Edited version of private ruling

Authorisation Number: 1011741153225

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fac sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Residual Fringe Benefits

Question

Is the provision of recreational facilities to government employees an exempt benefit under subsection 47(2) of the Fringe Benefits Tax Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following period:

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 commenced on

1 April 2011

Relevant facts

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.

The Council is constructing a sports and aquatic centre to be completed in a recent year. The sports and aquatic centre, owned by the Council, will comprise of a sports stadium.

The Council is expected to allow the community and general public access to the facilities through daily user fees or by member subscriptions.

The Council is considering allowing its employees to sacrifice part of their salary as a method of payment for membership fees for access to the facilities. The arrangement will be through salary sacrifice.

This ruling is given on the basis of the facts stated in the description of the scheme as set out above. Any material variation from these facts (including any matters not stated in the description above and any departure from these facts) will mean that the ruling will have no effect. No entity will then be able to rely on this ruling as the Commissioner will consider that the scheme has been implemented in a way that is materially different from the scheme described.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 38

Fringe Benefits Tax Assessment Act 1986 Section 45

Fringe Benefits Tax Assessment Act 1986 Subsection 47(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1997 Section 32-5

Income Tax Assessment Act 1997 Section 32-20

Income Tax Assessment Act 1997 Section 32-40.

Reasons for decision

Subsection 47(2) of the FBTAA states that:

Where:

(a) a residual benefit provided to a current employee in respect of his or her employment consists of -

(i) the provision, or use, of a recreational facility; or

(ii) …; and

(b) the recreational facility … is located 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.

The provision of the use of a 'recreational activity' will be exempt benefit under subsection 47(2) of the FBTAA if the following is satisfied:

Is a benefit being provided to the employees?

The term 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 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:

i) to the provision of, or the use of, facilities for entertaining or recreation.'

The provision of recreational facilities to employees satisfies the definition of a benefit.

The above requirement would only be satisfied if the facility is provided to current employees, and not any third parties.

Is the benefit provided a residual benefit?

Section 45 of the FBTAA states that:

'A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

A benefit is a residual benefit if it is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 of the FBTAA. The provision and use of the sports and aquatic centre does not fall within any provision of Subdivision A of Division 2 to 11 inclusive of the FBTAA, thus section 45 of the FBTAA is met and it is a residual benefit.

Is the benefit a tax-exempt body entertainment benefit and therefore not a residual benefit?

Section 38 of the FBTAA states that:

Where, at a particular time, a person (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 (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 employer, council, incurs expenditure operating the recreational centre.

As per ATO ID 2008/60, where the expenditure incurred by operating the recreational centre is 'also "non-deductible exempt entertainment expenditure", as defined in subsection 136(1) of the FBTAA, the incurring of the expenditure will be deemed to constitute a benefit as described in section 38 of the FBTAA.'

Is it entertainment?

Section 136(1) of the FBTAA and s32-10 of the Income Tax Assessment Act 1997 (ITAA 1997) states that 'entertainment' includes entertainment by way of recreation. 'Recreation' is defined in s995-1(1) of the ITAA 1997 to include amusement, sport or similar leisure-time pursuits.

Thus, it appears that the use of recreation centre falls within the definition of entertainment.

Is the expenditure incurred in respect of provision of entertainment to employee?

Yes - the employer incurs expenditure operating the recreation centre which is in respect of provision of entertainment to employee.

Is the expenditure also non-deductible exempt entertainment expenditure?

Section 136(1) of the FBTAA states that:

'Non-deductible exempt entertainment expenditure' means non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income.

'Non-deductible entertainment expenditure' means a loss or outgoing to the extent to which:

(a) section 32-5 of the ITAA 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 ITAA 1997 had not been enacted).

As per ATO ID 2008/60, the operating expenditure the council incurs would be entertainment expenditure under s32-5 of the ITAA 1997 and would be deducting these expenses if it were not exempt from income tax. According to ATO ID 2008/60:

Where this operating entertainment would also be entertainment expenditure under s32-5 of the ITAA 1997 then the employer will have incurred 'non-deductible entertainment expenditure' which is also 'non-deductible exempt entertainment expenditure.' Under these circumstances the employer would have provided a benefit under section 38 of the FBTAA.

However, there is an exception in s32-5 ITAA 1997. According to section 32-40 of the ITAA 1997, section 32-5 of the ITAA 1997 does not stop you deducting a loss or outgoing for…

3.1 'providing entertainment for payment in the ordinary course of a business that you carry on'.

As per ATO ID 2008/60, the employer here carries on a business of providing the use of the recreation centre to members of the public for payment. As the business is one of providing recreation which is entertainment and the activity is considered to be in the ordinary course of a business, s32-40 of the ITAA 1997 is therefore satisfied and the employer's expenditure is not entertainment expenditure. It is not non-deductible entertainment expenditure or non-deductible exempt entertainment expenditure within subsection 136(1) of the FBTAA.

Thus, section 38 of the FBTAA is not satisfied, and the benefit is a residual benefit.

Is the benefit provided to a current employee?

Section 136(1) of the FBTAA states that the definition of 'benefit':

'includes any right, 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 an arrangement for or in relation to: the provision of, or of the use of facilities for, entertainment, recreation or instruction.'

'Provide' in relation to a benefit includes allow, confer, give, grant or perform.

It appears that the proposal is to provide for the provision and use of the recreational facility to employees of the council, which satisfies the requirement of provision of recreation.

Does the benefit consist of the provision or use of a recreational facility?

Section 136(1) of the FBTAA states that:

'Recreational facility' means a facility for recreation, but does not include a facility for accommodation or a facility for drinking or dining.

'Recreation' includes:

(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 description of the nature and services of the facility as provided by the council falls within the definition of recreational facility. The facility will be used for sports (netball and basketball), gym and swimming centre. These activities fall under the definition of recreation. Provided that the facility is provided to a current employee of the council, the requirement is satisfied.

Does the premises satisfy the definition of recreational facility in subsection 136(1) of the FBTAA?

Provided that the facility in question is for recreation and not a facility for drinking or dining, then this definition is satisfied.

Is the recreational facility located on the business premises of the employer?

Section 136(1) of the FBTAA states that:

'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, but does not include:

(a) premises, or a part of premises, used as a place of residence of an employee of the person or an employee of an associate of the person; or

(b) a corporate box; or

(c) boats or planes used primarily for the purpose of providing entertainment unless the boat or plane is used in the person's business of providing entertainment; or

(d) other premises used primarily for the purpose of providing entertainment unless the premises are used in the person's business of providing entertainment.

Premises of the person:

As per Taxation Ruling TR 2000/4 paragraph 7, 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 this case the sports and aquatic centre is wholly owned by the council and the operations and management of the centre will be by the council staff, thus the requirement of 'premises of the person' is satisfied.

Business operations:

Section 136(1) of the FBTAA states that:

'Business operations' in relation to a government body or a non-profit company includes any operations or activities carried out by that body or company.

As per Taxation Ruling TR 2000/4 paragraph 9, the term 'business operations' include:

9 [Activities] undertaken by a person in the ordinary course of carrying a business. They also include those activities that, although not undertaken in the ordinary course of carrying on a business, are nevertheless undertaken in the course of carrying on a business. Profit making activities that fall short of being a business are also included if they have a business or commercial character.

The recreational facility is located on the business premises of the employer.

Conclusion

The benefit is a residual benefit

The benefit is the provision or use of a recreational facility

The benefit is provided to a current employee in respect of employment

The recreational facility is located on the business premises of the employer.

The provision of recreational facilities to government employees is an exempt benefit under subsection 47(2) of the FBTAA.