Question
In order to comply with COVID Public Health Orders , to allow employees to work from home, we incurred expenditure on upgrading the internet connection at an employee’s home.
The expenditure incurred was in excess of the minor benefit limit of $300. Is the expenditure subject to FBT?
If so, can Section 58X provide relief on the basis that it is an exempt benefit? Or, can the otherwise deductible rule be applied to reduce the value of the benefit on the basis that the employment related portion of the cost would be deductible to the employee?
Answer
If you organised the upgrade and paid for the cost then a residual benefit has arisen.
If the employee incurred the cost and was reimbursed or had the cost directly paid by you, then this represents an expense payment fringe benefit.
If an expense payment or residual fringe benefit, the minor benefit exemption in section 58P of the FBT Act is not available due to the taxable value/cost exceeding $300.
The work-related items exemption in section 58X of the FBT Act applies where the work-related item is provided primarily for use in the employee’s employment. The following are work-related times for this purpose:
a portable electronic device;
an item of computer software;
an item of protective clothing;
a briefcase;
a tool of trade;
In our view the internet upgrade does not fall within any of the above item categories.
This leaves the ‘otherwise deductible rule‘ (see @ 9.4).
The otherwise deductible rule reduces the taxable value of a fringe benefit to the extent the employee, had they incurred the relevant expenditure, would have obtained an outright deduction for income tax purposes.
If the employee uses their home internet for work-related purposes, then a portion of the upgrade cost should be otherwise deductible to the extent of the income producing use. Evidentiary documentation (eg a usage diary) and an appropriate declaration should be obtained from the employee as to the extent of their work-related usage.
If the internet upgrade involved expenditure on a depreciating asset that cost more than $300, then the otherwise deductible rule cannot apply to this expenditure component as the employee would not be entitled to an outright deduction for the asset’s cost.
The ATO provided some useful commentary around work from home related benefits in its publication ‘Covid-19 and working from home benefits‘