Edited version of your private ruling

Authorisation Number: 1012514953309

Ruling

Subject: Fringe benefits tax

Question 1

Are the expenses incurred by an employee and reimbursed by the employer for hiring a hotel room whilst travelling on holidays and hiring a private function room considered to be entertainment facility leasing expenses and therefore disregarded for the purposes of subsection 5B (1L) of the Fringe Benefits Tax Assessment Act 1986(FBTAA)?

Answer

Yes

This ruling applies for the following periods:

1 April 2013 - 31 March 2014

1 April 2014 - 31 March 2015

1 April 2015 - 31 March 2016

1 April 2016 - 31 March 2017

The scheme commences on:

1 April 2013

Relevant facts and circumstances

· The employer is a Registered Public Benevolent Institution.

· The employer will reimburse an employee for expenses incurred in hiring a hotel room and private function room.

· The employee will incur accommodation costs for the hiring of a hotel room while travelling on holidays.

· The employee will also incur expenses for hiring private function rooms for family celebrations.

· No part of the expenses is for the provision of food, drink or advertising.

· During the holiday travel, the employee was not otherwise travelling on work related purposes.

· The hiring of the private function is not for work purposes.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 5B(1D)

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

Fringe Benefits Tax Assessment Act 1986 section 57A.

Fringe Benefits Tax Assessment Act 1986 subsection 57A(1)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 32-10

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Section 57A of the FBTAA provides that certain employers are generally exempt from fringe benefits tax on benefits provided to their employees. Specifically subsection 57A(1) of the FBTAA states:

Where the employer of an employee is a registered public benevolent institution endorsed under section 123C, a benefit provided in respect of the employment of the employee is an exempt benefit.

As the employer is endorsed as a registered public benevolent institution, benefits provided to its employees will be exempt benefits.

Subsection 5B(1D) of the FBTAA provides that for public benevolent institutions, the employers fringe benefits taxable amount will include the employers aggregate non-exempt amount.

The method for calculating the employers aggregate non-exempt amount is contained in subsections 5B(1E) to 5B(1L). These subsections provide that a public benevolent institution will only be liable to pay fringe benefits tax on the amount by which the total grossed-up value of certain benefits provided to an individual employee exceed $30,000. Subsection 5B(1L) of the FBTAA provides that the calculation of the value of benefits provided to each individual will include the value of all but three of the benefits that would have been fringe benefits if the employer had not been a public benevolent institution.

Under subsection 5B(1L) of the FBTAA the benefits that are disregarded are:

· Benefits that constitute the provision of meal entertainment;

· Car parking fringe benefits; and

· Benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses.

In this case, the employer will reimburse an employee for the costs incurred in hiring a hotel room and private function room for private purposes. To determine whether the reimbursement is excluded from the calculation of the employer's fringe benefits taxable amount, it must fall under one of the excluded benefits above. In this particular situation, 'entertainment facility leasing expenses' are the most relevant.

'Entertainment facility leasing expenses' are defined in subsection 136(1) of the FBTAA:

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:

a) Is attributable to the provision of food or drink; or

b) 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.

For at least part of the reimbursement to come within this definition, it is necessary for at least part of the reimbursement to be:

· Expenses incurred by a person;

· Expenses incurred in hiring or leasing;

· A premise or facility that comes within paragraphs (a) to (c);

· For the purpose of the provision of entertainment; and

· It will not include an expense that comes within paragraphs (d) and (e).

Expenses incurred by a person

In this case, the expense of hiring and leasing a hotel room and private function room is incurred by the employee. The employer will then reimburse the employee for the cost incurred.

It is considered that the expense is incurred by a person.

Did the reimbursement include a hire or lease?

Under the definition of 'entertainment facility leasing expenses', an expense must be incurred by the person in '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.

ATO Interpretive Decision ATO ID 2009/45 Fringe Benefits Tax Entertainment Facility Leasing Expenses: private function room and hotel room expenses discusses entertainment facility leasing expenses and refers to The Macquarie Dictionary definition of the word '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.

In this case, the employee will incur expenses in hiring out a hotel room and private function room. It is considered that this will fall within the definition of 'hiring and leasing'.

Other premises or facilities

Under the definition of 'entertainment facility leasing expenses', the hire or lease must be of a corporate box, boat, plane or other 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.

ATO ID 2009/45 refers to the Macquarie Dictionary which defined the words 'premises' and 'facility 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.

In ATO ID 2009/45 it was considered that a hotel room and a private function room fell within the definition of 'other premises or facility':

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. For example, the corporate box is only part of a sporting stadium complex. However, a corporate box is a separate or distinct area or room which is in fact able to be hired as a separate room or distinct area. The hiring or leasing of a separate room or distinct area for other hospitality purposes such as an end of year corporate event at a city hotel would be considered similar to a corporate box arrangement. It is considered that these would be premises or facilities for the purposes of the definition of 'entertainment facility leasing expenses'.

When a private function room in a club or a separate hotel room at a hotel have been leased or hired, they will be premises or facilities for the purposes of the definition of 'entertainment facility leasing expenses'.

In consideration of the above, the hotel room and private function room will fall within the definition of 'premises' and 'facility' for the purpose of the definition of entertainment facility leasing expenses.

For the purpose of the provision of entertainment

Under the definition of entertainment facility leasing expenses the expenses incurred on hiring or leasing the premises or facilities must be 'for the purpose of the 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.

Section 995-1 of the ITAA 1997 provides the meaning of recreation:

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

In relation to the use of a hotel room it is relevant to consider paragraph 32-10(1)(a) of the ITAA 1997 as to whether the use of the room is for the purposes of providing entertainment by way of recreation. While 'recreation' is defined the words 'entertainment by way of recreation' are not defined. As these words are not defined, they have their natural meaning, taken in the context in which they appear in the legislation

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.

Further, Taxation Determination TD 94/55 Income tax: when does providing an item of property constitute the provision of entertainment within the meaning of subsection 32-10(1) of the Income Tax Assessment Act 1997? 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.

Where the employee has use of the hotel room while on holidays, it is a leisure-time pursuit which is recreation, as defined in the ITAA 1997. The use of the hotel room is also something affording diversion or amusement and is entertainment within the natural meaning. Therefore the use of the hotel room is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997.

In addition, a hotel room 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.

The employee's use of the private function room will fall under the definition of 'entertainment' in paragraph 32-10(1)(a) of the ITAA 1997, as entertainment by way of recreation. The private function room is used for the purpose of family celebrations and would derive amusement and entertainment within its natural meaning. Further, the note in subsection 32-10(2) of the ITAA 1997 provides that 'social functions' are an example of 'entertainment' and family celebrations would fall within this category.

For the above purposes, the hotel room and private function room will be hired for the purpose of the provision of entertainment.

It will not include an expense that comes within paragraphs (d) and (e).

From the information provided, the expense is in relation to the cost of hiring a hotel room and private function room for holidays and family celebrations. No part of the expense is in relation to food, drink or deductible advertising.

Conclusion

In applying the tests discussed above, it can be concluded that the taxable value of this benefit is wholly attributable to 'entertainment facility leasing expenses' as:

· the expense is incurred by a person;

· the expense is incurred in hiring or leasing;

· the hire or lease is of a premise or facility;

· the expense is for the purpose of entertainment; and

· the benefit does not include the provision of food or drink and is not attributable to deductible advertising.

Therefore, it will not be included in the calculation of the employer's aggregate non-exempt amount in subsection 5B(1L) of the FBTAA.