I have a query in relation to computer software that is provided to employees to perform their employment duties.
Where the employee is provided with two items of software, will the work related items exemption apply if:
- the software has identical functions; and
- the software is substantially different in nature?
The exemption provided by s. 58X of the FBT Act applies if the following 4 conditions are satisfied:
- The item must be an eligible work related item.
- The item must be primarily for use in the employee’s employment.
- More than one item, with substantially identical functions, cannot be provided in any one FBT year unless it is a replacement item.
- An expense payment benefit, property benefit or residual benefit is provided to an employee.
In regards to Item 2, it only applies where the first item was provided earlier in the FBT year by way of expense payment or property fringe benefit. Further, from the 2017 FBT year, this condition does not apply to small businesses that provide employees with more than one work-related portable electronic device in the same FBT year.
The test for item 2 is one of ‘substantially identical function’. This is not a defined term and so takes on its ordinary meaning.
The ATO have provided guidance on the term by way of an Interpretative Decision and National Tax Liaison Group Minutes.
ATO ID 2003/80 compares different types of window blinds as to whether they are substantially identical (a slightly different test in my view than substantially identical function).
At the NTLG FBT Sub-committee meeting of 14 August 2008 the ATO was asked how the requirement ‘substantially identical function’ was to be applied.
The ATO concluded it will be a question of fact as to whether items have substantially identical functions, even where both items fall within the same exemption category. It was noted that it will generally be an easy matter to determine that different items have substantially different functions but difficulties arise where items are similar in appearance and/or functionality. Where some functions are replicated in both, as in the case of iPads and mobile phones, those items would not have substantially identical functions and both would be considered as being eligible work related items.
Unfortunately, we could not find any discussion specifically in regards to software on this matter.
Our concern is that you have described the different software programs as having ‘identical functions’. Without more facts it could be considered that they have ‘substantially the same functions’ – even though they are different in nature – and therefore the exemption is in jeopardy.