Private ruling: Fringe benefits tax
Published: December 2011
Ruling period: 2010
Date scheme commenced: 2010

Ruling: Q1: Where expenditure incurred in providing the promotional package A includes the costs associated with assigning employees to act in the capacity of 'tour leaders' in respect of the promotion, will there a fringe benefits tax liability arise under the Fringe Benefits Tax Assessment Act 1986 ? | A1: No | Q2: Where expenditure incurred in providing the promotional package B includes the costs associated with assigning employees to act in the capacity of 'tour leaders' in respect of the promotion, will there a fringe benefits tax liability arise under the Fringe Benefits Tax Assessment Act 1986 ? | A2: No | Q3: Where expenditure incurred in providing the promotional package C includes the costs associated with assigning employees to act in the capacity of 'tour leaders' in respect of event D, will there a fringe benefits tax liability arise under the Fringe Benefits Tax Assessment Act 1986 ? | A3: Yes | Q4: Where expenditure incurred in providing the promotional package C includes the costs associated with assigning employees to act in the capacity of 'tour leaders' in respect of the event E, will there a fringe benefits tax liability arise under the Fringe Benefits Tax Assessment Act 1986 ? | A4: 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. As a means of attracting long term advertisers and building advertising loyalty, advertising packages are offered by the company to prospective advertisers with the provision of a benefit/incentive which could be used by the recipient for the purpose of entertainment. The cost of the advertising package is based on the normal cost of the advertising to a third party. The incentives are offered as a bonus to encourage advertisers to take up the advertising offer. The cost of certain packages includes expenses associated with sending employees of the taxpayers to act as hosts or tour guides at the relevant event. In having staff members accompany the advertisers on certain of the benefit/incentive packages, the company seeks to open further business and marketing opportunities. Incentive packages provided in the period: Promotional package A Attendance at a conference including: return airfares, accommodation, conference meals, a series of presentations, master classes and business consultation sessions developing creative marketing strategies for the advertisers business. o Employees who are involved in the promotion are: o Sales employees and account managers for advertisers o Senior management o Director of sales. Promotional package B Whilst promotional package B involved the provision of entertainment in previous years, the programme has evolved and no longer involves the provision of entertainment but rather consists of meetings held either in-house or at the advertiser's premises to present advertising solutions. The role of employees involved in the promotion is to attend the meetings to present advertising business opportunities to advertisers. Promotional package C Involvement in promotional package C provides benefits such as event tickets and various networking functions. The employees involved with this promotion are Sales and senior management. These employees only participated in events D and E. For the employees participating in the event D, they act as hosts or tour guides at this event. In having the employees accompany the advertisers to such an event, the group members seek to open further business and marketing opportunities. For the employees participating in the event E, they act as hosts and facilitators for the guest speakers who discuss relevant strategies. The event generally is held in a conference centre or in a conference room at a hotel. In having the employees hosting such an event and meeting the advertisers, the company seeks to promote to the clients the advertisement opportunities. Only a light meal is provided to the employees and the participants at the beginning of the event. Assumption The meals provided as part of promotional package A do not have any entertainment provided with them.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Section 40, | Fringe Benefits Tax Assessment Act 1986 Section 44, | Fringe Benefits Tax Assessment Act 1986 Section 45, | Fringe Benefits Tax Assessment Act 1986 Section 52, | Income Tax Assessment Act 1997 Section 32-10 and | Income Tax Assessment Act 1997 Subsection 995-1.

Reasons for decision: Summary: Where expenditure incurred in providing promotional package A includes the costs associated with assigning employees to act in the capacity of 'tour leaders' in respect of the promotion, a fringe benefits tax liability will not arise under the Fringe Benefits Tax Assessment Act 1986 (FBTAA). However there may be a fringe benefits tax (FBT) liability if any of the meals constitute meal entertainment. | Detailed Reasoning - Detailed reasoning: In accordance with subsection 32-10(1) of the Income Tax Assessment Act (ITAA) 1997 entertainment means: o entertainment by way of food, drink or recreation; or o accommodation or travel to do with providing entertainment by way of food, drink or recreation. Further in subsection 32-10(2) of the ITAA 1997 it states that: You are taken to provide entertainment even if business discussions or transactions occur. Recreation as defined in subsection 995-1(1) of the ITAA 1997, includes amusement, sport or similar leisure-time pursuits. In subsection 136(1) of the FBTAA a benefit '…includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility…'. A fringe benefit is defined in subsection 136(1) of the FBTAA as a benefit provided to an employee or an associate of an employee by an employer or an associate of an employer or a third party in an arrangement with an employer in respect of the employee's employment. The taxable value of fringe benefits may be reduced in accordance with the 'otherwise deductible' rule where the recipient is the employee. Broadly this means that the employer may reduce the taxable value by the amount that the employee would have been entitled to claim as an income tax deduction if: o the benefit had not been provided as a fringe benefit and o the employee had purchased the benefit. It has been argued that the employees who attended the various promotions were 'hosts or tour guides'. This is a reference to comments made in the minutes of the National Tax Liaison Group (NTLG), FBT subcommittee meeting on 25 March 1995. It is important to consider the comments in their context. 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 part of an award system. 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: o the employee is being a 'tour leader' as part of his or her work responsibilities o there is an actual trip that is being undertaken by the non-employees o the employee is accompanying those undertaking the trip. The employees involved in promotional package A attended a conference. In doing so they were provided with flights, accommodation and meals. These are benefits as defined in subsection 136(1) of the FBTAA. The employees attended these conferences as part of their duties. They met with external consultants and advertisers to conduct an assessment of the client's business and formulate an advertising strategy for the advertiser. In this scenario the employees are undertaking work duties as part of their attendance at the conference. They are working with the external participants in order to achieve certain outcomes. Consequently, the provision of the flight and accommodation are residual fringe benefits whose taxable value may be reduced in accordance with section 52 of the FBTAA as the employee's would have been entitled to an income tax deduction for the cost of the flights had they incurred the cost. The provision of meals is a property fringe benefit. Generally, where an employee and client are both travelling meals consumed whilst travelling do not amount to meal entertainment. Therefore the taxable value of those fringe benefits may be reduced in accordance with the 'otherwise deductible' rule under section 44 of the FBTAA. If, however, the meal is accompanied by entertainment other than food or drink the meals will become meal entertainment. Where the meals are meal entertainment the taxable value could not be reduced in accordance with section 44 of the FBTAA. | Summary: A fringe benefits tax liability will not arise where expenditure incurred in providing the promotional package B includes the costs associated with employees attending the meetings that make up the promotion. | Detailed Reasoning - Detailed reasoning: Promotion B no longer involves the provision of entertainment and only involves the employee attending the meetings with advertisers. Therefore as no benefits were provided to the employees, there is no fringe benefits tax liability. | Detailed Reasoning - Additional information:: If employees who attend the meetings receive any food or drink, it may still be necessary to consider whether any meal entertainment has been provided. The provision of meal entertainment under section 37AD of the FBTAA is the provision of: o entertainment by way of food or drink; or o accommodation or travel in connection with, or for the purpose of facilitating entertainment to which paragraph (a) applies; or o the payment or reimbursement of expenses incurred in providing something covered by paragraph (a) or (b); o whether or not: o business discussions or business transactions occur; or o in connection with the working of overtime or otherwise in connection with the performance of the duties of any office or employment; or o for the purposes of promotion or advertising; or o at or in connection with a seminar. Generally, the provision of morning or afternoon teas or light lunches will not be considered to be meal entertainment where they are provided on a working day on the employer's business premises or at a worksite of the employer. | Summary: Where expenditure incurred in providing promotional package C includes the costs associated with assigning employees to act in the capacity of 'tour leaders' in respect of event D, a fringe benefits tax liability will arise under the FBTAA . | Detailed Reasoning - Detailed reasoning: Attendance at event D is considered to be recreation. It is important to note that recreation may still be entertainment regardless of whether business discussions took place. From the few facts that may be gleaned in the scenario in the NTLG FBT subcommittee meeting minutes above, attendance at a sporting event is somewhat different to being a 'tour leader'. A tour leader would do more than just accompany the advertiser to a sporting event in the hope of opening further business and marketing opportunities. Such activities are no different to a 'business lunch' which in most circumstances would be quite clearly entertainment. The entertainment provided to the employee is a residual benefit under section 45 of the FBTAA and is a fringe benefit. The taxable value of that fringe benefit cannot be reduced using the 'otherwise deductible' rule under section 52 of the FBTAA. Consequently, where the employer has incurred costs associated with employees attending event D, there is a fringe benefits tax liability under the FBTAA. | Summary: Where expenditure incurred in providing promotional package C includes the costs associated with assigning employees to act in the capacity of 'tour leaders' in respect of event E, a fringe benefits tax liability will arise under the FBTAA. | Detailed Reasoning - Detailed reasoning: In relation to event E, it is necessary to consider the context in which the food and drink is being provided. As noted above light meals provided on an employer's business premises or worksit e will generally not be considered to be meal entertainment. Event E is generally held in a conference centre or in a conference room at a hotel, therefore off the employer's business premises. In paragraph 23 of Taxation Ruling TR 97/17 it states 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. The purpose of the event is to promote the advertisement opportunities. In the entertainment table in paragraph 25 and paragraphs 121 to 124 of TR 97/17, when food and drink is consumed by employees at promotions not held on the employer's premises it is considered to be meal entertainment. Further, food and drink consumed off an employer's business premises and in the context of a business lunch is also considered meal entertainment. Given the context within which the food and drink is being provided, it is considered that it is the provision of meal entertainment. However, even if it is not meal entertainment the result will be the same. The provision of the food and drink is a property benefit under section 40 of the FBTAA the taxable value of which cannot be reduced using the 'otherwise deductible' rule under section 44. This is because it is entertainment or because the employee is not travelling and expenses incurred in purchasing meals are private in nature. | Detailed Reasoning - Additional information: Please note, that if the benefit is a minor benefit under section 58P of the FBTAA, it will be exempt from FBT. A minor benefit is a benefit which is both: o less than $300 (before 1 April 2007 the amount was less than $100) in value o unreasonable to treat as a fringe benefit. 1. The following five criteria need to be considered when deciding if it would be unreasonable to treat the minor benefit as a fringe benefit. 2. The infrequency and irregularity with which associated benefits, being benefits that are identical or similar to the minor benefit and benefits given in connection with the minor benefit, are provided. The more frequently and regularly associated benefits are provided, the less likely that the minor benefit will qualify as an exempt benefit. 3. The total of the notional taxable values of the minor benefit and identical or similar benefits to the minor benefit. The greater the total value of the minor benefit and identical or similar benefits, the less likely it is the minor benefit will qualify as an exempt benefit. 4. The likely total of the notional taxable values of other associated benefits - that is, those provided in connection with the minor benefit. For example, where a meal, which is a minor benefit, is provided in connection with a night's accommodation and taxi travel, which themselves may or may not be a minor benefit, the total of their taxable values must be considered. The greater the total value of other associated benefits, in this case being the accommodation and the taxi travel, the less likely it is that the minor benefit will qualify as an exempt benefit. 5. The practical difficulty in determining what would be the notional taxable value of the minor benefit and any associated benefits. This would include consideration of the difficulty for you in keeping the necessary records in relation to the benefits. The circumstances in which the minor benefit and any associated benefits were provided. This would include consideration as to whether the benefit was provided as a result of an unexpected event, and whether or not it could be considered principally as being in the nature of remuneration. If, after considering the five criteria, the employer concludes that it would be unreasonable to treat the benefit as a fringe benefit, the benefit will be an exempt benefit. In determining if the minor benefit exemption applies, the employer needs to examine the nature of the benefit provided and consider each of the various criteria - value, frequency and regularity of provision, and recording and valuation difficulties - before concluding whether the exemption should apply to a minor benefit.

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.