Edited version of your written advice

Authorisation Number: 1012784191026

Ruling

Subject: Entertainment facility leasing expenses

Question 1

Are the tax-exempt body entertainment benefits (reimbursement for holiday accommodation and venue/function room hire), benefits which the taxable values are wholly or partly attributable to entertainment facility leasing expenses and therefore disregarded for the purposes of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2016

Year ended 31 March 2017

Year ended 31 March 2018

Year ended 31 March 2019

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

The employer is endorsed as a health promotion charity for the purposes of the exemption contained in subsection 57A(5) of the FBTAA.

The employer offers to its employees, as part of their remuneration, reimbursement of the following expenses incurred by the employees:

1) Accommodation expenses whilst travelling on holidays, such as:

a) a holiday house;

b) a hotel/motel room;

c) a room or cabin at a holiday resort;

d) a room/suite (but not any food and drink) at a bed and breakfast;

e) an on-site caravan and/or cabin;

f) a serviced or self-contained apartment; or

g) an entire houseboat.

2) Venue/function room hire expenses, such as:

a) a reception centre or function room for entertainment events (e.g. wedding reception, party);

b) a marquee for entertainment events (e.g. wedding reception, party);

c) an entire boat or plane for the purposes of a social event; or

d) an entire corporate box.

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

During the holiday travel, the employees will not otherwise be travelling for work-related purposes.

The reimbursement of expenses in respect of corporate boxes will not include advertising expenses in respect of any business with which an employee may be associated.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986

subsection 5B(1L)

subsection 5E(3)

section 20

section 23

section 57A

subsection 136(1)

Income Tax Assessment Act 1997

section 32-10

section 995-1

Reasons for decision

Question 1

Summary

As the employees incur expenses which are entertainment facility leasing expenses, the tax-exempt body entertainment benefits are disregarded for the purposes of subsection 5B(1L) of the FBTAA.

Detailed reasoning

For employers that are subject to the provisions of section 57A of the FBTAA, benefits provided to employees whose taxable values are wholly or partly attributable to entertainment facility leasing expenses are not subject to fringe benefits tax because of the interaction between section 57A and subsection 5B(1L) of the FBTAA.

Section 5B of the FBTAA is concerned with working out an Employer's Fringe Benefits Taxable Amount. Step 1(c) of the method statement in subsection 5B(1L) specifically disregards entertainment facility leasing expenses for the purposes of calculating the employee's subsection (1L) amount. The effect is that these benefits remain exempt from fringe benefits tax and do not form part of the fringe benefits tax capping threshold in respect of an employee of such an employer.

The phrase 'whose taxable values are wholly or partly attributable to entertainment facility leasing expenses' (or words to the same effect) appears in:

• subsection 5B(1L), dealing with excluded fringe benefits in the context of working out an employer's fringe benefits taxable amount;

• subsection 5E(3), dealing with excluded fringe benefits in the context of working out an employee's individual fringe benefits amount; and

• section 152B of the FBTAA, which provides that an employer may elect the 50/50 split method for entertainment facility leasing costs.

Under subsections 5B(1L) and 5E(3) these expenses can be incurred by a person. This can include expenses incurred by the employer or by the employee. However, under section 152B the expenses that are taken into account are limited to those expenses incurred by the employer.

The benefits provided to the employee are expense payment benefits being the reimbursement of the employee's expenses: section 20(b) of the FBTAA. In these circumstances, the expense payment benefits are classified as tax-exempt body entertainment benefits, dealt with under Division 10 of the FBTAA. If section 57A of the FBTAA did not apply, the benefit would be a fringe benefit. The taxable value of the expense payment benefit, under section 23 of the FBTAA, would have been the amount of the reimbursement. The taxable value would have been wholly or partly attributable to the employee's expenses.

If the employee's expenses are entertainment facility leasing expenses the taxable value of the tax-exempt body entertainment benefits will be disregarded in determining the employee's subsection (1L) amount in accordance with the method statement in subsection 5B(1L) of the FBTAA.

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

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.

There are a number of requirements that must be satisfied in considering whether expenses incurred satisfy the definition of 'entertainment facility leasing expenses'.

Hiring or leasing

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

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

The Macquarie Dictionary (Online, Fifth Edition) 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. …

Subsection 136(1) of the FBTAA defines 'leased' as meaning 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.

The employees will incur expenses in relation to the facilities listed in 1) and 2) under the relevant facts that describe the scheme. The expenses listed under 1) relate specifically to accommodation expenses while employees are travelling on holidays. The expenses listed under 2) relate specifically to venue or function room hire for the purpose of facilitating the provision of entertainment by way of a wedding reception, party or other social event. The expenses will be in return for the temporary use of the facilities or premises and fall within the dictionary definition of 'hire' and with the FBTAA definition of 'leased'.

Other Premises or facilities

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

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

The words 'premises' and 'facility' are defined in the Macquarie Dictionary (Online, Fifth Edition) to mean:

premise

noun

2. (plural)

a. the property forming the subject of a conveyance.

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

Usage: The use of premises to mean a building and grounds derives from its use to refer to the people and items listed as the preliminary to a conveyancing deed. Therefore premises is plural in form and takes a plural verb when used in the context of a single building, as in The house was lit, but the premises were empty.

facility

noun (plural facilities)

1. something that makes possible the easier performance of any action; advantage: transport facilities; to afford someone every facility for doing something. …

8. a building or complex of buildings, designed for a specific purpose, as for the holding of sporting contests, launching of rockets, etc.

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...

The use of the words 'other premises or facility' derives meaning ejusdem generis as having similar characteristics to a corporate box. Hiring or leasing of a corporate box would generally only involve the hiring or leasing of part of premises or a facility. For example, the corporate box is only part of a sporting stadium complex. However, a corporate box is a separate or distinct area or room which is, in fact, able to be hired as a separate room or distinct area.

It is considered that the facilities or premises listed in 1) and 2) under the relevant facts that describe the scheme would be facilities or premises for the purposes of the definition of 'entertainment facility leasing expenses'.

Provision of entertainment

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

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

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

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

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

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

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

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

A relevant question to consider under paragraph 32-10(1)(a) of the ITAA 1997 is whether the use of the premises or facilities is for the purposes of providing entertainment by way of recreation.

While 'recreation' is defined the words 'entertainment by way of recreation' are not defined. As these words are not defined, they take their ordinary meaning, taken in the context in which they appear in the legislation.

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

noun 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.

As required in the definition of 'entertainment facility leasing expenses', in these circumstances, no part of the expenses relate to the provision of food drink or advertising.

In relation to the use of facilities or premises whilst employees are travelling on holidays and not on work related duties, the use of such facilities or premises is a leisure-time pursuit which is 'recreation' as defined in the ITAA 1997. The use of such facilities or premises whilst on holidays is something affording diversion or amusement and will be entertainment within the ordinary meaning and is considered to be entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997. To the extent that such facilities or premises constitute accommodation, the accommodation can fall within the meaning of 'entertainment' under paragraph 32-10(1)(b) of the ITAA 1997.

Similarly, the venue/function rooms hired by the employees will be used for family celebrations, wedding receptions, parties or other social or entertainment events. Such use is considered to fall within leisure-time pursuits and is 'recreation' as defined in the ITAA 1997. This use is also something affording diversion or amusement and is entertainment within the ordinary meaning of this word. The use of the venue/function rooms will give rise to entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997.

The expenses incurred by the employees on hiring or leasing the facilities or premises listed in 1) and 2) under the relevant facts that describe the scheme are 'entertainment facility leasing expenses' as defined in subsection 136(1) of the FBTAA.

As the employers will be reimbursing employee expenses, the tax-exempt body entertainment benefits will have a taxable value (but for section 57A of the FBTAA) which will be wholly or partly attributable to entertainment facility leasing expenses. As a result, the tax-exempt body entertainment benefits will be disregarded for the purposes of subsection 5B(1L) of the FBTAA.