Edited version of your written advice

Authorisation Number: 1051340296654

Date of advice: 9 March 2018

Ruling

Subject: Fringe benefits tax

Question 1

Is the provision of entertainment by an employer to its employees at

a. Venue One

b. Venues Two

c. Venues Three

a tax-exempt body entertainment benefit under section 38 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

If the answer to question 1 is no, will food and drinks provided to employees at the Venues constitute property benefits as defined in section 40 of the FBTAA?

Answer

Yes

Question 3

If the answer to question 2 is yes, will food and drinks provided to employees at the Venues constitute exempt property benefits as defined in section 41 of the FBTAA?

Answer

Yes, if the food and drink is consumed on a working day.

Question four

If the answer to question 3 is no, would the property fringe benefit satisfy the definition of in house property fringe benefit under subsection 136(1) of the FBTAA?

Answer

N/A

This ruling applies for the following periods:

Year ended 31 March 20xx

Year ended 31 March 20xx

Year ended 31 March 20xx

The scheme commences on:

20xx

Relevant facts and circumstances

The employer provides food and drink to its employees in a variety of situations which are categorised into the following three ways:

1. at a venue that is off-site, owned and operated by the employer (Venue One)

2. at venues located on-site, owned by the employer and operated by another entity under a specific agreement (Venue Two), and

3. at venues located on-site, owned by the employer but occupied and operated by a third party provider (Venue Three).

Venue One, Venue Two and Venue Three (the Venues) are open to the public and charge the public for the provision of food or drink.

Details of the arrangements between the employer and other entities in relation to the occupation and use of premises and the operation of the Venues have been provided.

Employees of the employer ordinarily use corporate credit cards of the entity to pay for food and drinks consumed at the Venues. The corporate credit cards are in the name of the employer who is liable for any expenses incurred on the card.

In some instances, costs incurred at Venue One only are incurred by way of internal recharge.

The nature of the food and drink provided by the employer to its employees that is the subject of the ruling request is food and drink which is considered to be entertainment as defined in section 32-10 of the Income Tax Assessment Act 1997 (ITAA 1997).

The consumption of food and drink would ordinarily take place Monday to Friday. Certain employees have no restrictions on their working week and frequently work weekend hours and may consume food and drink on a Saturday or Sunday.

The food and drink is not provided under a salary packaging arrangement

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986, section 38

Fringe Benefits Tax Assessment Act 1986, section 40

Fringe Benefits Tax Assessment Act 1986, section 41

Fringe Benefits Tax Assessment Act 1986, subsection 136(1)

Income Tax Assessment Act 1997, section 32-5

Income Tax Assessment Act 1997, section 32-10

Income Tax Assessment Act 1997, section 32-40

Reasons for decision

Question 1

Summary

The provision of entertainment by the employer to its employees at the Venues is not a tax-exempt body entertainment benefit under section 38 as the employer does not incur non-deductible exempt entertainment expenditure in respect of the provision of the entertainment to the employees.

Detailed reasoning

Only entertainment that is non-deductible for income tax purposes can give rise to a tax-exempt body entertainment fringe benefit under section 38.

Section 38 provides:

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.

The food and drink provided to employees at the Venues is entertainment as defined in section 32-10 of the ITAA1997. For the provision of that entertainment to employees to be a benefit under section 38, the expenditure incurred by the employer must be non-deductible exempt entertainment expenditure.

Non-deductible exempt entertainment expenditure is defined in subsection 136(1) to mean non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income.

Non-deductible entertainment expenditure is also defined in subsection 136(1) 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).

Division 32 of the ITAA 1997 effectively denies a deduction in respect of entertainment expenditure except in the circumstances outlined in that Division. Item 3.1 of section 32-40 of the ITAA 1997 allows a deduction if you provide entertainment for payment in the ordinary course of business that an entity carries on.

The determination of whether a business is being carried on is generally the result of a process of weighing all of the relevant indicators. The indicators must be considered in combination and as a whole. As noted in paragraph 16 of Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?:

Whether a business is being carried on depends on the 'large or general impression gained' (Martin v. FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551) from looking at all the indicators, and whether these factors provide the operations with a 'commercial flavour' (Ferguson v. FC of T (1979) 37 FLR 310 at 325; 79 ATC 4261 at 4271; (1979) 9 ATR 873 at 884).

It is accepted that the employer carries on a business to members of the public for payment at the Venues. The business is one of providing food and drink which is entertainment and the activity is considered to be in the ordinary course of a business, therefore satisfying section 32-40 of the ITAA 1997.

This means that the employer’s expenditure is not non-deductible because of section 32-5 of the ITAA 1997. It is not non-deductible entertainment expenditure within subsection 136(1) and is not non-deductible exempt entertainment expenditure within subsection 136(1).

The benefit provided to the employees, being entertainment by way of food and drink at the Venues during the course of the year is therefore not a benefit which is covered by section 38.

Question 2

Summary

The food and drink provided to employees at the Venues constitute property benefits in accordance with section 40 as the employer incurs the expense of providing the food and drink which is tangible property.

Detailed reasoning

Section 40 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) to include tangible property.

The employer is liable for any expenses incurred where employees use a corporate credit card to purchase the food and drink. The benefit the employees receive is the provision of food and drink, which is tangible property.

At Venue One, the expenses are in some instances incurred by way of internal recharge. In this situation also the employee does not incur any expense and the benefit they receive is the provision of food and drink.

The provision of the food and drink to the employees does not fit within any of the categories in Subdivision A of Divisions 2 to 10A (inclusive) of Part III.

Consequently the provision of the food and drink to the employees is a property benefit in accordance with section 40.

Question 3

Summary

The food and drink provided to employees at the Venues constitute exempt property benefits as defined in section 41 when they are consumed on a working day.

Detailed reasoning

Section 41 states:

(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 the 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.

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

The employees are being provided with property benefits in respect of their employment.

A working day is any 24 hour period during which work is usually performed by an employee. The employer has employees who work Monday to Friday and in some cases also Saturday and Sunday.

The term ‘business premises’ is defined in subsection 136(1) to mean:

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.

Paragraphs 7 and 8 of Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of ‘business premises’ state the following in relation to the meaning of premises of the person:

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.

In other circumstances, for example, where a person has non-exclusive possession of premises, the person satisfies this requirement if they have a right to possession of the premises, at least to the extent necessary to enable the conduct thereon of their business operations.

The term ‘business operations’ is defined in subsection 136(1) in relation to a government body or a non-profit company to include any operation or activity carried out by that body or company.

The Venues are located on premises owned by the employer. In relation to Venue Two and Venue Three, the other entities are not tenants of the premises, they do not have exclusive occupancy rights and the employer has significant control of the premises.

We have accepted that the employer in the ordinary course of its business provides entertainment by way of food and drink at the Venues. Therefore the premises are business premises of the employer and the employees consume the food and drink on those premises.

The employer is not providing food and drink as part of salary packaging arrangements with its employees.

Therefore where an employee is consuming food and drink on a working day at the Venues, the provision of the property benefit will be an exempt benefit.