Class Ruling CR 2014/56
Date of effect: 1 April 2012

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provision(s) 2. The relevant provisions dealt with in this ruling are: All references in this Ruling are to the FBTAA unless otherwise stated. Class of entities 3. The class of entities to which this Ruling applies is employers who enter into an agreement with Dell Australia Pty Ltd (Dell Australia) to enable the employees to participate in the Dell Employee Purchase Program (EPP). Qualifications 4. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 7 to 26 of this Ruling. 5. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then:

Class of entities or scheme: 3. The class of entities to which this Ruling applies is employers who enter into an agreement with Dell Australia Pty Ltd (Dell Australia) to enable the employees to participate in the Dell Employee Purchase Program (EPP). | Qualifications: 4. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 7 to 26 of this Ruling. 5. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 6. This Ruling applies from 1 April 2012. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 7. The following description of the scheme is based on information provided by the applicant: 8. Corporate clients of Dell Australia may participate in the EPP. 9. Under the EPP, Dell Australia product/s are made available for purchase at various discounted prices to the employees of corporate clients of Dell Australia participating in the program. 10. The discounted rates and terms under the EPP are made available only to the employees of participating corporate clients of Dell Australia and are not made available to members of the general public. 11. The corporate clients of Dell Australia who participate in the EPP do not negotiate any of the discounted rates and terms made available to their employees under the EPP. 12. The discounted rates and terms offered by Dell Australia under the EPP are the same for all employees of the participating corporate clients of Dell Australia. 13. The rate of the discount offered under the EPP differs depending on the normal before-discount price of the Dell Australia product and/or the type of Dell Australia product purchased. 14. The participating corporate clients of Dell Australia will help facilitate, and otherwise allow, Dell Australia to promote the EPP to employees of the participating corporate clients of Dell Australia. 15. The participating corporate clients of Dell Australia do not provide monetary or any other incentives to Dell Australia to provide the discounted Dell Australia products to employees under the EPP. 16. Dell Australia does not provide monetary or any other incentives to the participating corporate clients of Dell Australia to provide the discounted Dell Australia products under the EPP. 17. Employees who choose to purchase a discounted Dell Australia product under the EPP will deal directly with Dell Australia. 18. The employee is dealing with Dell Australia in a personal capacity only when purchasing a discounted Dell Australia product under the EPP. 19. To purchase a discounted product under the EPP, the employee at the time of purchase must identify themselves as an employee of the participating corporate client of Dell Australia. 20. The EPP login page on the Dell Australia website has a number of discounted coupon offers and each coupon offer has a particular code that needs to be entered at the time the employee purchases the Dell Australia product/s. 21. A discount on a Dell Australia product under the EPP is available only on new products sold by Dell Australia. 22. A discount on a Dell Australia product under the EPP is available only where the product is for the employee's own personal use. 23. All purchases by employees under the EPP are subject to Dell Australia's then current EPP coupon terms and conditions. 24. All purchases by employees under the EPP are, otherwise, subject to Dell Australia's then-current standard terms and conditions of sale. 25. The EPP is not part of any employee's salary sacrifice arrangements. 26. Dell Australia is not an associate, as defined in section 318 of the Income Tax Assessment Act 1936, of any of the employers who enter into the EPP. 27. The issue of the discount coupon offers do not give rise to a fringe benefit pursuant to subsection 136(1). 28. A fringe benefit arises pursuant to subsection 136(1) at the time the product/s are purchased. 29. The provision of the discounted product/s under the EPP to employees of the employer gives rise to a fringe benefit pursuant to subsection 136(1). 30. The provision of the discounted product/s under the EPP gives rise to a property benefit pursuant to section 40 and a property fringe benefit pursuant to subsection 136(1). 31. The taxable value of the property fringe benefits, determined under section 43, is 'nil'. 32. Nevertheless, an exemption under section 58X and section 58P will apply where the requirements are met. Commissioner of Taxation 2 July 2014 | Do property benefits arise from the scheme?: 33. Section 40 deals with 'property benefits' and states: 34. Subsection 136(1) provides the following definitions relevant to property benefits: 35. The term 'benefit' is defined subsection 136(1) as including 'any right (including any right in relation to, and an interest in, real or personal property), privilege, service or facility.' 36. As discussed at paragraph 20 of this Ruling, upon entering the EPP login page, the employee is presented with a number of discounted coupon offers and the relevant coupon code needs to be entered at the time the employee purchases the Dell Australia product/s. 37. The provision of the discounted coupon offer and the later use of that coupon code to obtain discounted product/s involve two distinct actions. 38. The issue of the discounted coupon offer does not constitute a fringe benefit for the purposes of the FBTAA at the time of issue but is merely an administrative aid in facilitating the later provision of discounted products to the employee. 39. Dell Australia 'provides' the benefit when the employee redeems the discount coupon offer for the discounted product/s. 40. Provide is defined in subsection 136(1) as: 41. Therefore, the only relevant 'benefit' provided to the employee for the purposes of the FBTAA is the supply of the discounted product/s to the employee by Dell Australia. 42. Support for the view that the relevant benefit in this case is the provision of the product/s rather than the issue of the discounted coupon offer can be found in TR 1999/10 Income tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits, deductions and recoupments. 43. TR 1999/10 provides the following guidance in respect of 'Life Gold Passes' and 'Severance Passes' given to members of Federal Parliament on their 'retirement': 44. As goods constitute tangible property for the purposes of the FBTAA, the provision of the product/s by Dell Australia to the employees constitute the provision of property benefits for the purposes of section 40. | Do property fringe benefits arise under the scheme?: 45. In general terms, the definition of 'fringe benefit' in subsection 136(1) provides that a fringe benefit arises when: | (a ) Does the scheme involve the provision of a benefit?: 46. As discussed at paragraph 44, a property benefit is provided under the scheme. | (b) Are the benefits provided to an employee or an associate of an employee?: 47. The benefits are provided to an employee. The EPP is available to all employees of employers who choose to participate in the EPP. | (c) Will the benefits be provided by one of the persons listed in paragraph 45(c) (above)?: 48. 'Provider' is defined in subsection 136(1) to mean the person who provides the benefit'. 49. The benefits are provided by Dell Australia to the employer's employees. The benefits are not provided by the employer. 50. Dell Australia is not an associate of any of the participating corporate clients of the EPP for the purposes of the FBTAA. 51. Paragraph (e) of the definition of the term 'fringe benefit' in subsection 136(1) applies to a benefit provided under an arrangement between the employer (or an associate of the employer) and a person other than the employer (or associate). 52. An arrangement is defined in subsection 136(1) of the FBTAA as meaning: 53. The employer enters into the EPP with Dell Australia. Therefore, the requirements of paragraph (e) of the definition of fringe benefit are satisfied. | (d) Will the benefits be provided in respect of the employment of the employee?: 54. The term 'in respect of', in relation to the employment of an employee, is defined in subsection 136(1) to include 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.' 55. The meaning of this term was considered by the Full Federal Court in J & G Knowles & Associates Pty Ltd v. FCT 2000 ATC 4151; 44 ATR 22 (Knowles). In a joint decision the Court at ATC 4158 said: 56. The benefits are provided in respect of the employees' employment as they cannot access the relevant benefits on the given terms unless their employer participates in the arrangements. | (e) Does the benefit come within paragraphs (f) to (s) of the 'fringe benefit' definition?: 57. A benefit with comes within paragraphs (f) to (s) of the 'fringe benefit' definition in subsection 136(1) is excluded from being a fringe benefit. Relevantly, paragraph (g) excludes a benefit that is an exempt benefit from being a fringe benefit. | Exempt benefit: 58. In summarising the conditions that must be met for a benefit to be an exempt benefit under section 58P, paragraph 8 of Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits states: 59. Section 58X provides an exemption for a property benefit or a residual benefit in respect of the provision of or the making available of any of the following items: 60. The exemption is limited to: 61. A benefit that arises from an employee obtaining a discount on property purchased under the EPP will be an exempt benefit where the requirements of section 58P (minor benefits) or section 58X (exempt benefits provision of certain work related items) are met. 62. Where no exemption or other exclusion under the FBTAA applies, the relevant benefits provided to the employee will constitute 'property fringe benefits', as that term is defined in subsection 136(1). | Valuation of property fringe benefits: 63. The methods used to value a property fringe benefit are contained in sections 42 and 43. Section 42 applies if the property fringe benefit is an in-house property fringe benefit and section 43 applies if the property fringe benefit is an external property fringe benefit. 64. In-house property fringe benefit is defined in subsection 136(1) of the FBTAA as follows: 65. Provider is defined in subsection 136(1) of the FBTAA as 'the person who provides the benefit'. 66. The provider is therefore Dell Australia and as such paragraph (a) of the definition of in-house property benefit is not satisfied. 67. Paragraph (b) is not satisfied as the property was not acquired by the provider from the employer. 68. The provision of the property is therefore not an in-house property fringe benefit. 69. An external property fringe benefit is defined in subsection 136(1) as: 70. Therefore, the taxable value of the property fringe benefit that arises from the provision of the discounted product/s will be determined in accordance with section 43. 71. Section 43 provides three alternate valuation methods. The appropriate valuation method depends upon whether the provider is the employer or an associate of the employer and whether the employer incurs expenditure in relation to the provision of the property. 72. Section 43 states: 73. Paragraph 43(a) will not apply to the discounted product/s provided to the employees of employer clients of Dell Australia's EPP, as Dell Australia is not an associate of these employers. Further, paragraph 43(b) will not apply as the employer clients do not incur expenditure to Dell Australia. Therefore, the taxable value of the property benefits provided to these employees will be determined under paragraph 43(c). 74. The value under paragraph 43(c) will be the notional value of the discounted product/s. 'Notional value' is defined in subsection 136(1) to mean: 75. Guidance for determining this amount is provided by Taxation Determination TD 93/231 Fringe benefits tax: what is an acceptable method for determining the 'notional value' of a property fringe benefit for the purposes of sections 42 and 43 of the Fringe Benefits Tax Assessment Act 1986? 76. Paragraphs two to five of TD 93/231 state: 77. In Walstern v. Federal Commissioner of Taxation [2003] FCA 1428; (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423 Hill J in discussing notional value stated at ATC 5092: 78. Therefore, the notional value of the benefit that arises from the provision of the discounted product/s will be the amount that an employee could reasonably be expected to have been required to pay Dell Australia for the products. 79. The Dell Australia discounted product/s are available for sale and are available to employees of corporate clients who enter into the EPP with Dell Australia. 80. The notional value of the benefit is therefore the amount the employee pays for the product/s, after taking into account the discount. 81. Recipients contribution is defined in subsection 136(1) as: 82. Therefore, the taxable value of the benefit is nil as the employee has made a recipients contribution equal to the taxable value of the product/s. 83. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: 27. The issue of the discount coupon offers do not give rise to a fringe benefit pursuant to subsection 136(1). 28. A fringe benefit arises pursuant to subsection 136(1) at the time the product/s are purchased. 29. The provision of the discounted product/s under the EPP to employees of the employer gives rise to a fringe benefit pursuant to subsection 136(1). 30. The provision of the discounted product/s under the EPP gives rise to a property benefit pursuant to section 40 and a property fringe benefit pursuant to subsection 136(1). 31. The taxable value of the property fringe benefits, determined under section 43, is 'nil'. 32. Nevertheless, an exemption under section 58X and section 58P will apply where the requirements are met. Commissioner of Taxation 2 July 2014


Appendix: Do property benefits arise from the scheme?: 33. Section 40 deals with 'property benefits' and states: 34. Subsection 136(1) provides the following definitions relevant to property benefits: 35. The term 'benefit' is defined subsection 136(1) as including 'any right (including any right in relation to, and an interest in, real or personal property), privilege, service or facility.' 36. As discussed at paragraph 20 of this Ruling, upon entering the EPP login page, the employee is presented with a number of discounted coupon offers and the relevant coupon code needs to be entered at the time the employee purchases the Dell Australia product/s. 37. The provision of the discounted coupon offer and the later use of that coupon code to obtain discounted product/s involve two distinct actions. 38. The issue of the discounted coupon offer does not constitute a fringe benefit for the purposes of the FBTAA at the time of issue but is merely an administrative aid in facilitating the later provision of discounted products to the employee. 39. Dell Australia 'provides' the benefit when the employee redeems the discount coupon offer for the discounted product/s. 40. Provide is defined in subsection 136(1) as: 41. Therefore, the only relevant 'benefit' provided to the employee for the purposes of the FBTAA is the supply of the discounted product/s to the employee by Dell Australia. 42. Support for the view that the relevant benefit in this case is the provision of the product/s rather than the issue of the discounted coupon offer can be found in TR 1999/10 Income tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits, deductions and recoupments. 43. TR 1999/10 provides the following guidance in respect of 'Life Gold Passes' and 'Severance Passes' given to members of Federal Parliament on their 'retirement': 44. As goods constitute tangible property for the purposes of the FBTAA, the provision of the product/s by Dell Australia to the employees constitute the provision of property benefits for the purposes of section 40. | Do property fringe benefits arise under the scheme?: 45. In general terms, the definition of 'fringe benefit' in subsection 136(1) provides that a fringe benefit arises when: | (a ) Does the scheme involve the provision of a benefit?: 46. As discussed at paragraph 44, a property benefit is provided under the scheme. | (b) Are the benefits provided to an employee or an associate of an employee?: 47. The benefits are provided to an employee. The EPP is available to all employees of employers who choose to participate in the EPP. | (c) Will the benefits be provided by one of the persons listed in paragraph 45(c) (above)?: 48. 'Provider' is defined in subsection 136(1) to mean the person who provides the benefit'. 49. The benefits are provided by Dell Australia to the employer's employees. The benefits are not provided by the employer. 50. Dell Australia is not an associate of any of the participating corporate clients of the EPP for the purposes of the FBTAA. 51. Paragraph (e) of the definition of the term 'fringe benefit' in subsection 136(1) applies to a benefit provided under an arrangement between the employer (or an associate of the employer) and a person other than the employer (or associate). 52. An arrangement is defined in subsection 136(1) of the FBTAA as meaning: 53. The employer enters into the EPP with Dell Australia. Therefore, the requirements of paragraph (e) of the definition of fringe benefit are satisfied. | (d) Will the benefits be provided in respect of the employment of the employee?: 54. The term 'in respect of', in relation to the employment of an employee, is defined in subsection 136(1) to include 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.' 55. The meaning of this term was considered by the Full Federal Court in J & G Knowles & Associates Pty Ltd v. FCT 2000 ATC 4151; 44 ATR 22 (Knowles). In a joint decision the Court at ATC 4158 said: 56. The benefits are provided in respect of the employees' employment as they cannot access the relevant benefits on the given terms unless their employer participates in the arrangements. | (e) Does the benefit come within paragraphs (f) to (s) of the 'fringe benefit' definition?: 57. A benefit with comes within paragraphs (f) to (s) of the 'fringe benefit' definition in subsection 136(1) is excluded from being a fringe benefit. Relevantly, paragraph (g) excludes a benefit that is an exempt benefit from being a fringe benefit. | Exempt benefit: 58. In summarising the conditions that must be met for a benefit to be an exempt benefit under section 58P, paragraph 8 of Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits states: 59. Section 58X provides an exemption for a property benefit or a residual benefit in respect of the provision of or the making available of any of the following items: 60. The exemption is limited to: 61. A benefit that arises from an employee obtaining a discount on property purchased under the EPP will be an exempt benefit where the requirements of section 58P (minor benefits) or section 58X (exempt benefits provision of certain work related items) are met. 62. Where no exemption or other exclusion under the FBTAA applies, the relevant benefits provided to the employee will constitute 'property fringe benefits', as that term is defined in subsection 136(1). | Valuation of property fringe benefits: 63. The methods used to value a property fringe benefit are contained in sections 42 and 43. Section 42 applies if the property fringe benefit is an in-house property fringe benefit and section 43 applies if the property fringe benefit is an external property fringe benefit. 64. In-house property fringe benefit is defined in subsection 136(1) of the FBTAA as follows: 65. Provider is defined in subsection 136(1) of the FBTAA as 'the person who provides the benefit'. 66. The provider is therefore Dell Australia and as such paragraph (a) of the definition of in-house property benefit is not satisfied. 67. Paragraph (b) is not satisfied as the property was not acquired by the provider from the employer. 68. The provision of the property is therefore not an in-house property fringe benefit. 69. An external property fringe benefit is defined in subsection 136(1) as: 70. Therefore, the taxable value of the property fringe benefit that arises from the provision of the discounted product/s will be determined in accordance with section 43. 71. Section 43 provides three alternate valuation methods. The appropriate valuation method depends upon whether the provider is the employer or an associate of the employer and whether the employer incurs expenditure in relation to the provision of the property. 72. Section 43 states: 73. Paragraph 43(a) will not apply to the discounted product/s provided to the employees of employer clients of Dell Australia's EPP, as Dell Australia is not an associate of these employers. Further, paragraph 43(b) will not apply as the employer clients do not incur expenditure to Dell Australia. Therefore, the taxable value of the property benefits provided to these employees will be determined under paragraph 43(c). 74. The value under paragraph 43(c) will be the notional value of the discounted product/s. 'Notional value' is defined in subsection 136(1) to mean: 75. Guidance for determining this amount is provided by Taxation Determination TD 93/231 Fringe benefits tax: what is an acceptable method for determining the 'notional value' of a property fringe benefit for the purposes of sections 42 and 43 of the Fringe Benefits Tax Assessment Act 1986? 76. Paragraphs two to five of TD 93/231 state: 77. In Walstern v. Federal Commissioner of Taxation [2003] FCA 1428; (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423 Hill J in discussing notional value stated at ATC 5092: 78. Therefore, the notional value of the benefit that arises from the provision of the discounted product/s will be the amount that an employee could reasonably be expected to have been required to pay Dell Australia for the products. 79. The Dell Australia discounted product/s are available for sale and are available to employees of corporate clients who enter into the EPP with Dell Australia. 80. The notional value of the benefit is therefore the amount the employee pays for the product/s, after taking into account the discount. 81. Recipients contribution is defined in subsection 136(1) as: 82. Therefore, the taxable value of the benefit is nil as the employee has made a recipients contribution equal to the taxable value of the product/s.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | Where, at a particular time, a person (in this section referred to as the 'provider') provides property to another person (in this section referred to as the 'recipient'), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time. | 'property benefit' means a benefit referred to in section 40, but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III. | 'property fringe benefit' means a fringe benefit that is a property benefit. | 22. On 'retirement' from Federal Parliament, Members may be issued with either a Life Gold Pass or a Severance Pass which may entitle the holder of the pass and his or her spouse to travel benefits. Similar travel entitlements are available for Members of State and Territory Parliaments. | 23. We consider that the issuing of a Life Gold Pass or Severance Pass has no income taxation implications. The value of travel benefits received through the use of these passes does not form part of either a Member's or a Member's spouse's assessable income. However, travel benefits received from the use of a Life Gold Pass or Severance Pass are residual fringe benefits and the provider of the pass may be subject to fringe benefits tax when the passes are used for travel (paragraphs 84 to 88). | 86. We do not consider that the issuing of passes under the Life Gold Pass and Severance Pass Schemes attracts any income tax implications. However, travel benefits received in relation to each use of a Gold Pass or Severance Pass by a Member will be taxed as a residual benefit, within the meaning of section 45 of Division 12 of the FBTAA, to the provider of the pass. | ...what must established is whether there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment. | While the width of the definition of 'fringe benefit' was designed to capture benefits that, in truth, were other than remuneration, the stated purpose suggests that asking whether the benefit is product or incident of employment will be helpful. If it is not then the benefit is likely to be extraneous to the employment and will not bear FBT, notwithstanding that the employment might have been a causal factor in the provision of the benefit. | in relation to an employer, means a property fringe benefit relation to the employer other than an in-house property fringe benefit. | The amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arm's length transaction. | As already noted, the valuation formula depends upon the 'notional value' in relation to the provision whether of property or of a benefit to each of the Medichs. From the definition it follows that the question to be asked is what is the amount that each of the Medichs could reasonably be expected to have been required to pay to obtain the benefit from the provider under an arm's length transaction. The provider in the present case is Walstern. Hence the question in relation to Mr Ronald Medich, is how much he could reasonably be expected to have been required (i.e., by Walstern) to pay to Walstern to obtain the interest obtained by him in the fund, assuming the transaction between Walstern and him to be at arm's length. | Appendix 2 - Detailed contents list


Related rulings: TR 2006/10 TR 1999/10 TR 2007/12 TD 93/231
Legislative references: TAA 1953 ITAA 1936 318 FBTAA 1986 40 FBTAA 1986 42 FBTAA 1986 43 FBTAA 1986 58P FBTAA 1986 58X FBTAA 1986 136(1) Copyright Act 1968
Case references: J & G Knowles & Associates Pty Ltd v. FCT 2000 ATC 4151 44 ATR 22
Subject references: external property fringe benefits FBT intangible property FBT notional value FBT tangible property