Edited version of your written advice

Authorisation Number: 1051253447383

Date of advice: 21 July 2017

Ruling

Subject: Fringe benefits tax – Residual benefits – In house benefit

Question 1

Does the provision of free tickets to employees of the employer by Entity 1 constitute a fringe benefit as defined in subsection 136(1) the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

If the answer to Question 1 is yes, do the free tickets constitute tax-exempt body entertainment fringe benefits under Division 10 of the FBTAA?

Answer

No.

Question 3

If the answer to Question 2 is no, do the free tickets constitute property fringe benefits under Division 11 of the FBTAA?

Answer

No.

Question 4

If the answer to Question 3 is no, do the free tickets constitute residual fringe benefits under Division 12 of the FBTAA?

Answer

Yes.

Question 5

If the answer to Question 4 is yes, can the free tickets be valued under the in-house non-period residual fringe benefit provisions contained within section 48 of the FBTAA?

Answer

Yes.

Question 6

If the answer to Question 5 is yes, can the free tickets provided constitute 'similar’ benefits for the purposes of section 48 of the FBTAA, and are therefore subject to a valuation of 75% of their notional value?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 March 2017

Year ending 30 March 2018

Year ending 30 March 2019

Year ending 30 March 2020

The scheme commences on:

1 April 2016.

Relevant facts and circumstances

The employer is a Relevant Agency and an authority of the State.

The employees of the employer receive free tickets granting admission to events from Entity 1.

The free tickets are provided to the employees in respect of their employment with the employer.

Restrictions are placed on the free tickets provided to the employees of the employer by Entity 1.

Entity 1 is a Government entity, classified as a Public Trading Enterprise. Entity 1 is an authority of the State.

Entity 1 carries on business providing a broad range of commercial performances and events to the general public for payment.

Entity 1 offers certain benefits to members of Entity 1 when they purchase tickets.

Employees of the employer do not enter into salary packaging arrangements for the tickets.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986

Division 10

Section 38

Division 11

Section 40

Division 12

Section 45

Section 48

Paragraph 48(aa)

Paragraph 48(ab)

Paragraph 48(b)

Subsection 136(1)

Subsection 149(1)

Section 159

Paragraph 159(2)(e)

Income Tax Assessment Act 1997

Section 32-5

Paragraph 32-10(1)(a)

Section 32-40

Section 995-1

Reasons for decision

Question 1

Summary

The provision of free tickets to employees of the employer by Entity 1 does constitute a fringe benefit as defined in subsection 136(1) the FBTAA.

Detailed reasoning

The term 'fringe benefit’ is comprehensively defined in subsection 136(1) of the FBTAA. Essentially, a fringe benefit is a benefit provided:

● to an employee in respect of the employee’s employment,

● by an employer, an associate of the employer, or by a third party under an arrangement with the employer.

Benefits provided in respect of employment

Subsection 136(1) of the FBTAA defines the words and phrases:

● 'benefit’ to include any right, privilege, service or facility,

● 'provide’, in relation to a benefit, to include allow, confer, give, grant or perform,

● 'in respect of employment’, in relation to the employment of an employee, to include by reason of, by virtue of, or for or in relation directly or indirectly to that employment.

The free tickets are provided to employees of the employer and confer a right to attend an event. The free tickets are available to the employees by reason of their employment.

As such, the tickets are benefits provided to the employees in respect of the employees’ employment.

Provider of the benefits

Where the provider of benefits is not the employer, the benefits are fringe benefits if they are provided by an associate of the employer.

Section 159 of the FBTAA ensures that certain entities are associates of each other for fringe benefits tax (FBT) purposes, and under paragraph 159(2)(e) an authority of a State is deemed to be an associate of each authority of the State.

ATO Interpretative Decision ATO ID 2012/94 Fringe Benefits Tax, Associate: authority of the State discusses what constitutes an 'authority of the State’ by reference to the following propositions considered by Hill J in FC of T v. Bank of Western Australia Ltd; FC of T v. State Bank of New South Wales Ltd 96 ATC 4009; (1995) 133 ALR 599:

● A question whether a particular entity is an authority will be a question of fact and degree dependent upon all the circumstances of the case. No one factor will be determinative; rather there will be a range of considerations.

● Incorporation by legislation is not necessary before a body may be classified as an authority.

● For a body to be an authority of a State or of the Commonwealth, the body in question must be an agency or instrument of government set up to exercise control or exercise a function in the public interest. It must be an instrument of government existing to achieve a government purpose.

● The body in question must perform a traditional or inalienable function of government and have governmental authority for so doing.

● It is not necessary for a person or body to be an authority that they have coercive powers, whether of an administrative or legislative character. Conversely the fact that a person or body has statutory duties or powers will not of itself suffice to characterize that person or body as an authority.

● At least where the question is whether a body is a 'public authority’ the body must exercise control power or command for the public advantage or execute a function in the public interest. The central concept is the ability to exercise power or command.

The Commissioner accepts both Entity 1 and the employer are authorities of the State, and as such, are associates for FBT purposes by virtue of section 159 of the FBTAA.

The provision of the free tickets by Entity 1 to the employees of the employer is a fringe benefit as it is a benefit provided in respect of the employees’ employment, provided by an associate of the employer.

Question 2

Summary

The free tickets do not constitute tax-exempt body entertainment fringe benefits under Division 10 of the FBTAA.

Detailed reasoning

Tax-exempt body entertainment benefits arise under section 38 of the FBTAA which states:

Where, at a particular time, a person (in this section referred to as the “provider”) incurs a 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.

One of the essential conditions for 'tax-exempt body entertainment benefits’ to arise under section 38 of the FBTAA is that the provider of the benefit incurs 'non-deductible exempt entertainment expenditure’.

The following terms are defined in subsection 136(1) of the FBTAA:

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).

entertainment has the meaning given by section 32-10 of the Income Tax Assessment Act 1997.

Section 32-5 of the Income Tax Assessment Act 1997 (ITAA 1997) prevents a deduction to the extent that expenses are incurred in respect of providing entertainment.

'Entertainment’ includes 'entertainment by way of … recreation’ (paragraph 32-10(1)(a) of the ITAA 1997). 'Recreation’ includes amusement, sport, or similar leisure-time pursuits (section 995-1 of the ITAA 1997).

However, item 3.1 of section 32-40 of the ITAA 1997 provides an exception in relation to entertainment industry expenses, whereby; section 32-5 does not stop any entity deducting for a loss or outgoing for providing entertainment for payment in the ordinary course of carrying on a business.

Entity 1 is the provider of the benefit. Entity 1 carries on business providing a broad range of cultural, tourism, community and commercial performances and events to the general public for payment. Attendance at a performance satisfies the definitions of recreation and entertainment for FBT and income tax purposes.

If it was not an exempt entity, Entity 1 would be earning assessable income from the sales of tickets. Providing this entertainment is considered to be in the ordinary course of Entity 1’s business. As such, item 3.1 of the table in section 32-40 of the ITAA 1997 is satisfied, and Entity 1 would be entitled to deduct the business costs incurred in providing tickets.

As Entity 1’s expenditure on the tickets is not 'non-deductible exempt entertainment expenditure’, section 38 of the FBTAA does not apply and the benefits are not tax-exempt body entertainment benefits.

Question 3

Summary

The free tickets do not constitute property fringe benefits under Division 11 of the FBTAA.

Detailed reasoning

Section 40 of the FBTAA establishes that where a person (the provider) provides property to another person (the recipient), the provision of that property shall be taken to constitute a benefit provided by the provider to the recipient. Subsection 136(1) defines 'property’ as being either 'tangible property’ or 'intangible property’.

Subsection 136(1) of the FBTAA defines 'tangible property’ and 'intangible property’ as follows:

tangible property means goods and includes:

(a) animals, including fish; and

(b) gas and electricity.

intangible property means:

(a) real property;

(b) a chose in action; and

(c) any other kind of property other than tangible property;

but does not include:

(d) a right arising under a contract of insurance; or

(e) a lease or licence in respect of real property or tangible property.

The term 'goods’ is not defined in the FBTAA and therefore takes its ordinary meaning. The Macquarie Dictionary [Multimedia], version 5.0.0, 1/10/01 (the Macquarie Dictionary defines the term 'good’ relevantly at paragraphs 27 through 29 as:

27. (plural) possessions, especially movable effect or personal chattels.

28. (plural) articles of trade; wares; merchandise, especially that which is transported by land.

29. an item of merchandise.

Entity 1 provides free tickets to employees of the employer. Whilst the tickets may satisfy the general meaning of a 'good’, no benefit or enjoyment is derived from the ticket itself, but rather, is derived from the right to attend the event that is attached to each ticket.

Whilst a ticket falls within the positive limb of the definition of 'intangible property’ in subsection 136(1) of the FBTAA, as a chose in action, the negative limb of the definition in paragraph (e) excludes them from the definition as a license in respect of real property or tangible property being the venue, seats and facilities made available to the employees to attend the event.

Therefore, the free tickets do not constitute property fringe benefits under section 40 of the FBTAA.

Question 4

Summary

The free tickets constitute residual fringe benefits under Division 12 of the FBTAA.

Detailed reasoning

Section 45 of the FBTAA states that:

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Division 2 to 11 (inclusive).

Essentially, residual fringe benefits are the fringe benefits that remain, or are left over, because they are not subject to the rules outlined in one of the more specific categories of fringe benefits in Divisions 2 to 11 of the FBTAA.

As discussed above, the free tickets provided to employees of the employer are not tax-exempt body entertainment benefits (under Division 10 of the FBTAA) or property benefits (under Division 11). Further, the benefits are not dealt with under any other provision in Divisions 2 to 11.

As such, the free tickets are residual benefits under Division 12 of the FBTAA.

Question 5 and 6

Summary

The free tickets are in-house non-period residual fringe benefits, and their taxable value under paragraph 48(b) of the FBTAA is 75% of the notional value of the benefit when each benefit is provided.

Detailed reasoning

The taxable value of in-house non-period residual fringe benefits is determined under section 48 of the FBTAA, which states:

Subject to this Part, the taxable value of an in-house non-period residual fringe benefit in relation to an employer in relation to a year of tax is:

(aa) if the benefit was provided to the recipient under a salary packaging arrangement …; or

(ab) if paragraph (aa) does not apply and the benefit is an airline transport fringe benefit …; or

(a) if neither paragraph (aa) nor (ab) applies and, at or about the comparison time, identical benefits were provided by the provider:

(i) in the ordinary course of business to members of the public under an arm's length transaction or arm's length transactions; and

(ii) in similar circumstances and subject to identical terms and conditions (other than as to price) as those that applied in relation to the provision of the recipients benefit to the recipient;

an amount equal to 75% of the lowest price at which an identical benefit was so sold to a member of the public; or

(b) in any other case - an amount equal to 75% of the notional value of the benefit at the comparison time;

reduced by the amount of the recipients contribution.

As the free tickets are not provided to the employees of the employer under a salary packaging arrangement, and are not airline transport fringe benefits, paragraphs 48(aa) and (ab) do not apply.

Subsection 136(1) of the FBTAA also provides the following relevant definitions:

In-house non-period residual fringe benefit means an in-house residual fringe benefit that is not provided during a period.

In-house residual fringe benefit, in relation to an employer, means a residual fringe benefit in relation to the employer:

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

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

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

(b) …

Comparison time , in relation to a residual fringe benefit, means:

…

(d) otherwise - the time when the benefit is provided.

Identical benefit , in relation to the recipients benefit in relation to a residual fringe benefit, means another benefit that is the same in all respects, except for differences (if any) that are minimal or insignificant and do not affect the value of the other benefit.

Outsider, in relation to the employment of an employee of an employer, means a person not being:

(a) an employee of the employer;

(b) an employee of an associate of the employer;

(c) …; or

(d) an associate of an employee to whom any of the preceding paragraphs apply.

A benefit is taken to be 'provided during a period’:

'if, and only if, the benefit:

(a) is provided, or subsists, during a period of more than 1 day; and

(b) is not deemed by a provision of this Act to be provided at a particular time or on a particular day (subsection 149(1) of the FBTAA).

The meaning of the terms 'identical' and 'similar' are further discussed in paragraph 204 of Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12) as follows:

The Macquarie Dictionary defines 'identical' as:

1. (sometimes followed by to or with) corresponding exactly in nature, appearance, manner, etc.: this leaf is identical to that.

2. the very same: I almost bought the identical dress you are wearing

and 'similar' as:

1. having a likeness or resemblance, especially in a general way.

Taxable value of in-house non-period residual fringe benefits

As previously discussed, Entity 1 carries on business providing recreational event entertainment, including providing performance tickets predominantly to the general public (which satisfies the definition of 'outsider’ in subsection 136(1) of the FBTAA).

The free tickets do not provide the employees of the employer with any benefits, such as those that may be provided to members of Entity 1. Further, employees of the employer are subject to additional restrictions when compared with tickets offered to the general public.

We consider the free tickets are 'similar’, but not 'identical’ to the tickets offered by Entity 1 to the general public.

Further, as the benefits provided by the free tickets do not extend to a period of more than 1 day, the benefits are non-period benefits.

Therefore the free tickets are in-house non-period residual fringe benefits, and their taxable value under paragraph 48(b) of the FBTAA is 75% of the notional value of the benefit when each benefit is provided.

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