Edited version of your written advice

Authorisation Number: 1051308025297

Date of advice: 15 November 2017

Ruling

Subject: Tax-exempt body entertainment

Question 1

Can the taxable value of the food and drink provided to your employees at the Christmas party be calculated using the 50/50 split method in accordance with section 37BA of the Fringe Benefits Tax Assessment Act?

Answer

Yes

Question 2

Can the taxable value of the transport by way of bus provided to your employees be calculated using the 50/50 split method in accordance with section 37BA of the Fringe Benefits Tax Assessment Act?

Answer

Yes

Question 3

Will the provision of the band be an exempt benefit?

Answer

No

Question 4

If the answer to question 3 is no, can the taxable value of the benefits arising from the provision of the band be calculated using the 50/50 split method in accordance with section 37BA or section 152B of the Fringe Benefits Tax Assessment Act ?

Answer

No

Question 5

If the provision of the book is a separate benefit, is the benefit exempt as a minor benefit in accordance with section 58P of the Fringe Benefits Tax Assessment Act ?

Answer

Yes

This ruling applies for the following periods:

1 April 2016 to 31 March 2017

The scheme commences on:

In the year ended 31 March 2017.

Relevant facts and circumstances

You are endorsed as income tax exempt with the Australian Taxation Office.

In the fringe benefits tax (FBT) year ended 31 March 2017 you made an election under section 37AA of the of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) that Division 9A of the FBTAA will apply in respect of the FBT year ended 31 March 2017 to calculate the taxable value of meal entertainment provided.

You did not make a further election that Subdivision C of the FBTAA applies.

In the relevant year you held a Christmas party for your employees. All attendees were employed by you at the time of the Christmas party.

The Christmas party was not held at your employee’s usual place of employment.

Recreational entertainment was available to members of the general public at the location that the Christmas party was held on the evening of the Christmas party including during the time of the Christmas party.

General admission to attend the recreational entertainment held at the Christmas party location on the evening of the Christmas Party was free.

A book/ program relating to the recreational entertainment available on the evening of your Christmas party was for sale for $X per book.

The vendor of the party location charged a set amount per attendee for an all-inclusive

The all-inclusive package included a beverage package, a food package, ticketing, a book, staffing, complimentary car parking and audio visual equipment.

There was no separate venue hire fee.

You hired buses to transport the employees from their workplace to the Christmas party and back to the workplace.

You hired a band to perform at the party.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Division 9A

Fringe Benefits Tax Assessment Act 1986 section 37AD

Fringe Benefits Tax Assessment Act 1986 section 37B

Fringe Benefits Tax Assessment Act 1986 section 37BA

Fringe Benefits Tax Assessment Act 1986 section 38

Fringe Benefits Tax Assessment Act 1986 section 39

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 58P

Fringe Benefits Tax Assessment Act 1986 section 152B

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 32-5

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

Reasons for decision

Question 1

Summary

The food and drink provided to your employees is a tax-exempt body entertainment benefit. As the food and drink consists of meal entertainment and you made an election to apply Division 9A of the FBTAA, the taxable value of the food and drink can be calculated using the 50/50 split method in accordance with section 37BA of the FBTAA.

Detailed reasoning

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides the following definition of a ‘fringe benefit’:

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) …

…

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

(f) …

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

(h) …

The food and drink you provided to your employees at the Christmas party is a benefit that will be a fringe benefit as long as it is not an exempt benefit.

The food and drink was provided as part of an all-inclusive package which included a beverage package, a food package, ticketing, a book, staffing, complimentary car parking and audio visual equipment.

In order to determine whether any exemptions apply and if not, to calculate the taxable value of the benefit, it is necessary to initially consider the type of benefit that is provided. The FBTAA is divided into 13 types of benefits and each type has its own valuation rules.

There is no specific ‘entertainment fringe benefit’ category. The provision of entertainment may give rise to a numerous categories of benefits depending on how the entertainment is provided. As you are an endorsed income tax-exempt employer the most relevant type of benefit in relation to the provision of the food and drink is a tax-exempt body entertainment fringe benefit.

Tax-exempt body entertainment benefits

Tax-exempt body entertainment benefits are defined in section 38 of the FBTAA, which states:

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.

The term ‘non-deductible exempt entertainment expenditure is defined in subsection 136(1) of the FBTAA as follows:

‘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’ is also defined in subsection 136(1) of the FBTAA as:

…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

Section 32-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states:

To the extent that you incur a loss or outgoing in respect of providing *entertainment, you cannot deduct it under section 8-1. However, there are exceptions, which are set out in subdivision 32-B.

Therefore, applying these provisions, a tax-exempt body entertainment benefit will arise where the following conditions are satisfied:

(i) entertainment is provided to an employee (or an associate of an employee),

(ii) the expenditure incurred in providing the entertainment was not incurred in producing assessable income, and

(iii) section 32-5 of the ITAA 1997 would have prevented the person who incurred the expenditure from claiming an income tax deduction for the expenditure under section 8-1 of the ITAA 1997 if it had been incurred in producing assessable income.

Each of these requirements is considered below:

(i) Does the food and drink provided to your employees constitute the provision of entertainment?

All attendees at the Christmas party were your employees at the time of the party.

Subsection 136(1) of the FBTAA provides that ‘entertainment’ within the FBTAA has the meaning given by section 32-10 of the ITAA 1997.

The ITAA 1997 defines ‘entertainment’ in subsection 32-10(1) as:

(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.

Taxation Ruling TR 97/17 Income Tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17) discusses the concept of what is entertainment as it relates to the provision of food or drink for the purposes of the FBTAA and the ITAA 1997 and provides guidance on how to identify whether the provision of food or drink is entertainment. Relevantly, TR 97/17 states:

6. The definition of ‘entertainment’ contained in section 32-10 of the ITAA, and adopted by the FBTAA in the definition of ‘entertainment’ in subsection 136(1), does not prescribe that entertainment occurs every time food or drink is provided.

7. In order to determine when the provision of food or drink to a recipient results in the entertainment of that person, an objective analysis of all the circumstances surrounding the provision of the food or drink is required. In making this determination an employer should consider:

● why the food or drink is being provided ;

● what type of food or drink is being provided;

● when that food or drink is being provided; and

● where the food or drink is being provided.

Food or drink which is determined by these criteria to constitute entertainment is taken to be ‘meal entertainment’.

…

23. It can be seen that the determination of whether or not the provision of food or drink constitutes entertainment requires an objective analysis of all the circumstances surrounding that provision. We are of the view that the following are relevant factors that should be considered in undertaking any objective analysis:

(a) Why is the food or drink being provided. This test is a ‘purpose test’. For example, food or drink provided for the purposes of refreshment does not generally have the character of entertainment, whereas food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment.

(b) What food or drink is being provided. As noted above, morning and afternoon teas and light meals are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment, The reason for this is that the more elaborate a meal, the greater the likelihood that entertainment arises from the consumption of the meal.

For example, when an employer provides morning or afternoon teas or light meals, that food or drink does not usually confer entertainment on the employee. By contrast, a three course meal provided to an employee during a working lunch has the characteristics of entertainment. The nature of the food itself confers entertainment on the employee.

(c) When is the food or drink being provided. Food or drink provided during work time, during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because in the majority of these cases food provided is for a work-related purpose rather than an entertainment purpose. This, however, depends upon whether the entertainment of the recipient is the expected outcome of the provision or the food or drink. For example, a staff social function held during work time still has the character of entertainment.

(d) Where is the food or drink being provided. Food or drink provided on the employer’s business premises or at the usual place of work of the employee is less likely to have the character of entertainment; refer to the reasons in (b) and (c) above. However, food or drink provided in a function room, hotel, restaurant, café, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment. This is because the provision of the food or drink is less likely to have a work-related purpose.

24. None of the above factors will be determinative; however, paragraphs (a) and (b) are considered the more important…

Applying the factors set out in TR 97/17 as discussed above, the provision of the food and drink at the Christmas party constitutes the provision of entertainment for the purposes of the FBTAA and the ITAA 1997.

(ii) Was the entertainment expenditure incurred in producing assessable income?

As you are an income tax exempt body, the entertainment expenditure was not incurred in producing assessable income.

(iii) If the expenditure had been incurred in producing assessable income would section 32-5 of the ITAA 1997 have prevented an income tax deduction being claimed for the expenditure?

The tables in sections 32-30 to 32-50 of the ITAA 1997 set out the situations in which section 32-5 of the ITAA 1997 does not prevent a deduction being claimed for entertainment expenses. From the information provided, none of these exceptions appear to apply.

Conclusion – tax-exempt body entertainment benefit

Therefore, a tax-exempt body entertainment benefit will arise from the provision of the food and drink to your employees.

Does an exemption apply?

As discussed above, the definition of ‘fringe benefit’ in subsection 136(1) of the FBTAA provides that a benefit will only be a fringe benefit if no exemptions apply.

In relation to tax-exempt body entertainment benefits, section 58P states:

Section 58P Exempt benefits – minor benefits

58P(1) [Tests for exemption] Where:

(a) a benefit (in this section called a minor benefit) is provided in, or in respect of, a year of tax (in this section called the current year of tax) in respect of the employment of an employee of an employer;

(b) …

(c) …

(d) in the case of a tax-exempt body entertainment benefit where the provider incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision of entertainment to the employee or an associate of the employee:

(i) the provision of entertainment to the employee or the associate of the employee, as the case may be:

(A) is incidental to the provision of entertainment to outsiders; and

(B) neither consists of, nor is provided in connection with, the provision of a meal (other than a meal consisting of light refreshments) to the employee or the associate of the employee, as the case may be; or

(ii) the entertainment is provided to the employee or the associate of the employee, as the case may be:

(A) on eligible premises of the employer; and

(B) solely as a means of recognising the special achievements of the employee in a matter relating to the employment of the employee;

(e) …

…

the minor benefit is an exempt benefit in relation to the current year of tax.

That is, even if the other criteria for the minor benefits exemption to apply are met, the minor benefits exemption will only apply if either:

● the entertainment provided is incidental to the entertainment provided to outsiders and does not consist of a meal other than light refreshments; or

● a function is held on your business premises solely as a means of recognising the special achievement of your employee in a matter relating to their employment.

As neither of these circumstances applies the benefit will not be exempt as a minor benefit.

No other exemptions are relevant. You have provided the benefit to your employees in respect of their employment and therefore the benefit will be a tax-exempt body entertainment fringe benefit.

Taxable value of the tax-exempt body entertainment fringe benefits

Section 39 of the FBTAA sets out how the taxable value of tax-exempt body entertainment benefits are calculated and states:

Section 39 Taxable value of tax-exempt body entertainment fringe benefits

Subject to this Part, the taxable value of a tax-exempt body entertainment fringe benefit in relation to an employer in relation to a year of tax is so much of the expenditure referred to in section 38 as is attributable to the provision of the entertainment referred to in that section.

Where tax-exempt body entertainment fringe benefits arise from the provision of ‘meal entertainment’ as defined in Division 9A of the FBTAA, income tax-exempt bodies can elect that the taxable value of the benefits is to be calculated in accordance with the methods contained in Division 9A of the FBTAA.

In the relevant FBT year you made an election under section 37AA of the FBTAA that Division 9A of the FBTAA would apply in respect of that FBT year. Therefore, if the entertainment provided is ‘meal entertainment’ as defined by the FBTAA, the taxable value can be calculated in accordance with the section 37AA election.

Section 37AD of the FBTAA defines ‘meal entertainment’ as:

Section 37AD Meaning of provision of meal entertainment

37AD 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.

As concluded above using the guidelines set out in TR 97/17 the provision of the food and drinks at the Christmas party constitutes the provision of entertainment for the purposes of the FBTAA and the ITAA 1997 and is considered to be ‘entertainment by way of food or drink’ and therefore the provision of ‘meal entertainment’ in accordance with subsection 37AD(a) of the FBTAA.

The meal entertainment provision contained in Division 9A of the FBTAA set out the methods available to calculate the taxable value of meal entertainment provided by an employer that has made an election to use this Division. Section 37B of the FBTAA sets out the key principle of Division 9A:

Section 37B Key Principle

If an employer elects that this Division applies, then (unless the employer elects that Subdivision C applies) the taxable value of meal entertainment fringe benefits provided to the employer’s employees and associates of those employees by the employer is half the expenses incurred for the FBT year by the employer in providing meal entertainment benefits.

Section 37BA provides the 50/50 split method and states:

Section 37BA Taxable value using 50/50 split method

37BA If this Division applies to an employer for an FBT year then, unless the employer elects that Subdivision C applies, the total taxable value of meal entertainment fringe benefits of the employer for the FBT year is 50% of the expenses incurred by the employer in providing meal entertainment for the FBT year.

In the relevant FBT year you made an election under section 37AA of the FBTAA that Division 9A of the FBTAA will apply.

You did not make a further election that Subdivision C of the FBTAA applies and therefore the taxable value of meal entertainment provided to your employees and their associates will be calculated using the 50/50 split method in accordance with section 37BA of the FBTAA.

As stated above, section 37BA states that the taxable value is 50% of the expenses incurred by the employer in providing meal entertainment.

It is important to note that the food and drink was provided to your employees as part of an all-inclusive package which included a beverage package, a food package, ticketing, a book, staffing, complimentary car parking and audio visual equipment. The vendor of the party location charged a set amount per attendee for an all-inclusive

Before calculating the taxable value of the food and drink providing in accordance with section 37BA of the FBTAA it is important to consider whether the incurred expenses referred to in section 37BA is the package cost per attendee or some other amount.

Ticketing

The tickets to partake in the recreational entertainment is entertainment however, it is recreational entertainment and does not fall within the definition of meal entertainment provided by section 37AD of the FBTAA.

General admission to attend the recreational entertainment held at the Christmas party location on the evening of the Christmas Party was free.

Therefore we accept that no portion of the cost of the all-inclusive package is attributable to the cost of ticketing.

Car parking

ATO Interpretative Decision ATO ID 2014/15 Fringe Benefits Tax Meal Entertainment Fringe Benefit: travel – reimbursement of car parking fees (ATOID 2014/15) provides that car parking fees reimbursed by an employer are an expense incurred in providing the employee with travel in connection with or for the purposes of facilitating entertainment by way of food or drink for the purposes of the definition of meal entertainment contained in section 37AD of the FBTAA. The same principle can be applied in your circumstances and the car parking included in the all-inclusive package is considered to fall within the meal entertainment definition contained in section 37AD of the FBTAA and does not need to be excluded from the expenses included in the meal entertainment calculation.

Book

The all-inclusive package also included the provision of a book. The book was available to the general public to purchase on the evening of the Christmas party for $X. Section 40 of the FBTAA states sets out the circumstances in which a property benefit will arise. Section 40 states:

Property Benefit

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 by the provided to the recipient at that time.

The provision of the book is a property benefit in accordance with section 40 of the FBTAA and if it is a fringe benefit the taxable value will need to be calculated in accordance with the provisions set out in Division 11 of the FBTAA. Therefore the cost included in the all-inclusive package attributable to the book should be deducted from the per attendee price of the package before calculating the taxable value of the tax-exempt body entertainment fringe benefit arising from the provision of the food and drink using the meal entertainment provisions.

The package also included staffing and audio visual equipment. A separate quantifiable value cannot be identified for these elements and therefore no amount needs to be removed from the value of the all-inclusive package to account for them. We consider that they form part of the value of the food and drink in the same way that they would if the meal was taken at a restaurant.

Summary

The food and drink provided to your employees is a tax-exempt body entertainment benefit. You made an election to calculate the taxable value of meal entertainment provided using Division 9A of the FBTAA. You did not make a further election that Subdivision C of the FBTAA applies. The taxable value of the food and drink provided can be calculated in accordance with the 50/50 split method in accordance with section 37BA of the FBTAA. The food and drink was provided as part of an all-inclusive package which cost a set amount per attendee. Included in the package cost was a separate property benefit with a cost of $X. Therefore the taxable value of the tax-exempt body entertainment benefit provided by the provision of the food and drink will be 50% of the all-inclusive package cost less the $X price of the book.

Question 2

Summary

The transport provided to your employees is a tax-exempt body entertainment benefit. As the transport is travel that is provided in connection with the provision of entertainment by way of food or drink and you made an election to apply Division 9A of the FBTAA, the taxable value of the transport can be calculated using the 50/50 split method in accordance with section 37BA of the FBTAA.

Detailed reasoning

You hired buses to transport the employees from their workplace to the Christmas party and back.

Refer to the reasoning in question 1 above.

As discussed above, a tax-exempt body entertainment benefit will arise where entertainment is provided to an employee or their associate, the expenditure incurred in providing the entertainment was not incurred in producing assessable income, and section 32-5 of the ITAA 1997 would have prevented the person who incurred the expenditure from claiming an income tax deduction for the expenditure under section 8-1 of the ITAA 1997 if it had been incurred in producing assessable income.

Paragraph 32-10(1)(b) of the ITAA 1997 states that ‘entertainment’ includes travel to do with providing entertainment by way of food, drink or recreation.

At question 1 above it was concluded that the food and drink provided at the Christmas party was entertainment by way of food and drink. Therefore the transport provided by way of the buses is ‘entertainment’ for the purposes of the tax-exempt body entertainment benefit definition contained in section 38 of the FBTAA.

The expenditure incurred in providing the entertainment was not incurred in producing your assessable income and from the information provided none of the exceptions set out in the tables in sections 32-30 to 32-50 of the ITAA 1997 appear to apply.

Therefore the provision of the transport to your employees is a tax-exempt body entertainment benefit according to section 38 of the FBTAA.

For the same reasons as provided in question 1 above the minor benefits exemption will not apply as the requirements of paragraph 58P(1)(d) of the FBTAA are not met.

No other exemptions are relevant. The transport is provided to your employees in respect of their employment and therefore the benefit will be a tax-exempt body entertainment fringe benefit.

As discussed at question 1 above where tax-exempt body entertainment fringe benefits arise from the provision of ‘meal entertainment’ as defined in Division 9A of the FBTAA, income tax-exempt bodies can elect that the taxable value of the benefits are to be calculated in accordance with the methods contained in Division 9A of the FBTAA. In the relevant FBT year you made an election under section 37AA of the FBTAA that Division 9A of the FBTAA would apply in respect of that FBT year.

It was concluded at question 1 above that the food and drink provided at the Christmas party constituted the provision of entertainment by way of food and drink and therefore constituted the provision of meal entertainment according to subsection 37AD(a) of the FBTAA.

Subsection 37AD(b) of the FBTAA provides that the provision of meal entertainment also includes a reference to the provision of accommodation or travel in connection with or for the purposes of facilitating, entertainment that is meal entertainment according to subsection 37AD(a) of the FBTAA.

The transport was provided in connection with or for the purposes of facilitating the meal entertainment provided through the provision of the food and drink and therefore meets the definition of meal entertainment according to subsection 37AD(b) of the FBTAA. .

You can therefore calculate the taxable value of the transport provided to your employees using the 50/50 split method as set out in section 37BA of the FBTAA.

Question 3

Summary

The provision of the band will constitute the provision of a tax-exempt body entertainment benefit. Due to the operation of paragraph 58P(1)(d) of the FBTAA the benefits cannot be exempt as minor benefits. No other exemptions apply.

Detailed reasoning

You hired a band to perform at the party.

Refer to the reasoning in question 1 above.

As discussed above, a tax-exempt body entertainment benefit will arise where entertainment is provided to an employee or their associate, the expenditure incurred in providing the entertainment was not incurred in producing assessable income, and section 32-5 of the ITAA 1997 would have prevented the person who incurred the expenditure from claiming an income tax deduction for the expenditure under section 8-1 of the ITAA 1997 if it had been incurred in producing assessable income.

Paragraph 32-10(1)(a) of the ITAA 1997 states that ‘entertainment’ includes entertainment by way of recreation. Recreation is a defined term in the ITAA 1997 and the definition provided by section 995-1 states:

recreation includes amusement, sport or similar leisure-time pursuits.

‘Recreation’ is also defined in subsection 136(1) of the FBTAA as:

(a) amusement;

(b) sport or similar leisure-time pursuits; and

(c) recreation or amusement provided on, or by means of, a vehicle, ship, vessel or aircraft.

In reference to the meaning of recreational entertainment, chapter 15 of Fringe benefits tax – a guide for employers (FBT guide for employers) states at paragraph 15.12 that examples of recreational entertainment include a game of golf, theatre or movie tickets, a joy flight or a harbour cruise.

The provision of the band will constitute entertainment by way of recreation.

The expenditure incurred in providing the entertainment was not incurred in producing your assessable income and from the information provided none of the exceptions set out in the tables in sections 32-30 to 32-50 of the ITAA 1997 appear to apply.

Therefore the provision of the recreational entertainment to your employees is a tax-exempt body entertainment benefit according to section 38 of the FBTAA.

For the same reasons as provided in question 1 above the minor benefits exemption will not apply as the requirements of paragraph 58P(1)(d) of the FBTAA are not met.

No other exemptions are relevant. The recreational entertainment is provided to your employees in respect of their employment and therefore the benefit will be a tax-exempt body entertainment fringe benefit.

Question 4

Summary

If the answer to question 3 is no, can the taxable value of the benefits arising from the provision of the band be calculated using the 50/50 split method in accordance with section 37BA or section 152B of the Fringe Benefits Tax Assessment Act ?

Detailed reasoning

Refer to the reasoning in question 3 above. The provision of the band is recreational entertainment are a tax-exempt body entertainment fringe benefit.

As discussed in question 1 above, section 39 of the FBTAA states that the taxable value of a tax-exempt body entertainment fringe benefit is so much of the entertainment expenditure as defined in section 38 of the FBTAA.

Where tax-exempt body entertainment fringe benefits arise from the provision of ‘meal entertainment’ as defined in Division 9A of the FBTAA, income tax-exempt bodies can elect that the taxable value of the benefits is to be calculated in accordance with the methods contained in Division 9A of the FBTAA.

Recreational entertainment is not included in the definition of the provision of meal entertainment provided by section 37AD of the FBTAA and therefore the taxable value of the tax-exempt body entertainment fringe benefits arising from the provision of the band cannot be calculated using the 50/50 split method set out in section 37BA of the FBTAA.

The provision of the recreational entertainment does not constitute an entertainment facility leasing expense according to the definition provided by subsection 136(1) of the FBTAA and therefore the taxable value cannot be calculated using the 50/50 split method for entertainment facility leasing costs set out in section 152B of the FBTAA.

No other provisions apply to reduce the taxable value of the tax-exempt body entertainment benefits arising from the provision of the band and therefore the taxable value will be the same as the cost of the entertainment in accordance with section 39 of the FBTAA.

Question 5

Summary

The provision of the book will be a property benefit. As the benefit is not a tax-exempt body entertainment benefit, paragraph 58P(1)(d) will not prevent the minor benefits exemption from applying. The requirements of the minor benefits exemption have been met and the benefit will be exempt as a minor benefit.

Detailed reasoning

As discussed in question 1 above, the provision of the book as part of the all-inclusive package is a property benefit in accordance with section 40 of the FBTAA.

As the benefit is not a tax-exempt body entertainment benefit, paragraph 58P(1)(d) will not prevent the minor benefits exemption from applying.

The requirements for the minor benefits exemption to apply in these circumstances are set out in section 58P of the FBTAA which states:

58P Exempt benefits – minor benefits

(1) Where:

(a) a benefit (in this section called a minor benefit) is provided in, or in respect of, a year of tax (in this section called the current year of tax) in respect of the employment of an employee of an employer;

...

(e) the notional taxable value of the minor benefit in relation to the current year of tax is less than $300; and

(f) having regard to:

(i) the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to:

(A) the minor benefit; or

(B) benefits provided in connection with the provision of the minor benefit;

have been or can reasonably be expected to be provided;

(ii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of the minor benefit and any associated benefits, being benefits that are identical or similar to the minor benefit, in relation to the current year of tax or any other year of tax;

(iii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of any other associated benefits in relation to the current year of tax or any other year of tax;

(iv) the practical difficulty for the employer in determining the notional taxable values in relation to the current year of tax:

(A) if the minor benefit is not a car benefit – the minor benefit; and

(B) if there are any associated benefits that are not car benefits – those associated benefits; and

(v) the circumstances surrounding the provision of the minor benefit and any associated benefits including, but without limiting the generality of the foregoing:

(A) whether the benefit concerned was provided to assist the employee to deal with an unexpected event; and

(B) whether the benefit concerned was provided otherwise than wholly or principally by way of a reward for services rendered, or to be rendered, by the employee;

it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefit in relation to the employer in relation to the current year of tax;

the minor benefit is an exempt benefit in relation to the current year of tax.

Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12) summarises the requirements of section 58P:

8. A minor benefit is an exempt benefit under section 58P where:

● the notional taxable value of the minor benefit is less than $300; and

● it would be concluded that it would be unreasonable, having regard to the specified criteria in paragraph 58P(1)(f), to treat the minor benefit as a fringe benefit.

In summarising, a benefit is an exempt benefit under section 58P of the FBTAA if:

1. the notional taxable value of the benefit is less than $300

2. it would be concluded that it would be unreasonable, having regard to the specified criteria in paragraph 58P(1)(f), to treat the minor benefit as a fringe benefit.

1. Is the notional taxable value of the benefit less than $300?

Paragraphs 176 to 186 of TR 2007/12 discuss this requirement:

176. Only a benefit which has not been specifically excluded, as discussed at paragraphs 159 to 175 of this Ruling, and that has a notional taxable value of less than $300 can be considered for exemption under section 58P.

177. What is commonly referred to as the ‘minor benefits threshold test’ is contained in paragraph 58P(1)(e). This test requires that the minor benefit, in relation to the current year of tax, has a notional taxable value of less than $300.

178. The threshold test applies to each separate minor benefit provided to the particular employee, or provided to an associate of an employee.

…

180. The term ‘notional taxable value’ is defined in subsection 136(1):

‘notional taxable value’, in relation to a benefit provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer, means the amount that, if it were assumed that:

...

(b) in all cases – the benefit was a fringe benefit in relation to the employer in relation to the year of tax;

would be the taxable value of the fringe benefit in relation to the year of tax.

The benefit in question is not specifically excluded from being a minor benefit according to the criteria discussed at paragraphs 159 to 175 of TR 2007/12. The book has a notional value of less than $300 ($X) in accordance with the definition provided by subsection 136(1) of the FBTAA.

2. Would it be concluded that it would be unreasonable, having regard to the specified criteria in paragraph 58P(1)(f) of the FBTAA, to treat the minor benefit as a fringe benefit?

Paragraph 58P(1)(f) of the FBTAA sets out five criteria to be considered when deciding if it would be unreasonable to treat the minor benefit as a fringe benefit. Chapter 20 of the FBT guide for employers summarises these five criteria as follows:

1. The infrequency and irregularity with which associated benefits, being benefits that are identical or similar to the minor benefit and benefits given in connection with the minor benefit, are provided. The more frequently and regularly associated benefits are provided, the less likely that the minor benefit will qualify as an exempt benefit.

2. The total of the notional taxable values of the minor benefit and identical or similar benefits to the minor benefit. The greater the total value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will qualify as an exempt benefit.

3. The likely total of the notional taxable values of other associated benefits – that is, those provided in connection with the minor benefit. For example, where a meal, which is a minor benefit, is provided in connection with a night’s accommodation and taxi travel, which themselves may or may not be a minor benefit, the total of their taxable values must be considered. The greater the total value of other associated benefits, in this case being the accommodation and the taxi travel, the less likely it is that the minor benefit will qualify as an exempt benefit.

4. The practical difficulty in determining what would be the notional taxable value of the minor benefit and any associated benefits. This would include consideration of the difficulty for you in keeping the necessary records in relation to the benefits.

5. The circumstances in which the minor benefit and any associated benefits were provided. This would include consideration as to whether the benefit was provided as a result of an unexpected event, and whether or not it could be considered principally as being in the nature of remuneration.

If, after considering the five criteria, you conclude that it would be unreasonable to treat the benefit as a fringe benefit, the benefit will be an exempt benefit.

In determining if the minor benefit exemption applies, you need to examine the nature of the benefit provided and consider each of the various criteria - value, frequency and regularity of provision, and recording and valuation difficulties - before concluding whether the exemption should apply to a minor benefit.

Subsection 58P (2) of the ITAA sets out what is considered to be an associated benefit of a minor benefit for the purposes of considering the criteria above. Subsection 58P(2) states:

For the purposes of this section, a benefit is an associated benefit in relation to a minor benefit if, and only if:

(a) any of the following subparagraphs applies:

(i) the benefit is identical or similar to the minor benefit;

(ii) the benefit is provided in connection with the provision of the minor benefit;

(iii) the benefit is identical or similar to a benefit provided in connection with the provision of the minor benefit;

(b) the benefit and the minor benefit both relate to the same employment of a particular employee; and

(c) the benefit is not an exempt benefit by virtue of a provision of this Act other than this section.

Considering the factors discussed above and particularly the fact that the book was provided at a Christmas party occurring only once during the FBT year and the fact that the sum of the notional taxable values of the other benefits provided in connection with the book (discussed in questions one to four above) is not significant and likely to be less than $300 it is considered that it would be unreasonable to treat the benefit as a fringe benefit. Therefore the provision of the book will be an exempt benefit in accordance with section 58P of the FBTAA.

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