Edited version of your written advice

Authorisation Number: 1012686900158

Ruling

Subject: Fringe benefits tax - exempt fringe benefits - residual fringe benefits

Question 1

Is the provision by the Council of the use of facilities at sporting and leisure centres to its employees under a valid salary sacrifice arrangement, exempt under subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Does the exemption under subsection 47(2) of the FBTAA apply if the employees do not enter a salary sacrifice arrangement and instead pay a discounted membership fee directly to the provider of the leisure facility services?

Answer

Yes

This ruling applies for the following period

1 April 20XY to 31 March 20XZ

The scheme commences on

1 April 20XY

Relevant facts and circumstances

The Council is a local government body which owns sports and leisure centres.

These facilities are managed on behalf of Government body by another body (the Contractor) under contract. For the operation and management of the leisure centres, the Council pays a management fee. A subsidy is also paid in addition to the management fee if the centre performs at a loss.

The contract commenced on 1 July 20XM and has an initial term of three years ending 30 June 20XY with an option, at Council's discretion, to renew the contract for a further two terms of three years each. Council has approved the first extension for three years commencing 1 July 20XY. The contract sets out the objectives, service levels, standards and other operating requirements that Council seeks to achieve through this arrangement.

The contractor responsibilities during the term of the contract include:

• operate the Council leisure and aquatic facilities and their facilities as specified, during the hours specified, to or above the minimum staffing levels and qualifications stated and with emphasis on the safety and welfare of the public and employees including the compliance with all relevant statutory or regulatory requirements

• pay all operating expenses according to the conditions of the contract

• bank and collect all income and account for all income and expenditure in accordance with Australian accounting standards

• provide the guaranteed fixed return fee to Council. The Contractor guarantees a monthly amount to be paid to the Council from profits made from conducting the leisure facility operations. There is a set guaranteed return and if the annual proceeds of the operations exceed the guaranteed return the excess amount is shared equally between the Council and the Contractor. If the proceeds of conducting the leisure facility operations the fees is still required to be paid unless it can be demonstrated that the shortfall is wholly outside the control of the Contractor

• develop and provide a range of programs, activities and services which reflect local needs

• optimise the usage of the Council leisure and aquatic facilities and meet Council's objectives for the leisure and aquatic facilities and the contract

• implement appropriate management and staffing

• clean the leisure and aquatic facilities and maintain their grounds to the specified standards

• prepare annual capital works proposals and co-operate with Council in the implementation of Council's asset renewal strategy

The Council is responsible for the overall policy development and strategic planning for the leisure and aquatic facilities, to ensure that the programs, activities and services provided meet community needs and expectations and provide a financial return to the community.

Specific responsibilities of the Council regarding the leisure and aquatic centres are:

• plan in conjunction with the contractor and at times finance capital works for the facilities

• provide adequate supervision of the contractor

• respond efficiently to any issues raised by the contractor that are integral to the overall management and operation of the facilities

• specific maintenance responsibilities under the conditions of the contract

• approve fees and charges as proposed by the contractor, and

• make certain buildings available

There is a fitness assistance policy which provides discount membership opportunities in relation to facilities at the aquatic and leisure centres owned by Council. The policy has application only to the Council's aquatic and leisure centres and applies to all permanent full time and part-time employees and to councillors during their term of office.

There are two payment options available. Where staff members and councillors pay for their membership as a post-tax deduction they are not required to pay for their membership at the full rate and the fee does not involve Council reimbursement. The fee charged is at 50% or the normal rate.

In addition, employees are able to pay their membership fees through payroll deductions. In that case the employee's recreation facility membership fees will be covered by a valid salary sacrifice arrangement.

The Leisure end Cultural Services Department is responsible for recommending to the Chief Executive Officer the level of discounts available to employees and councillors.

Relevant legislative provisions

Fringe Benefits Tax Assessment 1986 section 45

Fringe Benefits Tax Assessment 1986 subsection 47(2)

Fringe Benefits Tax Assessment 1986 subsection 136(1)

Reasons for decision

Question 1

Summary

The benefit which is the discounted leisure and aquatic centre membership paid through a salary sacrifice arrangement is a residual fringe benefit and is exempt under the provision of subsection 47(2) of the FBTAA

Detailed reasoning

Sub section 47(2) of the FBTAA states that where:

(a) a residual benefit provided to a current employee in respect of his or her employment consists of:

(i) the provision, or use, of a recreational facility; or

(ii) the care of children of the employee in a child care facility; and

(b) the recreational facility or child care facility, as the case may be, is located on business premises of:

(i) the employer; or

(ii) if the employer is a company, of the employer or of a company that is related to the employer;

the benefit is an exempt benefit.

Having regard for the above there is a number of criteria that must be satisfied for the provision of the use of a recreational facility to be classed as an exempt benefit.

These criteria are as follows:

• the benefit provided is residual in nature

• the benefit provided is to a current employee

• the business premises comply with the definition given in subsection 136(1) of the FBTAA in relation to what constitutes a recreational facility

• the benefit is the provision or use of a recreational facility by employees where the recreational facility complies with the definition of an employer's business premises

Is a benefit being provided to the employees?

The term 'benefit' defined in subsection 136(1) of the FBTAA includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under an arrangement for or in relation to the provision of, or the use of, facilities for entertaining or recreation.

The provision of recreational facilities to employees satisfies the definition of a benefit.

The above requirement is only satisfied if the facility is provided to current employees, and not any third parties.

Residual benefit

Under section 45 of the FBTAA a residual benefit is defined as:

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).

The provision of recreational facilities does not fall under the umbrella of a specific benefit as outlined in Divisions 2 to 11(inclusive).

You have indicated the following:

• employees recreation facility membership fees may be covered by a valid salary sacrifice arrangement and you will not be reimbursing individual employees for the cost of membership

• the membership fees payable by staff are deducted from staff members fortnightly pay as a pre-tax deduction

• Council then forward the membership deduction to the C

The residual benefit criterion is satisfied.

Current employee

You have indicated that the benefit is only available to current Council employees and councillors with records being continually updated to reflect any changes in relation to cessation of employment.

The current employee criterion is satisfied.

Recreational facility

Subsection 136(1) of the FBTAA defines a recreational facility as a facility for recreation, but does not include a facility for accommodation or a facility for drinking or dining. The term recreation as defined in subsection 136(1) of the FBTAA includes:

• amusement;

• sport or similar leisure-time pursuits; and

• recreation or amusement provided on, or by means of, a vehicle, ship, vessel or aircraft.

The recreational facility criterion is satisfied.

Provision or use of a recreational facility by employees

The centres in question offer a wide range of recreational pursuits to the general public. The Council in line with its employee health and wellbeing policy offers discounted membership to eligible employees.

This criterion is satisfied.

Business Premises

Business premises are defined in subsection 136(1) of the (FBTAA) as being premises, or a part of premises of the person (or entity), used, in whole or in part, for the purposes of business operations of the person, but does not include:

• premises, or a part of premises, used as a place of residence of an employee of the person or an employee of an associate of the person; or

• a corporate box; or

• boats or planes used primarily for the purpose of providing entertainment unless the boat or plane is used in the person's business of providing entertainment; or

• other premises used primarily for the purpose of providing entertainment unless the premises are used in the person's business of providing entertainment.

The fundamental issue in this instance is to determine that the premises or part of the premises in question are of the person (the Council) and used by the person whether in whole or part for business operations. Subsection 136(1) the FBTAA defines the term business operations in relation to a government body as includes any operations or activities carried out by that body

Paragraphs 4 to 13 inclusive of Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises' fully explores the requirements in relation to premises of the person and business operations.

4. Consequently, unless any of the specific exclusions apply, premises are only 'business premises' in relation to a person if two requirements are met. The first requirement is that the premises or part of premises are 'of' the person. Secondly, the premises or part of premises must be used by the person, in whole or in part, for the purposes of their business operations.

5. It is a question of fact and degree as to whether particular premises are 'business premises' of a person. This can only be resolved by making a common sense judgment about the facts of each case and not by adopting any absolute rule.

Premises of the person

6. The first requirement necessitates an interpretation of the words 'premises, or a part of premises, of the person' found in the definition.

7. If a person has ownership of premises, or has exclusive occupancy rights as lessee of premises, the premises would ordinarily be described as premises of the person.

8. In other circumstances, for example, where a person has non-exclusive possession of premises, the person satisfies this requirement if they have a right to possession of the premises, at least to the extent necessary to enable the conduct thereon of their business operations.

Meaning of 'business operations'

9. The term 'business operations' in the definition of 'business premises' includes a wide range of activities. The activities include those undertaken by a person in the ordinary course of carrying on a business. They also include those activities that, although not undertaken in the ordinary course of carrying on a business, are nevertheless undertaken in the course of carrying on a business. Profit making activities that fall short of being a business are also included in 'business operations' if they have a business or commercial character.

10. Important to this Ruling is the question of whether the operations of facilities, such as child care facilities, are operations that would fall within the term 'business operations'. In this context, the provision of benefits to current employees in the form of child care would be an important factor in recruiting, retaining and otherwise rewarding employees. Activities undertaken in connection with the provision of those benefits to employees would be 'business operations' of the employer.

Combining the two requirements: factors an employer needs to consider

11. Given that each case turns on its own facts, there is no absolute or conclusive test of whether particular premises are 'business premises' of a person. However, in order to determine whether premises are 'business premises', i.e., they satisfy the respective requirements of 'premises of the person ( the employer )' and 'used ... for the purposes of business operations of the person ( the employer )', an objective analysis of all the circumstances is necessary.

12. In making this analysis, an employer should carefully weigh all relevant matters, including the following factors that are especially relevant to determining whether each of the two requirements has been met:

(a) the control the employer has over the premises; and

(b) the consistency of an employer's actions and activities on the premises with those of normal business practices.

Importantly, each factor should be considered in relation to each of the two requirements. Further, the factors must be considered in combination and as a whole, together with all other relevant matters.

13. Having regard to the above, where a person is carrying on 'business operations' on premises, the premises are their 'business premises' where in form and substance the person bears the rights and risks of possession of the premises associated with the conduct of the 'business operations'.

It is considered that the business premises on which the leisure activities are conducted are the business premises of the Council because:

• the recreational facility premises do not fall within any of the exclusions contained in the definition of 'business premises' in subsection 136(1) of the FBTAA

• the Council owns the recreational facility premises listed and where required would finance capital works in the implementation of the Council's asset renewal strategy

• the provision of leisure facilities to the residents in the Council area is within the normal business operations of a local authority

• the management agreement between the Council and the Contractor operates on an ordinary and arm's-length basis

• for the operation and management of the leisure centres the Council pays the Contractor a management fee

• a subsidy is also paid to the Contractor in addition to the management fee if the centre performs at a loss

• the Council is taking the financial risk therefore the terms of the management agreement are consistent with the premises being the business premises of the Council. The Council bears the rights and risks of possession of the premises associated with the conduct of the 'business operations'.

This business premises criterion is satisfied.

Conclusion

The provision of discounted membership for the use of recreation and leisure centres to employees and councillors by the Council under a valid salary sacrifice arrangements is an exempt benefit under subsection 47(2) of the FBTAA as all the required conditions have been met.

Question 2

Summary

The benefit which is the discounted recreation and leisure centre membership is a residual fringe benefit and is exempt under the provision of subsection 47(2) of the FBTAA.

Detailed reasoning

It has been established in question one that there has been a benefit (as defined in subsection 136(1) of the FBTAA) provided to the employees as a result of the provision of leisure and recreational facilities at the premises owned by the Council even though they employ another organisation to operate the leisure and sporting facilities.

The difference between the two questions is the method of payment of the discounted membership by the eligible employees or councillors. The payments can be made by a salary sacrifice arrangement (as discussed in question one) or by payment directly to the facility operator. The amount payable in both instances is determined by the employer/benefit provider which is equal to 50% of that paid by members of the public.

In summary:

• the benefit is a residual benefit

• the benefit is the provision or use of a recreational facility

• the benefit is provided to a current employee in respect of employment

• the recreational facility is located on the business premises of the employer.

Conclusion

As all of the requirements are met, the fringe benefit that arises from the discounted fees paid for the use of the leisure facilities by an employee directly or through a salary sacrifice arrangement are exempt benefits under subsection 47(2) of the FBTAA.

ATO view documents

ATO Interpretative Decision ATO ID 2008/60

Taxation Ruling TR 2000/4