Edited version of your written advice

Authorisation Number: 1012901805967

Date of advice: 29 October 2015

Ruling

Subject: Income tax and FBT treatment of provision of food and drink to employees

Question 1

Can an employer deduct the cost of providing prepared meals to its employees under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

An employer may deduct the cost of providing prepared meals to its employees under section 8-1 of the ITAA 1997.

Question 2

Is the provision of prepared meals to employees an FBT exempt benefit under section 41 of the Fringe Benefits Tax Assessment Act 1986 (FBT Act)?

Answer

The provision of prepared meals to employees is an FBT exempt benefit under section 41 of the FBT Act

Question 3

What is the maximum or minimum subsidy that needs to be given by the employer in providing these meals for FBT purposes?

Answer

Any question of the minimum or maximum subsidy that needs to be provided by the employer is irrelevant because the provision of these meals is an exempt property benefit, which has no taxable value.

This ruling applies for the following periods:

1 July 2016 to 30 June 2017.

The scheme commences on:

1 July 2016.

Relevant facts and circumstances

You propose to provide light meals such as sandwiches, salads, lasagne and chicken with rice to employees of businesses by delivering the meals to the office. The employees could order the meals via a website/app. Alternatively, the meals may be provided by setting up an "in-house dining facility". This is a canteen, dining room or similar facility, on the premises, to be operated mainly for providing food and drink to employees and which is not open to the public. The employer would subsidise the provision of these meals in both situations, with a reduced price paid by employees for these meals.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Income Tax Assessment Act 1997 section 32-5.

Income Tax Assessment Act 1997 section 32-10.

Income Tax Assessment Act 1997 section 32-30.

Income Tax Assessment Act 1997 section 32-55.

Fringe Benefits Tax Assessment Act 1986 section 40.

Fringe Benefits Tax Assessment Act 1986 section 41.

Fringe Benefits Tax Assessment Act 1986 section 43.

Reasons for decision

Question 1

Section 8-1 of the ITAA 1997 allows a deduction for expenditure incurred in the course of gaining assessable income (or carrying on business for this purpose) and that is not of a capital, private or domestic nature.

Section 32-5 of the ITAA 1997 provides that a deduction is not allowable for entertainment expenses. "Entertainment" includes entertainment by way of food, drink or recreation (section 32-10 of the ITAA 1997).

However, section 32-5 of the ITAA 1997 does not prevent a deduction to an employer for expenses in providing food or drink to employees in an "in-house dining facility" (see section 32-30, item 1.1 of the ITAA 1997). Under section 32-55 of the ITAA 1997, an "in-house dining facility" is a canteen, dining room or similar facility that:

(a) is on property you occupy; and

(b) is operated mainly for providing food and drink to your employees; and

(c) is not open to the public.

The provision of morning and afternoon tea to employees on a working day on the employer's premises or on premises or at a worksite of the employer is not the provision of entertainment (paragraph 2 of Taxation Ruling IT 2675). The cost of providing these refreshments is therefore not excluded as a deduction by section 32-5 of the ITAA 1997. In most cases, an income tax deduction is allowable under section 8-1 of the ITAA 1997.

Light meals are treated in the same way as morning and afternoon tea. It is not the provision of entertainment to provide sandwiches and other "hand food", salads, orange juice, etc. that are intended to, and can, be consumed on the taxpayer's premises or worksite. As "light" meals become more elaborate, they take on more of the characteristics of entertainment. There is no particular point at which this will become obvious. Normal business practice will be the yardstick (paragraph 7 of Taxation Ruling IT 2675).

You propose to provide light meals such as sandwiches, salads, lasagne and chicken with rice to employees of businesses by delivering the meals to the office. Employees could order the meals via a website/app. Alternatively, the meals may be provided by setting up an "in-house dining facility". This is a canteen, dining room or similar facility, on the premises, to be operated mainly for providing food and drink to employees and which is not open to the public. The employer would subsidise the provision of these meals in both situations, with a reduced price paid by employees for these meals.

An employer may deduct the cost of providing these meals to employees in both situations under section 8-1 of the ITAA 1997.

Question 2

Section 40 of the FBT Act provides that a property benefit arises where one person provides property to another person. Property includes goods such as food and drink. This will be a fringe benefit where it is provided in respect of the employment of an employee.

The provision of food and drink to employees by a third party under an arrangement with the employer, as well as by the employer personally, is a property fringe benefit.

Subsection 41(1) of the FBT Act provides that goods supplied to, and consumed by, an employee on a working day and on the employer's premises, or on premises of a related company, are an exempt property benefit.

However, food or drink provided as part of a salary packaging arrangement is excluded from the exemption under subsection 41(2) of the FBT Act. This type of arrangement includes arrangements whereby an employee forgoes salary and wages to have food and drink supplied to them on their employer's premises.

The provision of morning and afternoon tea and light meals to employees is an exempt property benefit under subsection 41(1) of the FBT Act (see paragraph 9 of Taxation Ruling IT 2675).

In your circumstances, the provision of light meals to employees in both situations would be an exempt property benefit under subsection 41(1) of the FBT Act.

In addition, these meals are not provided as part of a salary packaging arrangement. The exclusion of food and drink provided under a salary packaging arrangement from the exemption under subsection 41(2) of the FBT Act therefore does not apply.

Question 3

Any question of the minimum or maximum subsidy that needs to be provided by the employer is irrelevant because the provision of these meals is an exempt property benefit, which has no taxable value. The amount of subsidy that an employer gives is a matter for commercial judgement by the employer. It is not a prescribed amount.

In any case, the taxable value of a property fringe benefit that is not exempt is generally the amount by which the arm's length cost of the goods to the employer exceeds the price charged to the employee (section 43 of the FBT Act).