ATO ID 2015/25: Exempt residual benefits - the provision, or use, of a recreational facility
Date of decision: 4 September 2015
Year of income: Year ending 31 March 2016
Business line: Superannuation and Employer Obligations

Issue
Will the residual benefit that arises from the participation of an employee in a fitness class provided by the employer on the employer's premises be an exempt benefit under subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
No. The residual benefit will not be an exempt benefit under subsection 47(2) of the FBTAA as the benefit provided to the employee is the participation in a fitness class and not the provision, or use, of a recreational facility.

Facts
The employer is liable to pay income tax. The employer's business premises include a large room which contains various pieces of gymnasium equipment and a carpeted open space area. The employer enters into an agreement with a fitness instructor for the instructor to run a weekly fitness class for employees on the carpeted open space area. As part of the fitness class the employee may use an item of gymnasium equipment located in the room.

Reasons for decision
Summary: The residual benefit that arises from the participation of an employee in a fitness class will be an exempt benefit under subsection 47(2) of the FBTAA if it consists of the provision, or use, of a recreational facility located on the business premises of the employer (or if the employer is a company, a company that is related to the employer). Subsection 136(1) of the FBTAA defines 'recreational facility' to mean: ... a facility for recreation, but does not include a facility for accommodation or a facility for drinking or dining. A similar provision is contained in item 1.5 of the table in section 32-30 of Income Tax Assessment Act 1997 (ITAA 1997). Item 1.5 enables an employer to claim an income tax deduction for entertainment expenditure incurred for: 1.5 providing a facility for recreation on property you occupy, if the facility is mainly operated for your employees to use. But the exception does not apply if the facility is: (a) for accommodation, or (b) dining or drinking (unless it is a food or drink vending machine). Both provisions contain the phrase 'facility for recreation' and by exclusion indicate this term can include a facility for accommodation, dining, drinking, a food or drink vending machine. The meaning of the term 'facility' in the context of the definition of 'entertainment facility leasing expenses' is discussed in ATO Interpretative Decision ATO ID 2009/141 Fringe benefits tax Entertainment facility leasing expenses: hire of a marquee. In summarising the dictionary, income tax and fringe benefit definitions referred to, ATO ID 2009/141 states: The word facility, as described in each dictionary definition above, and as used in the income tax and fringe benefits tax definitions above is of wide meaning. It is accepted that the term 'facility' as it is used in the definition of 'entertainment facility leasing expenses' also has a wide meaning that includes buildings, part of buildings or other structures used for the purpose of the provision of entertainment. A similar wide meaning will apply to the term 'facility' as it is used in the definition of 'recreational facility'. It can include buildings, part of buildings, structures or items (for example a food or drink vending machine or pool table). A facility will be a recreational facility if it is used for recreation and is not a facility for accommodation, drinking or dining. The term 'recreation' is defined in subsection 136(1) of the FBTAA as follows: Recreation includes: (a) amusement (b) sport or similar leisure-time pursuits; and (c) recreation or amusement provided on, or by means of, a vehicle, ship, vessel or aircraft. As the definition of the term 'recreation' in subsection 136(1) is inclusive, the ordinary meaning of the term is also relevant. The Macquarie Dictionary Online edition states in relation to the term 'recreation': recreation 1. refreshment by means of some pastime, agreeable exercise, or the like. 2. a pastime, diversion, exercise, or other resource affording relaxation and enjoyment. In the situation being considered, the room in which the fitness class is conducted and the gymnasium equipment located in the room are recreational facilities. Although the room in which the class is conducted is a recreational facility and particular exercises may involve the use of an item of gymnasium equipment located in the recreational facility, the relevant benefit provided to the employee in this circumstance is the participation in the fitness class where various exercises are undertaken at the direction of the fitness instructor provided by the employer. Accordingly, as the benefit provided to the employee is the participation in a fitness class, rather than the provision, or use, of a recreational facility, the residual benefit that arises from the participation in the fitness class will not be an exempt benefit under subsection 47(2). Note: If the employer is exempt from income tax, a tax-exempt body entertainment benefit as defined in section 38 of the FBTAA may arise from the expenditure incurred in hiring the fitness instructor.

Legislative references: Fringe Benefits Tax Assessment Act 1986 section 38 subsection 47(2) subsection 136(1)
Related ATO interpretative decisions: ATO ID 2009/141
Other references: Macquarie Dictionary Online edition
Subject references: Fringe benefits tax FBT recreational facility FBT recreation FBT entertainment