Edited version of private ruling

Authorisation Number: 1011532903479

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Ruling

Subject: Fringe benefits tax: Entertainment facility leasing expenses

Is the reimbursement by a public benevolent institution employer of both the annual fee and the leasing expenses for a time share arrangement incurred by their employee disregarded for the purposes of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Yes.

This ruling applies for the following period

1 April 2010 - 31 March 2011

The scheme commenced on

1 April 2010

Relevant facts

The taxpayer is a public benevolent institution.

The employee paid a once-off payment to purchase one week's usage per year of a house or apartment at a resort.

The employee pays an annual maintenance fee for the operational costs of the accommodation.

The accommodation is a house or apartment.

The employee pays a specific amount every certain number of years for membership of an organisation in order to participate in an exchange system to holiday at affiliated resorts around the world.

The employee has to pay an extra amount per week for each week's accommodation.

The taxpayer will reimburse the employee for the annual fee, the membership fee and the extra amount per week for each week's accommodation that the employee incurs.

The employee will use the accommodation while on annual leave for their vacation.

The fees that the taxpayer will reimburse do not include reimbursement for food or drink while the employee is using the accommodation.

The employee will not use the accommodation while travelling on work-related purposes.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 57A

Fringe Benefits Tax Assessment Act 1986 subsection 57A(1)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 5B(1E)

Fringe Benefits Tax Assessment Act 1986 subsection 5B(1K)

Fringe Benefits Tax Assessment Act 1986 subsection 5B(1L)

Fringe Benefits Tax Assessment Act 1986 section 123

Income Tax Assessment Act 1997 section 32-10

Income Tax Assessment Act 1997 subsection 32-10(1)

Income Tax Assessment Act 1997 paragraph 32-10(1)(a)

Income Tax Assessment Act 1997 paragraph 32-10(1)(b)

Reasons for decision

Summary

The expenses incurred by the employee on hiring or leasing the house or unit are 'entertainment facility leasing expenses' as defined in subsection 136(1) of the FBTAA.

As the employer has reimbursed the employee's expenses, the expense payment benefits would have a taxable value (but for section 57A of the FBTAA) which is wholly or partly attributable to entertainment facility leasing expenses. As a result the expense payment benefits are disregarded for the purposes of subsection 5B(1L) of the FBTAA.

Detailed reasoning

Section 57A of the FBTAA provides that certain employers are generally exempt from fringe benefits tax on benefits provided to employees. Specifically subsection 57A(1) of the FBTAA states:

Where the employer of an employee is a public benevolent institution endorsed under subsection 123C(1) or (5) of the FBTAA, a benefit provided in respect of the employment of the employee is an exempt benefit.

As the taxpayer is a public benefit institution (PBI), benefits provided to their employees will be exempt benefits.

However, subsection 5B(1E) of the FBTAA provides that for PBIs, the employer's fringe benefits taxable amount will include the employer's aggregate non-exempt amount. The method for calculating the employer's aggregate non-exempt amount is contained in subsection 5B(1E) of the FBTAA which provides that a PBI will only be liable to pay fringe benefits tax on the amount the grossed-up value of the benefits provided to an individual employee exceeds $30,000.

The method for determining the value of the benefits is detailed in subsections 5B(1K) and 5B(1L) of the FBTAA.

Under subsection 5B(1L) of the FBTAA the value of excluded benefits is included in the value of the benefits provided to employees except for:

· benefits that constitute the provision of meal entertainment

· car parking fringe benefits, and

· entertainment facility leasing expenses.

The hire of a time share facility used for holiday accommodation does not constitute the provision of meal entertainment or car parking benefits therefore it is necessary to consider whether it will fall within the definition of entertainment facility leasing expenses.

What is 'entertainment facility leasing expenses'?

Subsection 136(1) of the FBTAA defines 'entertainment facility leasing expenses' as:

   …entertainment facility leasing expenses, for a person, means expenses incurred by the person in hiring or leasing:

(a) a corporate box; or

(b) boats, or planes, for the purpose of the provision of entertainment; or

(c) other premises, or facilities, for the purpose of the provision of entertainment;

but does not include so much of any of such expenses that:

(d) is attributable to the provision of food or drink; or

(e) is attributable to advertising and is an allowable deduction for the person under the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997.

Hiring or leasing

Under the definition of 'entertainment facility leasing expenses', an expense must be incurred by the person in 'hiring or leasing...'.

As the word 'hiring' is not defined in the FBTAA it has its natural meaning, taken in the context in which it appears in the legislation.

The Macquarie Dictionary (Multimedia version 5.0.0) defines 'hire' as:

1. to engage the services of for payment: to hire a clerk.

2. to engage the temporary use of for payment: to hire a car.

3. Also, hire out. To grant the temporary use of, or the services of, for a payment.

Subsection 136(1) of the FBTAA defines 'leased' as:

…means let on hire (including a letting on hire that is described in the relevant agreement as a lease) under an agreement other than a hire-purchase agreement.

Your employee incurs expenses, an annual fee, a membership fee, and a specific amount per week for each week's accommodation, in return for the use of accommodation at a house or apartment which accords with the dictionary definition of 'hire' and with the FBTAA definition of 'leased'.

In these circumstances the expenses incurred by the employee in relation to the accommodation fall within 'hiring or leasing' in the definition of 'entertainment facility leasing expenses'.

Other Premises or facilities

Under the definition of 'entertainment facility leasing expenses', the hire or lease must be of a corporate box, boat, plane or other premises or facilities.

As the words 'premises' or 'facilities' are not defined in the FBTAA they have their natural meaning, taken in the context that they appear in the legislation.

The words 'premises' and 'facility' are defined in The Macquarie Dictionary to mean:

premise

noun

2. (plural)

the property forming the subject of a conveyance.

a tract of land.

a house or building with the grounds, etc., belonging to it.

facility

noun (plural facilities)

9. a building or complex of buildings, designed for a specific purpose, as for the holding of sporting contests.

In this case the employee has hired or leased a house or unit which fits the dictionary definition of 'premise' and 'facility' as it is a house or building with grounds and a building designed for a specific purpose.

Provision of entertainment

Under the definition of 'entertainment facility leasing expenses' the expenses incurred on hiring or leasing the premises or facilities must be 'for the purpose of the provision of entertainment'.

Subsection 136(1) of the FBTAA defines 'entertainment':

entertainment has the meaning given by section 32-10 of the Income Tax Assessment Act 1997 .

Subsection 32-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 'entertainment' means:

(a) entertainment by way of food, drink or *recreation; or

(b) accommodation or travel to do with providing entertainment by way of food, drink or *recreation.

Subsection 995-1 of the ITAA 1997 provides the meaning of 'recreation':

  recreation includes amusement, sport or similar leisure-time pursuits.

The word 'entertainment', which is key to the operation of the relevant words, is defined in The Macquarie Dictionary to mean:

1.  the act of entertaining; agreeable occupation for the mind; diversion, or amusement.

2. something affording diversion or amusement, especially an exhibition or performance of some kind.

3. hospitable provision for the wants of guests.

In relation to the use of the house or unit whilst the employee is travelling on a holiday and is not on work related duties, paragraph 32-10(1)(a) of the ITAA 1997 is considered. According to ATO Interpretive Decision ATO ID 2009/45 Fringe benefits tax entertainment facility leasing expenses: private function room and hotel room expenses, the use of the house or unit whilst on holidays is a leisure-time pursuit which is 'recreation' as defined in the ITAA 1997. This use of holiday accommodation is something affording diversion or amusement and will be entertainment within the natural meaning. The use of the house or unit is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997.

Alternatively, a house or unit occupied whilst on holidays is accommodation. According to ATO ID 2009/45 such accommodation can fall within 'entertainment' under paragraph 32-10(1)(b) of the ITAA 1997, being accommodation to do with providing entertainment by way of recreation.

When the employee incurs expenses in hiring or leasing a house or unit while on holidays, those expenses are incurred for the purposes of the provision of entertainment as entertainment is defined in subsection 136(1) of the FBTAA and section 32-10 of the ITAA 1997.

As required in the definition of 'entertainment facility leasing expenses' those expenses are not attributable to food or drink, or advertising.

Conclusion

The expenses incurred by the employee on hiring or leasing the house or unit are 'entertainment facility leasing expenses' as defined in subsection 136(1) of the FBTAA.

As the employer will reimburse the employee's expenses, the expense payment benefits would have a taxable value (but for section 57A of the FBTAA) which is wholly or partly attributable to entertainment facility leasing expenses. As a result the expense payment benefits are disregarded for the purposes of subsection 5B(1L) of the FBTAA.

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