Edited version of private advice

Authorisation Number: 1052350748502

Date of advice: 13 March 2025

Ruling

Subject: FBT - exempt property benefits

Question 1

Is the provision of food and drink by the Employer to employees at an annual awards day 'entertainment by way of food or drink' within the meaning of 'entertainment' under section 32-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

No

Question 2

Does the provision of food and drinks to employees at an annual awards day constitute a property fringe benefit under section 40 of the FBTAA?

Answer 2

Yes

Question 3

If the answer to question 2 is 'yes', will the provision of food and drinks provided by the Employer to employees at an annual awards day be exempt under section 41 of the FBTAA?

Answer 3

Yes

This ruling applies for the following periods:

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

The Employer is exempt from income tax pursuant to section 50 of the Income Tax Assessment Act 1997.

The employer conducts an awards day once a year at a facility that the Employer owns.

The awards day is held during normal business hours.

All staff are required to attend the awards day at some stage during the day except for essential skeleton staff or essential services workers.

The Employer engages with a catering contractor to provide finger food for staff which includes predominantly pizza, paella, tacos and gozleme. Non-alcoholic drink is also provided to staff attending the awards day.

The vast majority of the awards are length of service awards.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 37AC

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 41

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 32-10

Reasons for decision

Question 1

Is the provision of food and drink by the Employer to employees at an annual awards day 'entertainment by way of food or drink' within the meaning of 'entertainment' under section 32-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

The provision of food and drink provided by the Employer is not considered to be 'entertainment by way of food or drink' for the purposes of 'entertainment' in section 32-10 of the ITAA 1997.

Detailed reasoning

'Entertainment' is defined in subsection 32-10(1) of the ITAA 1997 as being entertainment by way of food or drink or recreation, or accommodation or travel to do with providing that entertainment. Some examples of entertainment are provided in section 32-10 of the ITAA 1997, such as business lunches and staff social functions. In these examples, the provision of food or drink confers entertainment on the recipient.

Taxation Ruling TR 97/17: Income tax and fringe benefits tax: entertainment by way of food or drink provides guidance on the concept of what is entertainment as it relates to the provision of food or drink.

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

•                why the food or drink is being provided;

•                what type of food or drink is being provided;

•                when that food or drink is being provided; and

•                where the food or drink is being provided.

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

Paragraph 23 of TR 97/17 provides further details on the above factors that should be considered when undertaking an objective analysis of the criteria.

Paragraph 24 of TR 97/17 indicates that not one of the paragraph 23 factors will be determinative; however, paragraphs (a) and (b) are considered the more important. The application of the above factors results in the determination for whether the food or drink amounts to meal entertainment.

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

a) Why is the food and drink being provided?

TR 97/17 describes the food or drink "purpose test". Food and drink provided for the purpose 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.

The food and drink provided by the Employer is provided for sustenance for the staff given the extended timeframe of the Awards day. It is also mandatory for staff to attend the event.

b) What food, drink and recreation is being provided?

Paragraph 16 of Taxation Ruling IT 2675: Income tax and fringe benefits tax: entertainment - morning and afternoon teas; light meals; and in-house dining facilities provides the following guidance:

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

The food consumed by staff usually consists of light meals. In your scenario this is unlikely to be considered elaborate. The food and drink provided is ancillary to the purpose of the event, with the vast majority of the awards acknowledging staff lengths of service.

c) When is the food or drink 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.

As per the facts, the Awards day takes place once a year, usually in September, during work hours for the staff attending. All employees are required to attend the Awards day at some stage during the day, except for essential skeleton staff, library personnel or essential services workers.

d) Where is the food, drink and recreation being provided?

Food or drink provided on an employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment. However, food or drink provided in a function room, hotel, restaurant, café, coffee shop is more likely to have the character of entertainment.

Business premises

Business premises is defined in subsection 136(1) of the FBTAA as follows.

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;

(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' further explains what is meant by business premises for the purposes of the FBTAA. The Ruling states the following.

Given that each case turns on its own facts, there is no absolute or conclusive test of whether particular premises are 'business premises' of a person. However, in order to determine whether premises are 'business premises', i.e., they satisfy the respective requirements of 'premises of the person (the employer)' and 'used... for the purposes of business operations of the person (the employer)', an objective analysis of all the circumstances is necessary.

In making this analysis, an employer should carefully weigh all relevant matters, including the following factors that are especially relevant to determining whether each of the two requirements has been met:

(a) the control the employer has over the premises; and

(b) the consistency of an employer's actions and activities on the premises with those of normal business practices.

Importantly, each factor should be considered in relation to each of the two requirements. Further, the factors must be considered in combination and as a whole, together with all relevant matters

Having regard to the above, 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 employer must have a right of possession and control over the use of the premises during the course of its business operations. In most situations where premises are owned or held under a normal commercial lease, both possession and control exist

In this case, the food and drink for the awards day is being provided at a swimming and leisure facility on business premises that the Employer owns.

Conclusion

On the application of the below factors, the Commissioner has determined that the provision of food and drink by the Employer to the employees for the Awards day at the Aquatic Centre does not amount to entertainment because:

•                the food and drink provided has the primary purpose of providing sustenance

•                the food and drink provided is a light meal

•                it is mandatory for staff to attend the event.

Question 2

Does the provision of food and drinks to employees at an annual awards day constitute a property benefit under section 40 of the FBTAA?

Detailed reasoning

A property benefit is defined in subsection 136(1) of the FBTAA to include a benefit as defined in section 40 of the FBTAA.

Property is defined in subsection 136(1) of the FBTAA to include tangible property, which is then defined to mean goods.

Under section 40 of the FBTAA, where a person provides property to another person, the provision of the property will constitute a benefit.

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.

In the current circumstances food and drink for the awards day is being provided by the Employer to the employer, therefore a property benefit may arise.

The only other type of benefit that could potentially arise would be a 'meal entertainment benefit' as defined in section 37AC of the FBTAA, where an employer can make an election under section 37AC of the FBTAA to treat the provision of meal entertainment as a 'meal entertainment benefit' under Division 9A of the FBTAA.

As explained in the response to Question 1, the provision of food and drink by the Employer to the employee at the awards day, does not constitute 'entertainment'. Hence the provision of food and drink to employees would be considered 'property benefits' as defined in section 40 of the FBTAA.

Question 3

If the answer to question 2 is 'yes', will the provision of food and drinks provided by the Employer to employees at an annual awards day be exempt under section 41 of the FBTAA?

Detailed reasoning

Property exemption

Under section 41 of the FBTAA certain property benefits are exempt. Section 41 of the FBTAA states:

41(1) Where:

(a) a property benefit is provided to a current employee of an employer in respect of his or her employment; and

(b) the property is provided to, and consumed by, the employee on a working day and on business premises of:

(i) the employer; or

(ii) if the employer is a company, of the employer or of a company that is related to the employer;

The benefit is an exempt benefit.

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

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

Subsection 136(1) of the FBTAA defines 'business premises'

Business premises, in relation to a person, means premises, or a part of premises, of the person used, in whole or in part, for the purpose of business operations of the person,

As discussed in question 1, the Employer provides food and drink (tangible property benefit) to employees at the Awards day as sustenance, given the extended time frame of the ceremony.

The Awards day is held on the business premises during work hours with staff required to attend at some stage during the day.

Therefore, paragraph 41(1)(a) and 41(1)(b) of the FBTAA are satisfied.

The food and drink provided to employees on a standard day are not provided as part of a salary sacrifice arrangement.

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

Therefore, as each of the requirements in section 41 of the FBTAA are satisfied, the 'property fringe benefit' that arises will be an 'exempt property benefit'.

Conclusion

The provision of food and drinks to staff at the Awards day will constitute an 'exempt property benefit' under section 41 of the FBTAA.