Edited version of your written advice

Authorisation Number: 1051238144970

Date of advice: 15 June 2017

Ruling

Subject: Fringe Benefits Tax: Meal and Entertainment Benefits

Question 1

Has Entity X provided their employees with a meal entertainment fringe benefit?

Answer

No

Question 2

Has Entity X provided their employees with a tax-exempt body entertainment fringe benefit?

Answer

Yes

Question 3

Can Entity X use 50/50 split method to pay their FBT liability?

Answer

Yes

Question 4

If it is not entertainment, is this benefit exempt under section 58P(e) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

This ruling applies for the following period

1 April 2016 – 31 March 2017

The scheme commences on

1 April 2016

Relevant facts and circumstances

Entity X is a tax exempt entity.

Entity X held a special event party for staff and associates in the form of a breakfast.

The event was held at Entity X’s premises and during working hours.

There was no alcohol provided.

A simple breakfast was provided.

There was light entertainment provided.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 38

Fringe Benefits Tax Assessment Act 1986 Section 39

Fringe Benefits Tax Assessment Act 1986 Section 58P

Fringe Benefits Tax Assessment Act 1986 Subsection 58P(e)

Income Tax Assessment Act 1997 Section 32-5

Income Tax Assessment Act 1997 Section 32-10

Income Tax Assessment Act 1997 Section 32-30

Reasons for decision

Summary

The end of year breakfast, provided to Entity X staff and associates is a tax-exempt entertainment fringe benefit. In calculating the FBT payable Entity X can choose a method detailed in Division 9 of the FBTAA.

Detailed reasoning

Applicable legislation

Entertainment Fringe Benefits

The FBTAA directs us to subsection 32-10(1) of the ITAA 1997 in sourcing the definition of entertainment. Here entertainment is defined as:

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.

Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17) provides guidance on determining whether entertainment has been provided. Paragraph 33 examines entertainment provided to employees of a tax-exempt employer. In these instances a separate category of fringe benefit arises, known as a 'tax-exempt body entertainment fringe benefit'

Tax-exempt body entertainment benefit is defined in section 38 of the FBTAA as:

Where, at a particular time, a person (in this section referred to as the provider) incurs non-deductable 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.

The taxation consequences of a tax-exempt entertainment fringe benefit goes on to be clarified in section 39 of the FBTAA where:

Subject to this Part, the taxable value of a tax-exempt body entertainment fringe benefit in relation to an employer in relation to a year of tax is so much of the expenditure referred to in section 38 as is attributable to the provision of the entertainment referred to in that section.

However, TR 97/17 states at paragraph 35:

An income tax-exempt employer can adopt the methods now provided in Division 9A of the FBTAA in determining the taxable value of meal entertainment benefits.

Where the methods adopted in Division 9A of the FBTAA provide the employer with a choice of methods:

If this Division applies to an employer for an FBT year then, unless the employer elects that Subdivision C applies, the total taxable value of meal entertainment fringe benefits of the employer for the FBT year is 50% of the expenses incurred by the employer in providing meal entertainment for the FBT year.

If the employer elects that this Subdivision applies for an FBT year then, despite any other provision of this Act, the taxable value of meal entertainment fringe benefits for the employer for the FBT year is worked out using the formula:

The register percentage is the percentage worked out using the formula:

where:

total value of meal entertainment fringe benefits means the total value of meal entertainment fringe benefits that are provided by the employer in the 12 week period covered by the employer's register.

total value of meal entertainment means the total value of meal entertainment provided by the employer during the 12 week period covered by the register.

The total meal entertainment expenditure is the total of expenses incurred by the employer in providing meal entertainment for the FBT year.

Exempt minor benefits

The tests of exemption for exempt minor benefits are detailed at section 58P of the FBTAA:

Where:

…

(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;

(f) having regard to:

(i) the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to:

(A) the minor benefit; or

(B) benefits provided in connection with the provision of the minor benefit;

have been or can reasonably be expected to be provided;

(ii) 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 of tax or any other year of tax;

(iii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of any other associated benefits in relation to the current year of tax or any other year of tax;

(iv) the practical difficulty for the employer in determining the notional taxable values in relation to the current year of tax of:

(A) if the minor benefit is not a car benefit - the minor benefit; and

(B) if there are any associated benefits that are not car benefits - those associated benefits; and

(v) the circumstances surrounding the provision of the minor benefit and any associated benefits including, but without limiting the generality of the foregoing:

(A) whether the benefit concerned was provided to assist the employee to deal with an unexpected event; and

(B) whether the benefit concerned was provided otherwise than wholly or principally by way of a reward for services rendered, or to be rendered, by the employee;

it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefit in relation to the employer in relation to the current year of tax;

the minor benefit is an exempt benefit in relation to the current year of tax.

Taxation Ruling TR 2007/12 Fringe benefits tax: minor benefits (TR 2007/12) details the Commissioners views on the minor benefits exemptions in section 58P of the FBTAA.

In particular, paragraph 3 of TR 2007/12 clarifies:

that a minor benefit that satisfies the 'less than $300 threshold criterion contained in paragraph 58P(1)(e) is not necessarily an exempt benefit. Other criteria must be considered before it can be concluded that the minor benefit is an exempt benefit.

Paragraph 12 of TR 2007/12 further illustrates that, with limited exception, tax-exempt body entertainment benefits are specifically excluded from section 58P of the FBTAA. The FBT consequences for a tax-exempt body is discussed at paragraph 55, where the scenario is given as a Christmas party (and gift) provided to employees and their associates of a tax-exempt employer. It is stated that the Christmas party would be considered to be the provision of non-deductible exempt entertainment and therefore tax-exempt body entertainment. This would be the case regardless of whether the party was held on the business premises or off the business premises. It is therefore excluded from consideration as a minor benefit.

In addition, at paragraph 34 of Taxation Ruling TR 97/17: Income tax and fringe benefits tax: entertainment by way of food or drink it is stated that:

…, a tax-exempt body entertainment benefit that is considered 'minor' will only be exempt if the requirements of paragraph 58P(1)(d) of the FBTAA are met. A staff Christmas party provided by a tax-exempt body will not satisfy these requirements.

This is again qualified in paragraph 133 of TR 2007/12 in regards to the minor benefits exemption in section 58P of the FBTAA:

As noted in the Explanatory Notes (EN) to Taxation Laws Amendment (Fringe Benefits and Substantiation) Bill 1987:

The exemption will not extend to airline transport benefits or other in-house fringe benefits…Nor will it apply to minor entertainment benefits provided to employees etc of tax-exempt organisations

Application to Entity X

Entity X has provided a breakfast to celebrate a special event to its employees and associates. In addition, light entertainment was provided to Entity X employees. The event was held on Entity X’s premises. This meets the definition of entertainment in accordance with subsection 32-10(1) of the ITAA 1997 as entertainment by way of food, drink and recreation has been provided.

Entity X is a government organisation which is income tax exempt. Where a benefit arises resulting from a function provided to employees and their associates, such as a Christmas party, a tax-exempt body entertainment fringe benefit occurs, in accordance with section 38 of the FBTAA. This category includes where the event has occurred on work premises.

The taxable value of providing a tax-exempt body entertainment fringe benefit is different to that of income tax paying bodies and is calculated in accordance with section 39 of the FBTAA. However, paragraph 35 of TR 97/17 entitles the tax exempt employer to adopt the methods discussed in Division 9A of the FBTAA, in particular section 37BA demonstrates how to apply the 50/50 split method.

The less than $300, minor benefits exemption, as per section 58P(e) of the FBTAA, cannot be applied to tax-exempt body entertainment fringe benefits. This is because subsection 58P(f) has specifically excluded it by virtue of subparagraph (ii)(B) where the event would need to be solely as a means of recognising the special achievements of the employee in a matter relating to the employment of the employee; which is further clarified in TR97/17 (paragraph 34) which states a staff Christmas party provided by a tax-exempt body will not satisfy these requirements.

Therefore, for the reasons provided, Entity X’s special event breakfast is a tax-exempt body entertainment fringe benefit. As such, Entity X is entitled to utilise the taxable value calculation methods as provided for in sections 37BA and 37CA of the FBTAA.