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Edited version of your written advice

Authorisation Number: 1012772372517

Ruling

Subject: Entertainment Expenditure

Question 1 and Question 2

Do you have the option of treating entertainment expenditure (including meal entertainment) as an expense payment, property or residual fringe benefit and working out the taxable value accordingly or can you use the 50/50 method?

Can your entertainment expenditure be disclosed in Label L or can it be disclosed as expense payment (Label E), property (label K) and residual (label M) depending on how it is treated?

Answer

If you make an election under Division 9A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), you may use the 50/50 method or the 12 week register method. If you do not make an election, then the taxable value is determined by your actual expenditure.

As you are a tax exempt body, you report in Label 'L' except for Meal entertainment in which case you report in Label 'P'.

This ruling applies for the following period

1 April 2014 to 31 March 2015

The scheme commenced on

1 April 2014

Relevant facts and circumstances

You came into existence from an amalgamation of two separate entities.

As you are exempt from paying income tax, you are an income tax-exempt employer (also referred to as a 'tax-exempt body').

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Division 9A

Fringe Benefits Tax Assessment Act 1986 Division 10

Fringe Benefits Tax Assessment Act 1986 Section 38

Fringe Benefits Tax Assessment Act 1986 Section 39

Fringe Benefits Tax Assessment Act 1986 Section 58P

Fringe Benefits Tax Assessment Act 1986 Paragraph 58P(1)(d)

Fringe Benefits Tax Assessment Act 1986 Section 136

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1997 Section 8-10

Income Tax Assessment Act 1997 Section 32-10

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

Detailed reasoning

Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17) looks at the concept of what is entertainment, as it relates to the provision of food or drink, for the purpose of applying the relevant provisions of the Income Tax Assessment Act 1997 (ITAA 1997) and the Fringe Benefits Tax Assessment Act 1986 (FBTAA). The ruling proposes several tests to determine whether the provision of food and drink represent entertainment.

The employer can then calculate the taxable value of the entertainment according to the type of benefit.

Entertainment provided by way of (or in connection with) food or drink may be valued as meal entertainment fringe benefits. However, the provision of entertainment may give rise to a number of different types of fringe benefits depending on the circumstances under which the entertainment is provided. Other types of fringe benefits that may arise from the provision of food and drink are:

The Entertainment table in Part A of the Explanations section of TR 97/17 (see paragraph 25), assists employers determine whether food or drink provided constitutes meal entertainment. Further assistance is provided in paragraphs 33-35 and 40 which explain the fringe benefits tax (FBT) implications for tax-exempt bodies. Additional information by way of questions and answers is provided in paragraphs 139 to 143 which relates to tax-exempt employers that have not elected to determine the taxable value of meal entertainment benefits under Division 9A of the FBTAA.

TR 97/17 is enclosed for your reference. The booklet 'Fringe benefits tax: a guide for employers' may be found at www.ato.gov.au.

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides that the term 'entertainment' has the meaning given by section 32-10 of the Income Tax Assessment Act 1997 (ITAA 1997). Subsection 32-10(1) of the ITAA 1997 states:

This definition of 'entertainment' does not prescribe that all provision of food or drink results in entertainment. To help determine when the provision of food or drink results in the entertainment of that person, an objective analysis of all the circumstances surrounding the provision of the food or drink is required.

As you are exempt from paying income tax, entertainment provided by you to your employees and/or their associates is covered by Division 10 of the FBTAA dealing with Tax-exempt body entertainment fringe benefits.

According to section 38 of the FBTAA:

The taxable value is the amount of the entertainment expenditure, to the extent that the expenditure is incurred for the benefit of the employee or associate: section 39 of the FBTAA.

Under Division 9A of the FBTAA, which deals with 'Meal entertainment', you may elect to determine the taxable value of meal entertainment provided to employees and their associates by one of two methods. This is either the 50/50 method or the 12 week register method. If you do not make an election, then the taxable value is determined according to the actual expenditure. The election will apply for the whole FBT year. See paragraphs 30-32 of TR 97/17 for further explanations on the two methods.

Section 58P of the FBTAA exempts certain benefits that can be characterised as 'minor'. However, a tax-exempt body entertainment benefit that is considered 'minor' will only be exempt if the requirements of paragraph 58P(1)(d) of the FBTAA are met.

Paragraph 58P(1)(d) of the FBTAA states that to be considered as an exempt minor benefit, the tax-exempt body entertainment benefit provided must be:

If the provision of food and/or drink by a tax-exempt body is not classified as 'entertainment', it will be a 'property' or 'expense payment' benefit.

For example if you provide a credit card for your employees to pay for the food and/or drink, it would be considered a 'property' fringe benefit. However, if your employees pay for the food and/or drink and is reimbursed by you, it would be classified as an 'expense payment' fringe benefit.

If the provision of food and/or drink (whether considered entertainment or not) does not meet the requirements of section 58P of the FBTAA and is therefore not a 'minor' benefit, you should consider if the 'otherwise deductible' rule applies to reduce the taxable value of the benefit.

Both the property fringe benefits and expense payment fringe benefits' taxable value may be reduced if the 'otherwise deductible rule' applies.

The 'otherwise deductible rule' states that if the expense of the food and/or drink would have been deductible to the employee either in part or in full under section 8-1 of the ITAA 1997, the equivalent amount of the fringe benefit's taxable value would be reduced by this deductible portion.

The employers' guide to fringe benefits tax, at chapters 7.4 and 15.5, discusses in more detail how the expense payment fringe benefits and property fringe benefits' taxable value can be reduced by the 'otherwise deductible rule'.

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