Edited version of private advice

Authorisation Number: 1052117783549

Date of advice: 12 May 2023

Ruling

Subject: FBT - exempted residual benefit

Question

Does a residual benefit arise where an employee is provided with access to an onsite gym free of charge under section 45 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

Year ended 31 March 20XX

Year ended 31 March 20XX

Year ended 31 March 20XX

Year ended 31 March 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

The entity is an independent medical research organisation. It is a registered with the Australian Charities and Not-for-profits Commission. It is exempt from income tax and eligible for fringe benefits tax exemptions.

The entity's medical research operations include a gym facility. The entity's researchers include Physiologists and Academics, who use the gym for research projects with research study participants.

The gym is situated on premises that the entity leases for its operations under commercial terms.

As part of an employee wellbeing initiative, the gym is also available for recreational use by approximately 350 employees. The entity provides employees gym access free of charge. There is no salary packaging of gym access by employees.

Employees can use the gym when it's not being used for research projects or by patients of medical practitioners.

The gym is open for use by the employees for approximately 70 hours per week and reserved exclusively for research for a minimum of 22.5 hours per week. However, these times can vary depending on the requirements of exercise physiologists or researchers.

The gym has equipment installed and fully depreciated for accounting purposes. The entity has incurred fees for the gym operations and also allocates employees to roles in overseeing the staff use of the gym, as such it also has employee costs relating to the gym access.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 32-B

Income Tax Assessment Act 1997 subsection 51AE(5)

Fringe Benefits Tax Assessment Act 1986 subsection 38

Fringe Benefits Tax Assessment Act 1986 subsection 47(2)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

Entertainment is defined in subsection 32-10(1) of the ITAA 1997 to mean 'entertainment by way of food, drink or recreation'. 'Recreation' in turn is defined to include 'amusement, sport or similar leisure-time pursuits.'

The Commissioner's position expressed in Class Ruling 2022/39 EFM Corporate Pty Ltd - health and fitness equipment services (CR 2022/39) is that for FBT purposes the provision of the use of a gym facility is the provision of entertainment.[1]

The entity has expenses incurred associated with the gym operation, including facilities management fees and building lease expense. As such, it is considered the entertainment expenditure is incurred.

In accordance with section 38 of the FBTAA, where a tax exempt body incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision of entertainment to an employee in respect of their employment, the incurring of the expenditure is considered to be a benefit provided by the employer to the employee.

Non-deductible exempt entertainment expenditure

Subsection 136(1) of the FBTAA defines 'non-deductible exempt entertainment expenditure' as:

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

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

On the basis of the entity's circumstances, the exceptions that are relevant in this application are:

•         Section 32-30 Item 1.5 - providing a facility for recreation on property you occupy, if the facility is mainly operated for your employees to use.

Section 32-30 Item 1.5

The term 'recreational facility' is defined in subsection 136(1) of FBTAA to mean a facility for recreation.

The term 'facility' is not defined in the FBTAA and it therefore takes its ordinary meaning. The gym is set up in a designated area, designed for a specific purpose enabling a person to improve health and fitness, as such the gym is a 'facility'.

The term 'recreation' is also defined in subsection 136(1) and it relevantly includes:

(b) sport or similar leisure-time pursuits; and

Therefore, the provision of the use of a gym facility is the provision of recreation.

With accordance to paragraph 13 of TR 2000/4 Fringe benefits tax: meaning of 'business premises,

'where a person is carrying on 'business operations' on premises, the premises are their 'business premises' where in form and substance the person bears the rights and risks of possession of the premises associated with the conduct of the 'business operations'.

The gym is on the premises leased by the entity for its operations. The premises are the business premises of the entity, and as such is property it occupies.

According to FBT - A guide for employers, when we say the facility is "mainly operated", we will ordinarily determine on a time basis whether a facility is operated principally on working days to employees. That is, operated for this purpose more than 50% of the time it is used.

As stated in Relevant Facts and Circumstances above, of the 70 hours it is available per week, exercise physiologists or researchers have access for at least 22.5 hours per week.

For the purposes of completeness, the example provided in paragraph 99 of CR 2022/3 considers a scenario when a gym is not provided mainly for employees:

A hospital may have a gym facility on its premises as part of their patients' rehabilitation program.

...use of the gym by employees is noted to be incidental to its use by patients of the hospital or students of the school.

Table item 1.5 of section 32-30 of the ITAA 1997 concerns an employer-occupied facility for recreation that is mainly operated for the use of the employer's employees (and the facility is not used for accommodation or for dining or drinking, unless from a vending machine).

The application of table item 1.5 of section of the ITAA 1997 requires that:

•         How the facility is used must also be taken into account; and

•         Each employer will need to determine whether this requirement is met.[2]

Having regard to "how the gym facility is used" in this application, the gym access time allocation for employees is more than it is for patients and research, notwithstanding that patients and exercise physiologists or researchers have allocated times for access in a week. Therefore, on balance, it is considered that it is provided mainly for employees to use.

Consequently, the exception provided by item 1.5 in section 32-30 of the ITAA 1997 applies to make the entertainment expenses deductible, and it can be concluded that non-deductible entertainment expenditure is not incurred.

The provision of on site gym access to the employees of the entity is considered as deductible entertainment expenses under the exception provided by item 1.5 in section 32-30 of the ITAA 1997 that applies to make the entertainment expenses deductible.

Pursuant to section 38 of the FBTAA, the benefit is not in the nature of a Tax-exempt Body Entertainment benefit (TEBE). Therefore, this benefit is a residual benefit under section 45 of the FBTAA.

Question 2

Is this residual benefit exempt as an on premises recreational facility under section 47(2) of the FBTAA?

Answer

Yes

Summary

With the application of residual benefit exemptions under section 47(2) of the FBTAA, it is agreed that this residual benefit is exempted from FBT.

Detailed reasoning

Exempt residual benefits

Subsection 47(2) provides an exemption in respect of the provision of various types of residual benefits (as relevant here).

Where:

(a) a residual benefit provided to a current employee in respect of his or her

employment consists of:

(i) the provision, or use, of a recreational facility; or...

... and

(b) the recreational facility... is located 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.

Therefore, the provision of a benefit is exempt under subsection 47(2) where all of the following conditions are met:

•         there has been the provision or use of a recreational facility that has been supplied to a current employee

•         the provision and use of the recreational facility constitutes a residual benefit

•         the residual benefit is provided in respect of the current employee's employment

•         the recreational facility is located on the business premises of the employer.

As the reasoning for Question 1 stated above, a provision of the use of a gym facility is considered as the provision of recreation. The gym is on the premises leased by the entity for its operations. The premises are the business premises of the entity, and as such is property it occupies.

Therefore, section 47(2) FBTAA exemption requirements are satisfied and the gym access provided by the entity to its employees is exempt from Fringe Benefit Tax.

Conclusion

A residual benefit arises for the entity, where an employee is provided with access to an onsite gym free of charge under section 45 of the FBTAA. That residual benefit is exempt as an on premises recreational facility under section 47(2) of the FBTAA.

[1] Paragraph 77 of CR 2022/39.

[2] Paragraph 93-95 of CR 2022/39.