Edited version of private advice

Authorisation Number: 1012626055905

Ruling

Subject: Fringe Benefits

Question 1

Is the provision of tickets by the employer to a social club considered to be a 'fringe benefit' pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer: No.

Question 2

For the purposes of the definition of a 'fringe benefit' contained in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 is the provision of tickets by the social club to employees considered to be 'in respect of employment'?

Answer: No.

This ruling applies for the following period

1 April 2013 to 31 March 2014

Relevant facts and circumstances

An employee social club within is funded mainly by employees of the employer.

The social club is a separate legal entity from the employer. It is an incorporated association and has model rules to abide by.

The social club's model rules are submitted and approved by Consumer Affairs. There is an executive committee to oversee its running, day-to-day decision making and financial reports.

There are three categories of social club membership:

1. Any person who is an employee is eligible to become a member.

2. An employee is eligible to become a member whereby entitlements to the member's spouse, partner, child and any family residing with the member are included.

3. Temporary membership: Any non-employee who is engaged as an individual with the employer.

The employer occasionally provides tickets to the social club for distribution to members via a draw. This occurs whenever tickets are available and averages approximately 250 tickets per year.

Typical tickets would include sporting events (soccer, rugby, netball, cricket, tennis, etcetera), and other shows.

The social club distributes the tickets as follows:

• the person in receipt of the ticket must be a member of the social club;

• the person must have entered a draw and been chosen at random; and

• the person must correctly answer a competition question.

To enter a draw, a member must respond to an email sent by the social club advising that a draw is to be conducted. This will occur on an ad-hoc basis, depending on when the social club receives tickets.

Approximately 30-40% of members participate in any given draw, on average.

Approximately 80% of employees are members.

The employer has no involvement in the way in which the social club distributes the tickets or conducts the draws.

The employer currently treats the provision of tickets as tax-exempt body entertainment fringe benefits provided to employees for the purposes of fringe benefits tax.

Reasons for decision

Question 1

The definition of a 'fringe benefit' contained in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) requires, amongst other things, that in order for a 'benefit' to be a 'fringe benefit' the benefit must be provided to 'the employee or an associate of the employee' and that the benefit be provided 'in respect of the employment of the employee'.

In determining whether a 'fringe benefit' has been provided in these circumstances the Full Federal Court decision in Commissioner of Taxation v. Indooroopilly Children Services (Qld) Pty Ltd [2007] FCAFC 16; 2007 ATC 4236; 65 ATR 369 is authority for the requirement that a particular employee must be identified.

Edmonds J provided reasons for the decision, with which Stone and Allsop JJ agreed in separate judgements. His Honour, at paragraph 37, found that whilst a benefit provided to a trustee of a trust estate can be a fringe benefit, for this to occur:

......the identity of each employee who will take a share of the benefit is known with sufficient particularity, at the time the benefit is provided to enable it to be said that the benefit is provided in respect of the employment of each of those employees.

His Honour further found that the shares provided to the trustee were not provided in respect of the employment of any particular employee, nor all of the employees capable of benefiting who would in fact receive a benefit - only some employees may later benefit and their identity was not known (paragraph 38).

With respect to the facts relating to the employer, at the time a benefit (ticket) is provided by the employer to the social club, the identity of the recipient employee is not known with 'sufficient particularity'. That is, it cannot be ascertained at that point in time that there has been a benefit provided in respect of any particular individual employee, since the outcome of the random draw and answering of the subsequent question is not known.

Accordingly, a fringe benefit as defined in subsection 136(1) of the FBTAA has not been provided by the employer when providing tickets to the social club. No particular employee has been identified who will benefit from that contribution to the social club.

Question 2

A benefit will be regarded as provided in respect of employment if it is provided by reason of, or in relation, directly or indirectly, to that employment.

 The meaning of 'in respect of employment' was considered by the Full Federal Court in J & G Knowles & Associates v. Federal Commissioner of Taxation [2000] FCA 196; (2000) 96 FCR 402; 2000 ATC 4151; (2000) 45 ATR 1101 (Knowles Case). The phrase 'in respect of' was held to require a 'nexus, some discernible and rational link, between the benefit and employment'. However, the establishment of a mere causal link between the benefit and the employee's employment is not necessarily enough.

The Court said at paragraph 26:

Whatever question is to be asked, it must be remembered that what must be established is whether there is a sufficient or material, rather than a causal connection or relationship between the benefit and the employment.

 In this case the employees who ultimately receive tickets through the social club have not received any fees, salary, wages or other employment-related income from the social club. The social club is a separate legal entity to the employer with distinct aims and objectives. The benefits employees receive from the social club are in respect of their membership, not in respect of their employment. The fact that employment with the employer is a pre-requisite for membership with the social club merely establishes a causal link.

In other words, although the employees' membership of the social club is contingent upon their employment with the employer, the relationship between the benefit received (the ticket) and their employment is merely causal, as per the reasoning in Knowles Case. There is not a sufficient nexus between the benefit and the employment as to be considered in respect of employment.

In short, the provision of tickets by the social club to employees of the employer is not considered to be 'in respect of employment'.

Conclusion

No fringe benefit has been provided to employees. The provision of tickets to the social club is not the provision of a benefit to an employee, while the social club's provision of tickets to its members is not in respect of their employment.

Consequently, a 'fringe benefit' as defined in subsection 136(1) of the FBTAA has not been provided by the employer.

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