Private ruling: Meal Entertainment Fringe Benefits
Published: February 2014
Ruling period: Year ended 31 March 2013 | Year ended 31 March 2014

Ruling: Q1: Does the term 'expenses incurred' for the purposes of section 37BA of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) mean outgoings net of recoveries? | A1: No | Q2: Does the term 'expenses incurred' for the purposes of section 37BA of the FBTAA 1986 mean outgoings net of recoveries, if outgoings and recoveries relating to an event are booked to a suspense or clearing account and only the net outgoing is subsequently transferred to the appropriate expense account? | A2: Invalid

Relevant facts and circumstances: The employer is a tax exempt body. The employer organises social events and incurs costs. Some of these costs are recovered. The employer provides the attendees with entertainment by way of food and drink. No recreational entertainment is provided. The employer elected to use the 50/50 split method to calculate the taxable value of meal entertainment fringe benefits for the 2013 FBT year.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 - section 37BA Question 1

Reasons for decision: Detailed Reasoning - Reasons for decision: Taxpayers can apply for a private ruling to determine the Commissioner of Taxation's view on how the tax law applies. The application must relate to a tax law. The Commissioner cannot make a private ruling on procedural or administrative issues of a taxpayer. Whether the taxable value of meal entertainment fringe benefits for the purposes of section 37BA of the FBTAA 1986 is posted to a suspense or clearing account or the appropriate expense account is considered to be an administrative and/or accounting matter with respect to an employer and as such the Commissioner cannot rule on this part of the ruling.

Division 10 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) contains the provisions concerning tax-exempt body entertainment benefits. | The employer has elected under section 37AA of Subdivision A of Division 9A of the FBTAA 1986 to value all its meal entertainment benefits for the FBT year ended 31 March 2013 using the 50/50 split method under section 37BA of the FBTAA 1986. | It should be noted that after an election has been made in a particular FBT year, the tax-exempt body entertainment fringe benefit cannot be used for the provision of meal entertainment, but can reflect entertainment by way of recreation. | The issue that needs to be addressed is to determine the meaning of 'expenses incurred' by the employer in providing meal entertainment for the FBT year for the purposes of section 37BA of the FBTAA 1986. That is, whether or not it is net of recoveries. | It is accepted that the FBT legislation does not define the term 'expenses incurred'. However, an analysis of Division 9A of the FBTAA 1986 would assist in understanding the general intent of the Division. | The 50/50 split method in Division 9A of the FBTAA 1986 offers employers a relatively simple method to apply if they elect to use this method. However, it is an arbitrary method introduced as a cost of compliance measure. The note attached to section 37BA specifically provides that the calculation under the 50/50 method is to include all of the meal entertainment expenses incurred by the employer, regardless of whether a fringe benefit arises from the expenditure. It includes meal entertainment expenditure provided to 'all' persons, that is, it includes persons who are not employees or associates of employees and therefore, not normally subject to FBT. | There is no provision in the FBT legislation to reduce the expenses or expenditure incurred in relation to meal entertainment benefits except for: | · section 37AB of the FBTAA 1986 which allows for unreimbursed contributions from an employee or an associate of an employee to be excluded from the expenses or expenditure incurred in relation to meal entertainment benefits, and | · the provision itself, section 37AB of the FBTAA 1986 which allows for the total taxable value to be 50% of the expenses incurred by the employer in providing meal entertainment for the FBT year. | Further 'netting off' the expenditure is not provided for under Division 9A of the FBTAA 1986. | Consequently, the calculation of the taxable value of meal entertainment benefits for the purposes of the 50/50 split method under section 37BA of the FBTAA 1986 will be 50% of the total expenses incurred by the employer in providing meal entertainment for the FBT year and not the gross amount net of recoveries.