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Ruling

Subject: Entertainment facility leasing expense (EFLE)

Question 1

Is the reimbursement by an entity of it's employee's costs for the hiring of accommodation (including a hotel room, a caravan or a cabin on a campsite or cabin on a train and other similar areas) disregarded for the purposes of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) on the basis that that the hiring of accommodation is entertainment facility leasing expenses (EFLE)?

Answer

Yes.

Question 2

Is the reimbursement by an entity of the cost of its employee's 'all inclusive' holiday package disregarded for the purposes of subsection 5B(1L) of the FBTAA on the basis that that cost of the 'all inclusive' holiday package is entertainment facility leasing expenses (EFLE)?

Answer

Yes.

Question 3

Is the reimbursement by an entity of its employees of costs for the hiring of a seat on a plane disregarded for the purposes of subsection 5B(1L) of the FBTAA on the basis that that cost of the hiring of a seat on a plane is entertainment facility leasing expenses (EFLE)?

Answer

No.

Question 4

Is the reimbursement by an entity of the cost of its employee's purchasing a resort package (which includes the use of an apartment and may include meals and activities) be disregarded for the purposes of subsection 5B(1L) of the FBTAA on the basis that that cost of purchasing a resort package is entertainment facility leasing expenses (EFLE)?

Answer

Yes.

This ruling applies for the following periods:

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

1 April 2015 to 31 March 2016

The scheme commences on:

On or after 1 January 2012

Relevant facts and circumstances

An entity provides fringe benefits to its employees exempt from FBT, subject to a capping threshold of $17,000 per employee (in grossed up taxable value).

The entity's employees are currently eligible to salary sacrifice benefits under a salary sacrifice arrangement (SSA) using a Meal Leisure Card (MLC) or by way of manual reimbursements.

The entity proposes to allow employees to incur additional expenses on the MLCs or via manual reimbursements, subjecting such expenses to the existing rigorous auditing approach adopted by the entity on a regular basis.

Currently employees of the entity may incur expenses in relation to meals, accommodation, venue hire and taxi expenses in certain circumstances. The entity proposes to expand the variety of expenses allowed be incurred.

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.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 5B.

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

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

Fringe Benefits Tax Assessment Act 1986 Section 5B.

Fringe Benefits Tax Assessment Act 1986 Section 5B.

Fringe Benefits Tax Assessment Act 1986 Section 57A.

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

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

Reasons for decision

Question 1

Does an expense incurred as a result of hiring accommodation (including a hotel room, a caravan or a cabin on a campsite or cabin on a train and other similar areas), fall within the defining of entertainment facility lease expense (EFLE) under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where the expense is salary sacrificed under an effective salary sacrifice arrangement (SSA)?

Summary

The entity's employees are currently eligible to salary sacrifice benefits under an effective SSA using a Meal Leisure Card (MLC) or by way of manual reimbursements. The entity proposes to allow employees to incur additional expenses on the MLCs or via manual reimbursements.

The hiring of accommodation (including a hotel room, a caravan or a cabin on a campsite or cabin on a train and other similar areas) would be regarded as being wholly or partly attributable to entertainment facility leasing expenses.

Section 57A exemption

Section 57A of the FBTAA provides that benefits provided by certain employers are generally exempt from fringe benefits tax (FBT).

Subsection 57A(2) of the FBTAA states:

57A(2) [Duties of employee relating to public hospital]

Where:

(a) the employer of an employee is a government body; and

(b) the duties of the employment of the employee are exclusively performed in, or in connection with:

(i) a public hospital; or

(ii) ...

(iii) ...

a benefit provided in respect of the employment of the employee is an exempt benefit.

The exemption in section 57A of the FBTAA will apply, therefore, to benefits provided in respect of the employment of a government body employee where the duties of that employee are exclusively performed in, or connection with, a public hospital.

The entity's relevant benefits are being provided to the employee under the terms of valid salary sacrifice arrangements and, therefore, will be provided in respect of the employee's employment. Consequently, any benefits provided by the entity to the employee will fall for exemption under section 57A of the FBTAA as all the necessary conditions are met.

However, subsection 5B(1E) of the FBTAA limits the extent of the above exemption to $17,000 grossed-up taxable value per employee. The value of any benefits provided in excess of this threshold are liable for fringe benefits tax (FBT).

Nevertheless, the operation of Step 1 of the method statement contained in subsection 5B(1L) of the FBTAA specifically disregards certain benefits when calculating an employer's fringe benefits taxable amount. Step 1 of subsection 5B(1L) of the FBTAA states:

5B(1L) Working out the subsection (1L) amounts.

An employee's subsection (1L) amounts for the year of tax are worked out as follows.

Method statement

Step 1.

Work out for each employee his or her share (if any) of the amounts that, if section 57A did not apply, would be the taxable values of the excluded fringe benefits for the year of tax in respect of the employee's employment by the employer if those benefits were not excluded fringe benefits, but disregarding benefits:

(a) that constitute the provision of meal entertainment as defined in section 37AD (whether or not the employer made an election under section 37AA); or

(b) that are car parking fringe benefits; or

(c) whose taxable values are wholly or partly attributable to entertainment facility leasing expenses.

Consequently, under paragraph (c) of Step 1 of subsection 5B(1L) of the FBTAA, an employer to which section 57A of the FBTAA applies will not be liable for FBT in respect of benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses irrespective of whether or not the threshold amount for the employee receiving such benefits has, or has not, been exceeded.

Entertainment facility leasing expenses

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

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.

Therefore, several conditions must be satisfied before expenses incurred will fall within the definition of 'entertainment facility leasing expenses' (EFLE) for the purposes of subsection 136(1) of the FBTAA.

Therefore, the basic requirements, as relevant here, to be satisfied for an EFLE are:

(a) there is either 'hiring' or 'leasing' expenses incurred.

(b) those hiring or leasing expenses are in respect of one, or more, of the premises or facilities listed in the EFLE definition.

(c) these hiring or leasing expenses are for the purpose of the provision of entertainment.

(d) any part of such hiring or leasing expenses that is attributable to the provision of food or drink is not included.

(a) 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.

3. Also, hire out.

to grant the temporary use of, or the services of, for a payment.

Subsection 136(1) of the FBTAA defines 'leased':

means 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.

(b) 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:

premise

noun

2. (plural)

the property forming the subject of a conveyance.

a tract of land.

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

facility

noun (plural facilities)

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

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...

It is considered that 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.

Therefore, although premises or facilities has 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 EFLE must be either :

· an entire premises or facility

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

(c) 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 .

Subsection 32-10(1) of the Income Tax Assessment Act 1997 (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(1) of the ITAA 1997 provides the meaning of 'recreation':

recreation includes amusement, sport or similar leisure-time pursuits.

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.

(d) food or drink

As the words 'food' or 'drink' are not defined in the FBTAA they have their natural meaning to be taken in the context that they appear in the legislation.

Application of EFLE requirements to hiring of accommodation (including hotel room, campsite or cabin on a train and other similar areas)

The basic requirements to be satisfied for an EFLE are:

(a) there is either 'hiring' or 'leasing' expenses incurred.

(b) those hiring or leasing expenses are in respect of one, or more, of the premises or facilities listed in the EFLE definition.

(c) these hiring or leasing expenses are for the purpose of the provision of entertainment.

(d) any part of such hiring or leasing expenses that is attributable to the provision of food or drink is not included.

(a) hiring or leasing

The employees of the entity incur expenditure on their MLC or by way of manual reimbursement in relation to expenses that constitute an EFLE.

Expenditure incurred by the employee on their MLC or by way of manual reimbursement in relation to expenses in respect of hiring of accommodation will normally be expected to be in relation to the exclusive use by the employee (and the employee's family, where applicable) of a hotel room, or similar accommodation, during the holiday. It is considered that the expenditure on such holiday accommodation will fall within the expression 'hiring or leasing' for the purposes of the EFLE definition in subsection 136(1) of the FBTAA.

It is also considered that any or all of a hotel/ motel room, a room in a bed or breakfast facility and a cabin or on-site van at a caravan park would fall within the wide meaning of the phrase 'other premises or facilities' for the purposes of the EFLE definition in subsection 136(1) of the FBTAA.

Further, the use of a hotel room, or similar accommodation, whilst on holidays is a leisure-time pursuit which is 'recreation' as defined in the ITAA 1997. This use of holiday accommodation is something affording diversion or amusement and will be entertainment within the natural meaning.

The use of the hotel room, or similar accommodation, whilst on holiday is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997. Alternatively, a hotel room, or similar accommodation, occupied whilst on holidays is accommodation. Such accommodation can fall within 'entertainment' under paragraph 32-10(1)(b) of the ITAA 1997, being accommodation to do with providing entertainment by way of recreation.

Taxation Determination TD 94/55: Income tax: when does providing an item of property constitute the provision of entertainment within the meaning of subsection 51AE(3) of the Income Tax Assessment Act 1936 ?, states that in determining whether providing an item of property constitutes entertainment, regard should be had to all the circumstances of the case. In particular, regard should be given to the character of the entertainment to be derived from the item of property provided. Specifically, in Example 2 in TD 94/55, costs incurred in providing holiday accommodation are incurred in providing property that would constitute the provision of entertainment.

The use of a hotel room, or similar accommodation, during a holiday does not fall within the normal meaning of the terms 'food' or drink'.

However, where an employee obtains a plane ticket for travel to a holiday destination this will constitute entertainment but such cost it is not normally an EFLE as the purchase of the air fare for a seat on a plane is not the hiring or leasing of an entire plane. In a similar way, the cost of ticketed travel on buses and trains etc will also not be an EFLE.

In this case, the requirement regarding the hiring or leasing of expenses being incurred for a hotel room, or similar accommodation, during a holiday will, therefore, meet this requirement to be an EFLE.

(b) hiring or leasing listed premises or facilities

It is considered that the expenses incurred by the employee for hiring of the accommodation is for obtaining the exclusive use of a hotel room in a hotel, or distinct areas within larger premises or facilities and, consequently, fall within the expression 'other premises or facilities' for the purposes of paragraph (c) of the definition of 'entertainment leasing expenses' in subsection 136(1) of the FBTAA.

Therefore, when the MLC expenditure is incurred or via manual reimbursements for hiring or leasing of listed premises or facilities, this requirement is met.

(c) purpose of the provision of entertainment

The use of a hotel room, or similar accommodation, whilst on holidays is a leisure-time pursuit which is 'recreation' as defined in the ITAA 1997. This use of holiday accommodation is something affording diversion or amusement and will be entertainment within the natural meaning. The use of the hotel room, or similar accommodation, whilst on holiday is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997.

Alternatively, a hotel room, or similar accommodation, occupied whilst on holidays is accommodation. Such accommodation can fall within 'entertainment' under paragraph 32-10(1)(b) of the ITAA 1997, being accommodation to do with providing entertainment by way of recreation.

Taxation Determination TD 94/55 states that in determining whether providing an item of property constitutes entertainment, regard should be had to all the circumstances of the case. In particular, regard should be given to the character of the entertainment to be derived from the item of property provided. Specifically, in Example 2 in TD 94/55, costs incurred in providing holiday accommodation are incurred in providing property that would constitute the provision of entertainment.

It is considered, therefore, that when the MLCs are used or via manual reimbursements on hiring or leasing premises or facilities, such premises are being hired or leased for the purposes of the provision of 'entertainment' as that term is defined in subsection 136(1) of the FBTAA and subsection 32-10(1) of the ITAA 1997. Therefore this requirement is met.

(d) not attributable to provision of food or drink is not included

Food or drink are normally specifically precluded from being an EFLE under paragraph (d) of the definition of an EFLE in subsection 136(1) of the FBTAA.

In this case, it is considered that the expenses incurred will be for a hotel room, or similar accommodation, during a holiday will, therefore, meet this requirement to be an EFLE.

Question 2

Is the reimbursement by an entity of the cost of its employee's 'all inclusive' holiday package disregarded for the purposes of subsection 5B(1L) of the FBTAA on the basis that that cost of the 'all inclusive' holiday package is entertainment facility leasing expenses (EFLE)?

Summary

The cost of an 'all inclusive' holiday package would be regarded as being wholly or partly attributable to entertainment facility leasing expenses.

Detailed reasoning

Application of EFLE requirements to 'all inclusive' holiday package

As advised above the basic requirements, as relevant here, to be satisfied for an EFLE are:

(a) there is either 'hiring' or 'leasing' expenses incurred.

(b) those hiring or leasing expenses are in respect of one, or more, of the premises or facilities listed in the EFLE definition.

(c) these hiring or leasing expenses are for the purpose of the provision of entertainment.

(d) any part of such hiring or leasing expenses that is attributable to the provision of food or drink is not included.

(a) hiring or leasing

The relevant holiday package provided to the employee includes all accommodation, transport, entertainment, food and drink. Consideration must, therefore, be given to each of those particular aspects to determine whether their cost would normally be an EFLE and whether the fact that they are all part of a holiday package in this case modifies or otherwise changes the usual answer.

Hotel room, or similar accommodation, during holiday

A portion of the expenditure incurred by the employee in respect of the holiday package will normally be expected to be in relation to the exclusive use by the employee (and the employee's family, where applicable) of a hotel room, or similar accommodation, during the holiday. It is considered that the expenditure on such holiday accommodation will fall within the expression 'hiring or leasing' for the purposes of the EFLE definition in subsection 136(1) of the FBTAA.

It is also considered that any or all of a hotel/ motel room, a room in a bed or breakfast facility and a cabin or on-site van at a caravan park would fall within the wide meaning of the phrase 'other premises or facilities' for the purposes of the EFLE definition in subsection 136(1) of the FBTAA.

Further, the use of a hotel room, or similar accommodation, whilst on holidays is a leisure-time pursuit which is 'recreation' as defined in the ITAA 1997. This use of holiday accommodation is something affording diversion or amusement and will be entertainment within the natural meaning.

The use of the hotel room, or similar accommodation, whilst on holiday is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997. Alternatively, a hotel room, or similar accommodation, occupied whilst on holidays is accommodation. Such accommodation can fall within 'entertainment' under paragraph 32-10(1)(b) of the ITAA 1997, being accommodation to do with providing entertainment by way of recreation.

Taxation Determination TD 94/55: Income tax: when does providing an item of property constitute the provision of entertainment within the meaning of subsection 51AE(3) of the Income Tax Assessment Act 1936 ?, states that in determining whether providing an item of property constitutes entertainment, regard should be had to all the circumstances of the case. In particular, regard should be given to the character of the entertainment to be derived from the item of property provided. Specifically, in Example 2 in TD 94/55, costs incurred in providing holiday accommodation are incurred in providing property that would constitute the provision of entertainment.

The use of a hotel room, or similar accommodation, during a holiday does not fall within the normal meaning of the terms 'food' or drink''.

The cost of the use of a hotel room, or similar accommodation, during a holiday will, therefore, meet all of the requirements to be an EFLE.

It is considered the fact that in this particular case the cost of the hotel room, or similar accommodation, is included as part of the undissected cost of an all-inclusive holiday package and billed, as such, by an unitemised invoice does not necessarily alter the above view.

It is also considered that the above view is not necessarily altered by whether or not the relevant hotel room, or similar accommodation, during the holiday is in or outside of Australia.

Transport during holiday

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

Where, for example, an employee obtains a plane ticket for travel to a holiday destination this will constitute entertainment but such cost it is not normally an EFLE as the purchase of the air fare for a seat on a plane is not the hiring or leasing of an entire plane. In a similar way, the cost of ticketed travel on buses and trains etc will also not be an EFLE.

However, paragraph (c) of Step 1 of the Method Statement in subsection 5B(1L) of the FBTAA states that 'benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses are to be disregarded' for the purposes of Step1.

Therefore, if the plane ticket, for example, is part of an all-inclusive package that includes holiday accommodation, the taxable value of the benefit may be partly attributable to an EFLE being the cost of hiring the holiday accommodation.

Consequently, where there is an all-inclusive holiday package organised through a travel agent, or similar package provider that includes both flights and the hire or lease of holiday accommodation this will be a single benefit whose taxable value is partly attributable to an EFLE. As the benefit is partly attributable to an EFLE, the whole of the package will be effectively treated as an EFLE for the purposes of Step 1 of the Method Statement in subsection 5B(1L) of the FBTAA.

It is considered the fact that the transport costs in this particular case are included as part of the undissected cost of an all-inclusive holiday package and billed, as such, by an unitemised invoice and also that the transport during the holiday may take place in or outside of Australia do not necessarily alter the above view.

Entertainment during holiday

As discussed above, the expression 'entertainment' includes entertainment by way of food or drink and entertainment by way of recreation.

Expenses attributable to the provision of food or drink are normally specifically precluded from being an EFLE under paragraph (d) of the definition of an EFLE in subsection 136(1) of the FBTAA.

What is 'entertainment by way of recreation' is not defined in the FBTAA although, as already advised above, subsection 995-1(1) of the ITAA 1997 states that the meaning of 'recreation' includes 'amusement, sport or similar leisure-time pursuits'. Therefore, 'entertainment by way of recreation' connotes social activities (other than the consumption of food or drink). It is considered that entertainment by way of recreation does not normally constitute an EFLE.

However, as already stated above, paragraph (c) of Step 1 of the Method Statement in subsection 5B(1L) of the FBTAA states that 'benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses are to be disregarded' for the purposes of Step1.

Therefore, where there is an all-inclusive holiday package organised through a travel agent, or similar package provider, that includes both entertainment (in all of its forms as defined) and the hire or lease of holiday accommodation this will be a single benefit whose taxable value is partly attributable to an EFLE. As the benefit is partly attributable to an EFLE, the whole of the package will be effectively treated as an EFLE for the purposes of Step 1 of the Method Statement in subsection 5B(1L) of the FBTAA.

It is considered the fact that the entertainment costs in this particular case are included as part of the un-dissected cost of an all-inclusive holiday package and billed, as such, by an un-itemised invoice and also that the entertainment provided during the holiday may take place in or outside of Australia does not necessarily alter the above view.

Food or drink during holiday

As discussed above, the expression 'entertainment' includes entertainment by way of food or drink and entertainment by way of recreation.

As determined above, although food or drink are normally specifically precluded from being an EFLE under paragraph (d) of the definition of an EFLE in subsection 136(1) of the FBTAA it is considered that the costs of food or drink constituting entertainment that is part of an all-inclusive holiday package will be effectively treated as an EFLE for the purposes of Step 1 of the Method Statement in subsection 5B(1L) of the FBTAA.

Also as determined above, the fact that the food or drink costs in this particular case are included as part of the undissected cost of an all-inclusive holiday package and billed, as such, by an unitemised invoice and also that the entertainment provided during the holiday may take place in or outside of Australia does not necessarily alter the above views.

(b) hiring or leasing listed premises or facilities

It is considered that the expenses incurred by the employee for an 'all inclusive' holiday package will normally expected to be in relation to the exclusive use by the employee (and the employee's family, where applicable) of a hotel room, or similar accommodation. It is considered that the expenditure on such holiday accommodation will fall within the expression 'premises or facilities' for the purposes of the EFLE definition in subsection 136(1) of the FBTAA.

Therefore, when the MLC expenditure is incurred or via manual reimbursements for hiring or leasing of listed premises or facilities, this requirement is met.

(c) purpose of the provision of entertainment

The use of a hotel room, or similar accommodation, whilst on holidays is a leisure-time pursuit which is 'recreation' as defined in the ITAA 1997. This use of holiday accommodation is something affording diversion or amusement and will be entertainment within the natural meaning. The use of the hotel room, or similar accommodation, whilst on holiday is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997.

Alternatively, a hotel room, or similar accommodation, occupied whilst on holidays is accommodation. Such accommodation can fall within 'entertainment' under paragraph 32-10(1)(b) of the ITAA 1997, being accommodation to do with providing entertainment by way of recreation.

Taxation Determination TD 94/55 states that in determining whether providing an item of property constitutes entertainment, regard should be had to all the circumstances of the case. In particular, regard should be given to the character of the entertainment to be derived from the item of property provided. Specifically, in Example 2 in TD 94/55, costs incurred in providing holiday accommodation are incurred in providing property that would constitute the provision of entertainment.

It is considered, therefore, that when the MLCs are used or via manual reimbursements on hiring or leasing premises or facilities, such premises are being hired or leased for the purposes of the provision of 'entertainment' as that term is defined in subsection 136(1) of the FBTAA and subsection 32-10(1) of the ITAA 1997. Therefore this requirement is met.

(d) not attributable to provision of food or drink is not included

Food or drink are normally specifically precluded from being an EFLE under paragraph (d) of the definition of an EFLE in subsection 136(1) of the FBTAA.

In this case, it is considered that the expenses incurred will be for a hotel room, or similar accommodation, during a holiday will, therefore, meet this requirement to be an EFLE.

Conclusion on application of EFLE requirements to the holiday package

The cost of the use of a hotel room, or similar accommodation, during a holiday will, normally meet all of the requirements to be an EFLE.

Where that holiday accommodation and any related transport, entertainment, food and drink are all part of all-inclusive holiday package, the cost of that all-inclusive holiday package will comprise an EFLE for the purposes of the FBTAA.

The facts that the cost of the all-inclusive holiday package may be billed on an un-itemised invoice and also that the holiday may take place in or outside of Australia does not necessarily alter the above view.

Consequently, the MLC expenditure incurred or via manual reimbursements by the entity of the cost of its employee's all-inclusive holiday package (that included all accommodation, transport, entertainment, food and drink) billed to the employee on an un-itemised invoice can be disregarded for the purposes of subsection 5B(1L) of FBTAA on the basis that the holiday package cost is entertainment facility leasing expenses.

Question 3

Is the reimbursement by an entity of the cost of its employee's for the hiring of a seat on a plane disregarded for the purposes of subsection 5B(1L) of the FBTAA on the basis that that cost of the hiring of a seat on a plane is entertainment facility leasing expenses (EFLE)?

Summary

The cost for hiring of a seat on a place would not be regarded as being attributable to entertainment facility leasing expenses.

Detailed reasoning

Application of EFLE requirements to hiring a seat on a plane

As advised above the basic requirements, as relevant here, to be satisfied for an EFLE are:

(a) there is either 'hiring' or 'leasing' expenses incurred.

(b) those hiring or leasing expenses are in respect of one, or more, of the premises or facilities listed in the EFLE definition.

(c) these hiring or leasing expenses are for the purpose of the provision of entertainment.

(d) any part of such hiring or leasing expenses that is attributable to the provision of food or drink is not included.

Chapter 14 of the Fringe benefits tax - a guide for employers provides the following information:

Boats or planes for providing entertainment

Expenses incurred in hiring or leasing a boat or plane in their entirety for the purposes of providing entertainment will be 'entertainment facility leasing expenses'.

For example, 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 you give 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.

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.

The following are examples of 'other premises or facilities' for providing entertainment:

· a function room in a club or hotel that has been hired to the exclusion of others

· a hotel/motel room

· a room in a bed or breakfast facility

· a cabin on a cruise ship

· a cabin or on-site van at a caravan park

· the hire of a marquee

· where you hire or lease a golf course for a set time or full day to the exclusion of others for example, a corporate golf day

· where you hire one or more tennis courts to the exclusion of others for example, a corporate tennis day.

The following would not be 'other premises or facilities' for providing entertainment:

· a seat on a plane

· a seat at a sporting event

· table in the dining room of a club or hotel

· golf green fees or memberships

· caravan site fees.

In this instance where the employee is hiring or leasing a seat on a plane to and from the employee's (and the employee's family) home to a holiday destination the basic requirements (a), (c) and (d) above are probably met.

However, basic requirement (b) will not be met as, as stated in the Fringe benefits tax - a guide for employers above, the cost of a plane ticket to (and from) a holiday destination will not constitute an EFLE as the purchase of the air fare for a seat on a plane is not the hiring or leasing of an entire plane or a premise or facility.

It is considered that the fact that there is a holiday destination involved is not sufficient in such a case to determine that such transport is partly attributable to an EFLE the purposes of subsection 5B(1L) of the FBTAA.

Therefore, the MLC expenditure incurred or via manual reimbursements by the entity of the cost of its employee's costs for the hire or lease of a seat on a plane to or from the employee's (and the employee's family) home and their holiday accommodation does not constitute a benefit whose taxable values are wholly or partly attributable to an EFLE and, consequently, such reimbursement is not to be disregarded for the purposes of subsection 5B(1L) of the FBTAA.

Question 4

Is the reimbursement by the entity of the cost of its employee's purchasing a resort package (which includes the use of an apartment and may include meals and activities) be disregarded for the purposes of subsection 5B(1L) of the FBTAA on the basis that that cost of purchasing a resort package is entertainment facility leasing expenses (EFLE)?

Summary

The cost of purchasing a resort package would be regarded as being wholly or partly attributable to entertainment facility leasing expenses.
Detailed reasoning

Application of EFLE requirements to a resort package

As advised above the basic requirements, as relevant here, to be satisfied for an EFLE are:

(a) there is either 'hiring' or 'leasing' expenses incurred.

(b) those hiring or leasing expenses are in respect of one, or more, of the premises or facilities listed in the EFLE definition.

(c) these hiring or leasing expenses are for the purpose of the provision of entertainment.

(d) any part of such hiring or leasing expenses that is attributable to the provision of food or drink is not included.

(a) hiring or leasing

The relevant resort package provided to the employee includes all accommodation, meals and activities. Consideration must, therefore, be given to each of those particular aspects to determine whether their cost would normally be an EFLE and whether the fact that they are all part of a holiday package in this case modifies or otherwise changes the usual answer.

Hiring holiday accommodation at a resort, an apartment

A portion of the expenditure incurred by the employee in respect of a resort package will normally be expected to be in relation to the exclusive use by the employee (and the employee's family, where applicable) of a hotel room, an apartment or similar accommodation, during the holiday. It is considered that the expenditure on such holiday accommodation will fall within the expression 'hiring or leasing' for the purposes of the EFLE definition in subsection 136(1) of the FBTAA.

It is also considered that any or all of a hotel/ motel room, a room in a bed or breakfast facility and a cabin or on-site van at a caravan park would fall within the wide meaning of the phrase 'other premises or facilities' for the purposes of the EFLE definition in subsection 136(1) of the FBTAA.

Further, the use of a hotel room, an apartment or similar accommodation, whilst on holidays is a leisure-time pursuit which is 'recreation' as defined in the ITAA 1997. This use of holiday accommodation is something affording diversion or amusement and will be entertainment within the natural meaning.

The use of the hotel room, or similar accommodation, whilst on holiday is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997. Alternatively, a hotel room, or similar accommodation, occupied whilst on holidays is accommodation. Such accommodation can fall within 'entertainment' under paragraph 32-10(1)(b) of the ITAA 1997, being accommodation to do with providing entertainment by way of recreation.

Taxation Determination TD 94/55: Income tax: when does providing an item of property constitute the provision of entertainment within the meaning of subsection 51AE(3) of the Income Tax Assessment Act 1936 ?, states that in determining whether providing an item of property constitutes entertainment, regard should be had to all the circumstances of the case. In particular, regard should be given to the character of the entertainment to be derived from the item of property provided. Specifically, in Example 2 in TD 94/55, costs incurred in providing holiday accommodation are incurred in providing property that would constitute the provision of entertainment.

The use of a hotel room, an apartment or similar accommodation, during a holiday does not fall within the normal meaning of the terms 'food' or drink''.

The cost of the use of a hotel room, or similar accommodation, during a holiday will, therefore, meet all of the requirements to be an EFLE.

It is considered the fact that in this particular case the cost of the hotel room, an apartment, or similar accommodation, is included as part of the undissected cost of an all-inclusive holiday package and billed, as such, by an unitemised invoice does not necessarily alter the above view.

It is also considered that the above view is not necessarily altered by whether or not the relevant hotel room, an apartment or similar accommodation, during the holiday is in or outside of Australia.

Activities, entertainment during holiday

As discussed above, the expression 'entertainment' includes entertainment by way of food or drink and entertainment by way of recreation.

Expenses attributable to the provision of food or drink are normally specifically precluded from being an EFLE under paragraph (d) of the definition of an EFLE in subsection 136(1) of the FBTAA.

What is 'entertainment by way of recreation' is not defined in the FBTAA although, as already advised above, subsection 995-1(1) of the ITAA 1997 states that the meaning of 'recreation' includes 'amusement, sport or similar leisure-time pursuits'. Therefore, 'entertainment by way of recreation' connotes social activities (other than the consumption of food or drink). It is considered that entertainment by way of recreation does not normally constitute an EFLE.

However, as already stated above, paragraph (c) of Step 1 of the Method Statement in subsection 5B(1L) of the FBTAA states that 'benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses are to be disregarded' for the purposes of Step1.

Therefore, where there is an all-inclusive resort package organised through a travel agent, or similar package provider, that includes both entertainment (in all of its forms as defined) and the hire or lease of holiday accommodation this will be a single benefit whose taxable value is partly attributable to an EFLE. As the benefit is partly attributable to an EFLE, the whole of the package will be effectively treated as an EFLE for the purposes of Step 1 of the Method Statement in subsection 5B(1L) of the FBTAA.

It is considered the fact that the entertainment costs in this particular case are included as part of the un-dissected cost of an all-inclusive holiday package and billed, as such, by an un-itemised invoice and also that the entertainment provided during the holiday may take place in or outside of Australia does not necessarily alter the above view.

Food or drink during holiday

As discussed above, the expression 'entertainment' includes entertainment by way of food or drink and entertainment by way of recreation.

As determined above, although food or drink are normally specifically precluded from being an EFLE under paragraph (d) of the definition of an EFLE in subsection 136(1) of the FBTAA it is considered that the costs of food or drink constituting entertainment that is part of an all-inclusive holiday package will be effectively treated as an EFLE for the purposes of Step 1 of the Method Statement in subsection 5B(1L) of the FBTAA.

Also as determined above, the fact that the food or drink costs in this particular case are included as part of the undissected cost of an all-inclusive holiday package and billed, as such, by an unitemised invoice and also that the entertainment provided during the holiday may take place in or outside of Australia does not necessarily alter the above views.

(b) hiring or leasing listed premises or facilities

It is considered that the expenses incurred by the employee for a resort holiday package will normally expected to be in relation to the exclusive use by the employee (and the employee's family, where applicable) of a hotel room, or similar accommodation. It is considered that the expenditure on such holiday accommodation will fall within the expression 'premises or facilities' for the purposes of the EFLE definition in subsection 136(1) of the FBTAA.

Therefore, when the MLC expenditure is incurred or via manual reimbursements for hiring or leasing of listed premises or facilities, this requirement is met.

(c) purpose of the provision of entertainment

The use of a hotel room, an apartment, or similar accommodation, whilst on holidays is a leisure-time pursuit which is 'recreation' as defined in the ITAA 1997. This use of holiday accommodation is something affording diversion or amusement and will be entertainment within the natural meaning. The use of the hotel room, or similar accommodation, whilst on holiday is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997.

Alternatively, a hotel room, an apartment, or similar accommodation, occupied whilst on holidays is accommodation. Such accommodation can fall within 'entertainment' under paragraph 32-10(1)(b) of the ITAA 1997, being accommodation to do with providing entertainment by way of recreation.

Taxation Determination TD 94/55 states that in determining whether providing an item of property constitutes entertainment, regard should be had to all the circumstances of the case. In particular, regard should be given to the character of the entertainment to be derived from the item of property provided. Specifically, in Example 2 in TD 94/55, costs incurred in providing holiday accommodation are incurred in providing property that would constitute the provision of entertainment.

It is considered, therefore, that when the MLCs are used or via manual reimbursements on hiring or leasing premises or facilities, such premises are being hired or leased for the purposes of the provision of 'entertainment' as that term is defined in subsection 136(1) of the FBTAA and subsection 32-10(1) of the ITAA 1997. Therefore this requirement is met.

(d) not attributable to provision of food or drink is not included

Food or drink are normally specifically precluded from being an EFLE under paragraph (d) of the definition of an EFLE in subsection 136(1) of the FBTAA.

In this case, it is considered that the expenses incurred will be for a hotel room, or similar accommodation, during a holiday will, therefore, meet this requirement to be an EFLE.

Conclusion on application of EFLE requirements to the resort package

The cost of the use of a hotel room, or similar accommodation, during a holiday will, normally meet all of the requirements to be an EFLE.

Where that holiday accommodation, food and drink and activities are all part of all-inclusive holiday resort package, the cost of that all-inclusive holiday package will comprise an EFLE for the purposes of the FBTAA.

The facts that the cost of the all-inclusive holiday resort package may be billed on an un-itemised invoice and also that the holiday may take place in or outside of Australia does not necessarily alter the above view.

Consequently, the MLC expenditure incurred or via manual reimbursements by the entity of the cost of its employee's all-inclusive holiday resort package (that included all accommodation, meals and activities) billed to the employee on an un-itemised invoice can be disregarded for the purposes of subsection 5B(1L) of FBTAA on the basis that the holiday package cost is entertainment facility leasing expenses.