Edited version of your private ruling

Authorisation Number: 1012409881947

Ruling

Subject: Fringe Benefits Taxation - Meal Entertainment - Property Benefit - Tax Exempt Body

Question 1

Is the provision of food and drink given to your employees who attend the leadership motivational and/or inspirational talk considered meal entertainment and therefore subject to Fringe Benefits Tax (FBT) under section 38 of the Fringe Benefits Tax Assessment Act 1986 ("FBTAA") in respect of:

a) Menu option a, b, c or d?

b) Menu option e, f or g?

Advice/Answers

a) Yes.

b) No.

Question 2

Will the provision of food and drink given to your employees who attend the leadership motivational and/or inspirational talk be a property benefit and be exempt from FBT under section 41 of the Fringe Benefits Tax Assessment Act 1986 ("FBTAA") in respect of:

a) Menu option a, b, c or d?

b) Menu option e, f or g?

Advice/Answers

a) No.

b) Yes.

This ruling applies for the following period

01 April 2012 to 31 March 2015.

The scheme commenced on

01 April 2012.

Relevant facts

You provided the following facts: -

· You provide a free breakfast to employees six to eight times a year as part of a leadership program.

· An external speaker is invited to address employees at the breakfast. The subject matter is generally motivational and/or inspirational.

· There is no restriction on attendance. Any of your employees may attend regardless of job function, though attendance is not mandatory.

· Sessions are held at your building which is situated on the same site as the your head office premises (main administrative building.)

· The venue where the seminars are held is owned by you and its main purpose is to provide a facility for residents to host events.

· For field officers and employees working at other branches not located in your main building, it is necessary for them to travel from their usual working place to the seminar. For office workers working at the main buildings, it is not necessary for them to travel as the seminar is held on-site.

· The seminars run from 7:00am until 8:30am.

· Your field workers commence a normal day from 6:30am. Your office workers commence a normal day from 8:00am. These sessions are available to both the field and office workers.

· The meals are provided during the seminar.

· The breakfast is provided to entice employees to attend the leadership presentation. You believe the leadership skills and inspiration provided by the guest speakers to staff is beneficial to you.

· The breakfast is also provided to seminar attendees as sustenance due to the time that the seminars are held.

· The breakfast meal that is provided on each occasion is different. You have provided a sample breakfast menu which shows seven breakfast options ranging between $14.80 to $27.50.

· The event organiser determines which choice from the menu available will be supplied for the entire event.

· The attending employees do not select the menu they would like to have during the event.

Relevant legislative provisions

Section 33 of the Fringe Benefits Tax Assessment Act 1986

Section 38 of the Fringe Benefits Tax Assessment Act 1986

Section 39 of the Fringe Benefits Tax Assessment Act 1986

Section 40 of the Fringe Benefits Tax Assessment Act 1986

Section 41 of the Fringe Benefits Tax Assessment Act 1986

Section 136 of the Fringe Benefits Tax Assessment Act 1986

Division 10 of the Fringe Benefits Tax Assessment Act 1986

Section 32-5 of the Income Tax Assessment Act 1997

Section 32-10 of the Income Tax Assessment Act 1997

Section 32-20 of the Income Tax Assessment Act 1997

Section 32-30 of the Income Tax Assessment Act 1997

Section 32-55 of the Income Tax Assessment Act 1997

Section 50-25 of the Income Tax Assessment Act 1997

Division 32 of the Income Tax Assessment Act 1997

Division 50 of the Income Tax Assessment Act 1997

Reasons for decision

Issue 1

Question 1

Summary

Your provision of menu option a, b, c or d satisfies the requirements of providing a tax-exempt body entertainment benefit and the provision would be subject to FBT under section 38 of the FBTAA. Menu option e, f or g are "light meals" and will not take on the characteristics of entertainment.

Detailed reasoning

Division 50 of the Income Tax Assessment Act 1997 ("ITAA 1997") lists the entities that are considered "exempt entities." A Local Government Body is generally exempt from a liability to pay income tax by virtue of items 5.1(a) and (b) of section 50-25 of the ITAA 1997 on the basis that it is a municipal corporation or a local governing body. Any activities that it pursues are in respect of gaining or producing of exempt income and not assessable income.

You are a government body and any expenditure by you will not be in respect of gaining or producing of assessable income. Therefore, you are a tax-exempt body.

Section 38 of the FBTAA defines a "tax-exempt body entertainment benefit" as: -

Where, at a particular time, a person (in this section referred to as the 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 (in this section referred to as the 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.

Therefore, a tax-exempt body entertainment fringe benefit will arise when the following conditions are satisfied: -

- the employer incurs a non-deductible exempt entertainment expenditure;

- the benefit is wholly or partly in respect of the employment of the employee; and

- the benefits constitutes the provision of entertainment.

Condition 1: "Non-deductible exempt entertainment expenditure"

"Non-deductible exempt entertainment expenditure" is defined under section 136 of the FBTAA as non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income.

Section 136 defines a "non-deductible entertainment expenditure" as a loss or outgoing to the extent to which: -

(a)  section 32-5 of the Income Tax Assessment Act 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 Income Tax Assessment Act 1997 had not been enacted).

Section 32-5 of the ITAA 1997 provides that there is no deduction for entertainment expenses. However, there are a number of exceptions to section 32-5 of the ITAA 1997 which are set out in sub-division 32-B of the ITAA 1997. These are summarised in Chapter 14.15 of Fringe benefits tax: a guide for employers and include:

· The cost of food and drink that is reasonably incidental to a person's attendance at an 'eligible seminar'. This is a conference, convention, lecture and so on of at least four hours duration that is not held to conduct normal business discussions in relation to the particular business

- for the purpose of advertising the goods or services of a particular business

- for the dominant purpose of providing entertainment.

· The cost of food and drink that is reasonably incidental to a person's attendance at an 'exempt training seminar' of at least four hours duration, organised by, or on behalf of, you solely for training employees. The session must be conducted in conference facilities operated by a business unrelated to you.

Item 2.1 of the table in section 32-35 of the ITAA 1997 provides that if the seminar goes for at least 4 hours and does not satisfy one of the specified exceptions, then any food or drink consumed by the employee that is "reasonably incidental" to the attendance at the seminar is not precluded by section 32-5 from being deductible under section 8-1 of the ITAA. However, in your instance, the seminar runs from 7:00am until 8:30am which is only 1.5 hours, and therefore, the expense is not tax deductible.

On the consideration of the above factors, the Commissioner has determined that your seminars do not fall within the exceptions thus the entertainment expense provided by you is not deductible for income tax purposes.

Condition 1 is satisfied.

Condition 2: The benefit is wholly or partly in respect of the employment of the employee

The function is only open to your employees where each attending employee is provided with the food and drink. Staff members attending the function are in their capacity as employees and thus the benefit is provided to the attendees by their employer in their capacity as employees.

The benefit is provided in respect of employment and therefore, Condition 2 is satisfied.

Condition 3: The benefit constitutes the provision of entertainment.

The definition of "entertainment" in section 38 of the FBTAA adopts the definition provided in section 32-10 of the ITAA as follows: -

Meaning of entertainment

(1)  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.

(2)  You are taken to provide entertainment even if business discussions or transactions occur.

Note: These are some examples of what is entertainment:

* business lunches

* social functions.

These are some examples of what is not entertainment:

* meals on business travel overnight

* theatre attendance by a critic

* a restaurant meal of a food writer.

Taxation Ruling TR 97/17: Income tax and fringe benefits tax: entertainment by way of food or drink ("TR 97/17") provides guidance on the concept of what is entertainment as it relates to the provision of food or drink for the purposes of applying the relevant provisions of the FBTAA and ITAA. At paragraph 7 of the TR 97/17 states: -

7. In order to determine when the provision of food or drink to a recipient results in the entertainment of that person, an objective analysis of all the circumstances surrounding the provision of the food or drink is required. In making this determination an employer should consider:

• why the food or drink is being provided;

• what type of food or drink is being provided;

• when that food or drink is being provided; and

• where the food or drink is being provided.

Food or drink which is determined by these criteria to constitute entertainment is taken to be 'meal entertainment'.

Paragraph 23 provide further details on the above four factors that should be considered when undertaking an objective analysis of the criteria.

Paragraph 24 indicates that no one of the paragraph 23 factors will be determinative; however, paragraphs (a) and (b) are considered the more important. The application of the above factors results in the determination for whether the food or drink amounts to meal entertainment.

Paragraph 18 takes the view that the mere provision of food or drink in any circumstance does not necessarily constitute "entertainment." An element of entertainment is required before the provision of food or drink becomes meal entertainment. However, it was noted that in most cases the mere provision of food or drink will satisfy the 'entertainment' test. It is only in a narrow category of cases where the mere provision of food or drink does not amount to 'entertainment' for the purposes of Division 32 of the ITAA.

Paragraphs 19 and 20 contrasts the consideration of providing light meals with non-deductible entertainment expenses as follows: -

19. We have expressed this view previously, for example, in Taxation Ruling IT 2675. That Ruling considers that the provision of morning and afternoon tea to employees (and associates of employees) on a working day, either on the employer's premises or at a worksite of the employer, is not entertainment. The provision of light meals (finger food, etc.), for example in the context of providing a working lunch, is not considered to be entertainment. The provision of food or drink in these circumstances does not confer entertainment on the recipient.

20. The provision of light meals can be contrasted with the examples of non-deductible entertainment given in the explanatory memorandum to Taxation Laws Amendment Bill (No 4) 1985, i.e., business lunches and drinks, dinners, cocktail parties and staff social functions. In these examples the provision of the food or drink confers entertainment on the recipient. The wording of section 32-10 of the ITAA shows a clear intention to treat food or drink consumed in these situations as entertainment, whether or not business discussions or business transactions occur at the same time.

In considering whether your provision of food and drink constitutes entertainment, it is necessary for an objective analysis of all the circumstances against factors provided in paragraphs 7 and 23 of TR 97/17. None of the factors are determinative, however (a) and (b) are the more important factors.

a) Why is the food and drink being provided?

TR 97/17 describes this test as a "purpose test". For example, food or drink provided for the purposes of refreshment does not generally have the character of entertainment, whereas 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.

You have provided two reasons for providing the breakfast meals.

The first purpose of your providing the breakfast meals is to provide sustenance to your employees due to the time that the seminars are held. Although the breakfast meal is provided to all seminar participants during the seminar and for some employees, prior to their working hours, the seminars are merely 1.5 hours. The seminars run from 7:00am until 8:30am. Your field workers commence a normal day from 6:30am. Your office workers commence a normal day from 8:00am. These sessions are available to both the field and office workers. Therefore, the Commissioner accepts that any food and drink consumed by the employee may take the nature of providing sustenance for your office workers but may not take the nature of providing sustenance for your field workers, due to the time the seminars are held.

The second purpose of you providing the breakfast meals is to entice employees to attend the leadership presentation. These seminars are not mandatory but you believe the leadership skills and inspiration provided by the guest speakers to staff is beneficial to you and not for entertainment purposes. Although the food and drink is provided in conjunction with the motivational talk, the Commissioner considers that the provision of the meals is not just incidental to the provision of the leadership training sessions but also to attract or tempt the employees to attend the seminar by offering pleasure or advantage.

b) What type of food and drink is provided?

Morning and afternoon teas and light meals are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the greater the likelihood that entertainment arises from the consumption of the meal. Therefore, the meals take on more of the characteristics of entertainment.

Similarly, paragraph 16 of Taxation Ruling IT 2675: Income tax and fringe benefits tax: entertainment - morning and afternoon teas; light meals; and in-house dining facilities (" IT 2675") provides the following guidance: -

16. The provision of biscuits and drinks such as tea, coffee, soft drinks and fruit juices to employees or their associates on a working day for morning or afternoon tea cannot be said to provide amusement or even to be an agreeable occupation. It is merely the provision of refreshments to enable the employees or associates to complete the working day in comfort. The same may be said of light meals provided by a taxpayer to employees or their associates on a working day.

However, there is no definite guidelines as to when a light meal becomes more elaborate as expressed in paragraph 7 of IT 2675: -

7. Light meals are treated in the same way as morning and afternoon tea. It is not the provision of entertainment to provide sandwiches and other 'hand food', salads, orange juice, etc.,. that are intended to, and can, be consumed on the taxpayer's premises or worksite. As 'light' meals become more elaborate, they take on more of the characteristics of entertainment. There is no particular point at which this will become obvious. Normal business practice will be the yardstick.

The breakfast meal that is provided on each occasion is different. You have provided a sample breakfast menu which shows seven breakfast options - Menu options a, b, c, d, e, f and g. .

The Commissioner considers that menu options e, f and g are "light meals" and will not take on the characteristics of entertainment.

The first four menu items, a, b, c and d are cooked breakfasts which can be chosen as an option by the event organiser. The Commissioner considers that meals of this nature are more elaborate than "light meals" as they exceed the provision of refreshments. Therefore, the meals take on more of the characteristics of entertainment.

c) When is the food or drink being provided?

Food or drink provided during work time, during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because in the majority of these cases food provided is for a work-related purpose rather than an entertainment purpose. This, however, depends upon whether the entertainment of the recipient is the expected outcome of the provision of the food or drink.

The breakfast you provide to your employees begins before regular working hours for only some of your employees i.e. the office employers. It is approximately one hour outside regular working hours and half within.

As discussed above, although the breakfast meal is provided to all seminar participants during the seminar and for some employees, prior to their working hours, the seminars are merely 1.5 hours. The Commissioner is also of the view that the food and drink takes on more of the characteristics of entertainment as the expense is used to entice staff members to attend seminars that are not mandatory.

d) Where is the food or drink provided?

Food or drink provided on the employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment.

The meals are held in the same site as your head office. The venue where the seminars are held is owned by you and its main purpose is to provide a facility for residents to host events and thus does not fall within the definition of an "in-house dining facility" under section 32-55 ITAA.

You have stated that for field officers and employees working at other branches not located in your main building, it is necessary for them to travel from their usual working place to the seminar. For office workers working at the main buildings, it is not necessary for them to travel as the seminar is held on-site.

Conclusion

On the application of the above factors, the Commissioner has determined that your provision of food and drink amounts to entertainment in relation to menu options a, b, c and d. The Commissioner gave weight to the following factors: -

· You have provided food and drink to your employees to entice them to attend the leadership seminar.

· The food and drink is more elaborate than a "light meal" as it exceeds the provision of refreshments.

· The leadership seminar is not mandatory and lasts for less than 4 hours.

Therefore based on the above analysis, the Commissioner considers that the food and drink constitutes the provision of entertainment and is therefore meal entertainment.

Condition 3 is satisfied in respect of menu options a, b, c and d.

The provision of the food or drink does not amount to entertainment in relation to menu options e, f and g.

Condition 3 is not satisfied in respect of menu options e, f and g.

Conclusion

From the sample information provided, the food or drink in respect of menu options a, b, c and d. amounts to tax-exempt body entertainment fringe benefits as per paragraph 33 of TR 97/17. Entertainment fringe benefits are subject to FBT under section 38 of the FBTAA.

The food or drink provided in respect of menu options e, f and g does not amount to entertainment and is not a tax exempt body entertainment fringe benefit per paragraph 40 of TR 97/17 and section 38 of the FBTAA.

Question 2

Summary

The exemption from FBT for meals consumed by employees on the employer's business premises does not apply to a tax-exempt body entertainment benefit as section 41 of the FBTAA gives rise to an FBT exemption for property benefits.

Menu options a, b, c and d that you provide to your employees are not considered "exempt property benefits" and are therefore, not exempted from FBT.

Menu options e, f and g that you provide to your employees are considered "exempt property benefits" and are therefore, exempted from FBT.

Detailed reasoning

Section 41 of the FBTAA defines "exempt property benefits" as:

Exempt property benefits

(1)  Where:

(a)  a property benefit is provided to a current employee of an employer in respect of his or her employment; and

(b)  the property is provided to, and consumed by, the employee on a working day and 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.

(2)  This section does not apply to food or drink provided to, and consumed by, an employee if the food or drink is provided:

(a)  because of the employee agreeing to receive the food or drink in return for a reduction in the employee's salary or wages that would not have happened apart from the agreement; or

(b)  as part of the employee's remuneration package, in circumstances where it is reasonable to conclude that the employee's salary or wages would be greater if the food or drink were not made part of that package.

Sub-section 136(1) of the FBTAA defines "property fringe benefit" as a fringe benefit that is a property benefit. A "property benefit" means a benefit referred to in section 40, but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III.

Section 40 of the FBTAA states the following:

Where, at a particular time, a person (in this section referred to as the provider ) provides property to another person (in this section referred to as the recipient ), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

The definition of "property" in sub-section 136(1) of the FBTAA includes intangible and tangible property. Sub-section 136(1) of the FBTAA defines "tangible property" to mean goods and includes animals, including fish, gas and electricity.

In Question One, it was determined that menu options a, b, c and d that you provide to your employees gives rise to a tax-exempt body entertainment fringe benefit. By virtue of Division 10A of the FBTAA a tax-exempt body entertainment fringe benefit is not considered a "property fringe benefit" and will not be exempt from FBT.

In Question One, it was determined that menu options e, f and g does not give rise to a tax-exempt body entertainment fringe benefit. It is a property fringe benefit. It is consumed by your employees on a working day and at your premises. The food and drink is not provided because the employee agreed to receive the food or drink in return for a reduction of salary or wages or as part of the employee's remuneration package.

Therefore menu options e, f and g that you provide to your employees are considered "exempt property benefits" and is therefore, exempted from FBT.