Class Ruling

CR 2007/88

Fringe benefits tax: employer clients of Shakespeare & Associates who are subject to the provisions of section 57A of the Fringe Benefits Tax Assessment Act 1986 whose employees make use of a Visa Salary Packaging Card (Meal Entertainment) facility

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What this Ruling is about

1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.

Relevant provision(s)

2. The relevant provisions dealt with in this Ruling are:

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subsection 5B(1E) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA);

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paragraph 5E(3)(a) of the FBTAA;

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section 37AD of the FBTAA; and

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section 57A of the FBTAA.

All references in this Ruling are to the FBTAA unless otherwise stated.

Class of entities

3. The class of entities to which this Ruling applies are employers who are subject to the provisions of section 57A and who enter into a Visa Salary Packaging Card (Meal Entertainment) facility with a financial institution under an arrangement with Shakespeare & Associates (the promoter). Employees of those employers may be provided with a Visa Salary Packaging Card (the card).

Qualifications

4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling.

5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 12 to 23 of this Ruling.

6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then:

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this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and

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this Ruling may be withdrawn or modified.

7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Commonwealth Copyright Administration

Attorney General's Department

Robert Garran Offices

National Circuit

Barton ACT 2600

or posted at: http://www.ag.gov.au/cca

Date of effect

8. This Ruling applies from 1 April 2007. The Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling. Furthermore, the Ruling only applies to the extent that:

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it is not later withdrawn by notice in the Gazette; or

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the relevant provisions are not amended.

9. If this Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)).

10. If this Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Ruling is made, the following two conditions are met:

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the income year or other period to which the rulings relate has not begun; and

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the scheme to which the rulings relate has not begun to be carried out.

11. If the above two conditions do not apply, the relevant class of entities may rely on either ruling which applies to them (item 3 of subsection 357-75(1) of Schedule 1 to the TAA).

Scheme

12. The scheme that is the subject of this Ruling is described below and is based on the documents listed below. These documents or relevant parts of them, as the case may be, form part of and are to be read with the description. The relevant documents or parts of documents incorporated into this description of the scheme are:

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a draft Salary Packaging Facility Agreement between the Financial Institution and the Salary Sacrifice Service Provider (Shakespeare & Associates) dated October 2006;

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the financial institution's Business Card (Salary Packaging) Facility-Cardholder Application Form;

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the financial institution's Business Card (Salary Packaging) Terms and Conditions effective 11 September 2006;

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the financial institution's Business Card (Salary Packaging) Facility Application Kit version 0906;

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Shakespeare & Associates Salary Packaging Card Product Profile;

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Shakespeare and Associates Meals Entertainment Business Card Conditions of use;

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further information received on 2 May 2007, including:

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an example of the guidelines for claiming meal entertainment expenses for employees of an employer (effective December 2006);

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copy of Shakespeare & Associates Meals Entertainment Card - Salary Packaging Guide; and

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copy of the financial institution's submission regarding identification, cash advance restrictions and deposit restrictions.

Note: certain information received from the applicant has been provided on a commercial-in-confidence basis and will not be disclosed or released by the Tax Office under the freedom of information legislation.

13. The promoter provides salary packaging services to employers who are subject to the provisions of section 57A. These employers enable employees to apply for the card under an effective salary sacrifice agreement entered into with the employer.

14. The promoter will enter into an agreement with a financial institution to promote the financial institution's Visa Salary Packaging Card (Meal Entertainment) facility as part of the salary packaging services that it provides.

15. An employer who elects to offer the Visa Salary Packaging Card (Meal Entertainment) facility will request the financial institution to establish a card facility.

16. The card is based on a Visa Debit Card that has a zero credit limit.

17. Employees apply for a card by completing the application form which is submitted to the employer who approves the issue of the card and verifies the employee's identity. In completing the application the employee acknowledges the use of the card is governed by the Conditions of Use provided with the card.

18. The Conditions of Use agreement signed by the employee as part of their application includes the following conditions:

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the use of the card is limited to the balance held in the card at the time of use;

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no cash advances are allowed from the card;

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the cardholder named on the card is the only authorised user of the card;

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deposits to the card account can only be made by the promoter;

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the card can only be used within Australia;

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the card can only be used for approved transactions identified by merchant code;

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any expenditure deemed not to be meal entertainment will be required to be reimbursed by the employee at the next pay period;

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breaches of the guidelines can result in the card being cancelled; and

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employees when requested are required to provide copies of receipts together with a reconciled copy of the card transactions.

19. The employer is primarily liable for any expenditure incurred using the card including any unauthorised expenditure incurred by the employee.

20. The promoter will establish a bank account for the employer to deposit all funds associated with the provision of the card. The promoter will deduct from the account any administrative fees for its services on a monthly basis and the promoter will be responsible for all costs associated with the use of the card, including any interest and bank charges.

21. The employer must provide to the promoter electronically, in an agreed format and on an agreed date and cycle, a listing of amounts to be allocated to each card, in respect of each employee for meal entertainment expenses. The employer must deposit funds into the account equal to the listing of contributions in respect of each employee on or before the agreed date for providing the listing of contributions.

22. The employer will recover deposits it makes to an employee's card that are not used. This amount will be returned to the employee as salary and wages.

23. On termination the employee is given two weeks to use the balance in the card. The card will then be closed and balance of funds returned to the employee as salary and wages.

Ruling

24. The use of the card for the acquisition of entertainment by way of food or drink constitutes the provision of meal entertainment as defined in section 37AD.

25. The provision of meal entertainment by way of the card gives rise to an exempt benefit under section 57A. Such benefits are not included in the employer's fringe benefits taxable amount.

26. Benefits that constitute the provision of meal entertainment are disregarded for the purposes of the capping thresholds in determining an employer's aggregate non-exempt amount under subsection 5B(1E).

27. The provision of meal entertainment is an excluded fringe benefit for the purposes of paragraph 5E(3)(a). As such, the value of the benefit is excluded from the reportable fringe benefits provisions in Part XIB.

Commissioner of Taxation
26 September 2007

Appendix 1 - Explanation

28. Section 37AD defines the meaning of the phrase 'provision of meal entertainment'. This section refers amongst other things to the provision of entertainment by way of food or drink, or the payment or reimbursement of such expenses.

29. Under the scheme, the employer deposits funds into a card account. The employee uses the Visa Salary Packaging card to purchase meal entertainment. When the employee uses the card to pay for meal entertainment the financial institution uses some, or all of the funds deposited by the employer in respect of the employee to pay the merchant for the meal entertainment provided to the employee. As this payment is a payment of expenses incurred in providing meal entertainment it comes within paragraph 37AD(c).

30. Section 57A provides that certain employers are generally exempt from fringe benefits tax. This section applies to employers that are public benevolent institutions, certain hospitals, public ambulance services (or a supporting service) and charitable institutions that promote the prevention or the control of diseases in humans.

31. Public and non-profit hospitals and ambulance services (or a supporting service) have a capping threshold placed on the value of benefits exempt from fringe benefits tax that may be provided to employees. This threshold is $17,000 grossed-up taxable value per employee. Such employers are liable for fringe benefits tax on the value of benefits provided in excess of this threshold.

32. All other employers to which section 57A applies have a capping threshold of $30,000 grossed-up taxable value per employee. Such employers are liable for fringe benefits tax on the value of benefits provided in excess of this threshold.

33. However, any employer to which section 57A applies, will not be liable for fringe benefits tax on benefits provided that fall within the meaning of the provision of meal entertainment. This results from the operation of Step 1 of the method statement contained in subsection 5B(1L) which specifically disregards the provision of meal entertainment in calculating an employer's fringe benefits taxable amount.

34. For employers subject to the provisions of section 57A, meal entertainment is always an exempt benefit because of the interaction between section 57A and subsection 5B(1L). Step 1 of the method statement in subsection 5B(1L) specifically disregards the taxable value of the provision of meal entertainment for the purposes of determining exposure to the capping thresholds.

35. Part XIB requires the taxable values of certain benefits to be included in the reportable fringe benefits amount of the relevant employee. As the use of the Card results in the provision of meal entertainment, paragraph 5E(3)(a) will apply to make the benefit an excluded benefit. This conclusion holds regardless of whether or not the employer has elected that Division 9A of Part III applies. Thus the value of the benefit is not included in the reportable fringe benefits amount of the employees.

Appendix 2 - Detailed contents list

36. The following is a detailed contents list for this Ruling:

Not previously issued as a draft

References

ATO references:
NO 2007/16230

Subject References:
class rulings
entertainment expenses
excluded fringe benefits
exempt benefits
FBT meal entertainment
FBT salary packaging
FBT salary sacrifice
fringe benefit
fringe benefits tax
reportable fringe benefits

Legislative References:
FBTAA 1986 5B(1E)
FBTAA 1986 5B(1L)
FBTAA 1986 5E(3)(a)
FBTAA 1986 Pt III Div 9A
FBTAA 1986 37AD
FBTAA 1986 37AD(c)
FBTAA 1986 57A
FBTAA 1986 Pt XIB
TAA 1953
TAA 1953 Sch 1 357-75(1)
Copyright Act 1968