Edited version of your private ruling

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Ruling

Subject: Fringe benefits tax

Question 1

Where an employee is reimbursed for the cost of a packaged holiday, which includes airfares and accommodation and the amounts for these expenses cannot be separated, would the reimbursement be a benefit whose taxable value is wholly or partly attributable to entertainment facility leasing expenses?

Answer

Yes

Question 2

If so, would the benefit therefore be exempt from fringe benefits tax for the employer, being a public benevolent institution, under subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 without any annual limit on the maximum amount due to the operation of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 3

Where an employee takes a family holiday, books the flights and accommodation separately and is reimbursed for the total of those costs in one transaction, would the reimbursement of the flight expenses be a benefit whose taxable value is wholly or partly attributable to entertainment facility leasing expenses

Answer

No

Question 4

If so, would the benefit therefore be exempt from fringe benefits tax for the employer, being a public benevolent institution, under subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 without any annual limit on the maximum amount due to the operation of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Not applicable

Question 5

Where an employee takes a family holiday, books the flights and accommodation separately and is reimbursed for those costs in separate transactions, would the reimbursement of the flight expenses be a benefit whose taxable value is wholly or partly attributable to entertainment facility leasing expenses?

Answer

No

Question 6

If so, would the benefit therefore be exempt from fringe benefits tax for the employer, being a public benevolent institution, under subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 without any annual limit on the maximum amount due to the operation of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Not applicable

Question 7

Where an employee takes a family holiday, books the flights and accommodation separately and is reimbursed for the total of these costs spread over a number of pay periods, would the reimbursement of the flight expenses be a benefit whose taxable value is wholly or partly attributable to entertainment facility leasing expenses?

Answer

No

Question 8

If so, would the benefit therefore be exempt from fringe benefits tax for the employer, being a public benevolent institution, under subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 without any annual limit on the maximum amount due to the operation of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Not applicable

Question 9

Where an employee incurs travel costs in travelling to a holiday destination and home again, would the reimbursement of those expenses be a benefit whose taxable value is wholly or partly attributable to entertainment facility leasing expenses?

Answer

No

Question 10

If so, would the benefit therefore be exempt from fringe benefits tax for the employer, being a public benevolent institution, under subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 without any annual limit on the maximum amount due to the operation of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Not applicable

Question 11

Where an employee incurs costs in hiring or leasing a premises or facility solely to provide entertainment for a private function and is reimbursed for this cost, would the reimbursement be a benefit whose taxable value is wholly or partly attributable to entertainment facility leasing expenses?

Answer

Yes

Question 12

If so, would the benefit therefore be exempt from fringe benefits tax for the employer, being a public benevolent institution, under subsection 57A(3) of the Fringe Benefits Tax Assessment Act 1986 without any annual limit on the maximum amount due to the operation of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986?

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

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 employer is a public benevolent institution (PBI). It is endorsed under section 123C of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

The employer intends to reimburse its employees for expenses incurred by them in the scenarios outlined in the questions as an extension of its current salary sacrifice arrangements.

The current salary sacrifice arrangements are administered by the organisation and governed by policy procedures compliant with Australian taxation legislation.

Funds are transferred from the organisation's payroll bank account to a bank account from which the salary packaging is administered on a fortnightly basis. Employees then apply for reimbursements to be paid from their respective cash balances in the salary packaging bank account.

Employer policy requires all salary packaging requests to be supported with original tax invoices and tax declarations prior to payment. The schedule of items that can be included in salary packages identifies expenditure which employees can package.

The employer wishes to extend this arrangement to reimbursement of 'entertainment facility leasing expenses'.

Details about the proposed arrangements:

· Each of the scenarios in questions one, three, five, seven and nine, is in relation to the employee taking a private family holiday.

· Accommodation may include the hire of a holiday home, holiday apartment, on-site caravan, motel room or similar.

· The travel costs an employee incurs in travelling to a holiday destination and home again, referred to in question nine, may include public transport, fuel for the employee' car, car hire and airfares

· The costs of hiring a premises or facility solely to provide entertainment for a private function may include the hire of a room in which to hold a party, and the hire of tennis courts, squash courts or other recreational facilities.

· In some cases, the separate expenses might be evidenced by one piece of supporting documentation, such as a credit card statement. In other cases, separate receipts/invoices might be submitted for reimbursement.

· It is normal practice for a reimbursement to be spread over a number of pay periods. In the scenario for question seven, there will be an agreement that the total is to be reimbursed.

· For the scenario in question seven, the employee will submit substantiation for all the expenditure incurred. The employee will then be reimbursed by the employer over the course of a number of pay periods, that is, where the total of the expenses are reimbursed, but in instalments paid across the relevant period.

Reimbursement over a number of pay periods might happen where the employee has previously salary sacrificed an amount in readiness for the reimbursements, but where the amount sacrificed to date is not sufficient to cover the full amount of reimbursements. It might also happen where the employer obtains a large amount of substantiation for an employee at the beginning of a period which is then reimbursed in equal instalments across the course of that period.

The amount of each reimbursement will be determined by apportioning the total reimbursement amount over the number of pay periods in the period as outlined above. This might mean, for instance, equal amounts each pay period across a year or across the remainder of the year. It might mean a smaller or higher reimbursement initially, to 'catch up' to the total amount of salary already sacrificed, with the balance paid in the next pay period(s) to match salary sacrifices in those periods.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 5L,

Fringe Benefits Tax Assessment Act 1986 Section 38,

Fringe Benefits Tax Assessment Act 1986 Section 57A,

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

Income Tax Assessment Act 1997 Subsection 32-10(1) and

Income Tax Assessment Act 1997 Subsection 995-1(1).

Reasons for decision

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

Summary

Where an employee is reimbursed for the cost of a packaged holiday, which includes airfares and accommodation and the amounts for these expenses cannot be separated, if section 57A of the FBTAA did not apply the reimbursement would be a tax-exempt body entertainment benefit whose taxable value is wholly or partly attributable to entertainment facility leasing expenses.

Detailed reasoning

The employer proposes to provide benefits to its employees by way of reimbursements of expenses incurred as part of a family/private holiday.

Where the employer reimburses to the employee expenditure incurred in:

· hiring a holiday home, holiday apartment, on-site caravan, motel room, or similar

· hiring a premises or a facility for a party

· hiring tennis courts, squash courts or similar facilities for recreational use

· flights to and from destinations where employees are on holiday,

· it incurs non-deductible entertainment expenditure. This expenditure is taken to constitute tax-exempt body entertainment benefit provided to the employee under section 38 of the FBTAA.

If section 57A of the FBTAA did not apply the benefits would also be fringe benefits.

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

…expenses incurred by the person in hiring or leasing:

(a) a corporate box; or

(b) boats, or planes, for the purposes 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 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.

The words 'other premises or facility' as they are used in the definition of 'entertainment facility leasing expenses' have a wide meaning. In the same way that a corporate box is part of larger premises or a facility (being the sporting stadium) items that satisfy this category of entertainment facility leasing expense must be either:

· an entire premises or facility or

· a distinct area or separate room of larger premises or a facility.

Subsection 32-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that entertainment means:

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

· accommodation or travel to do with providing entertainment by way of food, drink or recreation.

Subsection 995-1(1) of the ITAA provides the meaning of recreation which 'includes amusement, sport or similar leisure-time pursuits'.

The employees of the employer will be hiring accommodation that is either an entire premises or a separate room of a larger premises or facility. This accommodation will be hired by the for the purpose of a holiday, therefore it will be considered to be hired for the purpose of entertainment as a holiday is a leisure-time pursuit. Therefore the expense incurred in hiring the accommodation will be entertainment facility leasing expenses.

Generally the transport to and from an entertainment facility will be a separate benefit that will not be part of the entertainment facility leasing expense. However, the transport may be part of the entertainment facility leasing expense where the transport is provided as part of an all-inclusive package.

The employer intends to reimburse its employees for the expense of an all-inclusive package that includes both the holiday accommodation and airfares. This will be a single tax-exempt body entertainment benefit. If section 57A of the FBTAA did not apply the taxable value of the tax-exempt body entertainment fringe benefit would be partly attributable to an entertainment facility leasing expense.

Question 2

Summary

The benefit will be exempt from fringe benefits tax under subsection 57A(3) of the FBTAA without any annual limit on the maximum amount due to the operation of subsection 5B(1L) of the FBTAA.

Detailed reasoning

The employer is a PBI. The benefits provided to its employees are exempt benefits under section 57A of the FBTAA up to the capping threshold of $30,000.

Benefits provided to employees whose taxable values are wholly or partly attributable to entertainment facility leasing expenses are not subject to fringe benefits tax because of the interaction between section 57A and subsection 5B(1L) of the FBTAA. Subsection 5B(1L) of the FBTAA is part of the process of calculating the employer's aggregate non-exempt amount.

Step 1 of the method statement in subsection 5B(1L) specifically disregards these benefits for the purposes of calculating the employee's subsection (1L) amount. The effect is that these benefits remain exempt from FBT and do not form part of the capping threshold in respect of an employee of an employer who is a PBI.

The phrase 'whose taxable values are wholly or partly attributable to entertainment facility leasing expenses' (or words to the same effect) appears in subsection 5B(1L), subsection 5E(3) and section 152B of the FBTAA.

The taxable value of what would be a tax-exempt body entertainment fringe benefit arising from the reimbursement of the cost of a packaged holiday for an employee is partly attributable to entertainment facility leasing expenses.

Therefore the employer will be exempt from fringe benefits tax on such benefits without any annual limit on the maximum amount that can be provided to each employee.

Question 3

Summary

Where an employee books the flights and accommodation separately and is reimbursed for the total of those costs in one transaction, if section 57A of the FBTAA did not apply the reimbursement of the flight expenses would be a tax-exempt body entertainment fringe benefit whose taxable value is not wholly or partly attributable to entertainment facility leasing expenses.

Detailed reasoning

The flights will be undertaken as part of a holiday and will be entertainment. However the purchase of tickets for a flight is not an entertainment facility leasing expense.

Generally, the transport to and from an entertainment facility will be a separate benefit that will not be part of the entertainment facility leasing expense.

In this situation the flights and accommodation will be booked separately by the employee. The reimbursement of the flight cost will constitute a separate tax-exempt body entertainment benefit from the reimbursement of the accommodation costs. This is despite the fact that the employer intends to reimburse the cost of the flights and accommodation in one transaction.

Therefore, if section 57A of the FBTAA did not apply the taxable value of the tax-exempt entertainment fringe benefit arising from the reimbursement of the flight costs will not be partly or wholly attributable to entertainment facility leasing expenses.

Such benefits will be exempt from fringe benefits tax however their taxable value will form part of the capping threshold for each employee of the employer.

Question 4

Not applicable

Question 5

Summary

Where an employee books the flights and accommodation separately and is reimbursed for those costs in separate transactions, if section 57A did not apply the reimbursement of the flight expenses would be a tax-exempt body entertainment fringe benefit whose taxable value is not wholly or partly attributable to entertainment facility leasing expenses.

Detailed reasoning

In this situation the flights and accommodation will be booked separately and reimbursed by the employer in separate transactions. The reimbursement of the flight expenses will constitute a separate tax-exempt body entertainment benefit from the reimbursement of the accommodation costs.

Therefore, if section 57A of the FBTAA did not apply the taxable value of the tax-exempt entertainment fringe benefit arising from the reimbursement of the flight expenses will not be partly or wholly attributable to entertainment facility leasing expenses.

Such benefits will be exempt from fringe benefits tax however their taxable value will form part of the capping threshold for each employee of the employer.

Question 6

Not applicable

Question 7

Summary

Where an employee books the flights and accommodation separately and is reimbursed for the total of these costs spread over a number of pay periods, if section 57A of the FBTAA did not apply the reimbursement of the flight expenses would be a tax-exempt body entertainment fringe benefit whose taxable value is wholly or partly attributable to entertainment facility leasing expenses.

Detailed reasoning

In this situation the flights and accommodation will be booked separately. The reimbursement of the flight costs constitutes a separate tax-exempt body entertainment benefit under section 38 of the FBTAA from the reimbursement of the accommodation costs. This is despite the fact that the employer intends to reimburse the flight and accommodation costs together over a number of pay periods.

Therefore, if section 57A of the FBTAA did not apply the taxable value of the tax-exempt entertainment fringe benefit arising from the reimbursement of the flight expenses will not be partly or wholly attributable to entertainment facility leasing expenses.

Such benefits will be exempt from fringe benefits tax however their taxable value will form part of the capping threshold for each employee of the employer.

Question 8

Not applicable

Question 9

Summary

Where an employee incurs travel costs in travelling to a holiday destination and home again, if section 57A of the FBTAA did not apply the reimbursement of the expenses would not be a tax-exempt body entertainment fringe benefit whose taxable value is wholly or partly attributable to entertainment facility leasing expenses.

Detailed reasoning

In this situation the employer intends reimburse expenses such as public transport, fuel for the employee' car, car hire and airfares. The reimbursement of any of these expenses constitutes a tax-exempt body entertainment benefit under section 38 of the FBTAA.

As explained previously, generally transport to and from an entertainment facility will be a separate benefit that will not be part of the entertainment facility leasing expense.

Therefore, if section 57A of the FBTAA did not apply the taxable value of the tax-exempt entertainment fringe benefit arising from the reimbursement of the transport expenses will not be partly or wholly attributable to entertainment facility leasing expenses.

Such benefits will be exempt from fringe benefits tax however their taxable value will form part of the capping threshold for each employee of the employer.

Question 10

Not applicable

Question 11

Summary

Where an employee incurs costs in hiring or leasing a premises or facility solely to provide entertainment for a private function and is reimbursed for this cost, if section 57A of the FBTAA did not apply the reimbursement would be a benefit whose taxable value is wholly or partly attributable to entertainment facility leasing expenses.

Detailed reasoning

As noted above the words 'other premises or facility' as they are used in the definition of 'entertainment facility leasing expenses' have a wide meaning. In the same way that a corporate box is part of larger premises or a facility (being the sporting stadium) items that satisfy this category of entertainment facility leasing expense must be either:

· an entire premises or facility or

· a distinct area or separate room of larger premises or a facility.

Hire of room to hold a party that is a private function of the employee

A room that has been hired to the exclusion of others is considered to be 'other premises or facility'.

The purpose of the hire of the room must be the provision of entertainment. As noted above, the definition of entertainment in subsection 32-10(1) of the ITAA 1997 includes entertainment by way of recreation.

Recreation is defined in subsection 995-1(1) of the ITAA 1997 and includes 'amusement, sport or similar leisure-time pursuits'.

Where a room is to be used for a family celebration, the use of the function room is a leisure-time pursuit. The use of the room is also something affording diversion or amusement and is entertainment in its natural meaning. The use of the room is entertainment by way of recreation under paragraph 32-10(a) of the ITAA 1997.

Therefore where the employer reimburses an employee for the cost of hiring a room to hold a party, if section 57A of the FBTAA did not apply the taxable value of that tax-exempt body fringe benefit would be wholly or partly attributable to entertainment facility leasing expenses.

Hire of tennis courts, squash courts and other recreational facilities that is a private function of the employee

Where an employee hires a tennis court, squash court or other recreational facility to the exclusion of others, the court or facility is considered to be 'other premises or facility'.

Recreation as defined in subsection 995-1(1) of the ITAA 1997 includes sport. The use of the facilities is entertainment by way of recreation under paragraph 32-10(a) of the ITAA 1997.

Therefore where the employer reimburses an employee for the cost of hiring the tennis court, squash court or other recreational facility, if section 57A of the FBTAA did not apply the taxable value of that tax-exempt body fringe benefit would be wholly or partly attributable to entertainment facility leasing expenses.

Question 12

Summary

The benefit will be exempt from fringe benefits tax under subsection 57A(3) of the FBTAA without any annual limit on the maximum amount due to the operation of subsection 5B(1L) of the FBTAA.

Detailed reasoning

See detailed reasoning for question two.