Smart Watches Confirmed Fringe Benefit

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The ATO has made a ruling which allows a popular smart watch to be deemed a portable electronic device for fringe benefits tax purposes under the following circumstances:

  • The watch is provided in respect to employment and is used primarily for the employee’s employment; and
  • The watch is not considered a second item purchased in the past 12 months that has a substantially identical function.

The ruling is restricted to a specific smart watch which came onto the Australian market in mid-2018. However, from the ruling it appears to be a smart watch which is specifically designed to be paired with a specific mobile phone device. As stated in the Private Ruling, the Smart Watch is designed for use with the iOS operating system, which is owned by a very large US-based technology company (take a guess).

Despite the fact that the ruling relates to one specific product, the general rules regarding smart watches and the FBT exemption is covered and explained below.

Substantially different in function to a mobile phone

A smart watch would be ineligible for an FBT exemption if another item was previously purchased in the FBT year which had a substantially identical function.

The smart watch has similar functions to that of a mobile phone, however, the Commissioner ruled the functions between the two are substantially different due to the following considerations:

  • The watch can receive and display text messages and emails, but sending/replying is limited to pre-set phrases or dictating a reply as an audio file.
  • A keyboard cannot be used with the watch as it can with the paired phone.
  • Purported seamless transition between the watch and phone when needing to utilise more complex functions.
  • The watch cannot download or use the majority of mobile phone applications (ie apps). Only specifically designed applications work on the watch.
  • The watch is not capable of viewing complex webpages on the screen, thus requiring use of the phone in a lot of cases.

These limitations of the smart watch were enough for the Commissioner to consider that the device was substantially different to the phone. Therefore, an entity would be eligible for an exemption where both devices are provided to an employee within the same FBT year. This applies regardless of whether the entity is a small business entity or not.

What this means for your business

This ruling provides a business with an option to provide these devices for employees under salary sacrifice arrangement where necessary. However, it must be acknowledged that in order to get the exemption the watch must be used primarily for the employee’s employment.

Contact our office today on  03 9727 6700 if you would like to discuss your situation.

This document contains general advice only and is prepared without taking into account your particular objectives, financial circumstances and needs. The information provided is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should speak to a licensed financial advisor who should assess its relevance to your individual circumstances.  While The Field Group believes the information is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the corporations Act 2001.

About the author

Jon has been with The Field Group since 2005 and became a director in 2012. Jon specialises in servicing businesses in the small and medium enterprise (SME) space. This includes advising in the areas of income tax, GST, Fringe Benefits Tax, structuring, cash-flow and business acquisitions.

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