Edited version of private ruling

Authorisation Number: 1011745029126

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fac sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Meal entertainment benefits

Question 1

Do the benefits being provided constitute the provision of meal entertainment benefits as defined in section 37AD of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

If the answer to question 1 is yes, are the benefits disregarded benefits for the purpose of working out the employer's fringe benefits taxable amount under section 5B of the FBTAA?

Answer

Yes

Question 3

If the answer to question 1 is yes, are the benefits excluded benefits when determining the employee's individual fringe benefits amount under section 5E of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

The scheme commences on:

1 April 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The employer is endorsed by the Commissioner as a Public Benevolent Institution (PBI) for the purposes of the exemption contained under subsection 57A(1) of the FBTAA.

The employer is planning to offer its employees a salary sacrifice arrangement (SSA) in which the employee could sacrifice a set amount per fortnight, and in return receive the following benefits under the following conditions:

Food and drink. Drinks are to be purchased and consumed with the food at the same established restaurant or similar establishment.

Elaborate meals consumed as breakfast, lunch or dinner meals. They should be menu based 3 course meals or similar, which provide time for relaxation and socialisation.

Elaborate meals would include food and drink provided and paid for by employees outside of working hours in the form of social gatherings held in established restaurants or similar establishments for their friends, families, relatives, and/or co-workers. There will be no business discussions or business transactions occurring during such meals. The elaborate meals are not to be consumed 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.

The meal related costs will not include transportation to and from the established restaurant or similar establishment.

The meal related costs will not include any other type of entertainment such as cabaret, sit down comedy, cinema, theatre, sport events, or similar forms of entertainment.

The employer will use its best endeavours to keep all necessary records to ensure compliance by employees with the ATO's operational requirements for such an arrangement and have set down the following record keeping guidelines:

The employer would deduct a set amount each fortnight from the employees' pay and record those deductions in its balance sheet as a liability item. These amounts will then be accumulated, pending the receipt of claims from the employees. The accounts will be reconciled each month for each relevant employee.

Employees will need to provide tax invoices/receipts printed in English. Such voucher documents must state clearly: the name of the restaurant; its ABN; the types of meals that were consumed, and the total invoice/ receipt amount.

Employees will need to fill out a meal voucher for each meal consumed which will include: the date of claim, the date of consumption, the type of meal consumed, the restaurant name, and how many people participated in the meal with the employee.

Employees will make a monthly claim which includes: summary of the meals consumed for the month and the total amount claimed; attached tax invoices/receipts, and attached meal vouchers.

Once the monthly claims are received the employer will check, verify and once satisfied as to compliance, will make a payment to those particular employees. These payments will be recorded against the liability items set up the employer's balance sheet.

At the end of each Fringe Benefit Tax (FBT) year (that is, 31 March) the employer will make a payment after deducting PAYG to the employees who have not claimed all of their available cumulative funds for that particular FBT year. This payment will be included in those employees' payment summaries at the end of the relevant financial year (that is, 30 June).

The employer will store all the above records for a period specified by the FBTAA.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 5B

Fringe Benefits Tax Assessment Act 1986 section 5E

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 37AC

Fringe Benefits Tax Assessment Act 1986 section 37AD

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

Fringe Benefits Tax Assessment Act 1986 subsection 123C(1)

Fringe Benefits Tax Assessment Act 1986 section 135Q

Reasons for decision

Question 1

Do the benefits being provided constitute the provision of meal entertainment benefits as defined in section 37AD of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Subsection 136(1) of the FBTAA states that

"meal entertainment benefit" means a benefit that is a meal entertainment because of section 37AC.

Section 37AC of the FBTAA, in relation to meal entertainment benefits, states the following:

Where at a particular time an employer (the "provider") to whom this Division applies provides meal entertainment to another person (the "recipient") the provision of the meal entertainment is taken to constitute a meal entertainment benefit provided by the provider to the recipient at that time.

The provision of meal entertainment is defined in section 37AD of the FBTAA to be the provision of:

(a) entertainment by way of food or drink; or

(b) accommodation or travel in connection with, or for the purpose of facilitating, entertainment to which paragraph (a) applies; or

(c) the payment or reimbursement of expenses incurred in providing something covered by paragraph (a) or (b);

whether or not:

(d) business discussions or business transactions occur; or

(e) in connection with the working of overtime or otherwise in connection with the performance of the duties of any office or employment: or

(f) for the purposes of promotion or advertising; or

(g) at or in connection with a seminar.'

Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink, provides guidance in relation to meal entertainment. Paragraph 23 sets out four factors to determine whether the provision of food or drink constitutes entertainment. It states:

It can be seen 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. We are of the view that the following are relevant factors that should be considered in undertaking any objective analysis:

(a) Why is the food or drink being provided. This test 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.

(b) What food or drink is being provided. As noted above, morning and afternoon teas and light meals are generally not considered to constitute 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 greater the likelihood that entertainment arises from the consumption of the meal.

For example, when an employer provides morning or afternoon teas or light meals, that food or drink does not usually confer entertainment on the employee. By contrast, a three course meal provided to an employee during a working lunch has the characteristics of entertainment. The nature of the food itself confers entertainment on the employee.

(c) 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 have the character of 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 upon whether the entertainment of the recipient is the expected outcome of the provision of the food or drink. For example, a staff social function held during work time still has the character of entertainment.

(d) 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; refer to the reasons in (b) and (c) above. 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 the food or drink is less likely to have a work-related purpose.

In applying this paragraph to the facts of this case

Why

The employer will be entering into a SSA with its employees. Meal entertainment payments will only be allowed for expenses incurred by an employee in respect to entertainment by way of food and drink and will include purchases for family, friends or work associates. Drinks can only be included as meal entertainment if they are purchased and consumed with the meal at the restaurant.

The SSA will exclude any other type of entertainment. The SSA will not include taxi fares, accommodation or any other expense associated with the provision of the meals.

What

The meal must be consumed either at a restaurant or like establishment. It is likely that the served meals will be elaborate in keeping with the environment and setting where the meals are provided.

When

Meals will be consumed immediately either at a restaurant or like establishment and must be outside of work hours.

Where

The meals are being provided at restaurants or like establishments. It is accepted that the provision of food or drink constitutes entertainment.

Given that there is an expectation that the meal should be of an elaborate nature it is accepted that the provision of food and or drink will constitute entertainment.

Any food or drink provided under the proposed arrangement would constitute meal entertainment benefits as defined in section 37AD of the FBTAA.

Question 2

If the answer to question 1 is yes, are the benefits disregarded benefits for the purpose of working out the employer's fringe benefits taxable amount under section 5B of the FBTAA?

Subsection 5B(1E) of the FBTAA provides that for a PBI the employer's 'fringe benefits taxable amount' will include the employer's 'aggregate non-exempt amount'.

The method for calculating the 'aggregate non-exempt amount' is contained in subsection 5B(1E) of the FBTAA and under this subsection a PBI will only be liable to pay fringe benefits tax (FBT) where the grossed-up value of the benefits provided to an individual employee exceeds $30,000. The amount of FBT payable by the PBI is based on the amount that exceeds $30,000.

Subsections 5B(1K) and 5B(1L) of the FBTAA provide that the calculation of the value of the benefits provided to each individual employee will include the value of all but three of the benefits that would have been fringe benefits if the employer had not been a PBI. One of the benefits that is not included in the calculation is a benefit that constitutes the provision of meal entertainment as defined in section 37AD of the FBTAA.

As the benefits to be provided under the SSA constituted meal entertainment as defined in section 37AD they can be disregarded when determining if the grossed-up amount of benefits received by an employee exceeds $30,000.

Question 3

If the answer to question 1 is yes, are the benefits excluded benefits when determining the employee's individual fringe benefits amount under section 5E of the FBTAA?

As a PBI the employer is required by section 135Q of the FBTAA to calculate whether a reportable fringe benefits tax amount exists in respect of each of its employees. This is calculated by using the employee's individual fringe benefits amount.

Section 5E of the FBTAA explains how to determine an employee's individual fringe benefits amount and it is this amount that is reported on the employee's payment summary.

Paragraph 5E(3)(a) of the FBTAA specifies that benefits that constitute the provision of meal entertainment under section 37AD of the FBTAA are excluded from the employee's individual fringe benefits amount. These benefits are excluded even if the election to treat the benefits as a meal entertainment benefit has not been made.

Under the proposed SSA the benefits being provided would constitute expense payment benefits as defined under section 20 of the FBTAA but they still constitute the provision of meal entertainment as defined in section 37AD of the FBTAA.

Therefore the benefits being provided under the SSA are excluded benefits when determining the employee's individual fringe benefits amount and therefore excluded when determining the employee's reportable fringe benefit amount.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).