Edited version of private advice

Authorisation Number: 1052129830515

Date of advice: 15 June 2023

Ruling

Subject: Fringe benefits tax

Question 1

Does the provision of food and drink by the Employer to the employees at the ceremonies/parties constitute a 'tax-exempt body entertainment fringe benefit' under section 38 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

Does the provision of food and drinks by the Employer to the employees at the ceremonies/parties constitute a property fringe benefit under section 40 of the FBTAA?

Answer

Yes

Question 3

If the answer to question 2 is 'yes', will the provision of food and drinks by the Employer to the employees at the ceremonies/parties constitute an exempt property benefit under section 41 of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

FBT year ending 31 March 2025

FBT year ending 31 March 2026

FBT year ending 31 March 2027

FBT year ending 31 March 2028

The scheme commenced on:

1 April 2023

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Employer is registered with the Australian Charities and Not-for-profits commission (ACNC) as a charity.

The Employer provides teaching and research services to individuals.

As part of their services, the Employer provides to individuals and employees an invitation to attend a ceremony or party organised by the Employer.

The Employer allows individuals to invite two guests to attend the ceremony, with the option for them to invite additional guests by purchasing additional tickets at a cost of $X per ticket.

Some of the Employers' employees, such as senior administrative staff, are required to attend the ceremonies as part of their employment duties.

In the 20XX income year, the Employer incurred approximately $X in expenses providing food and drinks to attendees of the ceremonies.

This expense does not include any alcoholic beverages as the Employer does not provide or sell alcohol at the ceremonies.

The Employer also incurred approximately $X in expenses on background music at the event.

Ceremonies

The ceremonies are held either from 11:00am - 1:00pm or 4:00pm to 6:00pm.

The ceremonies are held on an annual basis.

The day and time of each ceremony vary from weekdays to weekends.

The majority of the ceremonies take place during working hours for the Employers employees.

The costs associated with carrying out the ceremonies are incurred by the Employer. In 20XX, individuals are required to pay $X to attend their ceremony. This fee includes the ticket, two guest tickets and 3 light refreshment packs.

After each ceremony, refreshments are provided to attendees at the Employer. The refreshment function runs for approximately 90 minutes, and its purpose is to allow the Employer to recognise the efforts of those attending and for them to share their success.

The refreshments include light meals and a drink and cost the Employer $X per individual pack. If they would like any further refreshments, they can purchase at their own discretion at another location.

Lights meals include:

•         Family Share Box 1 - A selection of crispy fried chickpea falafels, freshly baked pita pockets, dips, and accompaniments.

•         Family Share Box 2 (Gluten Free)- A selection of crispy fried chickpea falafels, gluten-free tortilla wraps, dips, and accompaniments.

•         Family Share Box 3 (Dairy Free / Vegan / Kosher)- A selection of crispy fried chickpea falafels, freshly baked pita pockets, dips, and accompaniments.

Parties

As an alternative option to the ceremonies, the Employer also offers individuals the opportunity to participate in a more relaxed, stand-up event, referred to as a Party.

If an employee is required to attend a ceremony on a weekend, this would be considered an extension of their employment hours.

A Party is a smaller event that the refreshment function, with the area only being able to accommodate approximately 100 guests.

The costs associated to carry out the Party are incurred by the Employer. In 20XX, individuals are required to pay $X to attend. This fee includes the ticket, 3 guest tickets and 4 light refreshment packs.

Light refreshment packs include:

•         Family Share Box 1 - A selection of grilled chicken skewers, freshly baked pita pockets, dips, and accompaniments together with Belgian waffles and dark couverture chocolate sauce.

•         Family Share Box 2 (Gluten Free)- A selection of grilled chicken skewers, freshly baked gluten free tortilla wraps, dips, and accompaniments together with a decadent raw coconut slice.

•         Family Share Box 3 (Dairy Free / Vegan / Kosher)- A selection of crispy fried chickpea falafels, freshly baked pita pockets, dips, and accompaniments together with a decadent raw coconut slice.

The Employer does not sell alcohol at the parties. Like the ceremonies, guests can purchase alcoholic beverages at another location and must be consumed on the premises of that location.

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 Subsection 148(1)

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 32-5

Income Tax Assessment Act 1997 Section 32-10

Income Tax Assessment Act 1997 Section 32-20

Income Tax Assessment Act 1997 Section 32-30

Income Tax Assessment Act 1997 Section 32-55

Reasons for decision

Question 1

Does the provision of food and drink by the Employer employees at the ceremonies/parties constitute a 'tax-exempt body entertainment fringe benefit' under section 38 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Detailed reasoning

Section 38 of the FBTAA defines a 'tax-exempt body entertainment benefit' as:

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.

Therefore, a 'tax-exempt body entertainment fringe benefit' pursuant to section 38 of the FBTAA will arise when the following conditions are satisfied:

Condition 1: The employer incurs a non-deductible exempt entertainment expenditure.

Condition 2: The benefit is wholly or partly in respect of the employment of the employee.

Condition 3: The benefits constitute the provision of 'entertainment'.

Condition 1: Non-deductible exempt entertainment expenditure.

'Non-deductible exempt entertainment expenditure' is defined under subsection 136(1) of the FBTAA as 'non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income'.

Subsection 136(1) of the FBTAA defines 'non-deductible entertainment expenditure' 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 (on the assumption that section 32-20 of the Income Tax Assessment Act 1997 had not been enacted).

In terms of the first requirement, the Employer is generally exempt from a liability to pay income tax by virtue of item 1.4 of the table in section 50-5 of the ITAA 1997.

The second requirement is that the entertainment expenditure is non-deductible. To determine deductibility, tax-exempt bodies need to look at the same factors as income tax paying bodies in the income tax assessment provisions.

Whether or not an expenditure is a non-deductible entertainment expenditure is dependent on whether section 32-5 of ITAA 1997 would deny a deduction under section 8-1 of ITAA 1997 for the relevant expense.

Section 32-5 of the ITAA 1997 does not allow a deduction for entertainment expenses except under Subdivision 32B. 'Entertainment' is defined in subsection 32-10(1) of the ITAA 1997 as:

(a)  entertainment by way of food or drink; or

(b)  accommodation or travel in connection with, or for the purposes 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.

Section 32-20 of the ITAA 1997 is the main exception that allows an employer to claim a loss or outgoing to the extent that it is entertainment provided as a fringe benefit. Taxation Ruling TR 97/17 - Income tax and fringe benefits tax: entertainment by way of food or drink provides detail on the treatment of meal entertainment by tax-exempt bodies. Paragraph 33 of TR 97/17 states:

Certain entertainment provided to employees of a tax-exempt employer gives rise to a separate category of fringe benefit known as a 'tax-exempt body entertainment fringe benefit'. It is only entertainment that is non-deductible for income tax purposes (e.g., a meal at a party) that gives rise to a tax-exempt body entertainment fringe benefit. Section 32-20 of the ITAA is ignored for the purposes of determining whether the entertainment expenditure is deductible.

While section 32-20 of the ITAA 1997 is ignored when considering the second requirement of non-deductible

exempt entertainment expenditure, the other exception provisions in Subdivision 32-B of the ITAA 1997 are considered.

Section 32-25 of the ITAA 1997 allows a deduction for entertainment expenditure in specific circumstances that are tabled in section 32-30 of the ITAA 1997. None of the circumstances tabled in section 32-30 of the ITAA 1997 apply in the current scenario.

As such, Condition 1 in respect of the definition of a 'tax-exempt body entertainment fringe benefit' in section 38 of the FBTAA is not satisfied.

Condition 2: The Benefit is wholly or partly 'in respect of the employment' of the employee.

As per subsection 136(1) of the FBTAA, the term 'in respect of' - in relation to the employment of an employee - includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee:

•         Whether or not the benefit also relates to some other matter or thing

•         Whether the employment is past, present or future

•         Whether or not the benefit is surplus to the recipient's requirements

•         Whether or not the benefit is also provided to another person

•         Whether or not the benefit is offset by any inconvenience or disadvantage

•         Whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment

•         Whether or not the provision of the benefit is in the nature of income, and

•         Whether or not the benefit is provide as a reward for services rendered, or to be rendered, by the employee.

The full Federal Court in J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles) examined the meaning of 'in respect of' an employee's employment. It was held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'.

A similar view was also held in Essenbourne Pty Ltd v FC of T 2002 ATC 5201 and Starrim Pty Ltd v FCT (2000) 102 FCR 194; [2000] FCA 952; 2000 ATC 4460; (2000) 44 ATR 487.

It was also suggested by the full Federal Court in Knowles that it would be useful to ask 'whether the benefit is a product or incident of the employment'.

Based on the facts, there is sufficient and material connection between the provision of food and drink provided at the ceremonies and parties with the employees' employment.

Therefore, Condition 2 in respect of the definition of a 'tax-exempt body entertainment fringe benefit' in section 38 of the FBTAA is satisfied.

Condition 3: The Benefit constitutes the provision of 'entertainment'

Taxation Ruling TR 97/17: Income tax and fringe benefits tax: entertainment by way of food or drink provides guidance on the concept of what is entertainment as it relates to the provision of food or drink.

In considering whether your provision of food and drink constitutes entertainment, it is necessary for an objective analysis of all the circumstances against factors provided in paragraphs 7, 18, 23 and 24 of TR 97/17.

Paragraph 7 of TR 97/17 states:

7. In order to determine when the provision of food or drink to a recipient result 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'.

Paragraph 23 of TR 97/17 provides further details on the above factors that should be considered when undertaking an objective analysis of the criteria.

Paragraph 24 of TR 97/17 indicates that not one of the paragraph 23 factors will be determinative; however, paragraphs (a) and (b) are considered the more important. The application of the above factors results in the determination for whether the food or drink amounts to meal entertainment.

Paragraph 18 of TR 97/17 takes the view that the mere provision of food or drink in any circumstance does not necessarily constitute "entertainment". An element of entertainment is required before the provision of food or drink becomes meal entertainment.

However, it was noted that in most cases the mere provision of food and drink will satisfy the 'entertainment' test. It is only in a narrow category of cases where the mere provision of food or drink does not amount to 'entertainment' for the purposes of Division 32 of the ITAA.

a)    Why is the food and drink being provided?

TR 97/17 describes the food or drink "purpose test". Food and 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.

The food and drink provided by the Employer is provided as sustenance for the attendees given the extended timeframe of the ceremony process.

b)    What food, drink and recreation is being provided?

Paragraph 16 of Taxation ruling IT 2675: Income tax and fringe benefits tax: entertainment - morning and afternoon teas; light meals; and in-house dining facilities provides the following guidance:

16. The provision of biscuits and drinks such as tea, coffee, soft drinks and fruit juices to employees or their association on a working day for morning or afternoon tea cannot be said to provide amusement or even to be an agreeable occupation. It is merely the provision of refreshments to enable the employees or associates to complete the working day in comfort. The same may be said of light meals provided by a taxpayer to employees or their associates on a working day.

The food consumed by attendees usually consists of small hors d'oeuvres or light snacks. In your scenario this is unlikely to be considered elaborate. The food and drink supplied is ancillary to the purpose of the event, acknowledging the attendees.

c)    When is the food or drink provided?

Paragraph 23 of TR 97/17 states:

23 (c) - Food or drink provided during work time, during work overtime or while an employee is travelling is less likely to have the character of entertainment.

The majority of the ceremonies take place during work hours. If an employee is required to attend a ceremony on a weekend, this would be considered an extension of their employment hours.

d)    Where is the food, drink and recreation being provided?

Paragraph 23 of TR 97/17 states:

23 (d) - 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.

The food, drink and recreation for the ceremony is being provided next to the location in which the ceremony takes place. This is on the entities private property and is not designed for the provision of recreational entertainment.

The food, drink and recreation for the Parties are being provided on the lawns at the Employer. This is on the entities private property and is not designed for the provision of recreational entertainment.

On the application of the above factors, the Commissioner has determined that the provision of food and drink for the ceremonies and parties at the Employer does not constitute the definition of entertainment based on the following facts:

•         The food and drink provided are 'light refreshments' and are not considered elaborate.

•         The food and drink provided are not the main source of entertainment and considered secondary in nature to the event.

•         The food and drink are supplied to provide sustenance to staff.

•         The majority of ceremonies are held during work hours.

•         The ceremonies are held on the private property of the Employer and not at an entertainment venue.

Conclusion

As all of the conditions in section 38 of the FBTAA are not satisfied, the provision of food and drink provided to employees at the ceremonies and parties does not constitute a 'tax-exempt body entertainment fringe benefit.'

Question 2

Does the provision of food and drinks to the Employers employees at the ceremonies/parties constitute a property fringe benefit under section 40 of the Fringe Benefits Tax Assessment Act 1986?

Detailed reasoning

In order to determine whether the Employer is liable to FBT in respect of food and drink provided at the ceremonies and parties, it is necessary to firstly consider whether the provision of meals to such employees constitutes a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA, which holds that the following

conditions must be satisfied:

1)    A benefit is provided at any time during the year of tax.

2)    The benefit is provided to an employee or an associate of the employee.

3)    The benefit is provided by:

(a)  their employer; or

(b)  an associate of the employer; or

(c)   a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or

(d)  a third party 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, the employer or associate is doing so;

4)    The benefit is provided in respect of the employment of the employee.

5)    The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

A benefit is provided

Subsection 136(1) of the FBTAA provides a broad definition of a 'benefit' as including:

•         any right (including a right in relation to, and an interest in, real or personal property), privilege,

•         service or facility and, without limiting the generality of the foregoing, includes a right, benefit,

•         privilege, service or facility that is, or is to be, provided under:

(a)  an arrangement for or in relation to:

                         (i)        the performance of work (including work of a professional nature), whether with or without the provision of property; ...

The benefit is provided to an employee or an associate of the employee

An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee.

The benefit is provided by an employer, an associate of the employer or a third party

'Employer' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer.

The benefit is provided in respect of the employment of the employee

The term 'in respect of the employment of the employee' is explained in the response to Question 1 above where Condition 2 of section 38 of the FBTAA is discussed.

The benefit is not specifically excluded from the definition of a fringe benefit

With respect to paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA, the relevant paragraph to consider is paragraph (g) which provides that an exempt benefit will not be a fringe benefit.

Definition of 'property fringe benefit 'Property fringe benefit' is defined in subsection 136(1) of the FBTAA to mean a 'fringe benefit that is a property benefit'.

A '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 defines a 'property benefit' as follows:

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 provider to the recipient at that time.

The term 'provide' is defined in subsection 136(1) of the FBTAA in relation to property to mean:

Dispose of (whether by sale, gift, declaration of trust or otherwise):

                    (i)        if the property is a beneficial interest in property but does not include legal ownership - the beneficial interest; or

                   (ii)        in any other case - the legal ownership of the property.

Property' is defined in subsection 136(1) of the FBTAA to mean intangible and tangible property.

According to the Fringe benefits tax - a guide for employers publication, a property fringe benefit arises when an employer provide an employee with free or discounted property.

It further states the 'property' includes:

•         goods (including gas and electricity, unless provided through a reticulation system) and animals

•         real property, such as land and buildings, and

•         rights to property, such as shares or bonds.

As stated in subsection 136(1) of the FBTAA, a benefit will not be a property benefit if the benefit is provided for in Subdivision A of Divisions 2 to 10 of Part III of the FBTAA.

The food and drink being provided to the employees is a tangible property benefit paid for by the employer. Therefore, the food and drink expenses incurred by the Employer in these circumstances is a property benefit within the definition of section 40 of subdivision A of division 11 of the FBTAA.

Question 3

If the answer to question 2 is 'yes', will the provision of food and drinks to the Employers employees at the ceremonies/parties constitute an 'exempt property benefit' under section 41 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Detailed Reasoning

Property exemption

Under section 41 of the FBTAAcertain property benefits are exempt. Section 41 of the FBTAA states:

41 (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 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.

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

Paragraph 44 of TR 97/17 states 'A working day is any 24-hour period during which work is usually performed by the employee.'

Subsection 136(1) of the FBTAA defines 'business premises

business premises, in relation to a person, means premises, or a part of premises, of the person used, in whole or in part, for the purposes of business operations of the person.

As discussed in question 1, the Employer provides food and drink (tangible property benefit) to employees at the ceremonies and parties as sustenance, given the extended time frame of the ceremony.

The ceremonies are held on the private property of the Employer and the majority of the ceremonies take place during work hours for employees attending. If an employee is required to attend a ceremony on a weekend, this would be considered an extension of their employment hours.

Therefore paragraph 41(1)(a) and 41(1)(b) of the FBTAA is satisfied.

The food and drink provided to employees on a standard day are not provided as part of a salary sacrifice arrangement.

As such, subsection 41(2) of the FBTAA is satisfied.

Therefore, as each of the requirements in section 41 of the FBTAA are satisfied, the 'property

fringe benefit' that arises will be an 'exempt property benefit'.

•         The food and drink provided are 'light refreshments' and are not considered elaborate.

•         The food and drink provided are not the main source of entertainment and considered secondary in nature to the event.

•         The food and drink are supplied to provide sustenance to staff and students.

•         The majority of ceremonies are held during work hours.

•         The ceremonies are held on the private property of the Employer and not at an entertainment venue.

Conclusion

The provision of food and drinks to the Employer's employees at the ceremonies and parties will constitute an 'exempt property benefit' under section 41 of the FBTAA.

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