Edited version of your written advice

Authorisation Number: 1013077491065

Date of advice: 25 August 2016

Ruling

Subject: Fringe Benefits

Question 1

Would food and drinks provided to employees of the entity at the restaurant, which is operated by the entity, constitute "tax exempt body entertainment fringe benefits" under section 38 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer:

No

Question 2

If the answer to Question 1 is no, would food and drinks provided to employees of the entity at the restaurant constitute property fringe benefits under section 40 of the FBTAA?

Answer:

Yes

Question 3

If the answer to Question 1 is no, will section 58P of the FBTAA apply subject to the conditions in paragraphs 58P(1)(a), (b), (c), (e) and (f) of the FBTAA being satisfied?

Answer:

Yes

Question 4

If the answer to Question 2 is yes, will section 41 of the FBTAA apply subject to the conditions in paragraphs 41(1)(a) and (b) of the FBTAA being satisfied?

Answer:

Yes

Question 5

If the answer to Question 2 is yes, would the property fringe benefit satisfy the definition of "in-house property fringe benefit" under subsection 136(1) of the FBTAA?

Answer:

Yes

This ruling applies for the following period:

Fringe Benefits Tax Year ended 31 March 2016

The scheme commences on:

1 April 2015

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The entity is wholly exempt from income tax under the Income Tax Assessment Act 1997 (ITAA 1997).

The entity operates the restaurant.

The restaurant is open to the public and the entity charges the public for the use of facilities and the provision of food and drinks.

The entity carries on a business of providing entertainment at the restaurant in the form of dining to members of the public.

The entity holds the lease for the restaurant premises. The lease confers on the entity exclusive occupancy rights as lessee of the premises. The restaurant premises are wholly used for the purpose of business operations.

From time to time the entity provides food and drinks to employees of the entity at the restaurant at no cost to the employees. The food and drinks are not provided under a salary packaging arrangement.

The entity provides certain employees with corporate credit cards. Therefore in some cases, employees of the entity will use the corporate credit card to pay for food and drinks. The corporate credit card is in the name of the entity and the entity is liable for any expenses incurred on the card.

The entity has not made a meal entertainment election under Division 9A of Part III of the FBTAA.

The food and drinks provided at the restaurant to the employees of the entity are entertainment as defined in Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subdivision A of Division 2 of Part III

Fringe Benefits Tax Assessment Act 1986 Subdivision A of Division 3 of Part III

Fringe Benefits Tax Assessment Act 1986 Subdivision A of Division 4 of Part III

Fringe Benefits Tax Assessment Act 1986 Subdivision A of Division 5 of Part III

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 Subdivision A of Division 6 of Part III

Fringe Benefits Tax Assessment Act 1986 Subdivision A of Division 7 of Part III

Fringe Benefits Tax Assessment Act 1986 Subdivision A of Division 8 of Part III

Fringe Benefits Tax Assessment Act 1986 Subdivision A of Division 9 of Part III

Fringe Benefits Tax Assessment Act 1986 Division 9A of Part III

Fringe Benefits Tax Assessment Act 1986 Subdivision A of Division 9A of Part III

Fringe Benefits Tax Assessment Act 1986 Division 10 of Part III

Fringe Benefits Tax Assessment Act 1986 Subdivision A of Division 10 of Part III

Fringe Benefits Tax Assessment Act 1986 section 38

Fringe Benefits Tax Assessment Act 1986 Division 11 of Part III

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 41

Fringe Benefits Tax Assessment Act 1986 subsection 41(1)

Fringe Benefits Tax Assessment Act 1986 paragraph 41(1)(a)

Fringe Benefits Tax Assessment Act 1986 paragraph 41(1)(b)

Fringe Benefits Tax Assessment Act 1986 subsection 41(2)

Fringe Benefits Tax Assessment Act 1986 Division 13 of Part III

Fringe Benefits Tax Assessment Act 1986 section 58P

Fringe Benefits Tax Assessment Act 1986 subsection 58P(1)

Fringe Benefits Tax Assessment Act 1986 paragraph 58P(1)(a)

Fringe Benefits Tax Assessment Act 1986 paragraph 58P(1)(b)

Fringe Benefits Tax Assessment Act 1986 paragraph 58P(1)(c)

Fringe Benefits Tax Assessment Act 1986 paragraph 58P(1)(d)

Fringe Benefits Tax Assessment Act 1986 paragraph 58P(1)(e)

Fringe Benefits Tax Assessment Act 1986 paragraph 58P(1)(f)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 subsection 32-1(2)

Income Tax Assessment Act 1997 section 32-5

Income Tax Assessment Act 1997 section 32-10

Income Tax Assessment Act 1997 section 32-20

Income Tax Assessment Act 1997 section 32-40

Income Tax Assessment Act 1997 section 32-50

Income Tax Assessment Act 1997 section 50-5

Income Tax Assessment Act 1997 Subdivision 32B

Reasons for decision

Question 1

Summary

The entity has not provided tax-exempt body entertainment fringe benefits to its employees.

Detailed reasoning

Division 10 of Part III of the FBTAA has the effect that certain entertainment provided to employees of a tax-exempt employer gives rise to a 'tax-exempt body entertainment fringe benefit'. Only entertainment that is non-deductible for income tax purposes can give rise to this benefit. Where entertainment is deductible, it will not constitute a tax-exempt body entertainment fringe benefit.

Section 38 of the FBTAA sets out the circumstances in which a tax-exempt body entertainment benefit will arise:

Where, at a particular time, a person (in this section referred to as the provider) incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision, in respect of the employment of an employee, of entertainment to a person (in this section referred to as the recipient) being the employee or an associate of the employee, the incurring of the expenditure shall be taken to constitute a benefit provided by the provider to the recipient at that time in respect of that employment.

A tax-exempt body entertainment fringe benefit will therefore arise when the following three requirements are met:

• The benefit constitutes the provision of entertainment

• The benefit is provided in respect of employment; and

• The employer incurs non-deductible exempt entertainment expenditure.

…non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income

Further, subsection 136(1) of the FBTAA defines 'non-deductible entertainment expenditure' to mean:

…a loss or outgoing to the extent to which:

(a) section 32-5 of the Income Tax Assessment Act 1997 applies to it, or would apply if it were incurred in producing assessable income; and

(b) apart from that section, it would be deductible under section 8-1 of that Act, or would be if it were incurred in producing assessable income;

(on the assumption that section 32-20 of the Income Tax Assessment Act 1997 had not been enacted).

Section 32-5 of the ITAA 1997 prevents an income tax deduction being claimed under section 8-1 of the ITAA 1997 for a loss or outgoing incurred in providing entertainment unless the expenditure comes within one of the exceptions contained in sections 32-20 to 32-50 of the ITAA 1997.

As is relevant to the entity, item 3.1 of section 32-40 of the ITAA 1997 provides that section 32-5 of the ITAA 1997 'does not stop you deducting a deduction for a loss or outgoing for' 'providing entertainment for payment in the ordinary course of a business that you carry on'. That is, such an expense may be deductible if it satisfies the requirements of section 8-1 of the ITAA 1997.

The effect of section 32-40 of the ITAA 1997 is that a taxpayer's business expenses incurred in the ordinary course of carrying on a business which consists of, or includes, the provision of entertainment to paying customers will not be precluded from deductibility under section 8-1 of the ITAA 1997.

The entity is wholly exempt from income tax however for the purposes of determining whether the entertainment provided by the entity constitutes tax-exempt body entertainment fringe benefit, the entity is treated as a taxable entity (Chapter 15.6 of the Fringe benefits tax: a guide for employers (NAT 1054)).

The entity carries on a business at the restaurant. The entity provides entertainment to paying customers. The entity is providing entertainment to paying customers in the ordinary course of carrying on a business and thus satisfies the exception in section 32-40 of the ITAA 1997. As a result section 32-5 of the ITAA 1997 does not apply.

Given that section 32-5 of the ITAA 1997 does not apply to the entity, the expenditure by the entity on food and drinks for its employees is not non-deductible entertainment expenditure and is not non-deductible exempt entertainment expenditure.

Conclusion

The conditions in section 38 of the FBTAA are not satisfied; accordingly the provision of food and drinks at the restaurant to the employees of the entity will not constitute a provision of tax-exempt body fringe benefit.

Question 2

Summary

The provision of food and drinks at the restaurant to the employees of the entity are property fringe benefits.

Detailed reasoning

'Property fringe benefit' is defined in subsection 136(1) of the FBTAA to mean a 'fringe benefit that is a property benefit'; and 'property benefit' is defined in that subsection to mean:

a benefit referred to in section 40, but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III.

Section 40 of the FBTAA states:

Where, at a particular time, a person (in this section referred to as the provider) provides property to another person (in this section referred to as the recipient), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

'Property' is defined in subsection 136(1) of the FBTAA to mean intangible and tangible property.

As stated in subsection 136(1) of the FBTAA, a benefit will not be a property benefit if the benefit is provided for in Subdivision A of Divisions 2 to 10 of Part III of the FBTAA. Of these nine divisions of the FBTAA, the only division that is relevant to the provision of food and drinks by the entity is Division 5, which deals with expense payment fringe benefits.

Subdivision A of Division 5 of Part III, and in particular section 20, of the FBTAA provides that an employee is provided with an expense payment fringe benefit if:

(a) the employer pays an amount that the employee or an associate has contracted to pay, or

(b) the employer reimburses an employee for expenditure that the employee or an associate has contracted to pay.

An expense payment fringe benefit does not arise in respect of the entity providing food and drinks at the restaurant to the employees of the entity. The entity does not pay an amount or reimburse the employee for an amount that the employee has contracted to pay, including those employees that the entity provides with a corporate credit card to pay for food and drink at the restaurant. The employees that are provided with a corporate credit card are not obligated to the issuer of the card and have not contracted to pay an amount. The corporate credit card is in the name of the entity and the entity is liable for any expenses incurred on the card.

The provision of food and drinks at the restaurant to the employees of the entity are not a benefit provided for in Subdivision A of Divisions 2 to 10 of Part III of the FBTAA. Therefore, the food and drinks provided by the entity to its employees are property fringe benefits as defined in subsection 136(1) of the FBTAA and as provided for in section 40 of the FBTAA.

Question 3

Summary

Paragraph 58P(1)(d) of the FBTAA will not apply to exclude the food and drinks provided at the restaurant to the employees of the entity from being an exempt benefit. Therefore if the entity satisfies the remainder of the requirements in section 58P of the FBTAA, the food and drinks provided at the restaurant to the employees of the entity will be exempt benefits.

Detailed reasoning

Section 58P of the FBTAA provides that a minor benefit may be an exempt benefit.

Subsection 58P(1) of the FBTAA specifies the tests for exemption and includes specific exclusions from the minor benefits exemption at paragraphs 58P(1)(c) and (d) of the FBTAA. Therefore, not all minor benefits will be exempt benefits.

Paragraph 58P(1)(d) of the FBTAA specifically excludes from being an exempt benefit many minor entertainment benefits provided by tax-exempt bodies to their employees. Paragraph 58P(1)(d) states:

(d) in the case of a tax-exempt body entertainment benefit where the provider incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision of entertainment to the employee or an associate of the employee:

(i) the provision of entertainment to the employee or the associate of the employee, as the case may be:

(A) is incidental to the provision of entertainment to outsiders; and

(B) neither consists of, nor is provided in connection with, the provision of a meal (other than a meal consisting of light refreshments) to the employee or the associate of the employee, as the case may be; or

(ii) the entertainment is provided to the employee or the associate of the employee, as the case may be:

(A) on eligible premises of the employer; and

(B) solely as a means of recognising the special achievements of the employee in a matter relating to the employment of the employee;

Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12) sets out the Commissioner's views on the application of the minor benefits exemption in section 58P of the FBTAA and at paragraph 163-175 discusses and provides examples of the exclusion provided by paragraph 58P(1)(d) of the FBTAA.

As explained at Question 1, the provision of food and drinks at the restaurant to the employees of the entity are not tax-exempt body entertainment benefits. As a result, the exclusion at paragraph 58P(1)(d) of the FBTAA will not apply.

If the entity satisfies the remainder of the requirements in section 58P of the FBTAA, then section 58P will apply to the food and drinks provided at the restaurant to the employees of the entity and the benefit will be an exempt benefit.

Question 4

Summary

The food and drinks provided at the restaurant to the employees of the entity is an exempt benefit if the requirements in subsection 41(1) of the FBTAA are satisfied.

Detailed reasoning

Certain property benefits are exempt under section 41 of the FBTAA, however as explained in paragraph 44 of TR 97/17, section 41 does not exempt the provision of meal entertainment to employees on business premises where the employer elects to use one of the two valuation methods in Division 9A of Part III of the FBTAA.

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.

Paragraph 44 of TR 97/17 states 'A working day is any 24 hour period during which work is usually performed by the employee.'

Subsection 136(1) of the FBTAA defines 'business premises' and includes within the definition a number of specific exclusions:

business premises , in relation to a person, means premises, or a part of premises, of the person used, in whole or in part, for the purposes of business operations of the person, but does not include:

(a) 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

(b) a corporate box; or

(c) 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

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

Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises' (TR 2000/4) considers what constitutes 'business premises' for the purposes of the FBTAA, and in particular in relation to section 41 of the FBTAA. Paragraph 4 of TR 2000/4 states:

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.

Further, paragraph 7 of TR 2000/4 states:

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.

The entity does not provide the food and drinks to its employees under a salary packaging arrangement; therefore the exclusion in subsection 41(2) of the FBTAA does not apply to exclude the benefit from being an exempt property benefit. Further, the entity has not made an election under Division 9A of Part III of the FBTAA.

The restaurant premises are used by the entity for the purposes of providing entertainment in the course of carrying on their business of providing entertainment, therefore the exception in paragraph (d) of the definition of business premises in subsection 136(1) does not apply to the entity.

The entity leases the premises from which the restaurant business is conducted and has exclusive occupancy rights as the lessee. Therefore, the restaurant premises are the premises of the entity as explained in paragraph 7 of TR 2000/4 and as required by section 41 of the FBTAA.

If the entity satisfies the requirements in subsection 41(1) of the FBTAA then the food and drink consumed by employees of the entity at the restaurant is an exempt benefit.

Question 5

Summary

The food and drinks provided at the restaurant to the employees of the entity are in-house property fringe benefits.

Detailed reasoning

Subsection 136(1) of the FBTAA defines 'in-house property fringe benefit':

in-house property fringe benefit , in relation to an employer, means a property fringe benefit in relation to the employer in respect of tangible property:

(a) where both of the following conditions are satisfied:

(i) the provider is the employer or an associate of the employer; and

(ii) at or about the provision time, the provider carried on a business that consisted of or included the provision of identical or similar property principally to outsiders; or


(b) where all of the following conditions are satisfied:

(i) the provider is not the employer or an associate of the employer;

(ii) the property was acquired by the provider from the employer or an associate of the employer (which employer or associate is in this definition called the seller); and

(iii) at or about the provision time, both the provider and the seller carried on a business that consisted of or included the provision of identical or similar property principally to outsiders.

The food and drinks provided by the entity are tangible property and the conditions stated in paragraph (a) of the definition apply to the entity.

The entity, as the provider of the food and drinks, is the employer of the employees and the entity carries on a business at the restaurant where identical property is provided to the general public. The food and drinks provided at the restaurant to the employees of the entity are in-house property fringe benefits.