Edited version of your private ruling

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Ruling

Subject: Fringe benefits tax - meal entertainment

Question 1

Will the use of the Meal Leisure Card to pay the taxi fares when going to and from a restaurant be included in the calculation of the employer's aggregate non-exempt amount under subsection 5B(1E) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

Will the use of the Meal Leisure Card fall within the definition of 'excluded fringe benefit' under section 5E(3)(a) of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

1 April 2011 - 31 March 2012

1 April 2012 - 31 March 2013

1 April 2013 - 31 March 2014

1 April 2014 - 31 March 2015

The scheme commences on:

1 April 2011

Relevant facts and circumstances

You have received a private ruling, which issued earlier this year, based on the following facts:

You are a public hospital which comes within paragraph 57A(3)(a) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Under the terms of your salary packaging arrangements you currently allow your employees access to two types of cards.

The first card is a meal card that can only be used to purchase food and drink that constitutes the provision of entertainment.

The second card does not have any restrictions on the items that can be purchased.

You are considering allowing your employees to obtain a third type of card as part of a salary sacrifice arrangement. The card will be called a 'Meal Leisure Card'.

In general terms, the 'Meal Leisure Card' will be enable the employee (or associate) to pay for expenses incurred:

· for the provision of meal entertainment by way of food or drink; and/or

· in the hire or lease of an entertainment facility.

Apart from the expenses that can be paid using the card, the terms and conditions that apply to the 'Meal Leisure Card' will be the same as those that apply to the existing cards.

In summary, the cards operate as follows:

The employees enter into an effective salary sacrifice arrangement (in accordance with Taxation Ruling TR 2001/10).

Under the terms of the salary sacrifice agreement the amount of salary that the employee would otherwise receive is reduced in return for the employee being provided with a nominated card that can be used to make purchases to an agreed value.

   Each pay period the amount agreed to in the salary sacrifice arrangement is transferred by the employer to the card account.

   The employee uses the card at a merchant to pay for items. Each purchase by the employee or their associate reduces the value available on the card.

    The bank makes a payment to the merchant from the relevant card account.

   The cards have a limit of zero dollars. An employee cannot spend more than the value that is on the card.

    Cash withdrawals, cash advances and internet transfers between accounts are not permitted.

    The cards must not be used in Taxis or VHA cars.

Direct debits are not allowed to be established on these accounts.

   If an employee makes a purchase and there are insufficient funds in the card account, the card terminal will reject the employee's use of the card. The employee will have to pay in cash and may then submit a manual claim form to the employer along with the receipt and tax invoice. The employer will then transfer money from the employee's card account to the employee's personal bank account or alternatively, may reduce the next transfer to the employee's card account and deposit this reduction to the employee's personal bank account.

   A card account may be overdrawn if a merchant terminal is not operating or the process with merchant's banking facility is down. As a result of this transaction the employee's card may fall into debit. The employer will notify the employee that an additional amount will be deducted pre tax from the employee's salary and paid to the card account.

Meal cards may be used to purchase meals from merchants that are deemed to be valid.

An annual reconciliation will take place after the conclusion of the relevant fringe benefits tax (FBT) year. Any reimbursement amount not claimed by the last pay period of the FBT year will be converted and paid as salary with appropriate PAYG amounts being withheld. Such payments will be made as soon as practicable after the end of the FBT year.

Where an employee terminates employment or ceases salary packaging, the employer will return any unused balance amount that the employee has in their account via the payroll system as salary. Amounts for PAYG will be withheld.

You are applying for a new private ruling based on the same facts, however employees would be able to use the Meal Leisure Card to pay for taxi fares to and from a meal entertainment event.

You will audit the Meal Leisure Card quarterly, including the newly proposed taxi expenses through transaction reports provided by the bank. You will be able to identify taxi expenses where it accompanies a Meal Entertainment Expense by Merchant code and transaction date in the bank transaction report to ensure that your policies on correct usage of the Meal Leisure Card are followed.

Where you identify a taxi expense that does not accompany a dining expense you will send the employee a letter requiring the employee to complete an audit form and provide any supporting evidence of the expenses. Where the Meal Leisure Card has been used to pay for non valid taxi expenses the employee will be required to repay the amount in post tax dollars.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 5B.

Fringe Benefits Tax Assessment Act 1986 Subsection 5B(1E).

Fringe Benefits Tax Assessment Act 1986 Subsection 5B(1L).

Fringe Benefits Tax Assessment Act 1986 Subsection 5E(2).

Fringe Benefits Tax Assessment Act 1986 Subsection 5E(3).

Fringe Benefits Tax Assessment Act 1986 Paragraph 5E(3)(a).

Fringe Benefits Tax Assessment Act 1986 Section 37AC.

Fringe Benefits Tax Assessment Act 1986 Section 37AD.

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1).

Reasons for decision

Question 1

Will the use of the Meal Leisure Card to pay the taxi fares when going to and from a restaurant be included in the calculation of the employer's aggregate non-exempt amount under subsection 5B(1E) of the FBTAA?

Detailed reasoning

The provision of meal entertainment is defined in section 37AD of the FBTAA to be the provision of:

(a) entertainment by way of food or drink; or

(b) accommodation or travel in connection with, or for the purpose of facilitating entertainment to which paragraph (a) applies; or

(c) the payment or reimbursement incurred in providing something covered by paragraph (a) or (b);

whether or not

(d) business discussions or business transactions occur; or

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

(f) for the purposes of promotion or advertising; or

(g) at or in connection with a seminar.

We have previously provided a ruling in relation to the use of the card to purchase meal entertainment. Under the new arrangement the card can be used to pay the taxi fare to and from the venue where meal entertainment occurs. Therefore the issue to be considered is whether the taxi fares come within the definition of meal entertainment.

The above definition of meal entertainment includes travel in connection with entertainment by way of food or drink.

You have advised that where the card is used to pay for taxi expenses, the employee must also have an accompanying meal entertainment expense prior to or after the dining expense on the card.

You will conduct audit processes of employee statements to identify that taxi expenses accompany a dining expense. Where you identify a taxi expense on an employee's statement that does not accompany a dining expense the employee will be required to complete the taxi audit transaction declaration and provide any supporting evidence confirming the card is being used according to the Meal Leisure Card policy.

A Meal Leisure Card which is used to pay for taxi fares to and from a restaurant comes within the 'meal entertainment' definition. When this occurs, the benefit will not be included in the calculation of the employer's 'aggregate non-exempt amount'.

Question 2

Will the use of the Meal Leisure Card fall within the definition of 'excluded fringe benefit' under section 5E(3)(a) of the FBTAA?

Detailed reasoning

The phrase 'excluded fringe benefit' is defined in subsection 5E(3) of the FBTAA as follows:

An excluded fringe benefit is a fringe benefit:

(a) constituted by the provision of meal entertainment (as defined in section 37AD, whether or not the employer has elected that Division 9A of Part III apply to the employer); or

(b) …

As the use of the Meal Leisure Card to pay the taxi fares to and from a restaurant comes within the definition of 'meal entertainment', the benefit is an excluded fringe benefit as per paragraph 5E(3)(a) of the FBTAA.