Edited version of your written advice

Authorisation Number: 1013139377093

Ruling

Subject: Fringe benefits tax

Question 1

Will food and drinks provided to employees at the restaurant which is operated by the employer, constitute tax exempt body entertainment fringe benefits under section 38 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

If the answer to question 1 is no, will food and drinks provided to employees at the restaurant constitute property fringe benefits as defined in subsection 136(1) of the FBTAA?

Answer

Yes

Question 3

If the answer to question 1 is no, please confirm that section 58P of the FBTAA may apply subject to the conditions in paragraphs 58P(1)(a), (b), (c), (e) and (f) of the FBTAA being satisfied.

Answer

Withdrawn by the applicant

Question 4

If the answer to question 2 is yes, will section 41 of the FBTAA apply subject to the conditions in paragraphs 41(1)(a) and (b) of the FBTAA being satisfied.

Answer

Yes

Question 5

If the answer to question 2 is yes and the benefit is not exempt under section 41 of the FBTAA, will the property fringe benefit satisfy the definition of an in-house property fringe benefit under subsection 136(1) of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 201X

Year ended 31 March 201X

Year ended 31 March 201X

Year ended 31 March 201X

Year ended 31 March 20XX

The scheme commences on:

1 April 201X

Relevant facts and circumstances

The employer is wholly exempt from income tax under section 50-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

The employer operates a restaurant on its premises.

The restaurant is open to the public and charges the public for the use of the facilities and the provision of food and drinks.

From time to time, the employer provides food and drinks to employees its employees at the restaurant at no cost to the employees. The food and drinks are not provided under a salary packaging arrangement.

In some cases, the employees will use the employer's corporate credit card to pay for food and drinks. The employer is legally liable for any expense incurred on the corporate credit card.

The nature in which the food and drinks are provided to employees is such that it would be regarded as entertainment.

The employer has not made a meal entertainment election under Division 9A of the FBTAA.

Assumption

For the purposes of question 2 only, it is assumed that the provision of the food and drink is not exempt under section 41 of the FBTAA.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 38,

Fringe Benefits Tax Assessment Act 1986 section 40,

Fringe Benefits Tax Assessment Act 1986 section 41,

Fringe Benefits Tax Assessment Act 1986 subsection 136(1),

Fringe Benefits Tax Assessment Act 1986 Subdivision A of Divisions 2 to 10 of Part III,

Income Tax Assessment Act 1997 section 32-5 and

Income Tax Assessment Act 1997 section 32-40.

Reasons for decision

Question 1

Summary

The employer has not provided tax-exempt body entertainment fringe benefits to its employees.

Detailed reasoning

The nature in which the food and drinks are provided to employees of the employer at the restaurant is such that it would be regarded as entertainment. Only entertainment that is non-deductible for income tax purposes can give rise to a tax-exempt body entertainment fringe benefit under section 38 of the FBTAA.

Section 38 of the FBTAA provides:

Where, at a particular time, a person (in this section 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 (in this section 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.

As provided by section 38 of the FBTAA, the employer incurs expenditure operating the restaurant which is partly in respect of the provision, in respect of the employment of its employees, of entertainment to its employees.

Subsection 136(1) of the FBTAA provides:

non-deductible exempt entertainment expenditure means non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income.

non-deductible entertainment expenditure means 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 the Income Tax Assessment Act 1997 had not been enacted).

If the employer was not exempt from income tax it would be deriving assessable income and deducting its operating expenses in relation to the restaurant. Where this operating expenditure would also be entertainment expenditure under section 32-5 of the ITAA 1997 then the employer will have incurred non-deductible entertainment expenditure which is also non-deductible exempt entertainment expenditure. Under these circumstances the employer would have provided a benefit under section 38 of the FBTAA.

However, section 32-40 of the ITAA 1997 provides an exception to what is considered entertainment expenditure in section 32-5 of the ITAA 1997. Section 32-40 of the ITAA 1997, at Item 3.1, provides:

Section 32-5 does not stop you deducting a loss or outgoing for ... 3.1 providing *entertainment for payment in the ordinary course of a *business that you carry on.

The employer carries on a business at the restaurant to members of the public for payment. The business is one of providing food and drink which is entertainment and the activity is considered to be 'in the ordinary course of a business'. Section 32-40 of the ITAA 1997 is therefore satisfied.

This means that the employer's expenditure is not entertainment expenditure within section 32-5 of the ITAA 1997. It is not non-deductible entertainment expenditure within subsection 136(1) of the FBTAA and is not non-deductible exempt entertainment expenditure within subsection 136(1) of the FBTAA.

The benefit provided to the employees, being entertainment by way of food and drink at the restaurant during the course of the year is, therefore, not a benefit which is covered by section 38 of the FBTAA.

Question 2

Summary

The provision of food and drink at the restaurant to employees will be a property fringe benefit as defined in subsection 136(1) of the FBTAA where it is not exempt under section 41 of the FBTAA.

Detailed reasoning

For the purposes of this question only it is assumed that the provision of food and drink to the employee at the restaurant will not be exempt benefits under section 41 of the FBTAA.

The term property fringe benefit is defined in subsection 136(1) of the FBTAA to mean 'a fringe benefit that is a property benefit' and property benefit is defined in that subsection to mean:

a benefit referred to in section 40, but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III.

Section 40 of the FBTAA states:

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 provision of the property shall be taken to constitute a benefit provided to the provider to the recipient at that time.

Property is defined in subsection 136(1) of the FBTAA to include tangible property.

Where employees use a corporate credit card to purchase the food and drink at the restaurant it is the employer that is liable for any expenses incurred on the credit card. Therefore, whether the employees are provided with the food and drink for free or use the employer corporate credit card, the benefit they are receiving is the provision of food and drink which is tangible property.

The provision of the food and drink to employees does not fit within any of the categories in Subdivision A of Divisions 2 to 10 (inclusive) of Part III.

Consequently the provision of the food and drink to employees is a property benefit. It will be a property fringe benefit if it satisfies the definition of a fringe benefit within subsection 136(1) of the FBTAA:

fringe benefit , in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

(i) the employer or an associate of the employer; and

(ii) the arranger or another person; or

(ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer:

(i) participates in or facilitates the provision or receipt of the benefit; or

(ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;

and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

in respect of the employment of the employee, but does not include:

…

(g) a benefit that is an exempt benefit in relation to the year of tax;

The employer is providing a benefit to its employees, being the food and drink. They are receiving the benefit because they are employees therefore it is provided in respect of their employment. Where the benefit is not an exempt benefit it will not be excluded by virtue of paragraph (g) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

Consequently, the provision of food and drink to employees will be fringe benefits that are property benefits and therefore property fringe benefits as defined in subsection 136(1) of the FBTAA.

Question 4

Summary

The food and drink provided to employees at the restaurant will be an exempt benefit under section 41 of the FBTAA where the conditions in paragraphs 41(1)(a) and (b) are satisfied.

Detailed reasoning

Section 41 of the FBTAA states:

(1) 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 the 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.

(2) This section does not apply to food and drink provided to, and consumed by, an employee if the food or drink is provided under a salary packaging arrangement.

The employer is not providing food and drink at the restaurant as part of salary packaging arrangements with its employees, therefore where paragraphs 41(1)(a) and (b) are satisfied, the provision of the food and drink to its employees will be exempt benefits.

Question 5

Summary

Where the provision of the food and drink is not exempt under section 41 of the FBTAA, the property fringe benefit would satisfy the definition of an in-house property fringe benefit under subsection 136(1) of the FBTAA.

Detailed reasoning

As is relevant to the employer, in-house property fringe benefit is defined in subsection 136(1) of the FBTAA as follows:

…in relation to an employer, means a property fringe benefit in relation to the employer in respect of tangible property:

(a) where both of the following conditions are satisfied:

(i) the provider is the employer or an associate of the employer; and

(ii) at or about the provision time, the provider carried on a business that consisted of or included the provision of identical or similar property principally to outsiders; …

Where the provision of the food and drink is not exempt under section 41 of the FBTAA it will be a property fringe benefit. The property fringe benefit is in respect of tangible property.

The provider of the food and drink is the employer and it carries on the business of providing food and drink at the restaurant to members of the public. Therefore the provision of the food and drink will be an in-house property fringe benefit.

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