ATO Interpretative Decision

ATO ID 2009/45

Fringe Benefits Tax

• This ATO ID was amended by replacing the reference to 'expense payment benefits' to ' tax-exempt body entertainment benefits
  This document has changed over time. View its history.

Issue

Where the employer reimburses expenses incurred by the employee on leasing or hiring a private function room and hotel room, are the tax-exempt body entertainment benefits, benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses and therefore disregarded for the purposes of subsection 5B(1L) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision

Yes. As the employee has incurred expenses which are entertainment facility leasing expenses, and they have not been provided under a salary packaging arrangement, the tax-exempt body entertainment benefits are disregarded for the purposes of subsection 5B(1L) of the FBTAA.

Facts

The employer of the employee is a public hospital.

The employee has incurred expenses on hiring a private function room at a club for a family celebration.

The employee also incurred accommodation costs for the exclusive use of a hotel room in a hotel whilst travelling on holidays.

The employer reimburses the employee for the expenses incurred in hiring the private function room and for the expenses incurred for the use of the hotel room. These reimbursements are not provided under a salary packaging arrangement.

No part of the expenses are for the provision of food or drink, or advertising.

During the holiday travel, the employee was not otherwise travelling on work related purposes.

Reasons for Decision

For employers that are public hospitals subject to the provisions of section 57A of the FBTAA, benefits provided to employees whose taxable values are wholly or partly attributable to entertainment facility leasing expenses, and not provided under a salary packaging arrangement, are not subject to fringe benefits tax because of the interaction between subsection 57A(3), subsection 5B(1L) and subsection 5E(3) of the FBTAA. Step 1 of the method statement in subsection 5B(1L) specifically disregards these benefits for the purposes of calculating the employee's subsection (1L) amount where they have not been provided under a salary packaging arrangement. The effect is that these benefits remain exempt from fringe benefits tax and do not form part of the fringe benefits tax capping threshold in respect of an employee of an employer that is a public hospital.

The phrase 'whose taxable values are wholly or partly attributable to entertainment facility leasing expenses' (or words to the same effect) appears in subsection 5B(1L), subsection 5E(3) and section 152B of the FBTAA. Under subsections 5B(1L) and 5E(3) these expenses can be incurred by a person. This can include expenses incurred by the employer or by the employee. However, under section 152B the expenses that are taken into account are limited to those expenses incurred by the employer.

The benefits provided to the employee are tax-exempt body entertainment benefits being the reimbursement of the employee's expenses. If section 57A of the FBTAA did not apply the benefit would also be a fringe benefit. The taxable value of the tax-exempt body entertainment benefits would have been the amount of the reimbursement. The taxable value would have been wholly or partly attributable to the employee's expenses.

If the employee's expenses are entertainment facility leasing expenses that have not been provided under a salary packaging arrangement, the taxable value of the tax-exempt body entertainment benefits will be disregarded in determining the employee's subsection (1L) amount in accordance with the method statement in subsection 5B(1L) of the FBTAA.

Subsection 136(1) of the FBTAA defines 'entertainment facility leasing expenses':

entertainment facility leasing expenses , for a person, means expenses incurred by the person in hiring or leasing:

(a)

a corporate box; or

(b)

boats, or planes, for the purpose of the provision of entertainment; or

(c)

other premises, or facilities, for the purpose of the provision of entertainment;

but does not include so much of any of such expenses that:

(d)

is attributable to the provision of food or drink; or

(e)

is attributable to advertising and is an allowable deduction for the person under the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997.

There are a number of requirements that must be satisfied in considering whether expenses incurred satisfy the definition of 'entertainment facility leasing expenses'.

Hiring or leasing

Under the definition of 'entertainment facility leasing expenses', an expense must be incurred by the person in 'hiring or leasing ...'

As the word 'hiring' is not defined in the FBTAA it has its natural meaning, taken in the context in which it appears in the legislation.

The Macquarie Dictionary (Multimedia version 5.0.0) defines 'hire' as:

verb (t) (hired, hiring)

1.

to engage the services of for payment: to hire a clerk.

2.

to engage the temporary use of for payment: to hire a car.

3.

Also, hire out.

to grant the temporary use of, or the services of, for a payment.

Subsection 136(1) of the FBTAA defines 'leased':

means let on hire (including a letting on hire that is described in the relevant agreement as a lease) under an agreement other than a hire-purchase agreement.

The employee has incurred expenses in return for the temporary use of the private function room in a club which accords with the dictionary definition of 'hire'.

The employee has incurred expenses on obtaining the exclusive use of a hotel room in a hotel which accords with the dictionary definition of 'hire' and with the FBTAA definition of 'leased'.

In these circumstances the expenses incurred by the employee in relation to the private function room and hotel room fall within 'hiring or leasing' in the definition of 'entertainment facility leasing expenses'.

Other Premises or facilities

Under the definition of 'entertainment facility leasing expenses', the hire or lease must be of a corporate box, boat, plane or other premises or facilities ...

As the words 'premises' or 'facilities' are not defined in the FBTAA they have their natural meaning, taken in the context that they appear in the legislation.

The words 'premises' and 'facility are defined in the Macquarie Dictionary to mean:

premise

noun

2. (plural)

the property forming the subject of a conveyance.

a tract of land.

a house or building with the grounds, etc., belonging to it.

facility

noun (plural facilities)

9. a building or complex of buildings, designed for a specific purpose, as for the holding of sporting contests.

In this case the employee has hired a single room in a hotel or club but has not hired the hotel or club in its entirety. Accordingly, there is a difficulty in determining whether the employee has hired premises or a facility by reference to the dictionary meaning only which refers to a property, house and grounds or a specific purpose building. In addition the legislative reference to boats or planes would not ordinarily be considered as a (type of) premises or facility.

Taxation Laws Amendment (FBT Cost of Compliance) Bill 1995 introduced the subsection 136(1) of the FBTAA definition of 'entertainment facility leasing expenses' and introduced section 152B of the FBTAA. The Explanatory Memorandum to that Bill describes the new arrangement as being:

...applied to leasing or hiring costs of corporate boxes and other similar hospitality arrangements...

It is considered that the use of the words 'other premises or facility' derives meaning ejusdem generis as having similar characteristics to a corporate box. Hiring or leasing of a corporate box would generally only involve the hiring or leasing of part of premises or a facility. For example, the corporate box is only part of a sporting stadium complex. However, a corporate box is a separate or distinct area or room which is in fact able to be hired as a separate room or distinct area. The hiring or leasing of a separate room or distinct area for other hospitality purposes such as an end of year corporate event at a city hotel would be considered similar to a corporate box arrangement. It is considered that these would be premises or facilities for the purposes of the definition of 'entertainment facility leasing expenses'.

When a private function room in a club or a separate hotel room at a hotel have been leased or hired, they will be premises or facilities for the purposes of the definition of 'entertainment facility leasing expenses'.

Provision of entertainment

Under the definition of 'entertainment facility leasing expenses' the expenses incurred on hiring or leasing the premises or facilities must be 'for the purpose of the provision of entertainment'.

Subsection 136(1) of the FBTAA defines 'entertainment':

entertainment has the meaning given by section 32-10 of the Income Tax Assessment Act 1997.

Subsection 32-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 'entertainment' means:

(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.

Subsection 995-1 of the ITAA 1997 provides the meaning of 'recreation':

recreation includes amusement, sport or similar leisure-time pursuits.

In relation to the private function room a relevant question to consider under paragraph 32-10(1)(a) of the ITAA 1997 is whether the use of the room is for the purposes of providing entertainment by way of recreation. While 'recreation' is defined the words 'entertainment by way of recreation' are not defined. As these words are not defined, they have their natural meaning, taken in the context in which they appear in the legislation

The word 'entertainment', which is key to the operation of the relevant words, is defined in the Macquarie Dictionary to mean:

1.

the act of entertaining; agreeable occupation for the mind; diversion, or amusement.

2.

something affording diversion or amusement, especially an exhibition or performance of some kind.

3.

hospitable provision for the wants of guests.

As the private function room has been used for a family celebration, the use of the private function room is a leisure-time pursuit. This is 'recreation' as defined in the ITAA 1997. This use of the room is also something affording diversion or amusement and is entertainment within the natural meaning. The use of the private function room is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997.

The use of the private function room for a family celebration does not fall within paragraph 32-10(1)(b) of the ITAA 1997 because the private function room is not accommodation.

In relation to the use of the hotel room whilst the employee is travelling on a holiday and is not on work related duties, paragraph 32-10(1)(a) of the ITAA 1997 must also be considered. The use of the hotel room whilst on holidays is a leisure-time pursuit which is 'recreation' as defined in the ITAA 1997. This use of holiday accommodation is something affording diversion or amusement and will be entertainment within the natural meaning. The use of the hotel room is entertainment by way of recreation under paragraph 32-10(1)(a) of the ITAA 1997.

Alternatively, a hotel room occupied whilst on holidays is accommodation. Such accommodation can fall within 'entertainment' under paragraph 32-10(1)(b) of the ITAA 1997, being accommodation to do with providing entertainment by way of recreation.

Further, Taxation Determination TD 94/55: Income tax: when does providing an item of property constitute the provision of entertainment within the meaning of subsection 51AE(3) of the Income Tax Assessment Act 1936?, states that in determining whether providing an item of property constitutes entertainment, regard should be had to all the circumstances of the case. In particular, regard should be given to the character of the entertainment to be derived from the item of property provided. Specifically, in Example 2 in TD 94/55, costs incurred in providing holiday accommodation are incurred in providing property that would constitute the provision of entertainment.

When the employee incurs expenses in hiring or leasing a private function room or a hotel room those expenses are incurred for the purposes of the provision of entertainment as entertainment is defined in subsection 136(1) of the FBTAA 1986 and section 32-10 of the ITAA 1997.

As required in the definition of 'entertainment facility leasing expenses' those expenses are not attributable to food or drink, or advertising.

The expenses incurred by the employee on hiring or leasing the private function room and the hotel room are 'entertainment facility leasing expenses' as defined in subsection 136(1) of the FBTAA.

As the employer has reimbursed the employee's expenses, the tax-exempt body entertainment benefits would have a taxable value (but for section 57A of the FBTAA) which is wholly or partly attributable to entertainment facility leasing expenses. As the tax-exempt body entertainment benefits have not been provided under a salary packaging arrangement, they are disregarded for the purposes of subsection 5B(1L) of the FBTAA.

Note - The Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015 made changes to the FBTAA to limit the concessional fringe benefits tax treatment of entertainment benefits provided under a salary packaging arrangement. These amendments provide that from 1 April 2016 the method statement in subsection 5B(1L) no longer disregards the provision of meal entertainment or entertainment facility leasing expenses provided under a salary packaging arrangement.

However, the amendments also introduced a separate cap for employers subject to the provisions of section 57A such that salary packaged entertainment benefits will continue to be exempt from fringe benefits tax where the grossed-up taxable value of these benefits do not exceed $5,000 for an employee in a FBT year. The amount of those benefits exceeding that separate cap will be included in calculating if the value of all benefits an employee receives exceeds the general exemption or rebate caps.

See Chapter 6.5 of the Fringe Benefits Tax - A Guide for Employers (QC 16123) or the FBT changes to salary packaged meal and other entertainment benefits fact sheet (QC 48052) for further information on these changes.

Amendment History

Year of income:  Year ended 31 March 2010

Legislative References:
Fringe Benefits Tax Assessment Act 1986
   subsection 5B(1L)
   subsection 5E(3)
   section 23
   section 57A
   subsection 57A(3)
   subsection 136(1)
   section 152B

Related Public Rulings (including Determinations)
Taxation Determination TD 94/55

Other References:
Explanatory Memorandum to the Taxation Laws Amendment (FBT Cost of Compliance) Bill 1995
Explanatory Memorandum to the Taxation Laws Amendment (2015 Measures No. 5) Bill 2015
Macquarie Dictionary (Multimedia version 5.0.0)

Keywords
Entertainment expenses
Entertainment facility leasing expenses
Excluded fringe benefits
Exempt benefits
Tax-exempt body entertainment fringe benefits
FBT entertainment
FBT expense payment
Fringe benefit
Fringe benefits tax

Siebel/TDMS Reference Number:  6108906

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  26 June 2009
Date reviewed:  20 April 2017

ISSN: 1445-2782