Edited version of private advice

Authorisation Number: 1051596567062

Date of advice: 25 October 2019

Ruling

Subject: Tax- exempt body entertainment fringe benefits, property fringe benefits and exempt property benefits: meals provided to employees

Question 1

Is the provision of food and drinks by the Employer to an employee on a standard day in each of the following circumstances a 'tax-exempt body entertainment fringe benefit' under section 38 of the Fringe Benefits Tax Assessment Act 1986?

·       Scenario A:

Where, on an employee's rostered break, the employee is not required to sit with/assist clients, and is free to take their meal to eat in the staff lunch room or in the dining room with clients or anywhere else on the Employer's premises.

·       Scenario B:

Where, on an employee's rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

·       Scenario C:

Where an employee is not on a rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

·       Scenario D:

Where meals are provided to an employee under a salary sacrifice agreement.

Answer

A.     No.

B.     No.

C.    No.

D.    No.

Question 2

Is the provision of food and drinks by the Employer to an employee on a 'theme' day in each of the following circumstances a 'tax-exempt body entertainment fringe benefit' under section 38 of the Fringe Benefits Tax Assessment Act 1986?

·       Scenario A:

Where, on an employee's rostered break, the employee is not required to sit with/assist clients, and is free to take their meal to eat in the staff lunch room or in the dining room with clients or anywhere else on the Employer's premises.

·       Scenario B:

Where, on an employee's rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

·       Scenario C:

Where an employee is not on a rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

Answer

A.     No.

B.     No.

C.    No.

Question 3

If the answer to Question 1 is 'No' for each/any of Scenarios A to D, will the provision of food and drinks by the Employer to an employee in respect of each of these scenarios on a standard day constitute a 'property fringe benefit' as defined in subsection 136(1) of the FBTAA?

Answer

A.     Yes.

B.     Yes.

C.    Yes.

D.    Yes.

Question 4

If the answer to Question 2 is 'No' for each/any of Scenarios A to C, will the provision of food and drinks by the Employer to an employee in respect of each of these scenarios on a 'theme' day constitute a 'property fringe benefit' as defined in subsection 136(1) of the FBTAA?

Answer

A.     Yes.

B.     Yes.

C.    Yes.

Question 5

If the answer to Question 3 is 'Yes' for each/any of Scenarios A to D, will the provision of food and drinks by the Employer to an employee in respect of each of these scenarios on a standard day constitute an 'exempt property benefit' as defined in section 41 of the FBTAA?

Answer

A.     Yes.

B.     Yes.

C.    Yes.

D.    No.

Question 6

If the answer to Question 4 is 'Yes' for each/any of Scenarios A to C, will the provision of food and drinks by the Employer to an employee in respect of each of these scenarios on a 'theme' day constitute an 'exempt property benefit' as defined in section 41 of the FBTAA?

Answer

A.     Yes.

B.     Yes.

C.    Yes.

This ruling applies for the following period(s)

1 April 2019 to 31 March 2024.

The scheme commenced on

1 April 2019.

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 Employer is a not-for-profit entity providing professional services to clients. It is registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC), and is a tax-exempt public benevolent institution.

On standard days, the Employer prepares and serves three meals per day, seven days a week, for all of its clients in its dining room as part of the fees/subsidies it receives. The meals provided to clients on standard days are also available to employees for a nominal charge.

The Employer periodically has 'theme' days (such as on Australia Day, Christmas Day etc) to provide variation for clients.

The Employer is considering whether to provide employees with lunch only at no charge in certain circumstances/scenarios on both standard days and 'theme' days.

Lunch is served to clients (and staff) between 12:00pm and 12:30pm.

Standard Days

Lunch meals that may be provided to employees at no charge on standard days are consumed on the Employer's business premises.

Alcohol is not served in conjunction with any meal.

With respect to the menu options for lunch that employees may be entitled to choose, such meals generally consist of a basic main meal.

Employees can also choose to drink tea, coffee, fruit juice/cordial or water only.

The nominal charge for a lunch meal is currently $X.00 (which is the actual cost of goods).

On standard days, a lunch meal may be provided to an employee at no charge in any of the following circumstances:

·       Scenario A:

Where, on an employee's rostered break, the employee is not required to sit with/assist clients, and is free to take their meal to eat in the staff lunch room or in the dining room with clients or anywhere else on the Employer's premises.

·       Scenario B:

Where, on an employee's rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

·       Scenario C:

Where an employee is not on a rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

·       Scenario D:

Where lunch meals are provided to an employee under a salary sacrifice agreement.

It is assumed that, where Scenario D applies, employees may be provided with/consume a lunch meal provided by the Employer either during a rostered lunch break (that is, during non-working hours) or while not on a lunch break (that is, during working hours).

Theme Days

Employees may be entitled to also choose a lunch meal at no charge on 'theme' days as well. In these circumstances, meals are consumed by employees on the Employer's business premises. Alcohol is also not served to employees on these days.

Employees can also choose to drink tea, coffee, fruit juice/cordial or water only.

The nominal charge for a lunch meal is currently $X.00 (which is the actual cost of goods).

Meals on 'theme' days are provided in conjunction with performances by volunteer musicians (such as schools/bands) from the local community who visit the Employer's business premises to entertain the clients from after morning tea, extending through to lunch time.

On 'theme' days, employees participate by sitting amongst the clients to promote interaction and/or to assist the clients with eating their meals.

On 'theme' days, a lunch meal may be provided to an employee at no charge in any of the following circumstances:

·       Scenario A:

Where, on an employee's rostered break, the employee is not required to sit with/assist clients, and is free to take their meal to eat in the staff lunch room or in the dining room at the table with clients or anywhere else on the Employer's premises.

·       Scenario B:

Where, on an employee's rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

·       Scenario C:

Where an employee is not on a rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

With respect to lunch meals provided to employees at no charge on both standard days (in respect of Scenarios A to D) and 'theme' days (in respect of Scenarios A to C), the Employer incurs the expense for lunch meals provided to employees via internal charge/journal entry. Employees provided with a lunch meal on both standard and 'theme' days sign a 'daily meal sheet', which would be processed by the Employer's administration.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Division 9A

Fringe Benefits Tax Assessment Act 1986 Section 37AF

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)

Fringe Benefits Tax Assessment Act 1986 Subsection 148(1)

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 32-20

Income Tax Assessment Act 1997 Section 32-30

Income Tax Assessment Act 1997 Section 32-55

Reasons for decision

Question 1

Is the provision of food and drinks by the Employer to an employee on a standard day in each of the following circumstances a 'tax-exempt body entertainment fringe benefit' under section 38 of the Fringe Benefits Tax Assessment Act 1986?

·       Scenario A:

Where, on an employee's rostered break, the employee is not required to sit with/assist clients, and is free to take their meal to eat in the staff lunch room or in the dining room with clients or anywhere else on the Employer's premises.

·       Scenario B:

Where, on an employee's rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

·       Scenario C:

Where an employee is not on a rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

·       Scenario D:

Where meals are provided to an employee under a salary sacrifice agreement.

Summary

The provision of food and drinks by the Employer to an employee in each of the circumstances in Scenarios A to D on a standard day is not a 'tax-exempt body entertainment fringe benefit' under section 38 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). This is because the food and drinks that may be provided to employees do nothave the characteristics of 'entertainment'.

Detailed reasoning

Relevant law

Section 38 of the FBTAA defines a 'tax-exempt body entertainment benefit' as:

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.

Therefore, a 'tax-exempt body entertainment fringe benefit' pursuant to section 38 of the FBTAA will arise when the following conditions are satisfied:

·       Condition 1: The employer incurs a non-deductible exempt entertainment expenditure.

·       Condition 2: The benefit is wholly or partly in respect of the employment of the employee.

·       Condition 3: The benefits constitute the provision of 'entertainment'.

Condition 1: 'Non-deductible exempt entertainment expenditure'

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

Subsection 136(1) of the FBTAA defines 'non-deductible entertainment expenditure'asa 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).

In terms of the first requirement, a registered charity is generally exempt from a liability to pay income tax by virtue of item 1.1 of the table in section 50-5 of the ITAA 1997.

The second requirement is that the entertainment expenditure is non-deductible. To determine deductibility, tax-exempt bodies need to look at the same factors as income tax paying bodies in the income tax assessment provisions.

Condition 2: The benefit is wholly or partly 'in respect of the employment' of the employee

As per subsection 136(1) of the FBTAA, the term 'in respect of' - in relation to the employment of an employee - includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

The full Federal Court in J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles) examined the meaning of 'in respect of' an employee's employment. It was held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'. A similar view was also held in Essenbourne Pty Ltd v FC of T 2002 ATC 5201 and Starrim Pty Ltd v FCT (2000) 102 FCR 194; [2000] FCA 952; 2000 ATC 4460; (2000) 44 ATR 487.

It was also suggested by the full Federal Court in Knowles that it would be useful to ask 'whether the benefit is a product or incident of the employment'.

Condition 3: The benefit constitutes the provision of entertainment

'Entertainment' is defined in subsection 32-10(1) of the ITAA 1997 as being entertainment by way of food or drink or recreation, or accommodation or travel to do with providing that entertainment. Subsection 32-10(2) of the ITAA 1997 provides that if business discussions or transactions occur during entertainment events, the events are still considered to be entertainment.

As provided in paragraph 6 of TR 97/17, the definition of 'entertainment' in section 32-10 of the ITAA 1997, and adopted in the definition of 'entertainment' in subsection 136(1) of the FBTAA, does not prescribe that entertainment occurs every time food or drink is provided.

Some examples of entertainment are provided in section 32-10 of the ITAA 1997, such as business lunches and staff social functions. In these examples, the provision of food or drink confers entertainment on the recipient.

TR 97/17 provides guidance on the concept of what is 'entertainment' as it relates to the provision of food or drink for the purposes of applying the relevant provisions of the FBTAA and the ITAA 1997. Paragraph 7 of TR 97/17 states the following:

In order to determine when the provision of food or drink to a recipient results in the entertainment of that person, an objective analysis of all the circumstances surrounding the provision of the food or drink is required. In making this determination an employer should consider:

·        why the food or drink is being provided;

·        what type of food or drink is being provided;

·        when that food or drink is being provided; and

·        where the food or drink is being provided.

Food or drink which is determined by these criteria to constitute entertainment is taken to be 'meal entertainment'.

Paragraph 18 of TR 97/17 takes the view that the mere provision of food or drink in any circumstance does not necessarily constitute 'entertainment'. An element of entertainment is required before the provision of food or drink becomes meal entertainment. However, it was noted that, in most cases, the mere provision of food or drink will satisfy the 'entertainment' test. It is only in a narrow category of cases where the mere provision of food or drink does not amount to 'entertainment' for the purposes of Division 32 of the ITAA 1997.

Paragraphs 19 and 20 of TR 97/17 contrasts the consideration of providing light meals with non-deductible entertainment expenses as follows:

19.  We have expressed this view previously, for example, in Taxation Ruling IT 2675. That Ruling considers that the provision of morning and afternoon tea to employees (and associates of employees) on a working day, either on the employer's premises or at a worksite of the employer, is not entertainment. The provision of light meals (finger food, etc.), for example in the context of providing a working lunch, is not considered to be entertainment. The provision of food or drink in these circumstances does not confer entertainment on the recipient.

20.  The provision of light meals can be contrasted with the examples of non-deductible entertainment given in the explanatory memorandum to Taxation Laws Amendment Bill (No 4) 1985, i.e., business lunches and drinks, dinners, cocktail parties and staff social functions. In these examples the provision of the food or drink confers entertainment on the recipient. The wording of section 32-10 of the ITAA shows a clear intention to treat food or drink consumed in these situations as entertainment, whether or not business discussions or business transactions occur at the same time.

Similarly, paragraph 16 of Taxation Ruling IT 2675: Income tax and fringe benefits tax: entertainment - morning and afternoon teas; light meals; and in-house dining facilities (IT 2675) provides the following:

16.  The provision of biscuits and drinks such as tea, coffee, soft drinks and fruit juices to employees or their associates on a working day for morning or afternoon tea cannot be said to provide amusement or even to be an agreeable occupation. It is merely the provision of refreshments to enable the employees or associates to complete the working day in comfort. The same may be said of light meals provided by a taxpayer to employees or their associates on a working day.

However, there is no definite guidelines as to when a light meal becomes more elaborate as expressed in paragraph 7 of IT 2675:

7.     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.

Application to the Employer's circumstances

For each of Scenarios A to D on standard days, as provided in Question 1, consideration will be given below to each of the conditions that give rise to a 'tax-exempt body entertainment fringe benefit'.

Condition 1: The Employer incurs a non-deductible exempt entertainment expenditure

As the Employer is registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC) and holds an income tax-exempt status, it is considered not to produce assessable income in respect of each of Scenarios A to D. Therefore, the first requirement of 'non-deductible exempt entertainment expenditure' under subsection 136(1) of the FBTAA is satisfied.

The second requirement is that the entertainment expenditure is non-deductible. To determine deductibility, the Employer would need to look at the same factors as income tax paying bodies in the income tax assessment provisions.

As mentioned above, section 32-5 of the ITAA 1997 does not allow a deduction for entertainment expenses except under Subdivision 32-B.

As per the discussion under Condition 3 below, the Commissioner has determined that the provision by the Employer of a lunch meal to an employee at no charge in each of the circumstances in Scenarios A to D on standard days does not amount to 'entertainment' (as that term is defined in subsection 32-10(1) of the ITAA 1997). Consequently, as the expenditure incurred does not constitute entertainment, the second requirement of the definition of 'non-deductible exempt entertainment expenditure' is not met.

As such, Condition 1 in respect of the definition of a 'tax-exempt body entertainment fringe benefit' in section 38 of the FBTAA is not satisfied for each of Scenarios A to D on standard days.

Condition 2: The benefit is wholly or partly in respect of the employment of the employee

Based on the facts, there is a sufficient or material connection between the provision of food and drinks at lunch time on standard days by the Employer to an employee at no charge and the employee's employment.

Therefore, Condition 2 in respect of the definition of a 'tax-exempt body entertainment fringe benefit' in section 38 of the FBTAA is considered to be satisfied for each of Scenarios A to D on standard days.

Condition 3: The benefits constitute the provision of 'entertainment'

In considering whether the Employer's provision of lunch meals at no charge to employees on standard days (in respect of each of Scenarios A to D) constitutes 'entertainment', it is necessary for an objective analysis of all the circumstances against factors provided in paragraphs 7 and 23 of TR 97/17.

a) Why is the food and drink being provided?

The Commissioner considers that a lunch meal that is provided at no charge to an employee of the Employer in each of the circumstances in Scenarios A to D on standard days have the primary purpose/nature of providing sustenance to these attendees. It is not considered that it is the Employer's intent for a lunch meal to be provided to an employee in a social situation where the primary purpose is for employees to enjoy themselves.

As such, each of Scenarios A to D on standard days would be less likely to have the character of 'entertainment' under this factor.

b) What type of food and drink is provided?

The lunch meals provided at no charge to employees in each of the circumstances in Scenarios A to D on standard days is different. However, food and drink provided generally include a basic main meal.Alcohol is never served.

The Commissioner considers that the above lunch meals that are provided to the Employer's employees on standard days in respect of each of Scenarios A to D constitute 'light meals'. The quality of the lunch meals that may be provided to an employee on a standard day would not be considered to be so elaborate as to take on the characteristics of 'entertainment'.

As such, under this factor, the lunch meals provided to employees in respect of each of Scenarios A to D on standard days do not take on the characteristics of 'entertainment'.

c) When is the food or drink being provided?

With specific regard to the circumstances in Scenario C - and potentially to Scenario D - a lunch meal may be provided to an employee when the employee is not on a rostered lunch break (that is, during work time). The provision of a lunch meal to an employee of the Employer in these circumstances would be less likely to have the character of 'entertainment' under this factor.

In relation to Scenarios A and B - and potentially to Scenario D - a lunch meal may be provided to an employee when the employee is on a rostered lunch break (that is, not during work time). The provision of a lunch meal to an employee of the Employer in these circumstances would be more likely to have the character of 'entertainment'.

d) Where is the food or drink provided?

The lunch meals provided by the Employer to its employees at no charge in each of the circumstances in Scenarios A to D on standard days are always prepared and served/consumed in the Employer's dining room, or elsewhere on the Employer's business premises.

Therefore, the Commissioner considers that the location at which a lunch meal is provided to an employee of the Employer at no charge does not have the character of 'entertainment' under this factor.

Conclusion

On the application of the above factors, the Commissioner has determined that the provision by the Employer of a lunch meal to an employee at no charge in each of the circumstances in Scenarios A to D on standard days does not amount to entertainment.

Therefore, as all of the conditions in section 38 of the FBTAA are not satisfied, the provision of lunch to employees in respect of each of the circumstances in Scenarios A to D on standard days will not constitute the provision of a 'tax-exempt body entertainment fringe benefit'.

Question 2

Is the provision of food and drinks by the Employer to an employee on a 'theme' day in each of the following circumstances a 'tax-exempt body entertainment fringe benefit' under section 38 of the Fringe Benefits Tax Assessment Act 1986?

·       Scenario A:

Where, on an employee's rostered break, the employee is not required to sit with/assist clients, and is free to take their meal to eat in the staff lunch room or in the dining room with clients or anywhere else on the Employer's premises.

·       Scenario B:

Where, on an employee's rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

·       Scenario C:

Where an employee is not on a rostered break, the employee is required to sit with clients to assist them in eating their lunch, whilst the employee also eats their own meal at the same time.

Summary

The provision of food and drinks by the Employer to an employee in each of the circumstances in Scenarios A to C on a 'theme' day is not a 'tax-exempt body entertainment fringe benefit' under section 38 of the FBTAA. This is because the food and drinks that may be provided to employees do nothave the characteristics of 'entertainment'.

Detailed reasoning

Relevant law

The relevant law as outlined in the response to Question 1 above also applies to Question 2.

Application to the Employer's circumstances

For each of Scenarios A to C on 'theme' days, as provided in Question 2, consideration will be given below to each of the conditions that give rise to a 'tax-exempt body entertainment fringe benefit'.

Condition 1: The Employer incurs a non-deductible exempt entertainment expenditure

The Employer holds an income tax-exempt status and is considered not to produce assessable income in respect of each of Scenarios A to C on 'theme' days, thereby satisfying the first requirement of 'non-deductible exempt entertainment expenditure' under subsection 136(1) of the FBTAA.

The second requirement is that the entertainment expenditure is non-deductible. To determine deductibility, the Employer would need to look at the same factors as income tax paying bodies in the income tax assessment provisions.

As per the discussion under Condition 3 below, the Commissioner has determined that the provision by the Employer of a lunch meal to an employee at no charge in each of the circumstances in Scenarios A to C on 'theme' days does not amount to 'entertainment' (as that term is defined in subsection 32-10(1) of the ITAA 1997). Consequently, as the expenditure incurred does not constitute entertainment, the second requirement of the definition of 'non-deductible exempt entertainment expenditure' is not met.

As such, Condition 1 in respect of the definition of a 'tax-exempt body entertainment fringe benefit' in section 38 of the FBTAA is not satisfied for each of Scenarios A to C on 'theme' days.

Condition 2: The benefit is wholly or partly in respect of the employment of the employee

For the same reasons as discussed in the response to Question 1, Condition 2 in respect of the definition of a 'tax-exempt body entertainment fringe benefit' in section 38 of the FBTAA is considered to be satisfied for each of Scenarios A to C on 'theme' days.

Condition 3: The benefits constitute the provision of 'entertainment'

In considering whether the Employer's provision of lunch meals at no charge to employees on 'theme' days in respect of each of Scenarios A to C constitutes 'entertainment', it is necessary for an objective analysis of all the circumstances against factors provided in paragraphs 7 and 23 of TR 97/17.

a) Why is the food and drink being provided?

The Commissioner considers that a lunch meal that is provided at no charge to an employee of the Employer in each of the circumstances in Scenarios A to C on 'theme' days has the primary purpose/nature of providing sustenance to these attendees. It is not considered that it is the Employer's intent for a lunch meal to be provided to an employee in a social situation where the primary purpose is for employees to enjoy themselves.

The Commissioner is of the view that the Employer's main intent on 'theme' days in terms of both the quality of lunch meals provided and the music performed by local schools/bands is to provide enjoyment/entertainment to their clients (not to their employees).

As such, each of Scenarios A to C on 'theme' days do not have the character of 'entertainment' under this factor.

b) What type of food and drink is provided?

The Commissioner considers that the lunch meals provided at no charge to employees in each of the circumstances in Scenarios A to C on 'theme' days are not so elaborate as to constitute 'entertainment'. Further, no alcohol is provided in conjunction with these meals.

As such, under this factor, the lunch meals provided to employees in respect of each of Scenarios A to C on 'theme' would not have the characteristics of 'entertainment'.

c) When is the food or drink being provided?

With specific regard to the circumstances in Scenario C, a lunch meal may be provided to an employee when the employee is not on a rostered lunch break (that is, during work time). The provision of a lunch meal to an employee of the Employer in these circumstances on a 'theme' day would be less likely to have the character of 'entertainment' under this factor.

In relation to Scenarios A and B, a lunch meal may be provided to an employee when the employee is on a rostered lunch break (that is, not during work time). The provision of a lunch meal to an employee of the Employer in these circumstances on a 'theme' day would be more likely to have the character of 'entertainment' under this factor.

d) Where is the food or drink provided?

The lunch meals provided by the Employer to its employees at no charge in each of the circumstances in Scenarios A to C on 'theme' days are always prepared and served/consumed in the Employer's dining room, or elsewhere on the Employer's business premises.

Therefore, the Commissioner considers that the location at which a lunch meal is provided to an employee of the Employer at no charge does not have the character of 'entertainment' under this factor.

Conclusion

On the application of the above factors, the Commissioner has determined that the provision by the Employer of a lunch meal to an employee at no charge in each of the circumstances in Scenarios A to C on 'theme' days does not amount to entertainment.

As such, Condition 3 in respect of the definition of a 'tax-exempt body entertainment fringe benefit' in section 38 of the FBTAA is not satisfied.

As all of the conditions in section 38 of the FBTAA are not satisfied, the provision of lunch to employees in respect of each of the circumstances in Scenarios A to C on 'theme' days will not constitute the provision of a 'tax-exempt body entertainment fringe benefit'.

Question 3

If the answer to Question 1 is 'No' for each/any of Scenarios A to D, will the provision of food and drinks by the Employer to an employee in respect of each of these scenarios on a standard day constitute a 'property fringe benefit' as defined in subsection 136(1) of the FBTAA?

Summary

The provision of food and drinks by the Employer to an employee in each of the circumstances in Scenarios A to D on a standard day will constitute a 'property fringe benefit' as defined in subsection 136(1) of the FBTAA.

Detailed reasoning

Relevant law

Definition of 'fringe benefit'

In order to determine whether the Employer is liable to FBT in respect of lunch meals provided to its employees in the Employer's dining room, it is necessary to firstly consider whether the provision of meals to such employees constitutes a 'fringe benefit' as defined in subsection 136(1) of the FBTAA.

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA, which holds that the following conditions must be satisfied:

1.     A benefit is provided at any time during the year of tax.

2.     The benefit is provided to an employee or an associate of the employee.

3.     The benefit is provided by:

a.     their employer; or

b.     an associate of the employer; or

c.      a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or

d.     a third party other than the employer or an associate of the employer, if the employer or an associate of the employer:

                                                    i.     participates in or facilitates the provision or receipt of the benefit; or

                                                   ii.     participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, the employer or associate is doing so;

4.     The benefit is provided in respect of the employment of the employee.

5.     The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

A benefit is provided

Subsection 136(1) of the FBTAA provides a broad definition of a 'benefit' as including:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property; ...

The benefit is provided to an employee or an associate of the employee

An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee.

The benefit is provided by an employer, an associate of the employer or a third party

'Employer' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer.

The benefit is provided in respect of the employment of the employee

The term 'in respect of the employment of the employee' is explained in the response to Question 1 above where Condition 2 of section 38 of the FBTAA is discussed.

The benefit is not specifically excluded from the definition of a fringe benefit

With respect to paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA, the relevant paragraph to consider is paragraph (g) which provides that an exempt benefit will not be a fringe benefit.

Definition of 'property fringe benefit'

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

A '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 defines a 'property benefit' as follows:

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.

The term 'provide' is defined in subsection 136(1) of the FBTAA in relation to property to mean:

dispose of (whether by sale, gift, declaration of trust or otherwise):

                                   (i)          if the property is a beneficial interest in property but does not include legal ownership - the beneficial interest; or

                                  (ii)          in any other case - the legal ownership of the property.

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

According to the Fringe benefits tax - a guide for employers publication, a property fringe benefit arises when an employer provide an employee with free or discounted property. It further states the 'property' includes:

·        goods (including gas and electricity, unless provided through a reticulation system) and animals

·        real property, such as land and buildings, and

·        rights to property, such as shares or bonds.

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.

Application to the Employer's circumstances

For each of Scenarios A to D on standard days, as provided in Question 3, consideration will be given below as to whether the food and drink provided at no charge to employees of the Employer in these circumstances constitutes a 'property fringe benefit' pursuant to section 40 of the FBTAA.

It is assumed, for the purposes of the response to Question 3, that each of the conditions that give rise to a 'fringe benefit' are satisfied for each of Scenarios A to D.

Food and drink provided in each the circumstances in Scenarios A to D constitutes tangible property. The food and drink is provided by the Employer (the provider) to an employee (the recipient) of the Employer in each of Scenarios A to D.

The applicable benefit is not provided for in Subdivision A of Divisions 2 to 10 of Part III of the FBTAA.

Therefore, the provision of a lunch meal by the Employer to an employee in each of the circumstances in Scenarios A to D on a standard day will constitute a 'property benefit' pursuant to section 40 of the FBTAA, and as such, will be a 'property fringe benefit' as defined in subsection 136(1) of the FBTAA.

Question 4

If the answer to Question 2 is 'No' for each/any of Scenarios A to C, will the provision of food and drinks by the Employer to an employee in respect of each of these scenarios on a 'theme' day constitute a 'property fringe benefit' as defined in subsection 136(1) of the FBTAA?

Summary

The provision of food and drinks by the Employer to an employee in each of the circumstances in Scenarios A to C on a 'theme' day will constitute a 'property fringe benefit' as defined in subsection 136(1) of the FBTAA.

Detailed reasoning

Relevant law

The relevant law as stipulated in the response to Question 3 above also applies to Question 4.

Application to the Employer's circumstances

For each of Scenarios A to C on 'theme' days, as provided in Question 4, consideration will be given below as to whether the food and drink provided to employees of the Employer on 'theme' days constitutes a 'property fringe benefit' pursuant to section 40 of the FBTAA.

It is assumed, for the purposes of the response to Question 4, that each of the conditions that give rise to a 'fringe benefit' are satisfied for each of Scenarios A to C.

Food and drink provided in each the circumstances in Scenarios A to C constitutes tangible property. The food and drink is provided by the Employer (the provider) to an employee (the recipient) of the Employer in each of Scenarios A to C.

The applicable benefit is not provided for in Subdivision A of Divisions 2 to 10 of Part III of the FBTAA.

Therefore, the provision of a lunch meal by the Employer to an employee in each of the circumstances in Scenarios A to C on a 'theme' day will constitute a 'property benefit' pursuant to section 40 of the FBTAA, and as such, will be a 'property fringe benefit' as defined in subsection 136(1) of the FBTAA.

Question 5

If the answer to Question 3 is 'Yes' for each/any of Scenarios A to D, will the provision of food and drinks by the Employer to an employee in respect of each of these scenarios on a standard day constitute an 'exempt property benefit' as defined in section 41 of the FBTAA?

Summary

Scenarios A, B and C

The provision of food and drinks by the Employer to an employee on a standard day in respect of Scenarios A, B and C will constitute an 'exempt property benefit' as defined in section 41 of the FBTAA.

Scenario D

The provision of food and drinks by the Employer to an employee on a standard day in respect of Scenario D will not constitute an 'exempt property benefit' as defined in section 41 of the FBTAA. This is because, pursuant to subsection 41(2) of the FBTAA, section 41 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.

Detailed reasoning

Relevant law

Property Exemption

Certain property benefits are exempt under section 41 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':

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,...

The application of this definition is considered in Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises' (TR 2000/4).

Paragraph 4 of TR 2000/4 states the premises will only be business premises if two requirements are met:

1.     the premises or part of premises are 'of' the person; and

2.     the premises or part of the premises must be used by the person, in whole or in part, for the purposes of their business operations.

Premises of the person

Paragraph 25 of TR 2000/4 states the question of whether premises or a part of premises are premises of the person is:

to be determined having regard to the nature of the person's interest in the premises, evidenced by the person's rights and obligations in relation to the premises.

In applying this test, paragraphs 7 and 8 of TR 2000/4 state:

7.      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.

8.     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.

Business operations

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

Consequently, as set out in paragraph 9 of TR 2000/4, business operations can include a wide range of activities.

Paragraph 41 of TR 2000/4 indicates that 'business operations' is regarded as wider than 'carrying on a business' and would include both passive and active dealings. It can include an activity that, although not undertaken in the ordinary course of carrying on a business, is nevertheless undertaken in the course of carrying on a business.

An example of this principle is provided in paragraph 10 of TR 2000/4 and states in part:

... the provision of benefits to current employees in the form of child care would be an important factor in recruiting, retaining and otherwise rewarding employees. Activities undertaken in connection with the provision of those benefits to employees would be 'business operations' of the employer.

Application to the Employer's circumstances

It was concluded in the response to Question 3 above that a lunch meal provided at no charge to an employee of the Employer in respect of the circumstances in each of Scenarios A to D on standard days constitutes a 'property fringe benefit'.

For each of Scenarios A to D on standard days as identified in Question 5, consideration will be given below as to whether each of the associated property fringe benefits constitute an 'exempt property benefit' pursuant to section 41 of the FBTAA.

Scenarios A to C on standard days

Paragraph 41(1)(a) of the FBTAA

As per the response to Question 3 above, the provision of a lunch meal by the Employer to an employee in each of the circumstances in Scenarios A to C on a standard day will constitute a 'property benefit' pursuant to section 40 of the FBTAA.

Based on the facts, the lunch meals will be provided to current employees of the Employer.

As concluded in the response to Question 1, there is a sufficient or material connection between the provision of food and drinks at lunch time on standard days by the Employer to an employee at no charge and the employee's employment, such that the associated benefit is wholly or partly in respect of the employment of the employee.

Therefore, paragraph 41(1)(a) of the FBTAA is satisfied for Scenarios A, B and C.

Paragraph 41(1)(b) of the FBTAA

As per the facts, a lunch meal will be provided to, and consumed by, an employee of the Employer on a 'working day' as defined in paragraph 44 of TR 97/17.

The facts also provide that the lunch meal is consumed by an employee on the Employer's 'business premises' (as that term is defined in subsection 136(1) of the FBTAA), including either in the Employer's dining room or elsewhere within the Employer's premises (such as a staff room).

Therefore, paragraph 41(1)(b) of the FBTAA is satisfied.

Subsection 41(2) of the FBTAA

As per the facts, food and drinks provided by the Employer to an employee at no charge in respect of circumstances in Scenario D on a standard day are not provided as part of a salary sacrifice arrangement.

As such, subsection 41(2) of the FBTAA is satisfied.

Therefore, as each of the requirements in section 41 of the FBTAA are satisfied, the 'property fringe benefit' that arises in each of the circumstances in Scenarios A, B and C on standard days will be an 'exempt property benefit'.

Scenario D on standard days

Paragraphs 41(1)(a) and 41(1)(b) of the FBTAA

For the same reasons as discussed for Scenarios A, B and C on standard days above, paragraphs 41(1)(a) and 41(1)(b) of the FBTAA are also satisfied for Scenario D on standard days.

Subsection 41(2) of the FBTAA

As food and drinks in this scenario are provided to an employee under a salary sacrifice agreement, subsection 41(2) of the FBTAA is not satisfied.

Therefore, as all of the requirements in section 41 of the FBTAA are not satisfied in these circumstances, the 'property fringe benefit' that arises in Scenario D on standard days will not be an 'exempt property benefit'.

Question 6

If the answer to Question 4 is 'Yes' for each/any of Scenarios A to C, will the provision of food and drinks by the Employer to an employee in respect of each of these scenarios on a 'theme' day constitute an 'exempt property benefit' as defined in section 41 of the FBTAA?

Summary

The property fringe benefits that arise from the provision of food and drinks by the Employer to an employee in respect of Scenarios A to C on a 'theme' day will constitute an 'exempt property benefit' as defined in section 41 of the FBTAA.

Detailed reasoning

Relevant law

The relevant law as stipulated in the response to Question 5 above also applies to Question 6.

Application to the Employer's circumstances

It was concluded in the response to Question 4 above that a lunch meal provided at no charge to an employee of the Employer in respect of the circumstances in each of Scenarios A to C on 'theme' days constitutes a 'property fringe benefit'.

For each of Scenarios A to C on 'theme' days as identified in Question 6, consideration will be given below as to whether each of the associated property fringe benefits constitute an 'exempt property benefit' pursuant to section 41 of the FBTAA.

Paragraph 41(1)(a) of the FBTAA

As per the response to Question 4 above, the provision of a lunch meal by the Employer to an employee in each of the circumstances in Scenarios A to C on a 'theme' day will constitute a 'property benefit' pursuant to section 40 of the FBTAA.

Based on the facts, the lunch meals will be provided to current employees of the Employer.

As concluded in the response to Question 2, there is a sufficient or material connection between the provision of food and drinks at lunch time on 'theme' days by the Employer to an employee at no charge and the employee's employment, such that the associated benefit is wholly or partly in respect of the employment of the employee.

Therefore, paragraph 41(1)(a) of the FBTAA is satisfied for Scenarios A, B and C on 'theme' days.

Paragraph 41(1)(b) of the FBTAA

As per the facts, a lunch meal will be provided to, and consumed by, an employee of the Employer on a 'working day' as defined in paragraph 44 of TR 97/17.

The facts also provide that the lunch meal is consumed by an employee on the Employer's 'business premises' (as that term is defined in subsection 136(1) of the FBTAA), including either in the Employer's dining room or elsewhere within the Employer's premises (such as a staff room).

Therefore, paragraph 41(1)(b) of the FBTAA is satisfied.

Subsection 41(2) of the FBTAA

As per the facts, food and drinks provided by the Employer to an employee at no charge in respect of circumstances in Scenarios A to C on a 'theme' day are not provided as part of a salary sacrifice arrangement.

As such, subsection 41(2) of the FBTAA is satisfied.

Therefore, as each of the requirements in section 41 of the FBTAA are satisfied, the 'property fringe benefit' that arises in each of the circumstances in Scenarios A to C on a 'theme' day will be an 'exempt property benefit'.