Getting the most benefit from fringe benefits.
Contents
Introduction
The most cost-efficient benefit an employer can give an employee is one that is both deductible for income tax purposes and exempt from Fringe Benefits Tax (FBT).
One such type of benefit is the ‘work-related item’ FBT exemption.
Like all concessions, there are some requirements that must be met to take advantage of it.
Maximizing Benefits: Understanding Work-Related Items and FBT Exemptions
For FBT purposes, a work-related item is a portable electronic device, an item of computer software, an item of protective clothing, a briefcase, or a tool of trade.
In practice, most of these are self-explanatory and need no further explanation – the exception being the first category of items, portable electronic devices.
What is a portable electronic device?
A portable electronic device is one that is easily portable, designed to be used away from an office, small and light, able to be operated without an external power supply, and designed as a complete unit. Examples include mobile phones, calculators, electronic diaries, personal digital assistants, laptops, and portable printers. Portable display monitors, GPS navigation receivers, and smartwatches can also qualify.
Internal component upgrades at the time of purchase of a computer are further examples, such as additional memory or an internal modem, but external modems and other peripheral items are not (although these items may be exempt as a minor benefit).
Where an employee is provided with the use, but not ownership of, a mobile phone or laptop by the employer, the exemption can also extend to the phone and wireless internet access charges incurred by the employer relating to the use of these devices. However, the exemption does not extend to the payment or reimbursement of monthly use charges where the account is held in the name of the employee.
Primarily for use in the employee’s employment
A work-related item is only eligible for the FBT exemption where it is provided “primarily for use in the employee’s employment”. (For this reason a laptop or a mobile phone, for example, provided to your employee’s spouse or child will generally not be exempt from FBT as a work-related item.)
This requirement looks to the principal reason the item was provided to an employee at the time it was provided – not to their later use of it. That is, the employer does not need to monitor whether the item is being used by their employee more than 50% for work on an ongoing basis, so long as when the item was first provided to the employee, it was intended for use by them principally in carrying out their employment duties (remember you will need to keep evidence to support this!).
‘One per year’ rule
You cannot give more than one exempt work-related item to the same employee in any one FBT year (the ‘one per year’ rule).
But there are some important exceptions to this rule. More than one exempt work-related item can be given to an employee in the same FBT year where one of the following exceptions apply:
- the second (or later) work-related item is a portable electronic device (see above) and the employer is a small business entity (with an aggregated turnover of less than $50m),
- the second (or later) work-related item is a replacement item, or
- the second (or later) work-related item does not have a “substantially identical function” to the earlier item. (In some cases this is easy to determine, for example, a briefcase clearly does not have a substantially identical function to the laptop. However, it becomes more difficult when comparing two portable electronic devices, for example, does a smartwatch have a substantially identical function to a mobile phone?)
Employees may need a reminder they cannot claim a personal tax deduction in their income tax return for a work-related item that has been provided to them as an exempt fringe benefit by their employer!
Can’t meet the requirements?
If you have provided an employee with a work-related item but haven’t been able to meet all the requirements above, remember another FBT concession may be available (for example, the ‘’otherwise deductible rule” or the minor benefits exemption).
If you would like to know more about the work-related item FBT exemption or wish to discuss FBT more generally, chat with us.
WL Advisory is a Chartered Accounting firm. We specialize in accounting, tax, and advisory services for individuals and small businesses. Please visit our website for more information.