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  • FBT States and Territories Industry Partnership minutes 21 March 2018

    Disclaimer

    The FBT States and Territories Industry Partnership (STIP) meeting agendas, minutes and related papers are not binding on the ATO or any of the other bodies referred to in these papers. While every effort is made to accurately record the views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

    1. Opening

    Welcome and introduction. The agenda for the meeting was confirmed without changes.

    2. Confirmation of the minutes

    Minutes of the previous meeting were confirmed without changes. The minutes are now available at FBT States and Territories Industry Partnership minutes 20 September 2017.

    3. Action items

    Action items from 20 September 2017 FBT STIP meeting

    Action item

    1

    Description

    STIP members to advise of relevant FBT issues on entertainment for which there was demand for specific guidance.

    Update

    The ATO has scheduled a webinar on 9 May 2018.

    Next steps

    Item completed

     

    Action item

    2

    Description

    Provide an explanation as to why shopfronts were not providing receipts on lodgment of applications for extension of time to lodge or pay.

    Update

    ATO staff no longer receipt and stamp paper tax returns or other paper documents. To track the lodgment of paper documents, we recommend you send them using registered post.

    ATO mail drop boxes are no longer available. To submit paper lodgments and other mail, we recommend you use the ATO postal addresses.

    Next steps

    Item completed

     

    Action item

    3

    Description

    Provide update regarding the misalignment of state legislation with section 135T of the Fringe Benefits Tax Assessment Act (FBTAA) 1986.

    Update

    This action item will be carried over to the next meeting.

    Next steps

    To be advised

     

    Action item

    4

    Description

    Provide details of ATO guidance describing appropriate apportionment methodologies to members when it is published (TR 2017/D6).

    Update

    There is no date yet as to when TR 2017/D6 will be finalised.

    TR 2017/D6 is still the current ATO view and can be relied on for the preparation of the 2018 FBT returns.

    Next steps

    To be advised

     

    Action item

    5

    Description

    Provide additional content to the examples in agenda item 5.3 incorporating a discussion around the nature of the meal, for example issues surrounding more substantive meals and the consumption of alcohol where the benefits are provided by tax-exempt entities.

    Update

    This was provided at Appendix C of the agenda.

    Next steps

    Item completed

     

    Action item

    6

    Description

    STIP member will provide more information to the ATO on the issue of employee-level reporting requirements under a MoG change, and the ATO will respond prior to the next meeting (section 135X of the FBTAA).

    Update

    No additional information provided.

    Next steps

    Item completed

     

    Action item

    7

    Description

    Provide an update as to the finalisation of the review of TR 96/26.

    Update

    There is no date yet as to when TR 96/26 will be finalised.

    Next steps

    To be advised

     

    Action item

    8

    Description

    Send invites for the next FBT STIP and to liaise with STIP members to promote engagement.

    Update

    Invites sent

    Next steps

    Item completed

     

    Action item

    9

    Description

    Provide details of ATO sites with video conferencing facilities to members.

    Update

    As video conferencing facilities are not available the meeting will be conducted via teleconference.

    Video conferencing facilities will be booked for the next meeting.

    Next steps

    ATO to provide details of sites booked.

    4. ATO updates

    FBT Quarterly Bulletins Issue 7 and Issue 8 were provided as attachments to the agenda. No questions were raised in relation to the bulletins.

    5. Issues raised by the states and territories

    5.1(a) Tax-exempt body meal entertainment

    Issue

    When the employee is a guest of another organisation and an accurate estimate of cost is not available, how is the cost determined for FBT purposes, assuming the minor benefit exemption isn’t available?

    Background

    A senior employee attends a function that would generally be regarded as meal entertainment given the venue, type of food provided and provision of alcohol.

    Technical references

    Subsections 136(1), 132(2) and 132(4) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)

    ATO response

    Broadly speaking, a tax-exempt body entertainment fringe benefit arises in situations where an employer who is partially or wholly exempt from income tax, provides entertainment to its employees for which it would not have been able to claim an income tax deduction had it been subject to income tax.

    A ‘fringe benefit’ is defined in subsection 136(1) of the FBTAA, which holds that the following conditions must be satisfied:

    1. A benefit is provided at any time during the year of tax.
    2. The benefit is provided to an employee or an associate of the employee.
    3. The benefit is provided by
      1. their employer
      2. an associate of the employer
      3. a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party.
      4. a third party other than the employer or an associate of the employer, if the employer or an associate of the employer:
        1. participates in or facilitates the provision or receipt of the benefit
        2. participates in, facilitates or promotes a scheme or plan involving the provision of the benefit and the employer or associate knows or ought reasonably to know, that the employer or associate is doing so.
         
       
    4. The benefit is provided in respect of the employment of the employee.
    5. The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

    A fringe benefit is generally provided directly by an employer to an employee. However, a fringe benefit may be provided by an associate of the employer or under an arrangement between a third party and the employer or an associate of the employer.

    Is there an 'arrangement' between the employer and the other organisation?

    There is no fringe benefit unless the employer participates in, facilitates or promotes the provision of or receipt of the benefit.

    The definition of arrangement is very wide. For example, an employer may be liable for FBT:

    • if the employer is aware that a third party is providing benefits to employees and does nothing to prohibit employees from accepting those benefits
    • where an employer fails to take authoritative action prohibits employees from accepting any benefits that arise in connection with their employment.

    Further, it is considered an employer is deemed to have entered into an arrangement where an employee is provided with a benefit in the form of entertainment if the employer knows of, or consents to the provision of the entertainment to the employee by the third party.

    Based on the limited facts provided, it has been assumed the employer was aware the senior employee was attending the function at the other organisation as a representative of their employer and would be provided with food and drinks which are considered meal entertainment. Therefore, a meal entertainment fringe benefit has been provided.

    Valuation of the fringe benefit

    An employer must keep records that record and explain all transactions and acts that are relevant for the purposes of ascertaining the employer's liability under the FBTAA (section 132 of the FBTAA).

    Subsection 132(2) of the FBTAA requires an associate to retain records and give a copy to the employer to explain all transactions and other acts engaged in by the associate or any other person in respect of the provision of fringe benefits.

    Subsection 132(4) of the FBTAA relates to where information is not known:

    132(4) Where information is not known

    Nothing in this section shall be taken to require a person (in this subsection referred to as the 'record keeper') to keep a record of information relating to a transaction or act engaged in by another person if:

    • where the transaction or act was entered into or done under an arrangement to which the record keeper was a party:
      • the record keeper made all reasonable efforts:
        • to ascertain whether the transaction had been entered into or the act had been done, and
        • to obtain the information, and
         
      • did not know, and could not reasonably be expected to have known, the information; or
       
    • in any other case - the record keeper did not know, and could not reasonably be expected to have known, the information.

    Therefore in the case at hand, the employer should request the other organisation provide the information required to allow the employer to correctly ascertain the FBT liability associated with the meal entertainment provided.

    If, after all reasonable efforts have been made to obtain the information the other organisation is not willing or able to do so, subsection 132(4) of the FBTAA does not require the employer to keep the required records. A reasonable estimate of the cost of the meal entertainment expenses will be sufficient.

    Objectively, if the other organisation is not willing or is unable to provide the required information, the question of whether there is an ‘arrangement’ between the employer and the other organisation may need to be revisited. Unless the employer participates in, facilitates or promotes the provision of or receipt of the benefit there is no arrangement and the subsection 136(1) definition of ‘fringe benefit’ may not be satisfied.

    5.1(b) Tax-exempt body meal entertainment

    Issue

    Assuming the same employee regularly attends these type of functions is there any limit on the number of times the minor benefit exemption may be used for the same employee in a given year?

    Background

    As above except the employer calculates their FBT liability using the actual method and elects to use the minor benefit exemption on the basis that the entertainment provided is less than $300 per instance.

    Technical references

    Sections 38 and 58P of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)

    ATO response

    Where tax-exempt body entertainment fringe benefits have been provided, the minor benefit exemption cannot be applied (paragraph 58P(1)(d) of the FBTAA 1986) except in the following very limited circumstances:

    • the provision of the entertainment is incidental to the provision of entertainment to outsiders and does not consist of a meal, other than light refreshments, or
    • a function is held on a business premise solely as a means of recognising the special achievements of an employee in a matter relating to the employment of this employee.

    Neither of these exemptions apply in the factual scenario outlined above, therefore the minor benefit exemption could not be utilised with respect to the tax-exempt body entertainment fringe benefits provided to employees.

    If the function did not satisfy the definition of meal entertainment but was instead a property or residual benefit, the minor benefits exemption may be utilised if the requirements of section 58P have been satisfied. These requirements are:

    • the notional taxable value of the minor benefit (assuming the benefit is a fringe benefit) is less than $300 and
    • it is considered that it is unreasonable, having regard to the criteria in paragraph 58P(1)(f), to treat the minor benefit as a fringe benefit.

    Many factors influence consideration of whether it is unreasonable to treat a minor benefit as a fringe benefit. The ATO is unable to provide a specific limit on the number of times a minor benefit exemption can be used for an employee per FBT year. The exemption should not be considered on a per employee basis, but rather a per benefit basis. The type of benefit and cost of the benefit and consideration of the five criteria should all form part of the decision regarding application of the minor benefit exemption.

    5.2 Meal entertainment

    Issue

    Is there any guidance available on what is Meal Entertainment (ME) apart from what is in TR 97/17?

    Background

    A State Government provides debit cards where eligible employees can allocate a capped portion of their pre-tax salary to be spent on qualifying meal entertainment expenses. Using the guidance provided in TR 97/17 the State Governments’ ME policy seeks to restrict ME expenditure to genuine meals rather than snacks or sustenance, but faces continual objections from staff on what constitutes ME.

    Technical references

    Section 37AD of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)

    Taxation Ruling TR 97/17

    ATO response

    Section 37AD of the FBTAA outlines the meaning of provision of meal entertainment.

    A reference to the provision of meal entertainment is a reference to the provision of:

    • entertainment by way of food or drink, or
    • accommodation or travel in connection with, or for the purpose of facilitating, entertainment to which paragraph (a) applies, or
    • the payment or reimbursement of expenses incurred in providing something covered by paragraph (a) or (b)

    whether or not:

    • business discussions or business transactions occur, or
    • in connection with the working of overtime or otherwise in connection with the performance of the duties of any office or employment, or
    • for the purposes of promotion or advertising, or
    • at or in connection with a seminar.

    Taxation ruling TR 97/17 provides detailed guidance regarding what constitutes meal entertainment.

    FBT – guide for employers

    Further information regarding what constitutes meal entertainment, read our Fringe Benefits Tax - a guide for employers. Rather than provide a definitive list which could never cover all circumstances, guidance from the ATO is that an employer needs to examine the circumstances surrounding the provision of the food or drink. Consistent with the guidance provided in TR 97/17, you need to look at the following factors:

    Why is the food or drink being provided?

    This is a purpose test. For example, food or drink provided for the purposes of refreshment does not generally have the character of entertainment, whereas food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment.

    What food or drink is being provided?

    Morning and afternoon teas and light meals are generally not considered to be entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the more likely it is that entertainment arises from consuming the meal.

    When is the food or drink being provided?

    Food or drink provided during work time, during overtime or while an employee is travelling is less likely to be entertainment. This is because, in the majority of these cases, food provided is for a work-related purpose rather than an entertainment purpose. This, however, depends on whether the entertainment of the person is the expected outcome of the food or drink. For example, a staff social function held during work time still has the character of entertainment.

    Where is the food or drink being provided?

    Food or drink provided on the employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment. However, food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment. This is because the provision of food or drink is less likely to have a work-related purpose.

    None of these factors on their own will determine if the food or drink provided is meal entertainment.

    TR 2675

    Income tax ruling TR 2675 provides further guidance regarding what does not constitute the provision of entertainment:

    • Morning and afternoon tea includes light refreshments such as tea, coffee, fruit drinks, cakes and biscuits, but does not include alcohol.
    • Light meals are treated in the same way as morning and afternoon tea. It is not the provision of entertainment to provide sandwiches and other 'hand food', salads, orange juice, that are intended to, and can, be consumed on the taxpayer's premises or worksite. As 'light' meals become more elaborate, they take on more of the characteristics of entertainment. There is no particular point at which this will become obvious. Normal business practice will be the yardstick.

    Employer policy

    The employer policy should be clear as to restrictions on the use of the debit card and provide guidance regarding what are qualifying Meal Entertainment expenses based on the above discussion.

    5.3 Motor vehicle FBT exemptions

    Issue

    Could clarification be provided on the purpose of each subsection and how they are applied to the range of motor vehicles owned by agencies and salary packaged by employees?

    Background

    The use of certain types of motor vehicles is exempt from FBT, provided the requirements of subsections 8(2) and 47(6) of the Fringe Benefits Tax Assessment Act 1986 are complied with. There appears to be some overlap and duplication in the wording of the two subsections leading to uncertainty on which subsection applies under what circumstances. An example is subsection 8(2) applies to vehicles classified as cars and subsection 47(6) applies to commercial vehicles such as dual cabs. The issue of whether a vehicle is designed principally for the purpose of carrying passengers is determined by calculating the proportion of the payload that is taken up by passengers (at 68kg per passenger).

    Technical references

    Subsections 8(2) and 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)

    MT 2024 Fringe benefits tax dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel.

    ATO response

    Car benefit subsection 8(2)

    A car benefit only arises from provision of a ‘car’ as defined in section 136 of the FBTAA. ‘Car’ is defined to have the meaning given by Income Tax Assessment Act 1997 subsection 995-1(1). A ‘car’ as defined in subsection 995-1(1) means a 'motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than nine passengers.' A motor vehicle is any motor-powered road vehicle (including a four-wheel drive vehicle).

    A car benefit is exempt where all of the following conditions are satisfied:

    • a work-related car is provided
    • the car is used for work-related travel
    • there is minimal private use of the car.

    Under paragraph 8(2)(a) of the FBTAA a work-related car must be either:

    • a taxi, panel van or utility truck designed to carry a loan of less than 1 tonne
    • a car designed to carry a load of less than 1 tonne that is not designed for the principal purpose of carrying passengers (other than work cars).

    Residual benefit subsection 47(6)

    Private use of a motor vehicle that is not a car may give rise to a residual fringe benefit. The provision or use of certain motor vehicles is an exempt benefit pursuant to subsection 47(6) of the FBTAA. To qualify for the exemption, the following conditions must be satisfied:

    • a motor vehicle is provided in respect of the employment of a current employee
    • the motor vehicle is not a car
    • the motor vehicle is used for 'work-related travel' i.e. travel between home and a workplace or travel incidental to the performance of employment duties
    • private use is minor, infrequent or irregular.

    Which section applies?

    For a car benefit to be provided, a motor vehicle must be a car 'held' by the employer, or by an associate of the employer, or by the third party with whom the employer or associate makes an arrangement for the car to be provided (subsection 7(1) of the FBTAA). A car is held by a person if that person owns or leases it or it is otherwise made available to that person.

    A car benefit does not arise where the motor vehicle is not a car or a car is not held by the provider of the benefit – for example, where an employee is reimbursed for the actual expenses incurred in respect of a car they own or lease. The fringe benefit in this case may be one or more of the following categories of benefit:

    • an expense payment benefit
    • a loan benefit
    • a property benefit
    • a residual benefit.

    A residual benefit arises where a benefit does not come within the scope of one of the 10 specific categories of fringe benefits.

    When determining whether subsection 8(2) or subsection 47(6) of the FBTAA should be applied:

    • if the motor vehicle is a car 'held' by the employer, an associate or a third party under an arrangement with the employer and therefore paragraph 7(1)(b) is satisfied, subsection 8(2) of the FBTAA provides an exemption for work-related cars
    • if subsection 7(1) of the FBTAA is not satisfied because the vehicle is not a car or a car 'held' by the employer, an associate or a third party under an arrangement with the employer, then subsection 47(6) provides an exemption for the use of certain motor vehicles where residual fringe benefits would otherwise arise.

    Eligible vehicles

    The ATO provides guidance on what are Eligible vehicles, ie vehicles satisfying the conditions for the exemption above to apply. From the 2017-18 FBT year, employers will need to assess whether their vehicles meet the private use exemption criteria based on the guidance provided on the principles-based approach in Table 2 of the guide.

    MT 2024

    Miscellaneous Taxation Ruling MT 2024 Fringe benefits tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel provides additional guidance on the ATO’s view on whether vehicles known as dual cabs are capable of qualifying for the work related use exemption under either subsection.

    PCG 2017/D14

    In December 2017, we published Practical Compliance Guidelines PCG 2017/D14 on minor, infrequent and irregular private use of exempt vehicles.

    To reduce compliance costs and provide certainty, this draft Guideline explains when we will not apply compliance resources to determine if private use of an exempt vehicle was limited for the purposes of the car-related exemptions. Key aspects are:

    • the PCG cannot be applied if the vehicle was salary sacrificed
    • any diversion to work related travel adds no more than two kilometres to the ordinary length of the employee’s trip
    • no more than 750 kilometres in total for each FBT year relates to wholly private trips, and
    • no single, return journey for a wholly private purpose exceeds 200 kilometres.

    6. Advice under development

    6.1 FBT – car parking fringe benefits: Review of TR 96/26

    This ruling is being rewritten to reflect contemporary commercial car parking arrangements and legal developments, including the Federal Court decisions in Commissioner of Taxation v. Qantas Airways Ltd and Virgin Blue Airlines Pty Ltd v. Commissioner of Taxation.

    Refer to Decision Impact Statement Qantas Airways Ltd and Virgin Blue Airlines.

    Refer to [3863] Fringe benefits tax – car parking fringe benefits of the Advice under development program for updates on the ruling's rewrite.

    Members are encouraged to seek early engagement from the ATO if they are still unclear and have a firm scheme in mind.

    6.2 TR 2017/D6: Income tax and fringe benefits tax: when are deductions allowed for employees' travel expenses?

    This draft ruling sets out general principles for determining whether an employee can deduct travel expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

    Refer to [3756] Deduction for work related travel expenses for updates.

    6.3 FBT Safe Harbour Working Group – Exempt car and residual benefits: compliance approach to determining private use of vehicles

    The FBT Safe Harbour Working Group is currently finalising the Draft PCG 2017/D14 published on 18 December 2017 to reflect comments raised during consultation.

    Refer to [3897] Fringe benefits tax – minor private use for updates.

    7. General business

    The next meeting will be held on 20 September 2018.

    8. Summary of action items

    Action items from 21 March 2018 FBT STIP meeting

    Action item

    1

    Description

    Provide update regarding the misalignment of State legislation with section 135T of the FBTAA.

    Responsibility

    ATO to provide an update on this issue.

    Due date

    Next meeting

     

    Action item

    2

    Description

    Provide details of ATO guidance describing appropriate apportionment methodologies to members when it is published (TR 2017/D6).

    Responsibility

    ATO

    Due date

    Next meeting

     

    Action item

    3

    Description

    Provide an update as to the finalisation of the review of TR 96/26.

    Responsibility

    ATO

    Due date

    Next meeting

     

    Action item

    4

    Description

    Provide details of ATO sites with video conferencing facilities to members.

    Responsibility

    ATO

    Due date

    Complete

    Meeting details

    Venue:

    Teleconference

    Start:

    1.00pm

    Finish:

    4.00pm

    Chair:

    Phil Turnour (03) 5227 1668

    Secretariat:

    Roberta Odorizzi (03) 5227 1651

    Attendees

    Christine Havas

    CTH

    Alice Walker

    CTH

    Robert Enright

    ACT

    Joan Cram

    NSW

    Harold Glenwright

    NT

    Micahel Kwong

    NT

    Liza Gordon

    QLD

    Justyna Carlier

    SA

    Tracey Scott

    SA

    Christine Crasto-Carvalho

    WA

    John Watts

    WA

    Phil Turnour

    ATO

    Dana Ghinzel

    ATO

    Jeremy Ooi

    ATO

    Amber Ibbott

    ATO

    Roberta Odorizzi

    ATO

    Melina Pana

    ATO

     

    Appendix C

    Property benefit exemption

    Issue

    Is an employer liable to FBT when it provides its employees with food and drink at meetings held away from the normal workplace of the employees?

    Background

    Meetings are regularly held at small communities for consultative purposes. The venue of the meeting may be a community hall or a temporary shelter. Government employees attend these meetings that last several hours which include a lunch break. The government agency provides lunch for all participants including their employees. The lunch consists of finger food (e.g. sandwiches) and drinks but no alcohol. Lunch is consumed at the location of the meeting.

    Industry view/suggested treatment

    The provision of food and drink by the employer to their employees may be a tax-exempt body entertainment fringe benefit under section 38 of the FBTAA. Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink provides guidance on entertainment by way of food or drink.

    Paragraph 19 of TR 97/17 states that the provision of food and drink to employees for morning or afternoon tea or for a light working lunch is not considered to be entertainment. Therefore, the provision of food and drinks to the employees at the meetings would not be a tax-exempt body entertainment fringe benefit.

    However, the provision of food and drink may be a property fringe benefit under section 40 of the FBTAA. Section 41 of the FBTAA provides an exemption for a property fringe benefit that is provided to, and consumed by, a current employee on business premises of the employer on a working day. The day the meetings are held is a working day for the employees and the food and drink is consumed at the location where the meeting is held.

    Section 136 of the FBTAA defines ‘business premises’ as premises, or a part of premises, of the person used, in whole or in part, for the purposes of business operations of the person, but does not include:

    (a) Premises, or a part of premises, used as a place of residence of an employee of the person or an employee of an associate of the person; or

    (b) A corporate box; or

    (c) Boats or planes used primarily for the purpose of providing entertainment unless the boat or plane is used in the person’s business of providing entertainment; or

    (d) Other premises used primarily for the purpose of providing entertainment unless the premises are used in the person’s business of providing entertainment.

    The exclusions provided at (a), (b), (c) and (d) above do not apply in this case.

    Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises' provides guidance on the meaning of business premises. Paragraph 4 of the TR 2000/4 states that premises will only be business premises if the following two requirements are met:

    (1) The premises or part of premises are ‘of’ the person; and

    (2) The premises or part of premises must be used by the person, in whole or in part, for the purposes of their business operations.

    Paragraph 13 of TR 2000/4 considers these two requirements are satisfied where in form and substance the person bears the rights and risks of possession of the premises associated with the conduct of the ‘business operations’. This indicates that there needs to be certain rights of occupancy and control of the premises.

    Paragraph 39 of TR 2000/4 refers to the definition of ‘business operations’ in relation to a government body or a non-profit company to include any operation or activity carried out by that body or company. The conducting of these meetings are activities carried out by the government agency. Therefore the meetings are business operations of the agency.

    Whilst requirement (2) above would be satisfied on the basis of the definition of ‘business operations’ for a government body, it is questionable if requirement (1) is satisfied. If a community hall is provided to the government agency for the day of the meeting, either free or for a fee, it can be argued that the premises are ‘of’ the government agency for that day.

    If accepted that the meetings are held on business premises on the days of the meetings, the consumption of food and drink by employees at these meetings would be exempt benefits under section 41 of the FBTAA.

    If the benefit is not an exempt benefit under section 41 of the FBTAA, the benefit may be an exempt minor benefit under section 58P of the FBTAA. Taxation ruling TR 2007/12 provides guidance on the minor benefit exemption. A minor benefit is an exempt benefit where:

    • The notional taxable value of the minor benefit is less than $300; and
    • It would be concluded that it would be unreasonable, having regard to the specified criteria in paragraph 58P(1)(f), to treat the minor benefit as a fringe benefit.

    The notional taxable value of the food and drink provided to individual employees at any one meeting would be well below $300. However, one of the criteria in paragraph 58P(1)(f) is that the benefits are provided infrequently and irregularly. Meetings are organised at regular intervals and an individual employee may attend up to 12 meetings in the FBT year.

    AAT Case 2/96 96 ATC 131 held that 48 taxi travel benefits were exempt minor benefits.

    Similarly, it is concluded that the property benefits provided to each employee in attending these meetings is an exempt minor benefit.

    Technical references

    Sections 38, 40, 41, 58P of the FBTAA

    TR 97/17

    TR 2000/4

    TR 2007/12

    ATO response

    Broadly speaking, a tax exempt body entertainment fringe benefit arises in situations where an employer who is partially or wholly exempt from income tax, provides entertainment to its employees for which it would not have been able to claim an income tax deduction had it been subject to income tax.

    Provision of entertainment

    The factors that need to be considered when determining whether the provision of food and drink amounts to the provision of entertainment are contained within TR 97/17. The ruling states that the determination of whether or not the provision of food or drink constitutes entertainment requires an objective analysis of all the circumstances surrounding that provision. The analysis should consider the following factors:

    • Why the food or drink is being provided to the employees
    • What food or drink is being provided to the employees
    • When is the food or drink provided
    • Where is the food or drink being provided.

    In this case, food is provided to the employees (and the community consultation participants) during a lunch break in the course of a meeting. The food and drink is a basic meal that is provided by way of refreshment; and consumed at the meeting location. On the surface it is considered that the lunch provided to the employees would not be entertainment by way of food or drink. However further details of each meeting will be required in order to accurately determine this.

    Food and drink provided on the business premises

    Section 41 of the FBTAA provides that food and drink will be an exempt benefit where it is provided to and consumed by a current employee:

    • on a working day,
    • on business premises of the employer; or if the employer is a company, of the employer or of a company that is related to the employer.

    It should be noted that this section will not usually apply to food and drink provided by an income tax exempt employer, if the food and drink constitutes the provision of entertainment. This is because the benefit provided is a tax-exempt body entertainment fringe benefit, rather than a property fringe benefit.

    Food and drink provided off business premises

    If the food and drink provided by the employer is not provided on business premises of the employer it will be a property fringe if it does not involve the provision of entertainment. In such a situation, the taxable value will only be reduced to nil if the employee would have been entitled to an income tax deduction had they had purchased the food and drink.

    Business premises of government agencies

    Where the government is the employer which has not disaggregated, the business premises include all those premises, or parts of those premises used in whole or in part for the business operations of that employer (refer definition ‘business premises’ subsection 136(1) of the FBTAA).

    ‘Business operations’ is defined in subsection 136(1), and in relation to a government body or non-profit company, includes any operations or activities carried out by that body or company.

    For a disaggregated state government, each nominated body is an ‘employer’ for the purposes of the FBTAA (subsection 135U(1) of the FBTAA). Each nominated body is taken to be a company and a government body. Each of the nominated bodies and the State or Territory are taken to be related to each other for the purposes of the FBTAA (subsection 135U(5) of the FBTAA). Refer to Who is an associate? (QC19918) for further guidance on the relationship between government departments.

    In considering whether a community hall or a temporary shelter at which the meetings are held qualify as business premises of the government agency, an objective analysis of all the facts and circumstances is necessary. A person carries on business operations on a 'business premises' where in form and substance the person bears the rights and risks of possession of the premises associated with the conduct of the business operations. Apart from direct ownership, in most situations where premises are owned or held under a normal commercial lease, both possession and control exist. However where premises are hired on an ad hoc basis by an employer, they are more than likely not considered to be business premises of the employer. This is because any rights the employer has are subject to the overriding control of the operator such that in a practical sense, the premises are not those of the employer.

    The property benefit exemption applies where the benefit is provided on the business premises of the ‘employer’ or a company that is related to the employer. Therefore consideration of whether a particular premises is an associated premises of the government agency may be useful, i.e. to determine if the community hall or temporary shelter is the business premises of a related company and to this extent whether the property exemption applies. Furthermore, consideration would need to be given to determining whether the community hall is primarily used for the purpose of providing entertainment and would not be a business premises for the purposes of the FBTAA.

    The minor benefit exemption may apply if the notional taxable value of the lunches is less than $300 for each employee and it is unreasonable to treat the minor benefit as a fringe benefit e.g. the benefits are provided infrequently and irregularly . However associated benefits will need to be considered when determining minor benefit exemption.

    Scenario

    At the September 2017 STIP meeting the ATO was asked to confirm the interaction of tax-exempt body entertainment fringe benefits and the minor benefit exemption.

    In providing a response, we will assume identical facts to the example discussed in Item 5.3, the only difference being instead of a light lunch comprising finger food, the lunch consisted of an elaborate 3 course meal with alcohol provided to all attendees.

    As outlined above, the factors that need to be considered when determining whether the provision of food and drink amounts to the provision of entertainment are contained within TR 97/17. The ruling states that the determination of whether or not the provision of food or drink constitutes entertainment requires an objective analysis of all the circumstances surrounding that provision. The analysis should consider the following factors:

    • Why the food or drink is being provided to the employees
    • What food or drink is being provided to the employees
    • When is the food or drink provided
    • Where is the food or drink being provided.

    In this case, food is provided to the employees (and the community consultation participants) during a lunch break in the course of a meeting. The food is an elaborate meal including alcohol. On the surface it is considered that the lunch provided to the employees would be entertainment by way of food or drink. However further details of each meeting will be required in order to accurately determine this.

    A tax-exempt body entertainment fringe benefit arises in situations where an employer who is partially or wholly exempt from income tax, provides entertainment to its employees for which it would not have been able to claim an income tax deduction had it been subject to income tax.

    Where tax-exempt body entertainment fringe benefits have been provided, the minor benefit exemption cannot be applied (section 58P(1)(d) of the FBTAA 1986) except in the following very limited circumstances:

    1) the provision of the entertainment is incidental to the provision of entertainment to outsiders and does not consist of a meal, other than light refreshments; or

    2) a function is held on a business premise solely as a means of recognising the special achievements of an employee in a matter relating to the employment of this employee.

    Neither of these exemptions apply in the current factual scenario, therefore the minor benefit exemption could not be utilised with respect to the tax-exempt body entertainment fringe benefits provided to employees.

      Last modified: 17 May 2018QC 55496