Edited version of private ruling

Authorisation Number: 1011671659650

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Ruling

Subject: Fringe Benefits Tax - Minor benefits

Question 1

Will the payment of a reimbursement of up to $150 to an employee under the healthy lifestyle program be an exempt minor benefit for Fringe Benefits Tax (FBT) purposes where the benefit constitutes the provision of entertainment?

Answer

No

Question 2

Will the payment of a reimbursement of up to $150 to an employee under the healthy lifestyle program be an exempt minor benefit for Fringe Benefits Tax (FBT) purposes where the benefit does not constitute the provision of entertainment?

Answer

Yes

This ruling applies for the following period:

1 April 2010 - 31 March 2011

The scheme commences on:

1 April 2010

Relevant facts and circumstances

Under the healthy lifestyle program you pay staff a subsidy of up to $150 for the cost of health related lifestyle expenses.

Examples of health related expenses are gym memberships and running shoes.

The subsidy is available to all staff with at least 12 months continuous service and is available per calendar year on production of receipts.

The claim is made through the payroll system and the subsidy is paid in the pay period following the claim.

The benefit is not provided under a salary sacrifice arrangement.

Reasons for decision

Will the payment of a reimbursement of up to $150 to an employee under the healthy lifestyle program be an exempt minor benefit?

In general terms section 58P of the FBTAA provides that a minor benefit will be an exempt benefit where the notional value is less than $300 and the specified conditions are satisfied.

Section 58P states:

Where:

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;

the benefit is not an airline transport benefit;

in the case of an expense payment benefit, a property benefit or a residual benefit - if the minor benefit were an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit, as the case may be, in relation to the employer, the expense payment fringe benefit, the property fringe benefit or the residual fringe benefit, as the case requires, would not be an in-house fringe benefit;

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:

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

is incidental to the provision of entertainment to outsiders; and

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

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

on eligible premises of the employer; and

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

having regard to:

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

the minor benefit; or

benefits provided in connection with the provision of the minor benefit;

have been or can reasonably be expected to be provided;

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;

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;

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

if the minor benefit is not a car benefit - the minor benefit; and

if there are any associated benefits that are not car benefits - those associated benefits; and

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

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

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.

Guidance on the possible application of section 58P is contained within Taxation Ruling TR 2007/12. In summarising the requirements of section 58 paragraphs 8 to 12 of TR 2007/12 state:

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.

9. In considering the application of the exemption under section 58P it is necessary to look to the nature of the benefit provided and give due weight to each of the criteria. The weight given to each criterion will also vary depending on the circumstances surrounding the provision of each benefit.

10. Section 58P does not apply to exempt all benefits that have a notional taxable value of less than $300.

11. First, there are certain benefits that are specifically excluded from section 58P. These are:

·   airline transport benefits;

·   expense payment benefits where, if the benefit was an expense payment fringe benefit, it would be an in-house fringe benefit;

·   property benefits where, if the benefit was a property fringe benefit, it would be an in-house fringe benefit; and

·   residual benefits where, if the benefit was a residual fringe benefit, it would be an in-house fringe benefit.

12. Secondly, where:

·   tax-exempt body entertainment is provided, and

·   the provider incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision of entertainment to an employee or an associate of the employee,

such benefits are excluded from consideration for exemption under section 58P, except in two limited circumstances.

In applying these guidelines it is necessary to consider:

whether the benefit is one of the benefits listed in paragraphs 11 and 12 of TR 2007/12;

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

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

Is the benefit is one of the benefits listed in paragraphs 11 and 12 of TR 2007/12?

Paragraphs 11 of 12 of TR 2007/12 set out the benefits that will not be an exempt minor benefit even where the value is less than $300. The benefits listed are airline transport benefits, in-house benefits and most tax-exempt body entertainment benefits.

Generally, a reimbursement will be an expense payment benefit. However, if the expenditure is in respect to the provision of entertainment it can be a tax-exempt body entertainment benefit. As this is one of the listed benefits the initial question to consider is whether the reimbursement is a tax-exempt body entertainment benefit.

Is the reimbursement a tax-exempt body entertainment benefit?

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:

· 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

· 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:

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

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

· 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;

Did the expenses being reimbursed 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 Income Tax Assessment Act 1997 (ITAA 1997) defines 'entertainment' as:

· entertainment by way of food, drink or recreation, or

· 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;

· amusement;

· sport or similar leisure-time pursuits; and

· recreation or amusement provided on, or by means of, a vehicle, ship, vessel or aircraft.

The Macquarie Dictionary provides the following meaning of recreation:

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

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

· the act of recreating.

· the state of being recreated.

The Macquarie Dictionary provides the following definition of amusement:

· the state of being amused; enjoyment.

· that which amuses; pastime; entertainment

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

In your application you provided two examples of expenses that are able to be reimbursed. Guidance for determining if these expenses constitute the provision of entertainment 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?

Paragraphs 2 and 3 of TD 94/55 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.

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 provides examples of costs which generally will not constitute the provision of entertainment and costs that generally will constitute the provision of entertainment. The examples given are:

Costs incurred in the giving of items of property, such as bottled spirits, groceries, games, TV sets, VCRs, computers, crockery, swimming pools, gardening equipment, etc; have an enduring character, and only an indirect nexus to any immediate entertainment. Consumption is usually delayed. The items of property usually require further steps before they can be consumed, and consumption can occur over a long period.

TD 94/55 also provides examples of costs that will constitute the provision of entertainment. The examples given are:

Costs incurred in providing glasses of champagne, hot meals, theatre tickets, holiday accommodation, hired entertainers, and hired sporting equipment, have a dynamic and immediate character. Consumption can usually occur immediately. These items of property do not last beyond initial consumption (or are to be returned at the end of the hire period).

In applying these guidelines gym membership will constitute the provision of entertainment by way of 'recreation'. By contrast, running shoes will generally not have the necessary connection to the provision of entertainment.

Was the entertainment expenditure incurred in producing assessable income?

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 1.5 of the table in section 32-30 enables a deduction to be claimed for providing a facility for recreation on property you occupy, if the facility is mainly operated for your employees to use. However, this exception does not apply if the facility is for accommodation or dining or drinking (unless it is a food or drink vending machine).

If the entertainment expenditure does not come within one of the exceptions the reimbursement will constitute the provision of a tax-exempt body entertainment benefit.

Will the tax-exempt body entertainment be a minor benefit?

Paragraph 58P(1)(d) specifically excludes from the minor benefits exemption many minor entertainment benefits provided by tax-exempt bodies to their employees (or associates of their employees). It restricts the application of the minor benefits exemption in relation to tax-exempt body entertainment to the following two situations:

where the entertainment is incidental to the provision of entertainment to outsiders and does not consist of and is not provided in connection with a meal; or

entertainment provided to an employee (or associate of an employee) on eligible premises of the employer solely as a means of recognising the special achievements of the employee in a matter relating to the employment of the employee.

Unless one of these two exceptions are satisfied, a benefit that is a tax-exempt body entertainment benefit will not be an exempt minor benefit. This will be the case even if the notional taxable value is less than $300.

Conclusion

A reimbursement provided to an employee under the healthy lifestyle program which is a tax-exempt body entertainment benefit will not be an exempt minor benefit under section 58P of the FBTAA.

Will the reimbursement be an exempt minor benefit if it does not constitute the provision of entertainment?

Where the benefit is not a tax-exempt body entertainment benefit it will not be one of the benefits listed in paragraphs 11 and 12 of TR 2007/12. In such a situation, it is necessary to consider:

· whether the notional taxable value of the benefit is less than $300; and

· whether it would be unreasonable having regard to the specified criteria in paragraph 58P(1)(f) to treat the benefit as a fringe benefit.

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

The definition of 'notional taxable value' in subsection 136(1) provides that the 'notional taxable value' of the benefit will be the amount that would be the taxable value if the benefit was a fringe benefit.

A reimbursement which is not a tax-exempt body entertainment benefit will be an expense payment fringe benefit. The taxable value of an expense payment fringe benefit that arises from a reimbursement will generally be the amount of the reimbursement.

As the maximum amount that will be reimbursed is $150 the notional taxable value will be less than $300.

Would it be unreasonable having regard to the specified criteria in paragraph 58P(1)(f) to treat the benefit as a fringe benefit?

Paragraph 58P(1)(f) contains five specific criteria which must be considered in determining whether it would be unreasonable to treat the benefit as a fringe benefit. The five criteria are:

· the infrequency and irregularity with which associated identical or similar benefits are provided;

· the sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit;

· the sum of the notional taxable values of any other associated benefits;

· the practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits; and

· the circumstances surrounding the provision of the minor benefit and any associated benefits.

For the purposes of the minor benefits exemption the term 'associated benefits' is defined in subsection 58P(2) of the FBTAA to mean a benefit that is any of the following:

· identical or similar to the minor benefit;

· provided in connection with the provision of the minor benefit; or

· identical or similar to a benefit provided in connection with the provision of the minor benefit.

In the context of healthy living program each of the reimbursements may be an associated benefit.

In considering each of the five criteria:

The infrequency and irregularity with which associated identical or similar benefits are provided

The employee may not receive any associated benefits. Even if the employee does receive a reimbursement in another calendar year, the employee will not receive more than two benefits in a particular FBT year. Therefore, the benefits will not be provided frequently, but they may be provided regularly (once per year).

The sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit

The sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar will vary. It may be an amount that is less than $150, or where benefits are received over a number of years the sum of the values could be several hundred dollars.

In either case, the sum is likely to be a minimal amount.

The sum of the notional taxable values of any other associated benefits

Similarly, the sum of the notional taxable values of the minor benefit and any other associated benefits is also likely to be a minimal amount.

The practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits

As the benefit is the reimbursement of a specific amount there will not be practical difficulties in determining the notional taxable values.

The circumstances surrounding the provision of the minor benefit and any associated benefits

In considering the circumstances in which the benefit is provided, paragraph 58P(1)(v) provides that it is necessary to consider whether the benefit was provided to assist the employee to deal with an unexpected event and whether the benefit was provided as a reward for services rendered.

In considering these factors, the benefit was not provided to assist with an unexpected event. Nor was it provided as a reward for services.

Conclusion

On balance, having regard to the various criteria in subparagraphs of 58P(1)(f)(1) - 58P(1)(f)(v) of the FBTAA, it can be concluded that it would be unreasonable to treat the minor benefits provided under the health related lifestyle program that do not constitute the provision of entertainment as a fringe benefit.

Accordingly, a reimbursement provided to an employee under the healthy lifestyle program which does not constitute the provision of tax exempt body entertainment will be an exempt minor benefit under section 58P of the FBTAA.