More employers may now have access to the FBT exemption for work-related items as a result of the definition of small business entities changing.
Below are insights and an example from the FBT Compliance Guide 2018 on the eligibility criteria for this exemption.
Work-related items are an exempt benefit if the following conditions are satisfied (s 58X):
- The benefit is an eligible work-related item.
- The item is primarily for use in the employee’s employment.
- More than one item, with substantially identical functions, cannot be provided in any one FBT year unless it is a replacement item, or the item is a portable electronic device and the employer is a small business entity.
- An expense payment benefit, property benefit or residual benefit is provided to an employee.
In addition, employees are precluded from claiming depreciation on eligible work-related items acquired after 13 May 2008 where they are provided as an expense payment or property benefit (ITAA 1997 s 40-45(1)).
This excerpts further explains condition 3. For additional guidance on the other conditions, please refer to the FBT Compliance Guide 2018.
3. One substantially identical item each FBT year
An eligible work-related item (the ‘‘later item’’) is generally not exempt if, earlier in the FBT year, an expense payment benefit or a property benefit has arisen in relation to an eligible work-related item (the ‘‘earlier item’’) that has substantially identical functions to the later item (s 58X(3)), unless it is a replacement for the earlier item (s 58X(4)).
However, for the 2017 FBT year and later FBT years, a small business entity can provide a portable electronic device to an employee that has substantially identical functions to a device already provided to that employee in the same FBT year, and each of the devices will be exempt from FBT (s 58X(4)(b)). The meaning of ‘‘small business entity’’ is the same as in the Income Tax Assessment Act 1997 (s 136(1)). Broadly, an entity is a small business entity for an income year if it:
- carries on a business in the income year; and
- satisfies the $10m aggregated turnover test ($2m for the 2017 FBT year and prior FBT years) for the income year (ITAA 1997 s 328-110).
Whether a work-related item has ‘‘substantially identical functions’’ is a question of fact. However, where some functions are replicated in two separate work-related items (eg mobile phone and PDA), those items would not have substantially identical functions (NTLG FBT Sub-committee minutes — 14 August 2008).
During consultation with the ATO, consideration was given to which of the following combinations of portable electronic device are not eligible for the s 58X exemption:
- tablet PC and laptop computer
- smartphone and phablet
- phablet and tablet PC, and
- tablet PC hybrid and laptop
The ATO considers that only the devices in (2) and (4) above would be considered to have ‘‘substantially identical functions’’ (NTLG FBT Sub- committee minutes — 16 May 2013).
It is important to note that the exclusion is limited to the provision of no more than one expense payment benefit or property benefit in relation to an eligible work-related item.
A ‘‘replacement item’’ is one that is required because the earlier item was lost, destroyed or needed to be replaced due to developments in technology. A second item provided as a back-up — eg because the earlier item is being washed — is not exempt (NTLG FBT Sub-committee minutes — 14 May 2009).
During the FBT year, an employee (John) purchased a laptop computer. The employer agreed to reimburse John for the cost of the computer over a two-year period.
Later in the FBT year, John is provided with a second laptop computer (property benefit) by his employer that is not a replacement. The employer does not satisfy the definition of a ‘‘small business entity’’ in s 136(1) in the income year starting or ending after the start of the FBT year.
The s 58X(1) exemption is not available for the second laptop computer. This is because the test in s 58X(3) limits the exemption to the provision of expense payments for one item or the provision of one item (property benefit) per year and the exception in s 58X(4) for an employer that is a small business entity does not apply (ATO Interpretative Decision ID 2008/159).
Your FBT Compliance Guide 2018 provides detailed commentary on Australian FBT law and salary packaging arrangements. It covers all fringe benefits categories and includes all significant changes made to the FBT law affecting the 2018 FBT year to empower you with up-to-date advice.