exempt benefit in relation to the year of tax…'. The property benefits that you will be providing to your employees will not be exempt benefits under section 41 because they will not be consumed by your employees on your business premises during the working day. Neither will the property benefits be exempt benefits under section 58P because the value of the benefit is not likely to be less than $300. Therefore the benefits will satisfy the definition in subsection 136(1) and will be fringe benefits. | Summary: As the property fringe benefits are in-house property fringe benefits, their taxable value may be reduced by the amount specified under section 62. | Detailed Reasoning - Detailed reasoning: Subsection 62(1) states: Where one or more eligible fringe benefits in relation to an employer in relation to a year of tax relate to a particular employee of the employer, the taxable value of that benefit, or the sum of the taxable values of those fringe benefits, as the case may be, in relation to that year shall be reduced by: (a) if the taxable value or the sum of the taxable value does not exceed $1,000 an amount equal to the taxable value or the sum of the taxable values; or (b) in any other case - $1,000. Subsection 62(2) contains the eligible fringe benefits applicable to section 62. It states: In this section, eligible fringe benefit means: (a) in-house fringe benefit; or (b) an airline transport fringe benefit. An in-house fringe benefit is defined in subsection 136(1) to mean: (a) an in-house expense payment fringe benefit; (b) an in-house property fringe benefit; or (c) an in-house residual fringe benefit. Where the employer or an associate of the employer provides the tangible property the definition of an in-house property fringe benefit provides a property fringe benefit will be an in-house property fringe benefit if: at or about the provision time, the provider carried on a business that consisted of or included the provision of identical or similar property principally to outsiders; Therefore, to determine whether the fringe benefit is an in-house fringe benefit, it needs to be determined whether you, the provider, are carrying on a business that consists of or includes the provision of identical or similar benefits principally to outsiders. You carry on a business that consists of the operation of stores. Through the plan you will be providing general merchandise from your stores to your employees. This is the same property that you also provide in the course of your business principally to outsiders. The property fringe benefits will therefore be in-house property fringe benefits which are eligible fringe benefits. Where you provide one or more of such benefits to a particular employee the taxable value of the fringe benefit, or the sum of the taxable value of those fringe benefits, may be reduced. This also includes the taxable value of the in-house property benefits provided to associates of employees through the card. This is explained in paragraph 5 of Miscellaneous Taxation Ruling MT 2044: Section 62 applies to benefits which "relate to a particular employee". The word "relate" is not specifically defined in the Act and therefore has its ordinary meaning. The Concise Oxford Dictionary defines "relate" to mean "…establish relation between; connected; allied". The Macquarie Dictionary , in so far as is relevant, defines "relate" to mean "to bring into or establish association, connection, or relation". It is therefore considered that a benefit will "relate" to an employee if it is connected to or associated with the employee. As a benefit provided to an associate of an employee must be in respect of the employment of the employee, the provision of the benefit is therefore connected to or associated with the employee. In other words it relates to the employee. Therefore, for each employee who receives a property benefit under the plan you will: · firstly calculate the taxable value of the property fringe benefit in accordance with section 42, and · then reduce the taxable value, or the sum of the taxable values where the employee has received more than one eligible fringe benefit, by the amount specified in section 62.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Reasons for decision: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | All legislative references are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise indicated.