Edited version of private advice

Authorisation Number: 1052015568859

Date of advice: 14 July 2023

Ruling

Subject: Meal entertainment

Question 1

Does the provision of food and drink to employees, when they meet at a café to network and discuss training following a professional development day, constitute meal entertainment for the purposes of section 37AD of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Does the provision of food and drink to employees, who are working at a Ball (that is not held on the employer's premises), constitute meal entertainment for the purposes of section 37AD of the FBTAA, if the employees do not pay a price for their tickets?

Answer

Yes.

Question 3

Does the provision of food and drink to employees, who are working at a Ball (that is not held on the employer's premises), constitute meal entertainment for the purposes of section 37AD of the FBTAA, if the employees pay a price for their tickets that equals or exceeds the value of what is provided?

Answer

No.

Question 4

Does the provision of food and drink to employees, when they attend a social event (that is held on the employer's premises), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Answer

Yes.

Question 5

Does the provision of food and drink to employees, when they attend a work event (that is held on the employer's premises), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Answer

No.

Question 6

Does the provision of food and drink to employees, when they attend an open day at their workplace, and are working, constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Answer

No.

Question 7

Does the provision of food and drink to employees, when they attend a breakfast at a hotel, constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Answer

Yes.

Question 8

Does the provision of cocktails and finger food to employees, who meet to network following a professional development day (that is held at a hotel), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Answer

Yes.

Question 9

Does the provision of an elaborate dinner and entertainment to employees, at the conclusion of a professional development day (held at a hotel), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Answer

Yes.

Question 10

Does the provision of an elaborate meal to employees and their partners, when they attend an Awards ceremony to recognise outstanding employees (that is held at a hotel), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Answer

Yes.

Question 11

Does the provision of travel, connected with the Awards ceremony that recognises outstanding employees, constitute meal entertainment for the purposes of 37AD of the FBTAA 1986?

Answer

Yes.

Question 12

Does the provision of free parking connected with the Awards ceremony that recognises outstanding employees, constitute meal entertainment for the purposes of 37AD of the FBTAA 1986?

Answer

Yes.

This ruling applies for the following periods:

Fringe Benefits Tax (FBT) year ending 31 March 2023

FBT year ending 31 March 2024

FBT year ending 31 March 2025

FBT year ending 31 March 2026

The scheme commenced on:

1 April 2022

Relevant facts and circumstances

The Employer is a tax-exempt body.

Employees are required to attend professional development and/or interact with clients at events held both on and off business premises where 'elaborate' meals may be provided. The Applicant requested that the minor benefits exemption was not considered as part of the ruling request.

Scenarios are as follows:

1. A café to discuss the training/networking following a professional development day.

A.  Why the food or drink is being provided? Sustenance while working.

B.  What type of food or drink is being provided? Light lunch (sandwich, wraps, rolls), coffee, tea, juice.

C.  When is that food or drink is being provided? During business hours.

D.  Where the food or drink is being provided? In a café.

E.  Does the employee pay cash for the food or drink or their ticket to the event? No.

F.  If the answer to question 5 is yes, how is the employee reimbursed for this expense?

G.  Is the employers credit card used for paying for food and drink for employees? Yes.

2.   A Ball (not on business premises) where employees are working. Employees (and sometimes partners) either do not pay for a ticket or they pay a price for their tickets that equals or exceeds the value of what is provided

A.  Why the food or drink is being provided? Work function.

B.  What type of food or drink is being provided? Sit down hot meal no alcohol.

C.  When is that food or drink is being provided? During the function.

D.  Where the food or drink is being provided? Hotel.

E. Does the employee pay cash for the food or drink or their ticket to the event? No

F. If the answer to question 5 is yes, how is the employee reimbursed for this expense?

G. Is the employers credit card used for paying for food and drink for employees? Yes

1.   A social event held on business premises

A. Why the food or drink is being provided? Employees are required to assist at the event. It is held on business premises and relevant staff attend the event. It is not mandatory that they attend and is for both work related purposes and social purposes. The event goes for a few hours over the dinner period.

B.  What type of food or drink is being provided? Light finger food (sandwich, wraps, rolls), coffee, tea, juice

C.  When is that food or drink is being provided? After business hours.

D. Where the food or drink is being provided? On business premises.

E. Does the employee pay cash for the food or drink or their ticket to the event? No

F. If the answer to question 5 is yes, how is the employee reimbursed for this expense?

G. Is the employers credit card used for paying for food and drink for employees? (E.g.; at the restaurant or café?) Yes

2.            A work event on business premises

A.  Why the food or drink is being provided? A business event that is being held during business hours. It is mandatory that employees attend, and they are required to perform work duties whilst they are there.

B.  What type of food or drink is being provided? Light finger food (sandwich, wraps, rolls), coffee, tea, juice. Refreshments are mainly for the volunteers assisting with the event, but employees occasionally partake of the food and drink being offered.

C.  When is that food or drink is being provided? During the event in appreciation for the volunteers.

D.  Where the food or drink is being provided? On the business premises.

E.  Does the employee pay cash for the food or drink or their ticket to the event? No.

F.  If the answer to question 5 is yes, how is the employee reimbursed for this expense?

G.  Is the employers credit card used for paying for food and drink for employees? Yes

3.   An open day on business premises

A.  Why the food or drink is being provided? Open day which is held during business hours. The employees are required to be there to greet potential clients and answer any questions. The food and drink are provided for the potentially new clients and at times the employees may partake of this.

B.  What type of food or drink is being provided? Light finger food (sandwich, wraps, rolls), coffee, tea, juice.

C.  When is that food or drink is being provided? During the open day.

D.  Where is the food or drink is being provided? On the business premise.

E.  Does the employee pay cash for the food or drink or their ticket to the event? No.

F.  If the answer to question 5 is yes, how is the employee reimbursed for this expense?

G.  Is the employers credit card used for paying for food and drink for employees? Yes

4.   A breakfast at a hotel

A.  Why the food or drink is being provided? Sustenance to prepare for the day. Provided before business hours commence.

B.  What type of food or drink is being provided? Cooked/Continental breakfast, coffee, tea, juice.

C.  When is that food or drink is being provided? Prior to business hours commencing.

D.  Where the food or drink is being provided? Hotel.

E.  Does the employee pay cash for the food or drink or their ticket to the event? No.

F.  If the answer to question 5 is yes, how is the employee reimbursed for this expense?

G.  Is the employers credit card used for paying for food and drink for employees? Yes.

5.   Professional development at a hotel, where cocktails and finger food are provided at the end during networking

A.  Why the food or drink is being provided? Sustenance after Professional Development Course/Seminar. Employees are required to attend to maintain and improve their skills. It is held during business hours and employees are in attendance as participants. Some courses it is mandatory that the employees are in attendance.

B.  What type of food or drink is being provided? Light finger food, coffee, tea, juice, alcohol.

C.  When is that food or drink is being provided? At the end of the professional development course/seminar.

D.  Where the food or drink is being provided? Hotel.

E.  Does the employee pay cash for the food or drink or their ticket to the event? No.

F.  If the answer to question 5 is yes, how is the employee reimbursed for this expense?

G.  Is the employers credit card used for paying for food and drink for employees? Yes

6.   Professional development at a hotel where an elaborate dinner and entertainment is provided at the conclusion of the professional development

A.  Why the food or drink is being provided? Networking at the end of Professional Development.

B.  What type of food or drink is being provided? Sit down meal, soft drinks, juice, alcohol, tea, coffee.

C.  When is that food or drink is being provided? After the professional development day.

D.  Where the food or drink is being provided? Hotel.

E.  Does the employee pay cash for the food or drink or their ticket to the event? No.

F.  If the answer to question 5 is yes, how is the employee reimbursed for this expense?

G.  Is the employers credit card used for paying for food and drink for employees? Yes.

7.   An Awards ceremony held at a hotel, to recognise outstanding employees, where employees and partners are invited for an elaborate meal. Employees may drive to the event venue where free parking is provided.

A.  Why the food or drink is being provided? Awards Ceremony.

B.  What type of food or drink is being provided? Breakfast & sit-down dinner and drinks (includes alcohol).

C.  When is that food or drink is being provided? All day and into the evening.

D.  Where the food or drink is being provided? Hotel or similar venue.

E.  Does the employee pay cash for the food or drink or their ticket to the event? No.

F.  If the answer to question 5 is yes, how is the employee reimbursed for this expense?

G.  Is the employers credit card used for paying for food and drink for employees? Yes

Relevant legislative provisions

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Section 20 of the Fringe Benefits Tax Assessment Act 1986

Section 21 of the Fringe Benefits Tax Assessment Act 1986

Section 37 AC of the Fringe Benefits Tax Assessment Act 1986

Section 37AD of the Fringe Benefits Tax Assessment Act 1986

Section 38 of the Fringe Benefits Tax Assessment Act 1986

Section 40 of the Fringe Benefits Tax Assessment Act 1986

Section 41 of the Fringe Benefits Tax Assessment Act 1986

Section 45 of the Fringe Benefits Tax Assessment Act 1986

Section 58P of the Fringe Benefits Tax Assessment Act 1986

Division 10 of Part III of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Question 1

Does the provision of food and drink to employees, when they meet at a café to network and discuss training following a professional development day, constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Summary

The provision of food and drink to employees at a café following a professional development day is considered meal entertainment under section 37AD of the FBTAA and gives rise to a tax-exempt body entertainment benefit under section 38.

Detailed reasoning

Fringe Benefits

The definition of a fringe benefit within subsection 136(1) of the FBTAA 1986:

fringe benefit, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

(c ) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

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

(ii) the arranger or another person; or

(ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer:

(g)  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, that the employer or associate is doing so;

in respect of the employment of the employee, but does not include:

...

(g) a benefit that is an exempt benefit in relation to the year of tax;

The employer of the employees is providing a benefit to its employees, being the food and drink and or entertainment. They are receiving the benefit because they are employees therefore it is provided in respect of their employment. In some instances, the employees' associates (partners) are also receiving the benefits. Based on the information provided, an exemption does not apply.

Consequently, the provision of food and drink to employees and their partners will be fringe benefits as defined in subsection 136(1) of the FBTAA.

Entertainment Benefits

The provision of entertainment may give rise to several different types of fringe benefits, depending on the circumstances under which you provide the entertainment. The different types of fringe benefits that may arise are:

•         a meal entertainment fringe benefit where fringe benefits are provided by way of, or in connection with, food or drink (Division 9A of the FBTAA)

•         an expense payment fringe benefit (refer to Expense payment fringe benefits) - for example, the cost of theatre tickets purchased by an employee that you reimburse (Division 5 of the FBTAA)

•         a property fringe benefit (refer to Property fringe benefits) - for example, providing food and drink (Division 11 of the FBTAA)

•         a residual fringe benefit (refer to Residual fringe benefits) - for example, providing accommodation or transport (Division 12 of the FBTTA)

•         a tax-exempt body entertainment fringe benefit. This category of fringe benefit involves only those employers who are exempt from income tax (refer to Tax-exempt body entertainment fringe benefits).(Division 10 of the FBTAA).

Section 136(1) of the FBTAA 1986 states that entertainment has the meaning given by section 32-10 of the Income Tax Assessment Act 1997 (ITAA 1997) i.e., the provision of entertainment means the provision of:

•         entertainment by way of food, drink, or recreation; or

•         accommodation or travel in connection with, or to facilitate the provision of, such entertainment.

There is no category of entertainment fringe benefits as such. However, employers have the option of valuing some forms of entertainment as meal entertainment fringe benefits. Section 136(1) of the FBTAA 1986 provides the following definition:

Meal entertainment fringe benefit means a fringe benefit that is a meal entertainment benefit.

Meal entertainment benefitmeans a benefit that is a meal entertainment benefit because of section 37AC.

Subsection 32-10(2) of the ITAA 1997 states that entertainment is provided even if business discussions occur. In the note to section 32-10 of the ITAA 1997, business lunches and social functions are given as examples of entertainment.

Section 37

Section 37AC of the FBTAA 1986 states:

Where at a particular time an employer (the provider) to whom this Division applies provides meal entertainment to another person (the recipient) the provision of the meal entertainment is taken to constitute a meal entertainment benefit provided by the provider to the recipient at that time.

Section 37AC falls under Division 9A of the FBTAA 1986. An employer may elect that this Division will apply to the employer for an FBT year under section 37AA of the FBTAA 1986.

The provision of meal entertainment is defined in section 37AD of the FBTAA as:

A reference to the provision of meal entertainment is a reference to the provision of:

a)  Entertainment by way of food or drink; or

b)            Accommodation or travel in connection with, or for the purpose of facilitating entertainment to which paragraph (a) applies; or

c)            The payment or reimbursement of expenses incurred in providing something covered by paragraph (a) or (b);

Whether or not:

d)            Business decisions or business transactions occur; or

e)            In connection with the working of overtime or otherwise in connection with the performance of the duties of any office or employment; or

f)             For the purposes of promotion or advertising; or

g)            At or in connection with a seminar.

'Entertainment by way of food or drink' is not further defined in the legislation. Therefore, they have their ordinary meaning taken in the context that they appear in Division 32 of the ITAA 1997.

Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17).

TR 97/17 considers entertainment as it relates to the provision of food and drink for fringe benefits tax (FBT) and income tax purposes.

Paragraphs 18 to 20 of TR 97/17 explain that in most cases the mere provision of food and drink satisfies 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 example, the provision of morning and afternoon tea to employees on a working day and the provision of light meals such as finger food as a working lunch are not considered to be entertainment.

The provision of light meals can be contrasted with 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.

TR 97/17lists the four factors which need to be considered when determining whether the provision of food or drink is entertainment. These factors are stated at paragraph 7:

•         Why the food or drink is being provided

•         What type of food or drink is being provided

•         When the food or drink is being provided; and

•         Where the food and drink are been provided.

Paragraph 23 of TR 97/17 looks at these four factors in further detail:

(a)   Why is the food or drink being provided? This test is a 'purpose test'. For example, food or drink provided for the purposes of refreshment does not generally have the character of entertainment, whereas food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment.

(b)   What food or drink is being provided. As noted above, morning and afternoon teas and light meals are generally not considered to constitute entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the greater the likelihood that entertainment arises from the consumption of the meal.

For example, when an employer provides morning or afternoon teas or light meals, that food or drink does not usually confer entertainment on the employee. By contrast, a three-course meal provided to an employee during a working lunch has the characteristics of entertainment. The nature of the food itself confers entertainment on the employee.

(c)   When is the food or drink being provided? Food or drink provided during work time, during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because in the majority of these cases food provided is for a work-related purpose rather than an entertainment purpose. This, however, depends upon whether the entertainment of the recipient is the expected outcome of the provision of the food or drink. For example, a staff social function held during work time still has the character of entertainment.

(d)   Where is the food or drink being provided? Food or drink provided on the employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment; refer to the reasons in (b) and (c) above. However, food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment. This is because the provision of the food or drink is less likely to have a work-related purpose.

These four factors will be applied against the food and drink being provided at the café following a professional development day to determine whether entertainment has been provided. While no one of the above factors will be determinative of the outcome paragraphs (a) and (b) are considered the more important factors to consider.

Why is the food and drink being provided?

Food and drink are provided to employees at a café after a professional development day. The purpose is to network and discuss training. The event is held during business hours. The food and drink are provided to encourage employees to network and discuss training.

More importantly, as paragraph 20 of TR 97/17 indicates, business lunches and drinks are examples of situations in which the provision of food or drink confers entertainment upon the recipient, regardless of whether or not business discussions or business transactions occur at the same time.

Consequently, although networking and training discussions may occur between employees this is considered insufficient to alter the character of entertainment that is conferred by the provision of food and drink.

What food or drink is being provided?

As light meals become more elaborate, they take on the characteristics of entertainment. In this case, employees are provided with light meals, tea, and coffee. No alcohol is served. The attendance at the professional development day is mandatory. It is not clear if it is mandatory to attend the café.

The type of food provided at this function does not take on the characteristics of entertainment.

When is food or drink being provided?

Food or drink provided during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because it is more likely the food is provided for work-related purposes rather than entertainment purposes.

In this case, the food and drink are provided during business hours at a café. It is provided following a professional development day.

The venue and the fact that staff are in attendance during business hours indicates that the food is more for sustenance rather than entertainment.

Where is food and drink being provided?

Food or drink provided at the employer's premises is less likely to have the character of entertainment. This is contrasted with food or drink provided outside the employer's usual place at work such as a restaurant or café.

As set out in paragraph 23 of TR 97/17 food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment.

In this case, the employer provides food and drinks at a café for their employees to attend after a professional development day. It is considered that the food and drink provided at such a venue has an entertainment-related purpose.

Conclusion

The lunch provided to employees at a café is not considered an elaborate meal.

All four factors must be considered before determining whether the food and drink provided is entertainment by way of food and drink.

It is considered, on balance, that the provision of food and drink to employees at the café following a professional development day does not fall within the narrow category of cases where the mere provision of food or drink does not amount to entertainment. The expenses incurred by the employer will constitute the provision of entertainment within the meaning of section 37AD of the FBTAA.

Tax Exempt Entities

Under Division 10 of the FBTAA 1986, a tax-exempt body which is exempt from income tax may be subject to FBT on the provision of employment related entertainment to its employees.

Section 38 of the FBTAA 1986 defines tax-exempt body entertainment benefits 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.

Section 38

Subsection 136(1) of the FBTAA 1986defines 'tax exempt body entertainment benefit' to mean a benefit referred to in section 38 of the FBTAA.

Section 38 of the FBTAA refers to 'non-deductible exempt entertainment expenditure' that is incurred in respect of the provision of entertainment to employees, or their associates, in respect of the employment of the employees.

A tax-exempt body entertainment benefit is a benefit that meets the following conditions:

•         it is provided in respect of employment

•         it involves the provision of entertainment, and

•         the employer incurs non-deductible exempt entertainment expenditure.

In respect of employment

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

The meeting at a café is for networking and planning for staff planning after attendance at a seminar. It can be considered work related.

The benefits are provided in respect of the employment.

Provision of entertainment

As mentioned above subsection 136(1) of the FBTAA defines 'entertainment' as having the same meaning given by section 32-10 of the ITAA 1997.

Subsection 32-10(2) of the ITAA 1997 states that entertainment is provided even if business discussions occur. In the note to section 32-10 of the ITAA 1997, business lunches and social functions are given as examples of entertainment.

It has been determined above the provision of food and drink at a café following a professional development day is considered entertainment.

Does the employer incur non-deductible exempt entertainment expenditure?

For entertainment expenditure to satisfy the definition of 'non-deductible exempt entertainment expenditure' in subsection 136(1) of the FBTAA, it must be expenditure that is:

•         not incurred in respect of producing assessable income, and

•         non-deductible entertainment expenditure

The ordinary and statutory income of entities covered by the tables in subdivision 50-A of the ITAA 1997 is exempt income under section 50-1 of the ITAA 1997.

This means that any income it derives is exempt income.

Under section 6-15 of the ITAA 1997 exempt income is not assessable income and, therefore, any expenditure incurred by the employer is not incurred in producing assessable income.

To satisfy the definition of 'non-deductible entertainment expenditure' in subsection 136(1) of the FBTAA the entertainment must be non-deductible for income tax purposes. For the purpose of determining whether the expenditure is deductible for income tax purposes, the tax-exempt body is treated as though it is a taxable entity.

Section 32-5 of the ITAA 1997 prevents entertainment expenditure from being allowed as an income tax deduction unless one of the exceptions in subdivision 32-B of the ITAA 1997 applies. In this scenario none of those exceptions apply.

Section 32-30 of the ITAA 1997, provides that employer expenses for entertainment are only deductible where the outgoing was not under an industrial instrument relating to overtime, but for providing food or drink:

a. to employees in an in-house dining facility, or

b. to non-employees in an in-house dining facility, or

c. to employees who perform most of their duties in an in-house dining facility

The employer has advised that the gathering after a professional development day to discuss training was held at an off-site venue such as a café.

Even if the event was held in an in-house dining facility, the exception allowing a deduction for entertainment expenditure under section 32-30 of the ITAA 1997, does not apply for food and drink provided at a party, reception, or other social function.

As the networking at a café is a social function, it falls outside the exclusion of item 1.1, 1.2 and 1.3 of section 32-30 of the ITAA 1997 and is therefore not tax deductible.

As the expenditure on the employees' attendance at the café for the purposes of networking is non-deductible entertainment expenditure, and is not incurred in producing assessable income, it meets the definition of 'non-deductible exempt entertainment expenditure' as defined in subsection 136(1) of the FBTAA.

Conclusion

The expenditure incurred by the employer in providing food and drink to employees at a café following a professional development day to discuss staff training is considered provision of a meal entertainment benefit under section 37AD. The expenses incurred meet the criteria under section 38 of the FBTAA and are considered tax-exempt body entertainment fringe benefits. As requested by the Applicant the exempt minor benefit provisions have not been considered.

Question 2

Does the provision of food and drink to employees, at a Ball (that is not held on business premises), constitute meal entertainment for the purposes of section 37AD of the FBTAA, if the employees do not pay a price for their tickets?

Summary

The provision of food and drink to employees at a Ball is considered meal entertainment under section 37AD of the FBTAA and gives rise to a tax-exempt body entertainment benefit under section 38.

Detailed reasoning

The relevant law as outlined in detail in the response to question 1 is also relevant to question 2.

As determined in question 1 the provision of food and drink to employees and their partners will be fringe benefits as defined in subsection 136(1) of the FBTAA.

The four factors as outlined in TR 97/17 will be applied against the food and drink being provided at the Ball held at an external venue to determine whether entertainment has been provided.

Why is the food and drink being provided?

Food and drink is provided to employees at a Ball at an external venue such as a hotel. The employees are there in a work capacity.

Consequently, although employees are there in a working capacity it does not alter the character of entertainment that is conferred by the provision of a sit-down hot meal and drinks (no alcohol).

What food or drink is being provided?

As light meals become more elaborate, they take on the characteristics of entertainment. In this case, employees are provided with a sit-down meal. No alcohol is served.

The type of food provided at this function takes on the characteristics of entertainment.

When is food or drink being provided?

Food or drink provided during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because it is more likely the food is provided for work-related purposes rather than entertainment purposes.

In this case, the food and drink are provided outside of business hours in the evening at an external venue such as a hotel.

The venue and the fact that staff are in attendance after business hours indicates that the food is more for entertainment and not sustenance.

Where is food and drink being provided?

Food or drink provided at the employer's premises is less likely to have the character of entertainment. This is contrasted with food or drink provided outside the employer's usual place at work such as a restaurant or café.

As set out in paragraph 23 of TR 97/17 food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment.

In this case, the employer provides a sit-down meal and drinks (no alcohol) at an external venue such as a hotel for their employees to attend a Ball. It is considered that the food and drink provided at such a venue for an event of this type has an entertainment-related purpose.

Conclusion

The sit-down meal and drinks provided to employees at an external venue such as a hotel is considered an elaborate meal.

All four factors must be considered before determining whether the food and drink provided is entertainment by way of food or drink.

It is considered, on balance, that the provision of a sit-down meal to employees at an external venue such as a hotel to attend a Ball does not fall within the narrow category of cases where the mere provision of food or drink does not amount to entertainment.

The expenses incurred by the employer will constitute the provision of entertainment within the meaning of section 37AD of the FBTAA.

As explained in question 1 the employer is income tax exempt. As exempt income is not assessable income any expenditure incurred by the employer is not incurred in producing assessable income.

In considering if the entertainment expenses are deductible, we need to consider if the food and drink was provided:

a. to employees in an in-house dining facility, or

b. to non-employees in an in-house dining facility, or

c. to employees who perform most of their duties in an in-house dining facility

The employer has advised that the Ball was held at an off-site venue such as a hotel.

Even if the Ball was held in an in-house dining facility, the exception allowing a deduction for entertainment expenditure under section 32-30 of the ITAA 1997, does not apply for food and drink provided at a party, reception, or other social function.

As the Ball is a party or social function, it falls outside the exclusion of item 1.1, 1.2 and 1.3 of section 32-30 of the ITAA 1997 and is therefore not tax deductible.

As the expenditure on the employees' attendance at the Ball where they do not pay for their ticket is non-deductible entertainment expenditure, and is not incurred in producing assessable income, it meets the definition of 'non-deductible exempt entertainment expenditure' as defined in subsection 136(1) of the FBTAA.

Conclusion

The expenditure incurred by the employer in providing food and drink to employees at the Ball is considered provision of a meal entertainment benefit under section 37AD. The expenses incurred meet the criteria under section 38 of the FBTAA and are considered tax-exempt body entertainment fringe benefits. As requested by the Applicant the exempt minor benefit provisions have not been considered.

Question 3

Does the provision of food and drink to employees, who are at a Ball (that is not held on business premises), constitute meal entertainment for the purposes of section 37AD of the FBTAA, if the employees pay a price for their tickets that equals or exceeds the value of what is provided?

Summary

As the employees are paying for their tickets to attend the Ball, a benefit does not arise. FBT is not applicable to this scenario.

Detailed reasoning

The definition of 'fringe benefit' in subsection 136(1) of the FBTAA applies to a benefit that is provided to an employee in respect of their employment. The benefit may be provided by the employer, an associate of the employer or under an arrangement with a third party.

The definition of 'benefit' in subsection 136(1) of the FBTAA is very broad and includes any right, privilege, service, or facility.

This scenario is very similar to question 2. However, in this instance the employees are paying for a ticket to attend a Ball that is held off-site at an external venue such as a hotel. They will be provided a sit-down meal and drinks. No alcohol is served. The purchase price of the ticket will be of equal or greater value than the benefit provided. In this situation, a benefit has not been provided, therefore a fringe benefit will not arise.

Question 4

Does the provision of food and drink to employees, when they attend a social event (that is held on the business premises), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Summary

The provision of food and drink to employees at a social event is considered meal entertainment under section 37AD of the FBTAA and gives rise to a tax-exempt body entertainment benefit under section 38.

Detailed reasoning

The relevant law as outlined in detail in the response to question 1 is also relevant to question 4.

As determined in question 1 the provision of food and drink to the employees and their partners will be fringe benefits as defined in subsection 136(1) of the FBTAA.

The four factors as outlined in TR 97/17 will be applied against the food and drink being provided to attend a social event held on the business premises to determine whether entertainment has been provided.

Why is the food and drink being provided?

Food and drink are provided to employees on the business premises at a social event. Employees are required to attend this event. Relevant employees attend for both work related and social purposes.

More importantly, as paragraph 20 of TR 97/17 indicates, business lunches and drinks, dinners, cocktail parties, and staff social functions are examples of situations in which the provision of food or drink confers entertainment upon the recipient, regardless of whether or not business discussions or business transactions occur at the same time.

Consequently, although employees are in attendance in a supervisory this is considered insufficient to alter the character of entertainment that is conferred by the provision of food and drink.

What food or drink is being provided?

As light meals become more elaborate, they take on the characteristics of entertainment. In this case, employees are provided with light finger food such as wraps, rolls, and sandwiches and tea, coffee, and juice. No alcohol is served. The attendance at the social event is optional. Staff who know the attendees are more likely to attend.

The type of food provided at this function does not take on the characteristics of entertainment.

When is food or drink being provided?

Food or drink provided during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because it is more likely the food is provided for work-related purposes rather than entertainment purposes.

In this case, the food and drink are provided after business hours on the business premises. The fact that staff are in attendance after business hours indicates that the food is more for entertainment and is a social context.

Where is food and drink being provided?

Food or drink provided at the employer's premises is less likely to have the character of entertainment. This is contrasted with food or drink provided outside the employer's usual place at work such as a restaurant or café.

As set out in paragraph 23 of TR 97/17 food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment.

In this case, the employer provides food and drinks for their employees to attend a social event on the business premises. It is considered that the food and drink provided at such a venue does not have an entertainment-related purpose.

Conclusion

The light finger food and drinks provided to employees on-site is not considered an elaborate meal.

All four factors must be considered before determining whether the food and drink provided is entertainment by way of food or drink.

It is considered, on balance, that the provision of the light finger food and drinks to employees on site to attend a social event does not fall within the narrow category of cases where the mere provision of food or drink does not amount to entertainment. The expenses incurred by the employer will constitute the provision of entertainment within the meaning of section 37AD of the FBTAA.

As explained in question 1 the employer is tax exempt. As exempt income is not assessable income any expenditure incurred by the employer is not incurred in producing assessable income.

In considering if the entertainment expenses are deductible, we need to consider if the food and drink was provided:

a. to employees in an in-house dining facility, or

b. to non-employees in an in-house dining facility, or

c. to employees who perform most of their duties in an in-house dining facility

The employer has advised that the social events are held on the business premises. It is not known if the food or drink is provided in an in-house dining facility. Light food is provided such as sandwiches and wraps, tea, and coffee. The event runs outside of business hours in the evening.

Even if the event was held in an in-house dining facility, the exception allowing a deduction for entertainment expenditure under section 32-30 of the ITAA 1997, does not apply for food and drink provided at a party, reception, or other social function.

As the event is a party or social function, it falls outside the exclusion of item 1.1, 1.2 and 1.3 of section 32-30 of the ITAA 1997 and is therefore not tax deductible.

As the expenditure for the employees' attendance at the social event is non-deductible entertainment expenditure, and is not incurred in producing assessable income, it meets the definition of 'non-deductible exempt entertainment expenditure' as defined in subsection 136(1) of the FBTAA.

Conclusion

The expenditure incurred by the employer in providing food and drink to employees at the social event on the business premises is considered provision of a meal entertainment benefit under section 37AD. The expenses incurred meet the criteria under section 38 of the FBTAA and are considered tax-exempt body entertainment fringe benefits. As requested by the Applicant the exempt minor benefit provisions have not been considered.

Question 5

Does the provision of food and drink to employees, when they attend a work event (that is held on the business premises), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Summary

The provision of food and drink to employees when they attend a work event on the business premises is not considered meal entertainment under section 37ADof the FBTAAand will not give rise to a tax-exempt body entertainment under section 38. The provision of food and drink will be considered an exempt benefit under section 41 of the FBTAA.

Detailed reasoning

The relevant law as outlined in detail in the response to question 1 is also relevant to question 5.

As determined in question 1 the provision of food and drink to employees and their partners will be fringe benefits as defined in subsection 136(1) of the FBTAA unless an exemption applies.

The four factors as outlined in TR 97/17 will be applied against the food and drink being provided at the work event held on the business premises to determine whether entertainment has been provided.

Why is the food and drink being provided?

Food and drink are provided to employees on the business premises at a work event. It is mandatory for employees to attend as they are required to work at this event.

More importantly, as paragraph 20 of TR 97/17 indicates, business lunches and drinks, dinners, cocktail parties, and staff social functions. are examples of situations in which the provision of food or drink confers entertainment upon the recipient, regardless of whether or not business discussions or business transactions occur at the same time.

Food and drink provided in this situation is more for sustenance rather than entertainment.

What food or drink is being provided?

As light meals become more elaborate, they take on the characteristics of entertainment. In this case, employees are provided with light finger food such as wraps, rolls, and sandwiches and tea, coffee, and juice. No alcohol is served.

The type of food provided at this function does not take on the characteristics of entertainment.

When is food or drink being provided?

Food or drink provided during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because it is more likely the food is provided for work-related purposes rather than entertainment purposes.

In this case, the food and drink are provided during business hours on the business premises.

The fact that staff are in attendance during business hours indicates that food is for sustenance whilst they are working at the work event.

Where is food and drink being provided?

Food or drink provided at the employer's premises is less likely to have the character of entertainment. This is contrasted with food or drink provided outside the employer's usual place at work such as a restaurant or café.

As set out in paragraph 23 of TR 97/17 food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment.

In this case, the employer provides light finger food and drinks for their employees while they are working at a work event. It is considered that the food and drink provided at such a venue does not have an entertainment-related purpose.

Conclusion

The light finger food and drinks provided to employees on-site is not considered an elaborate meal.

All four factors must be considered before determining whether the food and drink provided is entertainment by way of food or drink.

It is considered, on balance, that the provision of the light finger food and drinks to employees on-site at a work event falls within the narrow category of cases where the mere provision of food or drink does not amount to entertainment. The expenses incurred by the employer will not constitute the provision of entertainment within the meaning of section 37AD of the FBTAA.

As the food and drink is not considered entertainment, section 37AD and section 38 are not applicable.

We then need to consider if the food and drink provided falls under another provision of the FBTAA.

The benefits that arise from the provision of food and drink that are not tax-exempt body entertainment benefits are either expense payment benefits under section 20 of the FBTAA or property benefits under section 40 of the FBTAA.

Section 20

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 employer providing food and drink to the employees while at the work event. The employer does not pay an amount or reimburse the employee for an amount that the employee has contracted to pay.

As the employer pays for the food and drink using the corporate credit card an expense payment benefit would not arise as the employer whose names appears on the credit card is liable for any expenses incurred on that card.

The provision of food and drinks at the work event on business premises to the employees 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 to employees are property fringe benefits as defined in subsection 136(1) of the FBTAA and as provided for in section 40 of the FBTAA.

Section 40

A 'property benefit' is defined in subsection 136(1) 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 employer is Division 5, which deals with expense payment fringe benefits.

We have determined that these food and drink expenses cannot be considered an expense payment benefit as the corporate credit card is used for payment of the expenses.

Section 41

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.

In respect of employment

As previously discussed, the work event is held at the business premises and is considered a work-related event for employees attending as they are fulfilling their obligations as an employee. The event is held during business hours. The food and drink are provided because of their employment relationship.

The benefits are provided in respect of the employment of the employees.

Working Day

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

The facts tell us that the employees are attending the work event on a working day.

Business Premises

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 facts of the case indicate that the event is held on the business premises. Therefore, the Commissioner is satisfied this criterion has been met.

The employer 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.

The employer is using the business premises to hold the event. Therefore, none of the exclusions included in subsection 136(1) of the FBTAA in relation to business premise are relevant.

Conclusion

As the employer satisfies the requirements in subsection 41(1) of the FBTAA then the food and drink consumed by employees at the event are an exempt property benefit.

Question 6

Does the provision of food and drink to employees, when they attend an open day (that is held on business premises), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Summary

The provision of food and drink to employees at an open day is not considered mealentertainment under section 37AD of the FBTAA and therefore does not give rise to a tax-exempt body entertainment benefit under section 38. It is considered an exempt property benefit under section 41 of the FBTAA.

Detailed Reasoning

The relevant law as outlined in detail in the response to question 1 and in question 5 is also relevant to question 6.

As determined in question 1 the provision of food and drink to the employees and their partners will be fringe benefits as defined in subsection 136(1) of the FBTAA.

The four factors as outlined in TR 97/17 will be applied against the food and drink being provided at an open day (that is held on business premises) to determine whether entertainment has been provided.

Why is the food and drink being provided?

Food and drink are provided to employees on the business premises at an open day. It is mandatory for employees to attend as they are required to greet potential clients and answer questions.

More importantly, as paragraph 20 of TR 97/17 indicates, business lunches and drinks, dinners, cocktail parties, and staff social functions. are examples of situations in which the provision of food or drink confers entertainment upon the recipient, regardless of whether or not business discussions or business transactions occur at the same time.

Food and drink provided in this situation is more for sustenance rather than entertainment.

What food or drink is being provided?

As light meals become more elaborate, they take on the characteristics of entertainment. In this case, employees are provided with light finger food such as wraps, rolls, and sandwiches and tea, coffee, and juice. No alcohol is served. Attendance is mandatory by employees.

The type of food provided at this function does not take on the characteristics of entertainment.

When is food or drink being provided?

Food or drink provided during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because it is more likely the food is provided for work-related purposes rather than entertainment purposes.

In this case, the food and drink are provided during business hours on the business premises.

The fact that staff are in attendance during business hours indicates that food is for sustenance whilst they are working at the open day answering questions from prospective clients.

Where is food and drink being provided?

Food or drink provided at the employer's premises is less likely to have the character of entertainment. This is contrasted with food or drink provided outside the employer's usual place at work such as a restaurant or café.

As set out in paragraph 23 of TR 97/17 food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment.

In this case, the employer provides light finger food and drinks for their employees while they are working at the open day. It is considered that the food and drink provided at such a venue does not have an entertainment-related purpose.

Conclusion

The light finger food and drinks provided to employees on-site is not considered an elaborate meal.

All four factors must be considered before determining whether the food and drink provided is entertainment by way of food or drink.

It is considered, on balance, that the provision of the light finger food and drinks to employees on site to answer questions from potential clients at an open day falls within the narrow category of cases where the mere provision of food or drink does not amount to entertainment. The expenses incurred by the employer will not constitute the provision of entertainment within the meaning of section 37AD of the FBTAA.

As the food and drink is not considered entertainment, section 37AD and section 38 are not applicable.

We then need to consider if the food and drink provided falls under another provision of the FBTAA.

The benefits that arise from the provision of food and drink that are not tax-exempt body entertainment benefits are either expenses payment benefits under section 20 of the FBTAA or property benefits under section 40 of the FBTAA.

Section 40 and 41

Using the same analysis as in question 5, the food and drink provided at the open day to employees is considered a property benefit as the corporate credit card is used to pay for the expenses incurred in providing the food. Section 41 exempts certain property benefits. Detailed reasoning on the exemption was provided in question 5. As the employer satisfies the requirements in subsection 41(1) of the FBTAA then the food and drink consumed by employees at the open day are an exempt property benefit.

Conclusion

The food and drink provided by the employer for an open day does not give rise to a meal entertainment fringe benefit. The benefit is considered a property benefit which is then made exempt under section 41 of the FBTAA as all the requirements in subsection 41(1) have been met.

Question 7

Does the provision of food and drink to employees, when they attend a breakfast (that is held at a hotel), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Summary

The provision of food and drink to employees when they attend a breakfast that is held at a hotel, is considered meal entertainment under section 37AD of the FBTAA and gives rise to a tax-exempt body entertainment benefit under section 38.

Detailed Reasoning

The relevant law as outlined in detail in the response to question 1 is also relevant to question 7.

As determined in question 1 the provision of food and drink to the employees will be fringe benefits as defined in subsection 136(1) of the FBTAA.

The four factors as outlined in TR 97/17 will be applied against the food and drink being provided at a breakfast that is held at a hotel to determine whether entertainment has been provided.

Why is the food and drink being provided?

Food and drink are provided to employees who are attending the breakfast at a hotel. Employees are required to attend this event.

More importantly, as paragraph 20 of TR 97/17 indicates, business lunches and drinks, dinners, cocktail parties, and staff social functions are examples of situations in which the provision of food or drink confers entertainment upon the recipient, regardless of whether or not business discussions or business transactions occur at the same time.

Consequently, although employees are in attendance in a working capacity this is considered insufficient to alter the character of entertainment that is conferred by the provision of food and drink.

What food or drink is being provided?

As light meals become more elaborate, they take on the characteristics of entertainment. In this case, employees are provided with a cooked and continental breakfast, coffee, tea, and juice. No alcohol is served.

The type of food provided at this function takes on the characteristics of entertainment.

When is food or drink being provided?

Food or drink provided during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because it is more likely the food is provided for work-related purposes rather than entertainment purposes.

In this case, the food and drink are provided prior to business hours commencing at a hotel. This context of the event is a celebration.

This type of event indicates that the food and drink is being provided as celebration and is more for entertainment in a social context.

Where is food and drink being provided?

Food or drink provided at the employer's premises is less likely to have the character of entertainment. This is contrasted with food or drink provided outside the employer's usual place at work such as a restaurant or café.

As set out in paragraph 23 of TR 97/17 food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment.

In this case, the employer provides food and drinks for their employees to attend a breakfast at a hotel. It is considered that the food and drink provided at such a venue would have an entertainment-related purpose.

Conclusion

The cooked and continental breakfast and drinks provided to employees at a hotel is considered an elaborate meal.

All four factors must be considered before determining whether the food and drink provided is entertainment by way of food or drink.

It is considered, on balance, that the provision of the cooked and continental breakfast and drinks to employees at a hotel to attend a breakfast does not fall within the narrow category of cases where the mere provision of food or drink does not amount to entertainment. The expenses incurred by the employer will constitute the provision of entertainment within the meaning of section 37AD of the FBTAA.

The employer is a tax-exempt entity. Income tax exempt entities may be subject to FBT of the provision of employment related entertainment to employees. We need to determine if the benefit provided above meets the criteria of non-deductible exempt entertainment expenditure.

As outlined in question 1, employer expenses on entertainment are only deductible where the outgoing was not under an industrial instrument relating to overtime, but for providing food or drink:

a. to employees in an in-house dining facility, or

b. to non-employees in an in-house dining facility, or

c. to employees who perform most of their duties in an in-house dining facility

The employer has advised that breakfast is held at an off-site venue such as a hotel.

Even if the breakfast was held in an in-house dining facility, the exception allowing a deduction for entertainment expenditure under section 32-30 of the ITAA 1997, does not apply for food and drink provided at a party, reception, or other social function.

As the breakfast is considered a party or social function, it falls outside the exclusion of item 1.1, 1.2 and 1.3 of section 32-30 of the ITAA 1997 and is therefore not tax deductible.

As the expenditure on the employees' attendance at the breakfast is non-deductible entertainment expenditure, and is not incurred in producing assessable income, it meets the definition of 'non-deductible exempt entertainment expenditure' as defined in subsection 136(1) of the FBTAA.

Conclusion

The expenditure incurred by the employer in providing food and drink to employees at the breakfast is considered provision of a meal entertainment benefit under section 37AD. The expenses incurred meet the criteria under section 38 of the FBTAA and are considered tax-exempt body entertainment fringe benefits. As requested by the Applicant the exempt minor benefit provisions have not been considered.

Question 8

Does the provision of cocktails and finger food to employees, who meet to network following a professional development day (that is held at a hotel), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Summary

The provision of food and drink to employees after a professional development day that is held at a hotel, is considered meal entertainment under section 37AD of the FBTAA. However, subsection 32-35 of the ITAA 1997 allows food and drinks that are incidental to attendance at a professional development to be an income tax deduction. As, the provision of the food would be an allowable income tax deduction, the otherwise deductible rule will prevent an FBT liability from arising.

Detailed Reasoning

The relevant law as outlined in detail in the response to question 1 is also relevant to question 8.

As determined in question 1 the provision of food and drink to the employees and their partners will be fringe benefits as defined in subsection 136(1) of the FBTAA.

The four factors as outlined in TR 97/17 will be applied against the food and drink being provided at a professional development day that is held at a hotel to determine whether entertainment has been provided.

Why is the food and drink being provided?

Food and drink are provided to employees who are attending the professional development day at a hotel. The food and drink are provided while employees are networking.

More importantly, as paragraph 20 of TR 97/17 indicates, business lunches and drinks, dinners, cocktail parties, and staff social functions. are examples of situations in which the provision of food or drink confers entertainment upon the recipient, regardless of whether or not business discussions or business transactions occur at the same time.

Consequently, although employees have attended a professional development day, the food and drink provided takes on the character of entertainment.

What food or drink is being provided?

As light meals become more elaborate, they take on the characteristics of entertainment. In this case, employees are provided with finger feels and cocktails.

The type of food provided at this function takes on the characteristics of entertainment.

When is food or drink being provided?

Food or drink provided during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because it is more likely the food is provided for work-related purposes rather than entertainment purposes.

In this case, the food and drink are provided during business hours at a hotel. This context of the event is for networking after a professional development day.

This type of event indicates that even though it is in business hours, the food and drink is being provided is in a social context and is more for entertainment.

Where is food and drink being provided?

Food or drink provided at the employer's premises is less likely to have the character of entertainment. This is contrasted with food or drink provided outside the employer's usual place at work such as a restaurant or café.

As set out in paragraph 23 of TR 97/17 food or drink provided in a function room, hotel, restaurant, cafe, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment.

In this case, the employer provides food and drinks for their employees to enjoy while networking after a professional development day at a hotel. It is considered that the food and drink provided at such a venue would have an entertainment-related purpose.

Conclusion

The finger food and cocktails provided to employees at a hotel is considered more than a light meal.

All four factors must be considered before determining whether the food and drink provided is entertainment by way of food or drink.

It is considered, on balance, that the provision of the finger food and cocktails to employees at a hotel does not fall within the narrow category of cases where the mere provision of food or drink does not amount to entertainment. The expenses incurred by the employer will constitute the provision of entertainment within the meaning of section 37AD of the FBTAA.

The employer is a tax-exempt entity. Income tax exempt entities may be subject to FBT of the provision of employment related entertainment to employees. We need to determine if the benefit provided above meets the criteria of non-deductible exempt entertainment expenditure.

Section 32-5 of the ITAA 1997 prevents entertainment expenditure from being allowed as an income tax deduction unless one of the exceptions in subdivision 32-B of the ITAA 1997 applies. Seminar expenses are one of those exceptions.

Section 32-10(1) of the ITAA defines entertainment 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.

Section 32-10(2) of the ITAA 1997 confirms that you are taken to provide entertainment even if business discussions or transactions occur.

For the purposes of this ruling the relevant exceptions within Subdivision 32-B are contained in:

•         section 32-20 which enables a deduction to be claimed for expenses incurred in providing entertainment where the entertainment results in a fringe benefit; and

•         section 32-35 which enables a deduction to be claimed for expenses incurred in providing entertainment that is reasonably incidental to attending a seminar that goes for at least 4 hours.

Is the conference a seminar for the purposes of section 32-35 of the ITAA 1997?

Section 32-35 provides another exception to the general rule of section 32-5 by allowing a deduction for food, drink accommodation or travel that is reasonably incidental to an employee attending a seminar that goes for at least four hours. Section 32-35 states:

SECTION 32-35 Seminar expenses

Table 1: Section 32-35 Seminar expenses

For the expenses to come within this exception it is necessary for the following conditions to be met:

            (i)        the expenses to be reasonably incidental to the attendance at a seminar;

           (ii)        the seminar must go for at least four hours;

          (iii)        the seminar must not be a business meeting;

          (iv)        the main purpose of the seminar must not be to promote or advertise a business, or its goods or services; and

           (v)        the main purpose of the seminar must not be to provide entertainment.

These conditions are considered below:

Are the expenses reasonably incidental to the attendance at a seminar?

Section 32-65 of the ITAA 1997 a definition of the term 'seminar' for the purposes of section 32-35.

Section 32-65 states:

SECTION 32-65 Seminars (seminar expenses table item 2.1)

32-65 (1) Seminar includes a conference, convention, lecture, meeting (including a meeting for the presentation of awards), speech, "question and answer" session or educational course.

32-65 (2) In working out whether a *seminar goes for at least 4 hours the following are taken not to affect the seminar's continuity, nor to form part of it:

(a)  any part of the seminar that occurs during a meal

(b)  any break during the seminar for the purpose of a meal, rest or *recreation.

In summarising, for a seminar to be considered to be a 'seminar' for the purposes of section 32-65 of the ITAA the following requirements must be met:

1. The seminar is a conference, convention, lecture, meeting, speech, question and answer session or educational course
2. the seminar, not including any part of the seminar that occurs during a meal or any break in the seminar for the purposes of a meal, rest, or recreation, goes for at least four hours.

It is accepted that a professional development session comes within this definition.

Did the seminar go for at least four hours?

In determining whether the seminar went for at least four hours subsection 32-65(20 of the ITAA 1997 states:

In working out whether a ^*seminar goes for at least 4 hours the following are taken not to affect the seminar's continuity, nor to form part of it:

(a) any part of the seminar that occurs during a meal;

(b) any break during the seminar for the purpose of a meal, rest or ^*recreation.

In the facts the employer has stated that the professional development day went for a whole day. So long as the seminar goes for at least four hours the requirements of subsection 32-65(2) will be met.

Is the seminar a business meeting?

Subsection 32-65(3) of the ITAA 1997 sets out when a seminar will be a business meeting. Subsection 32-65(3) states:

A seminar is a business meeting if its main purpose is for individuals who are (or will be) associated with the carrying on of a particular business to give or receive information, or discuss matters, relating to the business.

However, the seminar is not a business meeting if it:

(a)  is organised by (or on behalf of) an employer solely for either or both of these purposes:

(i)            training the employer and the employer's employees (or just those employees) in matters relevant to the employer's business (or prospective business);

(ii)           enabling the employer and the employer's employees (or just those employees) to discuss general policy issues relevant to the internal management of the employer's business; and

(b)  is conducted on property that is occupied by a person (other than the employer) whose business includes organising seminars or making property available for conducting seminars.

It is accepted the main purpose of the professional development day is not for individuals who are associated with a particular business to give or receive information or discuss matters relating to the particular business.

Is the main purpose of the seminar to promote or advertise a business, or its goods or services?

The main purpose of the seminar is not to promote or advertise a business.

Professional development sessions are usually in the context of supplementary learning that professionals undertake in order to develop and maintain their professional skills.

It is accepted that the professional development day is a seminar for the purposes of section 32-65 of the ITAA 1997.

Is the provision of entertainment the main purpose of the seminar?

Professional development session's main purpose is for educating and skilling employees.

Entertainment is not the main purpose of a professional development day.

As all the requirements of section 32-35 of the FBTAA are met it is accepted that section 32-5 of the ITAA 1997 will not prevent an income tax deduction being claimed for providing food and drink that is reasonably incidental to the attendance at the seminar.

Otherwise Deductible Rule

Where meal entertainment is subject to FBT, the taxable value of the fringe benefit may, in certain circumstances, be reduced under the 'otherwise deductible' rule. This rule provides that the taxable

value of relevant fringe benefits may be reduced to the extent that an income tax deduction would have been available to the employee if that employee had incurred and paid the expense.

In determining whether the employee would have been entitled to claim an income tax deduction for the expenditure it is necessary to consider the following two questions:

(a)  Would a deduction have been allowed under section 8-1 of the ITAA 1997?

(b)  Would section 32-5 of the ITAA 1997 prevent a deduction being claimed under section 8-1?

(a)  Would a deduction have been allowed under section 8-1 of the ITAA 1997?

Guidance as to the deductibility of the expenses is provided in paragraphs 63 to 70 of Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business. These paragraphs state:

63. An expense is deductible under section 8-1 when the essential character is that of an income producing expense. The essential character is to be determined by an objective analysis of all the surrounding circumstances (see Fletcher & Ors (199) 173 CLR 1 at 17; 91 ATC 4950 at 4957 and 4958; (1991) 22 ATR 613 at 622).

64. If the purpose of a study tour or attendance at a work-related conference or seminar is the gaining or producing of income, the existence of an incidental private purpose does not affect the characterisation of the related expenses as wholly incurred in gaining assessable income.

In applying these examples, it is accepted that the food and drink expenses would be incidental to the employee's attendance at the seminar. Therefore, these expenses would be deductible for the employee as the main purpose of attending the conference is the gaining or producing of income.

(b)  Would section 32-5 of the ITAA 1997 prevent a deduction being claimed under section 8-1?

As discussed above, section 32-5 of the ITAA 1997 prevents an income tax deduction being claimed under section 8-1 of the ITAA 1997 where the expenditure is a loss or outgoing in respect of providing entertainment.

This has been discussed in detail above. It is accepted that the food and drink provided is incidental to the employees attending the professional development day. Therefore, the provision of the food and drink to employees after a professional development day does not involve the provision of entertainment.

Conclusion

The expenditure incurred by the employer in providing finger food and cocktails to employees at a hotel following a professional development day is considered provision of a meal entertainment benefit under section 37AD. The expenses incurred are considered incidental to the attendance at the seminar. As they meet the criteria under section 32-35 of the FBTAA they are not considered entertainment. As the expenses are not considered entertainment section 32-5 will not prevent these expenses from being an income tax deduction. As the expenses in this scenario will be an allowable income tax deduction for employees, the otherwise deductible rule will reduce the taxable value of the fringe benefit that would arise from the provision of food and drink to nil.

Question 9

Does the provision of an elaborate dinner and entertainment to employees, at the conclusion of a professional development day (held at a hotel), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Summary

For the same technical analysis given in question 8, the elaborate dinner and entertainment provided to employees after a professional development day that is held at a hotel, is considered meal entertainment under section 37AD of the FBTAA. However, subsection 32-35 of the ITAA 1997 allows food and drinks that are incidental to attendance at a professional development to be an income tax deduction. As the provision of the food would be an allowable income tax deduction, the otherwise deductible rule will prevent an FBT liability from arising.

Question 10

Does the provision of an elaborate meal to employees and their partners, when they attend an Awards ceremony to recognise outstanding employees (that is held at a hotel), constitute meal entertainment for the purposes of section 37AD of the FBTAA?

Summary

The provision of food and drink to employees and their partners when they attend an Awards ceremony that is held at a hotel, is considered meal entertainment under section 37AD of the FBTAA and gives rise to a tax-exempt body entertainment under section 38.

Detailed Reasoning

The relevant law as outlined in detail in the response to question 1 is also relevant to question 10.

As determined in question 1 the provision of food and drink to the employees and their partners will be fringe benefits as defined in subsection 136(1) of the FBTAA.

The four factors as outlined in TR 97/17 will be applied against the food and drink being provided at an Awards ceremony that is held at a hotel to determine whether entertainment has been provided.

Why is the food and drink being provided?

An elaborate dinner is provided to employees while they are attending an awards ceremony to recognise high achieving employees at a hotel. The event is held after business hours.

In this instance it appears that food and drink is provided for the purpose of enjoyment rather than sustenance.

What food or drink is being provided?

As light meals become more elaborate, they take on the characteristics of entertainment. In this case, staff members and their partners are provided with an elaborate dinner at a hotel.

The employer has informed us that the meal is elaborate. Therefore, it takes on the characteristics of being entertainment.

When is food or drink being provided?

Food or drink provided during overtime or while an employee is travelling is less likely to have the character of entertainment. This is because it is more likely the food is provided for work-related purposes rather than entertainment purposes.

In this case, the dinner is provided after-hours, at a hotel. Employees and their partners do not pay for their ticket to attend. They are also not paid salary or wages to attend.

The venue and the fact that staff are not paid to attend the function are indicative that the food and drink are provided for enjoyment and entertainment rather than sustenance.

Where is food and drink being provided?

Food or drink provided at the employer's premises is less likely to have the character of entertainment. This is contrasted with food or drink provided outside the employer's usual place at work such as a restaurant or café.

In this case, the employer provides food and drinks at a hotel for their employees and their partners to attend an awards ceremony for high performing staff. It is considered that the food provided has an entertainment-related purpose.

Conclusion

The dinner provided to employees and their partners at an awards event at a hotel is considered an elaborate meal.

All four factors must be considered before determining whether the food and drink provided is entertainment by way of food or drink.

It is considered, on balance, that the provision of dinner to employees and their partners at the awards event at a hotel staff will constitute the provision of entertainment within the meaning of section 37AD of the FBTAA. This is because the above factors indicate that the dinners are for the purposes of entertainment.

The employer is a tax-exempt entity. Income tax exempt entities may be subject to FBT of the provision of employment related entertainment to employees. We need to determine if the benefit provided above meets the criteria of non-deductible exempt entertainment expenditure.

As outlined in question 1, employer expenses on entertainment are only deductible where the outgoing was not under an industrial instrument relating to overtime, but for providing food or drink:

a. to employees in an in-house dining facility, or

b. to non-employees in an in-house dining facility, or

c. to employees who perform most of their duties in an in-house dining facility

The employer has advised that the awards event was held at an external venue such as a hotel to celebrate high achieving employees.

Accordingly, the expenditure is not deductible for income tax purposes and is considered non-deductible exempt entertainment expenditure.

Conclusion

The expenditure incurred by the employer in providing an elaborate meal and entertainment to employees and their partners at an awards evening at a hotel is considered provision of a meal entertainment benefit under section 37AD. The expenses incurred meet the criteria under section 38 of the FBTAA and are considered tax-exempt body entertainment fringe benefits. As requested by the Applicant the exempt minor benefit provisions have not been considered.

Question 11

Does the provision of travel, connected with the Awards ceremony that recognises outstanding employees, constitute meal entertainment for the purposes of 37AD of the FBTAA 1986?

Summary

The provision of travel for employees when they attend an Awards ceremony that is held at a hotel, is considered meal entertainment under section 37AD of the FBTAA and gives rise to a tax-exempt body entertainment benefit under section 38.

Detailed Reasoning

The relevant law as outlined in detail in the response to question 1 is also relevant to question 11.

As determined in question 1 the provision of food and drink to employees and their partners will be fringe benefits as defined in subsection 136(1) of the FBTAA.

The provision of meal entertainment as defined in section 37AD of the FBTAA has been discussed in detail in question 1. In summary the FBTAA at section 37AD defines the 'provision of meal entertainment' by reference to three circumstances:

1.    the provision of entertainment by way of food or drink

2.    The provision of accommodation or travel in connection with or facilitation of entertainment by way of food or drink; or

3.    The payment or reimbursement of expenses incurred in providing entertainment by way of food or drink related accommodation or travel

When one of the three exists, the definition is satisfied irrespective of whether business discussions or transactions occur, or the provision of entertainment is in connection with the working of overtime or otherwise in connection with the performance of work duties, or for the purposes of promotion or advertising, or at, or in connection with a seminar.

The employer provided the employee with entertainment by way of food and drink as determined in question 10. The travel in connection with the meal entertainment provided at the Awards ceremony is also considered meal entertainment for the purposes of paragraph 37AD.

Following the analysis given for question 10 the travel expenditure for the employees' attendance at the Award ceremony is non-deductible entertainment expenditure, and is not incurred in producing assessable income, it meets the definition of 'non-deductible exempt entertainment expenditure' as defined in subsection 136(1) of the FBTAA.

Conclusion

The expenditure incurred by the employees who attend the Awards ceremony at a hotel is considered provision of a meal entertainment benefit under section 37AD. The expenses incurred meet the criteria under section 38 of the FBTAA and are considered tax-exempt body entertainment fringe benefits. As requested by the Applicant the exempt minor benefit provisions have not been considered.

Question 12

Does the provision of free parking connected with the Awards ceremony that recognises outstanding employees, constitute meal entertainment for the purposes of 37AD of the FBTAA 1986?

Summary

The provision of free car parking for employees when they attend an Awards ceremony that is held at a hotel, is considered meal entertainment under section 37AD of the FBTAA and gives rise to a tax-exempt body entertainment benefit under section 38.

Detailed Reasoning

The analysis for this question follows question 10 and 11 and results in the same outcome. As the expenditure on the employees' attendance at the Award ceremony is non-deductible entertainment expenditure, and is not incurred in producing assessable income, it meets the definition of 'non-deductible exempt entertainment expenditure' as defined in subsection 136(1) of the FBTAA.

Conclusion

The expenditure incurred by the employer in providing car parking to employees who attend the Awards ceremony at a hotel is considered provision of a meal entertainment benefit under section 37AD. The expenses incurred meet the criteria under section 38 of the FBTAA and are considered tax-exempt body entertainment fringe benefits. As requested by the Applicant the exempt minor benefit provisions have not been considered.