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Ruling

Subject: Fringe benefits tax

Question 1

Is the provision of dinner to staff at the monthly meetings considered to be meal entertainment under section 37AD of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

Question 2

Is the provision of dinner to staff at the monthly meeting an exempt property fringe benefit under section 41 if the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

This ruling applies for the following periods:

1 July 2008 - 30 June 2009

1 July 2009 - 30 June 2010

1 July 2010 - 30 June 2011

1 July 2011 - 30 June 2012

1 July 2010 - 30 June 2013

The scheme commences on:

1 July 2008

Relevant facts and circumstances

· Monthly meetings are held at the entity's premises.

· The staff that attend the monthly meetings are employees of the entity.

· Buffet dinner is provided to staff members and is ordered from a catering company.

· Minimal wine is purchased for particular attendees. However, employees do not consume the wine.

· Dinner is served one hour before the meetings. Most staff members only stay for 15 to 30 minutes as they have to make final preparations for the meeting.

· Staff members are free to discuss any issues during dinner time.

· The value of the buffet dinner is $X per head.

· Dinner is provided due to the fact the meeting is being held at night time and staff members do not have time to go out to have dinner. By the time dinner is served, staff members have already worked a 7 hour day.

· Staff members are paid overtime for their attendance at the meeting.

· Dinner is provided in one of meeting rooms next to where the meeting is taking place.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 37AD

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 41

Reasons for decision

Summary

The provision of dinner to staff members at the monthly meeting is not considered to be meal entertainment within the meaning provided in section 37AD of the Fringe Benefits Tax Assessment Act 1986.

Detailed reasoning

The provision of meal entertainment is defined in section 37AD of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as:

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

At or in connection with a seminar.

The term 'entertainment' has the meaning given by section 32-10 of the Income Tax Assessment Act 1997 (ITAA 1997) as:

32-10(1) Entertainment means:

a) (a) Entertainment or travel by way of food, drink or recreation; or

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

32-10(2) You are also taken to provide entertainment even if business discussions or transactions occur.

"Entertainment by way of food or drink" is not further defined in the legislation. Therefore they have their ordinary meaning taken in the context that they appear in Division 32 of the ITAA 1997.

Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink lists the four factors which need to be considered when determining whether the provision of food or drink is entertainment. These factors are stated at paragraph 7:

· Why the food or drink is being provided

· What type of food or drink is being provided

· When the food or drink is being provided; and

· Where the food and drink is been provided.

Paragraph 23 of TR 97/17 looks at these four factors in further detail:

(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.

These four factors will be applied against the food and drink being provided at the monthly meetings to determine whether entertainment has been provided.

Why is the food and drink being provided?

The meals are provided by the entity to employees as the meeting is held after the normal work day. The applicant submits that there is not enough time for employees to go home and have dinner and come back to the meeting.

Although a buffet dinner is provided, it appears that food is provided for the purpose of refreshment or sustenance rather than enjoyment.

What food or drink is being provided?

As light meals become more elaborate, they take on the characteristics of entertainment. In this case, staff members are provided with a buffet dinner which is catered for at approximately $X per head. Bottles of wine are purchased for the dinner, however only the other attendees are able to consume it.

A buffet dinner does appear to be a more elaborate meal, the entertainment coming from the consumption of the food itself. However, staff members only have 15-30 minutes to consume the meal and it is unlikely entertainment will be conferred on the employee. In addition, staff members are unable to consume the wine bought as it is for the other attendee's consumption.

When is 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 it is more likely the food is provided for work-related purposes rather than entertainment purposes.

In this case, the dinner is provided after-hours, one hour before the meeting begins. Staff members are paid overtime for their attendance at the meeting and most staff stay only 15-30 minutes for dinner as they need to prepare for the meeting.

The short period of time staff have to consume their meal and the fact that staff are paid overtime to attend the meeting are indicative that the meals are only provided to provide sustenance prior to continuing their work and not to confer entertainment on the employees.

Where is food and drink being provided?

Food or drink provided at the employer's premises is less likely to have the character of entertainment. This is contrasted with food or drink provided outside the employer's usual place at work such as a restaurant or café.

In this case, the entity provides the dinner in one of its meeting rooms next to where the meeting is held. It is considered that the food provided is unlikely to have an entertainment-related purpose.

Conclusion

Although the dinner provided may be considered as elaborate (the what factor), all four factors must be considered before determining whether the food and drink provided is actually entertainment by way of food or drink.

It is considered, on balance, that the provision of dinner to staff members at the monthly meeting does not constitute the provision of entertainment within the meaning of section 37AD of the FBTAA. This is because the above factors indicate that that the dinners are for sustenance and not for the purposes of entertainment.

Question 2

Summary

The provision of dinner to employees at the monthly meeting is considered to be an exempt property benefit under section 41 of the FBTAA.

Detailed reasoning

The provision of meals to employees will constitute property fringe benefits under section 40 of the FBTAA unless otherwise exempted. Section 41 of the FBTAA states:

Where:

a) A property benefit is provided to a current employee of an employer in respect of his or her employment, and

b) The property is provided to, and consumed by, the employee on a working day and on business premises of:

(i) the employer; or

(ii) if the employer is a company, of the employer or of a company that is related to the employer,

The benefit is an exempt benefit.

a) Property benefit provided to employee of employer

The staff members of the entity are current employees. The entity provides its employees with a buffet dinner meal at the monthly meeting.

A property fringe benefit is explained in section 40 of the ITAA 1997:

Where, at a particular time, a person (in this section referred to as the "provider") provides property to another person (in this section referred to as the "recipient"), the provisions of the property shall be taken to constitute a benefit provided to the recipient at that time.

In this case, the buffet dinner meal will be considered to be a property benefit.

b) Property benefit is exempt

Section 44 of TR 97/17 states:

44. Section 41 of the FBTAA provides that property (including food or drink) that is provided to and consumed by an employee on the employer's business premises on a working day is an exempt benefit. This exemption applies whether or not the food or drink amounts to meal entertainment; however, it does not apply where the employer has elected to value all meal entertainment benefits under the two methods provided by in Division 9A. The section 41 exemption applies even if food is not prepared on the employer's business premises. A working day is any 24 period during which work is usually performed by the employee.

In this case, the meetings are held once a month. The meeting commences after dinner is served at the employer's business premises. These meetings are regular and held at night after the normal work day and employees are required to attend these meetings as part of their employment duties. It is considered that these factors are sufficient to determine that the property (the dinner) is provided to and consumed by the employees on a working day.

Therefore, it is accepted that all the requirements for exemption under section 41 of the FBTAA have been met and the provision of the meal is an exempt property benefit.

Conclusion

It is considered that the food provided by the entity is an exempt property benefit under section 41 of the FBTAA.

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