Edited version of your written advice

Authorisation Number: 1013125133303

Date of advice: 16 November 2016

Ruling

Subject: Fringe Benefits Tax - Public hospital - meals and entertainment caps

Question 1

When the entity calculates its fringe benefit aggregate non-exempt amount in subsection 5B(1E) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) can it include meals and entertainment in the $17,000.00 fringe benefit exemption in 5B(1E) Step 2 of FBTAA 1986 in addition to the claiming the $5,000.00 maximum for meals and entertainment in 5B(1E) Step 4 of FBTAA 1986?

Answer

Yes

This ruling applies for the following periods

01 April 2016 to 31 March 2017

01 April 2017 to 31 March 2018

01 April 2018 to 31 March 2019

01 April 2019 to 31 March 2020

01 April 2020 to 31 March 2021

01 April 2021 to 31 March 2022

01 April 2022 to 31 March 2023

01 April 2023 to 31 March 2024

01 April 2024 to 31 March 2025

01 April 2025 to 31 March 2026

The scheme commences on

01 April 2016

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.

1. The entity is a Public Hospital under section 57A of the FBTAA 1986

2. The entity has employees who salary sacrifice Meal Entertainment benefits.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 5B,

Fringe Benefits Tax Assessment Act 1986 Section 37AC,

Fringe Benefits Tax Assessment Act 1986 Section 57A and

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1).

Reasons for decision

Question 1

Summary

Meal entertainment benefits are now included in the entity's fringe benefits tax (FBT) aggregate non-exempt amount for its employees.

The FBT calculation in subsection 5B(1E) effectively provides each employee of the entity, a separate single grossed-up cap of $5,000 each FBT year for salary packaged meal entertainment benefits, which remain eligible for the current FBT exemption.

Where this $5,000 cap is exceeded, any salary packaged meal entertainment benefit may be taken into account under the existing caps before determining whether there is any excess to be taxed.

Detailed reasoning

The Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015 amended the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to include salary packaged meal entertainment benefits in the standard capping threshold of an entity.

Section 57A of the FBTAA provides that certain employers are generally exempt from FBT on benefits provided to their employees. Specifically subsection 57A(3) of the FBTAA states:

A benefit provided in respect of the employment of an employee is an exempt benefit if:

(a) the employer of the employee is a public hospital;

…

Therefore, as the entity is a public hospital, benefits provided to your employees will be exempt benefits.

However, subsection 5B(1D) of the FBTAA provides that for a public hospital, the employer's fringe benefits taxable amount will include the employer's aggregate non-exempt amount.

The method for calculating the employer's aggregate non-exempt amount is contained in subsections 5B(1E) to 5B(1L) of the FBTAA. These subsections provide that a public hospital will only be liable to pay fringe benefits tax on the amount by which the total grossed-up value of certain benefits provided to an individual employee exceeds $17,000 per annum.

5B(1E) also provides for a separate grossed-up cap of $5,000 for salary packaged meal entertainment. 5B(1E) reads:

Method statement

Step 1.   For each employee, add:

(a) the individual grossed-up type 1 non-exempt amount (see subsection (1F)) in relation to the employer for the year of tax; and

(b) the individual grossed-up type 2 non-exempt amount (see subsection (1G)) in relation to the employer for the year of tax.

The result is the individual grossed-up non-exempt amount for the employee.

Step 2. If:

…

(b) the employer is a government body and the duties of the employment of one or more employees are as described in paragraph 57A(2)(b) (which is about duties of employment being exclusively performed in or in connection with certain hospitals); or

(c) the employer is a public hospital (emphasis added); or

(ca) the employer provides public ambulance services or services that support those services and the employee is predominantly involved in connection with the provision of those services; or

(d) the employer is a hospital described in subsection 57A(4) (which is about hospitals carried on by societies and associations that are rebatable employers);

subtract $17,000 (emphasis added) from the individual grossed-up non-exempt amount for each employee of the employer referred to in paragraph (c), (ca) or (d), or each employee referred to in paragraph (b), for the year of tax. However, if the individual grossed-up non-exempt amount for such an employee is equal to or less than $17,000, the amount calculated under this step for the employee is nil.

Step 3.   If step 2 does not apply in respect of one or more employees of the employer, reduce the individual grossed-up non-exempt amount for each such employee by $30,000, but not below nil.

Step 4.   If the amount calculated under step 2 or 3 in respect of an employee is positive, reduce that amount (but not below nil) by the lesser of:

(a) $5,000; and

(b) so much of the employee's individual grossed-up non-exempt amount as relates to benefits covered by subsection (1M) (about salary packaged meal entertainment and entertainment facility leasing benefits). (emphasis added)

Step 5.   Add together the amounts calculated under step 4 in relation to the employees of the employer. The total amount is the employer's aggregate non-exempt amount for the year of tax.

A meal entertainment benefit is defined in section 37AD of the FBTAA 1986 which states:

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 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.

Salary packaged meal entertainment benefit is further defined under subsection 5B(1M) as

Salary packaged meal entertainment and entertainment facility leasing benefits

(1M) This subsection covers a benefit that is provided under a salary packaging arrangement if:

(a)  the benefit is constituted by the provision of meal entertainment (as defined in section 37AD, whether or not the employer has elected that Division 9A of Part III apply to the employer); or

(b)  the benefit is wholly or partly attributable to entertainment facility leasing expenses.

An example of the calculation under the amended subsection 5B(1E) is provided in Annexure A.

Conclusion

The changes to 5B(1E) means that meal entertainment benefits are now included in the standard capping threshold of $17,000. Step 4 of 5B(1E) means that if an entity has exceeded their existing FBT exemption and rebate cap they are able to increase the $17,000 capping threshold by the lesser of $5,000 or an employee's total grossed-up taxable value of the salary packaged meal entertainment benefit.

This effectively provides each employee of the entity a separate single grossed-up cap of $5,000 each FBT year for salary packaged meal entertainment benefits which remain eligible for the current FBT exemption. Where this $5,000 cap is exceeded, any salary packaged meal entertainment benefit may be taken into account under the existing caps before determining whether there is any excess to be taxed.

Annexure A

Determining the employer's aggregate non-exempt amount under subsection 5B(1E)

A public hospital provides an employee, Lee, with the following benefits during the 2016-2017 FBT year:

Salary packaging arrangement

● a television with taxable value of $1,000 (GST creditable);

● domestic air travel with taxable value of $2,000 (GST creditable);

● reimbursed child care fees with a taxable value $3,000 (not GST creditable);

● reimbursement of restaurant meals with taxable value of $1,800 (not GST creditable);

● reimbursement of cost of Canadian holiday accommodation with taxable value of $1,200 (not GST creditable); and

Not through a salary packaging arrangement

● food and drink provided by a third party while attending a corporate event with taxable value of $400 (GST creditable).

The employer does not elect under section 37AA (about meal entertainment) or section 152B (entertainment facility leasing expenses) to value entertainment benefits under any of the elective valuation rules.

The employer's aggregate non-exempt amount (under subsection 5B(1E)) for the 2016-2017 FBT year is calculated in the following way:

Step A

The employer works out what would be the individual fringe benefits amount for each employee, if section 57A did not apply. This is determined by adding the taxable values of the benefits provided in respect of the employee's employment, except for any excluded fringe benefits. The notional 'individual fringe benefits amount' for Lee is calculated as:

= $1, 000 (tv) + $2,000 (travel) + $3,000 (child care) + $1,800 (restaurant meals)

+ $1,200 (holiday)

= $9,000

The notional individual fringe benefits amount is now broken down into 2 components. Those where GST input tax credits were available to the employer and those where no GST input tax credits are available.

Where a GST input tax credit is available - the taxable values of the benefits identified are added together to give what is referred to as the step 3 of subsection (1K) amount (see subsection 5B(1K)), which in Lee's case is:

= $1,000 (tv) + $2,000 (travel)

= $3,000

The difference between the notional 'individual fringe benefits amount' and the 'step 3 of subsection (1K) amount' calculated for each employee is referred to as the step 4 of subsection (1K) amount (see subsection 5B(1K)),which in Lee's case is:

= $9,000 - $3,000

= $6,000

Step B

The employer (because they are covered by section 57A) is also required to allocate each employee's share of the taxable value of certain benefits which would qualify as excluded fringe benefits (other than car parking fringe benefits, non-salary packaged meal entertainment benefits and non-salary packaged entertainment facility leasing expense benefits). The employee's share of such excluded fringe benefits must also be divided into two parts based on whether GST input tax credits were available, and are referred to as the step 3 and step 4 of subsection (1L) amounts, respectively (see subsection 5B(1L)).

As Lee does not have a share of any excluded benefits other than non-salary packaged meal entertainment, the value of the step 3 and step 4 of subsection (1L) amounts for Lee is nil.

Step C

Each employee's step 3 of subsection (1K) and (1L) amounts (i.e., benefits in respect of which GST input tax credits were available) are added together to determine the type 1 individual base non-exempt amount (see subsection 5B(1H)). For Lee this is:

= $3,000 + $0

= $3,000

Similarly, the type 2 individual base non-exempt amount (see subsection 5B(1J)) is calculated as the total of an employee's step 4 of subsection (1K) and (1L) amounts. For Lee this is:

= $6,000 + $0

= $6,000

Step D

Each employee's type 1 and type 2 individual base non-exempt amount is grossed-up (see subsections 5B(1F) and 5B(1G)).

The individual grossed-up type 1 non-exempt amount (see subsection 5B(1F)) for Lee is:

= $3,000 × 0.49 + 0.1 ÷ (1-0.49) × (1 + 0.1) × 0.49 = $6,439

The individual grossed-up type 2 non-exempt amount (see subsection 5B(1G)) for Lee is:

= $6,000 × 1 ÷ (1-0.49) = $11,765

Step E

For each employee, the employer adds the individual grossed-up type 1 non-exempt amount and the individual grossed-up type 2 non-exempt amount to determine the individual grossed-up non-exempt amount (see step 1 in the method statement in subsection 5B(1E)) and for Lee this is:

= $6,439 + $11,765 = $18,204

Step F

The employer must now apply the threshold test for Lee by subtracting $17,667 from each employee's individual grossed-up non-exempt amount. This is the step 2 of subsection 5B(1E) amount (see step 2 in the method statement in subsection 5B(1E)). For Lee this is:

= $18,204 - $17,667 = $537

Step G

If the Step F result is positive, the employer must now calculate how much of the individual grossed-up non-exempt amount (or Step E amount) relates to benefits covered by subsection 5B(1M) (about salary packaged entertainment benefits) for each employee. For Lee the Step E amount includes the following:

Grossed-up GST creditable salary packaged entertainment benefits

= $0 × 0.49 + 0.1 ÷ (1 - 0.49) × (1 + 0.1) × 0.49 = $0

Grossed-up not GST creditable salary packaged entertainment benefits

= $1,200 (holiday) + $1,800 (restaurant meals) × 1÷ (1-0.49) = $5,882

Grossed-up value of subsection (1M) benefits included in the individual grossed-up non-exempt amount

= $0 + $5,882 = $5,882

Therefore, the individual grossed-up non-exempt amount (or Step E amount) of $18,204 includes an amount of $5,882 as relating to benefits covered by subsection 5B(1M).

Step H

Each employee's amount calculated under Step F, if it is a positive amount, is reduced by the lesser of $5,000 and the result of Step G (but not below zero) in order to determine the employee's aggregate non-exempt amount (see subsection 5B(1E)) for the 2016-2017 FBT year.

The aggregate non-exempt amount for Lee is:

= $537 - $5,000 (lesser of $5,882 and $5,000 = $0 (as the result is less than $0)

This amount of $0 will be included in the employer's fringe benefits taxable amount when calculating the FBT liability in relation to Lee for the 2016-2017 FBT year.

Step I

Lee's reportable fringe benefits amount to be reported on his payment summary is his individual fringe benefits amount grossed-up by the type 2 formula.

= $9,000 (see Step A) × 1 ÷ (1 - 0.49) = $17,647

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).