Edited version of private ruling

Authorisation Number: 1011734669167

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Ruling

Subject: exempt fringe benefits

Question 1

Is the restaurant considered an in house dining facility for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No.

Question 2

Are the meals provided to employees at the restaurant an exempt property benefit pursuant to section 41 of the FBTAA?

Answer

Yes, with the exception of those benefits that are reimbursements as these are not a property fringe benefits under section 40 of the FBTAA.

This ruling applies for the following periods:

Fringe Benefits Tax Year Ending 31 March 2012

Fringe Benefits Tax Year Ending 31 March 2013

Fringe Benefits Tax Year Ending 31 March 2014

Fringe Benefits Tax Year Ending 31 March 2015

The scheme commences on:

1 April 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

A new on site dining facility was opened.

The dining facility is owned by you but operated by an external party under a licence agreement.

The dining facility is a restaurant with full table service, a bar and café with indoor and outdoor dining in addition to function rooms.

The dining facility is not restricted to staff and their guests during normal working hours.

The benefits are provided to employees by way of reimbursement and in some cases, the employees would make payments using their corporate credit cards.

The meals are mostly provided during breakfast and lunch time.

The meals are also provided for during business related meetings. The circumstances of the meals will cover but not limited to staff meetings and business meetings with clients or external parties.

There is no limit on the amount of food and beverage that can be purchased in any one transaction. However, when making payment using the corporate credit card, every employee has different credit limits.

In some cases, alcohol may be included in the benefits.

You provided a new menu listing

The licence agreement states:

This licence:

(a) is personal to the Licensee only and does not create an interest in the site or the premises;

(b) shall confer no right of exclusive occupation of the premises to the licensee and the Licensor may at any time and at all times and from time to time exercise all of its rights in respect of the premises including the right to use and possess and enjoy the whole or any part of the premises save only so far as such rights shall:

(1) prevent the operation of the licence and rights in respect to the premises; and

(2) be inconsistent with the express provisions of this licence.

is granted subject al all times to the right of the licensor to utilise the site and the premises for the purposes for which the site and the premises are vested in the licensor.

The licence agreement also provides that:

§ requires the company to pay a base rent

§ requires the company to pay a percentage rent on licencee's sales revenue.

§ states that the licensee shall use the premises for the permitted use and the premises cannot be used without written consent of the licensor.

§ deals with signage and under this clause the company cannot erect and signage on the exterior of the premises without consent of the licensor.

§ requires the licensee to keep the premises in good repair and maintain all locks and windows in good working order. Under this clause the licensee must also inform the licensor of any damage sustained to the premises and any failure of the licensor's plant and equipment.

§ requires the licensee to seek permission in writing before making any structural alterations or additions.

§ covers insurances.

o the licensee is required to maintain insurance noting the interests of both the licensee and licensor on a public liability policy and for a plate glass windows policy.

o the licensor shall maintain an insurance policy covering the building and all insurable improvements

§ covers assignment subletting and mortgages. Here the licensee must not transfer or assign this licence without giving the licensor prior written notice which consent the licensor will not unreasonably withhold. The licensee must not mortgage its interest in this license or the licensee's fixtures and fitting without the consent of the licensor.

Schedule 1 of the licence contains a number of conditions including:

§ opening hours and the fact that the licensee must keep the premises open during times determined by the licensor

§ pricing - the licensor has the right to determine the maximum food prices of food and beverages sold from the premises.

§ conditions regarding licensee's employees

§ should the licensee not exercise its option to renew the licence at the expiry of the term options the Licensor shall reimburse the licensee on a percentage sliding scale for the capital expenditure made by the licensee to the restaurant/café facilities.

Relevant legislative provisions

Fringe Benefit Tax Assessment Act 1986 Section 20.

Fringe Benefit Tax Assessment Act 1986 Section 32-10 and

Fringe Benefit Tax Assessment Act 1986 Section 41,

Fringe Benefit Tax Assessment Act 1986 Subsection 136(1),

Reasons for decision

These reasons for decision accompany the Notice of private ruling

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Detailed reasoning

A canteen, dining room or similar facility is an in house dining facility if it satisfies all of the following three criteria as discussed in Taxation Ruling IT 2675:

(a) it is located on the premises of the taxpayer, and

(b) it is operated wholly or principally for providing food and drink on working days to employees of the taxpayer; and

(c) it is not open to the public at any time

You have stated that he dining facility is not restricted to staff and their guests during normal working hours, therefore it does not fulfill all of the criteria needed as the dining facility is also open to the public.

The dining facility is not considered an in house dining facility.

Question 2

Detailed reasoning

A fringe benefits tax liability will arise from the provision of the food and drink where the provision of the food and drink constitutes a fringe benefit.

In general terms, the definition of a fringe benefit in subsection 136(1) of the FBTAA provides that the provision of food and drink will be a fringe benefit if:

§ it involves the provision of a benefit

§ to an employee, or associate of an employee

§ by the employer, an associate of the employer, or another person under an arrangement

§ in respect of the employment of the employee, and

§ does not come within paragraphs (f) to (r) of the definition.

Paragraph (g) of subsection 136(1) stated that an exempt benefit will not be a fringe benefit.

In considering whether or not the food and drink provided is an exempt property benefit under section 41 of the FBTAA it is necessary to consider if the payment is an expense payment benefit.

Section 41 of the FBTAA defines exempt property benefits. It states

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 w 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.

Section 40 of the FBTAA in respect of property benefits states in part

Where at a particular time, a person provides property to another person the provision of that property shall be taken to constitute a benefit provided by the provider.

Subsection 136(1) defines a property benefit as 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 Division 2 to 10 (inclusive) of Part III of the FBTAA.

Section 20 of the FBTAA provides that where an employer reimburses an employee is respect of expenditure incurred by the employee that the reimbursement will constitute an expense payment fringe benefit. Therefore reimbursement by the employer of expenditure incurred by the employee on food and drink is not a property fringe benefit. As it is not a property fringe benefit it cannot be exempt from FBT pursuant to section 41 of the FBTAA. Lights meals that are purchased at the restaurant by the employee and then reimbursed by you are not property fringe benefits and therefore are not exempt under section 41 of the FBTAA.

For section 41 of the FBTAA to apply it must be concluded that the food or drink is provided to and consumed by employees on the business premises of the employer.

Subsection 136(1) of the FBTAA defines business premises in relation to a person to mean premises or part of premises, of the person used, in whole or in part, for the purposes of business operations of the person subject to a number of specific exclusions that are not relevant here.

This definition contains two requirements for determining whether the premises are business premises for the purposes of the FBTAA. The first requirement is that the premises or part of the premises are of the person. Secondly the premises or part of the premises must be used by the person, in whole or in part, for the purposes of their business operations.

Taxation Ruling TR 2000/4 discusses the meaning of business premises.

It is a question of fact and degree as to whether particular premises are business premises of a person. Given that each case turns on its own facts, there is no absolute or conclusive test of whether premises are business premises. An objective analysis of all the circumstances is necessary.

In making this analysis all relevant matters should be carefully weighed including:

a) the control the employer has over the premises; and

b) the consistency of an employer's actions and activities on the premises with those of normal business practices.

In your application you advised the property (food and drink) will be:

§ provided to a current employee on a working day; and

§ consumed by the employee

§ in the restaurant

Therefore, in determining whether the provision of the food and drink will be an exempt benefit it is necessary to determine whether the restaurant is considered your business premises. If they are, then the food and drink provided to and consumed by an employee on a working day will be an exempt benefit.

Is the restaurant considered to be your business premises for the purpose of section 41 of the FBTAA?

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,…

The application of this definition is considered in Taxation Ruling TR 2000/4.

Paragraph 4 of TR 2000/4 states the premises will only be business premises if two requirements are met:

1. the premises or part of premises are 'of' the person; and

2. the premises are used by the person in whole or in part for the purposes of their business operations.

Premises of the person

Paragraph 25 of TR 2000/4 states the question of whether premises or a part of premises are premises of the person is:

to be determined having regard to the nature of the person's interest in the premises, evidenced by the person's rights and obligations in relation to the premises.

In applying this test paragraphs 7 and 8 state:

if a person has ownership of premises, or has exclusive occupancy rights as lessee of premises, the premises would ordinarily be described as premises of the person.

In other circumstances, for example, where a person has non-exclusive possession of premises, the person satisfies this requirement if they have a right to possession of the premises, at least to the extent necessary to enable the conduct thereon of their business operations.

The restaurant on the premises is owned by you and operated by another entity under a licence agreement.

The premises may be your premises. However, you may not have exclusive possession of the premises as the premises are the subject of a licence agreement.

This agreement raise the question of whether the premises can also be described as premises of either yourself, or the company.

As set out above, paragraph 8 of TR 2000/4 indicates it is possible for premises to be premises of a person, even though they do not have exclusive possession of premises. What is required is for the person to have a right of possession to the extent necessary to enable the conduct thereon of their business operations.

In considering whether an employer has the necessary right of possession paragraphs 48 to 54 of TR 2000/4 discuss the importance of the employer having control over the use of the premises.

Paragraph 48 states the employer must have a right of possession and control over the use of the premises during the course of its business operations. The absence of a right of possession and control may indicate the premises are not of the person, or the activities being carried out on the premises are not truly business premises of the person.

In illustrating this point, paragraphs 49 to 51state:

49. In most situations where premises are owned or held under a normal commercial lease, both possession and control exist. Conversely, for example, the ad hoc hire of squash courts by an employer does not make the squash courts 'business premises' of the employer. This is because any rights the employer has are subject to the overriding control of the operator. In a practical sense, the premises are not those of the employer.

50. It should be noted that situations do arise where a person has ownership of premises, while at the same time another person has exclusive occupancy rights as lessee of the premises, and so the premises could be described as premises of each of those persons. In other words, the premises could, in a particular period, be described as the premises of the owner and the premises of the lessee. However, while the Ruling at paragraphs 6 to 8 above may allow the identification of two persons, each of whom could satisfy the 'of the person' requirement, it does not automatically follow that each of those persons would satisfy the requirement that the premises be used for their 'business operations'.

51. On the other hand, the fact that particular premises are 'business premises' of a person does not necessarily preclude the premises from being 'business premises' of another person for the purposes of the FBTAA (per Merkel J in Esso Australia Ltd v. FC of T 98 ATC 4953, at 4959; (1998) 40 ATR 76, at 82; 157 ALR 652, at 658. That said, there is a practical limit to how many persons could concurrently establish that given premises are their 'business premises'. But again, this is a question of fact and degree, which can only be resolved by making a common sense judgment about the facts of each case and not by adopting any absolute rule - see Merkel J in Esso Australia Ltd v. FC of T 98 ATC 4953 at 4958; (1998) 40 ATR 76 at 81; 157 ALR 652 at 657).

The nature of the company's interest in the premises is set out in the Licence Agreement. This agreement enables the company to occupy the designated area for the purpose of providing the specified services, but it does not provide the necessary right of control and possession to the company.

The licence agreement states:

This licence:

is personal to the Licensee only and does not create an interest in the site or the premises;

shall confer no right of exclusive occupation of the premises to the licensee and the Licensor may at any time and at all times and from time to time exercise all of its rights in respect of the premises including the right to use and possess and enjoy the whole or any part of the premises save only so far as such rights shall:

prevent the operation of the licence and rights in respect to the premises; and

be inconsistent with the express provisions of this licence.

is granted subject al all times to the right of the licensor to utilise the site and the premises for the purposes for which the site and the premises are vested in the licensor.

This clause shows that you retain possession and control of the premises.

Are the premises used by you in whole or in part for the purposes of their business operations?

The term 'business operations' is defined in subsection 136(1) of the FBTAA in relation to a government body or a non-profit company to include any operation or activity carried out by that body or company.

Consequently, as set out in paragraph 9 of TR 2000/4, business operations can include a wide range of activities. Paragraph 41 indicates it is wider than 'carrying on a business' and can include both passive and active dealings. It can include an activity that although not undertaken in the ordinary course of carrying on a business is undertaken in the course of carrying on a business. As an example of this principle paragraph 10 states:

… the provision of benefits to current employees in the form of child care would be an important factor in recruiting, retaining and otherwise rewarding employees. Activities undertaken in connection with the provision of those benefits to employees would be 'business operations' of the employer.

The restaurant

You have retained control of the restaurant premises and have entered into the licence agreement with the company. Consequently, the restaurant can be accepted as being business premises of yourself as:

§ you retained the necessary control and possession of the premises

§ you control how the premises are to be used, the opening hours and the services to be provided

§ you receive the licence fee.