Private ruling: Meal entertainment fringe benefits
Date of advice: 30 January 2024
Published: 11 March 2024
Ruling period: Fringe Benefits Tax (FBT) year ending 31 March 20YY | FBT Year ending 31 March 20YY | FBT year ending 31 March 20YY | FBT year ending 31 March 20YY
Date scheme commenced: 1 April 20YY

Ruling: Q1: Is the provision of breakfast to casual employees at establishment A (or a similar food outlet) by the Employer entertainment by way of food or drink' within the meaning of 'entertainment' under section 32-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Is the provision of breakfast to casual employees by the Employer a 'tax-exempt body entertainment benefit' under section 38 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A2: No. | Q3: If the answer to Question 2 is 'No', would the benefit constitute a 'property benefit' under section 40 of the FBTAA? | A3: Yes. | Q4: Would the provision of breakfast to casual employees by the Employer, a registered and endorsed Public Benevolent Institution (PBI), constitute an exempt benefit under section 57A of the FBTAA? | A4: Yes.

Relevant facts and circumstances: The Employer is a not-for-profit organisation that is registered as a charity (a Public Benevolent Institution) with the Australian Charities and Not-for-profits Commission. The Employer has been endorsed by the Commissioner as a Public Benevolent Institution to access tax concessions - being the income tax exemption and fringe benefits tax exemption. The Employer is dedicated to community betterment through various charitable activities. To finance their initiatives, the employer organises weekly fundraising events. Individuals are employed on a casual basis for these events. Their roles encompass a range of tasks - including collection and event coordination. The employer provides a complimentary breakfast (no alcohol) to their casual employees before each fundraising event, usually at a food outlet, which is in close proximity to the fundraising location. It is mandatory for casual employees to attend the designated meeting location. Casual employees commence their workday upon attendance at the meeting location. Participation in the breakfast itself is not mandatory. Casual employees choosing to partake in the breakfast can select from the menu, up to a value of $XX each. There is no limitation on the menu items a casual employee can select. The breakfasts are paid for using the corporate credit card. Employees do not use a card that they have salary sacrificed amounts to for the breakfasts. The Employer contends that the breakfast is for refreshment and nourishment to boost morale and energise casual employees. The employer asserts that the provision of breakfast is a strategic decision to attract, retain, and motivate casual employees who assist with the fundraising events. The Employer contends that the food outlet serves as a temporary workspace where essential paperwork and preparatory discussions are conducted before the conduct of the fundraising activities.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 32 | Income Tax Assessment Act 1997 section 32-5 | Income Tax Assessment Act 1997 section 32-10 | Fringe Benefits Tax Assessment Act 1986 Division 9 | Fringe Benefits Tax Assessment Act 1986 section 5B(1L) | Fringe Benefits Tax Assessment Act 1986 section 5E(3)(a) | Fringe Benefits Tax Assessment Act 1986 section 20 | Fringe Benefits Tax Assessment Act 1986 section 37AA | Fringe Benefits Tax Assessment Act 1986 section 37AD | Fringe Benefits Tax Assessment Act 1986 section 40 | Fringe Benefits Tax Assessment Act 1986 section 41 | Fringe Benefits Tax Assessment Act 1986 section 57A | Fringe Benefits Tax Assessment Act 1986 section 58P | Fringe Benefits Tax Assessment Act 1986 section 123C | Fringe Benefits Tax Assessment Act 1986 section 136

Reasons for decision: Summary: The provision of breakfast to casual employees at establishment A (or a similar food outlet) by the Employer is not considered to be 'entertainment by way of food or drink' for the purposes of the definition of 'entertainment' in section 32-10 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: 'Entertainment' is defined in subsection 32-10(1) of the ITAA 1997 as being entertainment by way of food or drink or recreation, or accommodation or travel to do with providing that entertainment. Subsection 32-10(2) of the ITAA 1997 provides that if business discussions or transactions occur during entertainment events, the events are still considered to be entertainment. As provided in paragraph 6 of Taxation Ruling TR 97/17 Income tax and fringe benefits tax: entertainment by way of food or drink (TR 97/17), the definition of 'entertainment' in section 32-10 of the ITAA 1997 (and as adopted in the meaning of that term in subsection 136(1) of the FBTAA) does not prescribe that entertainment occurs every time food or drink is provided. Some examples of entertainment are provided in section 32-10 of the ITAA 1997, such as business lunches and staff social functions. In these examples, the provision of food or drink confers entertainment on the recipient. TR 97/17 provides guidance on the concept of what is 'entertainment' as it relates to the provision of food or drink for the purposes of applying the relevant provisions of the FBTAA and the ITAA 1997.Paragraph 7 of the TR 97/17 states the following: 7. In order to determine when the provision of food or drink to a recipient results in the entertainment of that person, an objective analysis of all the circumstances surrounding the provision of the food or drink is required. In making this determination an employer should consider: • why the food or drink is being provided; • what type of food or drink is being provided; • when that food or drink is being provided; and • where the food or drink is being provided. Food or drink which is determined by these criteria to constitute entertainment is taken to be 'meal entertainment'. Paragraph 23 of TR 97/17 provides further details on the above four factors that should be considered when undertaking an objective analysis of the criteria. Paragraph 24 of TR 97/17 indicates that no one factor in paragraph 23 will be determinative by itself. However, paragraphs (a) and (b) are considered more significant. The application of the above factors results in a determination of whether the food or drink constitutes meal entertainment. Paragraph 18 of TR 97/17 takes the view that the mere provision of food or drink in any circumstance does not necessarily constitute 'entertainment'. An element of entertainment is required before the provision of food or drink becomes meal entertainment. However, it was noted that, in most cases, the mere provision of food or drink will satisfy the 'entertainment' test. It is only in a narrow category of cases where the mere provision of food or drink does not amount to 'entertainment' for the purposes of Division 32 of the ITAA 1997. Paragraphs 19 and 20 of TR 97/17 contrasts the consideration of providing light meals with non-deductible entertainment expenses as follows: 19. We have expressed this view previously, for example, in Taxation Ruling IT 2675. That Ruling considers that the provision of morning and afternoon tea to employees (and associates of employees) on a working day, either on the employer's premises or at a worksite of the employer, is not entertainment. The provision of light meals (finger food, etc.), for example in the context of providing a working lunch, is not considered to be entertainment. The provision of food or drink in these circumstances does not confer entertainment on the recipient. 20. The provision of light meals can be contrasted with the examples of non-deductible entertainment given in the explanatory memorandum to Taxation Laws Amendment Bill (No 4) 1985, i.e., business lunches and drinks, dinners, cocktail parties and staff social functions. In these examples the provision of the food or drink confers entertainment on the recipient. The wording of section 32-10 of the ITAA shows a clear intention to treat food or drink consumed in these situations as entertainment, whether or not business discussions or business transactions occur at the same time. In considering whether the Employer's provision of food and drink constitutes entertainment, it is necessary for an objective analysis of all the circumstances against factors provided in paragraphs 7 and 23 of TR 97/17. a) Why is the food and drink being provided? TR 97/17 describes this test as a 'purpose test'. For example, food or drink provided for the purposes of refreshment 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. In the current circumstances, the Employer contends that the breakfast is for refreshment and nourishment to boost morale and energise casual employees that choose to partake in the breakfast. The Commissioner accepts that food and drink consumed by the casual employees may take the nature of providing sustenance to the casual employees. The Employer further asserts that the provision of breakfast is a strategic decision to attract, retain, and motivate casual employees who assist with the fundraising events. This indicates the breakfasts may offer pleasure or advantage to casual employees in an endeavour to retain their services. However, on balance the Commissioner does not consider the purpose of providing the breakfasts to have the character of entertainment as the food and drink is not provided in a social situation for the casual employees to enjoy themselves. This is because of the element of the preparatory discussions for the casual employees for the fundraising activities. b) What type of food and drink is provided? Morning and afternoon teas and light meals are generally not considered to constitute 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 greater the likelihood that entertainment arises from the consumption of the meal. Therefore, the meals take on more of the characteristics of entertainment. Similarly, paragraph 16 of Taxation Ruling IT 2675: Income tax and fringe benefits tax: entertainment - morning and afternoon teas; light meals; and in-house dining facilities (IT 2675) provides the following: 16. The provision of biscuits and drinks such as tea, coffee, soft drinks and fruit juices to employees or their associates on a working day for morning or afternoon tea cannot be said to provide amusement or even to be an agreeable occupation. It is merely the provision of refreshments to enable the employees or associates to complete the working day in comfort. The same may be said of light meals provided by a taxpayer to employees or their associates on a working day. However, there is no definite guideline as to when a light meal becomes more elaborate as expressed in paragraph 7 of IT 2675: 7. Light meals are treated in the same way as morning and afternoon tea. It is not the provision of entertainment to provide sandwiches and other 'hand food', salads, orange juice, etc...that are intended to, and can, be consumed on the taxpayer's premises or worksite. As 'light' meals become more elaborate, they take on more of the characteristics of entertainment. There is no particular point at which this will become obvious. Normal business practice will be the yardstick. In the current circumstances, the food and drink that is provided to casual employees prior to the fundraising activities consists of items chosen by a causal employee from the outlet's menu range to the value of $XX. The Commissioner considers that the above food and drink that is generally provided at the breakfasts before fundraising events constitute 'light meals' and thus do not take on the characteristics of entertainment. 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 have the character of 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 upon whether the entertainment of the recipient is the expected outcome of the provision of the food or drink. In the current circumstances, the Employer advises that the casual employees commence their working day upon their mandatory attendance at the meeting location prior to the fundraising activities. This indicates the breakfasts provided by the Employer occur during work time. The Commissioner does not consider in this instance that entertainment is the expected outcome of the provision of the food and drink to the casual employees albeit the Employer has asserted the breakfasts are a mechanism to attract and retain casual employees for fundraising activities. The breakfasts do not have the character of entertainment as it is mandatory for the casual employees to attend the meeting location as their employment duties for the day commence at that location. The provision of the food and drink cannot be said to entice the attendance of the casual employees. d) Where is the food or drink provided? Food or drink provided on an 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 is more likely to have the character of entertainment. The breakfasts are provided to casual employees, usually, at various establishment A outlets. The particular outlet chosen is in close proximity to the primary fundraising location for the given day. The Employer contends that each outlet serves as a temporary workspace where essential paperwork and preparatory discussions are conducted. It is therefore necessary to consider if each outlet would constitute business premises of the Employer. | Detailed Reasoning - Business Premises: Business premises is defined in subsection 136(1) of the FBTAA as follows. Business premises, in relation to a person means premises, or a 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 a part of premises, used as a place of residence of an employee of the person or an employee of an associate of the person; (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. Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises' further explains what is meant by business premises for the purposes of the FBTAA. The Ruling states the following. 11. Given that each case turns on its own facts, there is no absolute or conclusive test of whether particular premises are 'business premises' of a person. However, in order to determine whether premises are 'business premises', i.e., they satisfy the respective requirements of 'premises of the person (the employer)' and 'used... for the purposes of business operations of the person (the employer)', an objective analysis of all the circumstances is necessary. 12. In making this analysis, an employer should carefully weigh all relevant matters, including the following factors that are especially relevant to determining whether each of the two requirements has been met: (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. Importantly, each factor should be considered in relation to each of the two requirements. Further, the factors must be considered in combination and as a whole, together with all relevant matters. 13. Having regard to the above, where a person is carrying on 'business operations' on premises, the premises are their 'business premises' where in form and substance the person bears the rights and risks of possession of the premises associated with the conduct of the 'business operations. The Ruling further explains what is meant by control over the premises as follows. 48. The employer must have a right of possession and control over the use of the premises during the course of its business operations. The absence of a right of possession and control may indicate the premises are not 'of the person', or the activities being carried out on the premises are not truly 'business operations' of the person. 49. In most situations where premises are owned or held under a normal commercial lease, both possession and control exist. Conversely, for example, the ad hoc hire of squash courts by an employer does not make the squash courts 'business premises' of the employer. This is because any rights the employer has are subject to the overriding control of the operator. In a practical sense, the premises are not those of the employer. In this case, the various establishment A outlets (or other similar food outlet) where the breakfasts are provided are not considered to be 'business premises' as the Employer does not bear the rights and risks of possession of the premises associated with the conduct of business operations. Note - The exception that other premises will be business premises such that food and drink provided to employees on these premises will be exempt benefits does not apply in the circumstances of the Employer. Paragraph 1.44 of the Explanatory Memorandum to the Taxation Laws Amendment (FBT Cost of Compliance) Act 1995 provides these other premises must be either: • used by employers who carry on the business of providing entertainment, e.g., a restaurant owner might hold a staff party in the restaurant, or • not used primarily for entertainment purposes, e.g., an airline's plane on which meals were served to employees. The Employer does not carry on a business of providing entertainment and the establishment A (or other similar food outlets) locations are used primarily for entertainment purposes by the operators of the establishments. Conclusion The Commissioner considers that, on the basis of the below factors, the provision by the Employer of the food and drink to casual employees does not amount to entertainment: • the food and drink provided have the primary purpose / nature of providing sustenance, and • the food and drink that is generally provided at the breakfasts constitute 'light meals' and thus do not take on the characteristics of entertainment. | Detailed Reasoning - Question 2: Is the provision of breakfast to casual employees by the Employer a 'tax-exempt body entertainment benefit' under section 38 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | Summary: The provision of the breakfasts by the Employer to casual employees is not considered to constitute tax-exempt body entertainment benefits under section 38 of the FBTAA. | Detailed Reasoning - Detailed reasoning: Section 38 of the FBTAA defines a 'tax-exempt body entertainment benefit' as: 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 fringe benefit' will arise when the following conditions are satisfied: • the employer incurs a non-deductible exempt entertainment expenditure • the benefit is wholly or partly 'in respect of the employment of the employee', and • the benefits constitutes the provision of 'entertainment'. | Detailed Reasoning - Condition 1: 'Non-deductible exempt entertainment expenditure': 'Non-deductible exempt entertainment expenditure' is defined under subsection 136(1) of the FBTAA as 'non-deductible entertainment expenditure to the extent to which it is not incurred in producing assessable income.' Subsection 136(1) of the FBTAA defines 'non-deductible entertainment expenditure'asa loss or outgoing to the extent to which: (a) section 32-5 of the ITAA 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 the ITAA 1997, or would be if it were incurred in producing assessable income; (on the assumption that section 32-20 of the ITAA 1997 had not been enacted). Section 32-5 of the ITAA 1997 provides that there is no deduction under section 8-1 of the ITAA 1997 for entertainment expenses. However, there are a number of exceptions to section 32-5 of the ITAA 1997, which are set out in Subdivision 32-B of the ITAA 1997. These are summarised in Chapter 14.15 of the ATO's publication entitled Fringe benefits tax - a guide for employer s. The Commissioner has determined that the breakfasts do not fall within the exceptions in Subdivision 32-B of the ITAA 1997, and thus an entertainment expense provided by the Employer would not be deductible for income tax purposes. Condition 1 is therefore satisfied. | Detailed Reasoning - Condition 2: The benefit is wholly or partly in respect of the employment of the employee: The breakfasts are only open to persons employed by the Employer. Persons that attend, and are provided with food and drink, are involved in the fundraising activities to be conducted on that day. Persons that attend the breakfasts do so in their capacity as employees. The benefit of the breakfasts is therefore provided to employees in respect of their employment with the Employer. Condition 2 is therefore satisfied. | Detailed Reasoning - Condition 3: The benefit constitutes the provision of entertainment: As addressed in Question 1, the Commissioner considers that the food and drink provided at the breakfasts does not constitute the provision of entertainment. Condition 3 is therefore not satisfied. It is therefore considered that the provision of the breakfasts by the Employer to casual employees does not constitute tax-exempt body entertainment benefits under section 38 of the FBTAA. | Detailed Reasoning - Question 3: If the answer to Question 2 is 'No', would the benefit constitute a 'property benefit' under section 40 of the FBTAA? | Summary: The provision of breakfast to casual employees by the Employer constitutes a 'property benefit' under section 40 of the FBTAA. | Detailed Reasoning - Property Benefit: A property benefit is defined in subsection 136(1) of the FBTAA to include a benefit as defined in section 40 of the FBTAA. Property is defined in subsection 136(1) of the FBTAA to include tangible property, which is then defined to mean goods. Under section 40 of the FBTAA, where a person provides property to another person, the provision of the property will constitute a benefit. Section 40 of the FBTAA states: Where, at a particular time, a person (in this section referred to as the ' provider ') provides property to another person (in this section referred to as the ' recipient '), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time. In the current circumstances, the Employer uses their corporate credit card to purchase the food and drink to provide to the casual employees. Therefore, when the Employer provides casual employees with the breakfasts at establishment A (or other similar food outlets), a property benefit may arise. The only other type of benefit that could potentially arise would be a 'meal entertainment benefit' as defined in section 37AC of the FBTAA, where an employer can make an election under section 37AA of the FBTAA to treat the provision of meal entertainment as a 'meal entertainment benefit' under Division 9A of the FBTAA. As explained in the response to Question 1, the provision of the breakfasts to casual employees at establishment A (or other similar food outlets) in the Employer's circumstances are not considered 'entertainment' and, as such, the benefit could not constitute a 'meal entertainment benefit'. Hence, the provision of breakfast to casual employees would be considered 'property benefits' as defined in section 40 of the FBTAA. | Detailed Reasoning - Property Benefit Exemption: A 'property fringe benefit' as defined in subsection 136(1) of the FBTAA means a fringe benefit that is a property benefit. A fringe benefit as defined in subsection 136(1) of the FBTAA does not include benefits that are exempt benefits. An exempt property benefit is described in section 41 of the FBTAA as follows: 41(1) Where: (a) a property benefit is provided to a current employee of an employer in respect of his or her employment; and (b) the property is provided to, and consumed by, the employee on a working day and on business premises of: (i) the employer; or (ii) if the employer is a company, of the employer or of a company that is related to the employer; the benefit is an exempt benefit. 41(2) This section does not apply to food or drink provided to, and consumed by, an employee if the food or drink is provided under a salary packaging arrangement. As addressed in the response to Question 1, the various establishment A (or similar food outlets) where breakfast is provided to casual employees are not considered to be 'business premises' of the Employer. This is because he Employer does not bear the rights and risks of possession of the premises associated with the conduct of business operations. The property benefit exemption therefore does not apply to The Employer. | Detailed Reasoning - Question 4: Would the provision of breakfast to casual employees by the Employer, a registered and endorsed Public Benevolent Institution (PBI), constitute an exempt benefit under section 57A of the FBTAA? | Summary: As the Employer is a PBI, the provision of breakfast to casual employees would constitute an exempt benefit under section 57A of the FBTAA. | Detailed Reasoning - Not-for-Profit Endorsed FBT Exemption - Capped Threshold: Employers covered under section 57A of the FBTAA are exempt from FBT where the total grossed-up value of all benefits provided to each employee during the FBT year is equal to, or less than, the capping threshold. For a registered PBI (that is endorsed by the Commissioner under section 123C of the FBTAA), the standard threshold is $30,000. Therefore, as the Employer is a registered PBI that is endorsed by the Commissioner, they are entitled to the capping threshold of $30,000. That is, if the total grossed-up value of fringe benefits provided to employees is more than that capping threshold, the Employer will need to pay FBT on the excess. However, a benefit arising from the provision of meal entertainment under section 37AD of the FBTAA that has not been salary packaged is excluded from reporting for all employees under paragraph 5E(3)(a) of the FBTAA. This type of benefit is also excluded from the capping threshold by virtue of subsection 5B(1L) of the FBTAA whether or not the employer has made an election under section 37AA of the FBTAA. As the breakfast provided by the Employer to casual employees do not constitute the provision of meal entertainment as defined in section 37AD of the FBTAA, but rather property benefits under section 40 of the FBTAA, they will be included when determining if the grossed-up amount of benefits received by an employee exceeds capping threshold of $30,000. If the total grossed-up value of all fringe benefits provided to an employee that receives the breakfast each year is less than that threshold, the Employer would not be required to pay FBT.