Edited version of private ruling

Authorisation Number: 1011621959592

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Ruling

Subject: Tax exempt body entertainment: Employee contributions

Question 1

Will a fringe benefit arise from the flights provided to the employees?

Answer:

Yes.

Question 2

If a fringe benefit arises from the flights provided to the employees, can the taxable value of the fringe benefit be reduced to nil?

Answer:

No.

This ruling applies for the following period

Year ending 31 March 2011

The scheme commenced on

24 July 2010

Relevant facts

You are exempt from paying income tax, but are not eligible for the concessions that apply to employers referred to in section 57A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

You provided return flights to Europe to two employees.

The employees attended a five day work related conference.

At the conclusion of the conference the employees took two weeks annual leave. During this period they had a holiday in Europe with their partners.

You paid for the cost of the accommodation while the employees were at the conference.

The employees paid for the cost of the accommodation while they were on holidays.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 38

Fringe Benefits Tax Assessment Act 1986 Section 39

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1936 Section 51AE

Income Tax Assessment Act 1936 Subsection 51AE(3)

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Division 32

Income Tax Assessment Act 1997 Section 32-5

Income Tax Assessment Act 1997 Section 32-10

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

Income Tax Assessment Act Section 32-35

Reasons for decision

1. Will a fringe benefit arise from the flights provided to the employees?

Summary

A separate 'fringe benefit' will arise from each flight as each flight is a 'benefit' provided to an employee by the employer by reason of the employee's employment that does not come within paragraphs (f) to (s) of the 'fringe benefit' definition.

Detailed reasoning

You will be providing the two employees with return flights to Europe.

In general terms, the definition of 'fringe benefit' in subsection 136(1) of the FBTAA provides that a fringe benefit will arise from the flights if the following conditions are satisfied:

I. the flight is a 'benefit';

II. the 'benefit' is provided to an employee or an associate of an employee;

III. the 'benefit' is provided by the employer, an associate of the employer or a third party under an arrangement involving the employer or an associate;

IV. the 'benefit' is provided in respect of the employment of the employee; and

V. the 'benefit' is not one of the benefits specifically excluded from being a 'fringe benefit' by paragraphs (f) to (s) of the 'fringe benefit' definition.

Is the flight a 'benefit'?

"Benefit' is defined in subsection 136(1) of the FBTAA to include:

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

As the provision of transport in an aircraft comes within this definition each of the flights will be a benefit.

Is the 'benefit' provided to an employee or an associate of an employee?

Each of the flights will be provided to an employee.

Is the 'benefit' provided by the employer, an associate of the employer or a third party under an arrangement involving the employer or an associate?

The flights will be provided by the employer.

Is the 'benefit' provided in respect of the employment of the employee?

'In respect of' is defined in subsection 136(1) of the FBTAA to include:

by reason of, by virtue of, or for or in relation directly or indirectly to, that employment

In considering the reason for the flights being provided it is relevant to note that flights are not provided to any person. Rather, you only provide flights to employees that satisfy the travel policy guidelines. This provides the necessary connection to the employment of the employees as they are receiving the flights because they are employees.

Is the 'benefit' specifically excluded from being a 'fringe benefit' by paragraphs (f) to (s) of the 'fringe benefit' definition?

Paragraphs (f) to (s) of the 'fringe benefit' definition do not apply to the flights.

2. If a fringe benefit arises from the flights provided to the employees, can the taxable value of the fringe benefit be reduced to nil?

Summary

The method used to calculate the taxable value of the fringe benefit will depend upon the type of fringe benefit that is being provided as each type of fringe benefit has its own valuation rules and the valuation rules for some categories of fringe benefits do not enable the taxable value to be reduced by way of an employee contribution.

A tax-exempt body benefit arises where the following conditions are satisfied:

I. entertainment is provided to an employee (or an associate of the employee);

II. the expenditure incurred in providing the entertainment is not incurred in producing assessable income;

III. section 32-5 of the Income Tax Assessment Act 1997 (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;

Do the flights constitute the provision of entertainment?

A flight will constitute the provision of entertainment where:

§ it is something affording diversion, amusement or is a leisure-time pursuit (paragraph 32-10(1)(a) of the ITAA 1997); or

§ has the necessary connection with the provision of entertainment (paragraph 32-10(1)(b) of the ITAA 1997).

A flight provided to an employee whilst on holidays will come within both of these paragraphs as it is something affording diversion or amusement and it is to do with providing entertainment by way of recreation. By contrast, a flight undertaken solely for work related purposes will not come within either paragraph.

In the situation being considered, the flights have a dual purpose as they are part of both the European holiday and the attendance at a work related conference.

The entertainment portion of the flights expenditure will be the portion that relates to the employee's holiday. The entertainment portion will not include the accommodation provided while the employees attended the conference or the portion of the flights expenditure that relates to the attendance at the conference.

Was the entertainment expenditure incurred in producing assessable income?

As you are not subject to income tax the expenditure will not be incurred in producing assessable income.

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?

As none of the exceptions listed in the tables in sections 32-30 to 32-50 of the ITAA 1997 apply to the expenditure, section 32-5 would have prevented an income tax deduction being claimed for the entertainment portion of the expenditure if the expenditure had been incurred in producing assessable income.

The calculation of the taxable value of the tax-exempt body entertainment fringe benefit

The taxable value of the fringe benefit will be the portion of the expenditure that is attributable to the provision of entertainment.

In applying the guidelines provided by Taxation ruling TR 98/9 the taxable value of the fringe benefit will be 50% of the cost of the flights.

In calculating the taxable value of a tax-exempt body entertainment fringe benefit there is no reduction for contributions that may be made by an employee.

Detailed reasoning

The method used to calculate the taxable value of the fringe benefit will depend upon the type of fringe benefit that is being provided as each type of fringe benefit has its own valuation rules and the valuation rules for some categories of fringe benefits do not enable the taxable value to be reduced by way of an employee contribution.

What kind of benefit will be provided?

The provision of a flight can be a residual benefit. However, the definition of 'residual benefit' in section 45 provides that a 'benefit' will not be a 'residual benefit' if it comes within Divisions 2 to 11 of the FBTAA. Therefore, the initial question to consider is whether it comes within any of the other categories of fringe benefit.

For the purpose of this ruling the relevant type of benefit to consider is tax-exempt body entertainment which comes within Division 10 of the FBTAA.

Does a tax-exempt body entertainment benefit arise from each flight?

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) to mean:

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) 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 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, a tax-exempt body entertainment benefit arises where the following conditions are satisfied:

I. entertainment is provided to an employee (or an associate of the employee);

II. the expenditure incurred in providing the entertainment was not incurred in producing assessable income;

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;

Do the flights constitute the provision of entertainment?

Subsection 136(1) of the FBTAA states that 'entertainment has the meaning given by section 32-10 of the Income Tax Assessment Act 1997'.

Subsection 32-10(1) of the ITAA 1997 defines 'entertainment' 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.

'Recreation' is defined under 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.

The Macquarie Dictionary provides the following meaning of recreation:

1. refreshment by means of some pastime, agreeable exercise, or the like.

2. a pastime, diversion, exercise, or other resource affording relaxation and enjoyment.

3. the act of recreating.

4. the state of being recreated.

The Macquarie Dictionary provides the following definition of amusement:

1. the state of being amused; enjoyment.

2. that which amuses; pastime; entertainment

3. a mechanical entertainment, as a merry-go-round at a fair.

In interpreting the entertainment provisions contained with Division 32 of the ITAA 1997 it is also relevant to refer to the previous entertainment provisions that were contained within section 51AE of the Income Tax Assessment Act 1936 (ITAA 1936).

The term 'provision of entertainment' was defined in subsection 51AE(3) to mean:

a) the provision (whether to the taxpayer or to another person and whether gratuitously, pursuant to an agreement or otherwise) of:

b) entertainment by way of food, drink or recreation; or

c) accommodation or travel in connection with, or for the purpose of facilitating, entertainment to which paragraph (a) applies (whether or not the accommodation or travel is also in connection with something else or for another purpose),

d) whether or not-

e) business discussions or business transactions occur;

f) in connection with the working of overtime or otherwise in connection with the performance of the duties of any office or employment;

g) for the purposes of promotion or advertising; or

h) at or in connection with a seminar.

The Explanatory Memorandum to Taxation Laws Amendment Bill (No. 4) 1985 which introduced section 51AE included the following:

Clause 9 proposes to insert new section 51AE in the principal Act to introduce a general prohibition on the deduction of entertainment expenses.

…

Typical examples of entertainment that will no longer attract deductibility include business lunches and drinks, dinners, cocktail parties, and staff social functions. Similarly, expenditure incurred in entertainment of staff, business associates, clients, etc., by way of sightseeing tours, access to sporting or theatrical events and hospitality provided to invited guests at such events as product launches or film premieres will not be deductible.

…

"recreation" is defined to include amusement, sport or similar leisure-time pursuits, and recreation or amusement provided on, or by means of, vehicles, vessels or aircraft, e.g., joy flights or sightseeing tours.

…

By paragraph 3(b) accommodation or travel is to be treated as entertainment to the extent to which it is incidental to the provision of entertainment. As such the cost of travel and accommodation associated with, for example, entertaining a client over a weekend at a tourist resort would be subject to the operation of the entertainment expense prohibition. Costs associated with the use of aircraft, boats or vehicles directly in providing entertainment (e.g., by way of joy flights or sightseeing tours) are brought within the meaning of entertainment through the definition of recreation.

The Full federal Court in FC of T v. Amway of Australia Ltd [2004] FCFCA 273; 2004 ATC 4893 in discussing the meaning of 'provision of entertainment' in relation to amounts spent for accommodation, travel and other incidental expenditure incurred in relation to the holding of certain seminars said at ATC 4909:

60. In modern Australian usage it may be said that the concept of ``to give pleasure'' and ``hospitality'' underlie the meaning of the word ``entertainment'' when used in connection with matters such as food or drink. Whether the provision of food or drink falls within the definition of the ``provision of entertainment'' is not, in our view, to be determined by reference to subjective matters such as the purpose of some person. Rather, it involves a matter of characterisation. What is required is that regard be had to the essential character of what is provided. Regard will need to be had to all the relevant circumstances such as the locale where the food or drink is provided, the quality of the food or drink, the occasion for its provision, its cost and its nature. Clearly expenditure on the gala dinner would be entertainment. Indeed counsel for Amway did not suggest otherwise. By contrast the provision during a working session by an employer of sandwiches or coffee and tea to an employee would not be. Each item of expenditure would need to be considered having regard to all the circumstances. …

61. The question of deductibility of accommodation and travel expenses is perhaps more difficult.

62. Clause (b) of s 51AE(3) has two limbs. The first requires consideration of whether the provision of accommodation or travel is ``in connection with'' the entertainment or perhaps the provision of entertainment by way of food, drink or recreation. Only the second limb requires consideration of purpose. The relevant purpose is the facilitation of such entertainment.

63. The first limb requires, as already noted, a connection. The Commissioner submits that the word ``connection'' requires merely that there be a relationship of some sort between the provision of the accommodation or travel and the relevant entertainment. For Amway, it is submitted that the connection must be one which is substantial and not remote.

64. As the learned Primary Judge pointed out, the meaning of the word ``connection'' will always depend upon the context in which it appears. His Honour referred to
Workers Compensation Board of Queensland v Technical Products Pty Ltd (1988) 165 CLR 642 at 653-654, FC of T v Scully 2000 ATC 4111 at 4121; (2000) 201 CLR 148 at 171 and Minister for Immigration and Multicultural Affairs v Singh (2000) 98 FCR 469 at 477. We agree.

65. In its broadest sense connection signifies any relationship between two subject matters no matter how remote. If the word connection is used in a very broad sense there would seem little point in the alternative limb of paragraph (b) as accommodation or travel for the purpose of facilitating the entertainment, could be seen to have at least a remote connection with that entertainment. It may be accepted, as the Commissioner submits, that the connection must be proximate. A remote connection will not suffice. Rather what is required is a substantial connection between the provision of accommodation or travel on the one hand and entertainment on the other.

66. It may be noted here that the legislature has made it clear that the provision of accommodation or travel may fall within the definition whether or not the travel is at or in connection with a seminar. Clearly, however, not all travel or accommodation which is at or in connection with a seminar was intended to be excluded from deductibility. Were it otherwise the subsection would be differently drafted. What is required is that there be a real relationship between the provision of accommodation or travel on the one hand, and the entertainment by way of food, drink or recreation which is provided to the recipient of the accommodation or travel to a seminar on the other hand. It is arguable that that connection exists in the present case. However, as will be seen, we do not find it necessary to decide the question.

67. The second limb is concerned with the purpose of the provision of accommodation or travel. With respect to the learned Primary Judge, we do not see that purpose is relevant to the first limb. It is only relevant to the second limb. We think the better view is that the purpose referred to in paragraph (b) is to be ascribed objectively rather than subjectively, that is to say that the relevant purpose is to be inferred from the objective circumstances. It is not necessary for the Commissioner to reach into the mind of the provider to ascertain purpose.

68. Prima facie, a reading of paragraph (b) suggests that the enquiry is to be directed at ascertaining the sole purpose of the provision of accommodation or travel. However, the fact that the subsection continues to provide that expenditure may fall within the definition whether or not it is ``for the purposes of promotion or advertising'' would suggest that the words ``the purpose'' do not signify sole purpose but rather something less than that, unless paragraph (e) was not intended to apply to a case falling within paragraph (b).

Further guidance is provided by paragraphs 2 and 3 of Taxation determination TD 94/55: Income tax: when does providing an item of property constitute the provision of entertainment within the meaning of subsection 51AE(3) of the Income Tax Assessment Act 1936? which state:

2. In determining whether providing an item of property constitutes the provision of entertainment, regard should be had to all the circumstances of the case. In particular, regard should be given to the character of the entertainment to be derived from the item of property provided. This character is distinct from the property itself and relates to the immediate and active use of the property.

3. In practice, the provision of entertainment can be determined by reference to the following characteristics:

Timeliness

-  entertainment occurs soon after provision of the item of property;

-  the usefulness of the item of property expires after consumption; or

-  the item of property is returned at the completion of use.

Direct Connection

 There should be a direct connection between the item of property and the entertainment:

-  the entertainment should arise from the use of the item of property;

-  the entertainment is the expected outcome of the provision of the property.

TD 94/55 also provides examples of costs which generally will not constitute the provision of entertainment and costs that generally will constitute the provision of entertainment. The example of costs that would generally constitute the provision of entertainment includes costs incurred in providing holiday accommodation.

Further guidance for determining whether a flight constitutes the provision of entertainment can be obtained from Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink. In considering whether the provision of food or drink constitutes entertainment in any circumstance paragraphs 15 to 18 of TR 97/17 state:

15. The suggested interpretation that the provision of food or drink in any circumstance constitutes entertainment for purposes of Division 32 is based on the premise that the diversion or amusement required occurs merely by the provision of food or drink. In other words 'entertainment by way of food [or] drink' as used in paragraph 32-10(1)(a) of the ITAA must be construed to refer to bodily not mental gratification.

16. Support for this interpretation is found in the approach taken by the English courts in the construction of similar kinds of words used in regulating refreshment houses (see Taylor v. Oram and Another (1862) 1 H & C 370). In that case, Pollock CB at 376 took the view that in the context of the relevant English legislation the word 'entertainment' is only another expression for 'refreshment'. In addition, it can be argued that as it was necessary to extend the meaning of the word 'recreation' found in paragraph 32-10(1)(a) of the ITAA to include 'amusement', no independent element of either amusement or diversion is required where what occurs is the mere provision of food or drink.

17. The other view that an element of entertainment is required before the provision of food or drink becomes meal entertainment is based on the ordinary meaning of the word 'entertainment' by itself. As was suggested by the Lord Justice-Clerk (Lord Thomson) in Bow and Others v. Heatly (1960) SLT 311 at 313:

'entertainment is the gathering together of a number of people to carry out some activity or to be present at some activity presumably with a view of enjoying themselves.'

In the same case, Lord Patrick at 313 made the following relevant observation:

'Parliament ... left the term "entertainment" to receive its meaning in ordinary language, and that meaning in this connection is "amusement".'

18. We take the view that the above latter interpretation represents the better view of the law. …

In applying these guidelines to the provision of a flight in an aircraft, it can be concluded that entertainment will not arise from any flight. However, a flight will constitute the provision of entertainment where:

§ it is something affording diversion, amusement or is a leisure-time pursuit (paragraph 32-10(1)(a) of the ITAA 1997); or

§ has the necessary connection with the provision of entertainment (paragraph 32-10(1)(b) of the ITAA 1997).

A flight provided to an employee whilst on holidays will come within both of these paragraphs as it is something affording diversion or amusement and it is to do with providing entertainment by way of recreation. By contrast, a flight undertaken solely for work related purposes will not come within either paragraph.

In the situation being considered the flights have a dual purpose as they are part of both the European holiday and the attendance at a work related conference. Therefore, it is necessary to consider whether the cost of the flights can be apportioned between an entertainment portion (the portion relating to the holiday) and a non entertainment portion (the portion relating to the conference.

In considering whether the cost of the flights can be apportioned between an entertainment and a non entertainment portion, it can be noted that section 32-5 of the ITAA 1997 begins with the phrase 'To the extent'. This indicates that the expenditure can be apportioned and that section 32-5 does not prevent an income tax deduction being claimed for the portion that is not in respect of the provision of entertainment.

Similarly, the definition of 'non-deductible entertainment expenditure' in subsection 136(1) of the FBTAA refers to a loss or outgoing to the extent to which section 32-5 of the ITAA 1997 applies to it and section 39 of the FBTAA provides that the taxable value of a tax-exempt body entertainment fringe benefit 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.

Therefore, the entertainment portion of the flights expenditure will be the portion that relates to the two week holiday undertaken by the employees at the conclusion of the conference. The entertainment portion will not include the accommodation provided while the employees attended the conference or the portion of the flights expenditure that relates to the attendance at the conference.

Was the entertainment expenditure incurred in producing assessable income?

As you are a government department which is not subject to income tax the expenditure will not be incurred in producing assessable income.

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 does not prevent a deduction being claimed for entertainment expenses. For example, item 2.1 of the table in section 32-35 enables a deduction to be claimed for providing food, drink, accommodation or travel to an individual that is reasonably incidental to the individual attending a seminar that goes for at least four hours. However, this exception does not apply if:

§ the seminar is a business meeting; or

§ the main purpose of the seminar is to promote or advertise a business or its goods or services; or

§ the seminar's main purpose is to provide entertainment at, or in connection with the seminar.

Although this section would apply in relation to the portion of the flight expenditure that relates to the employee's attendance at the conference, if it constituted the provision of entertainment, it will not apply to the portion of the flight expenditure that relates to the holiday.

Similarly, none of the other exceptions apply to the portion that relates to the holiday.

Therefore, as each of the conditions contained within the definition of tax-exempt body entertainment benefit are satisfied a tax-exempt body entertainment benefit will arise from the portion of the expenditure that relates to holiday.

The calculation of the taxable value of the tax-exempt body entertainment fringe benefit

The method for calculating the taxable value of a tax-exempt body entertainment fringe benefit is contained within section 39 of the FBTAA which states:

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.

Therefore, the taxable value of the fringe benefit will be the portion of the expenditure that is attributable to the provision of entertainment. As no provision is made for a reduction in the taxable value as a result of the employee making an employee contribution, this value can not be reduced by any contributions that are made by the employee.

The guidelines provided in paragraphs 64 to 70 of Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses can be used to calculate the portion of the expenditure that is attributable to the provision of entertainment.

Paragraphs 64 to 70 of TR 98/9 state:

64. If the purpose of a study tour or attendance at a work-related conference or seminar is the gaining or producing of income, the existence of an incidental private purpose does not affect the characterisation of the related expenses as wholly incurred in gaining assessable income.

65. Both Ronpibon Tin NL (78 CLR at 59; 8 ATD at 437) and Fletcher & Ors (173 CLR at 16; 91 ATC at 4957; 22 ATR at 621) recognise there are at least two kinds of expenditure that require apportionment under section 8-1. The first is expenditure in respect of a matter where distinct and severable parts are devoted to gaining income and other parts are devoted to some other end. If a study tour or work-related conference or seminar was mainly devoted to a private purpose, such as having a holiday, and the gaining or producing of income was merely incidental to the private purpose, only those expenses directly attributable to the income-earning purpose would be allowable.

66. The second kind of apportionable expenditure is a single outlay that serves both an income-earning purpose and some other purpose indifferently. While the High Court recognised that there can be no precise arithmetical division in such cases, it said there must be some fair and reasonable division on the facts of each case. For example, if a study tour or work-related conference or seminar is undertaken equally for income-earning purposes and private purposes, it would be appropriate to apportion the expenses equally between the purposes.

67. Example: Glenn, a qualified architect, attends an eight-day work-related conference in Hawaii on trends in modern architecture. One day of the conference involves a sight-seeing tour of the island and a game of golf is held on the final afternoon of the conference. As the main purpose of attending the conference is the gaining or producing of income, the total cost of the conference (air fares, accommodation and meals) is allowable.

68. The existence of private pursuits, such as the island tour and the game of golf, is purely incidental to the main purpose and does not affect the characterisation of the conference expenses as wholly incurred in gaining assessable income.

69. Example: Jenny, a doctor, was holidaying in Cairns when she became aware of a work-related seminar on the current treatment of cancer patients. The cost of the half-day seminar was $200. Jenny is able to claim a deduction for the cost of the seminar because it is directly attributable to an income-earning purpose. However, no part of her air fare to Cairns or her holiday accommodation is an allowable deduction.

70. Example: Francesco, a paediatrician, has 2 equal purposes when he decides to attend a five-day international conference on paediatrics in Singapore to be followed by a seven-day holiday in Thailand. The conference package is $2,500 ($1,000 return air fare, $500 for the cost of the conference and $1,000 for accommodation and meals at the conference venue). Francesco paid another $2,000 for accommodation, meals and car hire for the 7 day holiday in Thailand. Francesco is allowed a deduction of $1,500 for the conference cost and the accommodation and meals expenses at the conference. Only half of the return air fare ($500) is allowed as the expense was incurred for two equal purposes, one income-earning and the other private. The other expenditure of $2,000 relating to the holiday in Thailand is private in nature and not allowable as a deduction.

In applying these guidelines, the relative time spent on holiday as compared to the time spent at the conference indicates the purpose of having a holiday was more than an incidental private purpose. Therefore, the expenses cannot be treated as wholly being work related.

However, the time spent at the conference is sufficient to indicate that the purpose of attending the conference was more than an incidental work related purpose.

Therefore, as the cost of each flight is a single outlay that serves both an income-earning purpose and a private purpose it is appropriate in accordance with paragraph 66 of TR 98/9 to apportion the expenses equally between both purposes.

Therefore, the taxable value of the tax-exempt body entertainment benefit that arises from the entertainment portion of the expenditure will be 50% of the expenditure.

A fringe benefits tax liability will not arise in relation to the portion that relates to the employee's attendance at the conference.