Edited version of private advice

Authorisation Number: 1012647570623

Ruling

Subject: FBT - Calculation of aggregate non-exempt amount

Question 1

Will the benefit that arises if an employee uses the card to pay for food and drink that is 'meal entertainment' according to section 37AD of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) be included in the calculation of your aggregate non-exempt amount for the year of tax?

Answer

No

Question 2

Will the benefit that arises if an employee parks their car on your premises be included in the calculation of your aggregate non-exempt amount for the year of tax?

Answer

No

Question 3

Will the benefit that arises if an employee uses the card to pay for the hire of hotel or motel accommodation, a corporate box or a marquee be included in the calculation of your aggregate non-exempt amount for the year of tax?

Answer

No

Question 4

Will the benefit that arises if an employee uses the card to pay for an all-inclusive holiday package that includes the provision of accommodation be included in the calculation of your aggregate non-exempt amount for the year of tax?

Answer

No

Question 5

Will the benefit that arises if an employee uses the card to pay for anything other than the benefits listed in questions 1 to 4 above be included in the calculation of your aggregate non-exempt amount for the year of tax?

Answer

Yes

This ruling applies for the following periods:

For a number of FBT years commencing in the FBT year ended 31 March 2015

Relevant facts and circumstances

You are an employer subject to section 57A of the FBTAA.

You enter into valid salary sacrifice agreements with your employees whereby the employees are able to sacrifice a portion of their salary for the following types of benefits ('the relevant benefits'):

• meal entertainment benefits according to section 37AD of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)

• car parking benefits according to section 39A of the FBTAA

• entertainment facility leasing expenses according to the definition of 'entertainment facility leasing expenses' contained in subsection 136(1) of the FBTAA

Under the current arrangements, the meal entertainment benefits can be administered through the use of a debit card which is monitored to ensure compliance with the relevant requirements.

Alternatively, the cost of meal entertainment can be reimbursed. This reimbursement process also currently applies to the entertainment facility leasing expenses. This reimbursement process enables the claims to be scrutinized to ensure compliance with salary packaging requirements.

You are considering combining the arrangements into a single process. Under the proposed process employees will be able to utilise a 'meal leisure card' ('the card') that can be used for expenditure on the relevant benefits.

The card will be a debit card issued by a financial institution.

You will periodically transfer amounts of salary sacrificed by the employees to the financial institution which will credit the amounts to each participating employee's card account.

The card will be a prepaid card and as such employees will only be able to use funds credited to the card. Employees will not be able to overdraw the card and transactions such as direct debits and cash withdrawals will not be permitted.

Only you will be able to deposit funds to the employees' card accounts.

Where an employee's card is cancelled, for example on termination of employment, any unused balance remaining on the card will be returned to you.

Interest will not be earned on the balance of the card account.

Meal entertainment

Under your current policy you restrict the meal entertainment benefits to food and drink consumed in a sit down facility. Employees are not reimbursed for the purchase of take-away food, drive through food, home delivery, food and drink that constitutes sustenance, food and drink purchased from supermarkets and liquor stores.

Car parking

You operate from a number of different premises. Each of the premises has a car park.

Employees are able to park their car in these car parks.

The parking may meet the conditions contained in paragraphs 39A(1)(a) to 39A(1)(i) of the FBTAA.

An employee who has a card will have a nominal amount deducted from the card balance each time that they park in the car park.

Venue hire

Under your salary sacrifice policy, employees are able to sacrifice for the cost of hiring the following types of venues:

• a hotel/motel room when on holiday;

• a corporate box;

• a marquee for a social event.

Holiday packages

Under your salary sacrifice policy, employees are able to sacrifice for the cost of an all-inclusive holiday package. For the purposes of the policy, a relevant all inclusive holiday package includes accommodation and may include transport, entertainment, food and drink.

Relevant legislative provisions

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

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

Fringe Benefits Tax Assessment Act 1986 section 37AD

Fringe Benefits Tax Assessment Act 1986 section 39A

Fringe Benefits Tax Assessment Act 1986 section 57A

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

Question 1

Will the benefit that arises if an employee uses the card to pay for food and drink that is 'meal entertainment' according to section 37AD of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) be included in the calculation of your aggregate non-exempt amount for the year of tax?

Section 57A provides that certain employers are generally exempt from fringe benefits tax. This section applies to employers that are an endorsed public benevolent institution, certain hospitals, an employer who provides public ambulance services (or services that support those service) where the employee is predominantly involved in connection with the provision of those services, or an endorsed health promotion charity. The exemption also applies to benefits provided to an employee of a government body where the duties of employment are exclusively performed in, or in connection with, certain hospitals.

The exemptions are subject to capping provisions set out in subsection 5B(1E) of the FBTAA which limits the extent of the exemption to a set grossed-up taxable value per employee. Employers are liable for full FBT on the value of benefits provided in excess of the relevant threshold.

Each employee's individual grossed-up non-exempt amount is determined by multiplying the employee's type 1 and type 2 individual base non-exempt amounts by the applicable gross-up rate.

However, any employer to which section 57A applies, will, irrespective of whether or not an employee's threshold amount has or has not been exceeded, not be liable for FBT on benefits:

• that constitute the provision of meal entertainment;

• that are car parking fringe benefits; or

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

This results from the operation of Step 1 of the method statement contained in subsection 5B(1L) which specifically disregards these benefits in calculating an employer's aggregate non-exempt amount.

Step 1 of the subsection 5B(1L) method statement states:

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.

...

That is, benefits that constitute the provision of meal entertainment, car parking benefits and benefits whose taxable value is wholly or partly attributable to entertainment facility leasing expenses are always exempt benefits for you because of the interaction between section 57A and subsection 5B(1L) of the FBTAA.

Therefore, if the benefits provided by the use of the card constitute the provision of meal entertainment, car parking benefits and benefits whose taxable value is wholly or partly attributable to entertainment facility leasing expenses, then those benefits will not be included in your aggregate non-exempt amount for the year of tax.

Meal entertainment

Section 37AD of the FBTAA provides a definition of the 'provision of meal entertainment':

37AD Meaning of provision of meal entertainment

A reference to the provision of meal entertainment is a reference to the provision of:

(a) entertainment by way of food or drink; or

(b) accommodation or travel in connection with, or for the purpose of facilitating, entertainment to which paragraph (a) applies; or

(c) the payment or reimbursement of expenses incurred in providing something covered by paragraph (a) or (b);

whether or not:

(d) business discussions or business transactions occur; or

(e) in connection with the working of overtime or otherwise in connection with the performance of the duties of any office or employment; or

(f) for the purposes of promotion or advertising; or

(g) at or in connection with a seminar.

Taxation Ruling TR 97/17 Income Tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17) provides guidance on how to identify whether the provision of food or drink is entertainment for the purposes of the FBTAA and the ITAA 1997. Relevantly, TR 97/17 provides:

6. The definition of 'entertainment' contained in section 32-10 of the ITAA, and adopted by the FBTAA in the definition of 'entertainment' in subsection 136(1), does not prescribe that entertainment occurs every time food or drink is provided.

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

• why the food or drink is being provided ;

• what type of food or drink is being provided;

• when that food or drink is being provided; and

• where the food or drink is being provided.

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

…

23. It can be seen that the determination of whether or not the provision of food or drink constitutes entertainment requires an objective analysis of all the circumstances surrounding that provision. We are of the view that the following are relevant factors that should be considered in undertaking any objective analysis:

(a) Why is the food or drink being provided. This is a 'purpose test'. For example, food or drink provided for the purposes of refreshment does not generally have the character of entertainment, whereas food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment.

(b) What food or drink is being provided. As noted above, morning and afternoon teas and light meals are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the greater the likelihood that entertainment arises from the consumption of the meal.

For example, when an employer provides morning or afternoon teas or light meals, that food or drink does not usually confer entertainment on the employee. By contrast, a three course meal provided to an employee during a working lunch has the characteristics of entertainment. The nature of the food itself confers entertainment on the employee.

(c) When is the food or drink being provided. Food or drink provided during work time, during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because in the majority of these cases food provided is for a work-related purpose rather than an entertainment purpose. This, however, depends upon whether the entertainment of the recipient is the expected outcome of the provision of the food or drink. For example, a staff social function held during work time still has the character of entertainment.

(d) Where is the food or drink being provided. Food or drink provided on the employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment; refer to the reasons in (b) and (c) above. However, food or drink provided in a function room, hotel, restaurant, café, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment. This is because the provision of the food or drink is less likely to have a work-related purpose.

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

When employees use the card to purchase food and drink that constitutes meal entertainment according to the definition contained in section 37AD of the FBTAA and considering the criteria set out in TR 97/17 discussed above, the purchase made by the employee using the card will be a benefit that is the provision of meal entertainment by you to the employee.

The benefit that arises in this circumstance will not be included in your aggregate non-exempt amount for the year of tax.

However, if the employee uses the card to purchase food and drink which does not constitute meal entertainment it will be included in your aggregate non-exempt amount for the year of tax.

Question 2

Will the benefit that arises if an employee parks their car on your premises be included in the calculation of your aggregate non-exempt amount for the year of tax?

As discussed in question 1 above, where section 57A of the FBTAA applies to an employer, car parking benefits will not be included in the employer's aggregate non-exempt amount for the year of tax.

Car parking benefits are defined in section 39A of the FBTAA. A car parking benefit will arise when you provide a car park to an employee and all of the conditions set out in paragraphs 39A(1)(a) to 39A(1)(i) of the FBTAA are satisfied. In summary the conditions contained in paragraphs 39A(1)(a) to 39A(1)(i) are:

• a car is parked at a premises that are owned or leased by the provider (usually the employer)

• within a one-kilometre radius of the premises on which the car is parked, there is a commercial parking station that charges a fee for all-day parking, which is more than the car parking threshold

• the car is parked for a total of more than four hours between 7:00am and 7:00pm on the day

• the car is owned by, leased to, or otherwise under the control of, an employee, or is provided by you

• the parking is provided in respect of the employee's employment

• the car is parked at or near the employee's primary place of employment on that day

• the car is used by the employee to travel between home and work (or work and home) at least once on that day

• the commercial parking station referred to above must also, on the first business day of the FBT year, charge a representative fee for all-day parking that is more than the car parking threshold.

You own the car parks at each of your premises. Under the arrangement, you will provide your employee with a car park at the relevant premise on a particular day. The parking is provided in respect of the employee's employment. When the parking satisfies all of the above conditions the benefit will be a car parking benefit which will not be included in your aggregate non-exempt amount.

Alternatively, if the conditions are not met, the provision of the parking will be an exempt benefit under section 58G and will not be included in your aggregate non-exempt amount.

It should be noted that the benefit arises from the provision of the parking. The use of the card to reduce the card balance will not affect the treatment of the benefit.

Question 3

Will the benefit that arises when an employee uses the card to pay for the hire of venues such as hotel or motel accommodation, corporate boxes or marquees be included in the calculation of your aggregate non-exempt amount for the year of tax?

As set out above, any employer to which section 57A applies, will, irrespective of whether or not an employee's threshold amount has or has not been exceeded, not be liable for FBT on benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses.

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

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 such expenses that:

(d) is attributable to the provision of food or drink

(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 the hiring or leasing of a corporate box will be an entertainment facility leasing expense.

Whether the hiring or leasing of a marquee or a hotel or motel room will be an entertainment facility leasing expense will depend upon the circumstances in which the hire or lease occurs.

Chapter 14 of Fringe benefits tax - a guide for employers (FBT guide for employers)(NAT 1054) states:

Hiring or leasing entertainment facilities

Entertainment facility leasing expenses are the expenses you incur in hiring or leasing:

• a corporate box

• boats or planes for providing entertainment

• other premises or facilities for providing entertainment.

….

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.

That is, both the hiring of a hotel or motel room and the hiring of a marquee can be 'other premises or facilities for providing entertainment' provided they are hired or leased for the purposes of providing entertainment. For example, the hire or lease of a hotel/motel room while on holiday will be for the purpose of providing entertainment. By contrast, the hire or lease of a hotel/motel room while undertaking work related travel is unlikely to be for the purpose of providing entertainment.

As discussed in relation to question 1, due to the interaction between section 57A and subsection 5B(1L) of the FBTAA, where section 57A applies to an employer, the employer will not be liable for FBT on benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses.

Therefore, the use of the card will not be included in your aggregate non-exempt amount for the year of tax where the card is used to pay for the hire or lease of:

• a corporate box; or

• a hotel or motel room for the purpose of providing entertainment; or

• a marquee for the purpose of providing entertainment;

as the benefit that arises will be wholly attributable to entertainment facility leasing expenses.

Question 4

Will the benefit that arises if an employee uses the card to pay for an all-inclusive holiday package that includes the provision of accommodation be included in the calculation of your aggregate non-exempt amount for the year of tax?

As discussed in question 3 above, where the benefit provided by the use of the card is wholly or partly attributable to entertainment facility leasing expenses the benefit will not be included in your aggregate non-exempt amount for the year of tax.

The FBT guide for employers provides guidance on when holiday expenses will be considered to be wholly or partly attributable to entertainment facility leasing expenses. Chapter 14 states:

Hiring or leasing entertainment facilities

Entertainment facility leasing expenses are the expenses you incur in hiring or leasing:

• a corporate box

• boats or planes for providing entertainment

• other premises or facilities for providing entertainment.

Expenses, or parts of expenses, that are not entertainment facility leasing expenses for these purposes are:

• expenses attributable to providing food or beverages

• expenses attributable to advertising that would be an allowable income tax deduction.

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

However, the transport may be part of the entertainment facility leasing expense where the transport is provided as part of an all-inclusive package.

Boats or places 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 'entertainment facility leasing expenses'.

For example, the hiring or leasing of a houseboat or 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 expenses. 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.

Therefore, where an employee uses the card to pay for a holiday package which includes the hire or lease of holiday accommodation, which as discussed above, is an entertainment facility leasing expense, none of the package will be included in the calculation of your aggregate non-exempt amount for the year of tax as the amount paid is partly attributable to an entertainment facility leasing expense (the holiday accommodation).

However, if the card is used to pay for the holiday components separately, some of the components may need to be included in the calculation of your aggregate non-exempt amount. For example, if the card was used to pay for the cost of a flight the cost of the flight would be included in the calculation of the aggregate non-exempt amount as none of the expense is attributable to an entertainment facility leasing expense.

Question 5

Will the benefit that arises if an employee uses the card to pay for anything other than the benefits listed in questions 1 to 4 above be included in the calculation of your aggregate non-exempt amount for the year of tax?

As discussed in question 1, the operation of step 1 of the method statement contained in subsection 5B(1L) of the FBTAA means that employers to which section 57A applies will not be liable for benefits that constitute the provision of meal entertainment, that are car parking benefits or benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses.

The arrangement is based on the employees using a debit card with pre-loaded salary sacrificed funds which employees are permitted to use to pay for specific things. As a debit card, the card will have the capacity to be accepted by merchants to pay for goods and services other than the relevant benefits. For example, as discussed above, it is possible for the card to be used to:

• purchase food or drink which does not constitute the provision of meal entertainment; or

• hire or lease a hotel or motel room or a marque for a purpose other than the provision of entertainment; or

• pay for a holiday expense such as a plane flight which is not part of a package.

If employees use the card to pay for these goods or services, the benefit will be included in the calculation of your aggregate non-exempt amount for the year of tax.

Given the possible different outcomes that can arise from the use of the card, you will need to have a procedure, or process to verify the card has only been used to purchase benefits that will not be part of your aggregate non-exempt amount.