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Use and availability for use of business-related assets
Policy rationale
Proposal
| Proposed changes
The private use (and availability for private use) of employer-owned business tools such as cell phones and laptops would be exempt from FBT if the tools are provided to the employee primarily for business purposes. |
Use and availability for use of business-related assets
13.1 The private use or availability for private use of business-related equipment such as cell phones and laptops is currently subject to FBT under the catch-all provision in section CI 1(h), unless the private use is only on the employer's premises.
13.2 The FBT valuation rules do not directly address the use or availability for use of such assets owned by the employer and, consequently, cause uncertainty about the value of the benefit.
13.3 In theory, the rental value or similar annual cost of the equipment could be an appropriate basis for the valuation of the benefit. However, rental values may overvalue the benefit if the employer places restrictions on the use of the equipment, such as an international calling bar on a cell phone, that would not generally apply if the employees had hired the equipment themselves.
Policy rationale
13.4 The government agrees with submissions that argued that it is difficult and, therefore, costly to monitor and value the private use of small items such as laptops and cell phones when they are provided by employers primarily as business tools. As they are primarily for business use, any private benefit would likely be incidental.
13.5 In the absence of an express condition granting use of the equipment in a salary package, these benefits may also be difficult to characterise as remuneration. When the equipment is provided to facilitate the employee's job, such as when a cell phone is given to an employee who is on call and when a laptop is provided to an employee to complete work assignments at home, the benefit to the employee may be seen as merely incidental. The ability to surf the internet at home after having completed the work assignment may benefit the employee but does not have the character of remuneration for the work done.
13.6 Even in situations where the benefit can be characterised as remuneration, such as when the cell phone provided by the employer alleviates the need to purchase private telephone services, the compliance costs involved may be so high that they outweigh the benefit of imposing FBT.
13.7 Although this boundary is difficult to judge, the complexity in valuing business-related equipment and the difficulty in monitoring the uptake of these benefits indicates that these benefits give rise to particularly high compliance costs.
13.8 The valuation of the private use or availability for use of laptops and cell phones contrasts with the relatively straightforward calculation when ownership of a laptop or cell phone is transferred to an employee. In that situation the value of the laptop or cell phone is its market value less any contribution by the employee.
13.9 The extent to which the use of business-related assets such as cell phones and laptops are substituted for cash remuneration is unknown. Only limited potential for substitution exists as the employee is unlikely to require more than one laptop or cell phone at any one time.
13.10 The difficulty in regularly measuring any private benefits that do arise effectively precludes them from being encompassed in the minimum thresholds, so the better solution is to exempt them. As one submission noted, this would be consistent with the government's initiatives for promoting a knowledge economy.
Proposal
13.11 The private use of employer-owned work tools such as laptops, cell phones and other business-related assets would be exempt from FBT when these assets have been provided to the employee primarily for business purposes. This exemption is on the assumption that the private use would be incidental, which could be verified by periodic audit.
13.12 This proposal represents a trade-off between accuracy and simplicity. As such it recognises that the high level of cost and complexity associated with valuing and monitoring private benefits that arise from the use of work tools such as laptops and cell phones will generally outweigh the advantages of taxing these fringe benefits.
13.13 Cell phones and laptops that are provided by an employer but are either owned by the employee or are not required to be brought to work would continue to be subject to FBT, as would land line telephones.