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Ruling

Subject: Fringe Benefits-Provision of entertainment-Reportable requirements

Question 1

Are the provision of benefits in relation to the costs associated with the trip to commemorate the anniversary of the company's incorporation subject to FBT under section 66 of the of the Fringe Benefits Tax Assessment Act 1986?

Advice/Answer 1

Yes

Question 2

If the answer to question one is yes, are the relevant fringe benefits in respect of the flight reportable fringe benefits that must be shown on the employee's payment summaries as reportable fringe benefits amount in the 2012 year?

Advice/Answer 2

Yes - provided the employee's individual fringe benefits amount is more than $2,000. Individual fringe benefits amount does not include excluded fringe benefits.

Question 3

If the answer to question one is yes, are the relevant fringe benefits in respect of the hotel accommodation reportable fringe benefits that must be shown on the employee's payment summaries as reportable fringe benefits amount in the 2012 year?

Advice/Answer 3

No

Question 4

If the answer to question one is yes, are the relevant fringe benefits in respect of the meals reportable fringe benefits that must be shown on the employee's payment summaries as reportable fringe benefits amount in the 2012 year?

Advice/Answer 4

No

This ruling applies for the following period

01 April 2011-31 March 2012

Relevant facts

The following relevant facts are based on:

· your application for a Private Binding Ruling.

· information provided in the course of a telephone conversations

In July 2011 the taxpayer took their staff and spouses for a trip to commemorate the anniversary of the company's incorporation.

The company paid for the flights, accommodation and most meals for the trip.

The flight and accommodation were not part of an all inclusive package but were two separate transactions. The flight/travel and accommodation were booked separately through the travel agent. The employer selected the hotel and asked the travel agent to book the accommodation at the hotel. The flight and accommodation were not a package offered by the travel agent.

The flight and accommodation were not available as an all inclusive package and were not purchased as an all inclusive package.

The employer paid for most of the meals.

Assumptions

None

Relevant legislative provisions

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

Subsection 136(1) Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Summary

Question 1

Fringe Benefits

As the benefits in question are fringe benefits they are subject to fringe benefits tax in accordance with section 66 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Question 2, 3 &4

Reportable fringe benefits

Where an employee's individual fringe benefits amount is more than $2,000 in an FBT year (1 April to 31 March), the employer must report the grossed-up taxable value of that amount on the employee's payment summary for the corresponding income year (1 July to 30 June). This is called their reportable fringe benefits amount.

Note: (1) The total value of all benefits provided to a particular employee in an FBT year is known as their individual fringe benefits amount.

Note: (2) Individual fringe benefits amount does not include excluded fringe benefits.

Detailed Reasoning

The expenses paid for by the employer constitute benefits that are fringe benefits in accordance with the definitions of benefit and fringe benefit in subsection 136(1) of the FBTAA 1986. To determine if the benefits need to be reported the employer needs to ascertain what type of benefit each expense represents.

All the expenses in question fall within the definition of entertainment (as defined in subsection 136(1) of the FBTAA) and constitute one or more of the types a fringe benefit ,as explained below, into which entertainment may fall.

Chapter 14 of the Tax Office publication 'Fringe benefits tax: a guide for employers' contains the Commissioner's view on the meaning of entertainment. The Guide also contains information about reportable fringe benefits in chapter 5.

What is the provision of entertainment?

The provision of entertainment means the provision of:

· entertainment by way of food, drink or recreation

· accommodation or travel in connection with, or to facilitate the provision of, such entertainment.

Some examples of the provision of entertainment are:

· business lunches and drinks, cocktail parties and staff social functions

· providing entertainment to employees and clients by providing access to sporting or theatrical events, sightseeing tours, holidays and so on

· accommodation and travel when it is provided in connection with, or to facilitate, activities such as entertaining clients and employees over a weekend at a tourist resort, or providing them with a holiday.

Does the provision of entertainment give rise to an entertainment fringe benefit?

There is no category of 'entertainment fringe benefit' as such.

The provision of entertainment may give rise to a number of different types of fringe benefit, depending on the circumstances under which you provide the entertainment. The different types of fringe benefit that may arise are:

· a meal entertainment fringe benefit where fringe benefits are provided by way of, or in connection with, food or drink (Division 9A of the FBTAA)

· an expense payment fringe benefit (refer to Expense payment fringe benefits) - for example, the cost of theatre tickets purchased by an employee that you reimburse (Division 5 of the FBTAA)

· a property fringe benefit (refer to Property fringe benefits) - for example, providing food and drink (Division 11 of the FBTAA)

· a residual fringe benefit (refer to Residual fringe benefits) - for example, providing accommodation or transport (Division 12 of the FBTTA)

· a tax-exempt body entertainment fringe benefit. This category of fringe benefit involves only those employers who are exempt from income tax (refer to Tax-exempt body entertainment fringe benefits).(Division 10 of the FBTAA)

The benefits in respect of the flight and hotel accommodation will constitute residual fringe benefits and the meal benefit will constitute either meal entertainment or property fringe benefits.

Reporting requirements

In general terms an employer is required to report the grossed-up taxable value of the fringe benefits provided to an employee on the employee's payment summary when the employees individual fringe benefits amount is more than $2,000.

Subsection 5E(2) FBTAA defines the individual fringe benefits amount as:

the sum of the employee's share of the taxable value of each fringe benefit that relates to the year of tax and is provided in respect of the employment other than an excluded fringe benefit.

Excluded fringe benefits

Fringe benefits that are excluded from the reporting requirements are still subject to FBT.

You do not have to allocate the following excluded benefits to employees or report them on payment summaries.

An excluded fringe benefit is defined in subsection 5E(3) of the FBTAA as:

5E(3)  What is an excluded fringe benefit?  

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) ------

(c) whose taxable value is wholly or partly attributable to entertainment facility leasing expenses

Benefits included in the reporting requirements

The value of all fringe benefits other than excluded fringe benefits explained above (refer to section 5.2 of the Fringe benefits tax: Guide For Employers) must be allocated to the relevant employees. Where the value of these non-excluded fringe benefits exceeds $2,000 the value of all non-excluded fringe benefits must be reported on the employee's payment summary.

Entertainment provided by way of food or drink, and benefits associated with that entertainment, such as travel and accommodation (regardless of which category is used to value the benefit) are excluded benefits for reporting purposes and so they are not included in your employees' reportable fringe benefits amount on their payment summary.

In this case the provision of the meals are excluded benefits. However, as the reason for the trip was to commemorate the X anniversary of the employer's incorporation and not purely for the meals, the flights and accommodation expenses are not associated with the meals and therefore are not excluded fringe benefits on that basis.

Expenses associated with hiring or leasing entertainment facilities are excluded fringe benefits for reporting purposes and are, therefore, not reportable.

Other types of recreational entertainment, such as tickets to musicals, are subject to the reporting requirements.

In this case the provision of hotel accommodation constitutes entertainment facility leasing expenses in accordance with the definition in subsection 136(1) of the FBTAA and the explanation of the term in Chapter 14 of the Tax Office publication 'Fringe benefits tax: a guide for employers'. Accordingly in this case the provision of hotel accommodation is an excluded benefit.

Note: the flight expenses are not excluded fringe benefits.

In determining whether an employee has exceeded the reportable threshold of $2,000 for reporting purposes you do not have to take into account the taxable value of the excluded meal entertainment, entertainment facility leasing benefits and other excluded benefits although those benefits will still be subject to FBT. And if the resulting total value of all the other benefits exceeds $ 2,000 the grossed up taxable value of the non-excluded benefits must be reported on the payment summary.

Provision of food or drink-Meal entertainment

The provision of entertainment by way of food, drink will give rise to meal entertainment. The provision of meal entertainment does not include the provision of entertainment by way of recreation.

Food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment. Food or drink provided in a function room, hotel, restaurant, café, coffee shop or consumed with other forms of entertainment is likely to have the character of entertainment. This is because the provision of food or drink is less likely to have a work-related purpose.

It is only in a narrow category of cases where the mere provision of food or drink does not amount to 'entertainment' for purposes of Division 32 of the ITAA.

In your circumstances the provision of the meals would give rise to meal entertainment or property fringe benefits depending on your election. You are not required to report the value of these benefits on the employees' payment summaries as they are excluded benefits for reporting purposes and so they are not included in your employees' reportable fringe benefits amount on their payment summaries.

The travel flight and hotel accommodation- Recreational entertainment

Recreational entertainment includes amusement, sport and similar leisure time pursuits - for example, a game of golf, theatre or movie tickets, a joy flight or a harbour cruise.

Hiring or leasing entertainment facilities

Entertainment facility leasing expenses are the expenses incurred in hiring or leasing:

· a corporate box

· boats or planes for providing entertainment

· other premises or facilities for providing entertainment.

Expenses or parts of expenses that are attributable to providing food or beverages are not entertainment facility leasing expenses for these purposes.

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.

Other premises or facilities for providing entertainment

The phrase 'other premises or facilities' has a wide meaning. In the same way that a corporate box is a 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

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

An example of 'other premises or facilities' for providing entertainment is a hotel/motel room. A seat on a plan, however would not constitute 'other premises or facilities' for providing entertainment'

The hiring or leasing of a houseboat or a charter flight where the whole plane is hired for entertainment purposes would meet the definition of entertainment facility leasing expenses.

When an employer gives an employee a plane ticket for travel to a holiday destination, while this will be entertainment it is not an entertainment facility leasing expense. The purchase of an air fare is not the hiring or leasing of a plane.

However, if the plane ticket is part of an all-inclusive package that includes holiday accommodation, the taxable value of the benefit may be partly attributable to an entertainment facility leasing expense being the cost of hiring the holiday accommodation.

For example, providing an all-inclusive holiday package to an employee organised through a travel agent that includes both flights and the hire or lease of holiday accommodation will be a single benefit whose taxable value is partly attributable to entertainment facility leasing expenses. As the benefit is partly attributable to entertainment facility leasing expenses, the whole of the package will be treated as an entertainment facility leasing expense.

· You booked the flight/travel and accommodation separately through the travel agent.

· The flight and accommodation were two separate transactions.

· You selected the hotel and asked the travel agent to book the accommodation at the hotel.

· The flight and accommodation were not available as an all inclusive package and were not purchased as an all inclusive package.

· The flight and accommodation were not part of an all inclusive package but were two separate transactions.

Consequently as the flight is not part of an all inclusive package the flight is not considered entertainment facility leasing.

The trip was to commemorate the X anniversary of the company's incorporation; the flight would be considered to be travel in connection with or to facilitate the provision of entertainment by recreation. The flight is not entertainment facility leasing and would therefore be a reportable fringe benefit if the value of the total fringe benefits provided to an individual employee not including excluded benefits exceeds $2,000.

Accordingly, the payment for the cost of the travel flight will constitute a residual fringe benefit that is not an excluded fringe benefit.

The hotel accommodation is also considered to be in connection with or to facilitate the provision of entertainment by recreation and is entertainment facility leasing that will give rise to a residual fringe benefit. As the provision of hotel accommodation constitutes entertainment facility leasing it is an excluded benefit that is not reportable.

Fringe benefits that are excluded from the reporting requirements are still subject to FBT.