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Ruling

Subject: Meal entertainment

Question:

Will the benefit that arises from the use of a Meal Entertainment Card in accordance with the meal entertainment criteria contained in the Meal Entertainment Guide be included in the calculation of the employer's aggregate non-exempt amount?

Answer:

No.

This ruling applies for the following period

1 April 2012 to 31 March 2015.

Relevant facts and circumstances

You are a hospital which comes within the meaning of subsection 57A(4) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

You have entered into an agreement with a financial institution to issue a Meal Entertainment Card to your employees.

You have established an Employee Benefits Corporate Card facility which enables your employees to apply for the Meal Entertainment Card under an effective salary sacrifice agreement entered into with you.

Employees will apply to the financial institution for the meal entertainment card through you, on a standard commercial card application form.

The employee will make a prospective salary sacrifice election to salary sacrifice in return for the employer paying the meal entertainment expenses incurred by the use of the card.

You have provided a copy of your Information Guide and your Meal Entertainment Guide. The Meal Entertainment Guide contains six meal entertainment criteria that must be satisfied for the card to be used to pay for a particular expense.

You conduct a series of audits and checks to ensure that the card is only used for the stated purposes.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 5B

Fringe Benefits Tax Assessment Act 1986 section 37AD

Fringe Benefits Tax Assessment Act 1986 section 57A

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 subsection 32-10.

Reasons for decision

Will the benefit that arises from the use of a Meal Entertainment Card in accordance with the meal entertainment criteria contained in the Meal Entertainment Guide be included in the calculation of the employer's aggregate non-exempt amount?

Miscellaneous exempt benefits are considered in Division 13 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) and include subsection 57A(4) which states:

A benefit provided in respect of the employment of an employee is an exempt benefit if the employer of the employee is a hospital carried on by:

(a) a society that is a non-profit society for the purposes of section 65J; or

(b) an association that is a non-profit association for the purposes of section 65J.

Note: Subsection 65J(5) explains:

(a) which societies are non-profit societies for the purposes of section 65J;

and

(b) which associations are non-profit associations for the purposes of section

65J.

As you are a hospital that comes within subsection 57A(4) the benefit that arises from the use of a Meal Entertainment Card will be an exempt benefit. However, this exemption is subject to the capping thresholds detailed in section 5B of the FBTAA.

Where a capping threshold applies, the employer will be liable to pay fringe benefits tax on the amount by which the grossed-up value of certain benefits provided to an individual employee exceeds the relevant threshold. For employers that come within subsection 57A(4) the relevant threshold is $17,000.

Subsection 5B(1L) of the FBTAA provides that certain benefits will not be included in the calculation of the value of the benefits provided to an individual employee .

Subsection 5B(1L) of the FBTAA states:

An employee's subsection (1L) amounts for the year of tax are worked out as follows.

Method statement

Step 1. Work out for each employee his or her share (if any) of the amounts that, if

Section 57A did not apply, would be the taxable values of the excluded fringe benefits for the year of tax in respect of the employee's employment by the employer if those benefits were not excluded fringe benefits, but disregarding benefits:

(a) that constitute the provision of meal entertainment as defined in section 37AD (whether or not the employer made an election under section 37AA); or

(b) that are car parking fringe benefits; or

(c) whose taxable values are wholly or partly attributable to entertainment facility leasing expenses.

…

Therefore, you will not be liable to pay fringe benefits tax on the value of benefits that constitute the provision of 'meal entertainment' that are provided using the card.

Will the use of the card in accordance with the meal entertainment criteria contained in the Meal Entertainment Guide constitute the provision of meal entertainment?

The meaning of 'provision of meal entertainment' is provided in section 37AD of the FBTAA, which states:

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 discussions 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.

Under the card arrangement an employee can use the card to pay for the cost of food and drink purchased in a restaurant, café or bistro that satisfies the criteria set out in your Meal Entertainment Guide. When this occurs the use of the card will come within paragraph 37AD(c), if the expense being paid comes within either paragraphs 37AD(a) or (b).

Will the expenses being paid come within paragraph 37AD(a)?

Paragraph 37AD(a) applies to the provision of 'entertainment' by way of food or drink.

Subsection 136(1) of the FBTAA states that 'entertainment has the meaning given by section 32-10 of the ITAA 1997 Income Tax Assessment Act 1997' (ITAA 1997).

Subsection 32-10(1) of the ITAA 1997 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.

Note: These are some examples of what is entertainment:

business lunches

social functions.

These are some examples of what is not entertainment:

· meals on business travel overnight

· theatre attendance by a critic

· a restaurant meal of a food writer.

Guidance as to the situations in which the provision of food or drink will constitute the provision of entertainment is provided by Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17). Paragraphs 23 and 24 of TR 97/17 provide the following tests that can be used to determine whether the provision of food or drink constitutes the provision of entertainment:

It can be seen that the determination of whether or not the provision of food or drink constitutes entertainment requires an objective analysis of all the circumstances surrounding that provision. We are of the view that the following are relevant factors that should be considered in undertaking any objective analysis:

(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.

No one of the above factors will be determinative; however, paragraphs (a) and (b) are considered the more important. …

These tests have been incorporated into the meal entertainment criteria contained in your Meal Entertainment Guide.

Therefore, where food and drink is purchased using the Meal Entertainment Card the expenditure will come within paragraph 37AD(a),where it satisfies these meal entertainment criteria.

Will the expenses being paid come within paragraph 37AD(b)?

Paragraph 37AD(b) applies to accommodation or travel in connection with, or for the purpose of facilitating, entertainment to which paragraph (a) applies.

Although most of the expenses paid using the card will come within paragraph 37AD(a), the guidelines provided in the Meal Entertainment Guide indicate the card can be used to pay for the cost of:

taxi travel to and from restaurant/venue where … staff pay for the meal entertainment between themselves and their family/friends

In providing guidance as to what will be included in the 'provision of meal entertainment' paragraph 1.20 of the Explanatory Memorandum to Taxation Laws Amendment (FBT Cost of Compliance) Bill 1995 said:

· 'provision of meal entertainment' will also include any ancillary accommodation or travel provided in connection with the meal entertainment. For example, taxi travel to and from a restaurant will be included in the provision of meal entertainment.

In accordance with this guidance, taxi travel provided in the situation described in the Meal Entertainment Guide will come within paragraph 37AD(b).

Conclusion

The use of the Meal Entertainment Card in accordance with the Meal Entertainment Criteria provided in the Meal Entertainment Guide will constitute the provision of meal entertainment as defined in section 37AD of the FBTAA.

As the expenditure will constitute the provision of meal entertainment, the amount of the expenditure will not be included in the calculation of the employer's aggregate non-exempt amount.

Is it possible for the Meal Entertainment card to be used to purchase a benefit that does not come within the meal entertainment definition?

You provided details of the process you have implemented to ensure that the card is used solely for the purpose of meal entertainment, and to validate your employee's meal entertainment card transactions.

On the basis of these procedures it is accepted that the expenses paid using the card will constitute the provision of meal entertainment.

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