Edited version of private ruling

Authorisation Number: 1011778281027

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Ruling

Subject: entertainment facility leasing expense

Question 1

Are the expense payment benefits, benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses and therefore disregarded for the purposes of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer: Yes

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

The scheme commences on:

1 April 2011

Relevant facts and circumstances

The employer is endorsed as a health promotion charity for the purposes of the exemption contained in subsection 57A(5) of the FBTAA.

The employer is considering offering to its employee as part of their remuneration, reimbursement of the following expenses incurred by the employees:

Accommodation expenses whilst travelling on holidays:

(a) a holiday house;

(b) a hotel/motel room;

(c) a room or cabin at a holiday resort;

(d) a room/suite (but not any food and drink) at a bed and breakfast;

(e) an on-site caravan and/or cabin;

(f) a serviced or self-contained apartment; or

(g) an entire houseboat.

Venue/function room hire expenses:

(a) a reception centre or function room for entertainment events (e.g. wedding reception, party);

(b) a marquee for entertainment events (e.g. wedding reception, party);

(c) an entire boat or plane for the purposes of a social event; or

(d) an entire corporate box.

No part of the expenses are for the provision of food or drink or advertising.

During the holiday travel, the employees will not otherwise be travelling on work related purposes.

The reimbursement of expenses in respect of corporate boxes does not include advertising expenses in respect of any business that an employee may be associated with.

Relevant legislative provisions

FBTAA section 5B

FBTAA subsection 5B(1L)

FBTAA section 20

FBTAA section 23

FBTAA section 57A

FBTAA subsection 136(1)

Income Tax Assessment Act 1997 (ITAA 1997) section 32-10

ITAA 1997 subsection 995-1

Reasons for decision

Summary

As the employees incur expenses which are entertainment facility leasing expenses, the expense payment benefits are disregarded for the purposes of subsection 5B(1L) of the FBTAA.

Detailed reasoning

Section 57A of the FBTAA exempts from fringe benefits tax (FBT) benefits provided to employees of eligible entities. However the application of section 5B of the FBTAA has the effect of capping this exemption and it is the interaction of both of these sections that will determine how much (if any) FBT will arise in respect of employer exempt under section 57A of the FBTAA. In this case the exemption is capped at $30,000 (grossed-up) per employee.

In looking at the interaction between sections 57A and 5B of the FBTAA, the method statement in subsection 5B(1L) of the FBTAA has the effect of disregarding certain benefits when determining the cap. One of benefits disregarded is any benefit whose taxable values are wholly or partly attributable to entertainment facility leasing expenses.

In this case the employer is reimbursing expenses incurred by employees which if not for the application of section 57A of the FBTAA would have been expense payment benefits as described under section 20 of the FBTAA. The taxable value of the expense payment benefit, under section 23 of the FBTAA, would have been the amount of the reimbursement.

The taxable value would have been wholly or partly attributable to the employee's expenses and where these employee's expenses are attributable to entertainment facility leasing they will be disregarded when determining the cap under section 5B of the FBTAA.

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

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.

There are a number of requirements that must be satisfied in considering whether expenses incurred satisfy the definition of 'entertainment facility leasing expenses'.

Hiring or leasing

Under the definition of 'entertainment facility leasing expenses', an expense must be incurred by the person in 'hiring or leasing' ...

As the word 'hiring' is not defined in the FBTAA it has its natural meaning, taken in the context in which it appears in the legislation.

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. …

Subsection 136(1) of the FBTAA defines 'leased' as meaning 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.

The employees will incur expenses in relation to the facilities listed in 1) and 2) under the relevant facts that describe the scheme. The expenses listed under 1) relate specifically to accommodation expenses while employees are travelling on holidays. The expenses listed under 2) relate specifically to venue/function room hire for the purpose of facilitating the provision of entertainment by way of a wedding reception, party or other social event. The expenses will be in return for the temporary use of the facilities or premises and fall within the dictionary definition of 'hire' and with the FBTAA definition of 'leased'.

Other Premises or facilities

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

As the words 'premises' or 'facilities' are not defined in the FBTAA they have their natural meaning, taken in the context that they appear in the legislation.

The words 'premises' and 'facility are defined in the Macquarie Dictionary to mean:

facility

noun (plural facilities)

1. something that makes possible the easier performance of any action; advantage: transport facilities; to afford someone every facility for doing something.

9. a building or complex of buildings, designed for a specific purpose, as for the holding of sporting contests.

premise

noun (plural premises)

(a) the property forming the subject of a conveyance.

(b) a tract of land.

(c) a house or building with the grounds, etc., belonging to it.

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... .

The use of the words 'other premises or facility' derives meaning ejusdem generis as having 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.

It is considered that the facilities or premises listed in 1) and 2) under the relevant facts that describe the scheme would be facilities or premises for the purposes of the definition of 'entertainment facility leasing expenses'.

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 (ITAA 1997).

Subsection 32-10(1) of the 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.

A relevant question to consider under paragraph 32-10(1)(a) of the ITAA 1997 is whether the use of the premises or facilities is for the purposes of providing entertainment by way of recreation.

While 'recreation' is defined the words 'entertainment by way of recreation' are not defined. As these words are not defined, they have their natural meaning, taken in the context in which they appear in the legislation

The word 'entertainment', which is key to the operation of the relevant words, 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.

In relation to the use of facilities or premises whilst employees are travelling on holidays (and not on work related duties), the use of such facilities or premises is a leisure-time pursuit which is 'recreation' as defined in the ITAA 1997. The use of such facilities or premises whilst on holidays is something affording diversion or amusement and will be entertainment within the natural meaning and is considered to be entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997. To the extent that such facilities or premises constitute accommodation, the accommodation can fall within the meaning of 'entertainment' under paragraph 32-10(1)(b) of the ITAA 1997.

Similarly, the venue/function rooms hired by the employees will be used for family celebrations, wedding receptions, parties or other social or entertainment events. Such use is considered to fall within leisure-time pursuits and is 'recreation' as defined in the ITAA 1997. This use is also something affording diversion or amusement and is entertainment within the natural meaning of this word. The use of the venue/function rooms will give rise to entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997.

The expenses incurred by the employees on hiring or leasing the facilities or premises listed in 1) and 2) under the relevant facts that describe the scheme are 'entertainment facility leasing expenses' as defined in subsection 136(1) of the FBTAA.

Therefore under that arrangement all the expenses the employer will be reimbursing are expenses, which but for section 57A of the FBTAA, would have been expense payment benefits whose taxable value will be attributable to entertainment facility leasing expenses. As a result, these benefits will be disregarded under the method statement contained in subsection 5B(1L) of the FBTAA.