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Ruling

Subject: Entertainment facility lease expense benefit

Question 1

Where you reimburse expenses incurred by your employees on leasing or hiring a private function room, hotel room or holiday accommodation (excluding food or drink) (together, these will be referred to as 'venue hire benefits') will this reimbursement constitute an 'entertainment facility lease expense' pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Would such venue hire benefits be disregarded in determining your FBT capping threshold under subsection 5B(1L) of the FBTAA?

Answer

Yes.

Question 3

Will a FBT liability arise if the reimbursement for a venue hire benefit is not paid in the FBT year in which it was incurred, but is paid in a later year?

Answer

No.

Question 4

If the venue hire benefits are exempt from FBT, would a copy of an invoice for the venue hire benefits or an original credit card statement showing payment by the employee be sufficient substantiation for you?

Answer

No.

Question 5

If you were to offer venue hire benefits to its employees, would this constitute an arrangement to which Part IV A of the Income Tax Assessment Act 1936 (ITAA 1936) or section 67 of the FBTAA applies?

Answer

No.

Facts

You are a public hospital subject to the provisions of section 57A of the FBTAA. Your employees incur expenses in hiring private function rooms at motels, hotels or clubs for family celebrations, and accommodation expenses for the use of hotel rooms, motel rooms and other holiday accommodation (e.g. flats, houses) while travelling on holidays, where the employee was not travelling for work related purposes.

You wish to attract and retain high quality employees by offering to reimburse employees for expenses incurred by the employee on leasing or hiring a private function room, hotel room or holiday accommodation (excluding food or drink).

Question 1

Where you reimburse expenses incurred by your employees on leasing or hiring a private function room, hotel room or holiday accommodation (excluding food or drink) (together, these will be referred to as 'venue hire benefits') will this reimbursement constitute an 'entertainment facility lease expense' pursuant to subsection 136(1) of the FBTAA?

Summary

Where you reimburse expenses incurred by your employees on leasing or hiring a private function room, hotel room or holiday accommodation, that reimbursement will constitute an 'entertainment facility leasing expense' pursuant to subsection 136(1) of the FBTAA.

Detailed reasoning

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

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

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

Therefore, as you are a public hospital, benefits provided to your employees will be exempt benefits.

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

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

However, not all benefits are included in the calculation. Under subsection 5B(1L) of the FBTAA the calculation will not include benefits:

(a) that constitute the provision of meal entertainment

(b) that are car parking fringe benefits, or

(c) whose taxable values are wholly or partly attributable to entertainment facility leasing expenses.

What is an entertainment facility leasing expense?

Subsection 136(1) of the FBTAA defines entertainment facility leasing expenses as follows:

entertainment facility leasing expenses, for a person, means expenses incurred by the person in hiring or leasing:

(a) a corporate box; or

(b) boats, or planes, for the purpose of the provision of entertainment; or

(c) other premises, or facilities, for the purpose of the provision of entertainment;

but does not include so much of any of such expenses that;

(d) is attributable to the provision of food or drink; or

(e) is attributable to advertising and is an allowable deduction for the person under the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997.

Therefore the following requirements must be met in considering whether expenses incurred satisfy the definition of entertainment facility leasing expenses:

1. the expense must be incurred by a person

2. the expense must be incurred by the person hiring or leasing

3. the hire or lease must be of a corporate box, boat, plane or other premises or facilities

4. the expense must be for the purpose of the provision of entertainment.

1. Will the expense be incurred by a person?

Your employees will incur the expense which you will later reimburse.

This condition is met.

2. Will the expense be incurred by hiring or leasing?

The word 'hiring' is not defined in the FBTAA, therefore it takes on its ordinary meaning. The Macquarie Dictionary [Multimedia], version 5.0.0. defines 'hire' as:

verb (t) (hired, hiring)

1. to engage the services of for payment: to hire a clerk.

2. to engage the temporary use of for payment: to hire a car.

3. Also, hire out

to grant the temporary use of, or the services of, for a payment.

Subsection 136(1) of the FBTAA defines leased:

means let on hire (including a letting on hire that is described in the relevant agreement as a lease) under an agreement other than a hire-purchase agreement.

Your employees will incur expenses in return for the temporary use of a private function room, hotel room or holiday accommodation (referred to as venue hire benefits). This meets with the dictionary definition of hire and with the FBTAA definition of leased.

In these circumstances the expenses incurred by the employee fall within hiring or leasing in the definition of entertainment facility leasing expenses.

3. Will the hiring or leasing be of a corporate box, boat, plane or other premises or facilities?

The definition of 'entertainment facility leasing expenses' requires that the hire or lease must be of a corporate box, boat, plane or other premises or facilities.

Your employees will lease or hire a private function room, hotel room or holiday accommodation. The Macquarie Dictionary defines 'premise' and 'facility' in terms of a property, house and grounds or a specific purpose building. A private function room, hotel room or holiday accommodation would not appear to meet these definitions.

Taxation Laws Amendment (FBT Cost of Compliance) Bill 1995 introduced the subsection 136(1) of the FBTAA definition of 'entertainment facility leasing expenses' and introduced section 152B of the FBTAA. The Explanatory Memorandum to that Bill describes the new arrangement as being:

…applied to leasing or hiring costs of corporate boxes and other similar hospitality arrangements…

It is considered that the words 'premises or facility' has similar characteristics to a corporate box. Hiring or leasing of a corporate box would generally only involve the hiring or leasing of part of premises or a facility. For example, the corporate box is only part of a sporting stadium complex. However, a corporate box is a separate or distinct area or room which is in fact able to be hired as a separate room or distinct area. The hiring or leasing of a separate room or distinct area for other hospitality purposes such as an end of year corporate event at a city hotel would be considered similar to a corporate box arrangement. It is considered that these would be premises or facilities for the purposes of the definition of 'entertainment facility leasing expenses'.

When a private function room, hotel room or holiday accommodation have been leased or hired, they will be premises or facilities for the purposes of the definition of 'entertainment facility leasing expenses'.

4. Will the expense of hiring or leasing be for the purpose of the provision of entertainment?

Under the definition of entertainment facility leasing expenses the expenses incurred on hiring or leasing the premises or facilities must be 'for the purpose of the provision of entertainment'.

Subsection 136(1) of the FBTAA defines entertainment:

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

Subsection 32-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that entertainment means:

(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.

Subsection 995-1 of the ITAA 1997 provides the meaning of recreation:

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

The word 'entertainment' is defined in the Macquarie Dictionary to mean:

1. the act of entertaining agreeable occupation for the mind; diversion, or amusement.

2. something affording diversion or amusement, especially an exhibition or performance of some kind.

3. hospitable provision for the wants of guests.

As the private function will presumably be used by your employees for a family celebration, the use of the private function room is a leisure-time pursuit. This is 'recreation' as defined in the ITAA 1997. This use of the room is also something affording diversion or amusement and is entertainment within the natural meaning. The use of the private function room is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997.

In relation to the use of the hotel room or holiday accommodation whilst the employee is travelling on a holiday and is not on work related duties, paragraph 32-10(1)(a) of the ITAA 1997 must also be considered. The use of the hotel room or holiday accommodation is a leisure-time pursuit which is 'recreation' as defined in the ITAA 1997. This use of holiday accommodation is something affording diversion or amusement and will be entertainment within the natural meaning. The use of the hotel room is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997.

Alternatively, a hotel room or holiday accommodation falls within paragraph 32-10(1)(b) of the ITAA 1997 being accommodation to do with providing entertainment by way of recreation.

When your employees incur expenses in hiring or leasing a private function room, hotel room or holiday accommodation, those expenses are incurred for the purposes of the provision of entertainment as entertainment is defined in subsection 136(1) of the FBTAA 1986 and section 32-10 of the ITAA 1997.

As required in the definition of 'entertainment facility leasing expenses' those expenses are not attributable to food or drink, or advertising.

The expenses incurred by your employees on hiring or leasing a private function room, hotel room or holiday accommodation, are 'entertainment facility leasing expenses' as defined in subsection 136(1) of the FBTAA.

In conclusion, where you reimburse expenses incurred by your employees on leasing or hiring a private function room, hotel room or holiday accommodation, that reimbursement will constitute an 'entertainment facility leasing expense' pursuant to subsection 136(1) of the FBTAA.

Question 2

Would such venue hire benefits be disregarded in determining your FBT capping threshold under subsection 5B(1L) of the FBTAA?

Summary

Venue hire benefits are excluded from the FBT capping threshold under subsection 5B(1L) of the FBTAA.

Detailed reasoning

You have reimbursed your employee's expenses, which is an expense payment benefit which would have a taxable value except for section 57A of the FBTAA. It has been concluded above that the venue hire benefit is considered to be an 'entertainment facility leasing expense'. As stated above, entertainment facility leasing expense benefits are one of three benefits excluded pursuant to subsection 5B(1L) of the FBTAA from the calculation of the FBT capping threshold.

Question 3

Will a FBT liability arise if the reimbursement for a venue hire benefit is not paid in the FBT year in which it was incurred, but is paid in a later year?

Detailed reasoning

A reimbursement of the expense for a venue hire benefit will not be subject to fringe benefits tax as:

§ it is an exempt benefit under subsection 57A(3) of the FBTAA, and

§ it is excluded from the calculation of the employer's aggregate non-exempt amount under subsection 5B(1L) of the FBTAA

This answer will not change even if the employee incurred the expense in a prior year.

Question 4

If the venue hire benefits are exempt from FBT, would a copy of an invoice for the venue hire benefits or an original credit card statement showing payment by the employee be sufficient substantiation for you?

Summary

A copy of an invoice or an original credit card statement supported by other documentation confirming that no expense other than venue hire costs has been incurred would be sufficient substantiation.

Detailed reasoning

You require documents which can show the date and place of accommodation (plus an allocation of any costs of food and drink if this is relevant), as well as proof that there was an employee claim lodged and reimbursement by you.

You expect that some employees may not be able to locate their original receipts, or may wish to hold on to their original receipts. Some employees may only have a copy of their receipt to provide to you or only a credit card statement which sets out the date and amount of the relevant expense.

A credit card statement on its own would not disclose sufficient information as although it verifies that the employee incurred an expense it does not verify that the expense was an entertainment facility leasing expense. Therefore a credit card statement would need to be supported by documents which confirm that only 'entertainment facility leasing expenses' were incurred by an employee.

The supporting documentation should:

§ include the name or the business name of the supplier

§ state what was purchased

§ state the amount paid

§ the day the expense was incurred

§ the day the document is made out.

The above information should be provided on an original document. However, where an original document is not available, a copy of that document with all the relevant information will be acceptable. This is confirmed in the answer to question 15 in Taxation Ruling No. MT 2021 Fringe Benefits Tax: Response to questions by major rural organisation (MT 2021).

Question 5

If you were to offer venue hire benefits to your employees, would this constitute an arrangement to which Part IV A of the ITAA 1936 or section 67 of the FBTAA applies?

Summary

Part IV A of the ITAA 1936 and section 67 of the FBTAA would not apply to the arrangement of providing venue hire benefits to your employees.

Detailed reasoning

Section 67 of the FBTAA applies to schemes entered into with the sole or dominant purpose of enabling the employer to obtain a tax benefit.

In general terms an employer will obtain a tax benefit where an amount is not included in the fringe benefits amount of the employer if the arrangement had not been entered into.

The FBTAA specifically provides that certain benefits will not be included in the calculation of the employer's fringe benefits taxable amount.

As mentioned in the explanatory memorandum to the FBT law, section 67 may only apply where there is an arrangement under which a benefit is provided to a person and the fringe benefits taxable amount in respect of that benefit is either nil or less than it would have been but for the arrangement. Those conditions would not apply to the reimbursement of venue hire expense incurred by the employee.

As Part IVA applies to income tax it will not apply to the employer.