| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012827874164
Date of advice: 2 July 2015
Ruling
Subject: FBT implications on musical instruments
Question
Can instruments that are part of a salary package provided by an employer to its employees be described as "tools of trade" under paragraph 58X(2)(e) of the Fringe Benefits Tax Assessment Act 1986 (FTBAA)?
Answer
Yes
This ruling applies for the following periods:
FBT year ending 31 March 2016
FBT year ending 31 March 2017
FBT year ending 31 March 2018
FBT year ending 31 March 2019
FBT year ending 31 March 2020
The scheme commences on:
1 April 2015
Relevant facts and circumstances
The employer provides music teaching programs.
The employer currently provides salary packages to employees of business items such as laptops and mobile phones.
The employer plans to provide effective salary packaging of instruments to staff who, are involved in music teaching programs and are required to provide their own instruments.
The instruments will be wholly owned by the employees.
Private use of the instruments will be minimal.
It is industry standard that performers supply their own instruments and this applies to this employer's employees.
Employees will not be expected to provide non-portable instruments.
A position description was provided with the ruling application as an example of the job descriptions of employees.
Relevant legislative provisions
Section 58X of the FBTAA
Reasons for decision
Summary
Instruments that are part of a salary package provided by the employer to its employees can be considered as "tools of trade" under paragraph 58X(2)(e) of the FTBAA.
Detailed reasoning
Section 58X of the FBTAA exempts from fringe benefits tax the provision of certain eligible work related items.
Subsection 58X(1) of the FBTAA provides that the provision of an expense payment benefit, a property benefit or a residual benefit by an employer to an employee in respect of an eligible work related item will be an exempt benefit.
Subsection 58X(2) of the FBTAA lists the items that, if provided primarily for use in the employee's employment, are 'eligible work related items' that may be subject to exemption. Included in this list at paragraph (e) is 'a tool of trade'.
The term 'tool of trade' is not defined in the FBTAA and therefore it takes on its ordinary meaning.
The definition of 'Tool' in the Macquarie Dictionary, 6th edition, October 2013, includes:
1. an instrument, especially one held in the hand, for performing or facilitating mechanical operations, as a hammer, saw, file, etc.
2. any instrument of manual operation.
3. that part of a lathe, planer, drill, or similar machine, which performs the cutting or machining operation
4. the machine itself; a machine tool.
5. anything used like a tool to do work or effect some result.
6. anything used regularly in the course of a particular profession or occupation.
It can be seen that, for a music teacher, an instrument would meet the requirements of the 6th part of the definition, "anything used regularly in the course of a particular profession or occupation".
In Vaughn v. Official Trustee in Bankruptcy (1996) 71 FCR 34 (Vaughn) the expression 'tools of trade' was considered by the Full Federal Court by reference to The New Shorter Oxford English Dictionary (1993) as:
'Tool': 1. A thing used to apply manual force to an object or material, esp. a device designed for some particular mechanical function in a manual activity, as a hammer, a saw, a fork; an implement.
2. A thing (concrete or abstract) used in the carrying out of some occupation or pursuit; a means of effecting a purpose or facilitating an activity.
'Tools of Trade' : The basic equipment required for a particular occupation.
For an item to qualify as a 'tool', whilst it must meet the necessary condition of being dependant on manual operation to give effect to its purpose, it can also be electrically powered. For instance it would be accepted that both a handsaw and a power saw used by a tradesperson would both be 'tools of trade'.
By ignoring the wider term of 'equipment' and restricting the phrase to the actual tools themselves used in an occupation, the Court used the analogy of allowing a professional photographer's camera and filters but not the film used in the camera as a 'tool of trade'.
In terms of the dictionary definition quoted in Vaughan, a thing will qualify as a tool, where it meets either definition rather than a composite or both. In terms of definition (1), these instruments do not apply manual force to another object. For that reason, they would not qualify as a 'tool' under those terms.
Through definition (2) however, it is accepted that an instrument is a thing which is used in carrying out a music teacher's occupation, and on that basis would still qualify as a 'tool'.
The other main requirement for exemption is that the eligible work related item must be primarily for use in the employee's employment.
An item is primarily for use in an employee's employment if it is provided principally to enable an employee to do their job. 'FBT - a guide to employers' provides that an employer must use a reasonable basis to determine whether an item is primarily for use in the employee's employment.
The applicant has advised that the employees require instruments in order to perform the duties of their positions, and therefore they wish to make available the option of salary packaging these instruments. The applicant advises that any private use of the instruments provided under these packages will be minimal.
It is therefore considered that an instrument that is necessary for teaching and other duties that arise within the scope of the employment of the staff members would be considered a 'tool of trade' under paragraph 58X(2)(e) of the FBTAA .
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
