Fringe benefit tax - "Availability" benefits

All legislative references are to the Income Tax Act 2007 unless otherwise stated.

This QWBA applies in respect of ss CX 2(1) and CX 37.

Question

1. If an employer makes a good or service available to an employee, will the mere availability of the good or service be a fringe benefit?

Answer

2. No. Fringe benefits arise when a benefit is provided by an employer to an employee in connection with their employment. Once a benefit has been provided to an employee, it is irrelevant if it is never used, it will be a fringe benefit (subject to any exclusions in subpart CX applying). However, the "mere availability" of goods or services that have not been provided will not be a fringe benefit.
3. Motor vehicles are dealt with differently to other goods or services; the availability for private use of a motor vehicle will give rise to a benefit by virtue of s CX 6.
4. Whether or not the availability for private use of a business tool (which by definition has been provided to an employee) is a fringe benefit depends on whether it falls within the exclusion in s CX 21.

Explanation

5. A fringe benefit is, broadly speaking, a benefit that an employer provides to an employee in connection with their employment.
6. We have been asked whether, under the Act, the mere availability of a good or service to an employee is sufficient to be a fringe benefit.

Legislation

7. The relevant provisions of the Act, ss CX 2(1), CX 6, CX 21 and CX 37, are as follows:

• CX 2 Meaning of fringe benefit
  Meaning
  (1) A fringe benefit is a benefit that-
  1. is provided by an employer to an employee in connection with their employment; and
  2. either-
     1. arises in a way described in any of sections CX 6, CX 9, CX 10, or CX 12 to CX 16; or
     2. is an unclassified benefit; and
  3. is not a benefit excluded from being a fringe benefit by any provision of this subpart.

• CX 6 Private use of motor vehicle
  When fringe benefit arises
  (1) A fringe benefit arises when-
  1. a motor vehicle is made available to an employee for their private use; and
  2. the person who makes the vehicle available to the employee-
     1. owns the vehicle:
     2. leases or rents the vehicle:
     3. has a right to use the vehicle under an agreement or arrangement with the employee or a person associated with the employee.
• Exclusion: work-related vehicles
• (2) Subsection (1) does not apply when the vehicle is a work-related vehicle.
•  
• Exclusion: emergency calls
• (3) Subsection (1) does not apply when the vehicle is used for an emergency call.
•  
• Exclusion: absences from home
• (4) Subsection (1) does not apply when the employee is absent from home, with the vehicle, for a period of at least 24 hours continuously, if the employee is required, in the performance of their duties, to use a vehicle and regularly to be absent from home.
•  
• Use on part of day
• (5) For the purposes of subsections (3) and (4), the whole of the day on which a motor vehicle is used as described in the applicable subsection is treated as a day on which the vehicle is not available for private use.

• CX 21 Business tools
  When use of business tool not fringe benefit
  (1) The private use of a business tool that an employer provides to an employee, and the availability for private use of such a business tool, is not a fringe benefit if-
  1. the business tool is provided mainly for business use; and
  2. the cost of the business tool to the employer, including the amount of any deduction for the cost of the business tool that the employer may make under section 20(3) of the Goods and Services Tax Act 1985, is no more than $5,000.
•  
• Use away from employer's premises
• (2) For the purposes of subsection (1), a business tool that is not taken to and used on the employer's premises may nevertheless be provided mainly for business use if the employee performs a significant part of the employee's employment duties away from the premises.

• CX 37 Meaning of unclassified benefit
• Unclassified benefit means a fringe benefit that arises if an employer provides an employee with a benefit in connection with their employment that is-
  1. not a benefit referred to in any of sections CX 6 to CX 16; and
  2. not a benefit excluded under this subpart.

Application of the legislation

8. The provision of a benefit by an employer to an employee will only be a "fringe benefit" for the purposes of the Act if it comes within s CX 2. This section requires that:
   • a benefit must be provided by an employer to an employee in connection with their employment; and
   • the benefit must fall within s CX 2(1)(b), and not be excluded from being a fringe benefit by any other provision.
9. To fall within s CX 2(1)(b), a benefit must either arise as described in any of ss CX 6, CX 9, CX 10, or CX 12 to CX 16 of the Act, or be an unclassified benefit. Sections CX 9, CX 10 and CX 12 to CX 16 deal with the actual provision of particular specified benefits, and an unclassified benefit arises if an employer provides an employee with a benefit in connection with their employment. However, s CX 6 states that a motor vehicle that is made available to an employee for their private use will give rise to a fringe benefit. The issue we have been asked to consider is whether other goods or services that are merely made available for an employee to use privately will also give rise to a fringe benefit. In other words, where goods or services are made available for an employee to use, has a benefit been provided by the employer to the employee in connection with their employment?

Requirement for there to be a "benefit"

10. The Act does not define the term "benefit" for the purposes of the fringe benefit tax (FBT) rules. Therefore, this word is to be read as having its ordinary meaning.
11. "Benefit" is defined (relevantly) in the Concise Oxford English Dictionary (12th edition, Oxford University Press, New York, 2011) as "an advantage or profit gained from something".
12. This broad definition of "benefit" could cover a situation where an employer makes something available to an employee, even though the employee may not yet have used the thing in question. Even if something has not been used, the fact of it being available is an advantage or benefit, in contrast to it not being available.
13. However, there is judicial authority which indicates that there are limits to when something which is, strictly speaking, an "advantage" will be considered to be a benefit for FBT purposes.
14. In Case M9 (1990) 12 NZTC 2,069, the Taxation Review Authority (TRA) considered the FBT status of contributions to a superannuation fund and the provision of motor vehicles that were available for the private use and enjoyment of two employees.
15. The TRA noted that the legislation specifically provided that the availability for private use or enjoyment of a motor vehicle would be a fringe benefit. The TRA went on to say, on the general meaning of "benefit" (at 2,074):
    • The section itself to an extent explains what is a benefit, for the purposes of a fringe benefit; so long as something is provided by an employer to an employee that can be reasonably, practically and sensibly understood as a benefit to the employee in itself and is not expressly excluded, [that] would be sufficient for it to be a benefit for the purposes of the definition of "fringe benefit" as provided by the section. [Emphasis added]
16. While the legislative provision considered in Case M9 was a predecessor to s CX 2, the principles remain relevant as the definition of "fringe benefit" still requires that a benefit be provided by an employer to an employee.
17. Accordingly, the Commissioner is of the view that a particular "advantage" must be sufficiently clear and definite that it can reasonably, practically and sensibly be understood as a tangible benefit.

Requirement for the benefit to be "provided"

18. The term "provided" is also not defined in the Act and so is to be read as having its ordinary meaning.
19. "Provide" is defined (relevantly) in the Concise Oxford English Dictionary as "v. 1 make available for use; supply. >(provide someone with) equip or supply someone with".
20. A number of cases have discussed the meaning of the word "provide".
    • These cases show that the meaning of "provide" depends on the facts and circumstances of each case. For example, in Ginty v Belmont Building Supplies Ltd [1959] 1 All ER 414 at 422, Pearson J stated: I do not think that there is any hard and fast meaning of the word "provided"; it must depend on the circumstances of the case as to what is "provided" and how what is "provided" is going to be used.
21. In Norris v Syndi Manufacturing Co Ltd [1952] 1 All ER 935 at 940, Romer LJ stated:
    • The primary meaning of the word "provide" is to "furnish" or "supply" ...
22. In Pierce v FCT 98 ATC 2,240, the Australian Administrative Appeals Tribunal considered whether a car had been provided to an employee. At 2,247, BJ McMahon (Deputy President) stated:
    • There is no reason why "provides" should not be given its ordinary English meaning, namely "to furnish or supply" (Macquarie Dictionary).
23. Accordingly, for something to have been "provided" to an employee for the purposes of s CX 2, it must be supplied, furnished or made available for use by the employee.

Is the mere availability of a good or service a fringe benefit?

24. The term "availability", or reference to something having been "made available" or being "merely available", could be used to describe a number of different scenarios where the benefit may or may not have been provided for the purposes of the FBT rules. Common scenarios where people might consider that the concept of "availability" arises, and may regard this as relevant to determining whether FBT is payable, include:
    • Where goods or services have been provided by an employer and the employee may or may not use them;
    • Where goods or services are potentially available to an employee (but not yet provided); and
    • Where business assets may also be used by an employee for private purposes.
25. Each of these scenarios will be considered in turn.

Where goods or services have been provided and the employee may or may not use them

26. If goods or services have been provided by an employer, it is irrelevant whether they are in fact used. The goods or services are a benefit that has been provided and they will be a fringe benefit (the other requirements of s CX 2(1) being satisfied).
27. An example of this is where an employer purchases a number of sports season tickets and provides them to its employees to use. It does not matter whether, or how frequently, the employees use the tickets; the benefits (the tickets) have been provided.
28. Similarly, if an employer purchased gym memberships for its employees, benefits (the memberships) have been provided. It is not accurate to describe the memberships as being merely available; they have been purchased and provided to the employees. Whether a benefit has been provided to the employees is not dependent on whether any given employee actually goes to the gym. The benefits are the memberships and they have been provided.

Where goods or services are potentially available to an employee (but not yet provided)

29. If no benefit has been provided, there can be no fringe benefit. The availability of a good or service must be considered in a reasonable, practical, and sensible way to determine whether it is, in itself, a benefit (Case M9).
30. Arguably the availability of goods or services on offer from an employer is itself a benefit. However, the Commissioner considers that where there is simply the option of accessing goods or services, a fringe benefit does not arise until that option is taken up and the goods or services in question are provided. While there is some benefit in having something available to be taken up, this cannot reasonably, practically or sensibly be considered a benefit for the purposes of the FBT rules.
31. For example, if an employer makes the option of purchasing discounted goods available to its employees, this would not constitute the provision of a benefit in terms of s CX 2. There is merely an opportunity for the employees to be provided with something that would be a benefit for FBT purposes. If an employee takes advantage of the offer to purchase discounted goods, a benefit in terms of s CX 2 would be provided at that point.
32. This is consistent with the conclusion in the discussion document Streamlining the Taxation of Fringe Benefits (Government discussion document, Policy Advice Division of Inland Revenue, 11 December 2003) that discounted goods need to be purchased to trigger the taxable benefit. The discussion document states (at page 16):
    • Availability for use versus actual use
    • 3.6 If an asset is provided by an employer to an employee, its fringe benefit value is determined by whether it is available for private use. In the case of motor vehicles, the availability test is applied on a daily basis. Whether a vehicle is available for private use can be determined by keeping a log book for a three month test period (see section CI 11). If the vehicle is available for private use at any time during the day, such as for home-to-work travel, availability for such use is considered to exist for the whole day.
    • 3.7 If the benefit relates to a service rather than the provision of an asset, the benefit is valued according to the actual use of that service, with no value being attributed to having access to the subsidised service. Discounted goods are similarly treated - even though the discount may be available to the employee at all times, goods have to be purchased to trigger the taxable benefit.
    • 3.8 Arguably, the availability of a discount or access to services has some value, but it is very difficult to determine and will vary from employee to employee, depending on whether they intend to purchase the goods or services. Given these difficulties, it is sensible to treat the availability aspect as irrelevant and apply "use" as the appropriate test.
      [Emphasis added]
33. As noted in the discussion document, the availability of a discount, or access to services, is of some value and is arguably therefore a benefit. However, consistent with Case M9, it is necessary to consider the availability of a good or service in a reasonable, practical, and sensible way to determine whether a benefit can be said to have been provided. The Commissioner considers that the mere availability of a discount, or access to services, cannot reasonably, practically or sensibly be regarded as a benefit in these circumstances.
34. As noted above, motor vehicles are treated differently to other goods or services; the availability for private use of a motor vehicle will give rise to a fringe benefit by virtue of s CX 6.

Where business assets may also be used by an employee for private purposes

35. Some assets of a business that are used by an employee in the performance of their work duties may also be capable of being used for private purposes. In such cases, it is considered that a benefit is only provided when the goods are actually used for private purposes. While the possibility of obtaining a private benefit exists, the business assets are not provided to the employee, and no benefit is provided, until they are actually used for private purposes.
36. For example, a yacht charter company owns a number of yachts. If the yacht charter company allows its employees to use its yachts on Mondays, when the company is closed for business, the yachts will not be provided to the employees until they actually take them out for private use. Until then there is simply an opportunity to use the yachts for private purposes. This is arguably a benefit which has been "provided" and is of some value.
37. However, again consistent with Case M9, it is necessary to consider whether the "availability" of the yachts for private use can be reasonably, practically and sensibly regarded as a benefit provided. As with the availability of discounts, or access to services, the Commissioner considers that the mere availability of a business asset for private use cannot reasonably, practically or sensibly be regarded as a benefit provided. On those days when an employee actually uses a yacht for private purposes, however, a benefit will be provided and it will be a fringe benefit.
38. Another example of business assets that may also be used for private purposes are DVDs available for staff at a DVD store to take home free of charge as they wish. The mere availability of the DVDs for private use would not be considered a benefit provided. It would only be on occasions when employees took DVDs home that a benefit would be provided, and would constitute a fringe benefit.
39. As already noted, the availability for private use of a motor vehicle is different. The availability for private use of a motor vehicle will give rise to a fringe benefit under s CX 6 (subject to the exclusions in that section).

Business tools exclusion

40. Some business assets may be provided to employees for business purposes, and also be available for private use. Such an asset would be a "business tool", which is defined in s YA 1 as "an item that is used by an employee in the performance of their work duties and in the absence of s CX 21 (Business tools) would give rise to an unclassified benefit". Examples of business tools include items such as mobile phones or laptops given to employees that are also able to be used for private purposes.
41. Whether the availability for private use of a business tool is a fringe benefit depends on whether it falls within the exclusion in s CX 21. Section CX 21 provides that neither the private use nor the availability for private use of a business tool will be a fringe benefit if: (1) the business tool is provided mainly for business use; and (2) the (GST-inclusive) cost of the business tool to the employer is no more than $5,000. Business tools that do not fall within this exclusion will be subject to FBT.

Tax Information Bulletin item from 1995

42. The item "FBT - Meaning of 'availability for private use or enjoyment'" Tax Information Bulletin Vol 6, No 10 (March 1995), considered whether benefits, other than a motor vehicle, that were available for private use and enjoyment would be fringe benefits under the Income Tax Act 1976 ("the 1976 Act").
43. The 1995 item concluded that the mere availability for private use or enjoyment of an employee benefit other than a motor vehicle would not be a fringe benefit under the 1976 Act. The item stated that a benefit other than a motor vehicle would be a fringe benefit only if the employee had actually "used, enjoyed, or received" the benefit in relation to, in the course of, or by virtue of the employee's employment.
44. For the reasons discussed above, a good (not being a motor vehicle) or service that has not been provided but is "merely available" will not constitute a fringe benefit. This QWBA clarifies what was meant in the 1995 item by the term "mere availability".
45. Fringe benefits arise when a benefit is provided by an employer to an employee in connection with their employment. Once a benefit has been provided, it is irrelevant if it is never used. The crucial question is whether the benefit has been provided by the employer to the employee. The concept of "availability", or something having been "made available" or being "merely available", could be used to describe a number of different scenarios where the benefit may or may not have been provided for the purposes of the FBT rules. However, if a good or service has in fact been provided, it is inaccurate to describe it as being "merely available".

BR Pub 09/07

46. The commentary to BR Pub 09/07 "Provision of benefits by third parties - fringe benefit tax consequences - section CX 2(2)" touches briefly on the question of what constitutes a benefit. Paragraphs [100], [101] and [103] of that discussion may be read as suggesting that in order for there to be a "benefit" for FBT purposes something must be provided to the employee, and the employee must actually use or takes advantage of the thing provided. Those paragraphs of the commentary to BR Pub 09/07 should not be relied on to the extent that they may suggest this and be inconsistent with this QWBA.
47. It is noted that the comments in the commentary to BR Pub 09/07 which incorrectly suggest that something provided must be used or taken advantage of to be a benefit do not in any way alter the conclusions reached in BR Pub 09/07.

Conclusion

48. If goods or services have been provided to an employee by an employer, it is irrelevant whether they are in fact used. The goods or services are a benefit that has been provided, and they will be a fringe benefit (the other requirements of s CX 2(1) being satisfied, and subject to any exclusion applying).
49. Where goods or services are potentially available to an employee (but not yet provided), there is simply the option of accessing those goods or services. A benefit is not provided until that option is taken up and the goods or services in question are provided.
50. Where business assets (which are neither business tools provided to an employee, nor motor vehicles) may also be used by an employee for private purposes, a benefit is only provided when the goods are actually used for private purposes. While the possibility of obtaining a private benefit exists, the goods are not provided to the employee as a benefit until they are actually used for private purposes; rather, the goods are provided for work purposes and the benefit is provided when they are used privately.
51. Whether the availability for private use of a business tool that has been provided to an employee is a fringe benefit depends on whether it falls within the exclusion in s CX 21. Section CX 21 provides that neither the private use nor the availability for private use of a business tool will be a fringe benefit if: (1) the business tool is provided mainly for business use; and (2) the (GST-inclusive) cost of the business tool to the employer is no more than $5,000.
52. The availability for private use of a motor vehicle (whether a business asset or not) will generally give rise to a fringe benefit under s CX 6.

References

Subject references
Benefit, availability, potential benefit.

Legislative references
Income Tax Act 2007
Sections CX 2(1), CX 6, CX 21 and CX 37

Case references
Case M9 (1990) 12 NZTC 2,069
Ginty v Belmont Building Supplies Ltd [1959] 1 All ER 414
Norris v Syndi Manufacturing Co Ltd [1952] 1 All ER 935
Pierce v FCT 98 ATC 2,240

Other references

"FBT - Meaning of "availability for private use or enjoyment" (Tax Information Bulletin Vol 6, No 10 (March 1995))
BR Pub 09/07 "Provision of benefits by third parties - fringe benefit tax consequences - section CX 2(2)"
 

Streamlining the taxation of fringe benefits (Government discussion document, Policy Advice Division of Inland Revenue, 11 December 2003)