Private ruling: Fringe Benefits Tax - in-house fringe benefits
Published: July 2012
Ruling period: 1 April 2011 - 31 March 2012, and | 1 April 2012 - 31 March 2013.
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the fringe benefit that arises from the reimbursement of the fixed and volumetric charge for water, an eligible fringe benefit for the purposes of section 62 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: No | Q2: Is the fringe benefit that arises from the reimbursement of the amounts charged for services an eligible benefit for the purposes of section 62 of the FBTAA? | A2: No | Q3: Is the fringe benefit that arises from the reimbursement of the amounts charged for other services an eligible benefit for the purposes of section 62 of the FBTAA? | A3: No | Q4: Is the fringe benefit that arises from the reimbursement of the amounts charged for entry into facilities owned and operated by you, an eligible benefit for the purposes of section 62 of the FBTAA? | A4: No. However, if instead of reimbursing this expenditure you provided the use of the facility, the use of the facility may be an exempt benefit under subsection 47(2) of the FBTAA. | Q5: Is the fringe benefit that arises from the reimbursement of the amounts charged for entry into facilities owned by you, but operated by an independent lessee, an eligible benefit for the purposes of section 62 of the FBTAA? | A5: No.

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. You supply services. You issue notices. The notices include a charge for services. You intend to enter into an effective salary sacrifice arrangement as defined in paragraph 21 of Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/10) with an employee. Under the terms of the salary sacrifice agreement, you will reimburse the participating employee, up to $1,000, for the sum total of all amounts paid. For the arrangement to apply in respect of expenditure relating to the notice, each employee is required to substantiate their claim with documentary evidence which: · nominates the property for which the arrangement is to apply · provides proof of payment, and · provides proof of ownership. Various facilities owned and operated by you are covered by the agreement. Regarding facilities owned and operated by you: · each employee will be able to salary sacrifice up to a maximum of $1,000 in each fringe benefits tax year, including amounts and facilities owned but not operated by you, and · once approved, employees will be able to purchase tickets which are then submitted annually for salary sacrifice. Regarding facilities which you own and hire out, included in the hire price is the cost of electricity, water, sewerage, administration costs, bonds, and costs associated in cleaning and setting up and dismantling. A calculation is performed each financial year to determine the rate to be charged. The purposes for which facilities are hired by the public are numerous, whereas your employees hire facilities largely for private functions. There are several facilities which are owned, but not operated by you, which are to be covered by the agreement. Regarding facilities owned, but not operated by you: · each employee will be able to salary sacrifice up to a maximum of $1,000 in each fringe benefits tax year, on access to facilities owned but not operated by you · once approved, employees will be able to purchase tickets, which are then submitted annually for salary sacrifice, and · management of these facilities is under contract or lease agreements, whereby it is stipulated that the facility operators are granted access and operation rights to the premises. To obtain a reimbursement for the expense of using facilities owned and operated by you, relevant employees are required to: · complete an application form to demonstrate that they are employees · advise the number of tickets and the facilities involved · purchase the tickets, and · submit a copy of the purchase invoice, annually, for reimbursement. The cost of admittance to facilities owned and operated by you, is identical to other members of the public. Attendance at the facility owned and operated by you is recorded by the operator in the same way as any member of the public. When a ticket is purchased, it is logged into a program at the point of sale. Regarding other facilities, the employee will always book and pay before any reimbursement is considered. Only once a ticket has been purchased an application for reimbursement will be considered.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 20 | Fringe Benefits Tax Assessment Act 1986 section 38 | Fringe Benefits Tax Assessment Act 1986 section 62 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1) | Income Tax Assessment Act 1997 section 32-5 | Income Tax Assessment Act 1997 section 32-10 | Income Tax Assessment Act 1997 section 32-20 | Income Tax Assessment Act 1997 section 32-40 | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: Is the fringe benefit that arises from the reimbursement of the fixed and volumetric charge for water, an eligible fringe benefit for the purposes of section 62 of the FBTAA? Under the proposed arrangement, you will reimburse an employee for the amount shown on their notices. Subsection 62(1) of the FBTAA states that: Where one or more eligible fringe benefits in relation to an employer in relation to a year of tax relate to a particular employee of the employer, the taxable value of that fringe benefit, or the sum of the taxable values of those fringe benefits, as the case may be, in relation to that year shall be reduced by: · if the taxable value or the sum of the taxable values does not exceed $1,000 - an amount equal to the taxable value or the sum of the taxable values; or · in any other case - $1,000. Subsection 62(2) of the FBTAA details the type of fringe benefits to which section 62 applies. Subsection 62(2) of the FBTAA states: In this section, "eligible fringe benefit" means: (a) an in-house fringe benefit, or (b) an airline transport fringe benefit. An in-house fringe benefit is defined in subsection 136(1) of the FBTAA to mean: · an in-house expense payment fringe benefit · an in-house property fringe benefit, or · an in-house residual fringe benefit. In general terms, section 20 of the FBTAA provides that an expense payment benefit will arise where an employer either: · makes a payment to a third party to discharge an obligation of an employee, or · reimburses the employee for expenses incurred by the employee. As you intend to reimburse expenditure incurred by an employee, the benefit will be an expense payment benefit. Is the reimbursement an in-house expense payment fringe benefit? An in-house expense payment fringe benefit is defined in subsection 136(1) of the FBTAA to mean: · an in-house property expense payment fringe benefit, or · an in-house residual expense payment fringe benefit. Both of these terms are defined in subsection 136(1) of the FBTAA. In general terms, an in-house property expense payment benefit relates to a reimbursement of the cost of purchasing 'tangible property', whereas an in-house residual expense payment benefit relates to a reimbursement of the cost of purchasing a residual benefit. 'Tangible property' is defined in subsection 136(1) of the FBTAA to mean goods, and includes: · animals, including fish, and · gas and electricity. Guidance for determining whether the provision of water is tangible property is provided by the Goods and Services Tax Ruling GSTR 2000/25 Goods and services: GST-free supplies of water, sewerage and sewerage-like services, storm water draining services and emptying of a septic tank (GSTR 2000/25). Paragraph 21 of GSTR 2000/25 states: A 'supply of water' is the provision of tangible personal property - that is, goods. By applying paragraph 21 of GSTR 2000/25, it can be concluded that water is tangible property that will come within the definition of 'property'. The definition of an 'in-house property expense payment fringe benefit' provides that where the provider of the property is the employer or an associate of the employer, the reimbursement will be an in-house property expense payment fringe benefit where: · the provider at or about the time that benefit was provided, carried on a business that consisted of or included the provision of identical or similar property principally to outsiders; and · the employee provides documentary evidence to the employer before the declaration date. | Detailed Reasoning - Do you carry on a business that consists of the provision of identical or similar property principally to outsiders?: The FBTAA does not define what constitutes carrying on a business for the purposes of the application of the in-house provisions. It does however, define 'business operations' in subsection 136(1) of the FBTAA as: In relation to a government body or a non-profit company, includes any operations or activities carried out by that body or company. In discussing the meaning of the term 'business operations' paragraph 9 of Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of business premises (TR 2000/4), states: The term 'business operations' in the definition of 'business premises' includes a wide range of activities. The activities include those undertaken by a person in the ordinary course of carrying on a business. They also include those activities that, although not undertaken in the ordinary course of carrying on a business, are nevertheless undertaken in the course of carrying on a business. Profit making activities that fall short of being a business are also included in 'business operations' if they have a business or commercial character. The term 'business' is also defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) as: A business includes any profession, trade, vocation or calling, except the occupation as an employee. The Macquarie media dictionary describes to 'be in business' as: To earn a living from a commercial activity; to be carrying out an activity, enterprise, etc., successfully. These definitions indicate the requirement to be carrying on a business for the purpose of the FBTAA as capable of having a wide meaning. Support for this conclusion was provided by the High Court decision in NT Power Generation Pty Ltd v. Power and Water Authority [2004] HCA 48; 219 CLR 90; 210 ALR 312; 79 ALJR 1 ( Power and Water Authority case ), where the phrase 'carrying on a business' was constructed broadly. In its decision in the Power and Water Authority case, the Court held at paragraph 52 that the Power and Water Authority was carrying on a very substantial business. In making this statement, the Court referred to the references to carrying on a business contained within the Power and Water Authority's internal documents, its annual report which discussed indicators like rate of return on assets, the debt to capital ratio and the sales revenue. Further, at paragraph 66 in the Power and Water Authority case, the Court stated: While the word "business" in any particular context takes its meaning from that context, normally it is a "wide and general" word. Its meaning in the Act [ Trade Practices Act 1974 ] is widened by s 4(1`), since "business" includes "a business not carried on for profit". In the earlier decision of NT Power Generation Pty Ltd v. Power & Water Authority [2001] FCA 334, Mansfield J stated at paragraph 236: Whether or not a business is being carried on is a question of fact, having regard, for example, to the nature of the activities carried out, and their continuous or repetitive character: Smith v Capewell (1979) 142 CLR 509; Fasold v Roberts (1997) 70 FCR 489. Paragraph 13 of Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? (TR 97/11) provides a number of indicators which are relevant in determining whether a person is carrying on a business for income tax purposes. The indicators are as follows: · whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators · whether the taxpayer has more than just an intention to engage in business · whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity · whether there is repetition and regularity of the activity · whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business · whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit · the size, scale and permanency of the activity · whether the activity is better described as a hobby, a form of recreation or a sporting activity. In considering these factors it is accepted: · there is repetition and regularity of the activity · the activities have a considerable size · your assets have an approximate replacement value of several million dollars, and · can be considered to be permanent. Although these factors are indicative of a business being carried on the activities do not have a significant commercial purpose and are not carried on in the same manner as business activities conducted by other entities. In the absence of a commercial purpose these activities cannot be considered to be a business. Therefore, as you are not carrying on a business the expense payment fringe benefits will not be an in-house property expense payment fringe benefit. | Detailed Reasoning - Question 2: Is the fringe benefit that arises from the reimbursement of the amounts charged for services an eligible benefit for the purposes of section 62 of the FBTAA? Under the proposed arrangement, you will reimburse an employee for the amount shown on a notice in respect of services provided. The cost of the service shown on the notice is a fixed charge. As detailed above, section 62 of the FBTAA provides a concession where eligible fringe benefits are provided to employees, and in your case those benefits must be 'in-house fringe benefits'. An in-house fringe benefit is defined in subsection 136(1) of the FBTAA to mean: (a) an in-house expense payment fringe benefit (b) an in-house property fringe benefit; or an in-house residual fringe benefit. As detailed above, an in-house property expense payment fringe benefit relates to a reimbursement of the cost of purchasing 'tangible property'. The benefit provided will be a residual benefit. The definition of an in-house residual expense payment fringe benefit in subsection 136(1) of the FBTAA provides that where the residual benefit is provided by the employer or an associate of the employer, the reimbursement will be an in-house residual expense payment fringe benefit where: · the residual benefit provider at or about the time that benefit was provided, carried on a business that consisted of or included the provision of identical or similar residual benefits principally to outsiders; and · the employee provides documentary evidence to the employer before the declaration date. The factors discussed above apply equally to these services. That is: · there is repetition and regularity of the activity · the activities have a considerable size, and · can be considered to be permanent. Although these factors are indicative of a business being carried on, the activities do not have a significant commercial purpose. Further: · the activity does not appear to have a significant commercial purpose · there does not appear to be an intention to engage in a business, and · the activities are not reported as being a business activity. In the absence of these factors, your activities cannot be considered to be a business. Therefore, as you are not carrying on a business the expense payment fringe benefits will not be an in-house property expense payment fringe benefit. | Detailed Reasoning - Question 3: Is the fringe benefit that arises from the reimbursement of the amounts charged for other services an eligible benefit for the purposes of section 62 of the FBTAA? As detailed above, an expense payment benefit will arise under section 20 of the FBTAA where you reimburse expenses incurred by an employee. As you intend to reimburse expenditure incurred by an employee, the benefit will be an expense payment benefit. For the same reasons as discussed above in relation to questions one and two an expense payment benefit that arises from the reimbursement of other services will not be an in-house residual expense payment benefit as the provision of those services cannot be considered to be a business and they are not part of a business. | Detailed Reasoning - Question 4: Is the fringe benefit that arises from the reimbursement of the amounts charged for entry into facilities owned and operated by you, an eligible benefit for the purposes of section 62 of the FBTAA? As discussed above, for a benefit to be an in-house benefit it must be one of the following three types of benefits: · an in-house expense payment fringe benefit · an in-house property fringe benefit, or · an in-house residual fringe benefit. To be an in-house expense payment fringe benefit, the underlying expense that is being reimbursed must be either tangible property or a residual benefit. A benefit that does not come within one of these categories will not be an in-house benefit that comes within section 62. For example, a benefit that is a tax-exempt body entertainment benefit will not be an in-house benefit. Does the reimbursement of the amounts charged for entry into entertainment facilities owned and operated by you, give rise to a tax-exempt body entertainment benefit? Tax-exempt body entertainment benefits are defined in section 38 of the FBTAA, which states: Where, at a particular time, a person (in this section referred to as the ``provider'') incurs non-deductible exempt entertainment expenditure that is wholly or partly in respect of the provision, in respect of the employment of an employee, of entertainment to a person (in this section referred to as the ``recipient'') being the employee or an associate of the employee, the incurring of the expenditure shall be taken to constitute a benefit provided by the provider to the recipient at that time in respect of that employment. Therefore, a tax-exempt body entertainment benefit will arise from the expenditure that you incur in providing entertainment to your employees and their associates at the facilities that you own and operate, if the expenditure is 'non-deductible exempt entertainment expenditure'. | Detailed Reasoning - Is the expenditure 'non-deductible exempt entertainment expenditure'?: Subsection 136(1) of the FBTAA defines the term 'non-deductible exempt entertainment expenditure' as: Non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income. The term 'non-deductible entertainment expenditure' is also defined in subsection 136(1) of the FBTAA, and means: … a loss or outgoing to the extent to which: section 32-5 of the Income Tax Assessment Act 1997 applies to it, or would apply if it were incurred in producing assessable income; and (b)apart from that section, it would be deductible under section 8-1 of that Act, or would be if it were incurred in producing assessable income; (on the assumption that section 32-20 of the Income Tax Assessment Act 1997 had not been enacted). Section 32-5 of the ITAA 1997 states: To the extent that you incur a loss or outgoing in respect of providing entertainment, you cannot deduct it under section 8-1. However, there are exceptions, which are set out in Subdivision 32-B Therefore, an expense will be non-deductible exempt entertainment expenditure if the expense: · is incurred in respect of providing entertainment, and · is not incurred in producing assessable income, but · if it had been incurred in producing assessable income, section 32-5 of the ITAA 1997 would have prevented an income tax deduction being claimed under section 8-1 of the ITAA 1997 (assuming section 32-20 of the ITAA 1997 had not been enacted). | Detailed Reasoning - a. Is the expenditure incurred in respect of providing entertainment?: Entertainment is defined in section 32-10 of the ITAA 1997, which states: Entertainment means: · entertainment by way of food, drink, or recreation, or · accommodation or travel to do with providing entertainment by way of food, drink or recreation. You own and operate a number of facilities. You will incur expenditure in reimbursing employees on an annual basis, where an employee purchases a ticket which provides entry into these facilities. Guidance for determining whether the entrance to these facilities constitutes the provision of entertainment is provided in 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 ? (TD 94/55). TD 94/55 states: 2. In determining whether providing an item of property constitutes the provision of 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. This character is distinct from the property itself and relates to the immediate and active use of the property. 3. In practice, the provision of entertainment can be determined by reference to the following characteristics: | Detailed Reasoning - * Timeliness: · entertainment occurs soon after provision of the item of property · the usefulness of the item of property expires after consumption, or · the item of property is returned at the completion of use. | Detailed Reasoning - * Direct Connection: There should be a direct connection between the item of property and the entertainment: · the entertainment should arise from the use of the item of property, · the entertainment is the expected outcome of the provision of the property. | Detailed Reasoning - Example 1: Costs incurred in the giving of items of property, such as bottled spirits, groceries, games, TV sets, VCRs, computers, crockery, swimming pools, gardening equipment, etc; have an enduring character, and only an indirect nexus to any immediate entertainment. Consumption is usually delayed. The items of property usually require further steps before they can be consumed, and consumption can occur over a long period. Hence, these items of property do not generally constitute provision of entertainment. | Detailed Reasoning - Example 2: Costs incurred in providing glasses of champagne, hot meals, theatre tickets, holiday accommodation, hired entertainers, and hired sporting equipment, have a dynamic and immediate character. Consumption can usually occur immediately. These items of property do not last beyond initial consumption (or are to be returned at the end of the hire period). Hence, these items of property would generally constitute provision of entertainment. The tickets provided to an employee and/or an associate to access facilities owned and operated by you, are comparable to the theatre tickets referred to in example 2 of TD 94/55 as: · the rights provided by the ticket will be used reasonably soon after their provision · the rights expire after consumption · entertainment arises from the use of the ticket, and · entertainment is the expected outcome from the use of the ticket. The expenditure incurred by employees to gain access to facilities owned and operated by you is therefore incurred in the provision of entertainment. ATO Interpretative Decision ATO ID 2009/45 Fringe Benefits Tax Entertainment Facility Leasing Expenses: private function room and hotel room expenses (ATO ID 2009/45). In considering whether the use of a hotel room whilst on holidays constitutes the provision of entertainment ATO ID 2009/45 states: Subsection 995-1 of the ITAA 1997 provides the meaning of 'recreation': recreation includes amusement, sport or similar leisure-time pursuits. …. 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 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 guidance is provided in part 14.12 of the publication Fringe benefits tax: a guide for employers which states: The following are examples of 'other premises or facilities' for providing entertainment: · a function room in a club or hotel that has been hired to the exclusion of others · a hotel/motel room · a room in a bed or breakfast facility · a cabin on a cruise ship · a cabin or on-site van at a caravan park · the hire of a marquee · where you hire or lease a golf course for a set time or full day to the exclusion of others for example, a corporate golf day, and · where you hire one or more tennis courts to the exclusion of others for example, a corporate tennis day. As can be seen, some of the facilities owned by you are listed above as examples of premises or facilities for providing entertainment. | Detailed Reasoning - b. Is the expenditure incurred in producing assessable income?: You are an income tax exempt entity. The expenditure is therefore not incurred in producing assessable income. c. If the expenditure had been incurred in producing assessable income, would section 32-5 of the ITAA 1997 have prevented an income tax deduction being claimed under section 8-1 of the ITAA 1997 (assuming section 32-20 of the ITAA 1997 had not been enacted)? Section 32-5 of the ITAA 1997 will not prevent a deduction being claimed under section 8-1 of the ITAA 1997 where the expenses come within one of the items listed in sections 32-30, 32-35, 32-40, 32-45, and 32-50 of the ITAA 1997. For the purpose of this ruling the relevant section is section 32-40 of the ITAA 1997 which provides that section 32-5 does not stop a deduction being claimed for providing entertainment for payment in the ordinary course of a business that you carry on. The application of this section depends upon how the arrangement is structured. For example, a different outcome will apply where the arrangement involves the use of the centre as compared to an arrangement involves a reimbursement of expenses incurred in using the centre. The different outcomes are explained below: | Detailed Reasoning - Use of the centre: ATO ID 2008/60 Fringe Benefits Tax Residual fringe benefit: tax-exempt body - recreation centre (ATO ID 2008/60) considers whether a residual benefit, rather than a tax-exempt body entertainment benefit will arise where the employer (a local government council) provides an employee with the use of the local recreation centre including the use of a swimming pool and gymnasium. The relevant facts included: · the employer owns and operates a recreation centre which provides members of the public with the use of various sporting facilities including swimming pool, spa, sauna, gymnasium, basketball and volleyball facilities · the employer carries on a business of providing the recreation centre for use by members of the public · the employer incurs expenditure in operating the centre. For example it pays for electricity usage, for employee's wages and for swimming pool chemicals, and · the employer provides an employee the use of the recreation centre for one year. In considering the application of section 32-40 ATO ID 2008/60 states: The employer carries on a business of providing the use of the recreation centre to members of the public for payment. The business is one of providing recreation which is entertainment and the activity is considered to be 'in the ordinary course of a business'. Section 32-40 of the ITAA 1997 is therefore satisfied. This means that the employer's expenditure is not entertainment expenditure within section 32-5 of the ITAA 1997; is not 'non-deductible entertainment expenditure' within subsection 136(1) of the FBTAA and is not 'non-deductible exempt entertainment expenditure' within subsection 136(1) of the FBTAA. The benefit provided to the employee, being the use of the recreation centre over the course of the year is therefore not a benefit which is covered by section 38 of the FBTAA. As the benefit provided to the employee does not fall within any of the categories of benefits covered by Subdivision A of Divisions 2 to 11 (inclusive) of Part III of the FBTAA, it is therefore a 'residual benefit' under section 45 of the FBTAA. In your situation if the benefit is the use of the facility without a payment being made to the employee, the relevant expenditure incurred by the employer will be the costs incurred in operating the centre. As this expenditure will come within the exception contained within section 32-40 of the ITAA 1997, a tax-exempt body entertainment benefit will not arise from the expenditure. In such a scenario, the benefit will be a residual benefit that may be an exempt benefit under subsection 47(2) of the FBTAA. When this occurs, it is not necessary to consider the application of section 62. | Detailed Reasoning - Reimbursement of expenses of using the centre: If instead of providing the use of the centre, you reimburse the employee's costs, the expenditure will not be for the provision of entertainment in the ordinary course of the business (operating the facility). Instead, it is expenditure for the provision of entertainment to an employee. This will not come within section 32-40 of the ITAA 1997 and will be a tax-exempt body entertainment benefit. As none of these sections apply to the expenditure incurred in purchasing the tickets by your employees and/or their associates, the expenditure will be a tax-exempt body entertainment benefit. As a tax-exempt body entertainment benefit cannot be an in-house benefit, section 62 will not apply to this expenditure. | Detailed Reasoning - Question 5: Is the fringe benefit that arises from the reimbursement of the amounts charged for entry into facilities owned by you, but operated by an independent lessee, an eligible benefit for the purposes of section 62 of the FBTAA? Unlike the situation considered in the previous question, the entertainment facilities are operated by independent third parties. Although you do not operate the facilities, the same principles need to be considered. | Detailed Reasoning - a. Is the expenditure incurred in respect of providing entertainment?: As discussed above in relation to question four, the expenditure will be incurred in respect of the provision of entertainment. | Detailed Reasoning - b. Is the expenditure incurred in producing assessable income?: As discussed above, the expenditure will not be incurred in producing assessable income. c. If the expenditure had been incurred in producing assessable income, would section 32-5 of the ITAA 1997 have prevented an income tax deduction being claimed under section 8-1 of the ITAA 1997 (assuming section 32-20 of the ITAA 1997 had not been enacted)? As you are not operating the facilities, the exception in section 32-40 of the ITAA 1997 can not apply to the expenditure. Therefore, in accordance with the conclusion reached above in relation to the reimbursement of expenses incurred by the employee in using an entertainment facility that you own and operate, the reimbursement of expenses incurred by the employee in using an entertainment facility operated by an independent third party will be a tax-exempt body entertainment benefit. As a tax-exempt body entertainment benefit cannot be an in-house benefit, section 62 will not apply to this expenditure.

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.