Private ruling: Fringe benefits tax
Published: June 2012
Ruling period: Year ended 31 March 2013 | Year ended 31 March 2014 | Year ended 31 March 2015 | Year ended 31 March 2016
Date scheme commenced: 1 April 2012

Ruling: Q1: Does expenditure that is incurred in respect of employees acting in their capacity as hosts whilst facilitating an event (as part of an incentive program offered by Company A) result in a fringe benefit pursuant to the Fringe Benefits Tax Assessment Act 1986 ? | A1: Yes | Q2: If the answer to question one is yes, would such expenditure be considered to be otherwise deductible to the relevant employee pursuant to sections 24, 44 and/or 52 of the Fringe Benefits Tax Assessment Act 1986 (as applicable)? | A2: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling . Company A facilitates incentive programs to employees of other employers. These employees and sometimes the spouses or partners of the employees also participate in incentive program events (all of these individuals are collectively referred to as guests in this PBR). Employees of Company A are not eligible to participate in these incentive program events. Recognition of the high performing employees of other employers is often provided in the form of an invitation to an event (which typically lasts 3-5 days). The events are trips that may be interstate or overseas. On occasions Company A employees are required to facilitate incentive program events in their capacity as hosts and representatives of Company A. The primary purpose of a host facilitating an event is for business purposes. Hosts are required by Company A to facilitate an event, develop close business relationships with the invited guests and ensure their complete satisfaction, wellbeing and safety for the duration of the incentive program event. In order to be selected as a host, the person must have the following attributes: · ability to effectively communicate with senior company staff. · ability to liaise effectively with travel agency and/or supplier staff · conduct themselves in a professional manner, and · display a high level of commercial experience, acumen and maturity. Company A has in place a formal written policy outlining the selection process of Hosts and their responsibilities. The hosts are carefully selected based on the company's objectives of organising a particular event. Hosts cannot elect to attend an event. Acting as a Host is not a reward or an incentive for the relevant Company A employees. The process of approving hosts is rigorous and follows a documented policy and selection process. The host policy confirms that hosts are representative of Company A at these events, and that the sole purpose of a host is to ensure the satisfaction, wellbeing and safety of the invited guests during the entire incentive program event. Once selected, hosts attend a briefing session during which the company's expectations of hosts are explained and hosts are also given the opportunity to have their questions answered during a question and answer session. The host policy outlines a broad range of expectations that are placed on hosts. The responsibilities of a host at an incentive program event include (but is not limited to): · Assisting in the organisation of all activities guests will participate in. · Arriving early at each meeting point, meal and activity to ensure all guests feel welcome. · Be the last to leave each meeting point, meal and activity and ensure that during each activity and meal that all guests are satisfied with each and every meal and activity. · Acting as a 'tour guide' during particular activities. · Being involved in all aspects of each activity during the incentive program event (there must be a host present at each and every activity - often different activities run concurrently). · Ensuring all guest dietary requirements are met during all meal times, including in transit. · Providing guidance and advice to guests where requested. · Preparing for and conduct business presentations for guests during the incentive program event. · Ensuring all guest accounts are paid. · Following up on any outstanding issues that arise during the event. · Following up on any items lost by guests and ensure all measures are taken to retrieve any lost items - at no inconvenience to the guests. · Arranging for replacement of items (clothing, personal belongings etc) that have been lost by guests during an incentive program event. · Ensuring any promises made during the event are fulfilled. · Providing their feedback in respect of the event after the completion of the event. Once at the event destination, but before the event actually commences, hosts attend an additional briefing session to remind hosts of the company's expectations of representative hosts. The main objective for the hosts is that they ensure the complete satisfaction of the guests by fulfilling all of their host responsibilities as outlined above. Attending daily host meetings whereby the hosts 'pool' feedback (from guests) on the activities conducted on the previous day, plan for activities to be undertaken in the next 24 hours and address any unexpected issues that may have arisen in respect of any of the guests. These meetings typically occur very early in the morning (pre-breakfast) or very late in the evening (after all guests have retired for the evening). Providing appropriate respect and recognition to all guests. Hosts must spend all their time with guests, give priority to guests in queues i.e. airline check-in, buses, trains etc. In addition, hosts are to ensure that travel agency staff fulfils Company A expectations. Where an individual activity must be changed due to an unforseen circumstance i.e. a change in schedule or the activity itself, hosts are required by Company A to facilitate guest preferences and be involved in the decision making process in conjunction with travel agency staff. However, when alternatives have been identified, the guests ultimately decide which individual activities they would like to participate in. In the event of inappropriate behaviour by one of the guests, a host must act swiftly to counsel the relevant guest and in extreme cases, organise for their return home. Hosts are required to keep their mobile telephone switched on at all times throughout the event and are expected to be contactable by guests throughout the entire event (24 hours a day) including travel times (except where/when not permitted i.e. aircraft take-off and landing). Furthermore, hosts are in possession of a lanyard at all times which contains personal information of each attendee to ensure that in the event of an emergency, hosts can immediately contact guests, their nominated contact person at home and travel agency staff. Expenses incurred directly by Company A in conducting incentive program events in respect of Hosts and guests include: · Travel expenses i.e. airfares, transfers and coach fares · Accommodation · Planned activity costs i.e. tickets to a sporting game, museum etc · All planned food and drink, and · Mobile telephone bills · Expenses incurred by the hosts directly and then reimbursed by Company A include: · Various incidental costs such as tickets to unplanned activities as chosen by the guests, local taxi fares, unplanned meals/snacks, hotel mini bars etc. · Hosts are required to provide receipts where expenses are claimed. · Hosts generally do not participate in meals that are accompanied by another form of entertainment in the program events. Employees are not on leave when they act as hosts during the events. Assumption All employees will complete and provide travel diaries and declarations as required.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Section 24, | Fringe Benefits Tax Assessment Act 1986 Section 44, | Fringe Benefits Tax Assessment Act 1986 Section 52, | Fringe Benefits Tax Assessment Act 1986 Section 63A, | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1), | Income Tax Assessment Act 1997 Section 32-5 and | Income Tax Assessment Act 1997 Section 32-10.

Reasons for decision: Summary: The expenditure incurred by Company A in relation to employees acting in their capacity as Hosts whilst facilitating an event will result in fringe benefits. | Detailed Reasoning - Detailed reasoning: When employees of Company A act as hosts, Company A incurs expenditure in relation to the following for those employees: · transport · accommodation · participation in activities · food and drink · incidentals · reimbursement of expenses incurred that are incidental to being Hosts. The expenditure will result in a fringe benefit if it results in the provision of a benefit to · an employee or · an associate of an employee by · the employer · an associate of the employer, or · a third party in an arrangement with the employer · in respect of the employee's employment and it is not excluded by paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Benefit is defined in subsection 136(1) of the FBTAA to include any right, privilege, service or facility. This definition is broad enough to include the provision of transport, accommodation, activities, food and drink and the payment of expenses incurred by employees. The term 'provide' is defined in subsection 136(1) of the FBTAA: (a) in relation to a benefit - includes allow, confer, give, grant or perform; and (b) in relation to property - means dispose of (whether by sale, gift, declaration of trust or otherwise); i. if the property is a beneficial interest in property but does not include legal ownership - the beneficial interest; or ii. in any other case - the legal ownership of the property. Regardless of whether the employee is performing duties or not, the employees acting as Hosts are given benefits such as transport during the trip, accommodation, meals and participation in activities. The first requirement is therefore satisfied as Company A provides the benefits to its employees. The second requirement is satisfied as the employer provides the benefits. The third requirement is that Company A provides the benefits to employees in respect of their employment. The term 'in respect of' in relation to the employment of an employee in subsection 136(1) of the FBTAA includes 'by reason of, by virtue of , or for or in relation directly or indirectly to, that employment'. The connection between the provision of the benefits employees and their employment is more than just causal. The benefits are provided to the employees whilst they are undertaking employment duties. Therefore Company A will be providing the benefits in respect of an employee's employment. Lastly, the benefit is not one of the excluded benefits listed in paragraphs (f) to (s) of the definition. Consequently, the expenditure incurred by Company A in respect of their employee acting in their capacity as hosts results in the provision of fringe benefits to those employees. | Summary: The taxable value of fringe benefits provided to employees acting as Hosts may be reduced pursuant to the applicable section of the FBTAA. | Detailed Reasoning - Detailed reasoning: Company A is providing fringe benefits to its employees who are hosts at incentive events. The types of fringe benefits being provided are: · expense payment fringe benefits · property fringe benefits · residual fringe benefits. The taxable value of all of those types of fringe benefits may be reduced by the 'otherwise deductible rule' where all of the conditions for the reduction are met. · For expense payment fringe benefits in accordance with section 24 of the FBTAA. · For property fringe benefits in accordance with section 44 of the FBTAA. · For residual fringe benefits in accordance with section 52 of the FBTAA. Broadly this means that the taxable value may be reduced by the amount that the employee would have been entitled to claim as an income tax deduction, if the employee had incurred the expenses to perform their employment duties rather than being provided with benefits by the employer. We must consider therefore whether expenses in relation to accommodation, transport, activities, food and drink and incidentals would, hypothetically, be deductible to the employees. Generally, travel expenses including air, bus, train, tram and taxi fares, meals, accommodation and incidental expenses incurred by an employee who is away from home overnight in order to carry out their duties of employment will be deductible. However for employees a deduction is generally not allowable for an outgoing incurred in respect of entertainment. Section 32-5 of the Income Tax Assessment Act 1997 (ITAA 1997) denies an entity a deduction under section 8-1 of the ITAA 1997 for any loss or outgoing in respect of providing entertainment. We shall therefore consider whether the benefits that employees receive whilst acting as Hosts are entertainment. Section 32-10 of the ITAA 1997 states that: (1) 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. (2) You are taken to provide entertainment even if business discussions or transactions occur. 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 · theatre attendance by a critic · a restaurant meal of a food writer The term 'recreation' is defined in subsection 995-1(1) of the ITAA 1997 to include amusement, sport or similar leisure time pursuits. Taxation Ruling TR 97/17 Income Tax and fringe benefits tax: entertainment by way of food or drink is relevant in determining whether the provision of food or drink is entertainment. Paragraph 21 of that ruling states: Where an employee is travelling in the course of performing their employment duties, the food or drink provided is consumed as a result of that work-related travel. In the absence of supplementary entertainment, the food or drink is not provided by the employer in order to confer entertainment on that employee. Therefore, the meal does not have the character of entertainment. Company A employees acting as hosts are travelling in the course of performing their duties of employment and their meals are generally not provided with another form of entertainment. Further in TR 97/17 at paragraph 23 the determination of whether food or drink is entertainment '…requires an objective analysis of all the circumstances surrounding that provision'. The ruling goes on to provide relevant factors that should be considered, i.e. why the food is being provided, what food is being provided, when it is being provided and where it is being provided. This analysis is also useful for determining whether the benefits an employee receives as a result of acting as a host would be entertainment. It is consistent with paragraphs 161 to 164 of Taxation Ruling TR 98/14 Income tax: employee journalist - allowances. It states: 161. A deduction is not allowable under section 8-1 of the ITAA 1997 for expenditure incurred in attending staff dinners or similar functions. Such expenditure qualifies as an entertainment expense under section 51AE of the ITAA 1936. The costs of attending functions such as staff dinners and farewell dinners are not incurred in the course of producing income and they are essentially a private expense. 162. In Frankcom v. F C of T (1982) 65 FLR 25; 82 ATC 4599; (1982) 13 ATR 636, a magistrate was denied a deduction for the costs of attending a cocktail party hosted by the Bar Association and Law Society and dinners given by the Queensland Stipendiary Magistrates' Association. The taxpayer's duties as a magistrate did not necessitate his attendance at social functions. Hence, the expenditure was not incidental and relevant to the taxpayer gaining his salary and also were of a private nature. 163. A deduction is generally not allowable for the cost of providing entertainment by way of food, drink or recreation (whether to the taxpayer or another person). However, if an employee journalist is required as part of their work to report on a particular social function, the costs associated with attending are deductible. 164. Example: Edwina, a reporter for a major magazine, is responsible for the paper's social and society pages. In order to gather the necessary information for her articles, Edwina is required to attend several functions a year regarded as important to the city's socialites. The cost of attending these functions is an allowable deduction to Edwina due to the specialised nature of her work as a journalist. A similar approach is suggested in the minutes of the National Tax Liaison Group FBT Subcommittee (NTLG) meetings of 23 March and 15 June 1995. The question put to the ATO was …whether FBT applied in relation to entertainment in situations where a 'tour leader' accompanies a group of employees of another employer who are partaking of the trip as a part of an award system. In reply the ATO was …of the opinion that the tour leader was clearly undertaking work responsibilities and that there would not be any entertainment fringe benefit. From these minutes the following can be gleaned: · the employee is being a 'tour leader' as part of his or her work responsibilities · there is an actual trip that is being undertaken by the non-employees · the employee is accompanying those undertaking the trip. Although these minutes are not ATO view, the approach is consistent with that in TR 97/17 and paragraphs 163 and 164 of TR 98/14. It is also consistent with the examples of what is not entertainment provided in section 32-10 of the ITAA 1997. Those examples i.e. theatre attendance by a critic and a restaurant meal of a food writer were mentioned in the Explanatory Memorandum to Taxation Laws Amendment Act (No.4) 1985 as examples of the operation of the now repealed paragraph 51AE(5)(g) of the ITAA 1936. In explaining the purpose of paragraph 51AE(5)(g) of the ITAA 1936 the Explanatory Memorandum states the following: Paragraph (g) would apply to ensure that the cost of a person's meals while travelling in the course of performing his or her duties as an employee or in the course of a business activity will continue to be deductible - unless the expenditure was incurred in the course of entertaining another person (e.g., dining a prospective client). Paragraph (g) will also ensure that expenses borne by, for example, a restaurant reviewer or theatre critic in attending particular establishments or events in the course of his work will continue to be deductible. The exclusion under paragraph (g) will apply whether the expenses are borne by the person participating in the entertainment or, in the case where that person is acting in the capacity of an employee, by an employer. According to the Explanatory Memorandum to the Tax Law Improvement Act 1997 , the exception in paragraph 51AE(5)(g) of the 1936 Act was not rewritten because it had very limited application. Instead it states that: A note has been added at the end of the definition of entertainment to put beyond doubt that expenditure envisaged by paragraph 51AE(5)(g) is not entertainment. We consider that the employee acting as a host is participating in that event as part of their duties of employment. Their role is to carry out duties that are for the purpose of ensuring that the guests are satisfied and enjoy themselves. The hosts themselves are not participating in the events for the purpose of their amusement or diversion. As the employees acting as hosts are undertaking work duties, if they had incurred the expenditure in relation to property or residual fringe benefits themselves, it would be deductible under section 8-1 of the ITAA 1997. The situation may be more complex in relation to expense payment fringe benefits. Where an employee is reimbursed for expenses incurred in participating in an activity that is not in the itinerary, that expense may also be in relation to the guest's entertainment. Whilst part of the expense incurred may be 'otherwise deductible' because it relates to the employee, the part in respect of the guest's participation would not be. This is because the employee would not be able to claim a deduction for an outgoing incurred in providing entertainment to someone other than themselves. However section 63A of the FBTAA operates to reduce the taxable value of an expense payment fringe benefit where it arises from expenditure an employee incurs in entertaining people other than the employee or associates. The employer may reduce the taxable value of the expense payment fringe benefit by the percentage of the expenditure incurred in entertaining the other people. Consequently for expense payment fringe benefits: · the portion of the taxable value that relates to entertainment provided to a guest may be reduced in accordance with section 63A, and · the portion of the taxable value that relates to the employee would be 'otherwise deductible'. The reductions in sections 24, 44 and 52 have some further conditions in each of the relevant sections that must be satisfied. Those conditions are: · In the case of an expense payment fringe benefit, Company A possesses documentary evidence, or a copy, in respect of the employee's expenditure by the due date for lodging its FBT return. · Company A receives an employee declaration in a form approved by the Commissioner and/or a travel diary, from each employee by the due date for lodging its FBT return. According to the host policy all reimbursed expenditure must be substantiated and we have made the assumption that all declarations and travel diaries will be provided. Therefore the taxable value of any expense payment, property and residual fringe benefits provided to the employees will be 'otherwise deductible' pursuant to section 24 of the FBTAA for expense payment fringe benefits, section 44 of the FBTAA for property fringe benefits and section 52 of the FBTAA for residual fringe benefits.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Reasons for decision: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.