Private ruling: Fringe benefits tax implications of meals provided to employees
Date of advice: 3 March 2016
Published: April 2016
Ruling period: FBT years ended 31 March 2016 - 2019 | Income years ended 30 June 2016 - 2019
Date scheme commenced: 1 April 2015

Ruling: Q1: Will the purchase or reimbursement of meals for employees during the working day result in fringe benefits tax being payable by the employer? | A1: Yes. | Q2: Will the purchase or reimbursement of meals for employees during the working day be tax deductible by the employer? | A2: Yes.

Relevant facts and circumstances: The employer runs a business with its employees travelling to multiple work places during a day. The employer either reimburses or pays outright for meals for employees during the working day. Sometimes these meals are a sit down meal at a restaurant but at other times it may be a drive through takeaway meal. Paid restaurant meals often consist of 3-4 sittings in any one day. That is, the employees may turn up at different times during the day as their work schedule allows. There are no meetings or functions held during these meals. There is no payment made for alcohol. There is no provision of meals for anyone other than employees.

Relevant legislative provisions: Section 20 of the FBTAA 1986 | Section 24 of the FBTAA 1986 | Section 37AC of the FBTAA 1986 | Section 37AD of the FBTAA 1986 | Section 40 of the FBTAA 1986 | Section 44 of the FBTAA 1986 | Section 8-1 of the ITAA 1997

Reasons for decision: Summary: The cost of reimbursements and/or direct payments of meals for staff during the work day are subject to fringe benefits tax. | Detailed Reasoning - Detailed reasoning: The facts you have provided show that there is a fringe benefits tax liability for the employer as a result of providing lunches to employees. Depending on the specific facts of each occasion, the purchase of meals is most likely to be an expense payment fringe benefit or a property fringe benefit. However in some instances a meal entertainment fringe benefit may also arise. A description of when each benefit will arise is provided for your information. Expense payment fringe benefit An expense payment fringe benefit in accordance with section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) may arise in either of two ways: • where the employer reimburses an employee for expenses they incur; or • where the employer pays a third party in satisfaction of expenses incurred by an employee. If the employer is paying for the meals staff have consumed, or reimbursing them for the expense of those meals, the employer is providing staff with expense payment fringe benefits. Property fringe benefit A property fringe benefit will arise in accordance with section 40 of the FBTAA when the employer provides property to an employee. In this case, it is when the employer incurs the expense for the lunch. In the context of the facts of this ruling, a property fringe benefit will occur when the employer pays upfront for a meal which a staff member later consumes. Please note: From a practical perspective, for the purposes of calculating the taxable value of the fringe benefits, there is no difference between classifying the benefits as either an expense payment or a property fringe benefit as they are calculated the same way. Entertainment The provision of entertainment means the provision of: • entertainment by way of food, drink or recreation • accommodation or travel in connection with, or to facilitate the provision of, such entertainment. In order to determine when food or drink provided to a person results in entertainment, you need to examine the circumstances surrounding that provision of the food or drink. The Fringe benefits tax - a guide for employers , explains that you need to look at the following, although more weight is usually given to (a) and (b): (a) Why is the food or drink being provided? This is a purpose test. For example, food or drink provided for the purposes of refreshment and to complete the working day in comfort does not generally have the character of entertainment, whereas food or drink provided in a social situation where the purpose of the function is for employees to enjoy themselves has the character of entertainment. (b) What food or drink is being provided? Morning and afternoon teas and light meals are generally not considered to be entertainment. However, as light meals become more elaborate, they take on more of the characteristics of entertainment. The reason for this is that the more elaborate a meal, the more likely it is that entertainment arises from consuming the meal. (c) When is the food or drink being provided? Food or drink provided during work time, during overtime or while an employee is travelling is less likely to be entertainment. This is because, in the majority of these cases, food provided is for a work-related purpose rather than an entertainment purpose. This, however, depends on whether the entertainment of the person is the expected outcome of the food or drink. For example, a staff social function held during work time still has the character of entertainment. (d) Where is the food or drink being provided? Food or drink provided on the employer's business premises or at the usual place of work of the employee is less likely to have the character of entertainment. However, food or drink provided in a function room, hotel, restaurant, café, coffee shop or consumed with other forms of entertainment is more likely to have the character of entertainment. This is because the provision of food or drink is less likely to have a work-related purpose. In the facts given for this ruling, it is considered that most of the meals provided will be expense payment or property fringe benefits. This is because the meals are nothing more than light meals provided for the purpose of completing the work day in comfort. Staff members partake of these meals over a number of sittings during the day as their work schedules allow. However, if occasions arise, where the meals provided are more elaborate, and a large number of staff participates in these occasions at the same time, the meal may take on more of the character of entertainment. Division 9A of the FBTAA provides options for valuing meal entertainment fringe benefits. Not 'otherwise deductible' Essentially, the cost of meals consumed during the normal course of a working day are a private expense and do not have the necessary connection with the income earning activity. As these expenses would not be deductible to the employee if they incurred the expenditure, there is no reduction to the taxable value of the fringe benefits under the relevant 'otherwise deductible' rules in the FBTAA. | Detailed Reasoning - Further information - travel expenses: We note your query as to whether or not the meals would constitute travel expenses. ATO Interpretative Decision ATO ID 2002/807 states: Generally, meal expenses are not allowable as a deduction under section 8-1 of the ITAA on the basis there isn't a sufficient connection between the expenditure and the income earning activities of a taxpayer. However, there is, no general proposition that meal expenses can never be deductible: FC of T v. Cooper 91 ATC 4396; (1991) ATR 1616, Roads and Traffic Authority of NSW v. FC of T 93 ATC 4508; (1993) 26 ATR 76, Re Carlaw and FC of T 95 ATC 2166; (1995) 31 ATR 1190, AAT decision in Case 9/96 96 ATC 186. The deductibility of expenditure on meals will depend on the essential character of the expenditure on the basis of the facts of each case. In this case, the relevant expenses are considered to be incurred in carrying on the business as the business requires overnight travel. The meal expenses are not considered to be private in nature. In that instance, it was considered that meals might be deductible when overnight travel is required, that is, when a taxpayer is away overnight from their normal residence. In your situation, the employees are carrying on their normal working day, and although they "travel" from place to place to perform their duties, at no time are they travelling overnight away from their normal place of residence. For this reason, the expenditure on meals during the course of a normal working day are not considered to be travel expenses, and are essentially a private expense of the employee. | Summary: The expenditure incurred for purchasing the meals directly, or for reimbursing the employees for the meals, are an allowable deduction to the employer. | Detailed Reasoning - Detailed reasoning: Under section 8-1 of the Income Tax Assessment Act 1997, e mployers can claim an income tax deduction for the cost of providing fringe benefits as well as for any FBT incurred as these expenses are recognised as being 'necessarily incurred' in carrying on a business. The deduction to the employer for the cost of providing the fringe benefits is available even if no deduction would have been allowed to the employee had the employee incurred the expenditure. This means that the employer can claim an income tax deduction for the cost of the meals provided to employees. The employer can also claim an income tax deduction for any fringe benefits tax paid as a result of providing these meals.