The Treasurer announced as part of the 2008 Federal Budget the Government's intention to make a number of changes aimed at improving the integrity of FBT law, specifically proposing to limit the FBT exemption for eligible work-related items to items used "primarily for work-related purposes". The proposal will see numerous items affected including: laptop computers, personal digital assistants, briefcases, and tools of trade. In a related measure, the Government will also disallow employees from claiming a deduction for depreciation of such items. This will end a double benefit that was previously available, as discussed below.
The Tax Laws Amendment (Budget Measures) Bill 2008 ("the Bill") was introduced into Parliament on 27 May 2008 and proposes to minimise the list of exempt eligible work related items to only include the following items
- electronic devices;
- computer software;
- briefcase; and
- tools of trade.
This list has been clarified further to deal with advances in technology to extend the exemption to electronic devices with multiple functions. Previously, where a mobile phone had PDA functions, it was not covered under the scope of these exemptions. However, following these amendments, electronic devices with multiple functions will fall within the exemption.
The Bill specifies that the FBT exemption will be restricted to one item per year for items that have substantially identical functions. Thus, it would appear that this wider approach will enable employees to provide more items that are FBT exempt, provided that they are primarily for use in employee's employment.
Changes to the FBT treatment of laptops
Previously a laptop only needed to be provided "in respect" of the employees' employment, however the Bill has taken a narrower approach and has proposed that a laptop will only be exempt where it is "primarily" for use in the employees' employment. The Explanatory Memorandum ("EM") to the Bill provides the following example of what is meant by "primarily for use in employee's employment":
1. Eva's employer does not provide her with a laptop even though she does a lot of work after hours and on weekends. Eva purchases a laptop and also asks her employer for a salary sacrifice arrangement. As the benefit is an exempt benefit under section 58X, the employer would not be liable for FBT in relation to that benefit. The example highlights the necessary connection between the employee and the use of the laptop for the primary purposes of their employment.
One item per year test
Interestingly, the EM also provides the following example that if an employer provides an employee with a laptop, given that the one being provided is not under any salary package arrangement, the employee is entitled to salary package a separate laptop and still been titled to the FBT exemption.
Christine's husband wants a laptop computer. Christine's employer already provides her with the use of a laptop asher employer recognises that she does a lot of work at home, after hours and on weekends. Christine purchases a laptop for her husband and requests that the laptop be packaged under a salary sacrifice arrangement and that she be reimbursed for the expense. This benefit is considered an exempt fringe benefit under section 58X.
This opens up the possibility of further salary sacrifice opportunities as effectively 2 laptop computers are provided under this arrangement. It is not clear how the above conclusion has been made in the EM, it seems to be indicating that either the one laptop per year:
-only applies to salary sacrificed laptops; or
-a benefit provided to a spouse is not included in the "one per year" requirement.
In addition the EM to the Bill states that's imply entering into a salary sacrificing arrangement does not put a person in a more favourable position than me one that is not in a salary sacrificing arrangement. Thus a" primary work related purpose" must be evident in the purchase of the laptop.
The EM provides the distinction that where an employee merely wishes to buy his/her partner a new laptop and.cannot satisfy the "primarily for use in employee's employment" requirement, given that there is no primary work related purpose for acquiring the laptop, no FBT exemption will be available under a salary sacrifice arrangement.
How wil this affect current arrangements?
If the asset was acquired at or before 7.30pm,13 May 2008, a decline in value deduction can be claimed for the 2007-08 income year, but not for later in come years.
Previously, where an individual used a laptop for work purposes only, and was acquired under the exempt provisions of section 58X, the individual was entitled to claim a deduction for the decline in value of the laptop essentially allowing a double deduction. The Bill proposes amendments to section 40-45 of the ITAA 1997. These new changes will prevent individuals from claiming a deduction for decline invalue for eligible work-related items where the item is exempt under section 58X.
How will this affect new arrangements?
Upon Royal Assent, this Bill will be applicable to laptops acquired after 7.30pm, 13 May 2008. Policies and procedures will be required to be updated to incorporate the new rules. Appropriate substantiation will be required to be retained to show that the electronic devices etc, are used primarily for use in employee's employment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.