Private ruling: Fringe benefits tax; exempt benefits; recreational facilities
Date of advice: 30 June 2015
Published: June 2015
Ruling period: Year ending 31 March 2016 | Year ending 31 March 2017 | Year ending 31 March 2018 | Year ending 31 March 2019 | Year ending 31 March 2020

Ruling: Q1: Will the free use of recreational facilities to be provided to employees of the employer be exempt benefits under subsection 47(2) of the Fringe Benefits Tax Assessment Act 1986 ? | A1: 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. The employer owns and operates recreational facilities. The employer is contemplating allowing its employees free use of the facilities. The employees would be able to access the facilities at any time they are open to the general public. Free use of the facilities is for the employees only; it does not extend to any family members. The employees would be required to present their staff identification card to gain entry to the facilities.

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 45, | Fringe Benefits Tax Assessment Act 1986 subsection 47(2), | 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 and | Income Tax Assessment Act 1997 section 32-40.

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Detailed Reasoning - Detailed reasoning: If an employer provides an employee with benefits in respect of the employment of the employee, the employer is liable to pay fringe benefits tax on the benefits unless the benefits are excluded from the definition of fringe benefit in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Exempt benefits are specifically excluded from the definition of fringe benefit in subsection 136(1) of the FBTAA. Subsection 136(1) of the FBTAA defines benefit to include any right, privilege, service or facility. The free use of the recreational facilities that will be provided to the employees will be benefits that are provided in respect of their employment. Therefore the benefits will be fringe benefits unless they are exempt benefits. Under subsection 47(2) of the FBTAA, where a residual benefit provided to a current employee in respect of their employment consists of the provision, or use, of a recreational facility and the facility is located on business premises of the employer, the benefit is an exempt benefit. | Detailed Reasoning - Is the benefit a residual benefit?: The benefit provided must be a residual benefit which according to section 45 of the FBTAA '…is a benefit that … is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive)...'. Essentially, residual benefits are benefits that remain or are left over because they are not one of the more specific categories of benefit. The benefits that the employer will be providing are the use of the recreational facilities. The employees will not be incurring any expenses in relation to use if the facilities so there is no possibility of an expense payment benefit under section 20 of the FBTAA. Employees will be using the facilities for recreation. Under subsection 136(1) of the FBTAA recreation includes: (a) amusement; (b) sport or similar leisure-time pursuits; and… Recreation is included within the definition of entertainment for the purposes of the FBTAA which takes its definition from section 32-10 of the Income Tax Assessment Act 1997 (ITAA 1997). Because the employer is an income tax exempt body and the use of the facilities can be considered entertainment, it is necessary to consider whether the benefits are tax-exempt body entertainment benefits under section 38 of the FBTAA. 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 order to determine if the employer will be providing benefits under this section it is necessary to determine if the employer will be incurring non-deductible exempt entertainment expenditure in providing the employees with use of the facilities. Non-deductible exempt entertainment expenditure means 'non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income'. Under subsection 136(1) of the FBTAA 'non-deductible entertainment expenditure' 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 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). The costs that the employer will incur in providing the benefits will be the same costs incurred in providing the facilities to any person using them. The question is whether those expenses are 'non-deductible entertainment expenditure'. If, hypothetically, the employer incurred these expenses in producing assessable income, section 32-5 of the ITAA 1997 would not apply to them. That section states: To the extent that you incur a loss or outgoing in respect of entertainment, you cannot deduct it under section 8-1. However, there are exceptions, which are set out in Subdivision 32-B. The expenses that the employer incurs in providing the facilities would fall within an exception set out in subdivision 32-B of the ITAA 1997, that is item 3.1 of section 32-40. Under that item section 32-5 would not stop the employer from deducting a loss or outgoing for 'providing entertainment for payment in the ordinary course of a business that you carry on'. The employer owns and operates the facilities and carries on a business of providing the use of the facilities to members of the public for payment. The business is one of providing recreation which is entertainment and the activity is part of the ordinary course of a business of the employer. As the employer will not be incurring 'non-deductible entertainment expenditure' in providing the benefits to its employees, paragraph 136(1)(a) of the FBTAA of the definition is not satisfied. Therefore the benefits will not be tax-exempt body entertainment benefits under section 38. Since the benefits will not be benefits by virtue of another provision of Subdivision A of Divisions 2 to 11 (inclusive) of the FBTAA, the benefits will be residual benefits under section 45. | Detailed Reasoning - Does the benefit consist of the provision or use of a recreational facility?: As discussed above the employees will be provided with the use of the facilities which are recreational facilities. | Detailed Reasoning - Is the recreational facility located at the business premises of the employer?: According to subsection 136(1) of the FBTAA 'business premises': in relation to a person, means premises or part of premises, of the person used, in whole or in part, for the purposes of business operations of the person, but does not include: (a) premises, or part of premises, used as a place of residence of an employee of the person or an employee of an associate of the person; or (b) a corporate box; or (c) boats or planes used primarily for the purpose of providing entertainment unless the boat or plane is used in the person's business of providing entertainment; or (d) other premises used primarily for the purpose of providing entertainment unless the premises are used in the person's business of providing entertainment. Paragraph 12 of Taxation Ruling TR 2000/4 provides guidance concerning the two requirements that must be satisfied for premises to be classified as business premises of the employer. These requirements are: (a) the control the employer has over the premises, and (b) the consistency of an employer's actions and activities on the premises with those of normal business practices. Paragraph 7 of TR 2000/4 addresses the first requirement that the premises or part of the premises are under a person's control. A person's control is satisfied if that person owns the premises, or has exclusive occupancy rights as lessee of the premises. The second requirement is that the premises or part of premises must be used by the person, in whole or part, for the purposes of their business operations. Under subsection 136(1) of the FBTAA 'business operations' in relation to a government body or non-profit company, includes any operations or activities carried out by that body or company. As noted in the explanation above the operation of the facilities is considered to be a business that the employer carries on. Consequently: • the facilities are not excluded by paragraph 136(1)(d) of the definition of business premises as the premises are used in the employer's business of providing entertainment, and • the employer's actions and activities on the premises are consistent with its normal business practice of providing recreation to the public. The recreational facilities are therefore located on the employer's business premises and all of the conditions in subsection 47(2) of the FBTAA are satisfied. Since those conditions are satisfied the benefits that will be provided to the employees will be exempt benefits and excluded from the definition of a fringe benefit.