Edited version of your written advice

Authorisation Number: 1012744517284

Ruling

Subject: FBT - Entertainment facility leasing expenses.

Question 1

Is the reimbursement by the Taxpayer of the cost of its employee's all-inclusive holiday package (that included all accommodation, transport, entertainment, food and drink) billed to the employee on an unitemised invoice disregarded for the purposes of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) on the basis that the holiday package cost is entertainment facility leasing expenses?

Advice/Answers

Yes.

Question 2

Is the reimbursement by the Taxpayer of its employee's costs for the hire or lease of transport to or from the employee's (and the employee's family) home and their holiday accommodation disregarded for the purposes of subsection 5B(1L) of the FBTAA on the basis that the hire or lease of the transport is entertainment facility leasing expenses?

Advice/Answers

No.

Question 3

Is the reimbursement by the Taxpayer of its employee's costs for the hire or lease of transport to or from the employee's (and the employee's family) holiday accommodation and an off-site restaurant disregarded for the purposes of subsection 5B(1L) of the FBTAA on the basis that the hire or lease of the transport is entertainment facility leasing expenses?

Advice/Answers

No.

This ruling applies for the following period

01 April 2014 - 31 March 2015.

01 April 2015 - 31 March 2016.

01 April 2016 - 31 March 2017.

01 April 2017 - 31 March 2018.

01 April 2018 - 31 March 2019.

The scheme commenced on

01 April 2014.

Relevant facts

The Taxpayer provides various public health services including services at a public hospital.

The Taxpayer is a Government body.

The employee of the Taxpayer performs duties wholly in connection with the institution.

Under the terms of a valid salary sacrifice arrangement the Taxpayer will reimburse various holiday costs incurred by the employee.

The employee may take out an all-inclusive holiday package through a travel agent, or other holiday package provider, which includes the provision of all accommodation, transport, entertainment, food and drink.

The employee will be billed for the all inclusive cost of the holiday package on an unitemised invoice which does not detail any of the individual costs of the relevant accommodation, transport, entertainment, food and drink provided.

The employee may also choose to separately hire or lease transport (including, bus, train, boat or plane transport) for the following purposes:

• travel to and from the employee's home and the holiday accommodation.

• travel to and from the employee's holiday accommodation to an off-site restaurant.

• other miscellaneous travel during the holiday.

The relevant provision of accommodation, transport, food, drink and entertainment in respect of the employee's holiday may take place in or outside of Australia.

The employee's attendance at a restaurant will be for the purposes of food and drink.

The employee's attendance at a restaurant will never be for the purpose of carrying on business.

Assumptions

N/A.

Relevant legislative provisions

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

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 57A;

Fringe Benefits Tax Assessment Act 1986 Section 37AD;

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

Income Tax Assessment Act 1997 Subsection 32-10(1);

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

Detailed reasoning

Question 1

Is the reimbursement by the Taxpayer of the cost of its employee's all-inclusive holiday package (that included all accommodation, transport, entertainment, food and drink) billed to the employee on an unitemised invoice disregarded for the purposes of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) on the basis that the holiday package cost is entertainment facility leasing expenses?

Section 57A exemption

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

Subsection 57A(2) of the FBTAA states:

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

Where:

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

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

(i) a public hospital; or

(ii) ...

(iii) ...

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

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

The Taxpayer is a government body and the duties of the employee are exclusively performed in, or in connection with, the Taxpayer which is a public hospital. The relevant benefits are being provided to the employee under the terms of valid salary sacrifice arrangements and, therefore, will be provided in respect of the employee's employment. Consequently, any benefits provided by the Taxpayer to the employee will fall for exemption under section 57A of the FBTAA as all the necessary conditions are met.

However, subsection 5B(1E) of the FBTAA limits the extent of the above exemption to $17,000 grossed-up taxable value per employee. This threshold will be $17,667 for the years ending 31 March 2016 and 31 March 2017.The values of any benefits provided in excess of this threshold are liable for FBT.

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

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

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

Method statement

Step 1.

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

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

(b) that are car parking fringe benefits; or

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

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

Entertainment facility leasing expenses

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

entertainment facility leasing expenses, for a person, means expenses incurred by the person in hiring or leasing:

(a) a corporate box; or

(b) boats, or planes, for the purpose of the provision of entertainment; or

(c) other premises, or facilities, for the purpose of the provision of entertainment;

but does not include so much of any of such expenses that:

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

(e) is attributable to advertising and is an allowable deduction for the person under the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997.

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

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

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

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

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

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

(a) hiring or leasing

As the word 'hiring' is not defined in the FBTAA it has its natural meaning, taken in the context in which it appears in the legislation.

The Macquarie Dictionary (Multimedia version 5.0.0) defines 'hire' as:

verb (t) (hired, hiring)

1. to engage the services of for payment: to hire a clerk.

2. to engage the temporary use of for payment: to hire a car.

3. Also, hire out.

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

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

means let on hire (including a letting on hire that is described in the relevant agreement as a lease) under an agreement other than a hire-purchase agreement.

(b) premises or facilities

As the words 'premises' or 'facilities' are not defined in the FBTAA they have their natural meaning, taken in the context that they appear in the legislation.

The words 'premises' and 'facility are defined in the Macquarie Dictionary to mean:

premise

noun

2. (plural)

the property forming the subject of a conveyance.

a tract of land.

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

facility

noun (plural facilities)

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

Taxation Laws Amendment (FBT Cost of Compliance) Bill 1995 introduced the subsection 136(1) of the FBTAA definition of 'entertainment facility leasing expenses' and introduced section 152B of the FBTAA. The Explanatory Memorandum to that Bill describes the new arrangement as being:

...applied to leasing or hiring costs of corporate boxes and other similar hospitality arrangements...

It is considered that the use of the words 'other premises or facility' derives meaning ejusdem generis as having similar characteristics to a corporate box. Hiring or leasing of a corporate box would generally only involve the hiring or leasing of part of premises or a facility.

Therefore, although premises or facilities has a wide meaning, in the same way that a corporate box is part of larger premises or a facility (being the sporting stadium), items that satisfy this category of EFLE must be either :

• an entire premises or facility

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

(c) provision of entertainment

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

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

Subsection 32-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 'entertainment' means:

(a) entertainment by way of food, drink or *recreation; or

(b) accommodation or travel to do with providing entertainment by way of food, drink or *recreation.

Subsection 995-1(1) of the ITAA 1997 provides the meaning of 'recreation':

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

The word 'entertainment', which is key to the operation of the relevant words, is defined in the Macquarie Dictionary to mean:

1. the act of entertaining; agreeable occupation for the mind; diversion, or amusement.

2. something affording diversion or amusement, especially an exhibition or performance of some kind.

3. hospitable provision for the wants of guests.

(d) food or drink

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

Application of EFLE requirements to the holiday package

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

Hotel room, or similar accommodation, during holiday

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

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

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

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

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

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

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

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

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

Transport during holiday

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

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

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

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

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

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

Entertainment during holiday

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

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

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

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

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

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

Food or drink during holiday

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

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

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

Conclusion on application of EFLE requirements to the holiday package

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

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

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

Consequently, the reimbursement by the Taxpayer of the cost of its employee's all-inclusive holiday package (that included all accommodation, transport, entertainment, food and drink) billed to the employee on an unitemised invoice can be disregarded for the purposes of subsection 5B(1L) of FBTAA on the basis that the holiday package cost is entertainment facility leasing expenses.

Question 2

Is the reimbursement by the Taxpayer of its employee's costs for the hire or lease of transport to or from the employee's (and the employee's family) home and their holiday accommodation disregarded for the purposes of subsection 5B(1L) of the FBTAA on the basis that the hire or lease of the transport is entertainment facility leasing expenses?

Detailed reasoning

As determined previously in Question 1, the following basic requirements, as relevant here, have to be satisfied for transportation to or from the employee's (and the employee's family) home and their holiday accommodation to be an EFLE:

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

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

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

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

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

However, basic requirement (b) will not be met as, was also explained previously, the cost of a plane ticket to (and from) a holiday destination will not constitute an EFLE as the purchase of the air fare for a seat on a plane is not the hiring or leasing of an entire plane or a premise or facility. As also explained previously in Question 1, in a similar way, the cost of ticketed travel on buses and trains etc will also not be an EFLE.

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

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

Question 3

Is the reimbursement by the Taxpayer of its employee's costs for the hire or lease of transport to or from the employee's (and the employee's family) holiday accommodation and an off-site restaurant disregarded for the purposes of subsection 5B(1L) of the FBTAA on the basis that the hire or lease of the transport is entertainment facility leasing expenses?

Detailed reasoning

Once again, as determined previously, the following basic requirements, as relevant here, have to be satisfied for an EFLE:

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

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

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

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

In this instance the employee is hiring or leasing transport to and from the employee's (and the employee's family) holiday accommodation and an off-site restaurant.

As determined previously in Question 2, the cost of ticketed travel on buses and trains etc will also not be an EFLE.

However, it may be that the hire or lease of some other modes of transport may satisfy some of the basic requirements for being considered an EFLE but as the destination is an off-site restaurant it is likely that such hire or lease would be attributable to the provision of food or drink and, consequently, precluded from being an EFLE.

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

Therefore, the reimbursement by the Taxpayer of its employee's costs for the hire or lease of transport to or from the employee's (and the employee's family) holiday accommodation to an off-site restaurant does not constitute a benefit whose taxable values are wholly or partly attributable to an EFLE and, consequently, such reimbursement is not to be disregarded for the purposes of subsection 5B(1L) of the FBTAA.

Nevertheless, it may be noted that paragraph (a) in Step 1 of the Method Statement in subsection 5B(1L) of the FBTAA disregards benefits that constitute the provision of meal entertainment as defined in section 37AD of the FBTAA (whether or not the employer made an election under section 37AA of the FBTAA).

Section 37AD of the FBTAA states:

SECTION 37AD

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.

Guidance on what constitutes 'meal entertainment' may be found in taxation ruling TR 97/17, Income tax and fringe benefits tax; entertainment by way of food or drink.

The food and drink provided at the off-site restaurant will constitute entertainment by way of food or drink for the purposes of paragraph (a) of the definition of the 'provision of meal entertainment' in section 37AD of the FBTAA.

Therefore the travel to and from the off-site restaurant will fall within paragraph (b) of the definition of the 'provision of meal entertainment' in section 37AD of the FBTAA.

Hence the travel to and from the off-site restaurant will constitute the provision of meal entertainment and, as such, be disregarded for the purposes of subsection 5B(1L) of the FBTAA under paragraph (a) of Step 1 of the Method Statement of that aforesaid subsection (rather than paragraph (c) as an EFLE).