Dealing with property benefits

The definition of a property fringe benefit is broad, arising when an employer (or in some cases, an associate of an employer, or a third party) provides its employees with free or discounted property. Property benefits can be both tangible and intangible property, with common examples including:

• goods (including those sold by an employer or its associates)

• gift cards or vouchers

• long service awards 

• adhoc gifts for birthdays, retirement, recognition, etc. 

• points awarded that can be later redeemed for goods and services, and

• rights to property (such as certain financial assets). 

The taxable value of a property benefit is determined by whether the benefit is an in-house property benefit or an external property benefit, and whether any concessions apply. 

In-house property fringe benefit

In-house property fringe benefits are goods that are identical or similar to goods that a business sells to the public in the ordinary course of the business. As an example, a fashion retailer which provides its employees with clothing that it ordinarily sells, for free or at a discounted price (including through a gift card or voucher) may be providing an in-house property benefit.

The taxable value of in-house property benefits is dependent upon a number of factors. There are specific valuation rules depending on whether the goods are manufactured or produced by the benefit provider, or whether the goods are purchased and resold by the benefit provider. Subject to certain criteria being met, there is also a $1,000 reduction available on a per employee basis, and post-tax employee contributions can also be applied to reduce the taxable value.

Importantly, the minor benefits exemption is not available in respect of in-house property fringe benefits, and the $1,000 reduction is not available if the in-house benefit was part of a salary package arrangement. 

External property fringe benefit

External property fringe benefits are property fringe benefit which do not consist of goods that are similar or identical to those an employer sells in the ordinary course of business.

For example, a dry-cleaning business providing an employee with tickets to a sports event will be providing an external benefit, as the tickets are not sold by the employer in the ordinary course of its business.

The valuation of external property fringe benefits is often more straightforward than in-house benefits, and can be as simple as the cost price or expenditure to provide the benefit to the employee, less any employee contribution. The precise valuation should be considered against how the benefit was obtained by the employer.  

Once the gross taxable value has been determined, consideration should be given as to the availability of the any exemptions and concessions applicable.

The taxable value of external property fringe benefits can be reduced or eliminated entirely by:

• the otherwise deductible method

• minor benefit exemption  

• other specific exemptions which are dependent upon the precise nature of the benefit, and

• after-tax employee contributions.

Some further questions that may help with the assessment of a property fringe benefit include:

• Is the benefit a ‘reward for service’? For example, where an employer operates a formal sales incentive program, with set rewards to be awarded at each sales target, such awards provided under this scheme would be regarded as a reward for service. Where this is the case, the minor benefit exemption would not be available.

• Is the benefit a long service award? There is a specific exemption for long service awards that may apply, subject to meeting eligibility criteria.

• Have all benefits provided under arrangements or to associates been included? The FBT provisions are broad and do not just include benefits provided by the employer directly. They can also apply to benefits provided to an employers’ employees, by an associate of the employer, and in some cases, by a third party. 

• For reward points programs, has the correct taxing point and value of the benefit been applied? For those using an external platform to award points to employees, which can be later redeemed for goods or services on the platform (e.g. a gift card or voucher).

• Has there been correct substantiation for applying the otherwise deductible rule? As a reminder, one-off income tax deductions are not available for depreciating assets greater than $300, and the otherwise deductible rule can only be applied against the amount of any benefit provided to the employee.

• Does the property qualify for the ‘consumed on premises’ exemption – and before applying this exemption, has it been cheeked that the property does not amount to entertainment (relevant if the 50/50 method is applied to meal entertainment)?

• Are there any hidden costs associated with the provision of the property fringe benefit? This may include transaction fees and surcharges, which could form part of the taxable value of the fringe benefit. This may be important when assessing the $300 minor benefit threshold. 

• Has the correct gross-up rate been applied?

If you have any questions relating to FBT or employment taxes more generally, please do not hesitate to reach out to your PwC representative.