Edited version of your written advice

Authorisation Number: 1012763070344

Ruling

Subject: Fringe Benefit Tax - valuation of food provided to employees

Question 1

For the purposes of applying the exemptions in sections 41 and 58ZD of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) is it accepted that the number of working days for the employees was five days per week?

Answer

Yes.

Question 2

Will the Commissioner accept the proposed method as being appropriate for calculating the taxable portion of the allocation?

Answer

Yes

Question 3

Can the minor benefit rules stated in section 58P of the FBTAA be utilised?

Answer:

No.

This ruling applies for the following period:

Year ended 31 March 2013

Relevant facts and circumstances

• You operate a primary production business on a number of properties that are located in remote locations.

• You provide employees with an allocation of supplies. This can occur by the following:

a) The employees order online and purchase the goods under your name, and you pay the invoices directly.

b) At the request of the employee, the kitchen staff order and pay for the goods.

c) You reimburse invoices presented by the employees.

• The employees generally reside on the property with their family.

• A normal working week for the employees is from Monday to Friday as stated in their employment contact. However, they are expected to perform duties on the other days for various periods of time.

• The employees require permission to take leave on regular weekdays for the purpose of annual leave.

Relevant legislative provisions

Fringe Benefit Tax Assessment Act 1986 Section 58ZD,

Fringe Benefit Tax Assessment Act 1986 Section 41 and

Fringe Benefit Tax Assessment Act 1986 Section 58P

Reasons for decision

This ruling concerns the valuation methodology that can be used to calculate the taxable value of the fringe benefits that arise from the allocation provided to the employees.

In general terms, the employees and their employees may receive:

• property benefits (goods ordered online under your name or provided by kitchen staff);

• expense payment benefits (reimbursements).

These benefits will not be a fringe benefit if they are an exempt benefit. For the purposes of this ruling, the relevant exemptions to consider are the exemptions in:

• section 41 which applies to a property benefit provided to and consumed by a current employee on a working day;

• section 58P which applies to benefits that are minor; and

• section 58ZD which applies to benefits that consist of a meal that is ready for consumption where the employer is carrying on a business of primary production in a remote area.

Section 41

Section 41 of the FBTAA states:

41(1)  Where:

(a) a property benefit is provided to a current employee of an employer in respect of his or her employment; and

(b) the property is provided to, and consumed by, the employee on a working day and 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.

41(2)  This section does not apply to food or drink provided to, and consumed by, an employee if the food or drink is provided under a salary packaging arrangement.

For this exemption to apply:

(i) the benefit must be a property benefit;

(ii) the benefit must be provided to a current employee;

(iii) the benefit must be provided in respect of the employee's employment;

(iv) the property must be provided to and consumed by the employee on a working day;

(v) the property must be provided to and consumed by the employee on business premises of the employer, or a company that is related to the employer; and

(vi) the food or drink must not be provided under a salary packaging arrangement.

In considering these conditions:

• the exemption can only apply to the goods, food and drink that are property benefits;

• only the property benefits provided to employees can come within this exemption. The property benefits provided to family members will not;

• the property is provided in respect of the employee's employment as it is provided as part of the employees' remuneration package;

• only the property that is consumed can come within the exemption. The meaning of 'consume' was considered in ATO Interpretative Decision ATO ID 2005/109 which stated:

Given the context and the policy intent, it is considered that the meaning of 'consumed' in section 41 of the FBTAA is limited to that which can be eaten, drunk or otherwise devoured.

• only some of the days will be working days. This is discussed further below;

• it is accepted that the food and drink will be consumed on the properties; and

• the food and drink will not be provided under a salary packaging arrangement.

Therefore, in summary the exemption in section 41 will apply to the food and drink provided to and consumed by a current employee on a working day.

Section 41 will not apply to:

• any expense payment benefits;

• any goods that cannot be consumed;

• food and drink provided to, or consumed by a family member;

• food and drink provided to, or consumed by an employee on a non-working day.

Section 58P

In general terms, section 58P of the FBTAA provides that a benefit will be a minor benefit where:

• the notional taxable value is less than $300, and

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

The five criteria listed in paragraph 58P(1)(f) are as follows:

• the infrequency and irregularity with which associated identical or similar benefits are provided;

• the sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit;

• the sum of the notional taxable values of any other associated benefits;

• the practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits; and

• the circumstance surrounding the provision of the minor benefit and any associated benefit.

For the purpose of minor benefit exemption, the term 'associated benefits' is defined in subsection 58P (2) of the FBTAA 1986 to mean a benefit that is any of the following:

• identical or similar to the minor benefit;

• provided in connection with the provision of the minor benefit; or

• identical or similar to a benefit provided in connection with the provision of the minor benefit.

In addition:

• the associated benefit and the minor benefit must relate to the same employment of a particular employee, and

• an associated benefit does not include a benefit that is an exempt benefit under any provision of the FBTAA other than this section

The application of the exemption in section 58P is considered in Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12).

In considering the application of the five criteria paragraphs 204 and 215 to 217 of TR 2007/12 discuss the meanings of identical and similar.

Paragraph 204 of TR 2007/12 states:

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:

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

Paragraphs 215 to 217 state:

215. The term 'identical benefit' is defined in section 136(1), in relation to residual fringe benefits, to mean:

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.

216. Although this definition does not apply to section 58P, it assists in understanding the meaning of the term and is not inconsistent with the ordinary (dictionary) meaning of 'identical'.

217. In giving meaning to the words 'identical' and 'similar', it is clear that the dictionary meanings, in the context of section 58P and its intended operation, are both appropriate and applicable.

In applying these definitions, there will be some benefits that are identical. For example identical items of food and drink will be provided. Those which are not identical will be similar.

Those which are not identical or similar are likely to be provided in connection with the other goods as part of the allocation. The meaning of the term 'in connection with' was considered in paragraphs 190-192 of TR 2007/12 which state:

190. A benefit that is provided 'in connection with' the minor benefit is one that is provided in conjunction with the minor benefit. For example if accommodation, board and electricity benefits are provided in conjunction with the payment of minor telephone expenses, these benefits are provided in connection with the telephone expense payment benefit.

191. The term 'in connection with' is potentially wide but it is to be interpreted in the context of the statute in which it is contained: see Davies J in Hatfield v. Health Insurance Commission (1987) 15 FCR 487 at 491; 77 ALR 103 at 106-107. Wilcox J also stated in Our Town FM Pty Ltd v. Australian Broadcasting Tribunal (No. 1) (Our Town FM case) 16 FCR 465 at 479; 77 ALR 577 at 591-592 in the context of paragraph 5(1)(b) of the Administrative Decisions (Judicial Review) Act 1977 that:

The words 'in connection with' have a wide connotation, requiring merely a relation between one thing and another. They do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v. Miller (1958) 8 FCR 153 at 154, 160, 163.

192. In determining whether a benefit provided to an employee qualifies for the minor benefits exemption in section 58P, the criteria set out in paragraph 58P(1)(f) requires a consideration of any other associated benefits that have been provided before concluding whether it would be unreasonable to treat the minor benefit as a fringe benefit. Interpreting the words 'in connection with' broadly is consistent with the purpose of section 58P where it is necessary to consider all other benefits that have been provided in conjunction with the minor benefit to determine whether the exemption under section 58P applies.

A consideration of the criteria follows.

Infrequency and irregularity with which associated identical or similar benefits are provided.

The first criterion to be considered is the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to the minor benefit or benefits that are given in connection with the minor benefit, are provided, or can reasonably be expected to be provided.

In case 2/96 the AAT considered the term 'infrequent and irregular', and it stated:

27. We do not think that the examples set out in the Draft Taxation Determination TD 94/D33 are of much assistance. Those examples focus on the 'infrequency and irregularity' factors set out in the section. Example 1 would have it that one taxi fare home (costing between $10 and $15) in each month would be sufficiently frequent and regular [sic] we think that this example is unlikely to be correct. It seems to us that there is a clear distinction to be drawn between benefits which are isolated or rare and benefits which are infrequent and irregular, and that the worked examples may have equated these concepts.

28. Taxation Determination TD 93/76 issued on 29 April 1993 focus [sic] on each of the tests in 58P(1)(f) in relation to redeemable vouchers; we do not think that the worked examples are of assistance in the present case.

29. Nor do we consider that, while accepting that the relevant employees are not shift workers, the 'balance of probabilities' test contended for by the Applicant can be the correct test; the wording of paragraph (f)(i) does not suggest to us that such a test was intended for this purpose. There were some employees who performed overtime work regularly, and must reasonably have expected that taxi fares would be provided; they would naturally have been aware of the fact that they were covered for this purpose by a relevant award.

...

34. The Tribunal has come to the conclusion having regard to the tests laid down in section 58P(1) that a benefit and its associated like benefits will be minor if, in relation to any given employee and in respect of each FBT year, the number of Total Trips is less than 48, or, on a monthly averaging basis, less than 4 per month. This view (which is inevitably somewhat arbitrary) is based on the view that that number of trips is likely to be infrequent, and having regard to the evidence as to the ad hoc nature of the applicant's requirements, irregular; further the employee could not reasonably have expected them.

The term 'infrequent and irregular' was considered in TR 2007/12. TR 2007/12 stated:

208. Having regard to the above, it is clear that the words 'infrequent and irregular' do not mean 'isolated or rare'.

209. Furthermore, the Commissioner agrees that it is incorrect to say that a benefit can only be provided once a month to be considered as satisfying the meaning of 'infrequent'.

210. On the other hand, the view has often been expressed that the Commissioner should accept from the decision of the AAT in Case 2/96 that 48 times a year, or 4 times a month, would in any circumstances be considered 'infrequent and irregular'.

Your employees are entitled to stores allocations during the entire time of their employment. Therefore, we are not satisfied that the associated or identical benefits are provided on an infrequent and irregular basis.

Sum of the notional taxable values of the minor benefit and associated benefits which are identical or similar to the minor benefit

The second criterion to be considered is the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of the minor benefit and any associated benefits, being benefits that are identical or similar to the minor benefit, in relation to the current year or any other year of tax.

In National Australia Bank Ltd v. Commissioner of Taxation (1953) 46 FCR 252 (NAB Case), Ryan J found that:

The sum of the presumptively minor benefit and all the associated benefits to Mr Brewster both in the current year of tax (amounting on the evidence to about $8,000) was substantial in the current tax year and might reasonably be expected to be similarly substantial in subsequent tax years.

Paragraph 221 of TR 2007/12 states that the greater the value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will quality as an exempt benefit.

As stated above, your employees are entitled to stores allocations during the entire time of their employment. Therefore, although the value of the benefits is not known it is unlikely to be an insignificant amount.

Sum of the notional taxable values of any other associated benefits

As stated above, although this amount is not known the sum of the notional values of the associated benefits is unlikely to be an insignificant amount.

The practical difficulty in determining the notional taxable values of the minor benefit and any associated benefits

The difficulty of determining the notional taxable values will differ between the benefits depending upon the circumstances in which they are provided. For example, there should be little difficulty in determining the value of the stores ordered on line or by the kitchen staff which you pay for. Similarly, there should be little difficulty associated with determining the value of the reimbursements.

However, as discussed below there is considerable difficulty associated with determining which benefits are consumed by employees as compared to family members and which benefits are consumed on working days.

There is also considerable difficulty in valuing the meals consumed by employees and family members in the dining facility.

The circumstance surrounding the provision of the minor benefit and any associated benefit.

Sub paragraph 58P(1)(f)(v) requires consideration to be given to whether the benefit was provided to assist with an unexpected event and whether the benefit was provided as a reward for services to be rendered by the employee.

In relation to these two factors, the stores are not provided to assist with an unexpected event as the need to consume food and drink is an ongoing requirement. Further, the stores provided under the terms of the employment agreement can be seen to be provided as a reward for services rendered.

In weighing the various factors, although the considerable difficulty associated with identifying the benefits that are not exempt provides support for these benefits being treated as exempt minor benefits, these factors are outweighed by the benefits being provided on an ongoing basis under the terms of the remuneration agreement. Given this ongoing entitlement it is not considered unreasonable for the benefits that are not exempt to be treated as fringe benefit.

Section 58ZD

Section 58ZD of FBTA states that meals on working days are exempt benefits if the following conditions are satisfied:

• the employer is carrying on business of primary production for the purpose of the Income Tax Assessment Act 1997;

• the business is carried on at a location in a State or internal Territory that is not in or adjacent to, and eligible urban area;

• the benefit consists of a meal that is ready for consumption that is provided on a working day to a person;

• the benefit does not include the provision of meal entertainment as defined in section 37AD of the FBTAA;

• the benefit is :

• a board benefit; or

• a property benefit; or

• an expense payment benefit; or

• a residual benefit;

• the person to whom the benefit is provided is:

• an employee of the employer, being an employee who is employed in the business and is primarily so employed at the remote location; or

• an associate of an employee if the benefit is a board benefit; and

• the benefit is provided in respect of the employment of the employee.

In considering these requirements:

• it is accepted that you are carrying on a business of primary production;

• the properties are located in a remote area;

• as discussed in ATO Interpretative Decision ATO ID 2006/333 food which requires the employee to prepare in order to be eaten is not considered to be a benefit consisting of 'a meal that is ready for consumption. The goods may be food ready for consumption provided on a working day, but some of the allocation is not ready for consumption and on occasions will be provided on a non-working day;

• the benefits will not constitute the provision of meal entertainment;

• the benefits will be a property benefit or an expense payment benefit;

• the meals may be provided to an employee, but can be provided to a family member; and

• the benefit is provided in respect of the employment of the employee.

Therefore, in summary, section 58ZD will not apply to the allocation that is not ready for consumption, or is not provided on a working day.

the stores.

Summary

The benefits that are subject to FBT as compared to those that are exempt can be summarised as follows:

Although this is the theoretical situation, it is accepted that it is not possible to accurately calculate the resultant taxable values as no records exist in relation to the portion of consumable goods consumed by an employee on a working day as compared to the portion consumed by an employee on a non-working day or by family members. Given these difficulties, it is necessary for the taxable values to be estimated.

To make these estimates you have provided a method for allocating the value of the allocation. The proposed apportionment is based on the number of working days being five per week.

For the purposes of estimating the taxable values of the fringe benefits is it accepted that the number of working days for the employees was five days per week??

The term 'working days' is not defined in the FBTAA. It must therefore be given its ordinary meaning construed in the context.

The meaning of 'working days' is considered in paragraphs 9 to 14 of Miscellaneous Taxation Ruling 2048 Fringe benefits tax: remote area holiday transport - meaning of "recreation leave" and "working days" in section 143 (MT 2048).

Paragraphs 9 to 14 of MT 2048 state:

9. The expression "working days" is not defined in the Act. It must therefore be given its ordinary meaning construed in the context in which the expression appears in paragraph 143(1)(h).

10. The expression "3 working days" in paragraph 143(1)(h) should be compared with the phrase "the working days" in subparagraph 47(7)(c)(ii). The context in each case is, of course, somewhat different. In subparagraph 47(7)(c)(ii) the phrase "the working days" relates back to the number of days the employee works (to which subparagraph 47(7)(c)(i) refers) to differentiate those days from the number of days the employee has off. This provides some assistance in considering the meaning of "working days" i n paragraph 143(1)(h) but is not determinative of that meaning. There the expression is being used essentially to determine the length of the recreation leave during which the employee may be provided transport for the concession to apply.

11. The meaning of the expression "working day", according to the Macquarie Dictionary, is "a day ordinarily given to working (opposed to holiday)".

12. The expression "working days" in its context in paragraph 143(1)(h) is considered to be dealing with working days of an employee rather than those of an employer. It is considered to extend only to days which, according to popular expression and understanding, are ordinarily given to working and for which the employee must have the employer's permission if the employee is not to attend work on those days. If an ordinary employee (i.e. an employee who works standard hours, not on shifts or in cycles) works on a regular basis from Monday to Friday and not on Saturday and Sunday, his or her working days for the purpose of paragraph 143(1)(h) are each of the days from Monday to Friday. Saturday and Sunday are not working days in this situation because they are not ordinarily given to working.

13. The result would be the same where an employee, who is a shift worker, regularly works from Monday to Friday (but not on Saturday or Sunday) on shifts which vary during the five day week. Monday to Friday inclusive would be working days for the purpose of paragraph 143(1)(h). Similarly, where an employee regularly works from Wednesday to Sunday inclusive, those days (but not Monday and Tuesday) would be working days for the purpose of paragraph 143(1)(h).

14. An employee may work on a regular basis (whether on shift work, on a cyclical basis or otherwise) for a period that extends over each and every day of the week (i.e. Sunday to Saturday inclusive). The employee, for instance, may regularly work for a number of days (say, 5) and then have a number of days off (say, 3) with the former days including Saturdays and Sundays as appropriate. In this situation, this Office takes the view that the number of days the employee works (i.e. the 5 days in the example) are days ordinarily given to working and would be regarded as working days for the purpose of paragraph 143(1)(h). The 3 days off in the example would not be accepted as being working days for that purpose.

Under your employment agreement 'normal business hours' means the period from Monday to Friday.

Although your employees may be required to work reasonable additional hours outside normal business hours, and up to seven days per week given the operational requirements, employees would typically only require permission to take leave on regular weekdays i.e. Monday to Friday.

Based on this discussion above, it is accepted that the number of working days for the employees is on average five days per week.

Will the Commissioner accept the proposed method as being appropriate to allocate the proportion of the stores allocations to relevant family members?

We have examined your proposed method, and accept that it is reasonable and appropriate in your circumstances.