Edited version of your written advice

Authorisation Number: 1012726126254

Ruling

Subject: Provision of certain benefits to employees of a tax exempt entity

Question 1

Can the reimbursement by the employer to its employees for gym membership, fitness classes, swimming pool entry fees and registration for sporting activities, be treated as an expense payment benefit for the purposes of section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) as like other types of reimbursements under the provisions of the relevant Enterprise Agreement and adopted policy document?

Answer

No

Question 2

Will the reimbursement for all types of approved benefits under the provisions of the relevant Enterprise Agreement and adopted policy document that gives rise to an expense payment benefit under section 20 of the FBTAA 1986, qualify as an exempt minor benefit for the purposes of the application of section 58P of the FBTAA 1986, where the value of the benefit is under $300?

Answer

No

This ruling applies for the following periods:

FBT year ended 31 March 2014

FBT year ended 31 March 2015

FBT year ended 31 March 2016

FBT year ended 31 March 2017

The scheme commences on:

1 April 2013

Relevant facts and circumstances

The employer is a Commonwealth Statutory Agency (i.e. income-tax exempt body).

In promoting healthier living, the employer provides financial support to assist employees to maintain and/or improve their health and fitness. This is covered in the signed Enterprise Agreement (EA).

It is called Healthy Lifestyle Allowance (HLA), which was first provided from 1 March 20XX.

The maximum allowance provided is $300 (GST inclusive) per calendar year, and the purchase(s) must have been performed during that year.

HLA is only provided by way of reimbursement to staff upon proof of payment of goods/services relating to fostering healthier living. This makes the types of claims very broad and diverse, ranging from gym membership fees, the purchase of exercise equipment to dental check- ups.

Below are typical examples of claims by staff for the allowance:

• gym membership (most popular);

• exercise classes;

• purchase of exercise equipment;

• participation in weight loss programs;

• participation in programs to assist with giving up smoking, gambling, drugs or alcohol; and

• costs associated with establishing an employer sporting team.

The employer contracted its tax advisors to provide guidance on how to report such reimbursements for FBT purposes. Their guidance split the allowance by what appears to be on the following basis:

1. Intangible benefits (e.g. services like gym membership) are captured under the income tax exempt body entertainment (ITEBE) fringe benefit so the minor expense exemption does not apply.

2. Tangible benefits (e.g. goods like sport shoes) are treated as expense payment fringe benefit and if under $300 they meet the minor expense exemption and were excluded from the FBT return.

Accordingly, the employer have been following these guidelines in their previous FBT returns (2012-2013 & 2013-2014) and splitting the relevant allowance between two categories.

Claims that were identified as belonging to the ITEBE category were recorded for the full amount in the FBT return, even if the total amount was less than $300 as the minor benefit rule doesn't apply.

Claims under the expense payment category were reported in the FBT return for those benefits of $300 or more (the minor benefit tax exemption rule applies to benefits under $300).

For the 2013-2014 FBT year, due to an issue with the FBT reporting software, the ITEBE amount was also recorded under the expense payment category as the next best fit category (i.e. the allowance is in essence a reimbursement). However, the treatment and tax calculation remained as per the ITEBE rules.

The employer sought to confirm and verify the basis, type of benefits, and treatment for FBT purposes.

The employer expressed its view that all benefits under this arrangement are best categorised as expense payment benefits as they relate to reimbursement of expenses paid by staff, under section 20 of the FBTAA 1986 and because the benefit does not fit the ITEBE definition and better fits the expense payment benefit definition.

The other reason for adopting the expense payment benefit is to address an administrative and reporting burden on the employer and would be simpler to treat all of the benefits as an expense payment benefit.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20

Fringe Benefits Tax Assessment Act 1986 Section 20(b)

Fringe Benefits Tax Assessment Act 1986 Section 38

Fringe Benefits Tax Assessment Act 1986 Section 39

Fringe Benefits Tax Assessment Act 1986 Section 66

Fringe Benefits Tax Assessment Act 1986 Section 58P(1)(a)(b) (c)(d)

Fringe Benefits Tax Assessment Act 1986 Section 58P (1) (f) (i)(ii)(iii)(iv(v)

Fringe Benefits Tax Assessment Act 1986 Section 132

Fringe Benefits Tax Assessment Act 1986 Section 132(a)(b)

Fringe Benefits Tax Assessment Act 1986 Section 136(1)

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 32-5

Income Tax Assessment Act 1997 Section 32-5

Income Tax Assessment Act 1997 Section 32-10

Income Tax Assessment Act 1997 Section 32-20

Income Tax Assessment Act 1997 Paragraph 995-1(1)

Reasons for decision

Question 1

Can the reimbursement by the employer to its employees for gym membership, fitness classes, swimming pool entry fees and registration for sporting activities, be treated as an expense payment benefit for the purposes of section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) as like other types of reimbursements under the provisions of the relevant Enterprise Agreement and policy document called Healthy Lifestyle Allowance?

Summary of decision

No. Although the reimbursement is an expense payment benefit pursuant to paragraph 20(a) of the FBTAA 1986, the amount is a 'tax-exempt body entertainment benefit' pursuant to section 38 of the FBTAA 1986.

The entity in its capacity as the employer therefore has an obligation to keep and preserve records for 5 years, pursuant to subsection 132(1) of the FBTAA 1986 for the purpose of ascertaining the employer's liability.

Detailed reasoning

Paragraph 20(b) of the FBTAA 1986 provides that where a person (called 'the provider') reimburses another person (called 'the recipient'), in whole or in part, in respect of an amount of expenditure incurred by the recipient, the making of the reimbursement shall be taken to constitute the provision of a benefit by the provider to the recipient.

Although the reimbursement to the employees for this type of expenditure will be an expense payment fringe, such a benefit has the character of being provided in connection with entertainment.

There is no category of "entertainment fringe benefit" as such. The provision of entertainment may give rise to a number of different types of fringe benefit, depending on the circumstances under which the entertainment is provided. One such type of fringe benefit is expense payment fringe benefit.

Where the provision of entertainment by a tax- exempt employer exists by way of different types of fringe benefit, the benefit will fall under the application of Division 10 of the FBTAA 1986.

As a result, there is an obligation created on the tax-exempt employer as a result of under section 38 of the FBTAA 1986, as the provision of such benefit is to be treated as the provision of 'tax-exempt body entertainment fringe benefit and by virtue of the operation of sub-section 136(1) of the FBTAA 1986), because the provider incurs non-deductible exempt entertainment expenditure.

Section 38 of the FBTAA 1986 provides the following in relation to the provision of 'tax-exempt body entertainment fringe benefits':

Where, at a particular time, a person (referred to as the provider) incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision, in respect of the employment of an employee, of entertainment to a person (referred to as the recipient) being the employee or an associate of the employee, the incurring of the expenditure shall be taken to constitute a benefit provided by the provider to the recipient at that time in respect of that employment.

Therefore, a tax-exempt body entertainment fringe benefit will arise when the following conditions are satisfied:

(a) the benefit is provided in respect of employment

(b) the benefit constitutes the provision of entertainment, and

(c) the provider incurs non-deductible exempt entertainment expenditure.

(a) Considering whether the benefit is provided in respect of employment

The entity is an income-tax exempt body both for the purposes of the Income Tax Assessment Act 1997 (ITAA 1997) and the FBTAA 1986.

The entity in its capacity as the Employer, made an agreement with its employees titled the Enterprise Agreement under the Fair Work Act 2009 (Cth) and approved by Fair Work Australia.

As part of its workplace health strategy, the entity agreed to include in the Enterprise Agreement, the provision of an employee healthy lifestyle allowance. This is to assist and encourage its employees to adopt and participate in healthy lifestyle, the employer adopted policy and reimburses any participating employee for expenditure on healthy lifestyle activities and personal needs, up to a maximum of $300 each calendar year.

The reimbursement covers gym membership, fitness classes, swimming pool entry fees and registration for sporting activities.

On the basis of the provision of these benefits by the employer to participating employees, it is evident the provision of such benefits are in respect of employment for the purposes of section 38 and subsection 136(1) of the FBTAA 1986.

(b)   Considering whether the benefit constitutes the provision of entertainment

Entertainment is defined in section 32-10 of the ITAA 1997 to mean:

(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.

In interpreting this definition, both Income Tax Ruling IT 2675 and Taxation Ruling TR 97/17 refer to the Macquarie Dictionary which defines the word entertainment to mean:

(a)    agreeable occupation for the mind, diversion or amusement; or

(b)    something affording diversion or amusement; or

(c)    hospitable provision for the wants of a guest.

The term 'recreation', used in the definition of entertainment in section 32-10 of the ITAA 1997, is defined in section 995-1 of the ITAA 1997 to include amusement, sport or similar leisure-time pursuits.

The definition is extended in subsection 136(1) of the FBTAA 1986 to also include recreation or amusement provided on, or by means of a vehicle, ship, vessel, or aircraft.

The Commissioner's view in Chapter 14 of the ATO publication Fringe benefits tax; a guide for employers at 14.1 and 14.15 (reference go to ato.gov.au- and search for QC 17828) is that recreation includes joy flights, sightseeing tours, harbour cruises, tours, costs associated with the operation of facilities such as gym, pool, or game room.

Therefore, the reimbursement by the employer to its employees for gym membership, Yoga, Pilates classes, swimming pool entry fees, and registration for sporting activities, are considered benefits for the provision of 'entertainment'.

(c) Whether the employer incurs non-deductible exempt entertainment expenditure.

Subsection 136(1) of the FBTAA 1986 defines 'non-deductible entertainment expenditure' to mean a loss or outgoing to the extent to which:

(a) section 32-5 of the Income Tax Assessment Act 1997 applies to it or would apply if it were incurred in producing assessable income; and

(b) apart from that section, it would be deductible under section 8-1 of that Act, or would be if it were incurred in producing assessable income;

(on the assumption that section 32-20 of Income Tax Assessment Act 1997 had not been enacted).

With respect to the requirement under section 38 of the FBTAA 1986, the meaning of 'non-deductible exempt entertainment expenditure' according to section 136(1) of the FBTAA 1986, is non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income.

As the employer is an income tax-exempt body, it does not produce assessable income. Therefore, the expenditure relating to the reimbursement for gym membership, Yoga classes, Pilates classes, swimming pool entry fees and registration for sporting activities, satisfies the requirement under section 38 of the FBTAA 1986 as 'non-deductible exempt entertainment expenditure'.

As such, all expenditure incurred by the tax-exempt employer , under the Enterprise Agreement and the Healthy Lifestyle Allowance covering gym membership, Yoga classes, Pilates classes, swimming poll entry fees and registration for sporting activities, will be regarded as the provision of tax-exempt body entertainment fringe benefits for the purposes and application of section 38 of the FBTAA 1986.

Such benefit, being a tax-exempt body entertainment fringe benefit, would not qualify for exemption under the operation of section 58P of the FBTAA 1986, because the benefit is specifically excluded from consideration under section 58P of the FBTAA 1986. (Ref. paragraph 12 of TR 2007/12).

The employer therefore has a liability to pay Fringe Benefits Tax under section 66 of the FBTAA 1986, and keep and preserve records for 5 years, pursuant to paragraph 132(a)(b) of the FBTAA 1986 for the purpose of ascertaining the employer's liability.

Question 2

Will the reimbursement for all type of approved benefits under the provisions of the relevant Enterprise Agreement and adopted policy document which would give rise to an expense payment benefit under section 20 of the FBTAA 1986, qualify as an exempt minor benefit for the purposes of the application of section 58P of the FBTAA 1986 where the value of the benefit is under $300?

Summary of decision

On balance having regard to the various criteria in paragraph 58P(1)(f) it is reasonable to concluded that the benefits provided to the employees, will not qualify for the exemption under section 58P of the FBTAA 1986.

Detailed reasoning

Subsection 136(1) of the FBTAA 1986 defines an 'expense payment fringe benefit' as a fringe benefit that is an expense payment benefit.

Paragraph 20(b) of the FBTAA 1986 provides that where a person (called 'the provider') reimburses another person (called 'the recipient'), in whole or in part, in respect of an amount of expenditure incurred by the recipient, the making of the reimbursement shall be taken to constitute the provision of a benefit by the provider to the recipient.

Therefore, by operation of both paragraph 20(b) and subsection 136(1) of the FBTAA 1986, an expense payment fringe benefit will arise when the following conditions are satisfied:

(a)   the benefit is provided in respect of employment; and

(b)   the benefit constitutes reimbursement to a person ("recipient"), in whole or in part, in respect of an amount of expenditure incurred by the recipient.

The fact that such reimbursements are made by an employer who is a tax exempt body is not relevant, as the application of section 20 of the FBTAA 1986 covers all type of employers, as opposed to the application of section 38 of the FBTAA 1986, which covers and relates to income tax exempt employers only.

(a) Considering whether the benefit is provided in respect of employment;

The entity is an income-tax exempt body both for the purposes of the ITAA 1997 and the FBTAA 1986.

The entity in its capacity as the Employer, made an agreement with its employees titled the Enterprise Agreement, or EA, under the Fair Work Act 2009 (Cth) and approved by Fair Work Australia.

As part of its workplace health strategy, the employer agreed to include in the Enterprise Agreement, the provision of an employee healthy lifestyle allowance. This is to assist and encourage its employees to adopt and participate in healthy lifestyle, the employer adopted policy and reimburses any participating employee for expenditure on healthy lifestyle activities and personal needs, up to a maximum of $300 each calendar year.

The reimbursement covers gym membership, fitness classes, swimming pool entry fees and registration for sporting activities. It also covers other type of life style activities and items such as weight loss programs, programs to assist with giving up smoking, gambling, drugs or alcohol, establishing an employer sporting team, fitness equipment, sports equipment, running shoes, specialised clothing, monitoring equipment (i.e. blood pressure machines, weight scales etc.).

On the basis of the provision of such benefits by the employer to participating employees, it is evident the provision of such benefits is in respect of employment for the purposes of section 20 and subsection 136(1) of the FBTA 1986

(b) Considering whether the benefit constitutes reimbursement to a person ("recipient"), in whole or in part, in respect of an amount of expenditure incurred by the recipient

On the basis of the employer's submission, the Enterprise Agreement and policy document, we accept that the reimbursement for such items and activities which do not have the character of expenditure relating to the provision of tax-exempt body entertainment fringe benefit for the purposes of Subdivisions A and B of Division 10 of the FBTAA 1986, and will give rise to the provision of an expense payment fringe benefit under paragraph 20(b) of the FBTAA 1986.

(c) Whether the provision of such expense payment fringe benefits where the value is less than $300, meet the tests for exemption as minor benefits under subsection 58P(1) of the FBTAA 1986

Clause 82.1 of the Enterprise Agreement limits the level of reimbursement for the expense payment fringe benefits up to maximum of $300. The category of the benefits do fall within the category of benefits excluded by paragraphs 58P(1)(c) and (d).

In this case, because the employer can only reimburse an employee for an amount up to $300, it is only necessary to consider instances where the employer reimburses an employee for an amount less than $300.

Therefore it is necessary to have regard to the factors or criteria listed under 58P(1)(f) to determine whether the fringe benefit qualifies as an exempt minor benefit.

The tests for exemption, relate and give regard to:

• the infrequency and irregularity, with which similar or identical benefits are provided in connection with the minor benefit under consideration

• the notional value of similar, identical or other associated benefits

• the practical difficulty for the employer in determining value of the benefit, and associated benefits

• the circumstances surrounding the provision of the benefit.

In determining whether it is unreasonable to treat the minor benefit as a fringe benefit, all the criteria in paragraph 58P(1)(f) must be considered. No single criterion on its own will determine whether it is unreasonable to treat the benefit as a fringe benefit and the exemption applies. The provision does not give the Commissioner discretion.

The weight given to each criterion will vary depending on the circumstances surrounding the provision of the benefit.

Only where a conclusion can be reached that it would be unreasonable to treat the minor benefit as a fringe benefit, will the minor benefit be exempt (TR 2007/12 paragraph 198).

In considering the scope of the exemption it is necessary to look to the nature of the benefit provided and as stated above, give due weight to each of the criteria. The weight given to each criterion will vary depending on the circumstances surrounding the provision of each benefit.

Without limiting the generality of the circumstances to be considered surrounding the provision of the benefits, it is necessary to consider specifically whether the benefits in question were provided as a result of an unexpected event or whether or not it could be regarded to be provided wholly or principally as a reward for services rendered, or to be rendered, by the employee.

The infrequency and irregularity of the provision of the benefits in question:

The Enterprise Agreement runs for a certain period of time (in this case 2 years) and is negotiated on a continued basis to cover future yeas in succession following its expiry date.

The employer is committed to include such benefits under a specific clause and a policy covering the basis of the reimbursement claimed is adopted concurrently.

The pattern and behaviour relating to the provision of the benefits in question, is reasonably expected to continue into the future and is continuing from previous years, the value expected or already spent on such benefits must also be taken into account. The more frequently and regularly associated benefits are provided, the less likely that the minor benefit will qualify as an exempt benefit.

Although the value of each benefit may be below the minor benefits threshold, the sum of the values of the benefits provided, being identical benefits in the current year of tax, the previous year and such same benefits are reasonably expected to be provided in future years, all are taken into account for this requirement.

As the enterprise agreement includes and gives rise to the provision of such benefits to employees of the employer by way of reimbursement and is negotiated and executed on a on a continued and re-incurring basis following the nominated expiry date, it is reasonable to conclude the employer agrees, is committed and provides the benefits subject to question on a frequent and regular basis.

The notional value of similar, identical or other associated benefits

In this case the value of the benefits in question is determined under the enterprise agreement and as dictated by the reimbursement policy, at the point the employee claims vouches the claim and the payment is made.

As the Enterprise Agreement only allows certain types of items and expenses up to the maximum value of $300, the view that the greater the total value of the minor benefit and identical or similar benefits, the less likely the minor benefit will qualify as an exempt benefit, is not relevant and favours the argument that where the value of the benefits is less than the threshold amount ($300) the benefit may qualify for the minor exemption.

The practical difficulty for the employer in determining value of the benefit, and associated benefits

This criterion requires a consideration of the practical difficulty for the employer in keeping the necessary records in relation to the benefits and determining the value.

Taking into consideration that:

- It is a requirement under section 132 of the FBTAA 1986 that an employer keep records that trace and explain all transactions and acts that are relevant for the purposes of determining the employer's liability under the Act; and

- That employer under the policy in place vouches and records the payment for the expenses reimbursed and is able to identify each employee receiving the benefits and value,

The employer will have no practical difficulty to determine the taxable value of the benefit for each employee making the claim.

The circumstances surrounding the provision of the benefit.

This requirement involves an examination of whether the benefit is being provided as a result of an unexpected event and whether or not it could be regarded and connected as principally a reward for services.

The benefits in question are provided under an entitlement embedded into the enterprise agreement and are not provided by the employer on ad hog basis to assist the employee to deal with an unexpected or sudden event.

On balance having regard to the various criteria in subparagraphs 58P(1)(f), it is reasonable to concluded that the benefits provided to the employees will not qualify for the exemption under section 58P of the FBTAA 1986.

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