Edited version of your private ruling

Authorisation Number: 1012500018446

Ruling

Issue 1

FBT for tickets from Entity 1

Question 1

Is a free ticket to an event provided by Entity 1 to an employee of the employer an in-house fringe benefit pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Is the taxable value of the fringe benefits an amount equal to 75% of the lowest price at which the tickets were sold to members of the public pursuant to section 48 of the FBTAA?

Answer

Yes.

Question 3

Can the taxable value of that fringe benefit be reduced in accordance with section 62 of the FBTAA?

Answer

Yes.

Issue 2

FBT for tickets from Entity 2

Question 1

Is a free ticket to an event provided by Entity 1 to an employee of the employer an in-house fringe benefit pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Is the taxable value of the fringe benefits an amount equal to 75% of the lowest price at which the tickets were sold to members of the public pursuant to section 48 of the FBTAA?

Answer

Yes.

Question 3

Can the taxable value of the fringe benefit be reduced in accordance with section 62 of the FBTAA?

Answer

Yes.

Issue 3

FBT for tickets from Entity 3

Question 1

Is a free ticket to an event provided by Entity 3 to an employee of the employer an in-house fringe benefit pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Is the taxable value of the fringe benefits an amount equal to 75% of the lowest price at which the tickets were sold to members of the public pursuant to section 48 of the FBTAA?

Answer

Yes.

Question 3

Can the taxable value of the fringe benefit be reduced in accordance with section 62 of the FBTAA?

Answer

Yes.

Issue 4

Application of sections 62 and 58P of the FBTAA

Question 1

If an employee is provided with fringe benefits in respect of free tickets from any one of, or a combination of, Entity 1, Entity 2, or Entity 3 during a FBT year are the taxable values of such fringe benefits aggregated for the purposes of section 62 of the FBTAA?

Answer

Yes.

Question 2

Does the exemption under section 58P of the FBTAA apply to any fringe benefits arising from the provision of free tickets from any one of, or a combination of, Entity 1, Entity 2, or Entity 3 during a FBT year to an employee?

Answer

No.

This ruling applies for the following periods:

01 April 2007 - 31 March 2008

01 April 2008 - 31 March 2009

01 April 2009 - 31 March 2010

01 April 2010 - 31 March 2011

01 April 2011 - 31 March 2012

01 April 2012 - 31 March 2013

01 April 2013 - 31 March 2014

01 April 2014 - 31 March 2015

The scheme commenced on

01 April 2007.

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 an authority of a State.

The employees of the employee receive free tickets granting admission to events from Entities 1, 2, and 3.

The tickets are provided to the employees in respect of their employment with the employer.

Entity 1 was dissolved and Entity 2 was created and acquired the responsibilities, operations, assets, rights and liabilities of Entity 2.

At all relevant times Entity 1 and Entity 2 are authorities of the State.

Entity 3 is a company limited by guarantee and the employer is the sole member of Entity 3.

At all relevant times Entity 1, 2 and 3 each carry on a business of producing events for viewing by the general public.

The relevant Entity 1, 2, and 3 tickets are of the same kind as provided to the general public.

Relevant legislative provisions

Section 6 of the Income Tax Assessment Act 1936

Section 318 of the Income Tax Assessment Act 1936

Subsection 318(2) of the Income Tax Assessment Act 1936

Subsection 318(6) of the Income Tax Assessment Act 1936

Subparagraph 318(2)(d)(i) of the Income Tax Assessment Act 1936

Subsection 960-100(1) of the Income Tax Assessment Act 1997

Subsection 995-1 of the Income Tax Assessment Act 1997

Subsection 995-1(1) of the Income Tax Assessment Act 1997

Section 8-1 of the Income Tax Assessment Act 1997

Section 32-5 of the Income Tax Assessment Act 1997

Paragraph 32-10(1)(a) of the Income Tax Assessment Act 1997

Section 32-20 of the Income Tax Assessment Act 1997

Section 32-40 of the Income Tax Assessment Act 1997

Section 38 of the Fringe Benefits Tax Assessment Act 1986

Section 45 of the Fringe Benefits Tax Assessment Act 1986

Subsection 48(a) of the Fringe Benefits Tax Assessment Act 1986

Section 58P of the Fringe Benefits Tax Assessment Act 1986

Paragraph 58P(1)(c) of the Fringe Benefits Tax Assessment Act 1986

Section 62 of the Fringe Benefits Tax Assessment Act 1986

Subsection 62(2) of the Fringe Benefits Tax Assessment Act 1986

Subsection 62(1) of the Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Section 149 of the Fringe Benefits Tax Assessment Act 1986

Section 159 of the Fringe Benefits Tax Assessment Act 1986

Paragraph 159(2)(e) of the Fringe Benefits Tax Assessment Act 1986

Sporting Venues Authorities Act 2008

Reasons for decision

Issue 1

FBT for tickets provided by Entity 1

Question 1

Is a free ticket to an event provided by Entity 1 to an employee of the employer an in-house fringe benefit pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The employer and Entity 1 are considered to be associates of each other under paragraph 159(2)(e) of the Fringe Benefits Tax Assessment Act 1986 and the benefits received by the employees are in-house residual fringe benefits under subsection 136(1) FBTAA.

Detailed Reasoning

In order to determine if tickets to events provided by Entity 1 to employees of the employer are in-house residual fringe benefits under subsection 136(1) of the FBTAA it must be determined if a fringe benefit is provided.

Subsection 136(1) of the FBTAA defines 'fringe benefit' as a benefit provided to an employee or an associate of an employee in respect of the employment of the employee by:

· the employer

· an associate of the employer

· …

Benefits provided in respect of employment

The term 'benefit' as defined in subsection 136(1) of the FBTAA includes any right, privilege service or facility.

The definition of 'in respect of' in subsection 136(1) of the FBTAA, in relation to the employment of an employee, includes by reason of, by virtue of, or for or in relation directly or indirectly to that employment.

Tickets received by employees from Entity 1 confer a right to attend an event.

When employees receive tickets from the Entity 1 to thank them for work done on a project, or receive tickets to attend events as representatives of the employer the employees are provided with benefits in respect of their employment with the employer.

Provider of the benefits

Where the provider of benefits is not the employer, the benefits are fringe benefits if they are provided by an associate of the employer.

Section 159 of the FBTAA ensures that certain entities are associates of each other for the purposes of the FBTAA. Paragraph 159(2)(e) of the FBTAA deems an authority of a State to be an associate of each other authority of the State. The ATO view of what constitutes an associate of the State is provided in ATO ID 2012/94 Fringe Benefits Tax, Associate: authority of the State.

The employer and Entity 1 are authorities of the State.

This means that the employer and the Entity 1 are deemed to be associates of each other under paragraph 159(2)(e) of the FBTAA and the benefits received by the employer employees are fringe benefits under subsection 136(1) of the FBTAA.

Conclusion on fringe benefit

Consequently, the provision by the Entity 1 of a free ticket to an employee is a fringe benefit as it is a benefit provided in respect of the employee's employment with the employer and the benefit is provided by an associate of the employer.

Tax-exempt body entertainment fringe benefit

Section 38 of the FBTAA deals with the benefit type referred to as 'tax exempt body entertainment benefits' (and if the relevant benefit arises under section 38 it cannot also be a 'residual benefit'). Section 38 of the FBTAA states:

SECTION 38

38 TAX-EXEMPT BODY ENTERTAINMENT BENEFITS

Where, at a particular time, a person (in this section referred to as the "provider") incurs a 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, for 'tax-exempt body entertainment benefits' to arise, under section 38 of the FBTAA, one of the essential conditions is that the provider of the benefit incurs 'non-deductible exempt entertainment expenditure'.

provider, in relation to a benefit, means the person who provides the benefit.

provide:

(a). in relation to a benefit - includes allow, confer, give, grant or perform; and

(b). ...

entertainment has the meaning given by section 32-10 of the Income Tax Assessment Act 1997 [ITAA 1997].

non-deductible exempt entertainment expenditure means non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income.

non-deductible entertainment expenditure means 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).

The Entity 1 is the provider of this benefit. The Entity 1 would have been deriving assessable income and deducting its operating expenses in respect of the events if it were not exempt from income tax.

As determined above, the benefit being provided, in this instance, is the right to attend at an event.

Paragraph 32-10(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) states that 'entertainment' includes 'recreation'. Subsection 995-1 of the ITAA 1997 states that the term 'recreation' includes amusement, sport, or similar leisure-time pursuits.

Attendance at an event constitutes '(recreational) entertainment' being provided to the relevant employee.

Therefore, section 32-5 of the ITAA 1997, which precludes a deduction under section 8-1 of the ITAA 1997 in respect of losses or outgoings for entertainment, would nominally apply in this instance (on the assumption that section 32-20 of the ITAA 1997 had not been enacted which states that section 32-5 of the ITAA 1997 does not stop a deduction for a loss or outgoing to the extent that it was incurred in respect of providing entertainment by way of providing a fringe benefit).

However, Item 3.1 of section 32-40 of the ITAA 1997, dealing with entertainment industry expenses, states that section 32-5 of the ITAA 1997 does not stop a deduction for a loss or outgoing for providing entertainment for payment in the ordinary course of a business carried on by the relevant entity.

Subsection 136(1) of the FBTAA defines 'business operations' as business operations, in relation to a government body, or a non-profit company, includes any operations or activities carried out by that body or company.

The Entity 1 carries on business operations of providing events to members of the public for payment. The business is one of providing recreation which is entertainment and the activity is considered to be in the ordinary course of business'. Therefore section 32-40 of the ITAA 1997 is satisfied.

Conclusion on tax-exempt body entertainment fringe benefit

In line with ATO Interpretative Decision ATO ID 2008/60 Fringe Benefits Tax, Residual fringe benefit: tax-exempt body - recreation centre, this means that the Entity 1's expenditure is not entertainment expenditure within section 32-5 of the ITAA 1997; is not 'non-deductible entertainment expenditure' within subsection 136(1) of the FBTAA and is not 'non-deductible exempt entertainment expenditure' within subsection 136(1) of the FBTAA.

Therefore, the benefits of attendance at events provided by the Entity 1 to employees are not a benefit which is covered by section 38 of the FBTAA.

In-house fringe benefit

Sub-section 136(1) of the FBTAA defines an "in-house fringe benefit" as follows: -

in-house fringe benefit means:

(a) an in-house expense payment fringe benefit;

(b) an in-house property fringe benefit; or

(c) an in-house residual fringe benefit.

In-house expense payment fringe benefit, in-house property fringe benefit and in-house residual fringe benefit are also defined in sub-section 136(1) of the FBTAA.

In-house expense payment fringe benefit

The benefits (tickets) are not expense payments by the associate of the employer, the benefits provided by the Entity 1 are not in-house expense payment fringe benefits (see sub-section 136(1) of the FBTAA definition of 'in-house expense payment fringe benefit').

In-house property fringe benefit

Subsection 136(1) of the FBTAA defines an in-house property fringe benefit as:

in-house property fringe benefit , in relation to an employer, means a property fringe benefit in relation to the employer in respect of tangible property.

"Property" is defined in sub-section 136(1) of the FBTAA as follows: -

property means:

(a) intangible property; and

(b) tangible property.

intangible property means:

(a) real property;

(b) a chose in action; and

(c) any other kind of property other than tangible property;

but does not include:

(d) a right arising under a contract of insurance; or

(e) a lease or licence in respect of real property or tangible property.

tangible property means goods and includes:

(a) animals, including fish; and

(b) gas and electricity.

ATO ID 2004/153: Goods and Services Tax - GST and importation of a ticket to attend an event in a foreign country, provides guidance on with regards to a purchase of a ticket to an event. Although determined in the context for GST purposes, a ticket to an event is merely evidence of a prepayment for services or other things - the ticket is not tangible personal property. Therefore the Commissioner is satisfied that the tickets fall within the definition of intangible property.

The tickets are intangible property and they will not be considered an in-house property fringe benefit.

In-house residual fringe benefit

Any fringe benefit that does not fall into one of the categories of fringe benefits outlined in Divisions 2 to 11 of Part 3 of the FBTAA is called a "residual fringe benefit." Essentially, these are the fringe benefits that remain, or are left over, because they are not one of the more specific categories of fringe benefit.

Subsection 136(1) of the FBTAA provides the following definitions:

in-house residual fringe benefit, in relation to an employer, means a residual fringe benefit in relation to the employer:

(a) where both of the following conditions are satisfied:

(i) the provider is the employer or an associate of the employer;

(ii) at or about the comparison time, the provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; or

(b) where all of the following conditions are satisfied:

(i) the provider is not the employer or an associate of the employer;

(ii) the provider purchased the benefit from the employer or an associate of the employer (which employer or associate is in this definition called the seller);

(iii) at or about the comparison time, both the provider and the seller carried on a business that consisted of or included the provision of identical or similar property principally to outsiders;

but does not include a benefit provided under a contract of investment insurance.

residual fringe benefit means a fringe benefit that is a residual benefit.

residual benefit means a benefit that is a residual benefit by virtue of section 45.

Residual benefit

The definition of 'in-house residual fringe benefit', in subsection 136(1) of the FBTAA requires that there be, at least, a 'residual fringe benefit'. In turn, a 'residual fringe benefit', as defined in subsection 136(1) of the FBTAA, requires that there be, firstly, a 'residual benefit'.

A residual benefit, according to section 45 of the FBTAA is:

SECTION 45

45 RESIDUAL BENEFITS

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Division 2 to 11 (inclusive).

As the relevant benefits provided to the employee do not fall within any of the categories of benefits covered by Subdivision A of Divisions 2 to 11 (inclusive) of Part III of the FBTAA they are 'residual benefits' for the purposes of section 45 of the FBTAA.

Residual fringe benefit

As has been previously determined the provision by the Entity 1 of a ticket for events to employee is a fringe benefit as it is a benefit provided in respect of the employee's employment with the employer and the benefit is provided by an associate of the employer.

Is the provider of the benefit either the employer or an associate of the employer?

This condition is satisfied as it has already been determined that the relevant benefit is being provided by an associate of the employer.

Did the provider carry on a business of, or included, the provision of identical or similar benefits principally to outsiders?

Subsection 136(1) of the FBTAA provides the following definitions:

identical benefit, in relation to the recipients benefit in relation to a residual fringe benefit, means another benefit that is the same in all respects, except for differences (if any) that are minimal or insignificant and do not affect the value of the other benefit.

outsider, in relation to the employment of an employee of an employer, means a person not being:

(a) an employee of the employer;

(b) an employee of an associate of the employer;

(c) an employee of a person (in this definition referred to as the provider) other than the employer or an associate of the employer who provides benefits to, or to associates of, employees of the employer or an associate of the employer under an arrangement between:

(i) the employer or an associate of the employer; and

(ii) the provider or another person; or

(d) an associate of an employee to whom any of the preceding paragraphs apply.

Paragraph 204 of Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits, provides also guidance on the meaning of the terms 'identical' and 'similar' as follows:

204. The Macquarie Dictionary defines 'identical' as:

1. (sometimes followed by to or with) corresponding exactly in nature, appearance, manner, etc.: this leaf is identical to that.

2. the very same: I almost bought the identical dress you are wearing

and 'similar' as:

3. having a likeness or resemblance, especially in a general way.

As previously demonstrated the Entity 1 carries on business of providing events to members of the public for payment. It may be that some tickets to the events are often purchased by employees of the employer and their associates and also by other employees and their associates.

However, it is accepted that tickets granting attendance at the events provided by Entity 1 are provided principally to members of the public (which fall within the definition of 'outsider' in subsection 136(1) of the FBTAA).

It is also accepted that a ticket granting access to the events provided by Entity 1 to the relevant employee is either similar to or identical to those provided to members of the public.

Therefore, the provision of a free ticket by the Entity 1 to an employee of the employer is an 'in-house residual fringe benefit', as defined in section 136(1) of the FBTAA.

Issue 1 Question 2

Is the taxable value of the fringe benefits an amount equal to 75% of the lowest price at which the tickets were sold to members of the public pursuant to section 48 of the FBTAA?

Summary

Pursuant to section 48 of the FBTAA, the taxable value of the fringe benefits (tickets) is an amount equal to 75% of the lowest price at which the tickets were sold to members of the public

Detailed reasoning

Section 48 of the FBTAA deals with the taxable value of in-house non-period residual fringe benefits. Section 48 of the FBTAA states:

SECTION 48

48 TAXABLE VALUE OF IN-HOUSE NON-PERIOD RESIDUAL FRINGE BENEFITS

Subject to this Part, the taxable value of an in-house non-period residual fringe benefit in relation to an employer in relation to a year of tax is:

(a) where, at or about the comparison time, identical benefits were provided by the provider:

(i) in the ordinary course of business to members of the public under an arm's length transaction or arm's length transactions; and

(ii) in similar circumstances and subject to identical terms and conditions (other than as to price) as those that applied in relation to the provision of the recipients benefit to the recipient;

an amount equal to 75% of the lowest price at which an identical benefit was so sold to a member of the public; or

(b) in any other case - an amount equal to 75% of the notional value of the benefit at the comparison time;

reduced by the amount of the recipients contribution.

Subsection 136(1) of the FBTAA provides the following definitions:

in-house non-period residual fringe benefit means an in-house residual fringe benefit that is not provided during a period.

arm's length transaction means a transaction where the parties to the transaction are dealing with each other at arm's length in relation to the transaction.

Section 149 of the FBTAA states concerning the provision of a benefit during a period:

SECTION 149 PROVISION OF BENEFIT DURING A PERIOD

149(1) [Provision for 1 day]

For the purposes of this Act, a benefit shall be taken to be provided during a period if, and only if, the benefit:

(a) is provided, or subsists, during a period of more than 1 day; and

(b) is not deemed by a provision of this Act to be provided at a particular time or on a particular day.

149(2) ...

Guidance on the meaning of 'arm's length' is provided in the following paragraphs of Taxation Ruling TR 2002/2 Income tax: meaning of "Arm's Length" for the purpose of subsection 47A(7) of the Income Tax Assessment Act 1936 (ITAA 1936) dividend deeming provisions:

16. The term 'arm's length' is used in both tax and non-tax legislation. However, variations exist in the way in which the term is used and judicial interpretations have varied accordingly. The case Pontifex Jewellers (Wholesale) Pty Ltd v FCT [1999] FCA 1822, 43 ATR 643 contains a useful summary of case law on the different meanings of the term 'arm's length'. Comments that follow are drawn from that summary.

17. The case law draws a distinction between two uses of the term 'arm's length'. One refers to the relationship of the parties to a transaction (i.e., whether the parties are related in some way) and the other refers to the terms of a transaction between the parties (i.e., whether they are those that could be expected to arise between independent parties).

18. The relevant judicial decisions turn on both the language used and the context in which the term 'arm's length' appears. When a statute refers to parties dealing at arm's length, or to a specific transaction being at arm's length, the arm's length test is generally taken to refer to the terms of the transactions such as would be entered into between independent parties.

The provision of a free ticket by Entity 1 to employee meets the requirement of being an in-house residual fringe benefit that is not provided during a period.

It is also accepted that the provision of a free ticket by Entity 1 to an employee is provided under similar circumstances and subject to identical terms and conditions (other than as to price) as the provision of a paid ticket granting attendance to events in the ordinary course of the Entity 1's business to members of the public under an arm's length transaction.

Conclusion on taxable value

The provision of a free ticket from Entity 1 to an employee meets all the requirements of subsection 48(a) of the FBTAA.

Therefore, under section 48 of the FBTAA, the taxable value of an in-house residual fringe benefit arising from the provision of a free ticket from Entity 1 is an amount equal to 75% of the lowest (ticket) price at which an identical benefit was so sold to a member of the public.

Entity 1 sells tickets in the ordinary course to members of the public at arms length transactions in identical circumstances and subject to identical terms and conditions as those of the tickets given to employees of the employer. Therefore, the taxable value of the fringe benefit is an amount equal to 75% of the lowest price at which the tickets were sold to members of the public.

Issue 1 Question 3

Can the taxable value of the relevant fringe benefit be reduced in accordance with section 62 of the FBTAA?

Summary

The provision of tickets from Entity 1 to employees is an in-house fringe benefit and accordingly section 62 applies. Section 62 of the FBTAA applies to reduce the aggregate of the taxable values of eligible fringe benefits to an employee where that amount does not exceed $1,000 and in the case where the taxable value of some of the taxable values exceeds $1,000 then the reduction is $1,000.

Detailed reasoning

Section 62 of the FBTAA provides the following: -

Reduction of aggregate taxable value of certain fringe benefits

62(1) [Amount of reduction]            

Where one or more eligible fringe benefits in relation to an employer in relation to a year of tax relate to a particular employee of the employer, the taxable value of that fringe benefit, or the sum of the taxable values of those fringe benefits, as the case may be, in relation to that year shall be reduced by:

(c) if the taxable value or the sum of the taxable values does not exceed $1,000--an amount equal to the taxable value or the sum of the taxable values; or

(d) in any other case--$1,000.

62(2) ["eligible fringe benefit"]

In this section, eligible fringe benefit means:

(c) an in-house fringe benefit; or

(d) an airline transport fringe benefit.

Section 62 of the FBTAA relates to a reduction in the value of "eligible fringe benefits." Subsection 62(2) of the FBTAA provides the definition of "eligible benefit" which includes an "in-house fringe benefit."

In the above Question 1, the Commissioner determined that the tickets provided were in-house residual fringe benefits. Therefore the provision of tickets from Entity 1 to employees is an in-house fringe benefit and accordingly subsection 62(1) of the FBTAA applies.

Subsection 62(1) of the FBTAA applies to reduce the aggregate of the taxable values of eligible fringe benefits to an employee where that amount does not exceed $1,000 and in the case where the taxable value of some of the taxable values exceeds $1,000 then the reduction is $1,000.

Issue 2 Question 1

Is a free ticket to an event provided by Entity 2 to an employee of the employer an in-house fringe benefit pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Detailed reasoning

For similar reasons as set out in Issue 1 question 1 the employer and Entity 2 are considered to be associates of each other under paragraph 159(2)(e) of the Fringe Benefits Tax Assessment Act 1986 and the benefits received by the employees are in-house residual fringe benefits under subsection 136(1) FBTAA.

Issue 2 Question 2

Is the taxable value of the fringe benefits an amount equal to 75% of the lowest price at which the tickets were sold to members of the public pursuant to section 48 of the FBTAA?

Summary

For similar reasons as set out in Issue 1 Question 2, pursuant to section 48 of the FBTAA, the taxable value of the fringe benefits (tickets) is an amount equal to 75% of the lowest price at which the tickets were sold to members of the public

Issue 2 Question 3

Can the taxable value of the fringe benefit be reduced in accordance with section 62 of the FBTAA?

Summary

For similar reasons as set out in Issue 1 Question 2, provision of tickets provided by Entity 2 to employees is an in-house fringe benefit and accordingly section 62 of the FBTAA applies. Section 62 of the FBTAA applies to reduce the aggregate of the taxable values of eligible fringe benefits to an employee where that amount does not exceed $1,000 and in the case where the taxable value of some of the taxable values exceeds $1,000 then the reduction is $1,000.

Issue 3 Question 1

Is a free ticket to an event provided by Entity 3 to an employee of the employee an in-house fringe benefit pursuant to subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The provision of a free ticket granting attendance at a performance or a function, as applicable, by the Entity 3 to an employee is an 'in-house residual fringe benefit', as defined in section 136(1) of the FBTAA, as all the necessary conditions have been met.

Detailed reasoning

The definition of 'in-house residual fringe benefit' in subsection 136(1) of the FBTAA sets out two sets of circumstances, with their attendant requirements, under which an in-house residual fringe benefit can be constituted. The aforementioned definition states:

in-house residual fringe benefit, in relation to an employer, means a residual fringe benefit in relation to the employer:

(a) where both of the following conditions are satisfied:

(i) the provider is the employer or an associate of the employer;

(ii) at or about the comparison time, the provider carried on a business that consisted of or included the provision of identical or similar benefits principally to outsiders; or

(b) where all of the following conditions are satisfied:

(i) the provider is not the employer or an associate of the employer;

(ii) the provider purchased the benefit from the employer or an associate of the employer (which employer or associate is in this definition called the seller);

(iii) at or about the comparison time, both the provider and the seller carried on a business that consisted of or included the provision of identical or similar property principally to outsiders;

but does not include a benefit provided under a contract of investment insurance.

Therefore, an 'in-house residual fringe benefit' will arise under paragraph (a) of the definition of that term in subsection 136(1) of the FBTAA (as relevant here) where all of the following conditions are satisfied:

(v) There is a residual benefit.

(vi) There is a residual fringe benefit.

(vii) The provider of the benefit is either the employer or an associate of the employer.

(viii) At the relevant time the provider carried on a business of, or included, the provision of identical or similar benefits principally to outsiders.

(i) is there a residual benefit?

For similar reasons set out in Issue 1 Question 1 that the provision of a free ticket to an event from Entity 3 to an employee is a 'residual benefit'.

(ii) is there a residual fringe benefit?

It is accepted that when Entity 3 provides a free ticket to an event to any employee is in respect of the employer's employee's employment.

(iii) is the provider of the benefit either the employer or an associate of the employer?

Entity 3 is a company limited by guarantee and a separate legal entity from the employer.

The term 'associate' is defined in subsection 136(1) of the FBTAA as having the meaning given by section 318 of the Income Tax Assessment Act 1936 (ITAA 1936) and that the term may be also affected by section 159 of the FBTAA.

It is considered that section 159 of the FBTAA has no application in this particular instance.

Subsection 318(2) of the ITAA 1936 deals with the associates of a company. Subsection 318(2) of the ITAA 1936 states:

318(2) [Associates of a company]

For the purposes of this Part, the following are associates of a company (in this subsection called the "primary entity"):

(a) ...

(b) ...

(c) ...

(d) another entity (in this paragraph called the "controlling entity") where:

(i) the primary entity is sufficiently influenced by:

(A) the controlling entity; or

(B) the controlling entity and another entity or entities; or

(ii) a majority voting interest in the primary entity is held by:

(A) the controlling entity; or

(B) ...

(e) ...

Subsection 318(6) of the ITAA 1936 provides further interpretation for some of the matters referred to in section 318 of the ITAA 1936. Subsection 318(6) of the ITAA 1936 states:

318(6) [Interpretation]

For the purposes of this section:

(a) ...

(b) a company is sufficiently influenced by an entity or entities if the company, or its directors, are accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the entity or entities (whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed companies, partnerships or trusts); and

(c) an entity or entities hold a majority voting interest in a company if the entity or entities are in a position to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of the company.

The term 'entity' is not directly defined in the ITAA 1936 however, subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that the term 'entity' has the meaning given by section 960-100 of the ITAA 1997. Subsection 960-100(1) of the ITAA 1997 states:

960-100(1)

Entity means any of the following:

(a) ...

(b) a body corporate;

(c) a body politic;

(d) ...

Section 6 of the ITAA 1936 states that the term 'company' has the meaning given by subsection 995-1(1) of the ITAA 1997. Subsection 995-1(1) of the ITAA 1997 defines the term 'company' as follows:

company means:

(a) a body corporate; or

(b) any other unincorporated association or body of persons;

but does not include a partnership or a *non-entity joint venture.

...

Entity 3 is a 'company' for the purposes of subsection 995-1(1) of the ITAA 1997 and section 6 of the ITAA 1936. Entity 3, therefore, can be a 'primary entity' for the purposes of subsection 318(2) of the ITAA 1936.

The employer is a 'controlling entity' for the purposes of subsection 318(2) of the ITAA 1936.

The employer is the sole member of Entity 3 and has the right to attend or vote at meetings of Entity 3.

It is considered that the employer holds a majority voting interest in Entity 3 and that Entity 3 and the employer are deemed to be 'associates' under subparagraph 318(2)(d)(ii) of the ITAA 1936. Entity 3 and the employer are also 'associates' for the purposes of the FBTAA.

Consequently, the provision by Entity 3 of the free ticket to employees is a 'residual fringe benefit' as such provision is (a) the benefit is a residual benefit, (b) the benefit is provided in respect of the employer's employee's employment and (c) the benefit is provided by an associate of the employer.

(iv) did the provider carry on a business of, or included, the provision of identical or similar benefits principally to outsiders.

It is accepted that Entity 3 carries on business operations of providing performances and functions to members of the public for payment. It may be that some tickets to Entity 3 performances or functions are often purchased by employees and their associates.

However, it is accepted that tickets granting attendance at Entity 3 performances or functions are provided principally to members of the public (which fall within the definition of 'outsider' in subsection 136(1) of the FBTAA).

It is also accepted that a ticket to the employees of the employer is either similar or identical to those provided to members of the public.

This condition is satisfied.

Conclusion on 'in-house residual fringe benefit'

The provision of a free ticket by Entity 3 to an employee is an 'in-house residual fringe benefit', as defined in section 136(1) of the FBTAA, as all the necessary conditions have been met.

Issue 3 Question 2

Is the taxable value of the fringe benefits an amount equal to 75% of the lowest price at which the tickets were sold to members of the public pursuant to section 48 of the FBTAA?

Summary

Pursuant to section 48 of the FBTAA, the taxable value of the fringe benefits (tickets) is an amount equal to 75% of the lowest price at which the tickets were sold to members of the public.

Detailed reasoning

For similar reasons that it was determined in Issue 1, Question 2 that, under section 48 of the FBTAA, the taxable value of a in-house fringe benefit arising from the provision of a free ticket granting attendance at an Entity 1 event, as applicable, is an amount equal to 75% of the lowest (ticket) price at which an identical benefit (ticket) was so sold to a member of the public, it is considered that under section 48 of the FBTAA, the taxable value of a in-house fringe benefit arising from the provision of a free ticket granting attendance at an Entity 3 performance or function, as applicable, is an amount equal to 75% of the lowest (ticket) price at which an identical benefit was so sold to a member of the public.

Issue 3 Question 3

Can the taxable value of the fringe benefit be reduced in accordance with section 62 of the FBTAA?

Detailed reasoning

The provision of tickets by the Entity 3 to employees is an in-house fringe benefit and accordingly section 62 applies. Section 62 of the FBTAA applies to reduce the aggregate of the taxable values of eligible fringe benefits to an employee where that amount does not exceed $1,000 and in the case where the taxable value of some of the taxable values exceeds $1,000 then the reduction is $1,000.

Issue 4

Application of sections 62 and 58P of the FBTAA

Question 1

If an employee is provided with fringe benefits in respect of free tickets from any one of, or a combination of, Entity 1, Entity 2 or Entity 3 during a FBT year are the taxable values of such fringe benefits aggregated for the purposes of section 62 of the FBTAA?

Detailed reasoning

Section 62 of the FBTAA provides for the first $1,000 of the aggregate taxable value of certain in-house fringe benefits ('eligible fringe benefits') relating to an employee in any year to be exempt from fringe benefits tax (FBT).

It has already been determined in Issue 1 Question 1, Issue 2 Question 1, and Issue 3 Question 1, the fringe benefit arising from the provision of a ticket to an employee from any of Entity 1, Entity 2 or Entity 3 is an 'eligible fringe benefit' for the purposes of section 62 of the FBTAA.

Therefore, the taxable values of any fringe benefits arising from the provision of free tickets to a employee from any or all of Entity 1, Entity 2 or Entity 3 during an FBT year have, firstly, to be aggregated or summed before the amount of the applicable reduction under section 62 of the FBTAA is applied to the total of the taxable values of such fringe benefits for that FBT year.

It is considered that the above view is not altered whether the relevant free tickets are provided by more than one of the above entities (Entity 1, Entity 2 or Entity 3) as all resultant fringe benefits are similarly categorised as 'eligible fringe benefits' for the purposes of section 62 of the FBTAA.

It should also be noted that the applicable amount of reduction under section 62 of the FBTAA applies not only in respect of the relevant 'eligible fringe benefits provided to each employee in a particular FBT year but also to any relevant 'eligible fringe benefits' provided in the same FBT year to associates of that employee as outlined in Miscellaneous Taxation Ruling MT 2044 Fringe benefits tax: reduction of aggregate taxable value of fringe benefits - application to associates.

Issue 4 Question 2

Does the exemption under section 58P of the FBTAA apply to any fringe benefits arising from the provision of free tickets from any one of, or a combination of, Entity 1, Entity 2 or Entity 3 during a FBT year to an employee?

Summary

The fringe benefit arising from the provision of a ticket to an employee from any of Entity 1, Entity 2 or Entity 3 is an in-house fringe benefit then paragraph 58P(1)(c) of the FBTAA precludes exemption to any of those relevant fringe benefits under section 58P of the FBTAA.

Detailed reasoning

Section 58P of the FBTAA exempts certain 'minor benefits' where:

(c) the notional taxable value of the minor benefit is less than $300; and

(d) it would be concluded that it would be unreasonable, having regard to the specified criteria in paragraph 58P(1)(f) of the FBTAA, to treat the minor benefit as a fringe benefit.

For example, see paragraphs 8 to 12 inclusive of Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits.

However, section 58P of the FBTAA does not apply to exempt all benefits that have a notional value of less than $300. For example, paragraph 58P(1)(c) of the FBTAA specifically excludes from exemption under section 58P of the FBTAA a residual benefit which if it were a residual fringe benefit would also be an in-house fringe benefit.

As it has already been determined, in Issue 1 Question 1, Issue 2 Question 1, and Issue 3 Question 1 respectively, that the fringe benefit arising from the provision of a ticket to the employer's employee from any of Entity 1, Entity 2 or Entity 3 is an in-house fringe benefit then paragraph 58P(1)(c) of the FBTAA precludes exemption to any of those relevant fringe benefits under section 58P of the FBTAA.