Private ruling: tax exempt body entertainment fringe benefits
Published: April 2014
Ruling period: Year ended 31 March 2014 | Year ended 31 March 2015
Date scheme commenced: 1 April 2013

Ruling: Q1: Does the provision of food and drink at a gala dinner dance constitute tax exempt body entertainment benefit pursuant to section 38 Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: No

Relevant facts and circumstances: The employer is an income tax exempt body. Entity 2 holds an annual conference each year and it charges an all-inclusive fee which is paid by the employer for its employees to attend. The annual conference runs for three days and on the evening of day two it holds a gala dinner dance. The gala dinner dance consists of a theme, a meal is provided along with limited alcohol, and musical entertainment or guest speaker. Full details of the conference were provided

Relevant legislative provisions: FBTAA section 20 | FBTAA section 24 | FBTAA section 38 | FBTAA section 136(1) | ITAA 1997 section 8-1 | ITAA 1997 section 32-20 | ITAA 1997 section 32-35 | ITAA 1997 section 32-65

Reasons for decision: Detailed Reasoning - Legislative background: Section 38 of the FBTAA 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. In respect of section 38 of the FBTAA the term 'non-deductible exempt entertainment expenditure' is defined in subsection 136(1) of the FBTAA as: means non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income In respect of the term 'non-deductible exempt entertainment expenditure', the term 'non-deductible entertainment expenditure' is defined in subsection 136(1) of the FBTAA as: means a loss or outgoing to the extent to which: (a) 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). It should be noted that section 32-20 of the Income Tax Assessment Act 1997 ( ITAA 1997 ) is the provision that allows a deduction that allows a deduction where the entertainment provided is entertainment by way of providing a fringe benefit. The deductibility of seminar expenses is covered under section 32-35 of the ITAA 1997 which states. | Detailed Reasoning - But the exception does not apply if ...: 2.1 providing food, drink, accommodation or travel to an individual (including yourself) that is reasonably incidental to the individual attending a *seminar that *goes for at least 4 hours. (a) the seminar is a *business meeting; or (b) the *seminar's main purpose is to promote or advertise a *business (or prospective *business) or its goods or services; or (c) the *seminar's main purpose is to provide *entertainment at, or in connection with, the seminar. In addition section 32-65 of the ITAA 1997 states: 32-65(1) Seminar includes a conference, convention, lecture, meeting (including a meeting for the presentation of awards), speech, "question and answer session", training session or educational course. 32-65(2) In working out whether a *seminar goes for at least 4 hours the following are taken not to affect the seminar's continuity, nor to form part of it: (a) any part of the seminar that occurs during a meal; (b) any break during the seminar for the purpose of a meal, rest or *recreation. 32-65(3) A *seminar is a business meeting if its main purpose is for individuals who are (or will be) associated with the carrying on of a particular *business to give or receive information, or discuss matters, relating to the business. However, the *seminar is not a business meeting if it: (a) is organised by (or on behalf of) an employer solely for either or both of these purposes: (i) training the employer and the employer's employees (or just those employees) in matters relevant to the employer's *business (or prospective *business); (ii) enabling the employer and the employer's employees (or just those employees) to discuss general policy issues relevant to the internal management of the employer's *business; and (b) is conducted on property that is occupied by a person (other than the employer) whose *business includes organising seminars or making property available for conducting seminars. | Detailed Reasoning - Would the food and drink at the gala dinner dance be deductible?: In respect of determining whether entertainment constitutes tax-exempt body entertainment fringe benefit chapter 15.6 of the Fringe benefits tax: a guide for employers (NAT 1054) states in part . . . For the purpose of identifying a tax-exempt body entertainment fringe benefit, and working out whether the expenditure is deductible for income tax purposes, you are treated as though you are a taxable entity. That is, you should ask yourself, 'If my organisation paid income tax, would the organisation be entitled to an income tax deduction for this expenditure? ' . . . In this case we are looking at the food and drink provided at a gala dinner dance held at the end of the second night of the seminar and whether or not it is covered by section 32-35 of the ITAA 1997. Food and drink provided at a seminar is looked at in question 13 of Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink, which states: | Detailed Reasoning - Question 13: 104. Food or drink is provided to employees as part of a seminar which is not held on the employer's premises. Is the food or drink subject to FBT? | Detailed Reasoning - Answer: 105. Food or drink provided to employees as part of their attendance at a seminar constitute either an expense payment or property fringe benefit. However, the 'otherwise deductible' rule may apply to reduce the taxable value of the fringe benefit. 106. Taxation Determination TD 93/195 provides guidance as to when the cost of food or drink which is part of the cost of attending a Continuing Professional Development (CPD) seminar is deductible under section 8-1 of the ITAA. Guidelines provided in that determination are useful in determining whether the 'otherwise deductible' rule can be applied to reduce the taxable value of the benefit provided. As indicated in TD 93/195 the relevant questions are: • whether the cost of attending the seminar is deductible under section 8-1 of the ITAA; • whether the seminar satisfies the requirements of section 32-35 of the ITAA; and • whether the food or drink provided amounts to entertainment. 107. With regard to the third dot point, the factors discussed at paragraph 23 above of this Ruling are to be applied when determining whether the food or drink amounts to meal entertainment. 108. Item 2.1 of the table in section 32-35 of the ITAA provides that if the seminar goes for at least 4 hours and does not satisfy one of the specified exceptions, then any food or drink consumed by the employee that is 'reasonably incidental' to the attendance at that seminar is not precluded by section 32-5 from being deductible under section 8-1 of the ITAA. This is regardless of whether or not the food or drink constitutes entertainment, i.e., whether or not the food or drink amounts to meal entertainment. 109. If the seminar does not satisfy the requirements of section 32-35 and the costs of attending that seminar are deductible under section 8-1 of the ITAA, then food or drink which is included as part of the cost is also deductible provided that the food or drink does not amount to entertainment, i.e., is not meal entertainment. For this purpose, light refreshments (which may include alcohol) provided immediately prior to or following the seminar does not constitute entertainment. Example 13.4 of TR 97/17 then specifically looks at food and drink provided at a gala dinner at a seminar and whether that is incidental to the participant's attendance at the seminar. It states: 117. An employer pays for an employee and spouse to attend an international accounting conference which is being held in another State capital city. The program is as follows: * Day 1 7.00 pm Welcome dinner and opening speeches * Day 2 Morning Breakfast with accompanying person Technical sessions Lunch Separate lunch provided for accompanying person Afternoon Technical sessions Evening Dinner * Day 3 Morning Breakfast with accompanying person Technical sessions Afternoon Sightseeing trip Evening Gala dinner dance. 118. The question to be asked is whether the meals amount to meal entertainment. Because the employee is travelling in the course of his employment to attend the seminar, meals such as breakfast, lunch and dinner are not, generally, regarded as meal entertainment and, because of the 'otherwise deductible' rule, do not give rise to an FBT liability. 119. Food or drink provided at the gala dinner dance constitutes meal entertainment. This is because entertainment is provided with the meal. However, as the seminar satisfies the requirements of section 32-35 (the meal is incidental to the participant's attendance at the seminar), the cost of the meal will not give rise to an FBT liability. This is due to the operation of the 'otherwise deductible' rule. (For employees who are not travelling, see Example 13.1 above.) 120. Because of the provisions of section 26-30 of the ITAA, all costs which relate to attendance at the seminar by the employee's spouse will not be 'otherwise deductible' and will be subject to FBT. The employer may claim an income tax deduction for these costs under section 8-1 because of the provisions of section 32-20 and subsection 26-30(3) of the ITAA. This example refers to example 13.1 of TR 97/17 which states: | Detailed Reasoning - Example 13.1: 110. An employer provides food or drink incidental to a seminar that satisfies section 32-35 held at a nearby convention centre. For the purposes of this example, the food or drink provided amounts to meal entertainment. 111. The meal entertainment is a property benefit which is subject to FBT. However, the taxable value of that meal is reduced to nil. This is because the cost of the meal would have been 'otherwise deductible' to the employee because of section 32-35 of the ITAA. For the same reason, a deduction for the meals is also allowable to the employer under section 8-1 of the ITAA. 112. If the food or drink provided does not amount to meal entertainment then the 'otherwise deductible' rule still applies as the cost of attendance at the seminar is generally deductible under section 8-1. Therefore in looking at question 13 and examples 13.1 and 13.4 of TR 97/17 it can be concluded that the food and drink provided at the gala dinner dance is meal entertainment. However the entertainment by way of food and drink will not constitute a tax exempt body entertainment benefit pursuant to section 38 of the FBTAA. This is because the food and drink is incidental to each participant's attendance at the seminar and would be deductible under section 8-1 of the ITAA 1997. The definitions of non-deductible exempt entertainment expenditure and non-deductible entertainment expenditure in subsection 136(1) of the FBTAA are not satisfied. As a result the food and drink provided at the gala dinner dance is not tax-exempt body entertainment benefit under section 38 of the FBTAA.